<PAGE> 1
Filed pursuant to Rule 424(b)(5)
Registration Nos. 333-07167 and 333-07167-01
PRELIMINARY PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 18, 1996)
$1,000,000,000
AETNA SERVICES, INC.
$ % NOTES DUE AUGUST 15, 2001
$ % NOTES DUE AUGUST 15, 2006
LOGO $ % DEBENTURES DUE AUGUST 15, 2026
$ % DEBENTURES DUE AUGUST 15, 2036
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY
AETNA INC.
-------------------------
Interest on the % Notes due August 15, 2001 (the "2001 Notes") and the
% Notes due August 15, 2006 (the "2006 Notes" and together with the 2001
Notes, the "Notes") is payable semiannually in arrears on February 15 and August
15 of each year, beginning February 15, 1997. The Notes are not redeemable by
Aetna Services, Inc. (the "Company"), formerly Aetna Life and Casualty Company,
prior to maturity. The 2001 Notes will mature on August 15, 2001. The 2006 Notes
will mature on August 15, 2006. See "Description of Notes and
Debentures -- Notes."
Interest on the % Debentures due August 15, 2026 (the "2026 Debentures")
and the % Debentures due August 15, 2036 (the "2036 Debentures" and together
with the 2026 Debentures, the "Debentures") is payable semiannually in arrears
on February 15 and August 15 of each year, beginning February 15, 1997. The
Debentures are not redeemable by the Company prior to maturity. The 2026
Debentures will mature on August 15, 2026. The 2036 Debentures will mature on
August 15, 2036. The registered holder of each 2036 Debenture may elect to have
that Debenture, or any portion of the principal amount thereof that is a
multiple of $1,000, repaid on August 15, 2004 at 100% of the principal amount
thereof, together with accrued interest to August 15, 2004. Such election, which
is irrevocable when made, must be made within the period commencing on June 15,
2004 and ending at the close of business on July 15, 2004. No similar right is
available to the holders of the 2001 Notes, the 2006 Notes or the 2026
Debentures. See "Description of Notes and Debentures -- Debentures."
The Notes and the Debentures are unsecured obligations of the Company and
rank equally with all other unsecured and unsubordinated indebtedness of the
Company. The Notes and the Debentures are unconditionally guaranteed as to the
payment of principal and interest by Aetna Inc. ("Aetna").
The 2001 Notes, the 2006 Notes, the 2026 Debentures and the 2036 Debentures
will be issued in the form of one or more global securities (the "Global
Securities") registered in the name of The Depositary Trust Company ("DTC") or
its nominee. Beneficial interests in the Global Securities will be shown on, and
transfers will be effected only through, records maintained by DTC and its
participants. Except as described herein, Notes and Debentures in definitive
form will not be issued. See "Description of Notes and Debentures -- Book-Entry,
Delivery and Form."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS OR THIS
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
========================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) THE COMPANY(1)(3)
- --------------------------------------------------------------------------------------------------------
Per 2001 Note......................
- --------------------------------------------------------------------------------------------------------
Total..............................
- --------------------------------------------------------------------------------------------------------
Per 2006 Note......................
- --------------------------------------------------------------------------------------------------------
Total..............................
- --------------------------------------------------------------------------------------------------------
Per 2026 Debenture.................
- --------------------------------------------------------------------------------------------------------
Total..............................
- --------------------------------------------------------------------------------------------------------
Per 2036 Debenture.................
- --------------------------------------------------------------------------------------------------------
Total..............................
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from August , 1996.
(2) The Company and Aetna have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $ .
-------------------------
The Notes and the Debentures are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them and
subject to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject offers in whole or in part.
It is expected that delivery of the Notes and the Debentures will be made
through the book-entry facilities of The Depository Trust Company against
payment therefor in immediately available funds on or about August , 1996.
-------------------------
MERRILL LYNCH & CO.
CS FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
J.P. MORGAN & CO.
MORGAN STANLEY & CO.
INCORPORATED
-------------------------
The date of this Prospectus Supplement is August , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND
EXCHANGE COMMISSION. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE
SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 2
IN CONNECTION WITH THESE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES
AND THE DEBENTURES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THESE OFFERINGS NOR HAS THE COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
S-2
<PAGE> 3
THE COMPANIES
Aetna and its subsidiaries constitute the nation's largest health benefits
company, based on membership, and one of the nation's largest insurance and
financial services organizations centered around three core businesses: health
care, retirement services and international.
Aetna's health care business, formed by the combination of Aetna Health
Plans and U.S. Healthcare, Inc. ("U.S. Healthcare") has a presence in all 50
states and provides health care benefits to over 20 million people in the United
States through a full spectrum of managed care, indemnity and specialty health
products. Aetna's combined health business accounted for approximately 68% of
the total pro forma revenues of Aetna for the year ended December 31, 1995. The
combined health business offers comprehensive managed health care services
through health maintenance organizations. Point of service and preferred
provider organization plans are also offered. These managed care products cover
over 10 million members receiving benefits through an extensive network of
physicians, hospitals and pharmacies. Customers include both small employers as
well as large commercial accounts; Medicare managed care plans are also offered
in many areas. The combined health business also offers specialty health
products including behavioral health and dental plans, and other benefit
coverages including prescription drug plans, vision plans, employee assistance
programs and wellness programs. The combined health business also makes
available home health care and other outpatient services, network-based workers'
compensation case management and disability services, quality and outcome
measurement and improvement programs and health data analysis systems. Group
insurance products offered by the combined health business include life
insurance, disability (including managed disability) coverage and long-term care
plans.
Aetna Retirement Services ("ARS") is among the nation's larger life
insurers, based on total assets, and markets and services life insurance and
financial services products directly and through employer-sponsored retirement
plans. ARS products include individual and group annuity contracts, individual
and group nonqualified annuity contracts, and universal life, variable universal
life, interest-sensitive whole life and term insurance.
Aetna International, through subsidiaries and joint venture operations,
sells primarily life insurance and financial services products in non-U.S.
markets, including Canada, Mexico, Taiwan, Chile, Malaysia, Hong Kong, New
Zealand, Peru, Argentina and Indonesia. Aetna International serves over 8
million customers worldwide.
RECENT DEVELOPMENTS
MERGERS AND DIVESTITURES
On July 19, 1996, the Company and U.S. Healthcare merged into separate
wholly-owned subsidiaries of Aetna (the "Mergers"). In connection with the
Mergers, the Company (formerly Aetna Life and Casualty Company) changed its name
to Aetna Services, Inc.
The Company's merger with U.S. Healthcare represents a major step in the
Company's previously announced strategic decision to focus its resources on
pursuing growth opportunities in its health care business and evaluate
opportunities for growth and development of its financial services and
international operations.
Following a comprehensive review of the Company's long-term strategic
objectives and alternatives, in the fall of 1995, the Company conducted a
controlled auction of its property-casualty operations. On November 28, 1995,
the Company entered into an agreement with the Travelers Insurance Group Inc.
for the sale of such operations (the "Property-Casualty Sale"). The
Property-Casualty Sale was completed on April 2, 1996 for approximately $4.1
billion in cash.
On March 30, 1996, the Company entered into an agreement to merge with U.S.
Healthcare. The Company's decision to pursue a merger transaction with U.S.
Healthcare was based on analysis of the information obtained regarding U.S.
Healthcare and other potential transaction candidates, including management's
view that U.S. Healthcare was the preferred candidate for a transaction by the
Company in the
S-3
<PAGE> 4
health care sector. The Company management believed that U.S. Healthcare best
met, overall, the Company's candidate selection criteria, including leadership
and management capability, managed care capability, scalable information
technology systems and business infrastructure, and market presence in certain
geographic areas. The Company management's view was also based on U.S.
Healthcare's record of profitability relative to other transaction candidates,
its direct marketing capability and its position in the commercial sector of the
health care business, which was viewed as complementary to the Company's
position.
The transaction with U.S. Healthcare was valued at over $8 billion, and was
financed by the issuance of Aetna Common Stock and Aetna 6.25% Class C Voting
Preferred Stock, together with $5.3 billion of cash. The cash represented $3.9
billion of the net proceeds received from the Property-Casualty Sale and funds
made available by the issuance of $1.4 billion of commercial paper of the
Company, which as of the effective time of the Mergers was guaranteed by Aetna.
GUARANTEES
On August 2, 1996, Aetna unconditionally guaranteed the payment of all
principal, premium, if any, and interest on the following outstanding
securities: $100,000,000 8 5/8% Notes due 1998; $200,000,000 6 3/8% Notes due
2003; $200,000,000 6 3/4% Debentures due 2013; $63,500,000 7 3/4% Eurodollar
Notes due 2016; $200,000,000 8% Debentures due 2017; $200,000,000 7 1/4%
Debentures due 2023; and 11,000,000 Shares of 9 1/2% Cumulative Monthly Income
Preferred Securities, Series A, of Aetna Capital L.L.C. and the related
$348,000,000 9 1/2% Subordinated Debentures due 2024. As a result, payments on
all of the Company's outstanding debt securities and the preferred securities of
a subsidiary are guaranteed by Aetna.
RATINGS
In July 1996, Standard & Poor's Corporation, Moody's Investors Service,
Inc. and Duff & Phelps Credit Rating Company affirmed the senior debt and
commercial paper ratings of the Company and removed the Company's ratings from
credit watch. Standard & Poor's Corporation announced on July 16, 1996 that it
had lowered the claims paying rating of Aetna Life Insurance Company, a
wholly-owned subsidiary of the Company, from A+ to A and had lowered the claims
paying rating of Aetna Life Insurance and Annuity Company, a wholly-owned
subsidiary of the Company, from AA to AA-.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Notes and
the Debentures, estimated to be approximately $992 million, to repay outstanding
commercial paper borrowings with maturities of up to 270 days from the issue
date and bearing interest at a blended rate of 5.48%. See "Recent Developments."
S-4
<PAGE> 5
CAPITALIZATION
The following table sets forth the actual short-term debt and
capitalization of the Company as of June 30, 1996 and the pro forma short-term
debt and capitalization of Aetna as of June 30, 1996, and as adjusted to give
effect to the issuance of the Notes and Debentures and the application of the
estimated net proceeds thereof as set forth in "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
(UNAUDITED)
-----------------------------------------------
AETNA AETNA INC.
