<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
AETNA LIFE AND CASUALTY COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
AETNA LIFE AND CASUALTY COMPANY
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-111
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
------------------------------------------------------------------------
(3) Filing party:
------------------------------------------------------------------------
(4) Date filed:
------------------------------------------------------------------------
- ---------------
1Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
CONFIDENTIAL, FOR USE BY THE COMMISSION ONLY
1996 Aetna Proxy Statement
Notice of Annual Meeting
[LOGO]
<PAGE> 3
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
General Information................................................................ 2
I. Election of Directors........................................................ 2
Nominees for Directorships................................................... 3
Compensation and Other Information Regarding Directors....................... 8
Committees of the Board...................................................... 9
Certain Transactions and Relationships....................................... 10
Security Ownership of Certain Beneficial Owners, Directors, Nominees
and Executive Officers....................................................... 11
Executive Compensation....................................................... 14
Summary Compensation Table................................................... 14
Stock Option Grants Table.................................................... 16
Stock Option Exercises and December 31, 1995 Stock Option Value Table........ 18
Long-Term Incentive Awards Table............................................. 19
Pension Plan................................................................. 20
Other Agreements............................................................. 20
Report of the Committee on Compensation and Organization..................... 22
Corporate Performance Graph.................................................. 25
II. Appointment of Auditors...................................................... 26
III. Proposal to Amend the Certificate of Incorporation to Change the Name of the
Company...................................................................... 26
IV. Proposal to Approve Certain Terms of Annual Incentive Plan................... 27
V. Proposal to Amend and Restate the 1994 Non-Employee Director Deferred Stock
Plan......................................................................... 28
VI. Other Information and 1997 Shareholder Proposals............................. 30
Annual Report................................................................ 30
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
[Logo] AETNA LIFE AND CASUALTY RONALD E. COMPTON
COMPANY Chairman
151 Farmington Avenue
Hartford, Connecticut 06156
</TABLE>
To Our Shareholders:
The 1996 Annual Meeting of Shareholders will be held on Friday, April 26, 1996
at 9:30 a.m. at our Corporate Headquarters in Hartford, Connecticut, and I hope
you will attend.
The matters expected to be acted on at the meeting are described in detail in
the attached Notice of Annual Meeting of Shareholders and Proxy Statement. In
addition to specific agenda items, we will discuss generally the operations of
Aetna. We welcome any questions you have concerning Aetna and will provide time
during the meeting for questions from shareholders.
If you are unable to attend the Annual Meeting, it is still important that your
shares be represented. Please sign and date the enclosed Proxy Card and return
it as soon as possible in the envelope provided.
[Sig]
Ronald E. Compton
Chairman
March , 1996
<PAGE> 5
<TABLE>
<S> <C> <C>
[Logo] AETNA LIFE AND CASUALTY LUCILLE M. NICKERSON
COMPANY Vice President and
151 Farmington Avenue Corporate Secretary
Hartford, Connecticut 06156
</TABLE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of Aetna Life
and Casualty Company will be held at the Corporate Headquarters of the Company,
151 Farmington Avenue, Hartford, Connecticut, on Friday, April 26, 1996 at 9:30
a.m. for the following purposes:
1. To elect a Board of Directors for the coming year;
2. To approve the appointment of KPMG Peat Marwick LLP as independent auditors
for the current calendar year;
3. To act on a proposal to amend the Certificate of Incorporation to change the
name of the Company;
4. To act on a proposal to approve certain terms of the Company's Annual
Incentive Plan;
5. To act on a proposal to amend and restate the 1994 Non-Employee Director
Deferred Stock Plan; and
6. To transact any other business that may properly come before the meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on February 23, 1996 as
the record date for determination of the shareholders entitled to vote at the
meeting or any adjournment thereof.
It is important that your shares be represented at the meeting. Please sign,
date and return the enclosed Proxy Card as soon as possible in the envelope
provided. Shareholders who attend the meeting may revoke their proxies and vote
in person.
By order of the Board of Directors,
[Sig]
Lucille M. Nickerson
Vice President and Corporate Secretary
March , 1996
<PAGE> 6
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of Proxies
by the Board of Directors of Aetna Life and Casualty Company (the Company) for
the Annual Meeting of Shareholders to be held at the Company's Corporate
Headquarters on April 26, 1996. The Proxy Statement and the enclosed Proxy Card
are being mailed to shareholders on or about March 20, 1996.
Shareholders of record of the Company's Common Capital Stock without par
value (Common Stock) at the close of business on February 23, 1996 will be
entitled to vote at the meeting. On that date, [ ] shares of Common
Stock were outstanding. Each such share is entitled to one vote.
At this time, the Directors are not aware of any matters that may be
properly presented for consideration at the Annual Meeting, other than those
outlined in the Notice of the meeting. If other matters are properly presented
for consideration, the persons named on the Proxy will vote on those matters
according to their best judgment.
The giving of a Proxy does not affect a shareholder's right to vote in
person at the meeting since the Proxy may be revoked at any time before it is
voted. A properly executed Proxy that is not revoked will be voted according to
the instructions on the Proxy. If no instruction is given for any matter to be
voted upon, the shares represented by the Proxy will be voted on that matter in
the manner described on the following pages.
Any full shares held for you under the Company's Dividend Reinvestment and
Stock Purchase Plan have been included in the shares shown on the enclosed
Proxy. Fractional interests in shares cannot be voted under Connecticut law.
Votes are counted by tellers of the Company's Transfer Agent. These tellers
will canvass the shareholders present in person at the Annual Meeting, count
their votes and count the votes represented by proxies presented. Abstentions
and broker nonvotes are counted for purposes of determining the number of shares
represented at the meeting, but are deemed not to have voted on a proposal.
Broker nonvotes occur when a broker nominee (which has voted on one or more
matters at the meeting) does not vote on one or more other matters at the
meeting because it has not received instructions from the beneficial owner to so
vote, and does not have discretionary authority to do so.
I. ELECTION OF DIRECTORS
Nominations for ten directorships will be made at the Annual Meeting. However,
in the event any Nominee becomes unavailable for election, the Board of
Directors will reduce the number of directorships prior to the meeting. The
terms of office for all elected Directors will run until the next Annual Meeting
and until their successors are duly elected and qualified. UNLESS DIRECTED TO
THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED PROXY WILL BE VOTED FOR THE
ELECTION OF THE TEN NOMINEES LISTED ON THE FOLLOWING PAGES (the Nominees). All
Nominees are currently Directors of the Company. With the exception of Dr.
Rodin, each Nominee was elected by the shareholders at the 1995 Annual Meeting.
If the number of directorships is reduced as provided above, the shares
represented by the enclosed Proxy will be voted for the election of the
remaining Nominees.
To be elected a Director, a Nominee must receive the affirmative vote of a
majority of the shares represented at the meeting which are entitled to vote. Of
the Nominees who receive such votes, the ten individuals (or lesser number equal
to the number of remaining directorships if the Board has decreased the number
of directorships as provided above) receiving the greatest number of votes will
be elected Directors.
In accordance with the Company's Director retirement policy, Wallace
Barnes, a Director since 1971, is not standing for reelection at the Annual
Meeting.
The following pages list the names and ages of the Nominees as of the date
of the Annual Meeting, the year each first became a Director of the Company, the
principal occupation and principal business directorships of each as of February
23, 1996, a brief description of the business experience of each for at least
the last five years, and the Board Committees of which each Nominee is a member.
2
<PAGE> 7
NOMINEES FOR DIRECTORSHIPS
- ---------------------------
[insert picture]
- ---------------------------
Ronald E. Compton, 63
(Director since 1988)
Mr. Compton is Chairman, President and chief executive officer of the Company.
Since joining Aetna in 1954, Mr. Compton has held various positions of
increasing responsibility. He served as Senior Vice President from March 1987 to
November 1987 when he was named Executive Vice President. Mr. Compton became
President on July 1, 1988 and assumed the additional position of Chairman and
chief executive officer on March 1, 1992. Mr. Compton is Chairman of the
Executive Committee, and a member of the Committee on Corporate Public
Involvement, the Finance Committee and the Investment Committee.
- ---------------------------
[insert picture]
- ---------------------------
William H. Donaldson, 64
(Director since 1977)
Mr. Donaldson is Chairman of Donaldson Enterprises Incorporated (private
investing firm), and co-founder and Senior Advisor of Donaldson Lufkin &
Jenrette, Inc. (investment banking). He served as Chairman and Chief Executive
Officer and a director of the New York Stock Exchange, Inc. from 1991 to June
1995, and was formerly Chairman and Chief Executive of Donaldson Lufkin &
Jenrette, Inc. and a co-founder of its subsidiary, Alliance Capital Management
Corp. (investment management). Mr. Donaldson is also a director of Honeywell
Inc. (electronic automation and control systems) and Philip Morris Companies
Inc. (consumer products). A former Dean and Professor of Management of the Yale
Graduate School of Management, he also served as U.S. Under Secretary of State
and Counsel to the Vice President of the United States. Mr. Donaldson is a
director of Lincoln Center for the Performing Arts, a Trustee of the Carnegie
Endowment for International Peace, the Marine Corps Command and Staff College
Foundation, the Foreign Policy Association and Chairman of the Yale School of
Management Advisory Board. Mr. Donaldson is Chairman of the Nominating and
Corporate Governance Committee and a member of the Executive Committee and the
Investment Committee.
3
<PAGE> 8
- ---------------------------
[insert picture]
- ---------------------------
Barbara Hackman Franklin, 56
(Director from 1979 to 1992, and since 1993)
Miss Franklin is President and Chief Executive Officer of Barbara Franklin
Enterprises (private investment and international trade consulting firm). From
1992 to 1993, she served as the 29th U.S. Secretary of Commerce. Before her
appointment, Miss Franklin was President and Chief Executive Officer of Franklin
Associates (management consulting firm), which she founded in 1984. Miss
Franklin also served: four terms on the Advisory Committee for Trade Policy and
Negotiations; as Alternate Representative to the 44th Session of the United
Nations General Assembly; as a public member of the Board of the American
Institute of Certified Public Accountants and the Auditing Standards Board
Planning Committee; and as an advisor to the Comptroller General of the United
States. Miss Franklin has also been a Senior Fellow of The Wharton School of the
University of Pennsylvania and an original Commissioner of the U.S. Consumer
Product Safety Commission. Miss Franklin chairs the American Trader Initiative
Advisory Council for the Heritage Foundation, is active in numerous
international organizations, and also is a director of AMP Incorporated
(electrical and electronic connection devices), The Dow Chemical Company
(chemicals and chemical products) and MedImmune, Inc. (biotechnology company).
Miss Franklin is Chairman of the Audit Committee and a member of the Finance
Committee and the Nominating and Corporate Governance Committee.
- ---------------------------
[insert picture]
- ---------------------------
Earl G. Graves, 61
(Director since 1994)
Mr. Graves is Chairman and Chief Executive Officer of Earl G. Graves, Ltd. (a
multi-faceted communications company) and is the Publisher of Black Enterprise
magazine which he founded in 1970. Additionally, since 1990, Mr. Graves has
served as Chairman and Chief Executive Officer of Pepsi-Cola of Washington,
D.C., L.P. (a PepsiCo bottling franchise). Further, Mr. Graves is a general
partner of Egoli Partners, L.P. (general partner of New Age Beverages, the
PepsiCo franchise in South Africa). Mr. Graves also is a director of AMR
Corporation and its subsidiary, American Airlines, Inc., Chrysler Corporation
(automotive manufacturer), Federated Department Stores Inc. (retailer) and Rohm
and Haas Company (specialty chemicals and plastics). In addition, he serves as a
volunteer on the following Boards: New American Schools Development Corporation
and the American Museum of Natural History and Planetarium. Mr. Graves is a
Trustee of Howard University, a member of the Executive Committee of the Council
on Competitiveness, and is on the Executive Board of the National Office of the
Boy Scouts of America serving as Vice President of Relationships and Marketing.
Mr. Graves is a member of the Audit Committee, the Committee on Corporate Public
Involvement and the Investment Committee.
4
<PAGE> 9
- ---------------------------
[insert picture]
- ---------------------------
Gerald Greenwald, 60
(Director since 1993)
Mr. Greenwald is Chairman and Chief Executive Officer of UAL Corporation, the
parent company of United Airlines (UAL), a position he assumed in July 1994.
From 1979 to 1990, Mr. Greenwald held various executive positions with Chrysler
Corporation (automotive manufacturer), serving as Vice Chairman of the Board
from 1989 to May 1990 and as Chairman of Chrysler Motors from 1985 to 1988. In
1990, Mr. Greenwald was selected to serve as Chief Executive Officer of United
Employee Acquisition Corporation in connection with the proposed 1990 employee
acquisition of UAL. From 1991 to 1992, he was a Managing Director of Dillon Read
& Co., Inc. (investment banking) and, from 1992 to 1993, he was President and
Deputy Chief Executive Officer of Olympia & York Developments Ltd. (Canadian
real estate company). Mr. Greenwald then served as Chairman and Managing
Director of Tatra Truck Company (producer of trucks in the Czech Republic) from
1993 to 1994. Mr. Greenwald is a Trustee of Princeton University and the Aspen
Institute. Mr. Greenwald is a member of the Audit Committee, the Finance
Committee and the Nominating and Corporate Governance Committee.
- ---------------------------
[insert picture]
- ---------------------------
Ellen M. Hancock, 53
(Director since 1995)
In September 1995, Mrs. Hancock became an Executive Vice President and Chief
Operating Officer of National Semiconductor Corporation (leading manufacturer of
semiconductors). Prior to assuming her current position, Mrs. Hancock served in
various staff, managerial and executive positions at International Business
Machines Corporation (information - handling systems, equipment and services)
from 1966 to 1995. She became a Vice President of IBM in 1985 and served as
President, Communication Products Division from 1986 to 1988 when she was named
General Manager, Networking Systems. Mrs. Hancock was elected an IBM Senior Vice
President in November 1992 and, in 1993, was appointed Senior Vice President and
Group Executive, Networking Systems, positions she held until February 1995.
Mrs. Hancock is a director of Colgate-Palmolive Company (consumer products) and
Siemens ROLM Communications (telecommunications). Mrs. Hancock is a member of
the Audit Committee, the Committee on Corporate Public Involvement and the
Finance Committee.
5
<PAGE> 10
- ---------------------------
[insert picture]
- ---------------------------
Michael H. Jordan, 59
(Director since 1992)
Mr. Jordan is Chairman and Chief Executive Officer of Westinghouse Electric
Corporation (diversified global technology-based corporation). From 1992 to
1993, he was a principal in Clayton, Dubilier & Rice, Inc. (private investing
firm). Mr. Jordan retired in July 1992 as Chairman and Chief Executive Officer
of the PepsiCo International Foods and Beverages Division of PepsiCo, Inc.
(beverages, snack foods and restaurants) having held various positions with
PepsiCo since 1974. Mr. Jordan also is a director of Dell Computer Corporation
(personal computers and related services), Melville Corporation (specialty
retailer) and Rhone-Poulenc Rorer Inc. (pharmaceuticals) and is also a member of
the Advisory Board of Grupo CIMA (healthcare services and hospital investments).
Mr. Jordan is Chairman of the Finance Committee and a member of the Committee on
Compensation and Organization and the Nominating and Corporate Governance
Committee.
- ---------------------------
[insert picture]
- ---------------------------
Jack D. Kuehler, 63
(Director since 1990)
Mr. Kuehler retired in August 1993 as Vice Chairman and a director of
International Business Machines Corporation (information-handling systems,
equipment and services), having held various positions with IBM since joining
that company in 1958. Prior to his appointment as Vice Chairman of IBM in
January 1993, Mr. Kuehler served as President from 1989 to 1993, as Vice
Chairman from 1988 to 1989 and as Executive Vice President from 1987 to 1988.
Mr. Kuehler also is a director of In Focus Systems, Inc. (projection products
and services), Olin Corporation (chemical, metal and defense-related products),
The Parsons Corporation (heavy construction and engineering services), and is a
member of the National Academy of Engineering, a Fellow of the Institute of
Electrical and Electronics Engineers, Inc. and a Fellow of the American Academy
of Arts and Sciences. Mr. Kuehler is Chairman of the Investment Committee and a
member of the Committee on Compensation and Organization and the Nominating and
Corporate Governance Committee.
