<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
AETNA LIFE AND CASUALTY COMPANY
(Name of Registrant as Specified in Its Charter)
AETNA LIFE AND CASUALTY COMPANY
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
1994 AETNA PROXY STATEMENT
NOTICE OF ANNUAL MEETING
[LOGO]
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <S>
2 General Information
I. 2 Election of Directors
3 Nominees for Directorships
9 Compensation and Other
Information Regarding
Directors
10 Certain Transactions and
Relationships
10 Committees of the Board
12 Security Ownership of Certain
Beneficial Owners,
Directors, Nominees and
Executive Officers
15 Executive Compensation
15 Summary Compensation Table
17 Stock Option Grants Table
18 Stock Option Exercises and
December 31, 1993 Stock
Option Value Table
19 Pension Plan
19 Other Agreements
20 Report of the Committee on
Compensation and
Organization
23 Corporate Performance Graph
II. 24 Appointment of Auditors
III. 24 Proposal to Approve the 1994
Stock Incentive Plan
IV. 30 Proposal to Approve the 1994
Non-Employee Director
Deferred Stock Plan
32 Other Information and 1995
Shareholder Proposals
32 Annual Report
A-1 Exhibit A -- Aetna Life and
Casualty Company 1994 Stock
Incentive Plan
B-1 Exhibit B -- Aetna Life and
Casualty Company 1994
Non-Employee Director
Deferred Stock Plan
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
[Logo] AETNA LIFE AND CASUALTY RONALD E. COMPTON
COMPANY Chairman
151 Farmington Avenue
Hartford, Connecticut 06156
</TABLE>
To Our Shareholders:
The 1994 Annual Meeting of Shareholders will be held on Friday, April 29, 1994
at 10:30 a.m. at our Corporate Headquarters in Hartford, Connecticut, and I hope
you will attend.
The matters expected to be acted on at the meeting are described in detail in
the attached Notice of Annual Meeting of Shareholders and Proxy Statement. In
addition to specific agenda items, we will discuss generally the operations of
Aetna. We welcome any questions you have concerning Aetna and will provide time
during the meeting for questions from shareholders.
If you are unable to attend the Annual Meeting, it is still important that your
shares be represented. Please sign and date the enclosed Proxy Card and return
it as soon as possible in the envelope provided.
/s/ RONALD E. COMPTON
Ronald E. Compton
Chairman
March 18, 1994
<PAGE> 5
<TABLE>
<S> <C> <C>
[Logo] AETNA LIFE AND CASUALTY JEAN M. WAGGETT
COMPANY Vice President and
151 Farmington Avenue Corporate
Hartford, Connecticut 06156 Secretary
</TABLE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of Aetna Life
and Casualty Company will be held at the Corporate Headquarters of the Company,
151 Farmington Avenue, Hartford, Connecticut, on Friday, April 29, 1994 at 10:30
a.m. for the following purposes:
1. To elect a Board of Directors for the coming year;
2. To approve the appointment of KPMG Peat Marwick as independent auditors for
the current calendar year;
3. To act on a proposal to approve the 1994 Stock Incentive Plan;
4. To act on a proposal to approve the 1994 Non-Employee Director Deferred Stock
Plan; and
5. To transact any other business that may properly come before the meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on February 25, 1994 as
the record date for determination of the shareholders entitled to vote at the
meeting or any adjournment thereof.
It is important that your shares be represented at the meeting. Please sign,
date and return the enclosed Proxy Card as soon as possible in the envelope
provided. Shareholders who attend the meeting may revoke their proxies and vote
in person.
By order of the Board of Directors,
/s/ JEAN M. WAGGETT
Jean M. Waggett
Vice President and Corporate Secretary
March 18, 1994
<PAGE> 6
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of Proxies
by the Board of Directors of Aetna Life and Casualty Company (the Company) for
the Annual Meeting of Shareholders to be held at the Company's Corporate
Headquarters on April 29, 1994. The Proxy Statement and the enclosed Proxy Card
are being mailed to shareholders on or about March 18, 1994. The term "Aetna
Life & Casualty" refers collectively to the Company and three of its principal
subsidiaries, Aetna Life Insurance Company, The Aetna Casualty and Surety
Company and The Standard Fire Insurance Company.
Shareholders of record of the Company's Common Capital Stock without par
value (Common Stock) at the close of business on February 25, 1994 will be
entitled to vote at the meeting. On that date, 112,496,019 shares of Common
Stock were outstanding. Each such share is entitled to one vote.
At this time, the Directors are not aware of any matters that may be
properly presented for consideration at the Annual Meeting, other than those
outlined in the Notice of the meeting. If other matters are properly presented
for consideration, the persons named on the Proxy will vote on those matters
according to their best judgment.
The giving of a Proxy does not affect a shareholder's right to vote in
person at the meeting since the Proxy may be revoked at any time before it is
voted. A properly executed Proxy that is not revoked will be voted according to
the instructions on the Proxy. If no instruction is given for any matter to be
voted upon, the shares represented by the Proxy will be voted on that matter in
the manner described on the following pages.
Any full shares held for you under the Company's Dividend Reinvestment and
Stock Purchase Plan have been included in the shares shown on the enclosed
Proxy. Fractional interests in shares cannot be voted under Connecticut law.
Votes are counted by tellers of the Company's Transfer Agent. These tellers
will canvass the shareholders present in person at the Annual Meeting, count
their votes and count the votes represented by proxies presented. Abstentions
and broker nonvotes are counted for purposes of determining the number of shares
represented at the meeting, but are deemed not to have voted on the proposal.
Broker nonvotes occur when a broker nominee (which has voted on one or more
matters at the meeting) does not vote on one or more other matters at the
meeting because it has not received instructions to so vote from the beneficial
owner and does not have discretionary authority to so vote.
I. ELECTION OF DIRECTORS
Nominations will be made at the Annual Meeting for 11 directorships. However, in
the event any Nominee becomes unavailable for election, the Board of Directors
will reduce the number of directorships prior to the meeting. The terms of
office for all elected Directors will run until the next Annual Meeting and
until their successors are duly elected and qualified. Unless directed to the
contrary, the shares represented by the enclosed Proxy will be voted FOR the
election of the 11 Nominees listed on the following pages (the Nominees). With
the exception of Earl G. Graves and Gerald Greenwald, each Nominee was elected
by the shareholders at the 1993 Annual Meeting. If the number of directorships
is reduced as provided above, the shares represented by the enclosed Proxy will
be voted for the election of the remaining Nominees.
To be elected a Director, a Nominee must receive the affirmative vote of a
majority of the shares represented at the meeting which are entitled to vote. Of
the Nominees who receive such votes, the 11 individuals (or lesser number equal
to the number of remaining directorships if the Board has decreased the number
of directorships as provided above) receiving the greatest number of votes will
be elected Directors.
All Nominees are currently Directors of the Company and, except for Mr.
Donahue, also are Directors of Aetna Life Insurance Company, The Aetna Casualty
and Surety Company and The Standard Fire Insurance Company (wholly-owned
subsidiaries of the Company).
The following pages list the names and ages of the Nominees as of the date
of the Annual Meeting, the year each first became a Director of the Company, the
principal occupation and principal business directorships of each as of February
25, 1994, a brief description of the business experience of each for at least
the last five years, and the Board Committees of which such Nominee is a member.
2
<PAGE> 7
NOMINEES FOR DIRECTORSHIPS
- ---------------------------
[insert picture]
- ---------------------------
WALLACE BARNES, 68
(Director since 1971)
Mr. Barnes is Chairman of the Board of Barnes Group Inc. (manufacturer of
precision springs and aerospace components, and distributor of repair and
maintenance consumables). He retired as Chairman and Chief Executive Officer of
Barnes Group in 1991, having held various senior executive positions with that
company since 1960. Mr. Barnes also is Chairman of the Board of Tradewind
Turbines, Inc. (modifier and converter of aircraft to turbine power and used
aircraft dealer), and a director of Loctite Corporation (specialty chemicals),
Rogers Corporation (polymer chemistry and process technology for engineering
materials and components) and Rohr, Inc. (aircraft parts and equipment). Mr.
Barnes is Chairman of the Committee on Corporate Public Involvement and a member
of the Committee on Compensation and Organization and the Executive Committee.
- ---------------------------
[insert picture]
- ---------------------------
RONALD E. COMPTON, 61
(Director since 1988)
Mr. Compton is Chairman, President and chief executive officer of Aetna Life &
Casualty. Since joining Aetna in 1954, Mr. Compton has held various positions of
increasing responsibility. He served as Senior Vice President from March 1987 to
November 1987 when he was named Executive Vice President. Mr. Compton became
President on July 1, 1988 and assumed the additional position of Chairman and
chief executive officer on March 1, 1992. Mr. Compton is Chairman of the
Executive Committee, the Finance Committee and the Investment Committee, and a
member of the Committee on Corporate Public Involvement.
3
<PAGE> 8
- ---------------------------
[insert picture]
- ---------------------------
JOHN F. DONAHUE, 69
(Director since 1987)
Mr. Donahue is Chairman and Chief Executive Officer and a Trustee of Federated
Investors (markets, administers and advises investment companies). He also is a
director, trustee or managing general partner and chief executive officer of the
investment companies advised or marketed by Federated's subsidiaries or
affiliates. Federated Investors, Inc., which Mr. Donahue co-founded in 1955, was
acquired by the Company in 1982 and was sold in 1989 to a new company (Federated
Investors) operated and primarily owned by members of Federated management and
in which the Company owns preferred stock convertible into approximately 26.5%
(dilutive to 24.5%) of Federated's common stock. Mr. Donahue is a member of the
Committee on Directors and the Investment Committee.
- ---------------------------
[insert picture]
- ---------------------------
WILLIAM H. DONALDSON, 62
(Director since 1977)
Mr. Donaldson is Chairman and Chief Executive Officer and a director of the New
York Stock Exchange, Inc. From 1980 through 1990, he was Chairman and Chief
Executive Officer of Donaldson Enterprises Incorporated (private investing
firm). Mr. Donaldson is a director of Honeywell Inc. (electronic automation and
control systems) and Philip Morris Companies Inc. (consumer products). A former
Dean of the Yale Graduate School of Management, he also served as U.S. Under
Secretary of State and Counsel to the Vice President of the United States. Mr.
Donaldson is a co-founder and former chief executive of the investment banking
firm of Donaldson, Lufkin & Jenrette, Inc. and the investment management firm,
Alliance Capital Management Corp. Mr. Donaldson is Chairman of the Committee on
Directors and a member of the Executive Committee, the Finance Committee and the
Investment Committee.
4
<PAGE> 9
- ---------------------------
[insert picture]
- ---------------------------
BARBARA HACKMAN FRANKLIN, 54
(Director from 1979 to 1992, and since 1993)
Miss Franklin served as U.S. Secretary of Commerce from 1992 to 1993. Before her
appointment, she was President and Chief Executive Officer of Franklin
Associates (Washington-based management consultants), a firm she founded in
1985. Miss Franklin had also served: four terms on the Advisory Committee for
Trade Policy and Negotiations; as Alternate Representative to the 44th Session
of the United Nations General Assembly; as a public member of the Board of the
American Institute of Certified Public Accountants and the Board of the Auditing
Standards Board Planning Committee; and as an advisor to the Comptroller General
of the United States. From 1979 to 1989, she was Senior Fellow of The Wharton
School of the University of Pennsylvania and, from 1980 to 1988, was the
Director of the Wharton Government and Business Program. Miss Franklin also is a
director of AMP Incorporated (electrical and electronic connection devices) and
The Dow Chemical Company (chemicals and chemical products). Miss Franklin is
Chairman of the Audit Committee and a member of the Committee on Directors and
the Finance Committee.
- ---------------------------
[insert picture]
- ---------------------------
EARL G. GRAVES, 59
(Director since 1994)
Mr. Graves is Chairman and Chief Executive Officer of Earl G. Graves, Ltd.
(publishing and related business communications activities), which he founded in
1970, and is the Publisher of Black Enterprise magazine. Additionally, Mr.
Graves serves as Chairman and Chief Executive Officer of Pepsi-Cola of
Washington, D.C., L.P. (a PepsiCo bottling franchise). Mr. Graves also is a
director of Chrysler Corporation (automotive manufacturer) and Rohm and Haas
Corporation (specialty chemicals and plastics), and is a trustee of Howard
University and the American Museum of Natural History and Planetarium. Mr.
Graves currently serves as the Vice President-Relationships/Marketing and is on
the Executive Board of the National Office of the Boy Scouts of America. Mr.
Graves is a member of the Audit Committee, the Committee on Corporate Public
Involvement and the Investment Committee.
5
<PAGE> 10
- ---------------------------
[insert picture]
- ---------------------------
GERALD GREENWALD, 58
(Director since 1993)
In May 1993, Mr. Greenwald became Chairman and Managing Director of Tatra
(producer of trucks in the Czech Republic). He also is a principal in Greenwald
& Freeman (private investing firm), co-founded by Mr. Greenwald in 1993. From
1979 to 1990, Mr. Greenwald held various executive positions with Chrysler
Corporation (automotive manufacturer), serving as Vice Chairman of the Board
from 1988 to May 1990 and as Chairman of Chrysler Motors from 1985 to 1988. In
1990, Mr. Greenwald served as Chief Executive Officer of the United Employee
Acquisition Corporation (a company representing employees of United Airlines
(UAL) and formed to purchase UAL). From 1991 to 1992, he was a Managing Director
of Dillon, Read & Co. (investment banking) and, from 1992 to 1993, he was
President and Deputy Chief Executive Officer of Olympia & York Developments Ltd.
(Canadian real estate company). Mr. Greenwald also is a director of Honeywell
Inc. (electronic automation and control systems) and Reynolds Metals Company
(aluminum and consumer products), and is a Trustee of Princeton University. Mr.
Greenwald is a member of the Audit Committee.
- ---------------------------
[insert picture]
- ---------------------------
MICHAEL H. JORDAN, 57
(Director since 1992)
In June 1993, Mr. Jordan became Chairman and Chief Executive Officer of
Westinghouse Electric Corporation (diversified global technology-based
corporation). Prior to joining Westinghouse, Mr. Jordan was a principal in
Clayton, Dubilier & Rice, Inc. (private investing firm) from 1992 to 1993. Mr.
Jordan held various positions with PepsiCo, Inc. (beverages, snack foods and
restaurants) from 1974 to 1992, retiring as Chairman and Chief Executive Officer
of the PepsiCo International Foods and Beverages Division in July 1992. Mr.
Jordan also is a director of Dell Computer Corporation (personal computers and
related services), Melville Corporation (specialty retailer), Rhone-Poulenc
Rorer Inc. (pharmaceuticals) and The Van Kampen Merritt Companies, Inc.
(financial and investment advisory services). Mr. Jordan is a member of the
Audit Committee, the Committee on Directors and the Finance Committee.
6
<PAGE> 11
- ---------------------------
[insert picture]
- ---------------------------
JACK D. KUEHLER, 61
(Director since 1990)
Mr. Kuehler retired in August 1993 as Vice Chairman and a director of
International Business Machines Corporation (information-handling systems,
equipment and services), having held various positions with IBM since joining
that company in 1958. Prior to his appointment as Vice Chairman of IBM in
January 1993, Mr. Kuehler served as President from 1989 to 1993, as Vice
Chairman from 1988 to 1989 and as Executive Vice President from 1987 to 1988.
Mr. Kuehler also is a director of Olin Corporation (chemical, metal and
defense-related products) and Taligent, Inc. (computer software products), and
is a member of the National Academy of Engineering, a Fellow of the Institute of
Electrical and Electronics Engineers, Inc. and a Fellow of the American Academy
of Arts and Sciences. Mr. Kuehler is a member of the Committee on Compensation
and Organization, the Committee on Directors and the Investment Committee.
- ---------------------------
[insert picture]
- ---------------------------
FRANK R. O'kEEFE, JR., 64
(Director since 1989)
Mr. O'Keefe is currently an independent business consultant. From 1988 to 1990,
he was President of Long Wharf Capital Partners, Inc. (business investments).
Mr. O'Keefe retired in 1988 as Chairman, President and Chief Executive Officer
of Armtek Corporation (producer of automotive materials, components and
systems), having held that position since 1986. Prior to that, he served as
President and Chief Operating Officer of Armstrong Rubber Company from 1980 to
1986. Mr. O'Keefe also is a director of Echlin, Inc. (automotive replacement
parts and equipment), Southern New England Telecommunications Corporation and
The United Illuminating Company. Mr. O'Keefe is Chairman of the Committee on
Compensation and Organization and a member of the Audit Committee and the
Committee on Corporate Public Involvement.