SERVICES, INC. AETNA INC. PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
-------------- ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C>
Short-term debt........................................ $ 34.1 $ 1,484.1 $ 492.1
======== ======== ========
Long-term debt......................................... $ 986.7 $ 986.7 $ 1,986.7
======== ======== ========
Minority interest in preferred securities of
subsidiary........................................... $ 275.0 $ 275.0 $ 275.0
======== ======== ========
Shareholders' equity:
Common stock......................................... $1,499.6 $ 4,187.5 $ 4,187.5
Mandatorily convertible preferred stock.............. -- 900.0 900.0
Net unrealized capital gains......................... 103.2 103.2 103.2
Retained earnings.................................... 5,751.6 5,751.6 5,751.6
Treasury stock, at cost.............................. (12.1) -- --
-------- -------- --------
Total shareholders' equity........................... $7,342.3 $ 10,942.3 $10,942.3
======== ======== ========
Total short-term debt and capitalization.......... $8,638.1 $ 13,688.1 $13,696.1
======== ======== ========
Ratio of total debt to total short-term debt and
capitalization....................................... 11.8% 18.1% 18.1%
======== ======== ========
</TABLE>
- ---------------
(1) The Aetna pro forma information gives effect to the Mergers (including
associated borrowings and related transactions) as if they occurred on June
30, 1996 and is derived from the unaudited pro forma condensed consolidated
financial statements contained in Aetna's Form 8-K filed on July 26, 1996,
which is incorporated herein by reference.
S-5
<PAGE> 6
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated statements of
income of Aetna for the six months ended June 30, 1996 and the twelve months
ended December 31, 1995 present results for Aetna as if each of the following
had occurred as of January 1, 1996 and January 1, 1995, respectively: (i) the
consummation of the Property-Casualty Sale and (ii) the consummation of the
Mergers (including associated borrowings and related transactions). The
accompanying unaudited pro forma condensed consolidated balance sheet for Aetna
as of June 30, 1996 gives effect to the Mergers (including associated borrowings
and related transactions) as if they had occurred as of June 30, 1996.
The Mergers were accomplished through the merger of the Company and U.S.
Healthcare into separate wholly-owned subsidiaries of Aetna (the "Aetna Sub
Merger" and the "U.S. Healthcare Sub Merger," respectively). The U.S. Healthcare
Sub Merger was accounted for under the purchase method of accounting.
Accordingly, the amount of the consideration paid in the U.S. Healthcare Sub
Merger has been allocated to assets acquired and liabilities assumed based on
their estimated fair values. The excess of such consideration over the estimated
fair value of such assets and liabilities has been preliminarily allocated to
certain identifiable intangible assets and goodwill. The purchase price
allocation may be adjusted upon completion of the final valuations of U.S.
Healthcare's assets and liabilities and the effect of any such adjustment could
be significant. The Aetna Sub Merger was treated as a reorganization with no
change in the recorded amount of the Company's assets and liabilities. The
unaudited pro forma condensed consolidated financial statements do not give
effect to any synergies which may be realized as a result of the Mergers and do
not give effect to the issuance of the Notes or Debentures. Additionally, the
unaudited pro forma condensed consolidated financial statements do not reflect
interest income earned for the period April 2, 1996 through June 30, 1996 on
that portion of the cash consideration paid at closing of the U.S. Healthcare
Sub Merger from the proceeds of the Property-Casualty Sale.
The unaudited pro forma condensed consolidated statement of income for the
six months ended June 30, 1996 includes facilities and severance charges of
$392.7 million related to the Property-Casualty Sale (including actions taken or
expected to be taken to reduce the level of corporate expenses and other costs
previously absorbed by the property-casualty operations) and actions taken or
expected to be taken primarily to reduce information technology costs in the
Company's health care operations, and are not related to the Mergers. The
foregoing charges were taken in the second quarter of 1996. The unaudited pro
forma condensed consolidated financial statements do not reflect any
nonrecurring/unusual restructuring charges that may be incurred as a result of
the integration of the Company's and U.S. Healthcare's combined health
operations. Aetna anticipates reflecting a significant charge in the third
quarter of 1996 related to restructuring actions expected to be taken as a
result of the integration of U.S. Healthcare. The amount of such charge cannot
be reasonably estimated at this time.
The unaudited pro forma condensed consolidated financial statements are
provided for informational purposes only and do not purport to represent what
Aetna's financial position or results of operations actually would have been had
the Property-Casualty Sale and the Mergers in fact occurred on the dates
indicated, or to project Aetna's financial position or results of operations for
any future date or period. The unaudited pro forma condensed financial
statements are derived from the unaudited pro forma condensed financial
statements, and the notes thereto, included in the Form 8-K of Aetna filed on
July 26, 1996, which is incorporated herein by reference, and should be read in
conjunction herewith.
The unaudited pro forma condensed consolidated financial statements are
based on the historical consolidated financial statements of the Company and
U.S. Healthcare and should be read in conjunction with such historical financial
statements, and the notes thereto, which are included in the annual reports on
Form 10-K of the Company and Form 10-K/A of U.S. Healthcare for the year ended
December 31, 1995 and the quarterly reports on Form 10-Q of the Company for the
quarter ended June 30, 1996 and U.S. Healthcare for the quarter ended March 31,
1996, incorporated herein by reference. The financial data of U.S. Healthcare
for the six-month period ended June 30, 1996 is derived from unaudited financial
statements. The unaudited financial statements include all adjustments necessary
for a fair presentation of the financial position and the results of operations
for such period. Operating results for the six-month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. (See information regarding factors affecting
forward-looking information included in the reports referred to above.)
S-6
<PAGE> 7
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME OF AETNA INC.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
(IN MILLIONS)
<S> <C> <C>
Revenue:
Premiums....................................................... $5,650.2 $10,893.4
Net investment income, including net realized capital gains.... 1,841.6 3,714.2
Fees and other income.......................................... 1,114.8 1,980.1
-------- ---------
Total revenue............................................. 8,606.6 16,587.7
-------- ---------
Benefits and Expenses:
Current and future benefits.................................... 5,911.2 11,605.0
Operating expenses............................................. 1,897.1 3,651.6
Amortization of deferred policy acquisition costs.............. 75.1 137.1
Amortization of identifiable intangible assets and goodwill.... 178.6 358.4
Reduction of loss on discontinued products..................... (170.0) --
Facilities and severance charges............................... 392.7 --
-------- ---------
Total benefits and expenses............................... 8,284.7 15,752.1
-------- ---------
Income from continuing operations before income taxes and preferred
stock dividends................................................... 321.9 835.6
Income taxes........................................................ 144.7 373.2
-------- ---------
Income from continuing operations................................... 177.2 462.4
Dividends on mandatorily convertible preferred stock................ (28.1) (56.2)
-------- ---------
Income from continuing operations attributable to common
ownership......................................................... $ 149.1 $ 406.2
======== =========
</TABLE>
S-7
<PAGE> 8
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET OF AETNA INC.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
----------------
(IN MILLIONS)
<S> <C>
Assets:
Investments:
Marketable securities........................................... $33,748.4
Other investments............................................... 10,062.9
---------
Total investments.................................................... 43,811.3
---------
Cash and cash equivalents............................................ 771.9
Goodwill............................................................. 6,934.6
Identifiable intangible assets....................................... 1,525.0
Deferred federal and foreign income taxes............................ 570.4
Separate accounts assets............................................. 32,281.0
Other assets......................................................... 5,191.6
---------
Total assets............................................... $91,085.8
=========
Liabilities:
Insurance liabilities.............................................. $41,320.6
Debt............................................................... 2,470.8
Accounts payable and other liabilities............................. 3,858.7
Separate accounts liabilities...................................... 32,218.4
---------
Total liabilities.................................................... 79,868.5
---------
Minority interest in preferred securities of subsidiary.............. 275.0
---------
Shareholders' Equity:
Common stock....................................................... 4,187.5
Mandatorily convertible preferred stock............................ 900.0
Net unrealized capital gains....................................... 103.2
Retained earnings.................................................. 5,751.6
---------
Total shareholders' equity........................................... 10,942.3
---------
Total liabilities, minority interest and shareholders'
equity................................................... $91,085.8
=========
</TABLE>
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<PAGE> 9
SELECTED HISTORICAL FINANCIAL DATA
OF THE COMPANY
The following table sets forth selected historical financial data of the
Company for the five years ended December 31, 1995 and for the six months ended
June 30, 1996 and 1995. The financial data for the six-month periods ended June
30, 1996 and 1995 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments necessary for a fair presentation
of the financial position and the results of operations for such periods.
Operating results for the six-month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. The selected historical financial data of the Company has
been derived from, and should be read in conjunction with, the historical
consolidated financial statements of the Company including the notes thereto,
which are incorporated herein by reference.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue
Premiums...................... $ 3,554.7 $ 3,704.6 $ 7,431.4 $ 6,901.3 $ 5,921.7 $ 5,717.6 $ 5,434.2
Net investment income, fees
and other income, and net
realized capital gains and
losses...................... 2,912.8 2,731.9 5,546.6 5,317.7 5,418.0 5,367.3 5,279.9
--------- --------- --------- --------- --------- --------- ---------
Total revenue from
continuing
operations(a)........ $ 6,467.5 $ 6,436.5 $12,978.0 $12,219.0 $11,339.7 $11,084.9 $10,714.1
========= ========= ========= ========= ========= ========= =========
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT ADJUSTMENTS:
Income (Loss) from continuing
operations before
extraordinary item and
cumulative effect
adjustments................... $ 189.8 $ 213.5 $ 473.9 $ 409.4 $ (602.3) $ 101.0 $ 140.4
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) from discontinued
operations, net of tax(b)..... 445.9 (349.6) (222.2) 58.1 290.3 324.8 364.8
Extraordinary loss on debenture
redemption, net of tax........ -- -- -- -- (4.7) -- --
Cumulative effect adjustments
for continuing operations..... -- -- -- -- (49.2) (369.8) --
--------- --------- --------- --------- --------- --------- ---------
Net income (Loss)............... $ 635.7 $ (136.1) $ 251.7 $ 467.5 $ (365.9) $ 56.0 $ 505.2
========= ========= ========= ========= ========= ========= =========
Net realized capital gains
(losses), net of tax (from
continuing operations)
(included above).............. $ 44.0 $ (1.2) $ 29.5 $ (41.2) $ (42.0) $ (76.7) $ (200.6)
BALANCE SHEET DATA:
Total assets.................... $84,717.4 $81,078.5 $84,323.7 $75,486.7 $81,572.8 $77,022.0 $78,966.8
Total long-term debt............ 986.7 1,082.5 989.1 1,079.2 1,112.2 900.9 976.0
Minority interest in preferred
securities of subsidiary...... 275.0 275.0 275.0 275.0 -- -- --
Shareholders' equity............ 7,342.3 6,653.0 7,272.8 5,503.0 7,043.1 7,238.3 7,384.5
</TABLE>
- ---------------
(a) Continuing operations includes results of operations of Aetna Health Plans,
Aetna Retirement Services, International and Large Case Pensions Segments.
(b) Discontinued operations includes the Company's property-casualty operations,
which the Company sold to an affiliate of The Travelers Insurance Group Inc.
on April 2, 1996, and, in 1991 through 1993, American Re-Insurance Company.