6
<PAGE> 11
- ---------------------------
[insert picture]
- ---------------------------
Frank R. O'Keefe, Jr., 66
(Director since 1989)
Mr. O'Keefe retired in 1988 as Chairman, President and Chief Executive Officer
of Armtek Corporation (producer of automotive materials, components and
systems), having assumed that position in 1986. Prior to that, he served as
President and Chief Operating Officer of Armstrong Rubber Company from 1980 to
1986. Following his retirement from Armtek, Mr. O'Keefe served as President of
Long Wharf Capital Partners, Inc., (business investments) from 1988 to 1990. He
was an independent business consultant from 1990 to 1995. Mr. O'Keefe also is a
director of Southern New England Telecommunications Corporation and The United
Illuminating Company. Mr. O'Keefe is Chairman of the Committee on Compensation
and Organization and a member of the Executive Committee and the Investment
Committee.
- ---------------------------
[insert picture]
- ---------------------------
Judith Rodin, 51
(Director since 1995)
Dr. Rodin became President of the University of Pennsylvania in July 1994. Prior
to assuming her current position, Dr. Rodin had served as Provost of Yale
University since 1992. Dr. Rodin joined the Yale faculty in 1972, and held
teaching and research positions of increasing responsibility in the Department
of Psychology. She became a Professor of Medicine and Psychology in 1985 and
served as Chair of the Department of Psychology from 1989 to 1991 and Dean of
the Graduate School of Arts and Sciences from 1991 to 1992 when she became
Provost. Dr. Rodin also is a director of Air Products and Chemicals, Inc.
(industrial gases and chemicals) and of the Brookings Institution. Dr. Rodin is
a member of the Investment Committee.
7
<PAGE> 12
DIRECTOR COMPENSATION IN 1995
Compensation for outside Directors is reviewed annually by the Nominating and
Corporate Governance Committee (the Committee). The Committee's goal of
attracting and retaining qualified Directors is supported through a competitive
compensation program which provides remuneration for Directors' contributions
while offering stock-based compensation alternatives which strengthen the
mutuality of interests with other shareholders.
The following table sets forth the cash and stock-based compensation paid
or provided to each Director of the Company (other than the CEO) in 1995.
DIRECTOR COMPENSATION TABLE -- 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CASH COMPENSATION STOCK UNITS
------------------------- ------------
ANNUAL
RETAINER MEETING NUMBER OF UNITS
NAME FEES($)(1) FEES($)(2) GRANTED (3)
<S> <C> <C> <C>
- --------------------------------------------------------------------------
Wallace Barnes $ 40,000 $ 29,000 200
William H. Donaldson 48,333 29,000 200
Barbara Hackman Franklin 44,000 23,000 200
Earl G. Graves 37,000 19,000 200
Gerald Greenwald 37,000 24,000 200
Ellen M. Hancock 27,750 14,000 1,700
Michael H. Jordan 44,000 25,000 200
Jack D. Kuehler 43,000 29,000 200
Frank R. O'Keefe, Jr. 44,000 32,000 200
Judith Rodin 16,917 11,000 1,700
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO COMPENSATION TABLE
(1) The Company currently pays a retainer fee of $25,000 a year to outside
Directors for Board membership. The Company also pays a $4,000 retainer to
such Directors for membership on Committees of the Board ($7,000 in the case
of the chairperson of a Committee). Mr. Compton receives no additional
compensation for membership on the Board or any of its Committees.
(2) The Company pays $1,000 to outside Directors for attendance at each Board or
Committee meeting.
(3) Pursuant to the 1994 Non-Employee Director Deferred Stock Plan (Director
Plan) outside Directors, upon their initial election to the Board, receive a
one-time grant of units convertible upon retirement from Board service into
1,500 shares of Common Stock. Additionally, on each December 31 during the
term of the Director Plan, each Non-Employee Director who has served for at
least six months immediately prior to that date will receive units
convertible upon retirement from Board service into 200 shares of Common
Stock. Generally, the right to receive such shares is conditioned upon a
Director completing three years of Board service after the grant. If,
however, service is sooner terminated by reason of death, disability,
retirement or acceptance of a position in government service, a Director is
entitled to receive the full grant. If a Director terminates Board service
prior to three years for any other reason, the Director will be entitled to
receive a prorated award. Although Directors receive dividend equivalents,
they have no voting rights with respect to the shares that are subject to
the grant. The units granted are not transferable. A proposal to amend and
restate the Director Plan is being presented to shareholders for approval
(page 28).
Other Information Regarding Directors
The Company provides $150,000 of group life insurance for its outside Directors.
Optional medical and long-term care coverage for outside Directors and their
eligible dependents is available to Directors at a cost similar to that charged
to Company employees.
The Company provides a nonqualified, unfunded pension plan for outside
Directors, which is administered by the Nominating and Corporate Governance
Committee. Under the plan, outside Directors who retire at age 60 or older with
at least five years of service receive an annual retirement benefit equal to the
annual Board retainer (currently $25,000) in effect at the time of the
Director's retirement payable for life or, on an actuarially reduced basis, for
the joint lives of the
8
<PAGE> 13
Director and the Director's spouse. Reduced retirement benefits are payable to
outside Directors with at least five years of service who retire between age 50
and age 60. At the discretion of the Nominating and Corporate Governance
Committee, full retirement benefits may be provided to an outside Director with
at least five years of service who resigns because of a disability and who is
not otherwise entitled to such benefits. Following retirement, benefits are
subject to cost-of-living adjustments of not more than 3% per year, but cannot
be reduced below the amount payable at the time of the Director's retirement.
The Nominating and Corporate Governance Committee has the discretion to adapt
the plan's eligibility requirements and benefits to meet any special
circumstances. If the shareholders approve the amendment and restatement of the
Director Plan, this retirement benefit will be eliminated as described on page
(28).
Under the optional Directors' Deferred Compensation Plan, outside Directors
may defer payment of some or all of their retainer and attendance fees,
including dividend equivalents received under the Director Plan and its
predecessor Plan, the 1990 Non-Employee Director Deferred Stock Plan, until
after they have resigned or retired (as defined in the Plan) from the Board.
During the period of deferral, income on deferred amounts accrues under a
formula equal to the rate of interest paid from time to time under the Company's
Incentive Savings Plan (ISP) for employees (currently yielding 6.75% a year).
Messrs. Donaldson and Greenwald and Dr. Rodin deferred 100% of their 1995
compensation. If shareholders approve the amendment and restatement of the
Director Plan, no further deferrals will be made under the Directors' Deferred
Compensation Plan. Instead deferrals, if elected, will be made pursuant to the
amended and restated Director Plan.
In 1995, the Board held 11 meetings. Each Director attended 75% or more of
the aggregate meetings of the Board and the Committees on which he or she
served.
Committees of the Board
The functions and responsibilities of the standing Committees of the Board are
described below.
- Audit Committee. Composed entirely of outside Directors, this Committee
met four times in 1995. The Committee recommends the independent auditors that
the full Board nominates for shareholder approval at the Annual Meeting, reviews
with the auditors the scope and results of the audit, reviews the Company's
financial statements and other financial disclosures, and monitors developments
in accounting principles and methods used in presenting financial results. The
Committee also consults with internal audit staff and discusses with management
the internal audit function, internal accounting control procedures and other
internal compliance programs. Miss Franklin (Chairman), Messrs. Graves and
Greenwald and Mrs. Hancock are members of this Committee.
- Committee on Compensation and Organization. Composed entirely of outside
Directors, this Committee met ten times in 1995. The Committee administers the
1986 Management Incentive Plan, the 1994 Stock Incentive Plan and the 1984 Stock
Option Plan, and reviews and makes recommendations to the Board with respect to
the compensation of certain senior executives. The Committee also reviews the
Company's overall compensation policy and makes recommendations with respect
thereto. Periodically, the Committee reviews senior management succession plans
and related matters. Messrs. O'Keefe (Chairman), Barnes, Jordan and Kuehler are
members of this Committee.
- Committee on Corporate Public Involvement. This Committee met once in
1995. The Committee reviews and recommends to the Board the Company's annual
philanthropic program. The Committee is also available to review the manner in
which the Company meets its business responsibilities to employees, customers,
agents and the public. Messrs. Barnes (Chairman), Compton and Graves and Mrs.
Hancock are members of this Committee.
- Nominating and Corporate Governance Committee. This Committee, which is
composed entirely of outside Directors, met five times in 1995. The Committee
reviews the qualifications of all candidates for membership on the Board and the
Board Committees. It makes recommendations to the full Board on Director
nominees, on the structure, composition and function of Board Committees, and on
Director compensation and retirement policy. It reviews conflicts of interest
that may affect Directors, as well as each substantial change in Directors'
circumstance (e.g., change of employment). The Committee also advises the
9
<PAGE> 14
Board on all other matters concerning corporate governance to the extent
specific matters are not the responsibility of other Committees.
In recommending Director nominees to the Board, this Committee solicits
candidate recommendations from its own members, other Directors of the Company
and management. Although the Committee does not specifically solicit suggestions
for possible candidates from shareholders, the Committee will consider
candidates meeting the criteria described below. (Suggestions, together with a
description of the proposed nominee's qualifications, other relevant
biographical information and an indication of the willingness of the proposed
nominee to serve, should be sent to the Committee Chairman, in care of the
Corporate Secretary, Aetna Life and Casualty Company, 151 Farmington Avenue,
Hartford, Connecticut 06156.)
Nominees are selected through a process based on criteria set with the
concurrence of the full Board and reevaluated periodically. The criteria
include: the relevance of the candidate's experience to the business of the
Company and its affiliates, enhancing diversity and independence from commercial
relationships with the Company, and the ability of the candidate to attend
meetings regularly and devote an appropriate amount of time in preparation for
those meetings. Mr. Donaldson (Chairman), Miss Franklin and Messrs. Greenwald,
Jordan and Kuehler are members of this Committee.
- Executive Committee. This Committee met four times in 1995. The
Committee reviews quarterly and annual public announcements on earnings and
financial results. Additionally, the Committee is authorized to act on behalf of
the full Board between regular Board meetings, usually when timing is critical.
Messrs. Compton (Chairman), Barnes, Donaldson and O'Keefe are members of this
Committee.
- Finance Committee. This Committee met twice in 1995. The Committee
periodically considers and makes recommendations to the Board concerning matters
of corporate finance. Messrs. Jordan (Chairman) and Compton, Miss Franklin, Mr.
Greenwald and Mrs. Hancock are members of this Committee.
- Investment Committee. This Committee met five times in 1995. The
Committee oversees the management of the Company's investment program and grants
authority to Company personnel with respect to day-to-day management of its
investment portfolios. The senior management of the Company's investment
operations presents to the Committee current investment policy and strategy and
reports on all investment transactions made pursuant to delegated authority.
Additionally, the Committee authorizes major or unusual investments. Messrs.
Kuehler (Chairman), Compton, Donaldson, Graves, and O'Keefe and Dr. Rodin are
members of this Committee.
Certain Transactions and Relationships
In the ordinary course of their investment operations, the Company and its
subsidiaries acquire, dispose of or continue to hold debt or rely on the credit
of other corporations (or their subsidiaries). Since January 1, 1995, such other
corporations include Westinghouse Electric Corporation, of which Mr. Jordan was
an executive officer in 1995, and UAL Corporation, of which Mr. Greenwald was an
executive officer in 1995.
In the ordinary course of their business operations, subsidiaries of the
Company have entered into reinsurance arrangements with Lloyd's of London.
Richard L. Huber, Vice Chairman for Strategy and Finance, is an investor in
several Lloyd's syndicates. As an investor in a Lloyd's syndicate, he does not
exercise control over the syndicate. Additionally, in the ordinary course of his
current duties, Mr. Huber is not involved in obtaining or negotiating the terms
of the companies' reinsurance arrangements.
In each of the above cases the Board believes the transactions were made on
terms as favorable to the companies as if made with any other person. It is
anticipated that the companies will continue to engage in similar transactions.
Information has not been provided with respect to relationships and transactions
occurring during the period when an Executive Officer or Director of the Company
did not hold any such position.
Mr. Barnes, who became a Director of the Company in 1971 (and is retiring
from the Board effective April 26, 1996), and Miss Franklin, who first became a
Director of the Company in 1979, were married in 1986.
10
<PAGE> 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table presents, as of December 31,
1995, the names of persons known to the
Company to be the beneficial owners of more
than 5% of the outstanding shares of its Common
Stock. (The information set forth below and in the related footnotes has been
furnished by the respective persons.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Sanford C. Bernstein & Co., Inc. 5,893,055 shares(1) 5.1%
767 Fifth Avenue
New York, New York 10153
Mellon Bank Corporation 6,565,075 shares(2) 5.7%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
FMR Corp. 7,938,933 shares(3) 6.9%
82 Devonshire Street
Boston, Massachusetts 02109
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Of the reported shares, Sanford C. Bernstein & Co., Inc. reports that it has
no voting power with respect to 2,362,311 shares.
(2) Of the reported shares, 5,015,075 (4.4%) are held by Mellon Bank, N.A., as
Trustee for the Company's Incentive Savings Plan (ISP). Mellon Bank, N.A.,
has agreed to vote these shares in accordance with the instructions received
from ISP participants. Generally, shares as to which no directions are
received are voted by the Trustee in the same percentage as the shares as to
which directions have been received. Mellon Bank Corporation disclaims
beneficial ownership of all ISP shares that have been allocated to
individual ISP participant accounts for which voting directions have been
received.
(3) Of the reported shares, 7,393,843 shares were beneficially owned by Fidelity
Management & Research Company as a result of its serving as investment
adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940 and as investment adviser to certain other
funds which are generally offered to limited groups of investors, and
545,090 shares beneficially owned by Fidelity Management Trust Company as a
result of its serving as trustee or managing agent for various private
investment accounts, primarily employee benefit plans, and as investment
adviser to certain other funds which are generally offered to limited groups
of investors. FMR Corp. has sole voting power with respect to 287,690 shares
and sole dispositive power with respect to 7,938,933 shares.
11
<PAGE> 16
<TABLE>
The following table presents, as of January 31, 1996, the beneficial ownership of, and other interests in, shares of
Common Stock of each current Director, each Nominee, each executive officer named in the Summary Compensation Table
on page 14, and Directors and executive officers of the Company, as a group. (The information set forth below and in
the related footnotes on the next page has been furnished by the respective persons.)
<CAPTION>
------------------------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
SHARES
SHARES BENEFICIALLY ACQUIRABLE
OWNED, EXCLUDING UPON
SHARES ACQUIRABLE EXERCISE TOTAL SHARES OTHER
NAME OF BENEFICIAL UPON EXERCISE OF OF CERTAIN BENEFICIALLY INTERESTS IN
OWNER AND POSITION CERTAIN OPTIONS OPTIONS(1) OWNED SHARES(2)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Wallace Barnes 822 shares 0 shares 822 shares(3) 1,900
(current Director)
Ronald E. Compton 53,520 shares(4) 22,114 shares 75,634 shares
(current Director, Nominee
and named executive)
William H. Donaldson 750 shares 0 shares 750 shares 1,900
(current Director and Nominee)
Barbara Hackman Franklin 557 shares 0 shares 557 shares(5) 1,900
(current Director and Nominee)
Earl G. Graves 500 shares 0 shares 500 shares 1,900
(current Director and Nominee)
Gerald Greenwald 3,000 shares 0 shares 3,000 shares(6) 1,900
(current Director and Nominee)
Ellen M. Hancock 400 shares 0 shares 400 shares(7) 1,700
(current Director and Nominee)
Michael H. Jordan 3,000 shares 0 shares 3,000 shares 1,900
(current Director and Nominee)
Jack D. Kuehler 440 shares 0 shares 440 shares 1,900
(current Director and Nominee)
Frank R. O'Keefe, Jr. 850 shares 0 shares 850 shares(8) 1,900
(current Director and Nominee)
Judith Rodin 100 shares 0 shares 100 shares 1,700
(current Director and Nominee)
Gary G. Benanav 6,947 shares(9) 66,600 shares 73,547 shares
(named executive)
Richard L. Huber 6,000 shares(10) 47,501 shares(11) 53,501 shares
(named executive)
Daniel P. Kearney 6,905 shares 45,750 shares 52,655 shares
(named executive)
James W. McLane 10,805 shares(12) 30,912 shares 41,717 shares
(named executive)
Directors and executive 115,486 shares(13) 305,855 shares 421,341 shares
officers as a group
(21 persons)
</TABLE>
- --------------------------------------------------------------------------------
No individual listed above has beneficial ownership of more than 1% of the
outstanding shares of Common Stock of the Company.
