AETNA LIFE & CASUALTY CO, 10-Q, 1996-04-26

AETNA LIFE & CASUALTY CO
10-Q, 1996-04-26
LIFE INSURANCE

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 1996
________________

Commission file number 1-5704
________

Aetna Life and Casualty Company
___________________________________________________________________________
(Exact name of registrant as specified in its charter)

Connecticut 06-0843808
___________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

151 Farmington Avenue, Hartford, Connecticut 06156
___________________________________________________________________________
(Address of principal executive offices) (ZIP Code)

Registrant's telephone number, including area code (860) 273-0123
______________________

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.

Yes X No _____
_____

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

Shares Outstanding
Title of Class at March 31, 1996
________________ __________________

Common Capital Stock 115,187,158
without par value

<PAGE> 2

TABLE OF CONTENTS
_________________

Page
____

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Shareholders'
Equity 6
Consolidated Statements of Cash Flows 7
Condensed Notes to Financial Statements 8
Independent Auditors' Review Report 19

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 20

PART II. OTHER INFORMATION

Item 1. Legal Proceedings. 48

Item 5. Other Information. 48

Item 6. Exhibits and Reports on Form 8-K. 49

Signatures 51

<PAGE> 3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>

Three Months Ended
March 31,
______________________________
(Millions, except share and per share data) 1996 1995
____ ____

Revenue:
Premiums............................................. $ 1,843.9 $ 1,882.1
Net investment income................................ 886.3 870.0
Fees and other income................................ 518.2 453.4
Net realized capital gains (losses).................. 62.0 (13.2)
____________ _____________
Total revenue.................................... 3,310.4 3,192.3
____________ _____________

Benefits and expenses:
Current and future benefits.......................... 2,236.9 2,275.7
Operating expenses................................... 790.2 741.2
Amortization of deferred policy acquisition costs.... 37.0 32.0
____________ _____________
Total benefits and expenses...................... 3,064.1 3,048.9
____________ _____________

Income from continuing operations before income
taxes................................................ 246.3 143.4
Federal and foreign income taxes (benefits):
Current.............................................. 62.8 (22.2)
Deferred............................................. 18.0 73.2
____________ _____________
Total federal and foreign income taxes........... 80.8 51.0
____________ _____________

Income from continuing operations...................... 165.5 92.4
Income from Discontinued Operations, net of tax........ 182.2 68.4
____________ _____________

Net income....................................... $ 347.7 $ 160.8
____________ _____________
____________ _____________

Results per common share:
Income from continuing operations................... $ 1.43 $ .82
Income from Discontinued Operations, net of tax..... 1.57 .60
____________ _____________
Net income.......................................... $ 3.00 $ 1.42
____________ _____________
____________ _____________
Dividends declared.................................. $ .69 $ .69
____________ _____________
____________ _____________

Weighted average common shares outstanding.......... 115,765,475 112,949,522
____________ _____________
____________ _____________

<FN>

See Condensed Notes to Financial Statements.

</TABLE>

<PAGE> 4

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>

March 31, December 31,
(Millions) 1996 1995
_____________ ____________

Assets:
Investments:
Debt securities:
Available for sale, at fair value
(amortized cost $29,687.7 and
$29,962.5)...................... $ 30,344.9 $ 31,860.3
Equity securities, at fair value
(cost $785.1 and $597.8)........... 929.1 659.7
Short-term investments................ 637.5 607.8
Mortgage loans........................ 7,947.8 8,327.2
Real estate........................... 1,301.9 1,277.3
Policy loans.......................... 639.2 629.4
Other................................. 689.4 688.6
_________ __________
Total investments............... 42,489.8 44,050.3
Cash and cash equivalents............. 1,558.5 1,712.7
Accrued investment income............. 586.7 618.3
Premiums due and other receivables.... 1,161.9 1,080.9
Deferred federal and foreign income
taxes................................ 402.2 271.5
Deferred policy acquisition costs..... 2,006.7 1,953.1
Other assets.......................... 1,020.8 1,004.4
Separate Accounts assets.............. 31,128.9 29,699.7

Net assets of Discontinued
Operations........................... 3,746.7 3,932.8
__________ __________
Total assets.................... $ 84,102.2 $ 84,323.7
__________ __________
__________ __________

<FN>

See Condensed Notes to Financial Statements.