Income from discontinued operations for the six months ended June 30, 1996
includes a gain of $263.7 million related to the Property-Casualty Sale.
S-9
<PAGE> 10
SELECTED HISTORICAL FINANCIAL DATA
OF U.S. HEALTHCARE
The following selected historical financial data for the five years ended
December 31, 1995 are derived from the audited consolidated financial statements
of U.S. Healthcare. The financial data for the six-month periods ended June 30,
1996 and 1995 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments necessary for a fair presentation
of the financial position and the results of operations for such periods.
Operating results for the six-month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. The data should be read in conjunction with the consolidated
financial statements, related notes, and other financial information
incorporated by reference herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
OPERATING REVENUE:
Commercial premiums.................... $1,658.0 $1,430.2 $2,971.4 $2,635.6 $2,402.4 $2,011.0 $1,584.9
Government premiums.................... 437.5 198.0 490.7 240.9 157.3 105.6 74.8
Other, principally administrative
services fees........................ 48.5 26.4 55.7 32.8 20.2 12.5 4.7
--------- --------- --------- --------- --------- --------- ---------
- - - - - - -
2,144.0 1,654.6 3,517.8 2,909.3 2,579.9 2,129.1 1,664.4
OPERATING EXPENSES:
Medical costs.......................... 1,614.9 1,205.0 2,577.8 1,994.8 1,862.0 1,631.3 1,280.0
Administrative, marketing and other
operating costs...................... 243.6 190.5 412.9 322.4 279.5 227.8 182.7
--------- --------- --------- --------- --------- --------- ---------
- - - - - - -
1,858.5 1,395.5 2,990.7 2,317.2 2,141.5 1,859.1 1,462.7
--------- --------- --------- --------- --------- --------- ---------
- - - - - - -
Income from operations................... 285.5 259.1 527.1 592.1 438.4 270.0 201.7
Investment income, including net realized
capital gains and losses............... 41.8 46.0 91.9 65.2 65.3 60.1 44.1
Other income (expense)(a)................ (27.4) -- -- -- -- -- 1.5
--------- --------- --------- --------- --------- --------- ---------
- - - - - - -
Income before income taxes............... 299.9 305.1 619.0 657.3 503.7 330.1 247.3
Provision for income taxes............... 120.3 117.5 238.3 266.2 204.0 130.1 96.2
--------- --------- --------- --------- --------- --------- ---------
- - - - - - -
Net income............................... $ 179.6 $ 187.6 $ 380.7 $ 391.1 $ 299.7 $ 200.0 $ 151.1
========== ========== ========== ========== ========== ========== ==========
Medical costs as a percentage of
premiums............................... 77.1% 74.0% 74.5% 69.3% 72.7% 77.1% 77.1%
BALANCE SHEET DATA:
Total assets(b)........................ $1,847.1 $1,447.5 $1,667.1 $1,463.9 $1,343.7 $ 981.1 $ 758.2
Total liabilities(b)................... 744.6 589.3 703.0 558.2 573.9 476.0 411.3
Shareholders' equity(b)................ 1,102.5 858.2 964.1 905.7 769.7 505.1 346.9
</TABLE>
- ---------------
(a) Other expense in the six months ended June 30, 1996 consists of costs
incurred in connection with the U.S. Healthcare Sub Merger.
(b) U.S. Healthcare adopted Financial Accounting Standard Number 115 (FAS
115) -- "Accounting for Certain Investments in Debt and Equity Securities"
as of December 31, 1993. The adoption of FAS 115 had no effect on net income
but increased marketable securities as of December 31, 1993 by $38.2
million, representing net unrealized gains, and increased shareholders'
equity by $23.3 million (net unrealized gains less deferred income taxes of
$14.9 million).
S-10
<PAGE> 11
RATIO OF EARNINGS TO FIXED CHARGES
AETNA
The following table sets forth the pro forma ratio of earnings to fixed
charges of Aetna for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Pro Forma Ratio of Earnings to Fixed Charges(a)........ 3.14 3.65
</TABLE>
- ---------------
(a) The Aetna pro forma ratios for the six months ended June 30, 1996 and the
year ended December 31, 1995 give effect to the Mergers (including
associated borrowings and related transactions) as if they occurred on
January 1, 1996 and January 1, 1995, respectively. The foregoing ratios do
not give effect to the issuance of the Notes and Debentures.
THE COMPANY
The following table sets forth the Company's ratio of earnings to fixed
charges for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED --------------------------------
JUNE 30, 1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges......... 4.04 4.97 4.74 (a) 1.90 .54 (b)
</TABLE>
- ---------------
(a) The Company reported a pretax loss from continuing operations in 1993 which
was inadequate to cover fixed charges by $1.0 billion.
(b) Earnings were inadequate to cover fixed charges by $92.0 million in 1991.
For purposes of computing the ratio of earnings to fixed charges of Aetna
and the Company, "earnings" represent consolidated earnings from continuing
operations before income taxes, cumulative effect adjustments and extraordinary
items plus fixed charges and minority interest. "Fixed charges" consist of
interest (and the portion of rental expense deemed representative of the
interest factor) and includes the dividends paid to preferred shareholders of a
subsidiary. (See Note 11 of Notes to Financial Statements incorporated by
reference herein from the Aetna Life and Casualty 1995 Annual Report on Form
10-K).
PRO FORMA RATIO OF AETNA'S EBITDA TO INTEREST EXPENSE
The following table sets forth the pro forma ratio of Aetna's earnings from
continuing operations before interest, taxes, depreciation and amortization
(EBITDA), to interest expense (including dividends paid to preferred
shareholders of a subsidiary) of Aetna for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Pro Forma Ratio of EBITDA to Interest Expense.......... 6.15 6.64
</TABLE>
S-11
<PAGE> 12
DESCRIPTION OF NOTES AND DEBENTURES
The following summary of the particular terms of the Notes and Debentures
offered hereby (referred to in the Prospectus as the "Offered Debt Securities")
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Debt Securities set forth in the
accompanying Prospectus, to which description reference is hereby made.
NOTES
The 2001 Notes will be limited to $ aggregate principal amount and
the 2006 Notes will be limited to $ aggregate principal amount. The
2001 Notes and the 2006 Notes will each constitute a series of Senior Debt
Securities of the Company, and are to be issued under the Senior Indenture as
defined in the Prospectus. The Notes are unconditionally guaranteed as to
payment of principal and interest by Aetna. The Notes are unsecured obligations
of the Company and rank equally with all other unsecured and unsubordinated
indebtedness of the Company. The Guarantees of the Notes by Aetna (together with
the Guarantees of the Debentures by Aetna, the "Guarantees") are unsecured
obligations and rank equally with all other unsecured and unsubordinated
indebtedness of Aetna. Reference is made to the Prospectus for a detailed
summary of additional provisions of the Notes and the Guarantees and of the
Senior Indenture under which the Notes and the Guarantees are issued.
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Prospectus and the Senior Indenture.
The 2001 Notes will bear interest at the rate of % per annum and the
2006 Notes will bear interest at the rate of % per annum, in each case from
August , 1996, or from the most recent interest payment date to which interest
has been paid or duly provided for, payable semiannually on February 15 and
August 15, commencing February 15, 1997, to the persons in whose names the Notes
are registered at the close of business on the February 1 and August 1, as the
case may be, preceding such February 15 and August 15. Principal of and interest
on the Notes will be payable at the office or agency of the Company maintained
for such purposes in the City of Hartford; provided, however, that at the option
of the Company, payment of interest may be made by check mailed to the address
of the person entitled thereto as such address shall appear in the security
register.
The 2001 Notes will mature on August 15, 2001 and the 2006 Notes will
mature on August 15, 2006, and the Notes will not be redeemable by the Company
prior to maturity. The Notes will not have the benefit of any sinking fund.
The Senior Indenture permits the defeasance of the Notes upon the
satisfaction of the conditions described under "Description of Debt
Securities -- Defeasance and Covenant Defeasance" in the accompanying
Prospectus.
The Notes may be transferred or exchanged without any service charge at the
corporate trust office of the Trustee in the City of Hartford, or at any other
office or agency maintained by the Company for such purpose.
DEBENTURES
The 2026 Debentures will be limited to $ aggregate principal
amount and the 2036 Debentures will be limited to $ aggregate principal
amount. The 2026 Debentures and the 2036 Debentures will each constitute a
series of Senior Debt Securities of the Company, and are to be issued under the
Senior Indenture as defined in the Prospectus. The Debentures are
unconditionally guaranteed as to payment of principal and interest by Aetna. The
Debentures are unsecured obligations and rank equally with all other unsecured
and unsubordinated indebtedness of the Company. The Guarantees are unsecured
obligations and rank equally with all other unsecured and unsubordinated
indebtedness of Aetna. Reference is made to the Prospectus for a detailed
summary of additional provisions of the Debentures and the Guarantees and of the
Senior Indenture under which the Debentures and the Guarantees are issued.
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Prospectus and the Senior Indenture.
The 2026 Debentures will bear interest at the rate of % per annum and
the 2036 Debentures will bear interest at the rate of % per annum, in each
case from August , 1996, or from the most recent
S-12
<PAGE> 13
interest payment date to which interest has been paid or duly provided for,
payable semiannually on February 15 and August 15, commencing February 15, 1997,
to the persons in whose names the Debentures are registered at the close of
business on the February 1 and August 1, as the case may be, preceding such
February 15 and August 15. Principal of and interest on the Debentures will be
payable at the office or agency of the Company maintained for such purposes in
the City of Hartford; provided, however, that at the option of the Company,
payment of interest may be made by check mailed to the address of the person
entitled thereto as such address shall appear in the Security Register.
The 2026 Debentures will mature on August 15, 2026 and the 2036 Debentures
will mature on August 15, 2036 and the Debentures will not be redeemable by the
Company prior to maturity. The Debentures will not have the benefit of any
sinking fund.
The Indenture permits the defeasance of the Debentures upon the
satisfaction of the conditions described under "Description of Debt
Securities -- Defeasance and Covenant Defeasance" in the Prospectus.
The Debentures may be transferred or exchanged without any service charge
at the corporate trust office of the Trustee in the City of Hartford, or at any
other office or agency maintained by the Company for such purpose.