Unless otherwise noted in the footnotes, each person currently has sole voting
and investment powers over the shares set forth above.
12
<PAGE> 17
NOTES TO BENEFICIAL OWNERSHIP TABLE
- --------------------------------------------------------------------------------
(1) Represents shares which the beneficial owner named above has the right to
acquire within 60 days of February 23, 1996 upon exercise of outstanding
stock options.
(2) Each outside Director has been granted units convertible (according to the
terms of the 1990 and 1994 Non-Employee Director Deferred Stock Plans) into
shares of Common Stock upon retirement from Board service, subject to
certain conditions (see page 8).
(3) Excludes 557 shares held by his spouse, Miss Franklin, as to which Mr.
Barnes disclaims beneficial ownership.
(4) Includes 44,300 shares held jointly with his spouse, as to which Mr.
Compton shares voting and investment powers.
(5) Excludes 822 shares held by her spouse, Mr. Barnes, as to which Miss
Franklin disclaims beneficial ownership.
(6) Represents shares held by his spouse.
(7) Held jointly with her spouse, as to which Mrs. Hancock shares voting and
investment powers.
(8) Includes 750 shares held by Revocable Living Trust of which Mr. O'Keefe is
Trustee and beneficiary. Excludes 150 shares held by Revocable Living Trust
of which Mrs. O'Keefe is Trustee and beneficiary, and as to which Mr.
O'Keefe disclaims beneficial ownership.
(9) Includes 4,326 shares held jointly with his spouse, as to which Mr. Benanav
shares voting and investment powers. Excludes 50 shares held by a family
member residing in the same household, as to which Mr. Benanav disclaims
beneficial ownership.
(10) Includes 5,000 shares held by Revocable Living Trust of which Mr. Huber is
Trustee and beneficiary.
(11) Represents stock options held by Huber Associates Limited Partnership, a
family limited partnership, of which Mr. Huber and his spouse are the sole
general partners.
(12) Includes 6,498 shares held jointly with his spouse as to which Mr. McLane
shares voting and investment powers.
(13) Directors and executive officers as a group have sole voting and investment
powers over 42,162 shares of Common Stock and share voting and investment
powers with respect to 63,058 shares of Common Stock. Included in the
number of shares shown in the table are 10,266 shares of Common Stock held
under the Company's ISP and beneficially owned by executive officers.
13
<PAGE> 18
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth for the periods indicated certain compensation of
the Chairman, President and chief executive officer (CEO) and each of the four
most highly compensated executive officers of the Company (other than the CEO)
in 1995.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ---------- ---------
SECURITIES LONG-TERM
UNDERLYING INCENTIVE ALL
NAME AND PRINCIPAL STOCK PLAN OTHER
POSITION YEAR SALARY BONUS(2) OPTIONS PAYOUTS COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Ronald E. Compton 1995 $800,577 $1,300,000 133,000(3) $1,108,000(4) $43,036(5)(6)
Chairman, President 1994 775,000 300,000 23,000 0 59,745
and chief executive 1993 775,000 550,000 33,000 0 68,813
officer
Gary G. Benanav 1995 $500,000 $ 435,000 67,500(3) $ 761,750(4) $25,000(5)
Executive Vice 1994 500,000 80,000 16,500 0 24,844
President, 1993 405,769 275,500 17,000 0 19,924
Property/Casualty
Richard L. Huber 1995 $451,923 $ 800,000 142,500(3) $ 0 $22,596(5)
Vice Chairman for 1994(1) 0 0 0 0 0
Strategy and Finance 1993(1) 0 0 0 0 0
Daniel P. Kearney 1995 $518,269 $ 485,000 82,500(3) $ 761,750(4) $33,683(5)(6)
Executive Vice 1994 500,000 200,000 16,500 0 33,820
President, 1993 476,442 300,000 17,000 0 32,885
Investments/Financial
Services
James W. McLane 1995 $600,000 $ 400,000 92,500(3) $ 761,750(4) $30,000(5)
Executive Vice 1994 500,000 200,000 16,500 0 24,923
President, 1993 424,615 275,000 17,000 0 21,000
Health/Group Life
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE> 19
NOTES TO SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
(1) Mr. Huber was not an executive officer at any time in 1993 or 1994.
(2) Represents amounts earned under the Company's 1986 Management Incentive Plan
(MIP) by the named individual in respect of the year indicated. Annual
incentive bonuses payable under MIP are intended to reward executive
officers for achieving financial and strategic results. The Committee on
Compensation and Organization administers MIP and, subject to the approval
of the Board, determines the amount of each award to be granted.
(3) Represents options granted under the 1994 Stock Incentive Plan.
(4) Represents amounts paid pursuant to the interim vesting of Incentive Unit
Awards granted for the 1993 - 1996 measurement period under the Company's
1994 Stock Incentive Plan. Unless deferred by the executive, this amount,
after tax withholding, was paid in shares of the Company's Common Stock.
(5) Includes $40,029, $25,000, $22,596, $25,913 and $30,000 of matching
contributions made by the Company under the Incentive Savings Plan (ISP) and
the Supplemental ISP for Messrs. Compton, Benanav, Huber, Kearney and McLane
respectively. The ISP is a profit-sharing thrift plan qualified under the
Internal Revenue Code of 1986, as amended (the Code). The Company matches,
dollar-for-dollar, amounts deferred by employees under the ISP up to 5% of
annual salary. Twenty-five percent of the matching contributions made under
the ISP on behalf of officers of the Company is automatically invested in
Common Stock. The Company has established the Supplemental ISP to provide
the deferred and matching benefits which would have been credited to ISP but
for limits imposed by the Employee Retirement Income Security Act (ERISA)
and the Code. The Supplemental ISP also is used to provide other benefits
not otherwise payable under ISP itself, as provided from time to time by the
Company's Board.
(6) Includes $3,007 and $7,770, representing the actuarially determined value of
the benefit to Messrs. Compton and Kearney, respectively, of life insurance
premiums paid by the Company under split dollar universal life insurance
policies. The Company will recover all of its portion of the premiums paid
through the cash surrender value upon the earlier of a participant's
attainment of age 65 or death.
15
<PAGE> 20
Stock Option Grants Table
The following table sets forth certain information concerning stock options
granted during 1995 by the Company to the CEO and each of the four most highly
compensated executive officers of the Company (other than the CEO) in 1995. The
hypothetical grant date present values of stock options granted in 1995 shown
below are presented pursuant to SEC rules and are calculated under the modified
Black-Scholes Model for pricing options. The gains, if any, realizable upon
exercise of stock options will depend upon the market price of the Company's
Common Stock at the time the stock option is exercised. The individuals named
below will not be able to realize a gain from the stock options granted unless,
during the exercise period, the market price of the Company's Common Stock
increases above the exercise price of the options. An increase in the market
price of the Company's Common Stock would also benefit the Company's other
shareholders.
STOCK OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS(1)
NUMBER OF PERCENT OF
SECURITIES TOTAL STOCK
UNDERLYING OPTIONS
STOCK GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE PER EXPIRATION PRESENT
NAME GRANTED IN 1995 SHARE DATE VALUE(5)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ronald E. Compton 33,000(2) 1.5% $53.50 February 24, 2005 $ 312,698(6)
100,000(3) 4.7% 57.00 April 28, 2005 1,003,255(7)
Gary G. Benanav 22,500(2) 1.1% 53.50 February 24, 2005 213,203(6)
45,000(3) 2.1% 57.00 April 28, 2005 451,465(7)
Richard L. Huber 17,500(2) .8% 53.50 February 24, 2005 165,825(6)
50,000(4) 2.3% 50.50 February 4, 2005 423,280(8)
75,000(4) 3.5% 55.55 February 4, 2005 549,783(8)
Daniel P. Kearney 17,500(2) .8% 53.50 February 24, 2005 165,825(6)
65,000(3) 3.1% 57.00 April 28, 2005 652,116(7)
James W. McLane 17,500(2) .8% 53.50 February 24, 2005 165,825(6)
75,000(3) 3.5% 57.00 April 28, 2005 752,441(7)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Granted under the Company's 1994 Stock Incentive Plan (the Plan). The Plan
permits participants to use shares of the Company's Common Stock to exercise
options. The Plan provides that the option price shall not be less than 100%
of the fair market value of the Common Stock at the time the option is
granted. Under the Plan, options may be granted until April 30, 2001.
(2) Date of grant was February 24, 1995; initial exercise date is February 25,
1996; options vest in installments over a period of three years.
(3) Date of grant was April 28, 1995; initial exercise date is April 29, 1997;
options vest over a period of three years provided certain performance
criteria have been met.
(4) Date of grant was February 4, 1995, initial exercise date is February 5,
1996; options vest in installments over a period of three years.
(5) Grant date present values are calculated under the modified Black-Scholes
Model. The Black-Scholes Model is a mathematical formula used to value
options publicly traded in the securities markets and it assumes that
options are freely transferable. Because the employee stock options granted
above are not freely transferable, the Company believes that the grant date
present values shown above may be overstated.
(6) The assumptions made and factors used by the Company in the Black-Scholes
Model calculation for the options granted February 24, 1995 were as follows:
(i) a volatility factor of 0.226, representing the average of the three-year
and ten-year historical volatility factors for the Common Stock determined
as of the date of the option grant; (ii) a risk-free rate of return of
7.47%, representing the 10-year U.S. Treasury bond rate in effect on the
date of the option grant; (iii) a dividend yield of 5.2%, representing the
Company's then current annual dividend, divided by the Common Stock price on
the date of the option grant; and (iv) a ten-year option term, representing
the full term of the option granted. To give effect to the three-year
vesting period of the options, the value of each option was discounted by
20%, the percentage of options estimated to expire due to turnover of all
recipients of options during the vesting period. No further discount to the
option value calculated was taken to give effect to the fact that the
options are not freely transferable or to the exercise or lapse of the
16
<PAGE> 21
options prior to the end of the ten-year option period.
(7) The assumptions made and factors used by the Company in the Black-Scholes
Model calculation for the options granted April 28, 1995 were as follows:
(i) a volatility factor of 0.229, representing the average of the three-year
and ten-year historical volatility factors for the Common Stock as of the
date of the option grant; (ii) a risk-free rate of return of 7.06%,
representing the 10-year U.S. Treasury bond rate in effect on the date of
the option grant; (iii) a dividend yield of 4.8%, representing the Company's
then current annual dividend, divided by the Common Stock price on the date
of the option grant; and (iv) a ten-year option term, representing the full
term of the option granted. To give effect to the three-year vesting period
and the risk of forfeiture of the performance vested options, the value of
each option was discounted by 32.5%. No further discount to the option value
calculated was taken to give effect to the fact that the options are not
freely transferable or to the exercise or lapse of the options prior to the
end of the ten-year option period.
(8) The assumptions made and factors used by the Company in the Black-Scholes
Model calculation for the options granted February 4, 1995 were as follows:
(i) a volatility factor of 0.226, representing the average of the three-year
and ten-year historical volatility factors for the Common Stock as of the
date of the option grant; (ii) a risk-free rate of return of 7.47%,
representing the 10-year U.S. Treasury bond rate in effect on the date of
the option grant; (iii) a dividend yield of 5.5%, representing the Company's
then current annual dividend, divided by the Common Stock price on the date
of the option grant; and (iv) a ten-year option term, representing the full
term of the option granted. To give effect to the three-year vesting period
of the options, the value of each option was discounted by 20%, the
percentage of options estimated to expire due to turnover of all recipients
of options during the vesting period. No further discount to the option
value calculated was taken to give effect to the fact that the options are
not freely transferable or to the exercise or lapse of the options prior to
the end of the ten-year option period.
There is no assurance that the hypothetical present values of stock options
presented in the table above represent the actual values of such options.
The hypothetical values shown should not be construed as predictions by the
Company as to the future value of its Common Stock.
17
<PAGE> 22
Stock Option/SAR Exercises and December 31,
1995 Stock Option/SAR Value Table
The following table sets forth certain information concerning stock options and
stock appreciation rights (SARs) exercised during 1995 by the CEO and each of
the four most highly compensated executive officers of the Company (other than
the CEO) in 1995 and the number and value of specified unexercised options at
December 31, 1995. The values of unexercised in-the-money stock options at
December 31, 1995 shown below are presented pursuant to SEC rules. There is no
assurance that the values of unexercised in-the-money stock options reflected in
this table will be realized.
AGGREGATED STOCK OPTION/SAR EXERCISES AND
DECEMBER 31, 1995 STOCK OPTION/SAR VALUE TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
VALUE OF
NUMBER OF SECURITIES UNDERLYING UNEXERCISED
IN-THE-MONEY
SHARES VALUE UNEXERCISED OPTIONS/SARS AT OPTIONS AT
ACQUIRED REALIZED DECEMBER 31, 1995(2) DECEMBER 31, 1995(3)
UPON UPON ------------------------------- ------------------------------
NAME EXERCISE(1) EXERCISE EXERCISABLE UNEXERCISABLE(4) EXERCISABLE UNEXERCISABLE(4)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald E. Compton 134,229 $3,389,899 3,447 148,333 $ 48,258 $ 1,959,412
Gary G. Benanav 0 0 53,600 78,500 1,053,088 1,059,625
Richard L. Huber 0 0 0 142,500 0 2,240,625
Daniel P. Kearney 8,264 246,012 34,236 93,500 742,638 1,225,875
James W. McLane 9,922 294,883 19,578 103,500 393,755 1,348,375
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes, 89,949, 6,125, and 7,000 shares as to which Messrs. Compton,
Kearney and McLane, respectively, received cash in lieu of shares upon
exercise of SARs.
(2) Tandem SARs are attached to exercisable stock options relating to 23,800
shares held by Mr. Benanav and 13,875 shares held by Mr. Kearney. No tandem
SARs are attached to any unexercisable stock options.
(3) Based on the December 29, 1995 closing stock price of $69.25.
(4) Represents stock options which are not vested.
18
<PAGE> 23
Long-Term Incentive Awards Table
The following table sets forth certain information concerning long-term
incentive awards granted to the CEO and each of the four most highly
compensated executive officers of the Company (other than the CEO) in 1995 under
the Company's 1994 Stock Incentive Plan.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
PERFORMANCE ESTIMATED FUTURE PAYOUTS
OR OTHER (IN SHARES) UNDER
NUMBER OF PERIOD UNTIL NON-STOCK PRICE BASED PLANS
UNITS GRANTED MATURATION -------------------------------------
NAME IN 1995 OR PAYOUT THRESHOLD TARGET MAXIMUM
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ronald E. Compton 21,000(1) 1995 - 1998 10,500 21,000 36,750
Gary G. Benanav 10,200(1) 1995 - 1998 5,100 10,200 17,850
Richard L. Huber 10,200(1) 1995 - 1998 5,100 10,200 17,850
28,000(2) 1995 - 1996 14,000 28,000 42,000
Daniel P. Kearney 10,200(1) 1995 - 1998 5,100 10,200 17,850
James W. McLane 10,200(1) 1995 - 1998 5,100 10,200 17,850
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Incentive Units will vest and shares will become payable only to the
extent the Company's total return to shareholders over a four-year
measurement period (1995-1998) meets or exceeds each of two separate
performance objectives. First, the Company's total return to shareholders
over the measurement period must at least equal a threshold risk-free rate
of return (the Return Threshold), which for these Incentive Units is based
on the annual rate of return available on a four-year Treasury note on
January 1, 1995 (7.85%) and compounded annually. If the Return Threshold is
not met, no Incentive Units will vest. Second, the Company's total return to
shareholders over the measurement period must compare favorably to that of
the other companies in the Dow Jones Insurance Index (DJII) for the same
period. For the Incentive Units to become fully vested, the Company must
achieve at least the median level of total shareholder return for the
companies in the DJII (Target Performance). If the Committee determines that
the Company's performance does not at least equal the 33rd percentile of the
companies in the DJII (the Performance Threshold), no portion of the
Incentive Units will vest regardless of whether the Return Threshold is
satisfied. If the Company's performance is in the 90th percentile of
companies in the DJII (Maximum Performance) up to 175% of the Incentive
Units will vest.