7
<PAGE> 12
- ---------------------------
[insert picture]
- ---------------------------
DAVID M. RODERICK, 69
(Director since 1975)
Mr. Roderick retired in 1989 as Chairman and Chief Executive Officer of USX
Corporation (producer of steel, chemicals, oil and other products), having held
various positions with that company since 1959. He continues to serve as a
director of USX Corporation and also is a director of Kelso & Company, Inc.
(private investing firm), Pittsburgh Associates-Pittsburgh Baseball Club and The
Procter & Gamble Company (household and industrial products), and is a general
director of Texas Instruments, Incorporated (semiconductors, defense electronic
systems and other electronic products). Mr. Roderick is a member of the
Committee on Compensation and Organization, the Executive Committee and the
Finance Committee.
8
<PAGE> 13
COMPENSATION AND OTHER INFORMATION
REGARDING DIRECTORS
The Company pays a retainer fee of $25,000 a year to outside Directors for Board
membership. The Company also pays retainers to such Directors for Committee
membership on each of the following Committees: $4,000 for the Audit, Executive,
Finance, Investment, and Compensation and Organization Committees ($7,000 in the
case of the chairpersons of the Audit and Compensation and Organization
Committees); and $3,000 for the Committee on Corporate Public Involvement and
the Committee on Directors ($5,000 in the case of the chairpersons of such
Committees). In addition, the Company pays $1,000 to outside Directors for
attendance at each Board or Committee meeting. Mr. Compton receives no
additional compensation for membership on the Board or any of its Committees.
In 1990, the Company adopted the Non-Employee Director Deferred Stock Plan
pursuant to which outside Directors, upon their election to the Board, receive a
one-time grant of units convertible upon retirement from Board service into
1,500 shares of Common Stock. The right to receive such shares is conditioned
upon the Director completing three years of Board service after the grant. If,
however, service is sooner terminated by reason of death, disability or
acceptance of a position in government service, the Director is generally
entitled to receive the full grant. If a Director terminates Board service prior
to three years for any other reason, the Director will generally be entitled to
receive a prorated award. Although Directors receive dividend equivalents, they
have no voting rights with respect to the shares that are subject to the grant.
The units granted are not transferable. This plan will be replaced by the 1994
Non-Employee Director Deferred Stock Plan, if that plan is approved by
shareholders (see pages 30 to 31).
Under the optional Directors' Deferred Compensation Plan, outside Directors
may defer payment of some or all of their retainer and attendance fees,
including dividend equivalents received under the Non-Employee Director Deferred
Stock Plan, until after they have resigned or retired (as defined in each Plan)
from the Board. During the period of deferral, income on deferred amounts
accrues under a formula equal to the rate of interest paid from time to time
under the Company's Incentive Savings Plan (ISP) for employees (currently
yielding 6.75% a year).
The Company provides $150,000 of group life insurance for its outside
Directors. Optional medical and long-term care coverage for outside Directors
and their eligible dependents also is provided to such Directors at a cost
similar to that charged to Company employees.
The Company provides a nonqualified, unfunded pension plan for outside
Directors, which is administered by the Committee on Directors. Under the plan,
outside Directors who retire at age 60 or above with at least five years of
service receive an annual retirement benefit equal to the annual Board retainer
(currently $25,000) in effect at the time of the Director's retirement payable
for life or, on an actuarially reduced basis, for the joint lives of the
Director and the Director's spouse. Reduced retirement benefits are payable to
outside Directors with at least five years of service who retire between age 50
and age 60. At the discretion of the Committee on Directors, full retirement
benefits may be provided to an outside Director with at least
five years of service who resigns because of a disability and who is not
otherwise entitled to such benefits. Following retirement, benefits are subject
to cost-of-living adjustments of not more than 3% per year, but cannot be
reduced below the amount payable at the time of the Director's retirement. The
Committee on Directors has the discretion to adapt the plan's eligibility
requirements and benefits to meet any special circumstances.
In 1993, the Board held 12 meetings. Each incumbent Director attended 75%
or more of the aggregate meetings of the Board and the Committees on which he or
she served, except for Mr. Jordan who attended 72% of such meetings and Mr.
Greenwald who became a Director in September 1993.
The Company's Directors, executive officers and significant shareholders
are required to file certain reports concerning their beneficial ownership of
the Company's Common Stock with the Securities and Exchange Commission (SEC). A
report concerning one transaction relating to shares of Common Stock (the
beneficial ownership of which Mr. Donahue disclaims) held by a family member
residing in the same household as
9
<PAGE> 14
Mr. Donahue was not timely filed. A corrective filing was made.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
In the ordinary course of their investment operations, the Company and its
subsidiaries (the Companies) acquire, dispose of or continue to hold debt or
rely on the credit of other corporations (or their subsidiaries). Since January
1, 1993, such other corporations include International Business Machines
Corporation, of which Mr. Kuehler was an executive officer in 1993, and
Westinghouse Electric Corporation, of which Mr. Jordan was an executive officer
in 1993.
In the ordinary course of its operations, The Aetna Casualty and Surety
Company provided a surety bond in connection with the 1986 refinancing of
property owned by Oxford Development Company/Grant Street (Oxford Development).
Mr. Donahue and members of his family acquired in 1983 a limited partnership
interest in a partnership which in turn has an indirect beneficial interest in
Oxford Development. Neither Mr. Donahue nor members of his family were involved
in obtaining, or negotiating the terms of, the surety bond.
In all of the above cases the Board believes the transactions were made on
terms as favorable to the Companies as if made with any other person. It is
anticipated that the Companies will continue to engage in similar transactions.
Information has not been provided with respect to relationships and transactions
occurring during the period when an executive officer or Director of the Company
did not hold any such position.
Mr. Barnes, who became a Director of the Company in 1971, and Miss
Franklin, who first became a Director of the Company in 1979, were married in
1986.
COMMITTEES OF THE BOARD
The functions and responsibilities of the Committees of the Board are described
below.
- Audit Committee. Composed entirely of outside Directors, this Committee
met four times in 1993. The Committee recommends the independent auditors that
the full Board nominates for shareholder approval at the Annual Meeting, reviews
with the auditors the scope and results of the audit, reviews the Company's
financial statements and other financial disclosures, and monitors developments
in accounting principles and methods used in presenting financial results. The
Committee also consults with internal audit staff and discusses with management
the internal audit function, internal accounting control procedures and other
internal compliance programs. Miss Franklin (Chairman) and Messrs. Graves,
Greenwald, Jordan and O'Keefe are members of this Committee.
- Committee on Compensation and Organization. Composed entirely of outside
Directors, this Committee met 11 times in 1993. The Committee administers the
Company's Stock Option, 1986 Management Incentive and Performance Unit Plans,
and reviews and makes recommendations to the Board with respect to the
compensation of certain senior executives. The Committee also reviews the
Company's overall compensation policy and makes recommendations with respect
thereto. Periodically, the Committee reviews senior management succession plans
and related matters. Messrs. O'Keefe (Chairman), Barnes, Kuehler and Roderick
are members of this Committee.
- Committee on Corporate Public Involvement. This Committee met four times
in 1993. The Committee periodically reviews the manner in which the Company
meets its business responsibilities to employees, shareholders, customers,
agents and the public. It also reviews and recommends to the Board the Company's
annual philanthropic program. Messrs. Barnes (Chairman), Compton, Graves and
O'Keefe are members of this Committee.
- Committee on Directors. Composed entirely of outside Directors, this
Committee met six times in 1993. The Committee reviews all candidates for
membership on the Board and the Board Committees. It makes recommendations to
the full Board on Director nominees, on the structure and function of Board
Committees, and on Director compensation and retirement policy. It also reviews
conflicts of interest that may affect Directors, as well as questions of
corporate governance referred to it by the Board or the Company's Chairman.
In recommending Director nominees to the Board, this Committee solicits
candidate recommendations from its own members, other Directors of the Company
and management. Although the Committee does not specifically solicit suggestions
for possible candidates from shareholders, the Committee will consider
candidates meeting
the criteria described below. (Suggestions, to-
10
<PAGE> 15
gether with a description of the proposed nominee's qualifications, other
relevant biographical information and an indication of the willingness of the
proposed nominee to serve, should be sent to the Committee Chairman, in care of
the Corporate Secretary, Aetna Life and Casualty Company, 151 Farmington Avenue,
Hartford, Connecticut 06156.)
Candidates are selected on the basis of several guidelines designed to
determine the applicability of the candidate's experience to the business of the
Company and its affiliates, the absence of conflicts of interest, and the
ability of the candidate to attend meetings regularly and devote an appropriate
amount of time in preparation for those meetings. Messrs. Donaldson (Chairman)
and Donahue, Miss Franklin, and Messrs. Jordan and Kuehler are members of this
Committee.
- Executive Committee. This Committee met five times in 1993. The
Committee reviews quarterly and annual public announcements on earnings and
financial results. Additionally, the Committee is authorized to act on behalf of
the full Board between regular Board meetings, usually when timing is critical.
Messrs. Compton (Chairman), Barnes, Donaldson and Roderick are members of this
Committee.
- Finance Committee. This Committee was established in November 1993 and
held its first meeting in February 1994. The Committee will consider from time
to time, and make any appropriate recommendations to the Board concerning,
matters of corporate finance. Messrs. Compton (Chairman) and Donaldson, Miss
Franklin, and Messrs. Jordan and Roderick are members of this Committee.
- Investment Committee. This Committee, formerly named the Finance
Committee, met seven times in 1993. The Committee oversees the management of
Aetna Life & Casualty's investment program and grants authority to Company
personnel with respect to day-to-day management of its investment portfolios.
The senior management of Aetna Life & Casualty's investment operations presents
to the Committee current investment strategy and all investment transactions,
and the Committee additionally authorizes major or unusual investments. Messrs.
Compton (Chairman), Donahue, Donaldson, Graves and Kuehler are members of this
Committee.
11
<PAGE> 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table presents, as of December 31,
1993, the names of persons known to the
Company to be the beneficial owners of more
than 5% of the outstanding shares of its Common Stock.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Sanford C. Bernstein & Co., Inc. 7,549,415 shares(1) 6.7%
One State Street Plaza
New York, New York 10004
Wellington Management Company 7,018,089 shares(2) 6.3%
75 State Street
Boston, Massachusetts 02109
Mellon Bank Corporation 6,411,000 shares(3) 5.7%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Shawmut Bank Connecticut, N.A. 5,996,806 shares(4) 5.3%
777 Main Street
Hartford, Connecticut 06103
(Trustee of the Company's
Incentive Savings Plan)
- ---------------------------------------------------------------------------------------------
</TABLE>
The information set forth above and in the related notes has been furnished by
the respective persons.
(1) Sanford C. Bernstein & Co., Inc. reports that it has no voting power with
respect to 3,377,360 shares.
(2) Wellington Management Company reports that it shares investment power and
has no voting power with respect to these shares. Of these shares, 6,706,486
shares were held by Wellington Management Company as an investment adviser
for the Windsor Fund series of The Windsor Funds, Inc., a mutual fund, which
reports that it exercises sole voting power and shares investment power with
respect to all such shares.
(3) Held by Mellon Bank Corporation and its subsidiaries (Mellon) as to which
holdings Mellon reports that it shares voting power with respect to 222,000
shares, has no voting power with respect to 1,917,000 shares, and shares
investment power with respect to 1,590,000 shares.
(4) Represents shares held in the common stock account of the Company's ISP.
Shawmut Bank Connecticut, N.A., as Trustee, has agreed to vote all shares
held by it in accordance with the instructions received from ISP
participants. Shares as to which no directions are received are voted by the
Trustee in the same percentage as the shares as to which directions have
been received.
12
<PAGE> 17
The following table presents, as of March 2, 1994, the beneficial ownership of,
and other interests in, shares of Common Stock of each current Director, each
Nominee, each executive officer named in the Summary Compensation Table on page
15, and Directors and executive officers of the Company, as a group.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
SHARES BENEFICIALLY SHARES
OWNED, EXCLUDING ACQUIRABLE
SHARES ACQUIRABLE UPON EXERCISE TOTAL SHARES OTHER
NAME OF BENEFICIAL UPON EXERCISE OF OF CERTAIN BENEFICIALLY INTERESTS IN
OWNER AND POSITION CERTAIN OPTIONS OPTIONS(1) OWNED SHARES(2)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Wallace Barnes 755 shares 0 755 shares(3) 1,500
(current Director and Nominee)
Ronald E. Compton 18,951 shares(4) 130,209 shares 149,160 shares
(current Director, Nominee and
named executive)
John F. Donahue 237,642 shares 0 237,642 shares(5) 1,500
(current Director and Nominee)
William H. Donaldson 750 shares 0 750 shares(6) 1,500
(current Director and Nominee)
Barbara Hackman Franklin 511 shares 0 511 shares(7) 1,500
(current Director and Nominee)
Earl G. Graves 500 shares 0 500 shares 1,500
(current Director and Nominee)
Gerald Greenwald 3,000 shares 0 3,000 shares(8) 1,500
(current Director and Nominee)
Michael H. Jordan 3,000 shares 0 3,000 shares 1,500
(current Director and Nominee)
Jack D. Kuehler 440 shares 0 440 shares 1,500
(current Director and Nominee)
Frank R. O'Keefe, Jr. 850 shares 0 850 shares(9) 1,500
(current Director and Nominee)
David M. Roderick 8,000 shares 0 8,000 shares(10) 1,500
(current Director and Nominee)
Gary G. Benanav 6,808 shares(11) 48,100 shares 54,908 shares
(named executive)
Daniel P. Kearney 4,695 shares 37,000 shares 41,695 shares
(named executive)
James W. McLane 4,471 shares 24,000 shares 28,471 shares
(named executive)
Patrick W. Kenny 3,521 shares 55,100 shares 58,621 shares
(named executive)
Directors and executive 309,250 shares(12) 395,309 shares 704,559 shares
officers as a group
(22 persons)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
No beneficial owner listed above has beneficial ownership of more than 1% of the
outstanding shares of Common Stock of the Company.
Unless otherwise noted in the footnotes on the next page, each person currently
has sole voting and investment powers over the shares set forth above. The
information set forth above and in the related notes has been furnished by the
respective persons.
13
<PAGE> 18
NOTES TO BENEFICIAL OWNERSHIP TABLE
- --------------------------------------------------------------------------------
(1) Represents shares which the beneficial owner named above has the right to
acquire within 60 days of March 2, 1994 upon exercise of outstanding stock
options.
(2) Each outside Director has been granted units convertible (according to the
terms of the 1990 Non-Employee Director Deferred Stock Plan) into 1,500
shares of Common Stock upon retirement from Board service, subject to
certain conditions (see page 9).
(3) Excludes 511 shares held by his spouse,
Miss Franklin, as to which Mr. Barnes disclaims
beneficial ownership.
(4) Includes 6,606 shares held jointly with his spouse, as to which Mr. Compton
shares voting and investment powers.
(5) Represents shares held by a general partnership of which Mr. Donahue and
his spouse are partners, together with three affiliated trusts (of which
Mr. Donahue and/or his spouse are also trustees and/or beneficiaries). The
shares held by the general partnership are for the joint benefit of Mr.
Donahue and his spouse. Excludes 48,375 shares held by a family member
residing in the same household, as to which Mr. Donahue disclaims
beneficial ownership.
(6) Excludes 233 shares held by his spouse, as
to which Mr. Donaldson disclaims beneficial
ownership.
(7) Excludes 755 shares held by her spouse, Mr. Barnes, as to which Miss
Franklin disclaims beneficial ownership.
(8) Represents shares held by his spouse, as to which Mr. Greenwald has no
voting or investment powers.
(9) Excludes 150 shares held by his spouse, as
to which Mr. O'Keefe disclaims beneficial
ownership.
(10) Includes 4,000 shares held jointly with his spouse, as to which Mr.
Roderick shares voting and investment powers.
(11) Includes 4,326 shares held jointly with his spouse, as to which Mr. Benanav
shares voting and investment powers. Excludes 100 shares held by family
members residing in the same household, as to which Mr. Benanav disclaims
beneficial ownership.