OPTIONAL REPAYMENT
The 2036 Debentures may be repaid on August 15, 2004, at the option of the
registered holders of the 2036 Debentures, at 100% of their principal amount,
together with accrued interest to August 15, 2004. In order for a holder to
exercise this option, the Company must receive at its office or agency in
Hartford, Connecticut, during the period beginning on June 15, 2004 and ending
at 5:00 p.m. (Hartford, Connecticut time) on July 15, 2004 (or, if July 15, 2004
is not a Business Day, the next succeeding Business Day), the certificate
representing the 2036 Debenture subject to repayment with the form "Option to
Elect Repayment on August 15, 2004" on such certificate duly completed. Any such
notice received by the Company during the period beginning on June 15, 2004 and
ending at 5:00 p.m. (Hartford, Connecticut time) on July 15, 2004 shall be
irrevocable. See "-- Book Entry, Delivery and Form." The repayment option may be
exercised by the holder of a 2036 Debenture for less than the entire principal
amount of the 2036 Debentures held by each such holder, so long as the principal
amount that is to be repaid is equal to $1,000 or an integral multiple of
$1,000. All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any 2036 Debenture for repayment will be determined
by the Company, whose determination will be final and binding.
Failure by the Company to repay the 2036 Debentures when required as
described in the preceding paragraph will result in an Event of Default under
the Indenture.
As long as the 2036 Debentures are represented by a Global Debenture (as
defined below), the Depositary or the Depositary's nominee will be the
registered holder of the 2036 Debentures and theretofore will be the only entity
that can exercise a right to repayment. See "-- Book Entry, Delivery and Form."
No similar right of repayment is available to holders of the 2001 Notes,
the 2006 Notes or the 2026 Debentures.
BOOK-ENTRY, DELIVERY AND FORM
The Notes and the Debentures will each be issued in the form of one or more
fully registered certificates registered in the name of Cede & Co., the nominee
of The Depository Trust Company (the "Depository"). Except as provided below,
owners of beneficial interests in the certificates for the Notes registered in
the name of the Depository ("Global Notes") or in the certificates for the
Debentures registered in the name of the Depository ("Global Debentures") will
not be entitled to have either the Global Notes or the Global Debentures, as the
case may be, registered in their names and will not receive or be entitled to
receive physical delivery of either the Global Notes or the Global Debentures in
definitive form. Unless and until definitive Notes or Debentures are issued to
owners of beneficial interests in the Global Notes or the Global Debentures,
such owners of beneficial interests will not be recognized as Holders of either
the Notes or the Debentures, as the case may be, by the Trustee. Hence, until
such time, owners of beneficial interests in either the Global
S-13
<PAGE> 14
Notes or the Global Debentures will only be able to exercise the rights of
Holders indirectly through the Depository and its participating organizations.
Except as set forth below, the certificates may not be transferred except as a
whole by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or by the
Depository or any nominee to a successor of the Depository or a nominee of such
successor.
The Depository has advised the Company and Aetna that it is a
limited-purpose trust Company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934, as amended. The Depository was created to hold securities for its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depository's participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations, some of
which (and/or their representatives) own the Depository. Access to the
Depository's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by the Depository only
through participants.
The Depository advises that pursuant to procedures established by it (i)
upon the issuance of the Notes and the Debentures by the Company, the Depository
will credit the accounts of participants designated by the Underwriters with the
amount of the Global Notes and the Global Debentures purchased by the
Underwriters, and (ii) ownership of beneficial interests in the certificates
representing the Global Notes and the Global Debentures will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the Depository (with respect to participants' interests) and the participants
and the indirect participants (with respect to beneficial owners' interests).
The laws of some states require that certain persons take physical delivery in
definitive form of securities which they own. Consequently, the ability to
transfer beneficial interests in such certificates is limited to such extent.
Neither the Company, Aetna, the Trustee, any Payment Agent, nor the
Security Registrar will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the certificates representing the Global Notes or the Global
Debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Principal and interest payments on the Global Notes and the Global
Debentures registered in the name of the Depository's nominee will be made by
the Trustee to the Depository's nominee as the registered owner of the
certificates relating to the Global Notes and the Global Debentures. The Senior
Indenture provides that the Company, Aetna and the Trustee will treat the
persons in whose names either the Global Notes or the Global Debentures are
registered (the Depository or its nominee) as the owners of the Global Notes or
the Global Debentures, as the case may be, for the purpose of receiving payment
of principal and interest on either the Global Notes or the Global Debentures
and for all other purposes whatsoever. Therefore, neither the Company, Aetna,
the Trustee nor any Paying Agent has any direct responsibility or liability for
the payment of principal or interest on the Global Notes or the Global
Debentures to owners of beneficial interests in the certificates relating to the
Global Notes or the Global Debentures. The Depository has advised the Company,
Aetna and the Trustee that its present practice is, upon receipt of any payment
of principal or interest, to immediately credit the accounts of the participants
with such payment in amounts proportionate to their respective holdings in
principal amount of beneficial interests in the certificates relating to the
Global Notes or the Global Debentures, as shown on the records of the
Depository. Payments by participants and indirect participants to owners of
beneficial interests in the certificates relating to the Global Notes and the
Global Debentures will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name", and will be the responsibility of
the participants or indirect participants.
S-14
<PAGE> 15
If the Depository is at any time unwilling or unable to continue as
depository and a successor depository is not appointed by the Company, the
Company will issue Notes and Debentures in definitive form, having the guarantee
of Aetna endorsed thereon, in exchange for the total amount of the certificates
representing the Global Notes and the Global Debentures. In addition, the
Company may at any time determine not to have Notes or Debentures represented by
Global Notes or Global Debentures, as the case may be, and, in such event, the
Company will issue Notes or Debentures in definitive form, having the guarantee
of Aetna endorsed thereon, in exchange for the total amount of the certificates
representing the Global Notes or the Global Debentures. In addition, if any
event shall have happened and be continuing that constitutes an Event of Default
with respect to the Notes or the Debentures, the owners of beneficial interests
in certificates for the Global Notes or the Global Debentures will be entitled
to receive Notes or Debentures, as the case may be, in certificated form in
exchange for the Book-Entry certificate or certificates representing the Global
Notes or the Global Debentures, as the case may be. In any such instance, an
owner of a beneficial interest in such certificates will be entitled to physical
delivery in definitive form of Notes or Debentures equal in amount to such
beneficial interest and to have such Notes or Debentures registered in its name.
S-15
<PAGE> 16
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Company, Aetna, and Merrill Lynch,
Pierce Fenner & Smith Incorporated, CS First Boston Corporation, Donaldson
Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., Lehman Brothers
Inc., J.P. Morgan Securities Inc., and Morgan Stanley & Co. Incorporated (the
"Underwriters"), the Company has agreed to sell to the Underwriters and the
Underwriters have severally agreed to purchase, the respective principal amounts
of the Notes and Debentures set forth after their names below. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters will be obligated to
purchase all of the Notes and Debentures if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT ON AMOUNT OF AMOUNT OF
2001 2006 2026 2036
UNDERWRITER NOTES NOTES DEBENTURES DEBENTURES
- ----------------------------------------------------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................
CS First Boston Corporation..........................
Donaldson Lufkin & Jenrette Securities Corporation...
Goldman, Sachs & Co. ................................
Lehman Brothers Inc. ................................
J.P. Morgan Securities Inc...........................
Morgan Stanley & Co. Incorporated....................
Total......................................
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes and Debentures to the public at the public offering prices set
forth on the cover page of this Prospectus Supplement, and to certain dealers at
such prices less a concession not in excess of % of the principal amount of
the 2001 Notes, % of the principal amount of the 2006 Notes, % of the
principal amount of the 2026 Debentures and % of the principal amount of
the 2036 Debentures. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of % of the principal amount of the 2001 Notes,
% of the principal amount of the 2006 Notes, and % of the principal
amount of the 2026 Debentures and % of the principal amount of the 2036
Debentures to other brokers and dealers. After the initial public offering, the
offering price, concession and discount may be changed.
The Notes and Debentures are new issues of securities with no established
trading market. The Company and Aetna have been advised by the Underwriters that
they intend to make a market in the Notes and Debentures but are not obligated
to do so and may discontinue market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for the Notes
or Debentures.
The Underwriters from time to time each provide investment banking services
to the Company and Aetna.
The Company and Aetna have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended and other applicable securities laws, or to contribute to
payments the Underwriters may be required to make in respect thereof.
S-16
<PAGE> 17
LOGO
AETNA LIFE AND CASUALTY COMPANY
DEBT SECURITIES
UNCONDITIONALLY GUARANTEED AS TO
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY,
AND INTEREST BY
AETNA INC.
Aetna Life and Casualty Company, to be renamed Aetna Services, Inc. (the
"Company"), may from time to time offer its debt securities (the "Debt
Securities") which may be either senior debt securities (the "Senior Debt
Securities") or subordinated debt securities (the "Subordinated Debt
Securities") in amounts, at prices and on terms to be determined at the time of
offering. The Senior Debt Securities are unconditionally guaranteed (the "Senior
Debt Guarantees") as to the payment of principal, premium, if any, and interest
by Aetna Inc. ("Aetna") and the Subordinated Debt Securities are unconditionally
guaranteed on a subordinated basis (the "Subordinated Debt Guarantees" and,
together with the Senior Debt Guarantees, the "Debt Guarantees") as to the
payment of principal, premium, if any, and interest by Aetna. Upon consummation
of the mergers described under "Aetna Inc.", the Company will be a wholly-owned
subsidiary of Aetna.
The Debt Securities offered pursuant to this Prospectus may be issued in
one or more series and will be limited to $2,000,000,000 aggregate public
offering price (or its equivalent (based on the applicable exchange rate at the
time of sale) in one or more foreign currencies, currency units or composite
currencies as shall be designated by the Company). Certain specific terms of the
particular Debt Securities in respect of which this Prospectus is being
delivered are set forth in the accompanying Prospectus Supplement (the
"Prospectus Supplement"), including, where applicable, the specific title,
aggregate principal amount, the denomination, whether such Debt Securities are
secured or unsecured obligations, maturity, premium, if any, the interest rate
(which may be fixed, floating or adjustable), the time and method of calculating
payment of interest, if any, the place or places where principal of (and
premium, if any) and interest, if any, on such Debt Securities will be payable,
the currency in which the principal of (and premium, if any) and interest, if
any, on such Debt Securities will be payable, any terms of redemption at the
option of the Company or the holder, any sinking fund provisions, the initial
public offering price and other special terms. If so specified in the applicable
Prospectus Supplement, Debt Securities of a series may be issued in whole or in
part in the form of one or more temporary or permanent global securities.
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities and the Senior Debt Guarantees, when issued, will be unsecured and
will rank equally with all other unsecured and unsubordinated indebtedness of
the Company and Aetna, respectively, and the Subordinated Debt Securities and
the Subordinated Debt Guarantees, when issued, will be unsecured and will be
subordinated in right of payment to all Senior Debt of the Company and Senior
Debt of Aetna, respectively,
The Prospectus Supplement will contain information concerning certain U.S.
federal income tax considerations, if applicable to the Debt Securities offered.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Debt Securities will be sold directly, through agents, underwriters or
dealers as designated from time to time, or through a combination of such
methods. If agents of the Company or any dealers or underwriters are involved in
the sale of the Debt Securities in respect of which this Prospectus is being
delivered, the names of such agents, dealers or underwriters and any applicable
commissions or discounts are set forth in or may be calculated from the
Prospectus Supplement with respect to such Debt Securities.