For purposes of determining the total return to shareholders over the
measurement period, the change in the price of the Company's Common Stock
and of the price of the common stock of each of the companies in the DJII
is calculated by comparing the average of the closing stock price of the
Company and each other company on the last business day of each week in the
13-week period both preceding the start and the end of the measurement
period. The initial value of the Company's Common Stock used to determine
total shareholder return over the measurement period for the awards was
$46.09.
(2) Upon commencement of his employment with the Company, Mr. Huber was granted
Incentive Units for the measurement period ending 1996. This award will vest
and shares will be payable if the Return Threshold and Performance Threshold
are met over the 4-year period 1993 - 1996. For the Incentive Units to
become fully vested, the Company's total return to shareholders must at
least equal (i) the median level of return for companies in the DJII and
(ii) the annual return available on a four-year Treasury note on January 1,
1993 (5.9%). If the Committee determines that the Company's performance does
not at least equal the 33rd percentile of the companies in the DJII, no
portion of the Incentive Units will vest. If the Company's performance is in
the 75th percentile of the companies in the DJII up to 150% of the Incentive
Units will vest.
19
<PAGE> 24
Pension Plan
The Company provides for its employees a noncontributory, defined benefit
pension plan. Retirement benefits are calculated on the basis of (i) the number
of years of credited service (maximum credit is 35 years), and (ii) the
employee's average annual earnings during the 60 consecutive months out of the
last 120 months of service which yield the highest annual compensation.
Employees receive service credit for actual years of employment with the
Company. Under certain circumstances, determined on a case-by-case basis,
additional service credit may be given for employment with affiliated and
non-affiliated companies and, as determined by the Company's Board, for the
purposes of inducing employment of senior officers or rewarding past service.
The table below shows the estimated maximum annual retirement benefits
payable under the pension plan, at selected earnings levels and after selected
periods of credited service, to employees with at least 15 years of credited
service who retire at age 65.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
AVERAGE
ANNUAL CREDITED YEARS OF SERVICE
EARNINGS 15 20 25 30 35
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 500,000 113,000 150,000 188,000 225,000 263,000
600,000 135,000 180,000 225,000 270,000 315,000
700,000 158,000 210,000 263,000 315,000 368,000
800,000 180,000 240,000 300,000 360,000 420,000
900,000 203,000 270,000 338,000 405,000 473,000
1,000,000 225,000 300,000 375,000 450,000 525,000
1,100,000 248,000 330,000 413,000 495,000 578,000
1,200,000 270,000 360,000 450,000 540,000 630,000
- ---------------------------------------------------------------------------
</TABLE>
The term "earnings," as used in the retirement benefits table above,
includes annual salaries, annual bonuses paid under MIP and amounts paid under
PUP (allocated equally among the years of the performance period to which such
payments relate) set forth in the relevant columns of the Summary Compensation
Table on page 15. At December 31, 1995, "average annual earnings" for pension
plan purposes for Messrs. Compton, Benanav, Kearney and McLane were $984,394,
$517,671, $620,507 and $593,407, respectively. As of December 31, 1995, Mr.
Huber had not completed one year of service and was not yet eligible to
participate in the Company's pension plan.
The credited years of service on December 31, 1995 for the persons named in
the Summary Compensation Table are as follows: Mr. Compton-35 years; Mr.
Benanav-23.5 years; Mr. Huber-.8 years; Mr. Kearney-25.8 years; Mr. McLane-23.9
years.
The benefits set forth in the above table do not take into account any
reduction for joint and survivorship payments or any offset for Social Security
benefits to be received by the employee. After retirement, benefits are subject
to cost-of-living adjustments of not more than 3% per year, but cannot be
reduced below the amount payable at the time of the individual's retirement.
ERISA limits the maximum annual benefit that may be accrued under and paid
from a tax-qualified plan. As a result, the Company has established a
Supplemental Plan to provide benefits (included in the foregoing table) which
would exceed the ERISA limit. The Supplemental Plan also is used to pay other
pension benefits not otherwise payable under the tax-qualified plan, including
certain benefits attributable to management incentive and performance unit
awards, additional years of credited service beyond years actually served,
additional years of age, and covered compensation in excess of that permitted
under the tax-qualified plan.
Other Agreements
The Company administers a Severance Pay Plan under which employees, including
the Company's executive officers, terminated by the Company without cause may
receive up to two weeks of continuing salary for every credited full year of
employment to a maximum of one year's salary. In addition to the Severance Pay
Plan, the Company administers a Job Elimination Benefits Program
20
<PAGE> 25
applicable when an employee's job is eliminated due to reengineering,
reorganization or staff reduction efforts. Under this program, employees,
including the Company's executive officers, are eligible for an additional 13
weeks of salary continuation and outplacement assistance. Certain benefits
continue during the severance pay and salary continuation periods.
Upon commencement of his employment, Mr. Huber entered into an agreement
with the Company which provides that if his employment is involuntarily
terminated under circumstances that would call for severance pay benefits, he
will receive payment for not less than 52 weeks of base salary. In the event of
a change-in-control of the Company (as described in the agreement), Mr. Huber's
severance benefit would increase to 156 weeks of base salary.
The Company has entered into employment agreements with Messrs. Compton,
Benanav, Kearney and McLane. The agreements have a three-year term. The
agreements provide that, if the executive is terminated other than for "cause"
or terminates employment for "good reason" (as defined in the agreements), in
lieu of participation in the Company's Severance Pay Plan and Job Elimination
Benefits Program, the executive will be entitled to a special termination
payment equal to two years' base salary and target bonus. This special
termination payment will be made available as salary continuation (with
continuation of medical and welfare benefits) or in a lump sum (without
continuation of medical and welfare benefits). Upon a change-in-control of the
Company (as defined), the special termination payment is increased to three
years' base salary and target bonus. Under the terms of the agreements, an
executive will generally be reimbursed by the Company for any applicable excise
taxes (including tax gross-up). Mr. Benanav's agreement also provides for a
retention bonus that is payable if Mr. Benanav remains employed by the Company
through the end of the contract term. The retention bonus is also payable if Mr.
Benanav is terminated other than for "cause" or terminates for "good reason." In
lieu of the retention bonus, Mr. Benanav is eligible to receive an alternative
bonus in connection with the sale of the Company's property-casualty insurance
business.
The Board of Directors has approved provisions to protect certain benefits
of Company employees in the event of a change-in-control of the Company (as
defined). The provisions provide that the Severance Plan and Job Elimination
Benefits Program shall become non-cancelable for a period of one year. Also, all
previously granted stock options which have not yet vested will become vested
and immediately exercisable. In the event of a change-in-control, bonuses
payable under the Company's annual bonus program will become payable based on
the target award for participants. Also, long-term incentive awards granted
under the Company's 1994 Stock Incentive Plan for the period 1993-1996 will vest
and participants will be paid an amount which equals the greater of target or
actual performance through the date of the change-in-control. Long-term
incentive awards for the period 1995-1998 will also vest and a prorated award
will be paid which equals greater of target or actual performance through the
date of the change-in-control. Provision has been made to permit funding of a
trust to protect supplemental retirement benefits (pension and 401(k)) and
deferred compensation upon a change-in-control or potential change-in-control of
the Company.
21
<PAGE> 26
Report of the Committee on
Compensation and Organization
Compensation Policies for Executive Officers
The Committee on Compensation and Organization consists entirely of outside
Directors. The Committee administers the Company's compensation plans for
executives, and reviews and makes recommendations to the Board on the Company's
executive compensation policies. These policies are designed to attract and
retain high performance executives and to motivate and reward these executives
for superior business and individual performance and for creating long-term
shareholder value.
The Company uses its executive compensation program to:
- - create a performance-oriented environment in which executive officers can earn
additional compensation by achieving superior annual and long-term business
results;
- - focus executive officers on maximizing shareholder value by awarding them
stock-based compensation directly linked to improvements in shareholder
return; and
- - compensate executive officers based on the Company's performance relative to
its competitors and improvements in the Company's performance over time.
The Company's 1995 compensation program for executive officers consisted of
four elements: salaries, annual incentive bonuses, stock options and long-term
incentive awards. Executive officers are eligible for other benefits as set
forth in the Summary Compensation Table (see page 14).
1. Salaries. Salaries for executive officers are based on the competitive
marketplace for equivalent jobs. Individual salaries are determined by the
executive's level and scope of responsibility within the Company and his or her
individual performance. The Committee reviews salaries annually. The Committee
selects for each position a Comparison Group of companies believed to be the
Company's major competitors for executive talent. The Comparison Group for each
position is selected from a group of approximately 40 insurance, financial
services and other companies, including nine insurance companies, four of which
were in the Dow Jones Insurance Index in 1995. Executive officer salaries are
designed to set total compensation opportunity (salary, annual bonus, long-term
incentive award and stock options) at a median level relative to
similarly-positioned executives at companies in the Comparison Group.
2. Annual Incentive Bonuses. Annual incentive bonuses payable under the
Company's Management Incentive Plan are designed to reward executive officers
for achieving specific financial and strategic goals. These goals are
established at the beginning of the year and bonuses are linked directly to
their achievement. The Committee sets the bonuses based on various levels of
financial performance for each business or staff support unit. Seventy-five
percent of a business unit head's bonus depends on the unit's financial
performance, measured by income from continuing operations before realized
capital gains and losses. Twenty-five percent depends on the Company's
consolidated financial performance, measured by net income (adjusted by the
Committee to exclude realized capital gains and losses, as well as certain
items, identified at the start of the performance year and determined to be
unusual, non-recurring or beyond management's control). Forty percent of a staff
support unit head's bonus depends on the Company's consolidated financial
performance (as adjusted) and 60% depends on the unit's own financial
performance, measured by actual expense level versus budget, and by achievement
of relevant performance objectives. Examples of these performance objectives
include: measurable improvements in the quality of customer service and
effective resolution of legal, regulatory or other important issues affecting
the Company. For executive officers who are not members of the Company's
Management Group, the bonus pool is based 85% on unit performance and 15% on the
Company's consolidated financial performance. Bonuses for the Chairman, Mr.
Compton, and for the Vice Chairman for Strategy and Finance, Mr. Huber, depend
upon the Company's consolidated financial performance.
If 100% of a business or staff support unit's financial goal is met, up to
100% of its bonus pool is payable. If 80% of the financial goal is met, up to
50% of the bonus pool is payable. If financial goals are exceeded, up to 200% of
the bonus pool is payable. At the Committee's discretion, the amount of a bonus
pool may be adjusted upward or downward by up to 20% to take into account
strategic results achieved by the business or staff support unit. The principal
criteria used by the Committee in assessing a unit's strategic results are
re-engineering efforts, positioning of the Com-
22
<PAGE> 27
pany's businesses, expense management, customer service, new product
development, use of technology, management of human resources and diversity, and
the "quality" of (or sources of) the unit's earnings. The amount of annual
bonus, if any, paid to an executive officer is determined by the Committee's
assessment of that executive's own performance and level of responsibility.
In 1995, the financial performance of the business and staff units varied;
some achieved or exceeded their goal, some did not. The Company's consolidated
financial performance (after adjustment as described below) was determined by
the Committee to be at 142.5% of the established goal. The bonuses paid to
executive officers reflect this performance.
3. Stock Options. The Company awards stock options to align the interests of
its executive officers with those of its shareholders in maximizing long-term
shareholder value. Stock options are granted annually to executive officers at
100% of the fair market value of the underlying Common Stock on the date of
grant. The Committee, after working with an outside compensation consultant to
establish guidelines, grants stock options to position total compensation at a
median level relative to similarly-positioned executives at companies in the
executive officer's Comparison Group. The value of the stock option component of
an executive officer's compensation is converted into a specific number of
shares subject to option by assigning each option an estimated realizable value
(based on an outside compensation consultant's analysis of the value realized
upon exercise of stock options by executives at a diverse and large number of
major corporations). The annual stock option grants made in 1995 vest over a
three-year period.
In addition to the annual stock option grant, in 1995, the Company granted
to certain executive officers performance stock options. These options were
granted at 100% of the fair market value of the Common Stock on the date of
grant. The performance stock options vest after the second and third years (50%
each year) only if the price of the Company's Common Stock increases at an
annual rate of at least 8.5% from the value on the date of grant. All of the
performance stock options vest if the price of the Company's Common Stock
increases 27.75%. In determining the number of performance options to be
granted, the Committee assessed each executive's individual performance, the
importance of the executive's position to the success of the Company and the
future need to retain the continuing services of the executive. The number of
performance stock options granted was determined by an outside compensation
consultant to be consistent with competitive practice.
4. Long-term Incentive Awards. In 1994, shareholders approved the Company's
1994 Stock Incentive Plan (the "1994 Plan"). Incentive Units granted in 1995
under the 1994 Plan encourage executives to increase the total shareholder
return relative to the total returns achieved by other companies in the Dow
Jones Insurance Index. Incentive Units vest and shares become payable only to
the extent the Company's total return to shareholders over a four-year
measurement period (1995-1998) meets or exceeds each of two established
performance objectives (described on page 19). If the Committee determines that
the performance objectives have not been met, no Units will vest.
The number of Incentive Units granted to each executive officer in 1995 was
determined by the Committee, working with an outside compensation consultant, to
set, at target performance levels, the total compensation opportunity at a
median level relative to similarly positioned executives in the executive
officer's Comparison Group. Below median performance results in below median
compensation and above median performance results in above median compensation.
5. Other. In 1994, a change in the Internal Revenue Code - Section
162(m) - eliminated tax deductibility for executive compensation over $1
million, except in certain circumstances. For example, compensation over $1
million is deductible if it is awarded according to a shareholder-approved,
performance-based formula and performance is objectively measured by independent
"outside directors" - as defined in Section 162(m).
The Committee and its outside compensation consultant believe that
performance-based pay over $1 million is sometimes required to attract and
retain executives in a competitive marketplace. Stock options and Incentive
Units granted under the 1994 Stock Incentive Plan are designed so that the
compensation paid will be tax deductible by the Company. The Company is
proposing that shareholders approve certain terms of the Company's Annual
Incentive Plan -- which has been
23
<PAGE> 28
designed to meet the performance-based criteria required by the IRS - to assure
the tax deductibility of the bonuses paid under that plan. However, even with
such approval, there may be circumstances under which it may nevertheless be
appropriate for the Committee to elect to forego deductibility to maintain
flexibility or continue to pay competitive compensation.
Basis for the Compensation of the Chief Executive Officer
The following are details of compensation earned by Mr. Compton for 1995,
illustrating the Company's performance-based executive compensation policy.
1. Salary. Mr. Compton received an increase in salary in 1995 of 4.5%. This
increase was awarded to bring Mr. Compton's total direct compensation
opportunity (salary, annual bonus, long-term incentive award and stock options)
to a competitive median level.
2. Annual Incentive Bonus. Mr. Compton's annual bonus depends on the Company's
consolidated financial performance, measured by net income, adjusted by the
Committee to exclude realized capital gains and losses as well as certain items
identified at the start of the performance year and determined by the Committee
to be unusual, non-recurring or beyond management control. In 1995, the
Committee adjusted net income upward to exclude the negative effect of additions
to environmental and asbestos reserves, and downward to exclude the positive
effect of reductions in certain prior year reserves. As a result, the Committee
determined that 142.5% of the financial goal was achieved. This financial
performance and Mr. Compton's leadership in implementing long-term strategic and
business initiatives for the Company was the basis for the Committee's decision
to award Mr. Compton a bonus of $1,300,000.