(12) Directors and executive officers as a group have sole voting and investment
powers over 39,729 shares of Common Stock, share voting and investment
powers with respect to 255,947 shares of Common Stock, and have no voting
or investment powers with respect to 3,000 shares of Common Stock. Included
in the number of shares shown are 10,574 shares of Common Stock held under
the Company's ISP and beneficially owned by executive officers.
14
<PAGE> 19
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth for the periods indicated certain compensation of
the Chairman, President and chief executive officer (CEO) and each of the four
most highly compensated executive officers of the Company (other than the CEO)
in 1993.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS PAYOUTS
-------------------------
ANNUAL COMPENSATION SECURITIES LONG-TERM
UNDERLYING INCENTIVE ALL
NAME AND PRINCIPAL -------------------- STOCK PLAN OTHER
POSITION YEAR SALARY BONUS(3) OPTIONS PAYOUTS(6) COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Ronald E. Compton 1993 $775,000 $550,000 33,000 $ 0 $68,813(7)(8)
Chairman, President 1992(1) 775,961 0 65,000(4) 0 75,776
and
chief executive 1991 608,846 170,000 30,000(5) 0
officer
Gary G. Benanav 1993 $405,769 $275,000 17,000 $ 0 $ 19,924(7)
Executive Vice 1992 380,289 0 7,300 0 18,340
President,
Property/Casualty 1991 304,615 125,000 5,800(5) 0
Daniel P. Kearney 1993 $476,442 $300,000 17,000 $ 0 $32,885(7)(8)
Executive Vice 1992 485,577 0 12,000 0 29,873
President,
Investments/Financial 1991 389,423 180,000 40,000(5) 0
Services
James W. McLane 1993 $424,615 $275,000 17,000 $ 0 $ 21,000(7)
Executive Vice 1992 418,077 0 7,300 0 18,625
President,
Health/Group Life 1991(2)
Patrick W. Kenny 1993 $425,000 $230,000 17,000 $ 0 $26,540(7)(8)
Group Executive, 1992 424,038 0 7,300 0 22,980
Finance and 1991 329,615 135,000 5,800(5) 0
Administration
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 20
NOTES TO SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
(1) Mr. Compton became the Chairman and chief executive officer of the Company
on March 1, 1992.
(2) Mr. McLane was not an executive officer of the Company at any time during
1991.
(3) Represents amounts earned under the Company's 1986 Management Incentive Plan
(MIP) by the named individual in respect of the year indicated. Annual
incentive bonuses payable under MIP are intended to reward executive
officers for achieving financial and strategic results. The Committee on
Compensation and Organization administers MIP and, subject to the approval
of the Board, determines the amount of each award to be granted.
(4) 50,000 of these stock options were granted with tandem stock appreciation
rights (SARs).
(5) These stock options were granted with tandem SARs.
(6) Represents amounts paid in the year indicated to the named individual under
the Company's Performance Unit Plan (PUP). The purpose of PUP is to provide
long-term incentive to key executive employees of the Company and certain of
its subsidiaries and to reward such employees for superior long-term
performance relative to the Company's business objectives and the
performance of its insurance company competitors over a period of time,
generally four years, referred to as a performance period. The Committee on
Compensation and Organization, which administers PUP, designates
participants in the plan, establishes the performance period, and approves
the performance measures for the Company and the individual participants.
Under PUP, the Company is not obligated in advance to pay any amounts at any
level of corporate, business unit or individual performance. No shares,
units or other rights are awarded at the beginning of a performance period
under PUP and, as contrasted with certain other long-term incentive plans of
the Company, under PUP specific thresholds or targets have not been
established at the beginning of the performance period; rather they have
been set after the performance period. The Committee on Compensation and
Organization then assesses the performance of the Company and its individual
business units relative to the performance of identified insurance company
competitors and against the established performance measures, and the
performance of the individual participant. Based on this assessment the
Committee, subject to the approval of the Board, determines the amount, if
any, to be awarded. Individual awards pursuant to PUP cannot exceed 40% of
the annualized salary of the participant at the end of the last year of the
performance period or, if greater, 40% of the average salary earned by the
participant over the performance period. Awards earned, if any, for the
1990-1993 performance period have not yet been determined. If approved by
shareholders, the 1994 Stock Incentive Plan will replace PUP (see pages 24
to 30).
(7) Includes $38,523, $19,924, $23,718, $21,000 and $21,126 of matching
contributions made by the Company under ISP and the Supplemental ISP for
Messrs. Compton, Benanav, Kearney, McLane and Kenny, respectively. The ISP
is a profit-sharing thrift plan qualified under the Internal Revenue Code of
1986, as amended (the Code). The Company matches, dollar-for-dollar, amounts
deferred by employees under ISP up to 5% of annual salary. Twenty-five
percent of the matching contributions made under the ISP on behalf of
officers of the Company is automatically invested in Common Stock. The
Company has established a Supplemental ISP to provide the deferred and
matching benefits which would have been credited to ISP but for limits
imposed by the Employee Retirement Income Security Act (ERISA) and the Code.
The Supplemental ISP also is used to provide other benefits not otherwise
payable under ISP itself, as provided from time to time by the Company's
Board.
(8) Includes $30,290, $9,167 and $5,414, representing the actuarially determined
value of the benefit to Messrs. Compton, Kearney and Kenny, respectively, of
life insurance premiums paid by the Company under split dollar universal
life insurance policies. The Company will recover all of its portion of the
premiums paid through the cash surrender value upon the earlier of a
participant's attainment of age 65 or death.
16
<PAGE> 21
STOCK OPTION GRANTS TABLE
The following table sets forth certain information concerning stock options
granted during 1993 by the Company to the CEO and each of the four most highly
compensated executive officers of the Company (other than the CEO) in 1993. The
hypothetical grant date present values of stock options granted in 1993 shown
below are presented pursuant to SEC rules and are calculated under the modified
Black-Scholes Model for pricing options. The gains, if any, realizable upon
exercise of stock options will depend upon the market price of the Company's
Common Stock at the time the stock option is exercised relative to the exercise
price per share of Common Stock of the stock option. The individuals named below
will not be able to realize a gain from the stock options granted unless, during
the exercise period, the market price of the Company's Common Stock increases
above the exercise price of the options. An increase in the market price of the
Company's Common Stock would also benefit the other shareholders of the Company.
STOCK OPTION GRANTS IN 1993
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS(1)
NUMBER OF PERCENT OF
SECURITIES TOTAL STOCK
UNDERLYING OPTIONS
STOCK GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE PER EXPIRATION GRANT DATE
NAME GRANTED IN 1993 SHARE DATE PRESENT VALUE(3)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ronald E. Compton 33,000(2) 3.2% $46.75 March 25, 2003 $249,098
Gary G. Benanav 17,000(2) 1.6 46.75 March 25, 2003 128,323
Daniel P. Kearney 17,000(2) 1.6 46.75 March 25, 2003 128,323
James W. McLane 17,000(2) 1.6 46.75 March 25, 2003 128,323
Patrick W. Kenny 17,000(2) 1.6 46.75 March 25, 2003 128,323
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Under the Company's 1984 Stock Option Plan (the 1984 Plan), options may be
granted until April 26, 1994. If approved by shareholders, the 1994 Stock
Incentive Plan will replace the 1984 Plan (see pages 24 to 30). The 1984
Plan provides for the grant of incentive stock options (ISOs) and
nonstatutory stock options (NSOs). The 1984 Plan permits participants to use
shares of the Company's Common Stock to exercise ISOs and NSOs. The 1984
Plan provides that the option price shall not be less than 100% of the fair
market value of the Common Stock at the time the option is granted. The
Company may grant options and SARs with different terms in connection with
options assumed pursuant to mergers and acquisitions.
(2) Date of grant was March 25, 1993; initial exercise date is March 26, 1994.
(3) Grant date present values are calculated under the modified Black-Scholes
Model. The Black-Scholes Model is a mathematical formula used to value
options publicly traded in the securities markets and it assumes that
options are freely transferable. Because the employee stock options granted
above are not transferable, the Company believes that the grant date present
values shown above may be overstated. This formula considers a number of
factors to estimate the option's present value. The assumptions made and
factors used by the Company in the Black-Scholes Model calculation for the
options granted above were as follows: (i) a volatility factor of 0.2465,
representing the average of the one-year and ten-year historical volatility
factors for the Common Stock; (ii) a risk-free rate of return of 6%,
representing the 10-year U.S. Treasury bond rate in effect on the date of
the option grant; (iii) a dividend yield of 5.9%, representing the Company's
then current annual dividend divided by the Common Stock price on the date
of the option grant; and (iv) a 10-year option term, representing the full
term of the option granted. To give effect to the one-year vesting period of
the options, the value of each option was discounted by 5%, the percentage
of options estimated to expire due to turnover of all recipients of options
during the vesting period. No further discount to the option value
calculated was taken to give effect to the non-transferability of the
options or to the exercise or lapse of the options prior to the end of the
10-year option period.
There is no assurance that the hypothetical present values of stock options
presented in the table above represent the actual values of such options,
and the hypothetical values shown should not be construed as predictions by
the Company as to the future value of the Common Stock.
17
<PAGE> 22
STOCK OPTION EXERCISES AND DECEMBER 31,
1993 STOCK OPTION VALUE TABLE
The following table sets forth certain information concerning stock options
exercised during 1993 by the CEO and each of the four most highly compensated
executive officers of the Company (other than the CEO) in 1993 and the number
and value of specified unexercised options at December 31, 1993. The values of
unexercised in-the-money stock options at December 31, 1993 shown below are
presented pursuant to SEC rules. There is no assurance that the values of
unexercised in-the-money stock options reflected in this table will be realized.
AGGREGATED STOCK OPTION EXERCISES AND
DECEMBER 31, 1993 STOCK OPTION VALUE TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
SHARES VALUE UNEXERCISED OPTIONS AT OPTIONS AT
ACQUIRED REALIZED DECEMBER 31, 1993(1) DECEMBER 31, 1993(2)
UPON UPON ------------------------------- -------------------------------
NAME EXERCISE EXERCISE EXERCISABLE UNEXERCISABLE(3) EXERCISABLE UNEXERCISABLE(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald E. Compton 57,227 $947,362 97,209 33,000 $903,758 $449,625
Gary G. Benanav 9,500 120,438 31,100 17,000 320,950 231,625
Daniel P. Kearney 20,000 276,538 32,000 17,000 481,212 231,625
James W. McLane 12,000 155,500 12,800 17,000 192,975 231,625
Patrick W. Kenny 0 0 38,100 17,000 504,388 231,625
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Tandem SARs are attached to all exercisable stock options except for stock
options relating to 1,626, 7,300, 373, 300 and 7,300 shares in the case of
Messrs. Compton, Benanav, Kearney, McLane and Kenny, respectively. No tandem
SARs are attached to any unexercisable stock options.
(2) Based on the December 31, 1993 closing stock price of $60.375.
(3) Represents stock options which are not vested.
18
<PAGE> 23
PENSION PLAN
The Company provides for its employees a noncontributory, defined benefit
pension plan. Retirement benefits are calculated on the basis of (i) the number
of years of credited service (maximum credit is 35 years) and (ii) the
employee's average annual earnings during the 60 consecutive months out of the
last 120 months of service which yield the highest annual compensation.
Employees receive service credit for actual years of employment with the
Company. Under certain circumstances, determined on a case-by-case basis,
additional service credit may be given for employment with affiliated and
nonaffiliated companies and, as determined by the Company's Board, for the
purposes of inducing employment of senior officers or rewarding past service.
The table below shows the estimated maximum annual retirement benefits
payable under the pension plan, at selected earnings levels and after selected
periods of credited service, to employees with at least fifteen years of
credited service who retire at age 65.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
AVERAGE
ANNUAL CREDITED YEARS OF SERVICE
EARNINGS 15 20 25 30 35
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 500,000 $ 113,000 $ 150,000 $ 188,000 $ 225,000 $ 263,000
600,000 135,000 180,000 225,000 270,000 315,000
700,000 158,000 210,000 263,000 315,000 368,000
800,000 180,000 240,000 300,000 360,000 420,000
900,000 203,000 270,000 338,000 405,000 473,000
1,000,000 225,000 300,000 375,000 450,000 525,000
1,100,000 248,000 330,000 413,000 495,000 578,000
- ----------------------------------------------------------------------------
</TABLE>
The term "earnings" as used in the retirement benefits table above includes
annual salaries, annual bonuses paid under MIP and amounts paid under PUP
(allocated equally among the years of the performance period to which such
payments relate) set forth in the relevant columns of the Summary Compensation
Table on page 15. At December 31, 1993, "average annual earnings" for pension
plan purposes for Messrs. Compton, Benanav, Kearney, McLane and Kenny were
$848,661, $439,417, $627,876, $554,763 and $478,839, respectively.
The credited years of service on December 31, 1993 for the persons named in
the Summary Compensation Table are as follows: Mr. Compton - 35 years; Mr.
Benanav - 21.5 years; Mr. Kearney - 21.8 years; Mr. McLane - 18.9 years; and Mr.
Kenny - 20 years.
The benefits set forth in the above table do not take into account any
reduction for joint and survivorship payments or any offset for Social Security
benefits to be received by the employee. After retirement, benefits are subject
to cost-of-living adjustments of not more than 3% per year, but cannot be
reduced below the amount payable at the time of the individual's retirement.
ERISA limits the maximum annual benefit that may be accrued under and paid
from a tax-qualified plan. As a result, the Company has established a
Supplemental Plan to provide benefits (included in the foregoing table) which
would exceed the ERISA limit. The Supplemental Plan also is used to pay other
pension benefits not otherwise payable under the tax-qualified plan, including
benefits attributable to management incentive and performance unit awards,
additional years of credited service beyond years actually served, additional
years of age, and covered compensation in excess of that permitted under the
tax-qualified plan.
OTHER AGREEMENTS
The Company administers a Severance Pay Plan under which employees, including
the Company's executive officers, terminated without cause may receive up to two
weeks of continuing salary for every credited full year of employment to a
maximum of one year's salary. Certain benefits continue during the severance pay
period.
19
<PAGE> 24
REPORT OF THE COMMITTEE ON
COMPENSATION AND ORGANIZATION
Compensation Policies for Executive Officers
The Committee on Compensation and Organization is composed entirely of outside
Directors. The Committee is responsible for administering the Company's annual
and long-term compensation plans, and reviewing and making recommendations to
the Board with respect to the Company's executive compensation and overall
compensation policy. The Company's executive compensation policy is to attract
and retain high performing executives and to motivate and reward such executives
based on overall corporate, separate business unit or staff support unit and
individual performance, and the creation of shareholder value.
The Company's executive compensation program is designed to:
- - create a performance-oriented environment with variable compensation based
upon achievement of annual and long-term business results;
- - focus management on maximizing shareholder value through stock-based
compensation aligned to shareholder return; and
- - provide compensation opportunities dependent upon the Company's performance
relative to its competitors and changes in its own performance over time.
For 1993, compensation opportunities for the Company's executive officers
consisted of four elements: salaries, annual incentive bonuses, stock options
and long-term incentive awards. In addition, executive officers are eligible for
other benefits as set forth in the Summary Compensation Table (see page 15).
1. Salaries. Salaries for executive officers are established with reference to
the competitive marketplace for equivalent jobs. Individual salaries are set
based on level and scope of responsibility within the Company and individual
performance. Salaries are reviewed annually by the Committee. Consistent with
the Company's pay philosophy, executive officer salaries are competitive with
the median of salaries paid by a Comparison Group of companies believed to be
the Company's major competitors for executive talent. This Comparison Group is
selected by the Committee, in consultation with an outside compensation
consultant, and is composed of approximately 40 insurance, financial services
and other companies (including 11 insurance companies in the Dow Jones Insurance
Index (see page 23)).