------------------------
The date of this Prospectus is July 18, 1996.
<PAGE> 18
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, AETNA OR ANY UNDERWRITERS, AGENTS OR
DEALERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY AND ITS
SUBSIDIARIES, U.S. HEALTHCARE, INC. AND ITS SUBSIDIARIES OR AETNA AND ITS
SUBSIDIARIES SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
Aetna is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy and information statements and
other information filed by Aetna can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy
and information statements and other information concerning Aetna may also be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005, and the Pacific Stock Exchange, 301 Pine Street, San
Francisco, California 94104. Such material may also be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov.
The Company and Aetna have filed with the Commission a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Debt Securities and Debt Guarantees offered hereby (the
"Registration Statement"). This prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is made to the Registration Statement and to the exhibits relating
thereto for further information with respect to the Company and Aetna and the
Debt Securities and Debt Guarantees offered hereby.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission (File No.
1-5704) by the Company pursuant to the Exchange Act are incorporated by
reference into this Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
2. The Company's Quarterly Report on Form 10-Q for the three month
period ended March 31, 1996.
3. The Company's Current Reports on Form 8-K dated April 1, 1996,
April 15, 1996, June 28, 1996 and July 16, 1996.
The following documents previously filed with the Commission (File No.
0-11531) by U.S. Healthcare, Inc. ("U.S. Healthcare") pursuant to the Exchange
Act are incorporated by reference into this Prospectus:
1. U.S. Healthcare's Annual Report on Form 10-K for the year ended
December 31, 1995.
2. U.S. Healthcare's Amendments to its Annual Report on Form 10-K/A,
dated April 26, 1996 and June 11, 1996.
3. U.S. Healthcare's Quarterly Report on Form 10-Q for the three month
period ended March 31, 1996.
4. U.S. Healthcare's Current Report on Form 8-K dated April 2, 1996.
2
<PAGE> 19
All documents filed by Aetna, the Company or U.S. Healthcare with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date hereof and prior to the termination of the offering of
the Debt Securities shall hereby be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein or in any Prospectus Supplement
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company and Aetna will provide without charge to each person to whom
this Prospectus is delivered, on written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). Requests for such copies should
be directed to the office of the Corporate Secretary, Aetna Inc., 151 Farmington
Avenue, Hartford CT 06156, telephone (860) 273-3977.
AETNA LIFE AND CASUALTY COMPANY
The Company was organized in 1967 as a Connecticut insurance company. The
Company and its subsidiaries constitute one of the nation's largest insurance
and financial services organizations, centered around three core businesses:
Aetna Health Plans ("AHP"), Aetna Retirement Services ("ARS") and Aetna
International.
AHP consists of Health, Specialty Health and Group Insurance businesses.
The Health business provides a full spectrum of managed care and traditional
indemnity plans, providing its members with a choice of health plans to meet
their individual needs. AHP's managed care products vary with respect to the
extent to which health care costs and utilization are managed and range from
preferred provider organization plans to point-of-service and health maintenance
organization plans. The Company also owns and manages physician practices for
use by its members and other consumers. Specialty Health products include
behavioral health, pharmacy and dental plans, which provide managed care or
indemnity features. The Group Insurance business provides life insurance,
disability (including managed disability) and long-term care plans.
AHP products and services are marketed primarily to employers for the
benefit of employees and their dependents. Plans may be insured, whereby the
Company assumes all or a portion of health care cost and utilization risk, or
self-funded, whereby employers assume all or a significant portion of such
risks. AHP also provides administrative and claim services and, in many cases,
partial insurance protection, for an appropriate fee or premium charge.
ARS markets and services two principal types of products: financial
services and life insurance.
The financial services products include individual and group annuity
contracts which offer a variety of funding and distribution options for personal
and employer-sponsored retirement plans that qualify under Sections 401, 403,
408 and 457 of the Internal Revenue Code of 1986, as amended, and individual and
group nonqualified annuity contracts.
ARS's life insurance products include universal life, variable universal
life, interest-sensitive whole life and term insurance. These products are
offered primarily to individuals, small businesses, employer-sponsored groups
and executives of Fortune 2000 companies.
Aetna International, through subsidiaries and joint venture operations,
sells primarily life insurance and financial services products in non-U.S.
markets including Canada, Mexico, Taiwan, Chile, Malaysia, Hong Kong, New
Zealand, Peru, Argentina and Indonesia.
On April 2, 1996, the Company completed the previously announced sale of
its property-casualty operations to an affiliate of The Travelers Insurance
Group Inc. ("Travelers") for total consideration of approximately $4.1 billion.
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<PAGE> 20
In connection with the approval by shareholders of the Company of the
proposed merger of the Company and U.S. Healthcare pursuant to which each of the
Company and U.S. Healthcare will become wholly-owned subsidiaries of Aetna, the
shareholders of the Company will also be asked to approve an amendment to the
Company's Certificate of Incorporation to change its name to Aetna Services,
Inc. See "Aetna Inc." below.
The principal executive offices of the Company are located at 151
Farmington Avenue, Hartford, CT 06156. The Company's telephone number is (860)
273-0123.
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<PAGE> 21
AETNA INC.
Aetna Inc., a Connecticut corporation, was formed by the Company and U.S.
Healthcare in March 1996 in connection with the Agreement and Plan of Merger,
dated as of March 30, 1996, as amended by Amendment No. 1 thereto dated as of
May 30, 1996 (the "Merger Agreement"), among the Company, U.S. Healthcare,
Aetna, Antelope Sub, Inc., a Connecticut corporation and a wholly-owned
subsidiary of Aetna ("Aetna Sub"), and New Merger Corporation, a Pennsylvania
corporation and a wholly-owned subsidiary of Aetna ("U.S. Healthcare Sub").
Pursuant to such Merger Agreement and subject to the conditions contained
therein, including the approval of the Merger Agreement by the shareholders of
the Company and U.S. Healthcare at shareholder meetings to be held on July 18,
1996, Aetna Sub will be merged with and into the Company (the "Aetna Sub
Merger") and U.S. Healthcare Sub will be merged with and into U.S. Healthcare
(the "U.S. Healthcare Sub Merger" and, together with the Aetna Sub Merger, the
"Mergers"), with the result that the Company and U.S. Healthcare will become
wholly-owned subsidiaries of Aetna. Accordingly, the businesses of Aetna through
its wholly-owned subsidiaries, the Company and U.S. Healthcare, initially will
be the businesses currently conducted by the Company and U.S. Healthcare and
their respective subsidiaries. The U.S. Healthcare Sub Merger will be accounted
for under the purchase method of accounting and the Aetna Sub Merger will be
treated as a reorganization with no change in the recorded amount of the
Company's assets and liabilities. If approved by the shareholders of the Company
and U.S. Healthcare at such meetings and if the other conditions to the Mergers
set forth in the Merger Agreement are satisfied, it is currently expected that
the Mergers will be consummated in the third quarter of 1996. Aetna has not
conducted any business activities to date, other than those incident to its
formation, its execution of the Merger Agreement and related agreements and in
connection with the Mergers.
The principal executive offices of Aetna are located at 151 Farmington
Avenue, Hartford, Connecticut 06156; its telephone number is (860) 273-0123.
U.S. HEALTHCARE, INC.
U.S. Healthcare is a Pennsylvania corporation, incorporated in 1982. U.S.
Healthcare is one of the largest managed care companies in the United States. As
of December 31, 1995, U.S. Healthcare's health maintenance organization ("HMO")
service network included approximately 13,400 primary care physicians, 40,600
specialists, 441 hospitals and 7,000 pharmacies.
U.S. Healthcare provides comprehensive managed health care services through
HMOs it owns and operates in Pennsylvania, New Jersey, New York, Delaware,
Connecticut, Massachusetts, New Hampshire, Maryland, Georgia, Virginia, Rhode
Island, North Carolina, South Carolina, Ohio and the District of Columbia. The
services of U.S. Healthcare's HMOs are marketed primarily to employer groups and
are provided through networks of independent health care providers, including
selected primary care physicians who coordinate each member's individual medical
care. In addition to comprehensive primary physician care, specialist care and
hospital services, U.S. Healthcare makes available home health care and other
outpatient services as well as optional prescription drug, vision care and
dental plans. U.S. Healthcare contracts with independent primary care physicians
who are reimbursed under prospective payment arrangements.
U.S. Healthcare's health plans consist of HMO plans and indemnity-type
plans offered both on a fully-insured and an employer-funded basis. Under
fully-insured health plans, U.S. Healthcare charges a premium and bears the risk
for medical costs incurred. Under employer-funded health plans, U.S. Healthcare
charges a fee for providing administrative services and the employer bears
substantially all risk for medical costs incurred. Under fully-insured HMO
plans, members receive comprehensive medical coverage in exchange for a fixed
monthly premium. In addition, U.S. Healthcare also offers a number of
supplemental benefit coverages to employers, either as supplements to HMO plans
or as stand-alone products, including dental plans, prescription drug plans,
vision plans, employee assistance programs and wellness programs.
U.S. Healthcare offers network-based workers' compensation case management
and network-based managed disability services, quality and outcome measurement
and improvement programs and health care data analysis systems for providers and
purchasers of health care. U.S. Healthcare provides assistance to multi-state
employers by coordinating their relationships with other HMOs.
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<PAGE> 22
USE OF PROCEEDS
Except as may otherwise be set forth in the applicable Prospectus
Supplement, the net proceeds from the sale of the Debt Securities will be added
to the Company's general funds and used for general corporate purposes,
including the repayment of indebtedness.
RATIO OF EARNINGS TO FIXED CHARGES OF THE COMPANY
The following table sets forth the Company's historical ratio of earnings
to fixed charges for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS YEARS ENDED DECEMBER 31,
ENDED ------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
- -------------- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
6.04 4.97 4.74 (a) 1.90 .54(b)
</TABLE>
- ---------------
(a) The Company reported a pretax loss from continuing operations in 1993 which
was inadequate to cover fixed charges by $1.0 billion.
(b) Earnings were inadequate to cover fixed charges by $92.0 million in 1991.
For purposes of computing the ratio of earnings to fixed charges,
"earnings" represent consolidated earnings from continuing operations before
income taxes, cumulative effect adjustments and extraordinary items plus fixed
charges and minority interests. "Fixed charges" consist of interest (and the
portion of rental expense deemed representative of the interest factor). The
Company's former property-casualty operations, sold to Travelers on April 2,
1996 and certain other operations are reflected as discontinued operations in
its consolidated financial statements.