</TABLE>

<PAGE> 5

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Continued)

<TABLE>

March 31, December 31,
(Millions, except share and per share data) 1996 1995
_____________ ____________

Liabilities:
Future policy benefits........................ $ 18,459.6 $ 18,372.9
Unpaid claims and claim expenses.............. 1,478.8 1,563.1
Unearned premiums............................. 159.0 142.4
Policyholders' funds left with the company.... 21,702.6 22,898.7
__________ __________
Total insurance liabilities............... 41,800.0 42,977.1
Dividends payable to shareholders............. 79.5 79.2
Short-term debt............................... 388.4 389.6
Long-term debt................................ 985.5 989.1
Current federal and foreign income taxes...... 150.6 154.0
Other liabilities............................. 2,134.1 2,344.2
Participating policyholders' interests........ 194.3 204.8
Separate Accounts liabilities................. 31,066.8 29,637.9
__________ __________
Total liabilities......................... 76,799.2 76,775.9
__________ __________

Minority interest in preferred
securities of subsidiary..................... 275.0 275.0
__________ __________

Shareholders' Equity:
Class A Voting Preferred Stock (no par
value; 10,000,000 shares authorized;
no shares issued or outstanding)............. - -
Class B Voting Preferred Stock (no par
value; 15,000,000 shares authorized;
no shares issued or outstanding)............. - -
Class C Non-Voting Preferred Stock (no
par value; 15,000,000 shares authorized;
no shares issued or outstanding)............. - -
Common Capital Stock (no par value;
250,000,000 shares authorized;
115,473,773 and 115,013,675 issued, and
115,187,158 and 114,727,093 outstanding)..... 1,473.5 1,448.2
Net unrealized capital gains.................. 103.2 641.1
Retained earnings............................. 5,463.4 5,195.6
Treasury stock, at cost (286,615 and
286,582 shares).............................. (12.1) (12.1)
__________ __________

Total shareholders' equity................ 7,028.0 7,272.8
__________ __________

Total liabilities, minority interest and
shareholders' equity..................... $ 84,102.2 $ 84,323.7
__________ __________
__________ __________

Shareholders' equity per common share......... $ 61.01 $ 63.39
__________ __________
__________ __________

<FN>

See Condensed Notes to Financial Statements.

</TABLE>

<PAGE> 6

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>

(Millions, except share data)

Net
Common Unrealized
Capital Capital Retained Treasury
Three Months Ended March 31, 1996 Total Stock Gains (Losses) Earnings Stock
__________________________________________________________________________________________________________

Balances at December 31, 1995 $7,272.8 $1,448.2 $ 641.1 $5,195.6 $ (12.1)
__________________________________________________________________________________________________________

Net income............................ 347.7 347.7
Change in net unrealized capital gains
and losses.......................... (537.9) (537.9)
Common stock issued for benefit plans
(460,098 shares).................... 25.3 25.3
Common stock dividends declared....... (79.9) (79.9)
__________________________________________________________________

Balances at March 31, 1996 $7,028.0 $1,473.5 $ 103.2 $5,463.4 $ (12.1)
__________________________________________________________________________________________________________
__________________________________________________________________

Three Months Ended March 31, 1995
__________________________________________________________________________________________________________

Balances at December 31, 1994 $5,503.0 $1,419.2 $(1,071.5) $5,259.6 $ (104.3)
__________________________________________________________________________________________________________

Net income............................ 160.8 160.8
Change in net unrealized capital gains
and losses.......................... 633.3 633.3
Common stock issued for benefit plans
(102,053 shares).................... 5.1 5.1
Loss on issuance of treasury stock.... (1.1) (1.1)
Common stock dividends declared....... (77.8) (77.8)
__________________________________________________________________

Balances at March 31, 1995 $6,223.3 $1,418.1 $ (438.2) $5,342.6 $ (99.2)
__________________________________________________________________________________________________________
__________________________________________________________________

<FN>

See Condensed Notes to Financial Statements.

</TABLE>

<PAGE> 7

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Three Months Ended
March 31,
________________________
(Millions) 1996 1995
____ ____
<S> <C> <C>