2. Annual Incentive Bonuses. Annual incentive bonuses payable under the
Company's Management Incentive Plan (see page 16) are intended to reward
executive officers for achieving financial and strategic results. In 1993, the
Committee changed the way it administers the Plan by setting performance goals
at the beginning of each year and tying bonus payments directly to the
achievement of those financial and strategic goals. The amount of annual bonuses
payable upon achievement of various levels of financial performance is
established separately for each business or staff support unit by the Committee
at the beginning of each year. Seventy-five percent of a business unit's bonus
pool is dependent upon that business unit's financial performance (measured by
income from continuing operations before realized capital gains and losses,
adjusted for any items determined by the Committee to be unusual or non-
recurring), and 25% is dependent upon the Company's consolidated financial
performance (measured by net income, as similarly adjusted). The same percentage
allocations apply to a staff support unit's bonus pool, except that the staff
support unit's financial performance is measured by actual expense level versus
budgeted expense level, and by the achievement of other performance objectives
relevant to the particular unit (for example, effectiveness of claims processing
and customer service, and effective resolution of legal, regulatory and other
important issues affecting the Company). The size of the bonus pool for the
Company's senior executive officers (including those named in this Proxy
Statement) is also established by the Committee at the beginning of each year
and is dependent upon the Company's consolidated financial performance (measured
by net income, as similarly adjusted).
This financial performance is measured against predetermined "threshold",
"target", "superior" and "maximum" performance levels. Generally, "threshold"
financial performance occurs when results are at 80% of "target" performance;
"target" financial performance occurs at 100%; "superior" financial performance
occurs at 120%; and "maximum" financial performance occurs at 140%. Generally,
the portion of the bonus pool that is payable at particular financial
performance levels is as
20
<PAGE> 25
follows: "threshold" performance - 50%; "target" performance - 100%; "superior"
performance - 150%; and "maximum" performance - 200%. These amounts may be
adjusted at the discretion of the Committee upward or downward by up to 20% to
take account of strategic results achieved. The principal criteria for assessing
strategic results are re-engineering efforts and strategic positioning of the
Company's businesses (for example, expense management, customer service, new
product development, use of technology and human resource management) and an
assessment of the "quality" of (or sources of) earnings. The amount of annual
bonus, if any, paid to an executive officer from the bonus pool is based on an
assessment of that individual's performance and level of responsibility.
For 1993, the Company's consolidated net income (the sole measurement
applicable to its senior executive officers), as adjusted for certain unusual or
non-recurring items (explained elsewhere in this Report), was at the "maximum"
level. However, the Committee reduced the bonus pool otherwise available at this
level of performance for senior executive officers by approximately 12% to
adjust for the amount of net realized capital gains included in net income. This
adjustment reduced the available bonus pool to the "superior" category.
3. Stock Options. Stock options are intended to strengthen the link between the
interests of the Company's executive officers and its shareholders in maximizing
long-term shareholder value. Under the Company's current stock option plan (see
page 17), stock options may be granted annually to executive officers, at 100%
of the fair market value of the underlying Common Stock on the date of grant.
Grants of stock options are made within guidelines established by the Committee,
in consultation with an outside compensation consultant, to position (at
targeted performance levels) an executive officer's total direct compensation
opportunity (salary, annual bonus, long-term incentive awards and stock options)
at a median level compared to similarly-positioned executives at companies in
the Comparison Group. The value of the stock option component of an executive
officer's compensation is converted into a specific number of shares subject to
option by assigning each share option an estimated realizable value (based on an
outside compensation consultant's analysis of the value realized upon exercise
of stock options by
executives at a large number of diverse major corporations).
The Company's current stock option plan expires this year and will be
replaced by the 1994 Stock Incentive Plan (see pages 24 to 30), if that Plan is
approved by shareholders.
4. Long-term Incentive Awards. Incentive awards under the Company's Performance
Unit Plan (see page 16) are intended to reinforce management's long-term
perspective on the Company's business. Long-term incentive compensation is paid
when it is determined that superior performance has been sustained over a period
of time (generally four years) at the corporate, separate business unit or staff
support unit or individual participant level. For executive officers, total
corporate performance is weighted more heavily than separate business unit or
staff support unit and individual performance. Corporate and business unit
performance is assessed relative to the PUP group of 15 insurance companies (all
of which are business competitors and included in the Dow Jones Insurance
Index), and against specified performance measures, which currently include
return on stockholders' equity, earnings per share, rate of business growth and
financial strength. Under this Plan, specific target performance measures have
not been established at the beginning of the performance period; rather, they
have been set after the period. Performance is then assessed against the
established measures and amounts are paid when the Committee determines in its
judgment that it is appropriate to do so (based on an assessment of performance
data), subject to the approval of the Board.
The Company's Performance Unit Plan will be replaced by the 1994 Stock
Incentive Plan (see pages 24 to 30), if that Plan is approved by shareholders.
Total direct compensation for the Company's executive officers in recent
years has been below the median compensation paid by the Comparison Group, due
in large part to the financial performance of the Company.
5. Other. The Committee is aware that starting in 1994 the Company will not be
able to deduct for tax purposes an executive's compensation to
21
<PAGE> 26
the extent that it exceeds $1,000,000, except under certain circumstances.
The Committee believes that tax deductibility is an important, but not the most
important, factor in setting executive compensation policy. The 1994 Stock
Incentive Plan is designed with the intention that certain types of long-term
compensation paid thereunder will be tax deductible by the Company (see page
30).
Basis for the Compensation of the CEO
The Company's executive compensation policy is evidenced by the amount and
nature of compensation earned by the Company's CEO for 1993.
1. Salary. Mr. Compton did not receive an increase in salary for 1993 because
his salary remained at a competitive median level.
2. Annual Incentive Bonus. In 1993, the Company made a strategic business
decision to discontinue its fully-guaranteed large case pension products, and
undertook significant expense reduction initiatives. These long-term business
decisions negatively affected short-term financial results in 1993, and the
Company reported a net loss of approximately $366 million. Before taking these
long-term business decisions, the Company's 1993 net income was approximately
$660 million. Financial results in 1993 also were negatively affected by the
adoption of an accounting change related to benefits (other than pensions) for
certain former employees, and positively affected by the net tax benefit
associated with an increase in corporate income tax rates. The Committee
believed that it was appropriate, for annual bonus calculation purposes, to make
an adjustment to the Company's reported net loss for all of these items because
it considered them to be unusual or non-recurring. As so adjusted, the Company's
consolidated financial performance exceeded the net income target established
under the annual bonus plan and achieved the "maximum" award level. However, the
Committee reduced the bonus pool otherwise available at this level of
performance for senior executive officers (including Mr. Compton) by
approximately 12% to adjust for the amount of net realized capital gains
included in net income. This adjustment reduced the available bonus pool to the
"superior" category.
In recognition of Mr. Compton's strong leadership in formulating new
long-term strategic and business initiatives for the Company, and taking into
account that in 1993 total return for the Company's shareholders was
approximately 36% (placing the Company in the top quartile of the Dow Jones
Insurance Index companies for 1993 total shareholder return), Mr. Compton was
awarded an annual bonus of $550,000 for 1993.
3. Stock Options. Mr. Compton was granted stock options with respect to 33,000
shares of Common Stock in 1993 pursuant to the guidelines established by the
Committee and described elsewhere in this Report.
4. Long-term Incentive Award. Overall corporate performance during the
1989-1992 period resulted in no payment of long-term incentive compensation
under the Performance Unit Plan in 1993 to Mr. Compton for that period. Mr.
Compton's award earned, if any, for the 1990-1993 performance period has not yet
been determined. If the proposed 1994 Stock Incentive Plan is approved by
shareholders, Mr. Compton will not receive any awards for any Performance Unit
Plan cycles.
THE COMMITTEE ON COMPENSATION
AND ORGANIZATION
FRANK R. O'kEEFE, JR. JACK D. KUEHLER
(CHAIRMAN) DAVID M. RODERICK
WALLACE BARNES
22
<PAGE> 27
CORPORATE PERFORMANCE GRAPH
The following graph compares the yearly change in the Company's cumulative total
shareholder return on its Common Stock (assuming reinvestment of dividends into
Common Stock of the Company) with the cumulative total return on the published
Standard & Poor's 500 Stock Index (S&P 500) and the cumulative total return on
the published Dow Jones Insurance Index (30 insurance companies) (Dow Jones
Insurance Index) over the preceding five-year period. It assumes that dividends
are reinvested into the Company's Common Stock even though many shareholders do
not so reinvest. The following graph is presented pursuant to SEC rules. The
Company's executive compensation program is based only in part on total
shareholder return; it is also based on the Company's financial and strategic
results, and the other factors set forth and discussed in the Report of the
Committee on Compensation and Organization.
FIVE-YEAR CUMULATIVE TOTAL RETURN
AETNA, S&P 500 AND DOW JONES INSURANCE INDEX*
<TABLE>
<CAPTION>
DOW JONES
MEASUREMENT PERIOD INSURANCE
(FISCAL YEAR COVERED) AETNA S&P 500 INDEX
<S> <C> <C> <C>
1988 100.0 100.0 100.0
1989 125.7 131.6 144.6
1990 92.4 127.5 127.8
1991 111.4 166.2 167.6
1992 125.5 178.8 206.0
1993 171.2 196.7 214.7
</TABLE>
* Assumes that any dividends were reinvested in the relevant securities when
paid.
- --------------------------------------------------------------------------------
23
<PAGE> 28
II. APPOINTMENT OF AUDITORS
Following the recommendation of its Audit Committee, the Company's Board of
Directors has appointed and recommends shareholder approval of KPMG Peat Marwick
as the Company's independent auditors for the current calendar year. The firm
has acted in this capacity for the Company since 1972. It is expected that
representatives of the firm will be available at the Annual Meeting of
Shareholders to make a statement if the firm desires and to respond to
appropriate questions.
The affirmative vote of a majority of the shares represented at the meeting
which are entitled to vote is required for approval of the appointment of KPMG
Peat Marwick as the Company's independent auditors.
The Board recommends a vote FOR the approval of KPMG Peat Marwick as the
Company's independent auditors for the current calendar year. Unless directed to
the contrary, the shares represented by the enclosed Proxy will be voted FOR the
appointment of KPMG Peat Marwick as independent auditors for the current
calendar year.
III. PROPOSAL TO APPROVE THE
1994 STOCK INCENTIVE PLAN
INTRODUCTION
At the Annual Meeting, shareholders will be asked to approve the Aetna Life and
Casualty Company 1994 Stock Incentive Plan (the Incentive Plan), which has been
adopted by the Board of Directors of the Company. If approved by shareholders,
the Incentive Plan will replace the 1984 Stock Option Plan (the 1984 Plan) and
the Performance Unit Plan (PUP).
The purposes of the Incentive Plan are to promote the interests of the
Company and its shareholders, and further align the interests of shareholders
and Eligible Employees (senior executives, senior managers and middle management
employees of the Company and its Subsidiaries and Affiliates) by:
(i) motivating Eligible Employees through long-term incentive awards tied
to improvements in total return to shareholders (i.e., stock price
appreciation and dividends);
(ii) attracting and retaining outstanding individuals as Eligible
Employees;
(iii) enabling Eligible Employees to acquire additional equity interests in
the Company; and
(iv) providing compensation opportunities dependent upon the Company's
performance relative to its competitors and changes in its own performance
over time.
In conjunction with the adoption of the Incentive Plan, the Company has
implemented stock ownership guidelines for senior executives. These guidelines
encourage senior executives to acquire and maintain significant levels of stock
ownership. Such stock ownership aligns changes in shareholder value with
meaningful changes in a senior executive's financial situation.
The following summary of the Incentive Plan is qualified in its entirety by
reference to the complete text of the Incentive Plan, which is attached to this
Proxy Statement as Exhibit A. Capitalized terms not separately defined herein
have the meanings set forth in the Incentive Plan.
PRINCIPAL FEATURES OF THE INCENTIVE PLAN
It is expected that the principal awards to be granted under the Incentive Plan
will be Options and Incentive Units. Because any Option must have an exercise
price at least equal to the Fair Market Value of the Company's Common Stock on
the date of grant, Eligible Employees will not realize any gain from Stock
Options unless the market price of the Common Stock increases to the benefit of
all shareholders of the Company.
Incentive Units are rights to receive Common Stock or cash which will
become vested only if performance objectives established by the Committee on
Compensation and Organization of the Board of Directors are achieved. These
performance objectives, if achieved, would be expected to improve total return
to shareholders. More details on these Incentive Units can be found under the
section "Grants Under the Incentive Plan -- Incentive Stock and Incentive Units"
(see pages 25 to 26).
INITIAL AWARDS
If the Incentive Plan is approved by shareholders, the Committee intends to
grant Incentive Units under the Incentive Plan to approximately 45 Eligible
Employees (the proposed grants are described in greater detail below under the
section "New Plan Benefits" (see pages 27 to 30). These
24
<PAGE> 29
initial Incentive Units will tie long-term rewards for those Eligible Employees
to the Company's achievement of improved total return to its shareholders. The
Company has set a goal of improving its total shareholder return ranking in the
Dow Jones Insurance Index, an index currently composed of 30 insurance companies
including the Company (the Dow Jones Insurance Index). For most of the last ten
years the Company has ranked in the bottom quartile of Dow Jones Insurance Index
companies in terms of total return to shareholders. For the four year period
1989-1992, the Company ranked 26th of 30. The Company's goal is to rank at least
in the top half of the Dow Jones Insurance Index for the four-year period 1993 -
1996. The initial Incentive Unit grants will provide a meaningful incentive for
senior executives to achieve this goal by conditioning any payments on these
Incentive Units upon the achievement of specified shareholder return ranking
goals.
ADMINISTRATION OF THE INCENTIVE PLAN
The Committee will administer the Incentive Plan, and will determine which
Eligible Employees will receive Awards and the terms and conditions of any
Awards. (Directors who are not employees are not eligible to receive Awards
under the Incentive Plan.) The number of Eligible Employees who may receive
Awards under the Incentive Plan will likely vary from year to year.
SHARES AVAILABLE FOR ISSUANCE
The maximum number of shares of the Company's Common Stock that may be issued
under the Incentive Plan is 8,000,000. However, in no event will the number of
shares of Common Stock issued under the Incentive Plan with respect to Incentive
Stock or Incentive Units exceed 1,800,000 shares. The shares issued under the
Incentive Plan may be unissued shares or treasury shares. It is expected that,
when available, treasury shares will be used. If shares subject to any Award
granted under the Incentive Plan are not issued or are returned to the Company,
those shares will be available for future grants. If any Award is payable solely
in cash instead of shares, the number of shares of Common Stock issuable under
the Incentive Plan will not be reduced by reason of the Award. The aggregate
number of Incentive Units payable solely in cash is not limited by the terms of
the Plan. If a Fundamental Corporate Event occurs, the Committee may adjust the
number and kind of shares that may be issued under the Incentive Plan in the
future and the number and kind of shares and the grant, exercise or conversion
price, if applicable, under all outstanding grants to preserve, or to prevent
the enlargement of, the benefits made available under the Incentive Plan.
GRANTS UNDER THE INCENTIVE PLAN
- - Stock Options. It is currently expected that the majority of the Awards made
under the Incentive Plan will be in the form of Options. The Committee may grant
Nonstatutory Stock Options (NSOs) and Incentive Stock Options (ISOs). These
Options may contain any terms that the Committee determines, except that no
Eligible Employee may be granted Options (i) in any single calendar year for
more than 250,000 shares of Common Stock (subject to adjustment as described
above) and (ii) during the term of the Incentive Plan for more than 10 percent
of the total shares of Common Stock authorized for issuance under the Incentive
Plan (in each case subject to adjustment as described above). The exercise price
of any Option will not be less than the Fair Market Value of the Common Stock on
the date of grant, except that the Committee may credit against the exercise
price payable with regard to an NSO the value of any compensation otherwise
payable to the optionee which is surrendered, foregone or exchanged in respect
of the issuance of the NSO under rules or procedures established by the
Committee. The Company will receive no consideration with respect to the grant
of any Option other than the performance of services by the recipient. Although
the Incentive Plan provides for the granting of both NSOs and ISOs, the
Committee's current intention is to grant only NSOs.
The term of each Option will be fixed by the Committee but may not exceed
ten years from the date of grant. Unless the Committee selects another exercise
schedule at or after grant, each Option will become exercisable in three
approximately equal installments on each of the first, second and third
anniversaries of the date the Option is granted.
- - Incentive Stock and Incentive Units. The use of Incentive Stock and Incentive
Units is a principal component of the Incentive Plan's objective to tie senior
executives' long-term compensation to the return provided to shareholders. Under
the Incentive Plan, the Committee may grant an Eligible Employee Incentive Units
which provide a contrac-
25
<PAGE> 30
tual right to receive shares of Common Stock or cash based on the Fair Market
Value of the related shares at the end of a restricted period determined by the
Committee (the Restricted Period). The Committee also may grant shares of
Incentive Stock that are nontransferable and subject to substantial risk of
forfeiture during the applicable Restricted Period. However, in any 24-month
period, no Executive Officer may be granted Awards of Incentive Stock or
Incentive Units (whether payable in cash or shares) in respect of more than
100,000 shares of Common Stock, nor over the term of the Incentive Plan more
than 300,000 shares of Common Stock (in each case subject to adjustment as
described above).