3. Stock Options. Mr. Compton was granted 33,000 stock options and 100,000
performance stock options under the guidelines and procedures established by the
Committee and described elsewhere in this Report.
4. Long-term Incentive Award. In 1995, Mr. Compton was granted 23,000 Incentive
Units under the 1994 Plan. These units will vest and shares will be payable only
if the established performance objectives are met over a four-year measurement
period (1995-1998). The number of Incentive Units granted was determined by the
Committee in the manner described elsewhere in the Report.
In December 1995, the Committee determined that the interim performance targets
for the Incentive Units granted for the period 1993-1996 had been met (see
three-year performance graph, page 26). In accordance with the terms of the
Plan, 40% of Mr. Compton's award for the period 1993-1996 (16,000 incentive
units) vested. Each unit represents one share of the Company's Common Stock.
The Committee on Compensation
and Organization
Frank R. O'Keefe, Jr. Michael H. Jordan
(Chairman) Jack D. Kuehler
Wallace Barnes
24
<PAGE> 29
CORPORATE PERFORMANCE GRAPH
The graph compares the yearly change in the Company's cumulative total
shareholder return on its Common Stock (assuming reinvestment of dividends into
Common Stock of the Company) with the cumulative total return on the published
Standard & Poor's 500 Stock Index (S&P 500) and the cumulative total return on
the published Dow Jones Insurance Index (currently 32 insurance companies) over
the preceding five-year period. It assumes that dividends are reinvested into
the Company's Common Stock even though many shareholders do not so reinvest. The
following graph is presented pursuant to SEC rules.
FIVE-YEAR CUMULATIVE TOTAL RETURN
AETNA, S&P 500 AND DOW JONES INSURANCE INDEX*
<TABLE>
<CAPTION>
DOW JONES
MEASUREMENT PERIOD INSURANCE
(FISCAL YEAR COVERED) AETNA S&P 500 INDEX
<S> <C> <C> <C>
1990 100.0 100.0 100.0
1991 120.6 130.3 131.2
1992 135.9 140.3 161.2
1993 185.4 154.3 168.0
1994 152.8 156.4 166.6
1995 234.2 214.9 239.0
</TABLE>
* Assumes that any dividends were reinvested in the relevant securities when
paid.
As noted in the Report of the Committee on Compensation and Organization, the
Committee determined in 1995 that the interim performance targets for the
Incentive Units granted for the 1993-1996 measurement period had been met. The
intent of the Incentive Unit award program is to encourage Company executives to
increase the total return to shareholders of the Company relative to the total
return provided to shareholders of the other Companies in the Dow Jones
Insurance Index (DJII). In the years immediately preceding 1993, the Company's
total return to shareholders was below the median level attained by companies in
the DJII. The Committee determined that improvement in this area over the
long-term was in the best interest of the Company and its Shareholders. The
graph below compares the yearly change in the Company's cumulative total
shareholder return on its Common Stock for the three-year period over which
performance was measured. For purposes of determining total return to
shareholders, the Incentive Unit award program calculates the change in stock
price of the Company's Common Stock and the common stock of each of the
companies in the DJII by comparing the average of the closing stock price of the
Company and each other company on the last business day of each week in the
13-week period both preceding the start and end of the measurement period. The
initial value of the Common Stock used to determine total shareholder return was
calculated to be $44.24 (representing the 13-week period ending December 31,
1992). The value calculated for the 13-week period preceding December 31, 1995
was $72.15. The graph below calculates total return to shareholders over the
same 13-week period for the DJII as a whole.
25
<PAGE> 30
THREE-YEAR CUMULATIVE TOTAL RETURN
AETNA, S&P 500 AND DOW JONES INSURANCE INDEX*
<TABLE>
<CAPTION>
DOW JONES
MEASUREMENT PERIOD INSURANCE
(FISCAL YEAR COVERED) AETNA S&P 500 INDEX
<S> <C> <C> <C>
1992 100.0 100.0 100.0
1993 145.5 112.4 112.3
1994 115.3 114.5 106.9
1995 188.8 152.9 151.2
</TABLE>
* Assumes that any dividends were reinvested in the relevant securities when
paid.
II. APPOINTMENT OF AUDITORS
Following the recommendation of its Audit Committee, the Company's Board of
Directors has appointed and recommends shareholder approval of KPMG Peat Marwick
LLP as the Company's independent auditors for the current calendar year. The
firm has acted in this capacity for the Company since 1972. It is expected that
representatives of the firm will be available at the Annual Meeting of
Shareholders to make a statement if the firm desires and to respond to
appropriate questions.
The affirmative vote of a majority of the shares represented at the meeting
which are entitled to vote is required for approval of the appointment of KPMG
Peat Marwick LLP as the Company's independent auditors.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF KPMG PEAT MARWICK LLP AS
THE COMPANY'S INDEPENDENT AUDITORS FOR THE CURRENT CALENDAR YEAR. UNLESS
DIRECTED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED PROXY WILL BE
VOTED FOR THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS FOR
THE CURRENT CALENDAR YEAR.
III. PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE
COMPANY
The Board of Directors has approved, subject to shareholder approval, an
amendment to Section 1 of the Company's Certificate of Incorporation which would
change the name of the Company from Aetna Life and Casualty Company to Aetna,
Inc. In view of the Company's agreement to sell its property-casualty insurance
business, the Board believes that the name "Aetna Life and Casualty Company" no
longer reflects the Company's mission. The Aetna name is well-known and stands
on its own as a powerful brand that represents quality and reliability.
If the proposal is adopted, Section 1 of the Company's Certificate of
Incorporation will read as follows: "Section 1. The name of the corporation is
Aetna, Inc."
The affirmative vote of a majority of the outstanding shares of Common
Stock is required to amend the Company's Certificate of Incorporation. If the
proposed amendment is adopted, it would become effective only upon filing with
the Insurance Commissioner of the State of Connecticut
26
<PAGE> 31
and the Secretary of the State of the State of Connecticut.
The Board recommends a vote FOR the approval of the proposed amendment to
the Company's Certificate of Incorporation. Unless directed to the contrary, the
shares represented by the enclosed Proxy will be voted FOR the approval of the
proposed amendment to the Company's Certificate of Incorporation.
IV. PROPOSAL TO APPROVE CERTAIN TERMS OF ANNUAL INCENTIVE PLAN
To further its policy of providing the Company's key employees the opportunity
to earn competitive levels of incentive compensation based primarily on the
performance of the Company, the Board of Directors has adopted the Aetna Life
and Casualty Company Annual Incentive Plan (the Incentive Plan), effective as of
January 1, 1996, subject to the approval of certain terms by the Company's
shareholders. Shareholder approval is required under Section 162(m) of the
Internal Revenue Code of 1986 so that compensation payable pursuant to the
Incentive Plan, together with certain other compensation paid to the same
"covered employee," exceeding $1 million is considered "performance based" and,
therefore, tax deductible by the Company. Under Section 162(m) a covered
employee is an executive officer named in the Company's Summary Compensation
Table who is acting in such capacity on the last day of the applicable tax year.
The Incentive Compensation terms submitted for shareholder approval are
summarized below.
Eligible Employees. All executive officers (currently 11) as described in
Rule 405 of the Securities Exchange Act of 1934 are eligible to be named by the
Board of Directors Committee on Compensation and Organization (the Committee) as
participants for any fiscal year.
Performance Criterion. On or before March 31 of each performance year, the
Committee shall establish the performance objectives that must be attained in
order for the Company to pay incentive bonuses. Unless the Committee determines
at the time of grant not to qualify the award as performance based compensation
under Section 162(m), the performance objectives for awards made under the
Incentive Plan will be based upon one or more of the following criteria: (i) net
income; (ii) earnings before income taxes; (iii) earnings per share; (iv) return
on shareholders equity; (v) expense management; (vi) profitability of an
identifiable business unit or product; (vii) ratio of claims to revenues; (viii)
revenue growth; (ix) earnings growth; and (x) total shareholder return, or any
combination of the foregoing.
Payment of Awards. If any of the performance criteria established by the
Committee with respect to a particular award is satisfied for the relevant
performance period, the Committee may authorize payment to the participant of an
amount not to exceed the lesser of (i) $2,000,000 or (ii) 200% of the
Participant's annual base salary as then in effect. The Committee has the
discretion to pay amounts which are less than these maximum amounts based on
individual performance or such other criteria as the Committee shall deem
relevant and may establish rules or procedures that will limit the amounts
payable to each participant to a level which is below the maximum amount
authorized. A participant who is not an employee of the Corporation or one of
its subsidiaries on the last day of the performance period for which the award
is payable shall receive a prorated award, based on the full period of
performance, unless the Committee determines that the participant will not
receive such an award.
The Committee has the authority, in its discretion, (i) to pay bonuses for
any calendar year or performance period to eligible participants whose
compensation is not subject to the restrictions of Section 162(m) for the
calendar year in which such bonus would be deductible by the Company for Federal
income tax purposes and (ii) to provide for a minimum bonus amount for any
calendar year in connection with the hiring of any person regardless of whether
performance objectives are attained.
Administration. In order to comply with the remaining provisions of
Section 162(m), the Committee, which shall at all times be comprised of at least
two directors each of whom is an "outside director" for purposes of Section
162(m), shall administer and interpret the Incentive Plan. With respect to any
award to an executive officer intended to qualify for the performance based
compensation exception to Section 162(m), the Incentive Plan shall be
interpreted in a manner which is consistent with the requirements of Section
162(m). Subject to the express provisions of
27
<PAGE> 32
the Incentive Plan, the Committee shall have the authority to select the
executive officers who shall participate in the Incentive Plan, to establish the
performance objectives for each performance period, and to reduce the amount
that may be paid to any participant from the maximum amount otherwise payable
pursuant to the Incentive Plan. Prior to making any payment with respect to any
performance award made under the Incentive Plan, the Committee shall be required
to certify (i) that the performance objectives have been attained and (ii) the
amount payable to each eligible executive officer.
Amendment and Termination. The Board or the Committee may at any time
amend, terminate or suspend the Incentive Plan, except that (i) no such action
shall, without the consent of such participant, adversely affect the rights of
any participant with respect to any award for any calendar year which already
commenced and (ii) no such action shall be effective without approval by the
shareholders of the Company to the extent that such approval is required for the
Committee to be able to continue to qualify the payments under the Incentive
Plan for treatment as performance based compensation under Section 162(m).
Notwithstanding anything else in the Incentive Plan to the contrary, the
Incentive Plan will not be effective with respect to calendar years ending after
December 31, 2001, unless otherwise extended by action of the Board.
New Plan Award Table. Because payment of any award will be contingent on
the attainment of performance objectives established for such year by the
Committee, the amounts payable to eligible participants under the Incentive Plan
for any performance period during which the Incentive Plan is in effect cannot
be determined.
The affirmative vote of a majority of the shares represented at the meeting
which are entitled to vote is required for approval of the Annual Incentive
Compensation Terms.
The Board recommends a vote FOR the approval of the Annual Incentive Plan
terms. Unless directed to the contrary, the shares represented by the enclosed
Proxy will be voted FOR the approval of the Annual Incentive Plan Terms.
V. PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE 1994 NON-EMPLOYEE
DIRECTOR DEFERRED STOCK PLAN
The Board of Directors has approved, subject to shareholder approval, the
amendment and restatement of the Company's 1994 Non-Employee Director Deferred
Stock Plan (Director Plan). A complete copy of the Director Plan, reflecting the
proposed amendment and restatement, is set forth as Appendix A to this Proxy
Statement. (The following summary of the proposed amendments to the Director
Plan is qualified in its entirety by reference to the complete text of the
Director Plan. Capitalized terms not separately defined below have the meanings
set forth in the Director Plan.)
The primary purpose of the proposed amendments to the Director Plan is to
further link the compensation of Non-Employee Directors to the interests of
shareholders by increasing the annual grant of stock units and by permitting
Directors to elect to defer some or all of their cash compensation into a stock
unit deferral account which tracks the value of the Company's Common Stock. If
the Director Plan, as amended and restated, is approved by shareholders, the
Board of Directors will eliminate the Directors pension plan for current
Directors (described on page 8).
Description of Proposed Amendments
Annual Grant of Stock Units. The current Director Plan provides that on each
December 31st during the term of the Director Plan, each Non-Employee Director
who has served as a Director for at least six months immediately prior to that
date will receive units representing the right to receive 200 shares of the
Company's Common Stock. The amendment would increase the number of units granted
annually to 350, and would change the date on which the annual award is made
from December 31 to the date of the Company's Annual Meeting. Under the current
Director Plan, units generally vest pro-rata over a three-year period. The
amendment would change the vesting schedule for the annual award to pro-rata
over twelve months. A Director must serve at least six months from the date of
grant to vest in any portion of the grant.
Deferred Compensation. The amendment would add to the Director Plan a new
feature
28
<PAGE> 33
which permits Directors to defer receipt of all or a portion of Director
compensation otherwise payable in cash and to have such amounts credited to a
Stock Unit Account (which tracks the value of the Company's Common Stock) or an
Interest Account (which credits interest based on the rate of interest paid from
time to time under the Company's Incentive Savings Plan for employees, currently
yielding 6.75%).
Shares Available for Issuance. The current Plan provides that the maximum
number of shares of Common Stock which may be issued under the plan is 75,000.
The amendment would increase this amount to 100,000 shares.
The provision of the current Director Plan that grants each new Director
1,500 units upon election to the Board remains in the amended and restated Plan.
These units generally vest over a three-year period.
New Plan Award Table. The following table shows the unit grants that will
be awarded during 1996, assuming that all Nominees are elected at the Annual
Meeting and no additional Directors are elected during the year.
1994 NON-EMPLOYEE DIRECTOR DEFERRED STOCK PLAN
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
NAME AND POSITION* DOLLAR VALUE(1) NUMBER OF UNITS
- -------------------------------------------------------------------------------------------------
All current executive officers as a group..................... 0 0
All non-executive Directors as a group........................ 276,719 3,850(2)
All employees (other than executive officers) as a group...... 0 0
- -------------------------------------------------------------------------------------------------
</TABLE>
* Named executive officers are not eligible to participate in the Plan
(1) Based on the closing price of the Company's Common Stock on February 23,
1996 of $71.875. Actual value will depend on the value of the Company's
Common Stock on the date of grant.
(2) Each Director will be entitled to receive 350 shares in 1996. The number of
units reported does not include units that may be credited to a Director
upon an election to defer all or a portion of the Director's compensation in
the stock unit account.
29
<PAGE> 34
In connection with the elimination of the Directors pension plan for
current Directors and in recognition of service previously earned under that
plan, the Board of Directors has valued the benefit accrued to date for each
Director under the pension plan and has approved a one-time conversion of that
value into a deferred account for the benefit of each Director. The deferred
value may be invested in stock units or an interest account. The account will be
payable to Directors no earlier than termination of service as a Director.
The affirmative vote of a majority of the shares represented at the meeting
which are entitled to vote is required for an approval of the amended and
restated Director Plan.
The Board recommends a vote FOR the approval of the Director Plan, as
amended and restated. Unless directed to the contrary, the shares represented by
the enclosed Proxy will be voted FOR the approval of the Director Plan.
VI. OTHER INFORMATION AND
1997 SHAREHOLDER PROPOSALS
The Company will bear the cost of soliciting Proxies. In addition to the use of
the mails, solicitations may be made by personal interview, telegram or
telephone by Directors, officers and employees of the Company and its
subsidiaries. Arrangements also will be made with brokerage houses and other
custodians, nominees and fiduciaries to forward solicitation material to
beneficial owners, and the Company will reimburse them for reasonable out-
of-pocket expenses incurred in doing so. To assist in the solicitation of
Proxies, the Company has engaged Kissel-Blake, Inc., New York, New York, for a
fee of $17,000, plus reasonable out-of-pocket expenses.