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<PAGE> 23
DESCRIPTION OF DEBT SECURITIES AND DEBT GUARANTEES
The following description sets forth certain general terms and provisions
of the Debt Securities and Debt Guarantees to which any Prospectus Supplement
may relate. The particular terms of the Debt Securities and Debt Guarantees
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may not apply to the Debt Securities and Debt Guarantees so
offered will be described in the Prospectus Supplement relating to such Debt
Securities and Debt Guarantees.
The Senior Debt Securities and the Senior Debt Guarantees are to be issued
under an Indenture to be dated as of July 1, 1996 (the "Senior Indenture"),
between the Company, Aetna and State Street Bank and Trust Company of
Connecticut, National Association, as trustee. The Subordinated Debt Securities
and the Subordinated Debt Guarantees are to be issued under a separate Indenture
to be dated as of July 1, 1996 (the "Subordinated Indenture"), also between the
Company, Aetna and State Street Bank and Trust Company of Connecticut, National
Association, as trustee. The Senior Indenture and the Subordinated Indenture are
sometimes referred to collectively as the "Indentures." Copies of the Senior
Indenture and the Subordinated Indenture have been filed as exhibits to the
Registration Statement. State Street Bank and Trust Company of Connecticut,
National Association is hereinafter referred to as the "Trustee." The following
summaries of certain provisions of the Senior Debt Securities, the Subordinated
Debt Securities, the Senior Debt Guarantees, the Subordinated Debt Guarantees
and the Indentures do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Indentures applicable to a particular series of Debt Securities and the related
Debt Guarantees, including the definitions therein of certain terms. Wherever
particular Sections, Articles or defined terms of the Indentures are referred
to, it is intended that such Sections, Articles or defined terms shall be
incorporated herein by reference. Article and Section references used herein are
references to the applicable Indenture. Capitalized terms not otherwise defined
herein shall have the meaning given in the Indentures.
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and each Indenture provides that Debt
Securities may be issued thereunder from time to time in one or more series.
Unless otherwise specified in the Prospectus Supplement, the Senior Debt
Securities and the Senior Debt Guarantees when issued will be unsecured and
unsubordinated obligations of the Company and Aetna, respectively, and will rank
equally and ratably with all other unsecured and unsubordinated indebtedness of
the Company and Aetna, respectively. The Subordinated Debt Securities and the
Subordinated Debt Guarantees when issued will be unsecured and subordinated in
right of payment to the prior payment in full of all Senior Debt (as defined) of
the Company and Aetna, respectively, as described under "Subordination of
Subordinated Debt Securities and Subordinated Debt Guarantees" and in the
Prospectus Supplement applicable to an offering of Subordinated Debt Securities
and the Subordinated Debt Guarantees.
Reference is made to the Prospectus Supplement relating to the particular
Debt Securities offered thereby (the "Offered Debt Securities") which shall set
forth whether the Offered Debt Securities shall be Senior Debt Securities,
guaranteed on a senior basis by Aetna pursuant to the Senior Debt Guarantees, or
Subordinated Debt Securities, guaranteed on a subordinated basis by Aetna
pursuant to the Subordinated Debt Guarantees, and shall further set forth the
following terms of the Offered Debt Securities: (1) the title of the Offered
Debt Securities; (2) any limit on the aggregate principal amount of the Offered
Debt Securities; (3) the Person to whom any interest on the Offered Debt
Securities will be payable, if other than the Person in whose name such Offered
Debt Securities are registered on any Regular Record Date; (4) the date or dates
on which the principal of the Offered Debt Securities will be payable; (5) the
rate or rates per annum (which may be fixed, floating or adjustable) at which
the Offered Debt Securities will bear interest, if any, or the formula pursuant
to which such rate or rates shall be determined, the date or dates from which
such interest will accrue and the dates on which such interest, if any, will be
payable and the Regular Record Dates for such interest payment dates; (6)
whether the Offered Debt Securities will be secured; (7) the place or places
where principal of (and premium, if any) and interest, if any, on Offered Debt
Securities will be payable; (8) if applicable, the price at which, the periods
within which and the terms and conditions upon which the Offered Debt Securities
may be redeemed at the option of the Company pursuant to a sinking fund or
otherwise; (9) if
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<PAGE> 24
applicable, any obligation of the Company to redeem or purchase Offered Debt
Securities pursuant to any sinking fund or analogous provisions or at the option
of a Holder thereof, and the period or periods within which, the price or prices
at which and the terms and conditions upon which the Offered Debt Securities
will be redeemed or purchased, in whole or in part; (10) if other than
denominations of $1,000 and any integral multiple thereof, the denominations in
which the Offered Debt Securities will be issuable; (11) the currency or
currencies, including composite currencies or currency units, in which payment
of the principal of (or premium, if any) or interest, if any, on any of the
Offered Debt Securities will be payable if other than the currency of the United
States of America; (12) if the amount of payments of principal of (or premium,
if any) or interest, if any, on the Offered Debt Securities may be determined
with reference to one or more indices, the manner in which such amounts will be
determined; (13) if the principal of (or premium, if any) or interest, if any,
on any of the Offered Debt Securities of the series is to be payable, at the
election of the Company or a Holder thereof, in one or more currencies,
including composite currencies, or currency units other than that or those in
which the Debt Securities are stated to be payable, the currency, currencies,
including composite currencies, or currency units in which payment of the
principal of (or premium, if any) or interest, if any, on Debt Securities of
such series as to which such election is made will be payable, and the periods
within which and the terms and conditions upon which such election is to be
made; (14) the portion of the principal amount of the Offered Debt Securities,
if other than the principal amount thereof, payable upon acceleration of
maturity thereof; (15) whether all or any part of the Offered Debt Securities
will be issued in the form of a Global Security or Securities and, if so, the
depositary for, and other terms relating to, such Global Security or Securities;
(16) any event or events of default applicable with respect to the Offered Debt
Securities in addition to those provided in the Indentures; (17) any other
covenant or warranty included for the benefit of the Offered Debt Securities in
addition to (and not inconsistent with) those included in the Indentures for the
benefit of Debt Securities of all series, or any other covenant or warranty
included for the benefit of the Offered Debt Securities in lieu of any covenant
or warranty included in the Indentures for the benefit of Debt Securities of all
series, or any provision that any covenant or warranty included in the
Indentures for the benefit of Debt Securities of all series shall not be for the
benefit of the Offered Debt Securities, or any combination of such covenants,
warranties or provisions; (18) the guarantee of Aetna of the Debt Securities if
other than as described herein; (19) any restriction or condition on the
transferability of the Offered Debt Securities; (20) any authenticating or
paying agents, registrars, conversion agents or any other agents with respect to
the Offered Debt Securities; and (21) any other terms of the Offered Debt
Securities. (Section 301)
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Offered Debt Securities are to be issued as registered securities without
coupons in denominations of $1,000 or any integral multiple of $1,000. (Section
302) No service charge will be made for any transfer or exchange of such Offered
Debt Securities, but the Company or the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 305)
Debt Securities may be issued under the Indentures as Original Issue
Discount Securities to be sold at a substantial discount below their stated
principal amount. Federal income tax consequences and other considerations
applicable thereto will be described in the Prospectus Supplement relating
hereto.
Since the Company is, and following the Mergers Aetna will be, a holding
company, the rights of the Company and Aetna, respectively, and hence the right
of creditors of the Company and Aetna (including the Holders of Debt
Securities), to participate in any distribution of the assets of their
respective subsidiaries (including in the case of Aetna following the Mergers,
the Company and U.S. Healthcare), upon any such Subsidiary's liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that claims of the Company or
Aetna, as a creditor of the subsidiary, may be recognized.
The Indentures do not contain any provisions that limit the ability of the
Company or Aetna to incur indebtedness or that afford Holders of the Debt
Securities protection in the event of a highly leveraged or similar transaction
involving the Company or Aetna.
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<PAGE> 25
EVENTS OF DEFAULT AND NOTICE THEREOF
Unless otherwise specified in the Prospectus Supplement, the following
events are defined in the Indentures as "Events of Default" with respect to Debt
Securities of any series: (a) failure to pay principal (including any sinking
fund payment) of, or premium (if any) on, any Debt Security of that series when
due (in the case of the Subordinated Indenture, whether or not payment is
prohibited by the subordination provisions); (b) failure to pay interest, if
any, on any Debt Security of that series when due and such failure continues for
a period of 30 days; (c) failure by the Company or Aetna to perform in any
material respect any other covenant in the Indentures (other than a covenant
included in the Indentures solely for the benefit of a series of Debt Securities
other than that series) continued for a period of 90 days after written notice
to the Company and Aetna; (d) due acceleration (which acceleration shall not
have been rescinded within 30 days after written notice to the Company and
Aetna) of any indebtedness for borrowed money in a principal amount in excess of
$50,000,000 for which the Company, Aetna or a Principal Subsidiary (as defined)
is liable, including Debt Securities of another series (other than acceleration
of Non-Recourse Debt for borrowed money which does not exceed in the aggregate
4% of Aetna's total shareholders' equity, as set forth in the most recently
published audited consolidated balance sheet of Aetna), or a default by the
Company, Aetna or any Principal Subsidiary in the payment at final maturity of
outstanding indebtedness for borrowed money in a principal amount in excess of
$50,000,000 (other than default in payment at final maturity of Non-Recourse
Debt which does not exceed in the aggregate 4% of Aetna's total shareholders'
equity, as set forth in the most recently published audited consolidated balance
sheet of Aetna) unless such acceleration or default at maturity shall be
remedied or cured by the Company, Aetna or such Principal Subsidiary or
rescinded, annulled or waived by the holders of such indebtedness, in which case
such acceleration or default at maturity shall not constitute an Event of
Default under this provision and any acceleration relating thereto shall be
rescinded; and (e) certain events of insolvency, reorganization, receivership or
liquidation of the Company or Aetna. (Section 501)
No Event of Default with respect to Debt Securities of a particular series
shall necessarily constitute an Event of Default with respect to Debt Securities
of any other series. If an Event of Default with respect to Debt Securities of
any series at the time Outstanding shall occur and be continuing, either the
Trustee or the Holders of at least 25% in principal amount of the Outstanding
Debt Securities of that series may declare the principal amount (or, if the Debt
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of that series) of all
Debt Securities of that series to be due and payable immediately; provided,
however, that under certain circumstances the Holders of a majority in aggregate
principal amount of Outstanding Debt Securities of that series may rescind or
annul such declaration and its consequences. (Section 502)
Reference is made to the Prospectus Supplement relating to any series of
Offered Debt Securities which are Original Issue Discount Securities for the
particular provisions relating to the principal amount of such Original Issue
Discount Securities due on acceleration upon the occurrence of an Event of
Default and the continuation thereof.