Incentive Stock and Incentive Units will vest, if at all, upon the
attainment or partial attainment of performance objectives determined by the
Committee. In addition, an Eligible Employee's right to receive shares of Common
Stock (or cash) in respect of Incentive Stock and Incentive Units will generally
be subject to the employee's continued employment during the relevant Restricted
Period.
Any award of Incentive Stock or Incentive Units made to an Executive
Officer of the Company will vest based on performance objectives related to at
least one of the following criteria, which may be determined solely by reference
to the performance of the Company, a Subsidiary or an Affiliate (or any business
unit thereof) or based on comparative performance relative to other companies:
(i) total return to shareholders; (ii) primary earnings or net income; (iii)
return on equity; (iv) for its property and casualty businesses, combined ratio;
or (v) for its health businesses, membership levels or profits or costs per
member. The Committee may change the performance objectives to reflect
appropriate factors including changes in an Eligible Employee's responsibilities
or changes in business objectives. However, the Committee may not adjust the
performance objectives for awards designed to comply with the new tax law
limiting the deductibility of certain compensation. The Committee may generally
accelerate, modify or waive any conditions to any payment of an award of
Incentive Stock or Incentive Units at any time, except to the extent that having
this discretion could result in adverse tax consequences.
It is the Committee's current intention to grant Incentive Units which will
vest, if at all, upon the attainment of predetermined performance objectives
related to total return to shareholders of the Company relative to the total
return provided to shareholders of the other companies in the Dow Jones
Insurance Index. The design of the initial awards of Incentive Units, which are
described in greater detail below under "New Plan Benefits" (see pages 27 to
30), has been based on this principle.
- - Other Awards. While the Committee has no current intention to use these
features, the Incentive Plan also authorizes the Committee to grant Stock
Appreciation Rights (SARs) to Eligible Employees and to grant Executive Officers
(currently 12 people) Common Stock in lieu of a cash award payable under any
other bonus or incentive compensation plan of the Company. SARs may be granted
to Eligible Employees in addition to, or in tandem with, an Option or
freestanding and unrelated to an Option. A SAR permits an Eligible Employee to
receive cash, shares or a combination of cash and shares, generally based on the
excess of the Fair Market Value at the time of exercise over the grant date Fair
Market Value. The term of each SAR will be fixed by the Committee but may not
exceed ten years from the date of grant.
EFFECT ON AWARDS OF
TERMINATION OF EMPLOYMENT
In the event an Eligible Employee's employment is terminated by reason of Normal
Retirement, Early Retirement with the Committee's consent, Disability or death,
any Option or SAR held by the employee may thereafter be exercised in full for
up to five years (or any greater or lesser period as the Committee shall
determine at or after grant) following the date of termination, but in no event
after the date the Option otherwise expires. Unless otherwise determined by the
Committee, a pro rata portion of any Incentive Stock or Incentive Unit Award
held by the Eligible Employee will become vested, subject to the satisfaction of
the corresponding performance criteria during the relevant measurement period,
including any interim period. In the event an Eligible Employee's employment is
terminated for Cause or, if after an Eligible Employee's employment terminates,
the Committee determines that the employee could have been terminated for Cause
had the employee still been employed, any Incentive Stock, Incentive Units,
Options or SARs held by the employee will be forfeited or cancelled, as the case
may be. In the
26
<PAGE> 31
event an Eligible Employee's employment is terminated for any reason other than
those described above, any vested Options and SARs held by the employee will be
exercisable for a period of 90 days (or any greater period as the Committee
shall specify), but in no event after the expiration of the term of the Option.
Also, under these circumstances any Incentive Stock or Incentive Units held by
the Eligible Employee as to which the Restricted Period has not lapsed will be
forfeited.
EFFECT ON OTHER COMPENSATION PROGRAMS
No Options will be granted under the 1984 Plan following approval of the
Incentive Plan by shareholders. Options outstanding under the 1984 Plan will
continue in effect. In addition, all award cycles currently in progress under
the PUP will terminate upon approval of the Incentive Plan by shareholders.
OTHER INFORMATION
Unless the Committee expressly permits transfers for the benefit of members of
the Eligible Employee's immediate family or trust or similar vehicle, Awards
under the Incentive Plan may not be assigned or transferred except by will or
the laws of descent and distribution. The Board or the Committee may terminate
or suspend the Incentive Plan at any time, but the termination or suspension
will not adversely affect any vested Awards then outstanding under the Incentive
Plan. Unless terminated by action of the Board or the Committee, the Incentive
Plan will continue in effect through April 30, 2001, but Awards granted under
the Incentive Plan on or prior to that date will continue in effect until they
expire in accordance with their terms. The Board or the Committee may also amend
the Incentive Plan as it deems advisable, without further shareholder approval
or consent, except that no amendment may (i) increase the number of shares
authorized for issuance under the Incentive Plan, (ii) change the exercise price
at which Options may be granted, or (iii) remove the administration of the
Incentive Plan from a committee of the Board which is comprised of disinterested
administrators within the meaning of Rule 16b-3 under the Exchange Act. The
Committee may amend the term of any Award or Option granted, retroactively or
prospectively, but no amendment may adversely affect any vested Award or Option
without the holder's consent. In addition, under certain circumstances, the
Committee has retained the right to defer payments under the Plan (see "Certain
Federal Income Tax Consequences" page 30). Any proceeds received by the Company
for shares under the Incentive Plan will be used for general corporate purposes.
NEW PLAN BENEFITS
Set forth on the next page is a summary of the initial Awards that the Committee
intends to make if the Incentive Plan is approved by shareholders. No Awards
will be made under the Incentive Plan prior to shareholder approval of the
Incentive Plan.
27
<PAGE> 32
AETNA LIFE AND CASUALTY COMPANY
1994 STOCK INCENTIVE PLAN
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
INCENTIVE
NAME AND POSITION UNITS
<S> <C>
- ---------------------------------------------------------------
Ronald E. Compton
Chairman, President and chief executive officer 40,000
Gary G. Benanav
Executive Vice President, Property/Casualty 27,500
Daniel P. Kearney
Executive Vice President, Investments/Financial
Services 27,500
James W. McLane
Executive Vice President, Health/Group Life 27,500
Patrick W. Kenny
Group Executive, Finance and Administration 16,000
All current executive officers as a group *
All Eligible Employees as a group, including all
current officers who are not executive
officers(1) *
</TABLE>
- --------------------------------------------------------------------------------
* Amounts are not determinable as of this date, and are not expected to be
determinable prior to the Annual Meeting.
(1) No current Director or nominee for election as a Director who is not also an
employee of the Company is eligible to participate in the Incentive Plan. No
associate of any executive officer has received any grants under the
Incentive Plan and no individual has received Options under the Incentive
Plan.
- - Performance Objectives Target Improved Shareholder Return. The intent of
these Incentive Units is to encourage the Eligible Employees who receive Awards
to increase the total return to shareholders of the Company relative to the
total return provided to shareholders of the other companies in the Dow Jones
Insurance Index. In the years immediately preceding 1993, the Company's total
return to shareholders was below the median level attained by the companies in
the Dow Jones Insurance Index; the Committee determined that improvement in this
area over the long-term was in the best interests of the Company and its
shareholders.
These Incentive Units will become vested and shares will become payable
only to the extent the Company's total return to shareholders over a four-year
period meets or exceeds each of the two separate preestablished performance
objectives described below. However, if the Performance Threshold and the Return
Threshold (as each term is defined below) are met or exceeded over an interim
portion of the measurement period ending December 31, 1995, the Committee
currently expects to permit up to 40 percent of these Incentive Units to become
vested and payable shortly after December 31, 1995. The starting point for the
initial measurement period is January 1, 1993. This date was selected by the
Committee to reflect the fact that the Incentive Plan, including the performance
targets described below, had been under consideration as a substitute for PUP
since before January 1, 1993.
First, the Company's total return to shareholders over the measurement
period must at least equal a threshold risk-free rate of return (the Return
Threshold), which for these Incentive Units has been based on the annual rate of
return (5.9%) available on a four year treasury note on January 1, 1993 and
compounded annually. If the
28
<PAGE> 33
Return Threshold is not met, no Incentive Units will vest, regardless of the
Company's performance relative to the other companies in the Dow Jones Insurance
Index.
Second, as illustrated in the chart below, the Company's total return to
shareholders over the measurement period must compare favorably to that of the
other companies in the Dow Jones Insurance Index. For the Incentive Units to
become fully vested, the Company must achieve at least the median level of total
shareholder return for companies in the Dow Jones Insurance Index. If the
Company performance does not at least equal the 33rd percentile of the companies
in the Dow Jones Insurance Index (the Performance Threshold), no portion of the
Incentive Units will vest regardless of whether the Return Threshold is
satisfied.
VESTING SCHEDULE FOR PROPOSED
FIRST GRANT OF INCENTIVE UNITS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PERFORMANCE LEVEL AETNA RANKING IN INCENTIVE UNIT AWARD VESTING IF
DOW JONES INSURANCE INDEX RETURN THRESHOLD ACHIEVED
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Below Threshold Below 33rd percentile Grant does not vest
- ---------------------------------------------------------------------------------------------------------------
Threshold 33rd percentile 50% of Grant vests
- ---------------------------------------------------------------------------------------------------------------
Between Threshold and Target Above 33rd percentile and below Between 50% and 100% of Grant vests
Median per schedule
- ---------------------------------------------------------------------------------------------------------------
Target Median (50th percentile) Full Grant vests
- ---------------------------------------------------------------------------------------------------------------
Between Target and Maximum Above Median and below 75th Full Grant vests; additional award
percentile of up to 50% of Grant per schedule
- ---------------------------------------------------------------------------------------------------------------
Maximum 75th percentile or above Grant vests; additional award of
50% of Grant
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- - Gains Only in Proportion to Shareholder Return. In addition to these vesting
requirements, the aggregate value of all payments on the initial grant of
Incentive Unit Awards (together with certain other cash-based long-term awards
granted at the same time to senior managers of the Company, its Subsidiaries or
its Affiliates) is capped at 3.0% of the total shareholder return over the
measurement period. This cap assures that the benefits conveyed to Eligible
Employees will not be disproportionate to the benefits received by shareholders
of the Company.
- - Calculation of Total Shareholder Return. For purposes of determining the
total return to shareholders over the measurement period, the change in the
price of the Company's Common Stock and of the common stock of each of the
companies in the Dow Jones Insurance Index will be calculated by comparing the
average of the closing stock price of the Company and each other company on the
last business day of each week in the 13-week period both preceding the start
and the end of the measurement period. The initial value of the Common Stock to
be used to determine total shareholder return over the measurement period for
these Awards was calculated to be $44.24. (The closing price of a share of
Common Stock on February 28, 1994 was $60.00).
Based on the difference between the initial value assigned to the Common
Stock for purposes of determining total shareholder return and the Fair Market
Value of the Common Stock on February 28, 1994, and dividends paid during the
period, the Company's total return to shareholders, determined as of February
28, 1994, exceeded the Return Threshold. In 1993, the Company performed above
the 75th percentile of the companies in the Dow Jones Insurance Index in terms
of total return to shareholders. If this comparative performance were sustained
over the remaining measurement period, the Maximum performance level (as shown
in the above chart) would be met.
29
<PAGE> 34
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Incentive Awards, Options and SARs described above are intended to comply
with the requirements of the Internal Revenue Code regarding the deductibility
of certain performance based compensation. Regulations recently proposed by the
Internal Revenue Service could be interpreted to disallow the deductibility of
certain payments to certain executives with respect to the initial grant of
Incentive Units. The Company anticipates further consideration of this issue by
the Internal Revenue Service, but there can be no assurance that such payments
will be fully deductible. In evaluating the Plan, the Committee reviewed an
analysis of the impact of non-deductibility of these payments which reflected a
range of stock prices from $55 to $95 and indicated an after-tax cost to the
Company ranging from approximately $.9 million to approximately $6.4 million if
the payments were found to be non-deductible. The Committee has reserved the
discretion to defer payment on these Incentive Units to the extent that it
determines that deferral would likely preserve the Awards' full deductibility
and would otherwise be appropriate and feasible under the then prevailing
circumstances. In determining whether to defer payment, the Committee may take
into account then prevailing law as to the deductibility of the payments, the
after-tax cost to the Company of the amounts which are not deductible, the
position and contribution of the affected employee to the Company, the
feasibility of deferring any payment, and any other factors the Committee
believes to be relevant.
Under currently applicable federal income tax law, an Eligible Employee
will receive no taxable income upon the grant of an NSO or an ISO. When an
Eligible Employee exercises an NSO, the excess of the Fair Market Value of the
shares on the date of exercise over the exercise price paid will be ordinary
income to the Eligible Employee and his or her employer will be allowed a
federal income tax deduction in the same amount. When an Eligible Employee
exercises an ISO while employed or within three months after termination of
employment (one year for disability), no income will be recognized upon exercise
of the ISO. If the Eligible Employee holds shares acquired for at least one year
after exercise and two years after the grant of the ISO, the excess of the
amount realized upon disposition of the shares over the exercise price paid is
treated as long-term capital gain for the Eligible Employee and the Eligible
Employee's employer is not allowed a federal income tax deduction. A sale or
other exchange of the underlying stock before the end of either of the required
holding periods will be a "disqualifying disposition" which will generally
result in the Eligible Employee being taxed on the gain derived from an ISO as
though it were an NSO and the Eligible Employee's employer will be allowed a
federal income tax deduction.
The affirmative vote of a majority of the shares represented at the meeting
which are entitled to vote is required for approval of the Incentive Plan.
The Board recommends a vote FOR the approval of the Incentive Plan. Unless
directed to the contrary, the shares represented by the enclosed Proxy will be
voted FOR the approval of the Incentive Plan.
IV. PROPOSAL TO APPROVE THE 1994 NON-EMPLOYEE DIRECTOR DEFERRED STOCK PLAN
INTRODUCTION
At the Annual Meeting, shareholders will be asked to approve the Aetna Life and
Casualty Company 1994 Non-Employee Director Deferred Stock Plan (the Director
Plan), which has been adopted by the Board of Directors. If approved by
shareholders, the Director Plan will replace the 1990 Non-Employee Director
Deferred Stock Plan.
The Board of Directors believes that, as is the case with public companies
generally, Directors who are not officers or employees of the Company
(Non-Employee Directors) play an increasingly vital role in the governance of
the Company. The Director Plan will assist the Company in attracting and
retaining qualified Non-Employee Directors. The Director Plan also will further
enhance the long-term mutuality of interest among the Company's Non-Employee
Directors and shareholders by increasing these Directors' ownership interest in
the Company.
The following summary of the Director Plan is qualified in its entirety by
reference to the complete text of the Director Plan, which is attached to this
Proxy Statement as Exhibit B. Capitalized terms not separately defined herein
have the meanings set forth in the Director Plan.
PRINCIPAL FEATURES OF THE DIRECTOR PLAN
- - Shares Available for Issuance. A maximum of 75,000 shares of Common Stock may
be issued
30
<PAGE> 35
under the Director Plan, subject to appropriate adjustments in the event of
certain corporate transactions, including stock dividends and splits, to
preserve, or to prevent the enlargement of, the benefits made available under
the Director Plan.
- - Grants Under the Director Plan. Under the Director Plan, each Non-Employee
Director will, upon his or her initial appointment as a Director, receive
contractual rights (Units) to receive 1,500 shares of the Company's Common
Stock. All Directors currently serving have previously received such grants and
are not eligible for further initial grants. Additionally, on each December 3lst
during the term of the Director Plan, each Non-Employee Director who has served
as a Director for at least the six months immediately prior to that date will
receive Units representing the right to receive 200 shares of the Company's
Common Stock.
- - Vesting. Generally, to become fully vested in the Units a Non-Employee
Director must complete three Years of Service as a Director following the grant
of the Units. If a Non-Employee Director ceases to be a Director due to death,
Disability, Retirement or acceptance of a position in Government Service prior
to three Years of Service from the date any Units are granted, a Non-Employee
Director's rights with respect to the related Units will become fully vested. A
Non-Employee Director's rights with respect to any unvested Units will also vest
upon a Change-in-Control of the Company. Otherwise, if a Director ceases to be a
Director before completing three Years of Service from the grant date of any
Units, he or she will receive only a pro-rata portion of the related shares.