To be included in the 1997 Proxy Statement and Proxy Card, shareholder
proposals must be received by the Company not later than November 21, 1996. Such
proposals must comply with all applicable SEC rules and regulations. Proposals
should be forwarded to the Corporate Secretary, Aetna Life and Casualty Company,
151 Farmington Avenue, Hartford, Connecticut 06156.
The Company's By-Laws require that notice of nominations of persons for
election to the Board of Directors, other than those made by or at the direction
of the Board of Directors, must be received no later than 90 days before the
Annual Meeting. The notice must present certain information concerning the
nominee and the shareholder making the nomination. The notice also must include
the nominee's written consent to being a nominee and to serving if elected.
Notices should be sent to the Corporate Secretary, Aetna Life and Casualty
Company, 151 Farmington Avenue, Hartford, Connecticut 06156.
ANNUAL REPORT
The Company's 1995 Annual Report to Shareholders was mailed to shareholders on
or about March 20, 1996.
By order of the Board of Directors,
[sig]
Lucille M. Nickerson
Vice President and Corporate Secretary
March , 1996
30
<PAGE> 35
APPENDIX A
AETNA LIFE AND CASUALTY COMPANY
NON-EMPLOYEE DIRECTOR DEFERRED STOCK
AND DEFERRED COMPENSATION PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF APRIL 26, 1996)
Section 1. Establishment of Plan; Purpose.
The Plan is hereby established to permit Eligible Directors of the Company,
in recognition of their contributions to the Company, to receive Shares in the
manner described below. The Plan is intended to enable the Company to attract,
retain and motivate qualified directors and to enhance the long-term mutuality
of interest between Directors and stockholders of the Company.
Section 2. Definitions.
When used in this Plan, the following terms shall have the definitions set
forth in this Section:
"Accounts" shall mean an Eligible Director's Stock Unit Account and
Interest Account, as described in Section 8.
"Affiliate" shall mean an entity at least a majority of the total voting
power of the then-outstanding voting securities of which is held, directly or
indirectly, by the Company and/or one or more other Affiliates.
"Board of Directors" shall mean the Board of Directors of the Company.
"Committee" shall mean the Nominating and Corporate Governance Committee of
the Board of Directors or such other committee of the Board as the Board shall
designate from time to time.
"Company" shall mean Aetna Life and Casualty Company.
"Compensation" shall mean the annual retainer fees earned by an Eligible
Director for service as a Director; the annual retainer fee, if any, earned by
an Eligible Director for service as a member of a committee of the Board of
Directors; and any fees earned by an Eligible Director for attendance at
meetings of the Board of Directors and any of its committees.
"Director" shall mean any member of the Board of Directors, whether or not
such member is an Eligible Director.
"Disability" shall mean an illness or injury that lasts at least six
months, is expected to be permanent and renders a Director unable to carry out
his/her duties.
"Effective Date" shall mean the date, if any, on which the Plan is approved
by shareholders.
"Eligible Director" shall mean a member of the Board of Directors who is
not an employee of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the closing price of a Share as reported by
the Consolidated Tape of New York Stock Exchange Listed Shares on the date which
is the nearest day preceding the date on which such value is to be determined on
which there was such a trade.
"Government Service" shall mean the appointment or election of the Eligible
Director to a position with the Federal, state or local government or any
political subdivision, agency or instrumentality thereof.
"Grant" shall mean a grant of Units under Section 5.
"Interest Account" shall mean the bookkeeping account established to record
the interests of an Eligible Director with respect to deferred Compensation
which is not deemed invested in Units.
31
<PAGE> 36
"Prior Deferred Plan" shall mean the Aetna Life and Casualty Directors'
Deferred Compensation Plan.
"Retirement" shall mean termination of service as a Director on account of
the Company's mandatory Director retirement policy as may be in effect on the
date of such termination of service.
"Shares" shall mean shares of Stock.
"Stock" shall mean the Common Capital Stock, without par value, of the
Company.
"Stock Unit Account" shall mean, with respect to an Eligible Director who
has elected to have deferred amounts deemed invested in Units, a bookkeeping
account established to record such Eligible Director's interest under the Plan
related to such Units.
"Unit" shall mean a contractual obligation of the Company to deliver a
Share or pay cash based on the Fair Market Value of a Share to an Eligible
Director or the beneficiary or estate of such Eligible Director as provided
herein.
"Year of Service as a Director" shall mean a period of 12 months of service
as a Director, measured from the effective date of a Grant.
Section 3. Administration.
The Plan shall be administered by the Committee; provided, however, that
the Plan shall be administered such that any Director participating in the Plan
shall continue to be deemed to be a "disinterested person" under Rule 16b-3 of
the Securities and Exchange Commission under the Exchange Act ("Rule 16b-3"), as
such Rule is in effect on the Effective Date of the Plan and as it may be
subsequently amended, for purposes of such Director's ability to serve on any
committee charged with administering any of the Company's stock based incentive
plans for executive officers intended to qualify for the exemptive relief
available under Rule 16b-3.
Section 4. Shares Authorized for Issuance.
4.1. Maximum Number of Shares. The aggregate number of Shares with respect
to which Grants may be made to Eligible Directors under the Plan shall not
exceed 100,000 Shares, subject to adjustment as provided in Section 4.2 below.
If any Unit is settled in cash or is forfeited without a distribution of Shares,
the Shares otherwise subject to such Unit shall again be available for Grants
hereunder.
4.2. Adjustment for Corporate Transactions. In the event that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Stock at a price substantially below Fair Market
Value, or other similar event affects the Stock such that an adjustment is
required to preserve, or to prevent enlargement of, the benefits or potential
benefits made available under the Plan, then the Board of Directors shall adjust
the number and kind of shares which thereafter may be awarded under the Plan and
the number of Units that have been, or may be, granted under the Plan.
Section 5. Unit Grants.
5.1. Unit Awards. Each Eligible Director who is first elected or appointed
to the Board of Directors on or after the Effective Date of the Plan shall be
awarded 1,500 Units on such date. In addition, on the date of each Annual
Meeting of Shareholders of the Company occurring after 1995 and during the term
of this Plan, each Eligible Director serving as a Director on such date shall be
awarded 350 Units.
5.2. Delivery of Shares. Subject to satisfaction of the applicable vesting
requirements set forth in Section 6 and except as otherwise provided in Section
7, all Shares that are subject to any Units shall be delivered to an Eligible
Director and transferred on the books of the Company on the date which is the
date such Shares would otherwise have been delivered to the Eligible Director or
the Eligible Director's beneficiary. Notwithstanding the foregoing, an Eligible
Director may elect that all or a portion of his or her Units shall be payable in
cash as soon as practicable following the first business day of the month
32
<PAGE> 37
immediately following the termination of such Eligible Director's service as a
Director. Any fractional Shares to be delivered in respect of Units shall be
settled in cash based upon the Fair Market Value on the date any whole Shares
are transferred on the books of the Company to the Eligible Director or the
Eligible Director's beneficiary. The amount of any cash payment shall be
determined by multiplying the number of Units and the number of Units subject to
a cash payment election by the Fair Market Value on such first business of such
month. Upon the delivery of a Share (or cash with respect to a whole or
fractional Share) pursuant to the Plan, the corresponding Unit (or fraction
thereof) shall be canceled and be of no further force or effect.
5.3. Nontransferability. Units may not be assigned or transferred, in
whole or in part, either directly or by operation of law (except in the event of
an Eligible Director's death by will or applicable laws of descent and
distribution), including, but not by way of limitation, by execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner, and no such
right or interest of any Eligible Director in the Plan shall be subject to any
obligation or liability of such Eligible Director.
5.4. Dividend Equivalents. An Eligible Director shall have no rights as a
shareholder of the Company with respect to any Units until Shares are delivered
to the Director pursuant to this Section 5 hereof; provided that, each Eligible
Director shall have the right to receive an amount equal to the dividend per
Share for the applicable dividend payment date (which, in the case of any
dividend distributable in property other than Shares, shall be the per Share
value of such dividend, as determined by the Company for purposes of income tax
reporting) times the number of Units held by such Eligible Director on the
record date for the payment of such dividend (a "Dividend Equivalent"). Each
Eligible Director may elect, prior to any calendar year, whether the Dividend
Equivalent is (i) payable in cash, on or as soon as practicable after each date
on which dividends are paid to shareholders with respect to Shares, (ii) treated
as reinvested in an additional number of Units determined by dividing (A) the
cash amount of any such dividend by (B) the Fair Market Value on the related
dividend payment date, or (iii) deferred and credited to the Eligible Director's
Interest Account pursuant to Section 8.4.
Section 6. Vesting
6.1. Service Requirements. Except as otherwise provided in this Section 6
or Section 7, an Eligible Director shall vest in his or her Units as provided in
this Section 6.1. If an Eligible Director terminates service prior to the
completion of three Years of Service as a Director, the number of Shares to be
delivered to such Eligible Director in respect of Units granted upon his or her
election to the Board shall equal the amount obtained by multiplying 1,500 by a
fraction, the numerator of which is the number of full months of service
completed by such Director from the applicable date of Grant and the denominator
of which is 36. If an Eligible Director terminates service prior to the
completion of three Years of Service as a Director, the number of Shares to be
delivered to such Eligible Director in respect of any annual Grant of Units made
prior to 1996 shall equal the amount obtained by multiplying 200 by a fraction,
the numerator of which is the number of full months of service completed by such
Director from the applicable date of Grant and the denominator of which is 36.
If an Eligible Director terminates service prior to the completion of one Year
of Service as a Director from the date of Grant with respect to any annual grant
of Units made after 1995, the number of shares to be delivered to such Eligible
Director in respect of such Grant shall equal the amount obtained by multiplying
350, by a fraction, the numerator of which is the number of full months of
service completed by such Director from the applicable date of Grant and the
denominator of which is 12. Notwithstanding the foregoing, and except as
provided in Section 6.2, if the Eligible Director terminates service by reason
of his/her death, Disability, Retirement, or acceptance of a position in
Government Service prior to the completion of the period of service required to
be performed to fully vest in any Grant, all Shares that are the subject of such
Grant (or, if elected by the Eligible Director, the value thereof in cash) shall
be delivered to such Eligible Director (or the Eligible Director's beneficiary
or estate).
6.2. Six Months Minimum Service. If an Eligible Director has completed
less than six consecutive months of service as a Director, all Units held by
such Eligible Director shall be immediately forfeited. If an Eligible Director
has completed less than six consecutive months of service from any date on which
any annual Grant of Units is made, all Units held by such Eligible Director
which relate to such Grant shall be
33
<PAGE> 38
immediately forfeited; provided, however, that this sentence shall not apply to
any Grant of Units made prior to 1996.
6.3. Distribution on Death. In the event of the death of an Eligible
Director prior to full satisfaction of such Eligible Director's rights with
respect to his or her Units, the Shares corresponding to such Units or, at the
election of the Eligible Director's beneficiary or estate, the value thereof in
cash shall be delivered to the beneficiary designated by the Eligible Director
on a form provided by the Company, or, in the absence of such designation, to
the Eligible Director's estate.
Section 7. Change in Control.
7.1. Immediate Vesting. Upon the occurrence of a Change in Control, each
Eligible Director's right and interest in Units which have not previously vested
under Section 6 shall become vested and nonforfeitable regardless of the period
of the Eligible Director's service since the date such Units were granted.
7.2. Cash Settlement. Upon the occurrence of a Change in Control, in lieu
of delivering Shares with respect to the Units then held by an Eligible
Director, the Company shall pay such Eligible Director, not later than 60 days
after the Change in Control occurs, cash in an aggregate amount equal to the
product of (i) the number of Shares that are subject to all Units credited to
such Eligible Director at the time of the Change in Control multiplied by (ii)
the Fair Market Value on the date of the Change in Control. Notwithstanding the
foregoing, no payment with respect to Units shall be made under this Section 7.2
(and such Eligible Director shall have no right to receive such payment) earlier
than six months and one day after the applicable date of Grant.
7.3. Definition. "Change in Control" shall mean the occurrence of any of
the following events:
(i) When any "person" as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Sections 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any
subsidiary thereof and any employee benefit plan sponsored or
maintained by the Company or any Subsidiary (including any trustee of
such plan acting as trustee), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act,
as amended from time to time), of securities of the Company
representing 20 percent or more of the combined voting power of the
Company's then outstanding securities;
(ii) When, during any period of 24 consecutive months the individuals who,
at the beginning of such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to constitute at
least a majority thereof, provided that a director who was not a
director at the beginning of such 24-month period shall be deemed to
have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation
of or with the approval of, at least two-thirds of the directors who
then qualified as Incumbent Directors either actually (because they
were directors at the beginning of such 24-month period) or by prior
operation of this Paragraph (ii); or;
(iii) The occurrence of a transaction requiring stockholder approval for
the acquisition of the Company by an entity other than the Company or
a subsidiary through purchase of assets, or by merger, or otherwise."
Section 8. Deferred Compensation Program.
8.1. Election to Defer. On or before December 31 of any calendar year, an
Eligible Director may elect to defer receipt of all or any part of any
Compensation payable in respect of the calendar year following the year in which
such election is made, and to have such amounts credited, in whole or in part,
to a Stock Unit Account or an Interest Account. Notwithstanding the foregoing,
any Eligible Director who had not elected to defer payment of all of his
Compensation for services to be rendered in 1996 under the Prior
34
<PAGE> 39
Deferred Plan may elect, prior to the time that the Company's shareholders
approve the amended and restated Plan, to defer all or any portion of the
Compensation payable to the Eligible Director after the date of such approval
for services to be rendered thereafter. Any person who shall become an Eligible
Director during any calendar year may elect, not later than the 30th day after
his or her term as a director begins, to defer payment of all or any part of his
Compensation payable for the portion of such calendar year following such
election.
8.2. Method of Election. A deferral election shall be made by written
notice filed with the Corporate Secretary of the Company. Such election shall
continue in effect (including with respect to Compensation payable for
subsequent calendar years) unless and until the Eligible Director revokes or
modifies such election by written notice filed with the Corporate Secretary of
the Company. Any such revocation or modification of a deferral election shall
become effective as of the end of the calendar year in which such notice is
given and only with respect to Compensation payable for services rendered
thereafter; provided that if the effect of such revocation or modification of a
deferral election is to change the amount of deferred compensation that would
otherwise have been credited to the Stock Unit Account it shall in no event
become effective earlier than six months after it is received by the Corporate
Secretary. Amounts credited to the Eligible Director's Stock Unit Account prior
to the effective date of any such revocation or modification of a deferral
election shall not be affected by such revocation or modification and shall be
distributed only in accordance with the otherwise applicable terms of the Plan.
An Eligible Director who has revoked an election to participate in the Plan may
file a new election to defer Compensation payable for services to be rendered in
the calendar year following the year in which such election is filed.
8.3. Investment Election. At the time an Eligible Director elects to defer
receipt of Compensation pursuant to Section 8.1, the Eligible Director shall
designate in writing the portion of such Compensation, stated as a whole
percentage, to be credited to the Interest Account and the portion to be
credited to the Stock Unit Account. If an Eligible Director fails to notify the
Corporate Secretary as to how to allocate any Compensation between the two
Accounts, 100% of such Compensation shall be credited to the Interest Account.
By written notice to the Corporate Secretary of the Company, an Eligible
Director may change the manner in which Compensation payable with respect to
services to be rendered after the end of such calendar year are allocated among
the Accounts, provided that any such election shall only be effective with
respect to Compensation payable six months after such election is received by
the Corporate Secretary.
8.4. Dividend Equivalents. In addition to the deferral of Compensation
permitted under Section 8.1, an Eligible Director may elect, in the manner and
at the time described in Section 5.4, to have Dividend Equivalents payable in
respect of his or her Units credited to his or her Interest Account in the
manner and at the time described in such Section 5.4.
8.5. Interest Account. Any Compensation allocated to the Interest Account
shall be credited to the Interest Account as of the date such Fees would have
been paid to the Eligible Director. Any amounts credited to the Interest Account
shall be credited with interest at the same rate and in the manner in which
interest is credited under the Fixed Investment Fund (or, if such fund no longer
exists, the fund with the investment criteria most closely comparable to that of
such Fund) under the Aetna Life & Casualty Incentive Savings Plan (or any
successor thereto).