Cash Flows from Operating Activities:
Net income........................................................ $ 347.7 $ 160.8
Adjustments to reconcile net income to net
cash used for operating activities:
Income from Discontinued Operations............................ (182.2) (68.4)
Decrease in accrued investment income.......................... 31.7 30.4
Increase in premiums due and other receivables................. (37.3) (210.7)
Increase in deferred policy acquisition costs.................. (51.7) (43.4)
Depreciation and amortization.................................. 49.5 44.1
Decrease in federal and foreign income taxes................... (135.2) (89.6)
Net (decrease) increase in other assets and other liabilities.. (264.3) 229.5
Decrease in insurance reserve liabilities...................... (199.8) (47.5)
Net realized capital (gains) losses............................ (62.0) 13.2
Amortization of net investment discounts....................... (26.5) (33.7)
Other, net..................................................... (8.9) (52.1)
Discontinued Operations, net...................................... (369.0) 66.1
__________ _________
Net cash used for operating activities....................... (908.0) (1.3)
__________ _________
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale............................. 3,407.9 2,544.4
Equity securities.............................................. 108.5 336.7
Mortgage loans................................................. 8.7 4.3
Real estate.................................................... 47.7 32.2
Short-term investments......................................... 6,757.2 11,225.7
Investment maturities and repayments of:
Debt securities available for sale............................. 700.1 423.1
Debt securities held for investment............................ - 128.5
Mortgage loans................................................. 407.6 495.6
Cost of investments in:
Debt securities available for sale............................. (3,749.0) (3,123.1)
Debt securities held for investment............................ - (8.2)
Equity securities.............................................. (352.4) (29.2)
Mortgage loans................................................. (53.8) (45.9)
Real estate.................................................... (34.1) (25.1)
Short-term investments......................................... (6,736.8) (11,272.5)
Increase in property and equipment................................ (4.1) (37.1)
Net increase in Separate Accounts................................. (0.4) (14.5)
Other, net........................................................ 206.7 (193.8)
Discontinued Operations, net...................................... (261.8) 224.8
__________ _________
Net cash provided by investing activities.................... 452.0 665.9
__________ _________
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts........... 618.9 209.6
Withdrawals of investment contracts............................... (901.3) (706.2)
Issuance of long-term debt........................................ 24.9 -
Stock issued under benefit plans.................................. 25.3 4.0
Repayment of long-term debt....................................... (28.8) (1.4)
Net (decrease) increase in short-term debt........................ (1.3) 83.1
Dividends paid to shareholders.................................... (79.9) (77.8)
Corporate expenses paid by Discontinued Operations................ 12.5 14.8
Discontinued Operations, net...................................... - (.2)
__________ ________
Net cash used for financing activities....................... (329.7) (474.1)
__________ ________
Effect of exchange rate changes on cash and cash
equivalents....................................................... 0.4 (.1)
Net decrease (increase) in cash and cash equivalents of
Discontinued Operations............................................. 631.1 (290.4)
__________ _________
Net decrease in cash and cash equivalents............................ (154.2) (100.0)
Cash and cash equivalents, beginning of period....................... 1,712.7 2,277.2
__________ _________
Cash and cash equivalents, end of period............................. $ 1,558.5 $ 2,177.2
__________ _________
__________ _________

Supplemental Cash Flow Information - continuing operations:
Interest paid..................................................... $ 44.6 $ 42.8
__________ _________
__________ _________
Income taxes paid ................................................ $ 59.0 $ 4.0
__________ _________
__________ _________
<FN>
See Condensed Notes to Financial Statements.
</TABLE>

<PAGE> 8

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO FINANCIAL STATEMENTS

(1) Basis of Presentation

The consolidated financial statements include Aetna Life and
Casualty Company and its majority-owned subsidiaries
(collectively, the "company"). The company's property-casualty
operations are reflected as Discontinued Operations. The company
completed the sale of its property-casualty operations to an
affiliate of the Travelers Insurance Group Inc. ("Travelers") on
April 2, 1996 (please refer to Note 4). Less than majority-owned
entities in which the company has at least a 20% interest are
reported on the equity basis. These consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles and are unaudited. Certain
reclassifications have been made to 1995 financial information to
conform to the 1996 presentation. These interim statements
necessarily rely heavily on estimates, including assumptions as to
annualized tax rates. In the opinion of management, all
adjustments necessary for a fair statement of results for the
interim periods have been made. All such adjustments are of a
normal, recurring nature.

(2) Agreement to Merge with U.S. Healthcare

The company and U.S. Healthcare, Inc. ("U.S. Healthcare")
entered into an agreement, dated as of March 30, 1996,
pursuant to which they agreed to merge in a transaction, valued
at that time, at approximately $8.9 billion. The merger
agreement, which has been approved by the board of directors of
each company, calls for the formation of a new holding company,
Aetna Inc. U.S. Healthcare shareholders will receive $34.20 in
cash, 0.2246 shares of Aetna Inc. common stock and 0.0749
shares of Aetna Inc. mandatorily convertible preferred stock
for each share of U.S. Healthcare common stock and each share
of U.S. Healthcare Class B Stock outstanding. Each outstanding
share of the company's common stock will become a share of
common stock of Aetna Inc. Immediately after the transaction,
the company and U.S. Healthcare will each be wholly-owned
subsidiaries of Aetna Inc., and Aetna Inc. will be owned
approximately 78% by the company's shareholders and
approximately 22% by U.S. Healthcare shareholders
(approximately 72% and approximately 28%, respectively, on a
fully diluted basis).

The company expects to finance the transaction with a
combination of $5.3 billion in cash ($3.9 billion from the net
proceeds received from the sale of its property-casualty
operations and $1.4 billion of additional bank debt, which may
initially be financed with commercial paper) and the issuance
of $2.7 billion of new Aetna Inc. common stock and $0.9 billion
of Aetna Inc. mandatorily convertible preferred stock. The
agreement is subject to approval by the shareholders of both
companies, expiration of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, receipt of
required insurance, healthcare and other regulatory approvals,
and other customary conditions. It is expected to close in the
third quarter of 1996.