The Indentures provide that the Trustee may withhold notice to the Holders
of the Debt Securities of any default (except in payment of principal (or
premium, if any) or interest, if any) if it considers it in the interest of the
holders of the Debt Securities to do so. (Section 602)
The Company and Aetna will be required to furnish to the Trustee annually a
statement by certain officers of the Company and Aetna as to the compliance with
all conditions and covenants of the Indentures. (Section 1004)
The Holders of a majority in principal amount of the Outstanding Debt
Securities of any series affected will have the right, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee with respect to the Debt Securities of such series, and
to waive certain defaults. (Sections 512 and 513)
The Indentures provide that, in case an Event of Default shall occur and be
continuing, the Trustee shall exercise such of its rights and powers under the
Indentures, and use the same degree of care and skill in its
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<PAGE> 26
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs. (Section 601) Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indentures at the request of any of the Holders of Debt Securities
unless they shall have offered to the Trustee security or indemnity in form and
substance reasonably satisfactory to the Trustee against the costs, expenses and
liabilities which might be incurred by it in compliance with such request.
(Section 603)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indentures or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written notice of
a continuing Event of Default with respect to the Debt Securities of such series
and unless also the Holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of the same series shall have made written request,
and offered indemnity to the Trustee in form and substance reasonably
satisfactory to the Trustee, to institute such proceeding as trustee, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the Outstanding Debt Securities of the same series a
direction inconsistent with such request and shall have failed to institute such
proceeding within 60 days. (Section 507) However, such limitations do not apply
to a suit instituted by a Holder of a Debt Security for enforcement of payment
of the principal of (or premium, if any) or interest, if any, on such Debt
Security on or after the respective due dates expressed in such Debt Security.
(Section 508)
MODIFICATION AND WAIVER
Modifications and amendments of the Indentures may be made by the Company,
Aetna and the Trustee, with the consent of the Holders of not less than a
majority of aggregate principal amount of each series of the Outstanding Debt
Securities issued under the Indentures which is affected by the modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of each Holder of such Debt Security affected thereby: (1)
change the Stated Maturity of the principal of (or premium, if any) or any
installment of principal or interest, if any, on any such Debt Security; (2)
reduce the principal amount of (or premium, if any) or the interest rate, if
any, on any such Debt Security or the principal amount due upon acceleration of
an Original Issue Discount Security; (3) change the place or currency of payment
of principal of (or premium, if any) or the interest, if any, on any such Debt
Security; (4) impair the right to institute suit for the enforcement of any such
payment on or with respect to any such Debt Security; (5) reduce the percentage
of Holders of Debt Securities necessary to modify or amend the Indentures; (6)
modify or affect in any manner adverse to the interest of Holders of Debt
Securities the obligation of Aetna under the Debt Guarantees in respect of the
due and punctual payment of the principal of (and premium, if any) or interest
on the Debt Securities, (7) in the case of the Subordinated Indenture, modify
the subordination provisions in a manner adverse to the holders of the
Subordinated Debt Securities; or (8) modify the foregoing requirements or reduce
the percentage of Outstanding Debt Securities necessary to waive compliance with
certain provisions of the Indentures or for waiver of certain defaults. (Section
902)
The holders of at least a majority of the aggregate principal amount of the
Outstanding Debt Securities of any series may, on behalf of all Holders of that
series, waive compliance by the Company and Aetna with certain restrictive
provisions of the Indentures and waive any past default under the Indentures,
except a default in the payment of principal, premium or interest or in the
performance of certain covenants. (Sections 907 and 513)
DEFEASANCE AND COVENANT DEFEASANCE
The Indentures provide that the Company and Aetna, at the Company's option,
(A) will be defeased and discharged from any and all of their respective
obligations with respect to such Debt Securities and the Debt Guarantees
(including, in the case of Subordinated Debt Securities and Subordinated Debt
Guarantees, the provisions described under "Subordination of Subordinated Debt
Securities and Subordinated Debt Guarantees" herein and except for the
obligations to exchange or register the transfer of such Debt Securities, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of the Debt Securities, and to hold
monies for payments in trust) ("defeasance"), or (B) will be released from their
respective obligations under the Indentures concerning the restrictions
described under
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<PAGE> 27
"Limitations on Liens on Common Stock of Principal Subsidiaries" and
"Consolidation, Merger and Sale of Assets" and any other covenants applicable to
such Debt Securities and the Debt Guarantees (including, in the case of the
Subordinated Debt Securities and the Subordinated Debt Guarantees, the
provisions described under "Subordination of Subordinated Debt Securities and
Subordinated Debt Guarantees" herein) which are subject to covenant defeasance
("covenant defeasance"), and the occurrence of an event described and notice
thereof in clauses (c) and (d) under "Events of Default and Notice Thereof"
(with respect to covenants subject to covenant defeasance) shall no longer be an
Event of Default, in each case, upon the irrevocable deposit with the Trustee
(or other qualifying trustee), in trust for such purpose, of money, and/or U.S.
Government Obligations (as defined) (or Foreign Government Obligations (as
defined) in the case of Debt Securities denominated in foreign currencies) which
through the payment of principal and interest in accordance with their terms
will provide money in an amount sufficient to pay the principal of (and premium,
if any) and interest, if any, on such Debt Securities, and any mandatory sinking
fund or analogous payments thereon, on the scheduled due dates therefor. Such a
trust may only be established if, among other things, (i) the Company has
delivered to the Trustee an opinion of counsel (as specified in the Indentures)
to the effect that the Holders of such Debt Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to Federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred, (ii) no
Event of Default or event which with the giving of notice or lapse of time, or
both, would become an Event of Default under the Indenture shall have occurred
and be continuing on the date of such deposit (or, with respect to any event
specified in clause (e) under "Events of Default and Notice Thereof", at any
time on or prior to the 90th day after the date of such deposit) and (iii) in
the case of Subordinated Debt Securities, (x) no default in the payment of
principal of (or premium, if any) or interest, if any, on any Senior Debt of the
Company or Aetna beyond any applicable grace period shall have occurred and be
continuing, or (y) no other default with respect to any Senior Debt of the
Company or Aetna shall have occurred and be continuing and shall have resulted
in the acceleration of such Senior Debt. (Article Twelve)
The Company may exercise its defeasance option with respect to such Debt
Securities and Debt Guarantees notwithstanding its prior exercise of its
covenant defeasance option. If the Company exercises its defeasance option,
payment of such Debt Securities may not be accelerated because of an Event of
Default. If the Company exercises its covenant defeasance option, payment of
such Debt Securities may not be accelerated by reference to the covenants noted
under clause (B) above. In the event the Company and Aetna omit to comply with
their remaining obligations with respect to such Debt Securities and Debt
Guarantees under the Indentures after the exercise by the Company of its
covenant defeasance option and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations (or Foreign Government Obligations in the case of Debt
Securities denominated in foreign currencies) on deposit with the Trustee may be
insufficient to pay amounts due on the Debt Securities of such series at the
time of the acceleration resulting from such Event of Default. However, the
Company and Aetna will remain liable in respect of such payments. (Article
Twelve)
LIMITATIONS ON LIENS ON COMMON STOCK OF PRINCIPAL SUBSIDIARIES
As long as any of the Debt Securities remains outstanding, Aetna will not,
and will not permit any Principal Subsidiary to, issue, assume, incur or
guarantee any indebtedness for borrowed money secured by a mortgage, pledge,
lien or other encumbrance, directly or indirectly, on any of the Common Stock of
a Principal Subsidiary, which Common Stock is owned by Aetna, by the Company or
by any Principal Subsidiary, unless the obligations of the Company under the
Debt Securities and, if the Company or Aetna so elects, any other indebtedness
of the Company or Aetna ranking on a parity with, or prior to, the Debt
Securities or the Guarantor's obligations under the Debt Guarantees, as the case
may be, shall be secured equally and ratably with, or prior to, such secured
indebtedness for borrowed money so long as it is outstanding and is so secured.
(Section 1005)
"Principal Subsidiary" means only Aetna Life Insurance Company, Aetna Life
Insurance and Annuity Company and U.S. Healthcare and any other Subsidiary of
Aetna which shall hereafter succeed by merger or
11
<PAGE> 28
otherwise to a major part of the business of one or more of the Principal
Subsidiaries. The decision as to whether a Subsidiary shall have succeeded to a
major part of the business of one or more of the Principal Subsidiaries shall be
made in good faith by the Board of Directors of Aetna or a committee thereof by
the adoption of a resolution so stating, and Aetna shall within 30 days of the
date of the adoption of such resolution deliver to the Trustee a copy thereof,
certified by the Corporate Secretary or an Assistant Corporate Secretary of
Aetna. (Section 101)
"Common Stock" means, with respect to any Principal Subsidiary, stock of
any class, however designated, except stock which is non-participating beyond
fixed dividend and liquidation preferences and the holders of which have either
no voting rights or limited voting rights entitling them, only in the case of
certain contingencies, to elect less than a majority of the directors (or
persons performing similar functions) of such Principal Subsidiary, and shall
include securities of any class, however designated, which are convertible into
such Common Stock. (Section 101)
CONSOLIDATION, MERGER AND SALE OF ASSETS; ASSUMPTION BY GUARANTOR OR SUBSIDIARY
OF COMPANY OBLIGATIONS
Neither the Company nor Aetna may consolidate with or merge into any other
Person or sell its property and assets as, or substantially as, an entirety to
any Person and neither the Company nor Aetna may permit any Person to merge into
or consolidate with the Company or Aetna, as the case may be, unless (i) either
the Company or Aetna, as the case may be, will be the resulting or surviving
entity or any successor or purchaser is a corporation, partnership or trust
organized under the laws of the United States of America, any State or the
District of Columbia, and any such successor or purchaser expressly assumes the
Company's or Aetna's obligations on the Debt Securities or the Debt Guarantees,
as applicable, under a supplemental Indenture, (ii) immediately after giving
effect to the transaction no Event of Default shall have occurred and be
continuing, and (iii) certain other conditions are met. (Section 801)
Aetna or any Subsidiary of Aetna may, where permitted by law, assume the
obligations of the Company for the due and punctual payment of the principal of
(premium, if any) and interest on and any other payments with respect to the
Debt Securities of any series and the performance of every covenant of the
Indenture and the Debt Securities on the part of Company to be performed or
observed if (i) Aetna or such Subsidiary, as the case may be, shall expressly
assume such obligations by a supplemental indenture, in form reasonably
satisfactory to the Trustee, and, if such Subsidiary assumed such obligations,
Aetna shall, by such supplemental indenture, confirm that its Debt Guarantees
with respect to the Debt Securities of such series shall apply to such
Subsidiary's obligations under the Debt Securities of such series and the
Indenture; (ii) immediately after giving effect to such transaction, no Event of
Default shall have occurred and be continuing; and (iii) certain other
conditions are met. (Section 803).
SUBORDINATION OF SUBORDINATED DEBT SECURITIES AND SUBORDINATED DEBT GUARANTEES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities and Subordinated Debt
Guarantees.
The Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior payment
in full of all Senior Debt of the Company, including the Senior Debt Securities,
and the Subordinated Debt Guarantees will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior payment
in full of all Senior Debt of Aetna, including the Senior Debt Guarantees. Upon
any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company or Aetna, as the case may be, the holders
of Senior Debt of the Company or Aetna, as the case may be, will first be
entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt of the Company or Aetna, as the case may
be, before the holders of the Subordinated Debt Securities will be entitled to
receive or retain any payment in respect of the principal of (and premium, if
any) or interest, if any, on the Subordinated Debt Securities. (Subordinated
Indenture Sections 1402 and 1602)
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<PAGE> 29
By reason of such subordination, in the event of liquidation or insolvency,
(i) creditors of the Company who are not holders of Senior Debt of the Company
or Subordinated Debt Securities may recover less, ratably, than holders of
Senior Debt of the Company and may recover more, ratably, than the holders of
the Subordinated Debt Securities and (ii) creditors of Aetna who are not holders
of Senior Debt of Aetna or Subordinated Debt Securities may recover less,
ratably, than holders of Senior Debt of Aetna and may recover more, ratably,
than holders of Subordinated Debt Securities.
In the event of the acceleration of the maturity of any Subordinated Debt
Securities, the holders of all Senior Debt of the Company and Aetna outstanding
at the time of such acceleration will first be entitled to receive payment in
full of all amounts due thereon before the Holders of Subordinated Debt
Securities will be entitled to receive any payment upon the principal of (or
premium, if any) or interest, if any, on the Subordinated Debt Securities.
(Subordinated Indenture Sections 1403 and 1603)
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Subordinated Debt Securities may be made if there shall
have occurred and be continuing a default in the payment of principal of (or
premium, if any) or interest on Senior Debt of the Company or Aetna, or an event
of default with respect to any Senior Debt of the Company or Aetna resulting in
the acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default. (Subordinated Indenture Sections 1404
and 1604)
"Debt" means (without duplication and without regard to any portion of
principal amount that has not accrued and to any interest component thereof
(whether accrued or imputed) that is not due and payable) with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed; (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses; (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person; (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of such Person; and (vi) every obligation of the type
referred to in clauses (i) through (v) of another Person and all dividends of
another Person the payment of which, in either case, such Person has guaranteed
or is responsible or liable, directly or indirectly, as obligor or otherwise.
(Subordinated Indenture Section 101)
"Senior Debt" means with respect to any Person the principal of (and
premium, if any) and interest, if any (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to such
Person to the extent that such claim for post-petition interest is allowed in
such proceeding), on Debt of such Person, whether incurred on or prior to the
date of the Subordinated Indenture or thereafter incurred, unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the Subordinated Debt Securities, in the case of the Company, or the
Subordinated Debt Guarantees, in the case of Aetna, or to other Debt of such
Person which is pari passu with, or subordinated to the Subordinated Debt
Securities, in the case of the Company, or the Subordinated Debt Guarantees, in
the case of Aetna; provided, however, that Senior Debt shall be deemed not to
include (i) in the case of the Company, the Subordinated Debt Securities or (ii)
in the case of Aetna, the Subordinated Debt Guarantees. (Subordinated Indenture
Section 101)
The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Debt of the Company or Aetna, which may include indebtedness
that is senior to the Subordinated Debt Securities and the Subordinated Debt
Guarantees, but subordinate to other obligations of the Company or Aetna,
respectively. The Senior Debt Securities and the Senior Debt Guarantees, when
issued, will constitute Senior Debt of the Company and Aetna, respectively.
The Prospectus Supplement may further describe the provisions, if any,
applicable to the subordination of the Subordinated Debt Securities of a
particular series or the Subordinated Debt Guarantees with respect thereto.
13
<PAGE> 30
GLOBAL SECURITIES
The Debt Securities of a series may be issued in the form of one or more
Global Securities that will be deposited with a Depositary or its nominee. In
such a case, one or more Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of Outstanding Debt Securities of the series to be represented by such Global
Security or Securities. Unless and until it is exchanged in whole or in part for
Debt Securities in definitive registered form, a Global Security may not be
registered for transfer or exchange except as a whole by the Depositary for such
Global Security to a nominee for such Depositary and except in the circumstances
described in the applicable Prospectus Supplement. (Sections 204 and 305)
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
and a description of the Depositary will be contained in the applicable
Prospectus Supplement.
THE TRUSTEE
The Indentures contain limitations on the right of the Trustee, as a
creditor of the Company and Aetna, to obtain payment of claims in certain cases,
or to realize on certain property received in respect of any such claim as
security or otherwise. In addition, the Trustee may be deemed to have a
conflicting interest and may be required to resign as Trustee if at the time of
a default under the Indentures it is a creditor of the Company or Aetna.
The Trustee or its affiliates act as depositary for funds of, makes loans
to and performs other services for, or may be a customer of, the Company and
Aetna in the ordinary course of business.
GOVERNING LAW
The Indentures are governed by and shall be construed in accordance with
the laws of the State of New York, but without regard to principles of conflicts
of laws.
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to one or more underwriters for public
offering and sale by them or may sell Debt Securities to investors or other
persons directly or through agents. The Company may sell Debt Securities as soon
as practicable after effectiveness of the Registration Statement, provided that
favorable market conditions exist. Any such underwriter or agent involved in the
offer and sale of the Debt Securities will be named in an applicable Prospectus
Supplement.
Underwriters may offer and sell the Debt Securities at a fixed price or
prices, which may be changed, or at prices related to prevailing market prices
or at negotiated prices. The Company also may, from time to time, authorize
firms acting as the Company's agents to offer and sell the Debt Securities upon
the terms and conditions as shall be set forth in any Prospectus Supplement. In
connection with the sale of Debt Securities, underwriters may be deemed to have
received compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Debt Securities
for whom they may act as agent. Underwriters may sell Debt Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
(which may be changed from time to time) from the purchasers for whom they may
act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Debt Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Debt Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Debt Securities may be deemed
to be underwriting discounts and commissions under the Securities Act.
Underwriters, dealers
14
<PAGE> 31
and agents may be entitled, under agreements with the Company and Aetna, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act, and to reimbursement by the
Company for certain expenses.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Company and Aetna in the ordinary
course of business.
If so indicated in an applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Debt Securities from the Company at the public offering
price set forth in such Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Contract will be for an amount
specified in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except that (i) the purchase by an institution of the Debt Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject and
(ii) if the Debt Securities are being sold to underwriters, the Company shall
have sold to such underwriters such amount specified in the applicable
Prospectus Supplement. Agents and underwriters will have no responsibility in
respect of the delivery or performance of Contracts.
The Debt Securities may or may not be listed on a national securities
exchange or a foreign securities exchange. No assurances can be given that there
will be a market for the Debt Securities.
VALIDITY OF THE SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of the Debt Securities and the Debt Guarantees offered hereby will be
passed upon for the Company and Aetna, respectively, by Thomas J. Calvocoressi,
counsel to the Company and Aetna, and Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York 10017, and for any agents or underwriters by Sullivan
& Cromwell, 125 Broad Street, New York, New York 10004. Davis Polk & Wardwell
and Sullivan & Cromwell will rely upon the opinion of Thomas J. Calvocoressi as
to certain matters governed by Connecticut law. As of May 31, 1996 and giving
effect to the Mergers, Thomas J. Calvocoressi beneficially owned 558 shares, and
had options to purchase 21,250 shares, of Aetna's Common Stock.
EXPERTS
The consolidated financial statements and schedules of the Company and
Subsidiaries as of December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995 which are incorporated by reference in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995,
have been incorporated by reference in this Prospectus in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants, and
upon the authority of said firm as experts in accounting and auditing. The
reports of KPMG Peat Marwick LLP covering the December 31, 1995 consolidated
financial statements and schedules of the Company and Subsidiaries refers to the
Company's changes in 1993 in its method of accounting for certain investments in
debt and equity securities, postemployment benefits, workers' compensation life
table indemnity reserves and retrospectively rated reinsurance contracts.
The consolidated balance sheet of Aetna Inc. as of April 22, 1996 which is
included in the Company's Current Report on Form 8-K, dated June 28, 1996, has
been incorporated by reference in this Prospectus in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
With respect to the unaudited interim financial information of the Company
incorporated by reference in this Prospectus and of the Company and Aetna to be
incorporated by reference in this Prospectus, the independent certified public
accountants have reported and may report that they applied limited procedures in
15
<PAGE> 32
accordance with professional standards for a review of such information.
However, any separate report included in the Company's or Aetna's Quarterly
Reports on Form 10-Q and incorporated by reference herein states and will state
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on any report on such
information should be restricted in light of the limited nature of the review
procedures applied. The accountants are not subject to the liability provisions
of Section 11 of the Securities Act for any report on the unaudited interim
financial information because that report is not a "report" or a "part" of the
Registration Statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act.
The consolidated financial statements of U.S. Healthcare, Inc. incorporated
by reference in U.S. Healthcare, Inc.'s Annual Report on Form 10-K, as amended,
for the year ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon incorporated by
reference therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
16
<PAGE> 33
===============================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, AETNA OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND PROSPECTUS NOR ANY SALE
MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR AETNA SINCE THE
DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND PROSPECTUS DO NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Companies......................... S-3
Recent Developments................... S-3
Use of Proceeds....................... S-4
Capitalization........................ S-5
Unaudited Pro Forma Condensed
Consolidated Financial Statements... S-6
Selected Historical Financial Data.... S-9
Ratio of Earnings to Fixed Charges.... S-11
Pro Forma Ratio of Aetna's EBITDA to
Interest Expense.................... S-11
Description of Notes and Debentures... S-12
Underwriting.......................... S-16
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Aetna Life and Casualty Company....... 3
Aetna Inc............................. 5
U.S. Healthcare, Inc.................. 5
Use of Proceeds....................... 6
Ratio of Earnings to Fixed Charges
of the Company...................... 6
Description of Debt Securities
and Debt Guarantees................. 7
Plan of Distribution.................. 14
Validity of the Securities............ 15
Experts............................... 15
</TABLE>
===============================================================================
===============================================================================
$ 1,000,000,000
LOGO
AETNA SERVICES, INC.
$ % NOTES DUE AUGUST 15, 2001
$ % NOTES DUE AUGUST 15, 2006
$ % DEBENTURES DUE AUGUST 15, 2026
$ % DEBENTURES DUE AUGUST 15, 2036
UNCONDITIONALLY GUARANTEED AS TO
PAYMENT OF PRINCIPAL AND INTEREST BY
AETNA INC.
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
CS FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
J.P. MORGAN & CO.
MORGAN STANLEY & CO.
INCORPORATED
AUGUST , 1996
===============================================================================