8.6. Stock Unit Account. Any Compensation allocated to the Stock Unit
Account shall be deemed to be invested in a number of Units equal to the
quotient of (i) such Compensation divided by (ii) the Fair Market Value on the
date the Fees then being allocated to the Stock Unit Account would otherwise
have been paid. Fractional Units shall be credited, but shall be rounded to the
nearest hundredth percentile, with amounts equal to or greater than .005 rounded
up and amounts less than .005 rounded down. Whenever a dividend other than a
dividend payable in the form of Shares is declared with respect to the Shares,
the number of Units in the Eligible Director's Stock Unit Account shall be
increased by the number of Units determined by dividing (i) the product of (A)
the number of Units in the Eligible Director's Stock Unit Account on the related
dividend record date and (B) the amount of any cash dividend declared by the
Company on a Share (or, in the case of any dividend distributable in property
other than Shares, the per share value of such dividend, as determined by the
Company for purposes of income tax reporting) by
35
<PAGE> 40
(ii) the Fair Market Value on the related dividend payment date. In the case of
any dividend declared on Shares which is payable in Shares, the Eligible
Director's Stock Unit Account shall be increased by the number of Units equal to
the product of (i) the number of Units credited to the Eligible Director's Stock
Unit Account on the related dividend record date and (ii) the number of Shares
(including any fraction thereof) distributable as a dividend on a Share. In the
event of any stock split, stock dividend, recapitalization, reorganization or
other corporate transaction affecting the capital structure of the Company, the
Committee shall make such adjustments to the number of Units credited to each
Eligible Director's Stock Unit Account as the Board of Directors shall deem
necessary or appropriate to prevent the dilution or enlargement of such Eligible
Director's rights.
8.7. Distribution Election. At the time an Eligible Director makes a
deferral election pursuant to Section 8.1, the Eligible Director shall also file
with the Corporate Secretary of the Company a written election (a "Distribution
Election") with respect to whether
(i) the aggregate amount, if any, credited to the Interest Account at any
time and the value of any Units credited to the Stock Unit Account
shall be distributed in cash, in Shares or in a combination thereof,
provided that any election to receive a distribution of all or any
portion of the value of a Participant's Interest Account in Shares
must be made on an irrevocable basis at least six months in advance of
such distribution;
(ii) such distribution shall commence as soon as practicable following the
first business day of the calendar month following the date the
Eligible Director ceases to be a director or on the first business
day of any calendar year following the calendar year in which the
Eligible Director ceases to be a director and
(iii) such distribution shall be in one lump-sum payment or in such number
of annual installments (not to exceed ten) as the Eligible Director
may designate.
The amount of any installment payment shall be determined by multiplying the
amount credited to the Accounts of an Eligible Director immediately prior to the
distribution by a fraction, the numerator of which is one and the denominator of
which is the number of installments (including the current installment)
remaining to be paid. An Eligible Director may at any time, and from time to
time, change any Distribution Election applicable to his or her Accounts,
provided that no election to change the timing of any terminal distribution
shall be effective unless it is made in writing and received by the Corporate
Secretary of the Company at least one full calendar year prior to the time at
which the Eligible Director ceases to be a director.
8.8. Financial Hardship Withdrawal. Any Eligible Director may, after
submission of a written request to the Corporate Secretary of the Company and
such written evidence of the Eligible Director's financial condition as the
Committee reasonably request, withdraw from his Interest Account (but not from
his Stock Unit Account) up to such amount as the Committee shall determine to be
necessary to alleviate the Eligible Director's financial hardship.
8.9. Timing and Form of Distributions. Any distribution to be made
hereunder, whether in the form of a lump-sum payment or installments, following
the termination of an Eligible Director's service as a director shall commence
in accordance with the Distribution Election made by the Eligible Director in
accordance with Section 8.7. If an Eligible Director fails to specify a form of
payment or a commencement date for a distribution in accordance with Section
8.7, such distribution shall be made in Shares and commence on the first
business day of the calendar year immediately following the year in which the
Eligible Director ceases to be a director. If an Eligible Director fails to
specify in accordance with Section 8.7 that a distribution shall be made in a
lump-sum payment or a number of installments, such distribution shall be made in
a lump-sum payment. In the case of any distribution being made in annual
installments, each installment after the first installment shall be paid on the
first business day of each subsequent calendar year, or as soon as practical
thereafter, until the entire amount subject to such Distribution Election shall
have been paid.
36
<PAGE> 41
8.10. Effect on Prior Deferred Plan. Upon the approval by the Company's
shareholders of the amended and restated Plan, the amounts standing to the
credit of each Eligible Director under the Prior Deferred Plan shall be
transferred to the Plan and credited to the Eligible Director's Interest
Account. Any elections in effect under such Prior Deferred Plan shall be deemed
to be an election made pursuant to and in accordance with the terms of this
Section 8 and amounts deferred thereunder after the date of such shareholder
approval shall be credited to the Eligible Director's Interest Account unless
and until the Eligible Director elects, prior to or within thirty days after the
date of such shareholder approval, to convert the investment of such deferred
compensation to the Stock Unit Account effective as of December 31, 1996 or
otherwise to change such elections in accordance with the provisions of this
Section 8.
Section 9. Unfunded Status.
The Company shall be under no obligation to establish a fund or reserve in
order to pay the benefits under the Plan. A Unit represents a contractual
obligation of the Company to deliver Shares or pay cash to a Director as
provided herein. The Company has not segregated or earmarked any Shares or any
of the Company's assets for the benefit of a Director or his/her beneficiary or
estate, and the Plan does not, and shall not be construed to, require the
Company to do so. The Director and his/her beneficiary or estate shall have only
an unsecured, contractual right against the Company with respect to any Units
granted or amounts credited to a Director's Accounts hereunder and such right
shall not be deemed superior to the right of any other creditor. Units shall not
be deemed to constitute options or rights to purchase Stock.
Section 10. Amendment and Termination.
The Plan may be amended at any time by the Board of Directors; provided
that, except as provided in Section 4.2, the Board of Directors may not, without
approval of the shareholders of the Company: (i) modify the number of Shares
with respect to which Units may be awarded under the Plan, (ii) modify the
vesting requirements established under Section 6 or Section 7 or (iii) otherwise
change the times at which, or the period within which, Shares may be delivered
under the Plan. Any modification of any of the terms and provisions of the Plan,
including this Section 10, shall not be made more than once every six months.
The Plan shall terminate on April 30, 2001, except with respect to previously
awarded Grants and amounts credited to the Accounts of Directors.
Notwithstanding the foregoing, no termination of the Plan shall materially and
adversely affect any rights of any Director under any Grant made pursuant to the
Plan. Unless the Board otherwise specifies at the time of such termination, a
termination of the Plan will not result in the distribution of the amounts
credited to an Eligible Director's Accounts.
Section 11. General Provisions
11.1. No Right to Serve as a Director. This Plan shall not impose any
obligations on the Company to retain any Eligible Director as a Director nor
shall it impose any obligation on the part of any Eligible Director to remain as
a Director of the Company.
11.2. Construction of the Plan. The validity, construction,
interpretation, administration and effect of the Plan, and the rights relating
to the Plan, shall be determined solely in accordance with the laws of the State
of Connecticut.
11.3. No Right to Particular Assets. Nothing contained in this Plan and no
action taken pursuant to this Plan shall create or be construed to create a
trust of any kind or any fiduciary relationship between the Company and any
Eligible Director, the executor, administrator or other personal representative
or designated beneficiary of such Eligible Director, or any other persons. Any
reserves that may be established by the Company in connection with Units granted
under this Plan shall continue to be treated as the assets of the Company for
Federal income tax purposes and remain subject to the claims of the Company's
creditors. To the extent that any Eligible Director or the executor,
administrator, or other personal representative of such Eligible Director,
acquires a right to receive any payment from the Company pursuant to this Plan,
such right shall be no greater than the right of an unsecured general creditor
of the Company.
37
<PAGE> 42
11.4. Listing of Shares and Related Matters. If at any time the Board of
Directors shall determine in its discretion that the listing, registration or
qualification of the Shares covered by this Plan upon any national securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the delivery of Shares under this Plan, no Shares will be
delivered unless and until such listing, registration, qualification, consent or
approval shall have been effected or obtained, or otherwise provided for, free
of any conditions not acceptable to the Board of Directors.
11.5. Severability of Provisions. If any provision of this Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and this Plan shall be construed and
enforced as if such provision had not been included.
11.6. Incapacity. Any benefit payable to or for the benefit of a minor, an
incompetent person or other person incapable of receipting therefor shall be
deemed paid when paid to such person's guardian or to the party providing or
reasonably appearing to provide for the care of such person, and such payment
shall fully discharge any liability or obligation of the Board of Directors, the
Company and all other parties with respect thereto.
11.7. Headings and Captions. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of this Plan,
and shall not be employed in the construction of this Plan.
38
<PAGE> 43
151 Farmington Avenue
Hartford, Connecticut 06156
Cat. [0000000000]
Printed on recycled paper.
<PAGE> 44
APPENDIX B
AETNA LIFE AND CASUALTY COMPANY
ANNUAL INCENTIVE PLAN
(Effective as of January 1, 1996)
1. Purpose.
The purpose of this Plan is to provide a general incentive for
designated key executive employees of the Companies in order to improve
operating results of the Companies and to reward such employees for the
accomplishment of financial and strategic objectives of the Companies.
2. Definitions.
Unless the context requires otherwise, the following words as used in
the Plan shall have the meanings ascribed to each below, it being understood
that masculine, feminine and neuter pronouns are used interchangeably and that
each comprehends the others.
(a) "Aetna" means Aetna Life and Casualty Company.
(b) "Board" means the Board of Directors of Aetna.
(c) "Change in Control" shall mean the happening of any of the
following:
(i) When any "person" as defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and as used in Sections 13(d) and
14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding
Aetna and any subsidiary thereof and any employee
benefit plan sponsored or maintained by Aetna or any
subsidiary (including any trustee of such plan
acting as trustee), directly or indirectly, becomes
the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act, as amended from time to
time), of securities of Aetna representing 20
percent or more of the combined voting power of
Aetna's then outstanding securities;
(ii) When, during any period of 24 consecutive months,
the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to
constitute at least a majority thereof, provided
that a director who was not a director at the
beginning of such 24-month period shall be deemed to
have satisfied such 24-month requirement (and be an
Incumbent Director) if such director was elected by,
or on the recommendation of or with the approval of,
at least two-thirds of the directors who then
qualified as Incumbent Directors either actually
(because they were directors at the beginning of
such 24-month period) or by prior operation of this
paragraph (ii); or
<PAGE> 45
(iii) The occurrence of a transaction requiring
stockholder approval for the acquisition of Aetna by
an entity other than Aetna or a subsidiary through
purchase of assets, or by merger, or otherwise.
(d) "Committee" means the Committee on Compensation and
Organization of the Board (or such other committee of the Board that the Board
shall designate from time to time) or any subcommittee thereof consisting of two
or more directors each of whom is an "outside director" within the meaning of
Section 162(m).
(e) "Common Stock" means the Common Capital Stock, without par
value, of Aetna.
(f) "Companies" means one or more of Aetna, any of Aetna's
affiliated companies, and any other entity as to which (i) Aetna or any of
Aetna's affiliated companies holds or is seeking to acquire an ownership
interest, and (ii) has been included in the Plan by the Committee.
(g) "Covered Employee" shall have the meaning set forth in
Section 162(m).
(h) "Deferral Period" means the period of time during which
payment of any amount otherwise payable under the Plan is deferred (i) at the
direction of the Committee pursuant to Section 6(b) or (ii) at the election of a
Participant pursuant to Section 6(c), but in either case subject to the right of
the Committee to terminate the Deferral Period as provided in Section 6(g).
(i) "Disability" means the occurrence of an event that would
entitle a Participant to the payment of disability income under a specific
long-term disability income plan approved by the Companies and under which the
Participant is enrolled, as such plan may be amended from time to time.
(j) "Fair Market Value" means, on any date, the closing price of a
Share on the New York Stock Exchange on such date (or, if the Shares were not
traded on such Exchange on such date, on the first date immediately preceding
such date on which such Shares were so traded).
(k) "Participant" means (i) each Covered Employee and (ii) each
other executive officer of Aetna as defined in Rule 405 of the Securities
Exchange Act of 1934 whom Aetna designates as a participant under the Plan.
(l) "Performance Year" means the calendar year.
(m) "Plan" shall mean the Aetna Life and Casualty Company Annual
Incentive Plan, as set forth herein and as may be amended from time to time.
(n) "Retirement" means the retirement of a Participant from active
service with the Companies at or after the age at which full pension benefits
are provided under a specific retirement plan maintained or contributed to by
any of the Companies and under which the Participant has an accrued benefit, as
such plan may be amended from time to time.
(o) "Section 162(m)" shall mean Section 162(m) of the Internal
Revenue Code of 1986, as amended, and any regulations promulgated thereunder.
(p) "Share" means a share of Common Stock.
2
<PAGE> 46
(q) "Stock Unit" means a unit representing the contractual right
to receive the value of one Share.
(r) "Stock Unit Account" means, with respect to any Participant
who has elected to have deferred amounts deemed invested in Stock Units, a
bookkeeping account established to record such Participant's interest under the
Plan related to such Stock Units.
3. Administration.
The Plan shall be administered by the Committee. The Committee shall
have the responsibility of construing and interpreting the Plan, provided that,
in no event, shall the Plan be interpreted in a manner which would cause any
award to a Covered Employee to fail to qualify as performance-based compensation
under Section 162(m). The Committee shall establish the performance objectives
for any Performance Year in accordance with Section 4 and certify whether such
performance objectives have been obtained. Any determination made or decision or
action taken or to be taken by the Committee, arising out of or in connection
with the construction, administration, interpretation and effect of the Plan and
of its rules and regulations, shall, to the fullest extent permitted by law (but
subject to the limitations on the discretion of the Committee applicable to
awards intended to be qualified as performance-based compensation under Section
162(m)), be within the Committee's absolute discretion and shall be conclusive
and binding on any and all Participants, any person claiming under or through a
Participant and each of the Companies. The Committee may employ such legal
counsel, consultants and agents (including counsel or agents who are employees
of any Company) as it may deem desirable for the administration of the Plan and
may rely upon any opinion received from any such counsel or consultant or agent
and any computation received from such consultant or agent. All expenses
incurred in the administration of the Plan, including, without limitation, for
the engagement of any counsel, consultant or agent, shall be paid by the
Companies. No member or former member of the Board or the Committee shall be
liable for any act, omission, interpretation, construction or determination made
in connection with the Plan other than as a result of such individual's willful
misconduct.
4. Determination Of Participants.
In addition to the Covered Employees, the Committee may designate as a
Participant in the Plan any executive officer of Aetna as defined in Rule 405 of
the Securities Exchange Act of 1934. Members of the Board who are not employees
of any of the Companies shall not be eligible to participate in the Plan.
5. Bonuses.
(a) Performance Criteria. On or before March 31 of each Performance
Year (or such other date as may be required or permitted under Section 162(m)),
the Committee shall establish the performance objective or objectives that must
be satisfied in order for a Participant to receive a bonus for such Performance
Year. Any such performance objectives will be based upon the relative or
comparative achievement of one or more of the following criteria, as determined
by the Committee: (i) net income; (ii) earnings before income taxes; (iii)
earnings per share; (iv) return on shareholders
3
<PAGE> 47
equity; (v) expense management; (vi) profitability of an identifiable business
unit or product; (vii) ratio of claims to revenues; (viii) revenue growth; (ix)
earnings growth; and (x) total shareholder returns, or any combination of the
foregoing.
(b) Maximum Amount Payable. If the Committee certifies in writing
that any one of the performance objectives established for the relevant
Performance Year under Section 5(a) has been satisfied, each Participant who is
employed by the Companies on the last day of the Performance Year for which the
bonus is payable shall be entitled to receive an annual bonus in an amount not
to exceed the lesser of (i) $2,000,000 or (ii) 200% of the Participant's annual
base salary as then in effect. If a Participant's employment terminates for any
reason (including, without limitation, his death, Disability or Retirement)
prior to the last day of the Performance Year for which the bonus is payable,
the maximum bonus payable to such Participant shall be equal to the maximum
bonus that would otherwise be payable to such Participant under the preceding
sentence multiplied by a fraction, the numerator of which is the number of days
that have elapsed during the Performance Year in which the termination occurs
prior to and including the date of the Participant's termination of employment
and the denominator of which is the total number of days in the Performance
Year.