<PAGE> 9

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)

(3) Accounting Changes

Financial Accounting Standard ("FAS") No. 123, Accounting for
Stock-Based Compensation, is effective for 1996 reporting. This
statement addresses the accounting for the cost of stock-based
compensation, such as stock options. FAS No. 123 permits either
expensing the cost of stock-based compensation over the vesting
period or disclosing in the financial statement footnotes what
this expense would have been. This cost would be measured at the
grant date based upon estimated fair values, using option pricing
models. The company has selected the disclosure alternative which
requires that such disclosures be included in full year financial
statements only.

(4) Sales of Subsidiaries

On April 2, 1996, the company completed the sale of its property-
casualty operations to Travelers for approximately $4.1 billion in
cash. The sale resulted in a gain of approximately $265 million
(after tax) which will be reflected in the second quarter of 1996.
The operating results of the property-casualty operations are
presented as Discontinued Operations for the three months ended
March 31, 1996 and 1995.

Results of Discontinued Operations for the three months ended
March 31, were:

(Millions) 1996 1995
_____________________________________________________________________________________________
<S> <C> <C>

Revenue:

Premiums $ 1,038.4 $ 1,046.9
Net investment income 242.9 215.9
Fees and other income 18.3 22.6
Net realized capital gains 239.7 6.8
__________________________

Total revenue 1,539.3 1,292.2
_____________________________________________________________________________________________

Claims and expenses:

Claims and claim adjustment expenses 964.0 842.1
Operating expenses 151.9 198.5
Amortization of deferred policy acquisition costs 160.7 155.1
__________________________

Total claims and expenses 1,276.6 1,195.7
_____________________________________________________________________________________________

Income before income taxes 262.7 96.5

Federal and foreign income taxes 80.5 28.1
__________________________

Net income $ 182.2 $ 68.4
__________________________
__________________________

</TABLE>

<PAGE> 10

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)

(4) Sales of Subsidiaries (Continued)

The Balance Sheets of the Discontinued Operations were:

<TABLE>
<CAPTION> March 31, December 31,
(Millions) 1996 1995
________________________________________________________________________________
<S> <C> <C>

Assets:
Investments:
Debt securities:
Available for sale, at fair value
(amortized cost $12,854.5 and $11,293.8) $12,836.8 $11,705.6
Equity securities, at fair value
(cost $53.3 and $313.8) 60.1 525.5
Short-term investments .2 137.2
Mortgage loans 1,012.8 1,061.7
Real estate 255.9 264.7
Other 140.9 291.8
__________________________
Total investments 14,306.7 13,986.5

Cash and cash equivalents 522.5 1,153.6
Reinsurance recoverables and receivables 5,067.5 5,144.0
Accrued investment income 210.2 188.3
Premiums due and other receivables 1,079.1 1,057.4
Federal and foreign income taxes:
Current - 13.6
Deferred 777.2 642.3
Deferred policy acquisition costs 296.1 305.8
Other assets 1,033.5 1,010.9
__________________________
Total assets $23,292.8 $23,502.4
________________________________________________________________________________
__________________________

Liabilities:
Unpaid claims and claim expenses $16,726.2 $16,569.3
Unearned premiums 1,386.2 1,400.3
Policyholders' funds left with the companies 40.5 39.1
___________________________
Total insurance liabilities 18,152.9 18,008.7
Long-term debt 35.2 35.2
Current federal income taxes 1.8 -
Other liabilities 1,356.2 1,525.7
__________________________
Total liabilities 19,546.1 19,569.6

Total shareholder's equity (including
net unrealized capital (losses) gains of
$(65.2) and $303.1) 3,746.7 3,932.8
________________________________________________________________________________

Total liabilities and shareholder's equity $23,292.8 $23,502.4
________________________________________________________________________________
__________________________
</TABLE>

In conjunction with the sale, Travelers subleased the space
currently occupied by the company in the CityPlace office facility
in Hartford for eight years at current market rates. The company
will reflect a charge of approximately $190 million (after tax) in
the second quarter of 1996 representing the present value of the
difference between rent required to be paid by the company under
the lease and future rentals expected to be received by the
company. The company also expects to reflect additional severance
and facilities charges in the second quarter of 1996 of
approximately $45 million (after tax) due to actions expected to
be taken to reduce the level of corporate expenses and other costs
previously absorbed by the property-casualty operations.