- - Delivery of Shares. Shares of Common Stock will generally be delivered in
respect of Units following a Non-Employee Director's cessation of service as a
Director. However, following a Change-in-Control of the Company, a NonEmployee
Director will receive cash in lieu of Common Stock based on the Fair Market
Value of the Common Stock on the date of the Change-in-Control.
- - Administration and Amendment. The Director Plan will be administered by the
Committee on Directors of the Board of Directors. The Board of Directors may
amend the Director Plan, but, without shareholder approval, no amendment may:
(i) increase the number of shares of Common Stock that may be issued under the
Director Plan; (ii) modify the vesting requirements; or (iii) otherwise change
the times at which, or period within which, shares may be delivered. No
amendment may be adopted within six months of any prior amendment.
- - Dividend Equivalents. The grant of Units will not confer to a Director any
rights as a shareholder of the Company (such as the right to vote and the right
to receive dividends); however, on each dividend payment date Non-Employee
Directors will be paid an amount in cash equal to the dividend per share for the
applicable dividend payment times the number of shares that are subject to Units
held by such Non-Employee Director.
- - Termination. Unless sooner terminated by action of the Board, the Director
Plan will continue in effect through April 30, 2001, but grants under the
Director Plan on or prior to the termination date will continue in effect until
they expire in accordance with their terms.
- - Other Information. Currently, there are ten Non-Employee Directors of the
Company. The closing price of the Common Stock on February 28, 1994 was $60.00.
The affirmative vote of a majority of the shares represented at the meeting
which are entitled to vote is required for approval of the Director Plan.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE DIRECTOR PLAN. UNLESS
DIRECTED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED PROXY WILL BE
VOTED FOR THE APPROVAL OF THE DIRECTOR PLAN.
31
<PAGE> 36
OTHER INFORMATION AND
1995 SHAREHOLDER PROPOSALS
The Company will bear the cost of soliciting Proxies. In addition to the use of
the mails, solicitations may be made by personal interview, telegram or
telephone by Directors, officers and employees of the Company and its
subsidiaries. Arrangements also will be made with brokerage houses and other
custodians, nominees and fiduciaries to forward solicitation material to
beneficial owners, and the Company will reimburse them for reasonable
out-of-pocket expenses incurred in doing so. To assist in the solicitation of
Proxies, the Company has engaged Kissel-Blake Inc., New York, New York, for a
fee of $17,000 plus reasonable out-of-pocket expenses.
To be included in the 1995 Proxy Statement and Proxy Card, shareholder
proposals must be received by the Company not later than November 18, 1994. Such
proposals must comply with all applicable rules and regulations of the SEC.
Proposals should be forwarded to the Corporate Secretary, Aetna Life and
Casualty Company, 151 Farmington Avenue, Hartford, Connecticut 06156.
The Company's By-Laws require that notice of nominations of persons for
election to the Board of Directors, other than those made by or at the direction
of the Board of Directors, must be received no later than 90 days before the
Annual Meeting. The notice must present certain information concerning the
nominee and the shareholder making the nomination. The notice also must include
the nominee's written consent to being a nominee and to serving if elected.
Notices should be sent to the Corporate
Secretary, Aetna Life and Casualty Company,
151 Farmington Avenue, Hartford,
Connecticut 06156.
ANNUAL REPORT
The Company's 1993 Annual Report to Shareholders was mailed to shareholders on
or about March 9, 1994.
By order of the Board of Directors,
/s/ JEAN M. WAGGETT
Jean M. Waggett
Vice President and Corporate Secretary
March 18, 1994
32
<PAGE> 37
EXHIBIT A
AETNA LIFE AND CASUALTY COMPANY
1994 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE.
The purposes of this Plan are to promote the interests of the Company and
its shareholders, and further align the interests of shareholders and Eligible
Employees by:
(i) motivating Eligible Employees through long-term Incentive Stock or
Incentive Unit Awards tied to improvements in total return to shareholders
(i.e., stock price appreciation and dividends);
(ii) attracting and retaining outstanding individuals as Eligible
Employees;
(iii) enabling Eligible Employees to acquire additional equity interests
in the Company; and
(iv) providing compensation opportunities dependent upon the Company's
performance relative to its competitors and changes in its own performance
over time.
SECTION 2. DEFINITIONS.
"AFFILIATE" shall mean any corporation or other entity (other than the Company
or one of its Subsidiaries) in which the Company directly or indirectly owns at
least twenty percent (20%) of the combined voting power of all classes of stock
of such entity or at least twenty percent (20%) of the ownership interests in
such entity.
"AWARD" shall mean any grant or award under the Plan, as evidenced in a written
document delivered to a Participant as provided in Section 9(b).
"BOARD" shall mean the Board of Directors of the Company.
"CAUSE" shall mean (i) the willful failure by the Participant to perform
substantially the Participant's duties as an employee of the Company (other than
due to physical or mental illness) after reasonable notice to the Participant,
(ii) the Participant's engaging in serious misconduct that is injurious to the
Company, any Subsidiary or any Affiliate, (iii) the Participant's having been
convicted of, or entered a plea of nolo contendere to, a crime that constitutes
a felony, (iv) the breach by the Participant of any written covenant or
agreement not to compete with the Company, any Subsidiary or any Affiliate or
(v) the breach by the Participant of his or her duty of loyalty to the Company
which shall include, without limitation, (A) the disclosure by the Participant
of any confidential information pertaining to the Company, any Subsidiary or any
Affiliate, (B) the harmful interference by the Participant in the business or
operations of the Company, any Subsidiary or any Affiliate, (C) any attempt by
the Participant directly or indirectly to induce any employee, insurance agent,
insurance broker or broker-dealer of the Company, any Subsidiary or any
Affiliate to be employed or perform services elsewhere, (D) any attempt by the
Participant directly or indirectly to solicit the trade of any customer or
supplier, or prospective customer or supplier, of the Company or (E) any breach
or violation of the Company's Code of Conduct.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"COMMITTEE" shall mean the Committee on Compensation and Organization of the
Board, or such other Board committee as may be designated by the Board to
administer the Plan.
"COMMON STOCK" shall mean the Common Capital Stock, without par value, of the
Company.
"COMPANY" shall mean Aetna Life and Casualty Company.
"DISABILITY" shall mean long-term disability as defined under the terms of the
Company's applicable long-term disability plans or policies.
"EARLY RETIREMENT" shall mean retirement at or after the earliest age at which
the Participant may retire and receive an immediate, but actuarially reduced,
retirement benefit under any defined benefit pension plan maintained by the
Company or any of its Subsidiaries or Affiliates in which such Participant
participates.
A-1
<PAGE> 38
"ELIGIBLE EMPLOYEE" shall mean each senior executive, senior manager and middle
management employee of the Company, its Subsidiaries or its Affiliates, but
shall not include directors who are not employees of such entities.
"EMPLOYMENT" shall mean, for purposes of Section 5(d) and Section 7(b),
continuous and regular salaried employment with the Company, a Subsidiary or an
Affiliate, which shall include (unless the Committee shall otherwise determine)
any period of vacation, any approved leave of absence or any salary continuation
or severance pay period and, at the discretion of the Committee, may include
service with any former Subsidiary or Affiliate of the Company. For this
purpose, regular salaried employment means scheduled employment of at least 20
hours per week.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended from
time to time.
"EXECUTIVE OFFICER" shall mean those persons who are officers of the Company
within the meaning of Rule 16a-1(f) of the Exchange Act.
"FAIR MARKET VALUE" shall mean with respect to the Common Stock the closing
price of the Common Stock as reported by the Consolidated Tape of New York Stock
Exchange Listed Shares on the date such value is to be determined, or, if no
shares were traded on such day, on the next preceding day on which the Common
Stock was traded.
"FUNDAMENTAL CORPORATE EVENT" shall mean any stock dividend, extraordinary cash
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below fair market value, or other
similar event.
"INCENTIVE STOCK" shall mean any Award of Common Stock granted under Section 7
which becomes vested and nonforfeitable upon the attainment, in whole or in
part, of performance objectives determined by the Committee.
"INCENTIVE STOCK OPTION" shall mean an Option which is intended to meet the
requirements of Section 422 of the Code.
"INCENTIVE UNIT" shall mean any Award of a contractual right granted under
Section 7 to receive Common Stock (or, at the discretion of the Committee, cash
based on the Fair Market Value of the Common Stock) which becomes vested and
nonforfeitable upon the attainment, in whole or in part, of performance
objectives determined by the Committee.
"NONSTATUTORY STOCK OPTION" shall mean an Option which is not intended to be an
Incentive Stock Option.
"NORMAL RETIREMENT" shall mean retirement at or after the earliest age at which
the Participant may retire and receive a retirement benefit without an actuarial
reduction for early commencement of benefits under any defined benefit pension
plan maintained by the Company or any of its Subsidiaries or Affiliates in which
such Participant participates.
"OPTION" shall mean the right to purchase the number of shares of Common Stock
specified by the Committee, at a price and for the term fixed by the Committee
in accordance with the Plan and subject to any other limitations and
restrictions as this Plan and the Committee shall impose.
"PARTICIPANT" shall mean an Eligible Employee who is selected by the Committee
to receive an Award under the Plan.
"PLAN" shall mean the Aetna Life and Casualty Company 1994 Stock Incentive Plan,
described herein, and as may be amended from time to time.
"RESTRICTED PERIOD" shall mean the period during which a grant of Incentive
Stock or Incentive Units is subject to forfeiture.
"STOCK APPRECIATION RIGHT" shall mean a contractual right granted under Section
6 to receive cash, Common Stock or a combination thereof.
"SUBSIDIARY" shall mean any entity of which the Company possesses directly or
indirectly fifty percent (50%) or more of the total combined voting power of all
classes of stock of such entity.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee which shall consist of at
least two directors of the Company chosen by the Board each of whom is a
"disinterested person" within the meaning of Rule 16b-3 under the Exchange
A-2
<PAGE> 39
Act. The Committee shall have the responsibility of construing and interpreting
the Plan and of establishing and amending such rules and regulations as it deems
necessary or desirable for the proper administration of the Plan. Any decision
or action taken or to be taken by the Committee, arising out of or in connection
with the construction, administration, interpretation and effect of the Plan and
of its rules and regulations, shall, to the maximum extent permitted by
applicable law, be within its absolute discretion (except as otherwise
specifically provided herein) and shall be conclusive and binding upon all
Participants and any person claiming under or through any Participant.
In addition to administering the Plan, the Committee shall, from time to
time, as it deems appropriate, establish recommended stock ownership guidelines
for certain Eligible Employees of the Company.
SECTION 4. MAXIMUM AMOUNT AVAILABLE FOR AWARDS.
(a) Maximum Number of Shares. The maximum number of shares of Stock in
respect of which Awards may be made under the Plan shall be a total of 8,000,000
shares of Common Stock. Notwithstanding the foregoing, but subject to the
provisions of Section 4(c), in no event shall the number of shares of Common
Stock issued under the Plan with respect to Incentive Stock or Incentive Units
exceed 1,800,000 shares of Common Stock.
(b) Shares Available for Issuance. Shares of Common Stock may be made
available from the authorized but unissued shares of the Company or from shares
held in the Company's treasury and not reserved for some other purpose. In the
event that any Award is paid solely in cash, no shares shall be deducted from
the number of shares available for issuance under Section 4(a) by reason of such
Award. In addition, if (i) any Option or Stock Appreciation Right expires or is
terminated unexercised as to any shares of Common Stock covered thereby or (ii)
any other Award in respect of shares is canceled or forfeited for any reason
under the Plan without delivery of shares of Common Stock, the shares subject to
such Option, Stock Appreciation Right or other Award shall thereafter be again
available for award pursuant to the Plan; provided, however, that if any such
shares could not be made available for Awards to an Executive Officer under the
applicable share counting requirements under Rule 16b-3, such shares shall be
available exclusively for awards to Participants who are not Executive Officers.
(c) Adjustment for Corporate Transactions. In the event that the
Committee shall determine that any Fundamental Corporate Event affects the
Common Stock such that an adjustment is required to preserve, or to prevent
enlargement of, the benefits or potential benefits made available under this
Plan, then the Committee may, in such manner as the Committee may deem
equitable, adjust any or all of (i) the number and kind of shares which
thereafter may be awarded or optioned and sold or made the subject of Stock
Appreciation Rights under the Plan, (ii) the number and kinds of shares subject
to outstanding Options and other Awards and (iii) the grant, exercise or
conversion price with respect to any of the foregoing. Additionally, the
Committee may make provisions for a cash payment to a Participant or a person
who has an outstanding Option or other Award. However, the number of shares
subject to any Option or other Award shall always be a whole number.
SECTION 5. STOCK OPTIONS.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
the authority to grant Options to an Eligible Employee and to determine (i) the
number of shares to be covered by each Option, (ii) the exercise price therefor
and (iii) the conditions and limitations applicable to the exercise of the
Option. Notwithstanding the foregoing, in no event shall the Committee grant any
Participant Options (i) in any single calendar year for more than 250,000 shares
of Common Stock or (ii) during the term of the Plan for more than ten percent of
the total number of shares authorized for issuance under the Plan, as either
such number may be adjusted pursuant to Section 4(c). The Committee shall have
the authority to grant Incentive Stock Options or Nonstatutory Stock Options;
provided that Incentive Stock Options may not be granted to any Participant who
is not an employee of the Company or one of its Subsidiaries at the time of
grant. In the case of Incentive Stock Options, the terms and conditions of such
grants shall be
A-3
<PAGE> 40
subject to and comply with Section 422 of the Code and the regulations
thereunder.
(b) Option Price. The Committee shall establish the exercise price at the
time each Option is granted, which price shall not be less than 100% of the Fair
Market Value of the Common Stock at the date of grant, except that, for purposes
of satisfying the foregoing requirement with respect to a Nonstatutory Stock
Option, the Committee may elect to credit against the exercise price payable by
a Participant the value of any compensation otherwise payable to the Participant
under the terms of the Company's compensation practices and programs which is
surrendered, foregone or exchanged pursuant to such rules or procedures as the
Committee shall establish from time to time.
(c) Exercise. Each Option shall be exercised at such times and subject to
such terms and conditions as the Committee may specify in the applicable Award
or thereafter; provided, however, that if the Committee does not establish a
different exercise schedule at or after the date of grant of an Option, such
Option shall become exercisable in three approximately equal annual installments
on each of the first, second and third anniversaries of the date the Option is
granted. The Committee may impose such conditions with respect to the exercise
of Options, including without limitation, any relating to the application of
federal or state securities laws. No shares shall be delivered pursuant to any
exercise of an Option unless arrangements satisfactory to the Committee have
been made to assure full payment of the option price therefor. Without limiting
the generality of the foregoing, payment of the option price may be made in cash
or its equivalent or, if and to the extent permitted by the Committee, by
exchanging shares of Common Stock owned by the optionee (which are not the
subject of any pledge or other security interest or which, in the case of
Incentive Stock, are fully vested), or by a combination of the foregoing,
provided that the combined value of all cash and cash equivalents and the Fair
Market Value of any such Common Stock so tendered to the Company, valued as of
the date of such tender, is at least equal to such option price.