(c) Negative Discretion. Notwithstanding anything else contained
in Section 5(b) to the contrary, the Committee shall have the right, in its
discretion, (i) to reduce or eliminate the amount otherwise payable to any
Participant under Section 5(b) and (ii) to establish rules or procedures that
have the effect of limiting the amount payable to each Participant to an amount
that is less than the maximum amount otherwise authorized under Section 5(b).
(d) Affirmative Discretion. Notwithstanding any other provision
in the Plan to the contrary, (i) the Committee shall have the right, in its
discretion, to pay to any Participant who is not a Covered Employee a bonus for
a Performance Year in an amount up to the maximum bonus payable under Section
5(b), based on individual performance or any other criteria that the Committee,
in its discretion, deems to warrant the payment of such a bonus, and (ii) in
connection with the hiring of any person who is or becomes Covered Employee, the
Committee may provide for a minimum bonus amount for such Covered Employee with
respect to the Performance Year in which such Covered Employee is hired and/or
for the next following Performance Year, which would be payable to such Covered
Employee regardless of whether the relevant performance objectives are attained
with respect to the relevant Performance Year.
(e) Methodology for Determinations. In making any determination
under Section 5(c) or 5(d), the Committee shall give consideration to such
factors as it deems appropriate, including, without limitation, the degree to
which the established performance objectives have been obtained and whether the
Participant has materially contributed to the overall results of the Companies.
To assist it in making its determination under such Sections, the Chairman of
Aetna will furnish the Committee with specific recommendations (except with
respect to the Chairman's own award) and the Committee may request such other
advice and recommendations as it deems appropriate.
4
<PAGE> 48
6. Payment of Awards.
(a) General Rule. Except as otherwise expressly provided
hereunder, payment of any bonus amount determined under Section 4 shall be made
to each Participant as soon as practicable after the Committee certifies that
one or more of the applicable performance objectives have been attained (or, in
the case of any bonus payable under the provisions of Section 5(d), after the
Committee determines the amount of any such bonus). Any such payments shall be
made in cash.
(b) Mandatory Deferral. Notwithstanding Section 6(a), the
Committee may specify that a percentage of the bonus payable with respect to any
Participant, all Participants or any class of Participants for any Performance
Year be mandatorily deferred for a Deferral Period specified by the Committee.
The percentage to be so deferred shall be determined by the Committee in its
discretion. Unless otherwise determined by the Committee at or after the date of
such deferral, any amount payable in respect of an amount mandatorily deferred
pursuant to this Section 6(b) shall be forfeited by the Participant if
(i) the Participant's employment with each of the
Companies is terminated for cause (as determined in
the discretion of the Committee under the generally
applicable practices and policies of whichever of the
Companies employs the Participant);
(ii) the Participant voluntarily terminates employment,
other than by reason of death, Disability or
Retirement, prior to the end of the Deferral Period
specified by the Committee with respect to such
mandatorily deferred amount or
(iii) the Participant engages in any activity or conduct
which, in the reasonable opinion of the Committee, is
inimical to best interest of the Companies.
(c) Voluntary Deferral. Notwithstanding Section 6(a), the
Committee may permit a Participant to defer payment of any portion of an award
that is not mandatorily deferred pursuant to Section 6(b) or to defer payment of
an amount mandatorily deferred to a date or event later than that specified by
the Committee. Any such election shall be made at such time or times, and
subject to such terms and conditions, as the Committee shall determine.
(d) Accounting for Deferrals. Any amount deferred under this
Section 6 shall be credited to one or more bookkeeping accounts for the benefit
of such Participant on the books and records of whichever of the Companies
employs the Participant. Unless a Participant otherwise elects to have such
amounts deemed invested in Stock Units in accordance with Section 6(e), such
amounts shall deemed held in cash and shall be credited with such rate of
interest or such deemed rate of earnings as the Committee shall specify from
time to time; provided that, unless the Committee otherwise determines, no
interest or earnings shall be credited during the Deferral Period specified by
the Committee in respect of amounts mandatorily deferred.
(e) Stock Units. The Committee may permit any Participant, all
Participants or any class of Participants to elect that any or all amounts
deferred under the Plan (including amounts mandatorily deferred pursuant to
Section 6(b)) be deemed invested, in whole or in part, in a number of whole or
fractional Stock Units. Any such Stock Units shall be credited to a Stock Unit
Account for the benefit of such Participant. The
5
<PAGE> 49
number of whole and fractional Stock Units credited to a Stock Unit Account in
respect of any amount deferred under this Section 6 shall be equal to the
quotient of (i) the amount deferred divided by (ii) the Fair Market Value of a
Share on the date such amount would have been paid under the Plan but for such
deferral. Whenever a dividend other than a dividend payable in the form of
Shares is declared with respect to the Shares, the number of Stock Units in the
Participant's Stock Unit Account shall be increased by the number of Stock Units
determined by dividing (i) the product of (A) the number of Stock Units in the
Participant's Stock Unit Account on the related dividend record date and (B) the
amount of any cash dividend declared by the Company on a Share (or, in the case
of any dividend distributable in property other than Shares, the per share value
of such dividend, as determined by the Company for purposes of income tax
reporting) by (ii) the Fair Market Value on the related dividend payment date.
In the case of any dividend declared on Shares which is payable in Shares, each
Participant's Stock Unit Account shall be increased by the number of Stock Units
equal to the product of (i) the number of Units credited to the Participant's
Stock Unit Account on the related dividend record date and (ii) the number of
Shares (including any fraction thereof) distributable as a dividend on a Share.
In the event of any stock split, recapitalization, reorganization or other
corporate transaction affecting the capital structure of Aetna, the Committee
shall make such adjustments to the number of Stock Units credited to each
Participant's Stock Unit Account as the Committee shall deem necessary or
appropriate to prevent the dilution or enlargement of such Participant's rights.
(f) Payment of Deferred Amounts. Amounts attributable to any
amount deferred under the Plan, regardless of whether deferred pursuant to
Section 6(b) or 6(c), shall be paid or commence to be paid, at the election of
the Participant, at the end of the applicable Deferral Period or as of the first
business day of the calendar year next following the end of the Deferral Period.
Payment of such amounts shall be made, at the Participant's election, in a lump
sum or in five, ten or such other number of annual installments as shall be
permitted by the Committee. If a Participant does not timely elect the time at
which or the form in which such amounts shall be paid, such amounts shall be
paid immediately following the end of the Deferral Period and in a lump sum,
unless the Committee shall specify a different time or method of payment. The
Committee may, in its discretion, accelerate the payment of all or any portion
of any Participant's deferred amounts (regardless of whether the applicable
Deferral Period or period have terminated) in order to alleviate a financial
hardship incurred by the Participant due to an unforeseeable emergency beyond
the Participant's control.
Any payment to be made in respect of deferred amounts shall be
made in cash. For purposes of any cash distribution in respect of a
Participant's Stock Units, the cash payable shall equal the product of (i) the
number of whole and fractional Stock Units being distributed and (ii) the Fair
Market Value of a Share on the date as of which the distribution is to be made.
(g) Termination of Deferral Period. Notwithstanding anything else
contained in the Plan to the contrary, the Committee shall may, in its
discretion, terminate any Deferral Period in respect of any Participant. Such
elective termination will be deemed to be the end of the Deferral Period for
purposes of determining when payment of the Participant's interest is to
commence under Section 6(f).
(h) Change in Control. Upon the occurrence of a Change in Control,
all performance objectives for the then current Performance Year shall be deemed
to have been achieved at target levels of performance and the Committee shall
cause each Participant to be paid an amount in cash based on such assumed
performance as soon as
6
<PAGE> 50
practicable but in no event later than 10 business days following the occurrence
of such Change in Control.
7. Amendment and Termination.
Notwithstanding Section 8(a), the Board or the Committee may
at any time amend, suspend, discontinue or terminate the Plan; provided,
however, that no such action shall be effective without approval by the
shareholders of Aetna to the extent necessary to continue to qualify the amounts
payable to Covered Employees as performance-based compensation under Section
162(m). Notwithstanding the foregoing, no amendment, suspension, discontinuance
or termination of the Plan shall adversely affect the rights of any Participant
or beneficiary in respect of any award that the Committee has determined to be
payable to a Participant in accordance with the terms hereof or as to any
amounts awarded, but payment of which has been deferred, in accordance with
Section 6.
8. General Provisions.
(a) Effectiveness of the Plan. The Plan shall be effective with
respect to calendar years beginning on or after January 1, 1996 and ending on or
before December 31, 2000, unless the term hereof is extended by action of the
Board or the Committee.
(b) Designation of Beneficiary. Each Participant may designate a
beneficiary or beneficiaries (which beneficiary may be an entity other than a
natural person) to receive any payments which may be made following the
Participant's death. Such designation may be changed or canceled at any time
without the consent of any such beneficiary. Any such designation, change or
cancellation must be made in a form approved by the Committee and shall not be
effective until received by the Committee. If no beneficiary has been named, or
the designated beneficiary or beneficiaries shall have predeceased the
Participant, the beneficiary shall be the Participant's spouse or, if no spouse
survives the Participant, the Participant's estate. If a Participant designates
more than one beneficiary, the rights of such beneficiaries shall be payable in
equal shares, unless the Participant has designated otherwise.
(c) No Right of Continued Employment. Nothing contained in this
Plan shall create any rights of employment in any Participant or in any way
affect the right and power of any of the Companies to discharge any Participant
or otherwise terminate the Participant's employment at any time with or without
cause or to change the terms of employment in any way.
(d) No Limitation on Corporate Actions. Nothing contained in the
Plan shall be construed to prevent any of the Companies from taking any
corporate action (including, without limitation, making provision for the
payment of other incentive compensation, whether payable in cash or otherwise,
or whether pursuant to a plan or otherwise) which is deemed by it to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on any awards made under the Plan. No employee, beneficiary or
other person shall have any claim against any of the Companies as a result of
any such action.
(e) No Right to Specific Assets. Nothing contained in the Plan
(including, without limitation, the provisions of Section 6 hereof) shall be
construed to create in any
7
<PAGE> 51
Participant or beneficiary any claim against, right to or lien on any particular
assets of any of the Companies or to require any of the Companies to segregate
or otherwise set aside any assets or create any fund to meet any of its
obligations hereunder.
(f) No Contractual Right to Bonus. Nothing is this Plan shall be
construed to give any Participant any right, whether contractual or otherwise,
to receive any bonus with respect to any Performance Year unless and until the
Committee shall have expressly determined that such a Participant is entitled to
receive such an award pursuant to the terms of the Plan.
(g) Nonalienation of Benefits. Except as expressly provided
herein, no Participant or beneficiary shall have the power or right to transfer,
anticipate, or otherwise encumber the Participant's interest under the Plan.
(h) Withholding. Any amount payable to a Participant or a
beneficiary under this Plan shall be subject to any applicable Federal, state
and local income and employment taxes and any other amounts that any of the
Companies is required at law to deduct and withhold from such payment.
(i) Severability. If any provision of this Plan is held
unenforceable, the remainder of the Plan shall continue in full force and effect
without regard to such unenforceable provision and shall be applied as though
the unenforceable provision were not contained in the Plan.
(j) Governing Law. The Plan shall be construed in accordance with
and governed by the laws of the State of Connecticut, without reference to the
principles of conflict of laws.
(k) Headings. Headings are inserted in this Plan for convenience
of reference only and are to be ignored in a construction of the provisions of
the Plan
8
<PAGE> 52
AETNA LIFE AND CASUALTY COMPANY
P
The undersigned appoints William H. Donaldson, Barbara Hackman Franklin and
R Frank R. O'Keefe, Jr., and each of them, the proxies of the undersigned,
with full power of substitution, to vote the shares of the undersigned at
O the Annual Meeting of Shareholders of Aetna Life and Casualty Company to be
held April 26, 1996 and at any adjournment thereof, and directs said
X proxies to vote as specified herein on the matters set forth in the Notice
of the meeting, and in their discretion on any other matters that may
Y properly come before the meeting or any adjournment thereof.
COMMON STOCK
----------------
See Reverse Side
----------------
THIS PROXY IS SOLICITED ON BEHALF OF AETNA'S BOARD OF DIRECTORS.
[X] Please mark your 0113
votes as in this
example.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this Proxy will be voted FOR Items 1 through 5.
- -------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR Items 1, 2, 3, 4, and 5.
FOR WITHHELD
1. Election of Directors [ ] [ ] NOMINEES: Ronald E. Compton, William
H. Donaldson, Barbara Hackman
Franklin, Earl G. Graves, Gerald
Greenwald, Ellen M. Hancock, Michael H.
Jordan, Jack D. Kuehler, Frank R.
O'Keefe Jr., Judith Rodin
For, except vote withheld from the following nominees:
- ------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of KPMG Peat Marwick LLP as Independent [ ] [ ] [ ]
Auditors
3. Amend Certificate of Incorporation to Change Name [ ] [ ] [ ]
of Company
4. Approval of Annual Incentive Plan Terms [ ] [ ] [ ]
5. Amend 1994 Non-Employee Director Deferred Stock [ ] [ ] [ ]
Plan
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof. NOTE: Please sign your name exactly
as printed hereon. Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, or for a corporation, please give
your title.
--------------------------------------
--------------------------------------
SIGNATURE(S) DATE
<PAGE> 53
AETNA LIFE AND CASUALTY COMPANY
To: Participants in the Incentive Savings Plan of
Aetna Life and Casualty Company
The Incentive Savings Plan Committee has instructed Mellon Bank, N.A., the
Trustee under the Incentive Savings Plan (the Plan), to solicit your
instructions on how to vote the shares of Aetna Common Capital Stock without
par value held by the Trustee on your behalf in accordance with the terms of
the Plan and to vote those shares in accordance with your instructions at the
Annual Meeting of Shareholders of Aetna Life and Casualty Company to be held on
April 26, 1996 and at any adjournment thereof. Please indicate, by checking the
appropriate box, how you want these shares voted by the Trustee and return this
card to the Trustee by April 19, 1996 in the envelope provided. We would like
to remind you that your individual voting instructions are held in strictest
confidence and will not be disclosed to the Corporation. In the event you fail
to indicate your voting instructions, fail to sign the card, or the card is not
received by the Trustee by April 19, your shares will be voted by the Trustee in
the same manner and proportion as those shares for which the Trustee receives
proper and timely instructions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, 4 AND 5.
1. ELECTION OF DIRECTORS. Nominees: Ronald E. Compton, William H. Donaldson,
Barbara Hackman Franklin, Earl G. Graves, Gerald Greenwald, Ellen M.
Hancock, Michael H. Jordan, Jack D. Kuehler, Frank R. O'Keefe, Jr.,
Judith Rodin.
(Mark only one)
[ ] FOR all nominees listed (except as marked to the contrary) (Instructions:
To withhold authority to vote for particular nominees, write those
nominees' names in the space provided here).
- ------------------------------------------------------------------------------
[ ] WITHHOLD AUTHORITY to vote for all nominees.
2. Approval of KPMG Peat Marwick LLP [ ] FOR [ ] AGAINST [ ] ABSTAIN
as Independent Auditors.............
3. Amend Certificate of Incorporation [ ] FOR [ ] AGAINST [ ] ABSTAIN
to Change Company Name..............
4. Approval of Annual Incentive Plan [ ] FOR [ ] AGAINST [ ] ABSTAIN
Terms...............................
5. Amend 1994 Non-Employee Director [ ] FOR [ ] AGAINST [ ] ABSTAIN
Deferred Stock Plan.................
DATED: ............, 1996 .................................................
(NOTE: Please sign exactly as your name appears
hereon. Joint owners should each sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title
as such.)
THIS INSTRUCTION CARD IS SOLICITED ON BEHALF OF AETNA'S BOARD OF DIRECTORS.