<PAGE> 11

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)

(4) Sales of Subsidiaries (Continued)

As a result of the sale, the company retained no property-
casualty liabilities other than those associated with
indemnifying Travelers for a portion of certain potential
liability exposures. While there can be no assurances,
management currently does not believe that the aggregate
ultimate loss arising from these indemnifications, if any, will
be material to the annual net income, liquidity or financial
condition of the company, although it is reasonably possible.

(5) Discontinued Products

Results of discontinued fully guaranteed large case pension
products (guaranteed investment contracts ("GICs") and single-
premium annuities ("SPAs")) for the three months ended March 31,
1996 and 1995 were credited/charged to the reserve for anticipated
future losses and did not affect the company's results of
operations. Future net losses (including capital losses) for each
product will be charged to the respective reserve at the time such
losses are realized. Management believes the reserve for
anticipated losses at March 31, 1996 is adequate to provide for
future net losses associated with the guaranteed product
liabilities. To the extent that actual future losses are greater
than anticipated future net losses, the company's results of
operations would be adversely affected. Conversely, if actual
future losses are less than anticipated future losses, the
company's results of operations would be favorably affected.
(Please refer to the company's 1995 Annual Report to Shareholders
for a more complete discussion of the reserve for anticipated
future losses on discontinued products.)

<PAGE> 12

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)

(5) Discontinued Products (Continued)

Results of discontinued products were as follows (pretax, in
millions):

<TABLE>
<CAPTION>
Charged
(Credited) to
Guaranteed Single- Reserve for
Investment Premium Future
Three months ended March 31, 1996 Contracts Annuities Total Losses Net*
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Net investment income $ 106.1 $ 116.9 $ 223.0 $ - $ 223.0
Net realized capital gains 10.8 11.1 21.9 (21.9) -
Interest earned on receivable
from continuing business 5.3 7.8 13.1 - 13.1
Other income 7.2 6.0 13.2 - 13.2
_____________________________________________________________
Total revenue 129.4 141.8 271.2 (21.9) 249.3
_____________________________________________________________

Current and future benefits 102.4 107.3 209.7 37.2 246.9
Operating expenses 1.7 0.7 2.4 - 2.4
_____________________________________________________________
Total benefits and expenses 104.1 108.0 212.1 37.2 249.3
_____________________________________________________________

Results of discontinued products $ 25.3 $ 33.8 $ 59.1 $ (59.1) $ -
_____________________________________________________________________________________________________
_____________________________________________________________

Charged
(Credited) to
Guaranteed Single- Reserve for
Investment Premium Future
Three months ended March 31, 1995 Contracts Annuities Total Losses Net*
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Net investment income $ 132.3 $ 110.1 $ 242.4 $ - $ 242.4
Net realized capital gains (losses) (18.5) 8.0 (10.5) 10.5 -
Interest earned on receivable
from continuing business 5.1 7.6 12.7 - 12.7
Other income 2.5 3.0 5.5 - 5.5
_____________________________________________________________
Total revenue 121.4 128.7 250.1 10.5 260.6
_____________________________________________________________

Current and future benefits 155.2 114.4 269.6 (10.2) 259.4
Operating expenses (.3) 1.5 1.2 - 1.2
_____________________________________________________________
Total benefits and expenses 154.9 115.9 270.8 (10.2) 260.6
_____________________________________________________________

Results of discontinued products $ (33.5) $ 12.8 $ (20.7) $ 20.7 $ -
_____________________________________________________________________________________________________
_____________________________________________________________
<FN>
* Amounts are reflected in the 1996 and 1995 Consolidated Statements of Income, except for interest of
$13.1 million and $12.7 million for the three months ended March 31, 1996 and 1995, respectively,
earned on the receivable from continuing business which is eliminated in consolidation.
</TABLE>

<PAGE> 13

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)

(5) Discontinued Products (Continued)

Assets and liabilities of discontinued products were as follows
(in millions):

<TABLE>

<CAPTION>
March 31, 1996
_______________________________________

Guaranteed Single-
Investment Premium
Contracts Annuities Total
_______________________________________

Debt securities available for sale $ 2,012.2 $ 3,440.3 $ 5,452.5
Mortgage loans 1,762.8 1,485.3 3,248.1
Real estate 477.8 194.6 672.4
Short-term and other investments 183.3 86.7 270.0
_______________________________________
Total investments 4,436.1 5,206.9 9,643.0
Current and deferred income taxes 153.3 132.6 285.9
Receivable from continuing business 435.0 501.4 936.4
_______________________________________
Total assets $ 5,024.4 $ 5,840.9 $10,865.3
______________________________________________________________________________
_______________________________________
Future policy benefits $ - $ 4,896.3 $ 4,896.3
Policyholders' funds left with
the company 4,646.8 - 4,646.8
Reserve for future losses on
discontinued products 246.7 771.2 1,017.9
Other 130.9 173.4 304.3
_______________________________________
Total liabilities $ 5,024.4 $ 5,840.9 $10,865.3
______________________________________________________________________________
_______________________________________

</TABLE>

Net unrealized capital gains as of March 31, 1996 on available for
sale debt securities are included above in other liabilities and
are not reflected in consolidated shareholders' equity. The
reserve for anticipated future losses on GICs is included in
policyholders' funds left with the company and the reserve for
anticipated future losses on SPAs is included in future policy
benefits on the Consolidated Balance Sheets.