(d) Termination of Employment. Unless the Committee shall otherwise
determine at or after grant, an Option shall be exercisable following the
termination of a Participant's Employment only to the extent provided in this
Section 5(d). If a Participant's Employment terminates due to the Participant's
(i) death, (ii) Disability, (iii) Early Retirement with the consent of the
Committee or (iv) Normal Retirement, the Participant (or, in the event of the
Participant's death or Disability during Employment or during the period during
which an Option is exercisable under this sentence, the Participant's
beneficiary or legal representative) may exercise any Option held by the
Participant at the time of such termination, regardless of whether then
exercisable, for a period of five years (or such greater or lesser period as
the Committee shall determine at grant), but in no event after the date the
Option otherwise expires. If a Participant's Employment is terminated for Cause
(or, if after the Participant's termination of Employment, the Committee
determines that the Participant's Employment could have been terminated for
Cause had the Participant still been employed), all options held by the
Participant shall immediately terminate, regardless of whether then
exercisable. In the event of a Participant's termination of Employment for any
reason not described in the preceding two sentences, the Participant (or, in
the event of the Participant's death or Disability during the period during
which an Option is exercisable under this sentence, the Participant's
beneficiary or legal representative) may exercise any Option which was
exercisable at the time of such termination for 90 days (or such greater period
as the Committee shall specify at or after the grant of such Option) following
the date of such termination, but in no event after the date the Option
otherwise expires.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant of SARs. The Committee shall have the authority to grant Stock
Appreciation Rights in tandem with an Option, in addition to an Option, or
freestanding and unrelated to an Option. Notwithstanding the foregoing, in no
event shall the Committee grant any Participant Stock Appreciation Rights (i) in
any single calendar year for more than 250,000 shares of Common Stock or (ii)
during the term of the Plan for more than ten percent of the total number of
shares authorized for issuance under the Plan, as either such number may be
adjusted pursuant to Section 4(c). Stock Appreciation Rights granted
A-4
<PAGE> 41
in tandem or in addition to an Option may be granted either at the same time as
the Option or at a later time. Stock Appreciation Rights shall not be
exercisable after the expiration of ten years from the date of grant and shall
have a base price determined in the same manner as, and subject to the same
conditions as apply with respect to, a Nonstatutory Stock Option under Section
5(b).
(b) Exercise of SARs. A Stock Appreciation Right shall entitle the
Participant to receive from the Company an amount equal to the excess of the
Fair Market Value of a share of Common Stock on the date of exercise of the
Stock Appreciation Right over the base price thereof. The Committee shall
determine the time or times at which or the event or events (including, without
limitation, a change of control) upon which a Stock Appreciation Right may be
exercised in whole or in part, the method of exercise and whether such Stock
Appreciation Right shall be settled in cash, shares of Common Stock or a
combination of cash and shares of Common Stock; provided, however, that unless
otherwise specified by the Committee at or after grant, a Stock Appreciation
Right granted in tandem with an Option shall be exercisable at the same time or
times as the related Option is exercisable.
SECTION 7. INCENTIVE AWARDS.
(a) Incentive Stock and Incentive Units. Subject to the provisions of the
Plan, the Committee shall have the authority to grant Incentive Stock or
Incentive Units to any Eligible Employee and to determine (i) the number of
shares of Incentive Stock and the number of Incentive Units to be granted to
each Participant and (ii) the other terms and conditions of such Awards;
provided that, to the extent necessary to comply with applicable law, Incentive
Stock shall only be awarded to an Eligible Employee who has been employed for
such minimum period of time as shall be determined by the Committee. The
Restricted Period related to Incentive Stock or Incentive Units shall lapse upon
the determination by the Committee that the performance objectives established
by the Committee have been attained, in whole or in part. Such performance
objectives may be related to the performance of (i) the Company, (ii) a
Subsidiary, (iii) an Affiliate, (iv) a division or unit of the Company, any
Subsidiary or any Affiliate, (v) the Participant or (vi) any combination of the
foregoing, over a measurement period or periods established by the Committee.
The maximum number of shares of Common Stock that may be subject to any Awards
of Incentive Stock and Incentive Units (whether payable in cash or shares)
granted to an Executive Officer in any 24 month period shall not exceed 100,000
shares, and over the term of the Plan shall not exceed 300,000 shares, as each
such number may be adjusted pursuant to Section 4(c). The performance objectives
with respect to an Award made to an Executive Officer shall be related to at
least one of the following criteria, which may be determined solely by reference
to the performance of the Company, a Subsidiary or an Affiliate (or any business
unit thereof) or based on comparative performance relative to other companies:
(i) total return to shareholders; (ii) return on equity; (iii) primary earnings
or net income, (iv) for its property and casualty businesses, combined ratio or
(v) for its health businesses, its membership levels or profits or costs per
member. Except to the extent otherwise expressly provided herein, the Committee
may, at any time and from time to time, change the performance objectives
applicable with respect to any Incentive Stock or Incentive Units to reflect
such factors, including, without limitation, changes in a Participant's duties
or responsibilities or changes in business objectives (e.g., from corporate to
Subsidiary, Affiliate or business unit performance or vice versa), as the
Committee shall deem necessary or appropriate. In making any such adjustment,
the Committee shall adjust the number of Incentive Stock or Incentive Units or
take other appropriate actions to prevent any enlargement or diminution of the
Participant's rights related to service rendered and performance attained prior
to the effective date of such adjustment.
(b) Termination of Employment. Unless the Committee otherwise
determines at or after grant, the rights of a Participant with respect to an
award of Incentive Stock or Incentive Units outstanding at the time of the
Participant's termination of Employment shall be determined under this Section
7(b). In the event that a Participant's Employment terminates due to the
Participant's (i) death, (ii) Disability, (iii) Early Retirement with the
consent of the
A-5
<PAGE> 42
Committee or (iv) Normal Retirement, any award of Incentive Stock or Incentive
Units shall become vested and nonforfeitable at the end of the measurement
period as to that number of shares which is equal to that percentage, if any, of
such award that would have been earned based on the attainment or partial
attainment of such performance objectives times a fraction, the numerator
of which is the number of days actually worked during the Restricted Period (or,
in the case of an Award which has previously vested in part
(an "Installment Award"), the number of days worked since the last vesting date)
and the denominator of which is the total number of days during the Restricted
Period (or, in the case of an Installment Award, the number of days between the
last vesting date and the end of the Restricted Period); provided that, any
portion of any Incentive Stock or Incentive Unit award that does not become
vested as of the times set forth in this sentence shall be forfeited at such
times. In all other cases, any portion of any award of Incentive Stock or
Incentive Units that has not become nonforfeitable at the date of Participant's
termination of Employment shall be forfeited as of such date.
(c) Awards Nontransferable. Incentive Stock or Incentive Units may not be
sold, assigned, pledged or otherwise encumbered, except as herein provided,
during the Restricted Period. Any certificates issued in respect of Incentive
Stock shall be registered in the name of the Participant and deposited by such
Participant, together with a stock power endorsed in blank, with the Company. At
the expiration of the Restricted Period with respect to any award of Incentive
Stock, unless otherwise forfeited, the Company shall deliver such certificates
to the Participant or to the Participant's legal representative. Payment for
Incentive Stock Units shall be made by the Company in shares of Common Stock,
cash or in any combination thereof, as determined by the Committee.
(d) No Dividend Rights. Unless otherwise determined by the Committee at or
after the date of grant of any shares of Incentive Stock, any dividends payable
on such Incentive Stock shall be credited to an account for the benefit of the
Participant, which account shall be subject to forfeiture during the Restricted
Period corresponding to the shares of Common Stock on which such dividends are
paid. Unless otherwise determined by the Committee at or after the date of
grant, a Participant who receives a grant of Incentive Units shall not be
entitled to receive any amounts in respect of dividends paid to shareholders on
the corresponding number of shares of Common Stock.
(e) Interpretation. Notwithstanding anything else contained in this
Section 7 to the contrary, if any award of Incentive Stock or Incentive Units
is intended at the time of grant to be "other performance-based compensation"
within the meaning of Section 162(m)(4)(C) of the Code, to the extent required
to so qualify any Award hereunder, the Committee shall not be entitled to
exercise any discretion otherwise authorized under this Section 7 with respect
to such award if the ability to exercise such discretion (as opposed to the
exercise of such discretion) would cause such award to fail to qualify as
"other performance-based compensation."
SECTION 8. STOCK IN LIEU OF CASH.
The Committee may grant Awards or shares of Common Stock in lieu of all or
a portion of an award otherwise payable in cash to an Executive Officer pursuant
to any bonus or incentive compensation plan of the Company.
If shares are issued in lieu of cash, the number of shares of Common Stock
to be issued shall be the greatest number of whole shares which has an aggregate
Fair Market Value on the date the cash would otherwise have been payable
pursuant to the terms of such other plan equal to or less than the amount of
such cash.
SECTION 9. GENERAL PROVISIONS.
(a) Withholding. The Company shall have the right to deduct from all
amounts paid to a Participant in cash (whether under this Plan or otherwise) any
taxes required by law to be withheld in respect of Awards under this Plan. In
the case of any Award satisfied in the form of Common Stock, no shares shall be
issued unless and until arrangements satisfactory to the Company shall have been
made to satisfy any withholding tax obligations applicable with respect to such
Award. Without limiting the generality of the foregoing and subject to such
terms and conditions as the Committee may impose, the Company shall have the
right to retain, or the Committee may, subject to
A-6
<PAGE> 43
such terms and conditions as it may establish from time to time, permit
Participants to elect to tender, Common Stock (including Common Stock issuable
in respect of an Award) to satisfy, in whole or in part, the amount required to
be withheld.
(b) Awards. Each Award hereunder shall be evidenced in writing. The
written agreement shall be delivered to the Participant and shall incorporate
the terms of the Plan by reference and specify the terms and conditions thereof
and any rules applicable thereto.
(c) Nontransferability. Unless the Committee shall permit (on such terms
and conditions as it shall establish) an Award to be transferred to a member of
the Participant's immediate family or to a trust or similar vehicle for the
benefit of such immediate family members (collectively, the "Permitted
Transferees"), no Award shall be assignable or transferable except by will or
the laws of descent and distribution, and except to the extent required by law,
no right or interest of any Participant shall be subject to any lien, obligation
or liability of the Participant. All rights with respect to Awards granted to a
Participant under the Plan shall be exercisable during the Participant's
lifetime only by such Participant or, if applicable, the Permitted Transferees.
(d) No Right to Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company, any
Subsidiary or any Affiliate. Further, the Company and each Subsidiary and
Affiliate expressly reserves the right at any time to dismiss a Participant free
from any liability, or any claim under the Plan, except as provided herein or in
any agreement entered into with respect to an Award.
(e) No Rights to Awards, No Shareholder Rights. No Participant or Eligible
Employee shall have any claim to be granted any Award under the Plan, and there
is no obligation of uniformity of treatment of Participants and Eligible
Employees. Subject to the provisions of the Plan and the applicable Award, no
person shall have any rights as a shareholder with respect to any shares of
Common Stock to be issued under the Plan prior to the issuance thereof.
(f) Construction of the Plan. The validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined solely in accordance with the
laws of the State of Connecticut.
(g) Effective Date. Subject to the approval of the shareholders of the
Company (which shall be sought by the Company if so authorized by the Board),
the Plan shall be effective on the date the Plan is approved by shareholders. No
Awards may be granted under the Plan after April 30, 2001. Upon shareholder
approval of the Plan, no further awards may be made under the Company's 1984
Stock Option Plan.
(h) Amendment of Plan. The Board or the Committee may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that no
amendment shall be made without shareholder approval if such amendment would (1)
increase the number of shares of Common Stock subject to the Plan, except
pursuant to Section 4(c); (2) change the price at which Options may be granted;
or (3) remove the administration of the Plan from the Committee. Without the
written consent of an affected Participant, no termination, suspension or
modification of the Plan shall adversely affect any right of such Participant
under the terms of an Award granted before the date of such termination,
suspension or modification.
(i) Application of Proceeds. The proceeds received by the Company from the
sale of its shares under the Plan will be used for general corporate purposes.
(j) Compliance with Legal and Exchange Requirements. The Plan, the
granting and exercising of Awards thereunder, and the other obligations of the
Company under the Plan, shall be subject to all applicable federal and state
laws, rules, and regulations, and to such approvals by any regulatory or
governmental agency as may be required. The Company, in its discretion, may
postpone the granting and exercising of Awards, the issuance or delivery of
Common Stock under any Award or any other action permitted under the Plan to
permit the Company, with reasonable diligence, to complete such stock exchange
listing or registration or qualification of such Common Stock or other required
action under any federal or state law, rule, or regulation and may require any
Participant to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Com-
A-7
<PAGE> 44
mon Stock in compliance with applicable laws, rules, and regulations. The
Company shall not be obligated by virtue of any provision of the Plan to
recognize the exercise of any Award or to otherwise sell or issue Common Stock
in violation of any such laws, rules, or regulations; and any postponement of
the exercise or settlement of any Award under this provision shall not extend
the term of such Awards, and neither the Company nor its directors or officers
shall have any obligation or liability to the Participant with respect to any
Award (or stock issuable thereunder) that shall lapse because of such
postponement.
(k) Deferrals. The Committee may postpone the exercising of Awards, the
issuance or delivery of Common Stock or the payment of cash under any Award or
any action permitted under the Plan to prevent the Company or any of its
Subsidiaries or Affiliates from being denied a federal income tax deduction with
respect to any Award other than an Incentive Stock Option.
(l) Severability of Provisions. If any provision of this Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and this Plan shall be construed and
enforced as if such provision had not been included.
(m) Incapacity. Any benefit payable to or for the benefit of a minor, an
incompetent person or other person incapable of receipting therefor shall be
deemed paid when paid to such person's guardian or to the party providing or
reasonably appearing to provide for the care of such person, and such payment
shall fully discharge any liability or obligation of the Committee, the Board,
the Company and all other parties with respect thereto.
(n) Headings and Captions. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of this Plan,
and shall not be employed in the construction of this Plan.
A-8
<PAGE> 45
EXHIBIT B
AETNA LIFE AND CASUALTY COMPANY
1994 NON-EMPLOYEE DIRECTOR DEFERRED STOCK PLAN
SECTION 1. ESTABLISHMENT OF PLAN.
The Plan is established to permit Eligible Directors of the Company, in
recognition of their contributions to the Company, to receive Shares in the
manner described below. The Plan is intended to enable the Company to attract,
retain and motivate qualified Directors and to enhance the long-term mutuality
of interest between Directors and stockholders of the Company.
SECTION 2. DEFINITIONS.
"AFFILIATE" shall mean an entity at least a majority of the total voting power
of the then-outstanding voting securities of which is held, directly or
indirectly, by the Company and/or one or more
other Affiliates.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the Company.
"COMMITTEE" shall mean the Committee on Directors of the Board of Directors.
"COMPANY" shall mean Aetna Life and Casualty Company.
"DIRECTOR" shall mean a member of the Board of Directors, whether or not such
member is an Eligible Director.
"DISABILITY" shall mean an illness or injury that lasts at least six months, is
expected to be permanent and renders a Director unable to carry out his/her
duties.
"EFFECTIVE DATE" shall mean the date, if any, on which the Plan is approved by
shareholders.
"ELIGIBLE DIRECTOR" shall mean a member of the Board of Directors who is not an
employee of the Company.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" shall mean the closing price of a Share on the New York
Stock Exchange on the date which is the nearest day preceding the date on which
such value is to be determined or, if no shares were traded on such day, on the
date which is the next preceding day on which there was such a trade.
"GOVERNMENT SERVICE" the appointment or election of the Eligible Director to a
position with the Federal, state or local government or any political
subdivision, agency or instrumentality thereof.
"GRANT" shall mean a grant of Units under
Section 5.
"RETIREMENT" shall mean termination of service as a Director on account of the
Company's mandatory Director retirement policy as may be in effect on the date
of such termination of service.
"SHARES" shall mean shares of Stock.
"STOCK" shall mean the Common Capital Stock, without par value, of the Company.
"UNIT" shall mean a contractual obligation of the Company to deliver a Share (or
pay cash in limited circumstances) to an Eligible Director or the beneficiary or
estate of such Eligible Director as provided herein.
"YEAR OF SERVICE AS A DIRECTOR" shall mean
a period of 12 months of service as a Director, measured from the effective date
of a Grant.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee; provided, however, that
the Plan shall be administered such that any Director participating in the Plan
shall continue to be deemed to be a "disinterested person" under Rule 16b-3 of
the Securities and Exchange Commission under the Exchange Act ("Rule 16b-3"), as
such Rule is in effect on the Effective Date of the Plan and as it may be
subsequently amended, for purposes of such Director's ability to serve on any
Committee charged with administering any of the Company's stock based incentive
plans for executive officers intended to qualify for the exemptive relief
available under Rule 16b-3.
SECTION 4. SHARES AUTHORIZED FOR ISSUANCE.
4.1 Maximum Number of Shares. The aggregate number of Shares with respect
to which Grants may be made to Eligible Directors under the Plan shall not
exceed 75,000 Shares, subject to adjustment as provided in Section 4.2 below.