<PAGE> 14

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)

(5) Discontinued Products (Continued)

The activity in the reserve for anticipated future losses on
discontinued products was as follows (pretax, in millions):

<TABLE>
<CAPTION>
Three Months Ended March 31, 1996
___________________________________
Guaranteed Single-
Investment Premium
Contracts Annuities Total
_________________________________________________________________________
<S> <C> <C> <C>
Reserve at beginning of period $ 221.4 $ 737.4 $ 958.8
Results of discontinued products 25.3 33.8 59.1
___________________________________
Reserve at end of period $ 246.7 $ 771.2 $ 1,017.9
_________________________________________________________________________
___________________________________
</TABLE>

At the time of discontinuance, a receivable from continuing
business was established for each discontinued product equivalent
to the net present value of the anticipated cash flow shortfalls.
The receivables, on which interest is accrued at the discount
rates used to calculate the loss on discontinuance, will be
funded, net of taxes on the accrued interest, from invested assets
supporting Large Case Pensions. The offsetting payable, on which
interest is similarly accrued, was established in the continuing
business. The interest on such payable generally offsets the
investment income on the assets available to fund the shortfall.
At March 31, 1996, for GICs and SPAs, the receivables from
continuing business, net of the related deferred taxes payable of
$15.8 million and $23.2 million, respectively, on the accrued
interest income were $419.2 million and $478.2 million,
respectively. As of March 31, 1996, no funding had taken place.
These amounts are eliminated in consolidation and are therefore
not reflected on the Consolidated Balance Sheets.

(6) Investments

Net investment income includes amounts allocable to experience
rated contractholders of $353.1 million and $360.8 million for the
three months ended March 31, 1996 and 1995, respectively.
Interest credited to contractholders is included in current and
future benefits.

Net realized capital gains (losses) allocable to experience rated
contractholders of $38.1 million and ($35.0) million for the three
months ended March 31, 1996 and 1995, respectively, were deducted
from net realized capital gains (losses) as reflected on the
Consolidated Statements of Income, and an offsetting amount is
reflected on the Consolidated Balance Sheets in policyholders'
funds left with the company.

<PAGE> 15

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)

(6) Investments (Continued)

At March 31, 1996, the total recorded investment in mortgage loans
that are considered to be impaired (which include problem loans,
restructured loans and potential problem loans) under FAS No. 114
and related specific reserves are presented in the table below.
Included in such total recorded investment are impaired loans of
$355 million for which no specific reserves are considered
necessary.

<TABLE>

Total
Recorded Specific
(Millions) Investment Reserves
________________________________________________________________________

Supporting discontinued products $ 642.5 $ 102.3
Supporting experience rated products 394.7 94.0
Supporting remaining products 362.5 44.0
_________________________
Total Impaired Loans -
continuing operations $ 1,399.7 $ 240.3
_______________________________________________________________________
_________________________
</TABLE>

The activity in the specific and general reserves as of March 31,
1996 is summarized below:

<TABLE>

<CAPTION>
Charged Balance
Balance at to net Charged at
December 31, realized to other Principal March 31,
(Millions) 1995 loss accounts(1) Write-offs 1996(2)
_______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>

Supporting discontinued
products $ 287.5 $ - $ - $ (111.2) $ 176.3

Supporting experienced
rated products 228.3 - .6 (17.9) 211.0

Supporting remaining
products 89.1 (.6) - (2.2) 86.3
________________________________________________________________

Total -
continuing operations $ 604.9 $ (.6) $ .6 $ (131.3) $ 473.6
______________________________________________________________________________________________
________________________________________________________________
<FN>

(1) Reflects additions to reserves related to assets supporting experience rated products and
discontinued products which do not affect the company's results of operations.

(2) Total reserves for continuing operations at March 31, 1996 include $240.3 million of specific
reserves and $233.3 million of general reserves.

</TABLE>

The company accrues interest income on impaired loans to the
extent it is deemed collectible and the loan continues to perform
under its original or restructured contractual terms. Interest
income on problem loans is generally recognized on a cash basis.
Cash payments on loans in the process of foreclosure are generally
treated as a return of principal.

<PAGE> 16

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)

(6) Investments (Continued)

Income earned (pretax) and received on the average recorded
investment in impaired loans for the three months ended March 31,
1996 was as follows:

<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996
______________________________
Average
Impaired Income Income
(Millions) Loans Earned Received
________________________________________________________________________
<S> <C> <C> <C>

Supporting discontinued products $ 695.4 $ 15.0 $ 15.5
Supporting experience rated products 501.3 9.5 9.8
Supporting remaining products 218.5 5.5 4.8
_____________________________
Total continuing operations $ 1,415.2 $ 30.0 $ 30.1
_______________________________________________________________________
_____________________________
</TABLE>

As of January 1, 1996, the company adopted FAS No. 121, Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of. This statement requires long-lived assets to be
held and used to be written down to fair value when they are
considered impaired. Long-lived assets to be disposed of (e.g.,
real estate held for sale) are to be carried at the lower of cost
or fair value less estimated selling costs. In addition, this
statement does not allow long-lived assets to be disposed of to be
depreciated. As a result of the adoption of FAS No. 121 on
January 1, 1996, valuation reserves were increased by $52.9
million in connection with the reversal of previously recorded
accumulated depreciation related to properties held for sale. The
adoption of FAS No. 121 did not have a material effect on results
of operations.

(7) Debt

The company has credit facilities aggregating $1 billion with a
group of worldwide banks. One $500 million facility terminates in
July 1996. Another $500 million facility terminates in July 1999.
Various interest rate options are available under each facility
and any borrowings mature on the expiration date of the applicable
credit commitment. The company pays facility fees ranging from
.08% to .375% per annum under the short-term credit agreement and
from .1% to .5% per annum under the medium-term credit agreement,
depending upon the company's long-term senior unsecured debt
rating. The commitments require the company to maintain
shareholders' equity, excluding net unrealized capital gains and
losses, of at least $5.0 billion. These facilities also support
the company's commercial paper borrowing program. (Please refer
to Note 2 for discussion of additional debt expected to be
incurred in connection with the merger with U.S. Healthcare.)

Pursuant to shelf registration statements declared effective by
the Securities and Exchange Commission ("SEC"), the company may
offer and sell up to $550 million of various types of securities.

<PAGE> 17

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)

(7) Debt (Continued)

A subsidiary of the company may offer and sell up to an additional
$225 million of preferred securities under a shelf registration
statement declared effective by the SEC.

(8) Off-Balance-Sheet Financial Instruments
(including Derivative Financial Instruments)

The company engages in hedging activities to manage foreign
exchange and interest rate risk. Such hedging activities have
principally consisted of using off-balance-sheet instruments
including foreign exchange forward contracts, futures and forward
contracts, and interest rate swap agreements. (Please see General
Account Investments - Use of Derivatives and Other Investments on
page 44 of the Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 16 of the company's
1995 Annual Report to Shareholders for a description of the
company's hedging activities). The notional amounts, carrying
values and estimated fair values of the company's off-balance-
sheet financial instruments from continuing operations are as
follows (in millions):

<TABLE>

<CAPTION>
Carrying
Value
Notional Asset Fair
March 31, 1996 Amount (Liability) Value
______________________________________________________________________________
<S> <C> <C> <C>
Foreign exchange forward contracts - sell:
Related to net investments in foreign
affiliates $ 174.3 $ (1.2) $ (2.8)
Related to investments in nondollar
denominated assets 90.7 (0.2) -
Foreign exchange forward contracts - buy:
Related to net investments in foreign
affiliates 2.7 0.1 0.3
Related to investments in nondollar
denominated assets 31.7 0.2 0.2
Interest rate swaps:
Unrecognized gains 43.0 - 6.7
Futures contracts to purchase investments 51.4 (1.4) (1.4)
Forward swap agreement 60.0 - 0.3

</TABLE>

At March 31, 1996, continuing operations had commitments to
purchase investments for $142.1 million, the fair market value of
which was $142.2 million.

(9) Supplemental Cash Flow Information

Significant noncash investing and financing activities of
continuing operations include acquisition of real estate through
foreclosures (including in-substance foreclosures) of mortgage
loans amounting to $36.5 million and $9.7 million for the three
months ended March 31, 1996 and 1995, respectively.

<PAGE> 18

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)

(10) Earnings Per Share

Earnings per share are computed using net income divided by the
weighted average number of common shares outstanding (including
common share equivalents). There is no difference between primary
and fully diluted earnings per share.

(11) Litigation

The company is continuously involved in numerous lawsuits arising,
for the most part, in the ordinary course of its business
operations as an insurer. While the ultimate outcome of such
litigation cannot be determined at this time, such litigation, net
of reserves established therefor, is not expected to result in
judgments for amounts material to the financial condition of the
company, although it may adversely affect results of operations in
future periods.