B-1
<PAGE> 46
4.2 Adjustment for Corporate Transactions. In the event that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Stock at a price substantially below Fair Market
Value, or other similar event affects the Stock such that an adjustment is
required to preserve, or to prevent enlargement of, the benefits or potential
benefits made available under the Plan, then the Committee shall adjust the
number and kind of shares which thereafter may be awarded under the Plan and the
number of Units that have been, or may be, granted under the Plan.
SECTION 5. UNIT GRANTS.
5.1 Grants. Each Eligible Director who is first elected or appointed to
the Board of Directors on or after the Effective Date of the Plan shall be
awarded 1,500 Units on such date. In addition, on each December 31, commencing
after the Effective Date, but before April 30, 2001, each Eligible Director
serving as a Director on such date who has been a Director continuously since
the prior July 1 shall be awarded 200 Units.
5.2 Delivery of Shares. Subject to satisfaction of the applicable vesting
requirements set forth in Section 6 and except as otherwise provided in Section
7, all Shares that are subject to any Units shall be delivered to an Eligible
Director and transferred on the books of the Company on the date which is the
first business day of the month immediately following the termination of such
Eligible Director's service as a Director. Any fractional Shares to be delivered
in respect of Units shall be settled in cash based upon the Fair Market Value on
the date such Shares would otherwise have been delivered to the Eligible
Director or the Eligible Director's beneficiary. Upon the delivery of Shares (or
cash with respect to a fractional Share) pursuant to the Plan, the corresponding
Unit (or fraction thereof) shall be canceled and be of no further force or
effect.
5.3 Nontransferability. Units may not be assigned or transferred, in whole
or in part, either directly or by operation of law (except in the event of an
Eligible Director's death by will or applicable laws of descent and
distribution), including, but not by way of limitation, by execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner, and no such
right or interest of any Eligible Director in the Plan shall be subject to any
obligation or liability of such Eligible Director.
5.4 Dividend Equivalents. An Eligible Director shall have no rights as
a shareholder of the Company with respect to any Units until Shares are
delivered to the Director pursuant to Section 5; provided that, on or as soon
as practicable after each date on which dividends are paid to shareholders with
respect to Shares, each Eligible Director shall be paid an amount in cash equal
to the dividend per Share for the applicable dividend payment date times the
number of Shares that are the subject of the Units held by such Eligible
Director on the record date for the payment of such dividend.
SECTION 6. VESTING.
6.1 Except as provided in Section 6 or Section 7, if an Eligible
Director terminates service prior to the completion of three Years of
Service as a Director from the applicable date of Grant, the number of Shares
delivered to such Eligible Director shall equal the amount obtained by
multiplying 1,500 or 200, as the case may be, by a fraction, the numerator of
which is the number of full months of service completed by such Director from
the applicable date of Grant and the denominator of which is 36.
Notwithstanding the foregoing, and except as provided in Section 6.2, if any
Eligible Director terminates service by reason of his/her death, Disability,
Retirement or acceptance of a position in Government Service prior to
completing three Years of Service as a Director from the applicable date of
Grant, all shares that are the subject of a Grant shall be delivered to such
Eligible Director (or the Eligible Director's beneficiary or estate).
6.2 If a Director has completed less than six consecutive months of service
as a Director at the time of termination of such service, all Units held by such
Director shall be immediately forfeited.
6.3 In the event of the death of any Eligible Director prior to receipt of
the Shares that are the subject of such Director's Units, the Shares shall be
delivered to the beneficiary designated by the
B-2
<PAGE> 47
Eligible Director on a form provided by the Company, or, in the absence of such
designation, to the Eligible Director's estate.
SECTION 7. CHANGE-IN-CONTROL.
7.1 Upon the occurrence of a Change-in-Control (as defined below), each
Eligible Director's right and interest in Units which have not previously vested
under Section 6 shall become vested and nonforfeitable regardless of the period
of the Eligible Director's service since the date such Units were granted.
7.2 Upon the occurrence of a Change-in-Control, in lieu of delivering
Shares with respect to the Units then held by an Eligible Director, the Company
shall pay such Eligible Director, not later than 60 days after the
Change-in-Control occurs, cash in an aggregate amount equal to the product of
(i) the number of Shares that are subject to all Units credited to such Eligible
Director at the time of the Change-in-Control multiplied by (ii) the Fair Market
Value on the date of the Change-in-Control. Notwithstanding the foregoing, no
payment with respect to Units shall be made under this Section 7.2 (and an
Eligible Director shall have no right to receive such payment) earlier than six
months and one day after the applicable date of Grant.
7.3 "Change-in-Control" shall mean the occurrence of any of the following
events:
(i) A merger, consolidation, or reorganization of the Company into or with
another corporation or other legal person if the shareholders of the Company,
immediately before such merger, consolidation, or reorganization, do not,
immediately following such merger, consolidation, or reorganization, then own,
directly or indirectly, more than 60% of the combined voting power of the
then-outstanding voting securities of the corporation or other legal person
resulting from such merger, consolidation, or reorganization in substantially
the same proportion as their ownership of the combined voting power of the then-
outstanding voting securities of the Company immediately prior to such merger,
consolidation, or reorganization;
(ii) Following approval of such transaction by the Company's shareholders,
the Company sells all or substantially all of its assets to another corporation
or other legal person, or there is a liquidation or dissolution of all or
substantially all of the assets of the Company;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form, or report), each as promulgated pursuant to the
Exchange Act disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of 20% or
more of the shares of the Company (computed in accordance with the standards
for the computation of total percentage ownership for the purposes of Schedule
13D or Schedule 14D-1 (or any successor schedule, form, or report)); or
(iv) During any period of twenty-four calendar months, individuals who, as
of the beginning of such period constitute the Directors of the Company, cease
for any reason to constitute at least a majority thereof, unless the election,
or nomination for election by the Company's shareholders, of any new Director
was approved by a vote of at least two-thirds of the Directors then still in
office who were Directors at the beginning of the period (other than an election
or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest (within the meaning of
the term "election contest" under Rule 14a-11 under the Exchange Act or any
successor rule or regulation promulgated under the Exchange Act) relating to the
election of Directors of the Company).
Notwithstanding the foregoing provisions of Section 7.3(iii), a
"Change-in-Control" shall not be deemed to have occurred for purposes of
Sections 7.3(iii) solely because (1) the Company, (2) an Affiliate, or (3) any
employee stock ownership plan or any other employee benefit plan of the Company
or any Affiliate either files or becomes obligated to file a report under or in
response to Schedule 13D or Schedule 14D-1 (or any successor schedule, form, or
report or item therein) under the Exchange Act disclosing beneficial ownership
by it of 20% or more of the shares of the Company.
B-3
<PAGE> 48
SECTION 8. UNFUNDED PLAN.
The Company shall be under no obligation to establish a fund or reserve in
order to pay the benefits under the Plan. A Grant represents a contractual
obligation of the Company to deliver shares to a Director as provided herein.
The Company has not segregated or earmarked any shares or any of the Company's
assets for the benefit of a Director or his/her beneficiary or estate, and the
Plan does not, and shall not be construed to, require the Company to do so. The
Director and his/her beneficiary or estate shall have only an unsecured,
contractual right against the Company for the Grant hereunder, and such right
shall not be deemed superior to the right of any other creditor. Grants shall
not be deemed to constitute any options or rights to purchase Stock.
SECTION 9. AMENDMENT AND TERMINATION.
The Plan may be amended at any time by the Board of Directors; provided
that, except as provided in Section 4.2, the Board of Directors may not, without
approval of the shareholders of the Company: (i) modify the number of shares
with respect to which Units may be awarded under the Plan; (ii) modify the
vesting requirements established under Section 6 or Section 7; or (iii)
otherwise change the times at which, or the period within which, Shares may be
delivered under the Plan. Any modification of any of the terms and provisions of
the Plan, including this Section 9 shall not be made more than once every six
months. The Plan shall terminate, except with respect to previously awarded
Grants, upon the earlier of the following dates or events to occur:
(a) when all the Shares available for issuance hereunder have been issued
(or been made subject to a Grant of Units); or
(b) April 30, 2001.
Notwithstanding the foregoing, no termination of the Plan shall materially
and adversely affect any rights of any Eligible Director under any Grant made
pursuant to the Plan.
SECTION 10. GENERAL PROVISIONS.
10.1 No Right to Serve as a Director. This Plan shall not impose any
obligations on the Company to retain any Eligible Director as a Director, nor
shall it impose any obligation on the part of any Eligible Director to remain as
a Director of the Company.
10.2 Construction of the Plan. The validity, construction, interpretation,
administration and effect of the Plan and rights relating to the Plan, shall be
determined solely in accordance with the laws of the State of Connecticut.
10.3 No Right to Particular Assets. Nothing contained in this Plan and no
action taken pursuant to this Plan shall create or be construed to create a
trust of any kind or any fiduciary relationship between the Company and any
Eligible Director, the executor, administrator or other personal representative
or designated beneficiary of such Eligible Director, or any other persons. Any
reserves that may be established by the Company in connection with Units granted
under this Plan shall continue to be treated as the assets of the Company for
federal income tax purposes and remain subject to the claims of the Company's
creditors. To the extent that any Eligible Director of the executor,
administrator, or other personal representative of such Eligible Director,
acquires a right to receive any payment from the Company pursuant to this Plan,
such right shall be no greater than the right of an unsecured general creditor
of the Company.
10.4 Listing of Shares and Related Matters. If at any time the Board shall
determine in its discretion that the listing, registration or qualification of
the Shares covered by this Plan upon any national securities exchange or under
any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the delivery of Shares under this Plan, no Shares will be delivered unless
and until such listing, registration, qualification, consent or approval shall
have been effected or obtained, or otherwise provided for, free of any
conditions not acceptable to the Board.
10.5 Severability of Provisions. If any provision of this Plan shall
be held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and this Plan shall be construed and
enforced as if such provision had not been included.
10.6 Incapacity. Any benefit payable to or for the benefit of a minor, an
incompetent person
B-4
<PAGE> 49
or other person incapable of receipting therefor shall be deemed paid when paid
to such person's guardian or to the party providing or reasonably appearing to
provide for the care of such person, and such payment shall fully discharge any
liability or obligation of the Board, the Company and all other parties with
respect thereto.
10.7 Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of
this Plan, and shall not be employed in the construction of this Plan.
B-5
<PAGE> 50
151 Farmington Avenue
Hartford, Connecticut 06156
Printed on recycled paper.
<PAGE> 51
AETNA LIFE AND CASUALTY COMPANY
The undersigned appoints Wallace Barnes, William H. Donaldson and
David M. Roderick, and each of them, the proxies of the undersigned,
P with full power of substitution, to vote the shares of the undersigned
R at the Annual Meeting of Shareholders of Aetna Life and Casualty
O Company to be held April 29, 1994 and at any adjournment thereof, and
X directs said proxies to vote as specified herein on the matters set
Y forth in the Notice of the meeting, and in their discretion on
any other matters that may properly come before the meeting or any
adjournment thereof.
COMMON STOCK
See Reverse Side
THIS PROXY IS SOLICITED ON BEHALF OF AETNA'S BOARD OF DIRECTORS.
<PAGE> 52
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2, 3
AND 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
1. Election of
Directors. / / / /
</TABLE>
For, except vote withheld from the following nominee(s):
- -------------------------------------------------------
NOMINEES:
Wallace Barnes, Ronald E. Compton,
John F. Donahue, William H. Donaldson,
Barbara Hackman Franklin, Earl G. Graves,
Gerald Greenwald, Michael H. Jordan,
Jack D. Kuehler, Frank R. O'Keefe, Jr.,
David M. Roderick.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Approval of KPMG Peat Marwick
as Independent Auditors. / / / / / /
3. Approval of 1994 / / / / / /
Stock Incentive Plan.
4. Approval of 1994 / / / / / /
Non-Employee Director
Deferred Stock Plan.
</TABLE>
The signer hereby revokes all proxies
heretofore given by the signer to
vote at said meeting or any
adjournments thereof.
NOTE: Please sign name(s) exactly as
printed hereon. Joint owners should
each sign. When signing as
attorney, executor, administrator,
trustee or guardian, or for a
corporation, please give your title.
, 1994
-------------------------------
, 1994
-------------------------------
SIGNATURE(S) DATE
<PAGE> 53
AETNA LIFE AND CASUALTY COMPANY
The undersigned appoints Wallace Barnes, William H. Donaldson and David M.
Roderick, and each of them, the proxies of the undersigned, with full
P power of substitution, to vote the shares of the undersigned at the
R Annual Meeting of Shareholders of Aetna Life and Casualty Company to be
O held April 29, 1994 and at any adjournment thereof, and directs said
X proxies to vote as specified herein on the matters set forth in the
Y Notice of the meeting, and in their discretion on any other matters that
may properly come before the meeting or any adjournment thereof.
COMMON STOCK
See Reverse Side
THIS PROXY IS SOLICITED ON BEHALF OF AETNA'S BOARD OF DIRECTORS.
<PAGE> 54
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2, 3 AND 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
1. Election of
Directors. / / / /
</TABLE>
For, except vote withheld from the following nominee(s):
- -------------------------------------------------------
NOMINEES:
Wallace Barnes, Ronald E. Compton,
John F. Donahue, William H. Donaldson,
Barbara Hackman Franklin, Earl G. Graves,
Gerald Greenwald, Michael H. Jordan,
Jack D. Kuehler, Frank R. O'Keefe, Jr.,
David M. Roderick.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Approval of KPMG Peat Marwick
as Independent Auditors. / / / / / /
3. Approval of 1994 / / / / / /
Stock Incentive Plan.
4. Approval of 1994 / / / / / /
Non-Employee Director
Deferred Stock Plan.
</TABLE>
NOTE: Please sign name(s) exactly as
printed hereon. Joint owners should
each sign. When signing as
attorney, executor, administrator,
trustee or guardian, or for a
corporation, please give your title.
, 1994
-------------------------------
, 1994
-------------------------------
SIGNATURE(S) DATE
<PAGE> 55
AETNA LIFE AND CASUALTY COMPANY
TO: PARTICIPANTS IN THE INCENTIVE SAVINGS PLAN OF
AETNA LIFE AND CASUALTY COMPANY
The Incentive Savings Plan Committee has instructed Shawmut Bank Connecticut,
N.A., the Trustee under the Incentive Savings Plan (the Plan), to solicit your
instructions on how to vote the shares of Aetna Common Capital Stock without
par value held by the Trustee on your behalf in accordance with the terms of
the Plan and to vote those shares in accordance with your instructions at the
Annual Meeting of Shareholders of Aetna Life and Casualty Company to be held on
April 29, 1994 and at any adjournment thereof. Please indicate, by checking
the appropriate box, how you want these shares voted by the Trustee and return
this card to the Trustee by April 22, 1994 in the envelope provided. THESE
SHARES WILL BE VOTED BY THE TRUSTEE IN ACCORDANCE WITH THE INSTRUCTIONS OF THE
ISP PARTICIPANTS WHO DO VOTE IF YOU FAIL TO INDICATE YOUR VOTING INSTRUCTIONS,
FAIL TO RETURN THE CARD BY APRIL 22, OR DO NOT SIGN THE CARD.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, AND 4.
1. ELECTION OF DIRECTORS. Nominees: Wallace Barnes, Ronald E. Compton,
John F. Donahue, William H. Donaldson, Barbara Hackman
Franklin, Earl G. Graves, Gerald Greenwald, Michael H. Jordan, Jack D.
Kuehler, Frank R. O'Keefe, Jr., David M. Roderick.
(Mark only one)
FOR all nominees listed above (except to withhold authority to
- ---- vote for particular nominees, write those nominees' names in the
space provided here).
- --------------------------------------------------------------------
WITHHOLD AUTHORITY to vote for all nominees.
- ----
(Continued, and to be signed, on the other side)
<PAGE> 56
<TABLE>
<S> <C> <C> <C>
2. Approval of KPMG Peat Marwick
as Independent Auditors ............... FOR AGAINST ABSTAIN
---- ---- ----
3. Approval of 1994 Stock Incentive Plan.. FOR AGAINST ABSTAIN
---- ---- ----
4. Approval of 1994 Non-Employee
Director Deferred Stock Plan........... FOR AGAINST ABSTAIN
---- ---- ----
</TABLE>
DATED: , 1994
------------- -----------------------------------------
(Please sign exactly as your name appears
below.)
THIS INSTRUCTION CARD IS SOLICITED ON BEHALF OF AETNA'S BOARD OF DIRECTORS.