<PAGE> 19

Independent Auditors' Review Report

The Board of Directors
Aetna Life and Casualty Company:

We have reviewed the accompanying condensed consolidated balance
sheet of Aetna Life and Casualty Company and Subsidiaries as of
March 31, 1996, and the related condensed consolidated statements
of income for the three-month periods ended March 31, 1996 and
1995, and the related condensed consolidated statements of
shareholders' equity and cash flows for the three-month periods
ended March 31, 1996 and 1995. These condensed consolidated
financial statements are the responsibility of the company's
management.

We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.

Based on our review, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements for them to be in conformity
with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Aetna Life
and Casualty Company and Subsidiaries as of December 31, 1995, and
the related consolidated statements of income, shareholders'
equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 6, 1996, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1995, is
fairly presented, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.

/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
April 25, 1996

<PAGE> 20

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations

Consolidated Results of Operations
__________________________________

Operating Summary
(Millions, except per share data) Three Months Ended March 31
___________________________________
1996 1995 % Change
____ ____ ________
<S> <C> <C> <C>

Premiums............................. $ 1,843.9 $ 1,882.1 (2.0)%
Net investment income................ 886.3 870.0 1.9
Fees and other income................ 518.2 453.4 14.3
Net realized capital gains (losses).. 62.0 (13.2) -
_________ __________
Total revenue.................... 3,310.4 3,192.3 3.7

Current and future benefits.......... 2,236.9 2,275.7 (1.7)
Operating expenses................... 790.2 741.2 6.6
Amortization of deferred policy
acquisition costs................... 37.0 32.0 15.6
_________ __________
Total benefits and expenses...... 3,064.1 3,048.9 .5
_________ __________

Income from continuing operations
before income taxes................. 246.3 143.4 71.8
Income taxes......................... 80.8 51.0 58.4
_________ __________

Income from continuing operations.... 165.5 92.4 79.1

Income from Discontinued Operations,
net of tax.......................... 182.2 68.4 166.4
_________ __________

Net income....................... $ 347.7 $ 160.8 116.2
_________ __________
_________ __________

Net realized capital gains (losses)
from continuing operations, net of
tax (included above)................ $ 41.4 $ (10.6) -
_________ __________
_________ __________

Income from continuing operations
per common share.................... $ 1.43 $ .82 74.4

Income from Discontinued Operations,
net of tax.......................... 1.57 .60 161.7
_________ __________

Net income per common share.......... $ 3.00 $ 1.42 111.3
_________ __________
_________ __________
</TABLE>

Overview
________

Agreement to Merge with U.S. Healthcare

The company and U.S. Healthcare, Inc. ("U.S. Healthcare") entered
into an agreement, dated as of March 30, 1996, pursuant to which
they agreed to merge in a transaction, valued at that time, at
approximately $8.9 billion. The merger agreement, which has been
approved by the board of directors of each company, calls for the
formation of a new holding company, Aetna Inc. U.S. Healthcare
shareholders will receive $34.20 in cash, 0.2246 shares of Aetna
Inc. common stock and 0.0749 shares of Aetna Inc. mandatorily
convertible preferred stock for each share of U.S. Healthcare
common stock and each share of U.S. Healthcare Class B Stock
outstanding. Each outstanding share of the company's common stock
will become a share of common stock of Aetna Inc. Immediately
after the transaction, the company and U.S. Healthcare will each
be wholly-owned subsidiaries of Aetna Inc., and Aetna Inc. will be
owned approximately 78% by the company's shareholders and
approximately 22% by U.S. Healthcare shareholders (approximately
72% and approximately 28%, respectively, on a fully diluted
basis).

<PAGE> 21

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Overview (Continued)
____________________

In addition, subsidiaries of the company and Leonard Abramson (the
"Shareholder") entered into a voting agreement, dated as of March
30, 1996, pursuant to which the Shareholder agreed, among other
things, to vote all of his Class B Stock of U.S. Healthcare,
representing approximately 83.7% of the aggregate voting power of
the capital stock of U.S. Healthcare, in favor of the merger.

The company expects to finance the transaction with a combination
of $5.3 billion in cash ($3.9 billion from the net proceeds
received from the sale of its property-casualty operations (see
below) and $1.4 billion of additional bank debt, which may
initially be financed with commercial paper) and the issuance of
$2.7 billion of new Aetna Inc. common stock and $0.9 billion of
Aetna Inc. mandatorily convertible preferred stock. The agreement
is subject to approval by the shareholders of both companies,
expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, receipt of required insurance,
healthcare and other regulatory approvals, and other customary
conditions. It is expected to close in the third quarter of 1996.

See "Overview - Income from Continuing Operations" on page 22 and
"Liquidity and Capital Resources" on page 45 for a discussion of
certain factors that are expected to impact the company after the
consummation of the merger with U.S. Healthcare.

For financial and business information regarding U.S. Healthcare,
see its Form 10-K and other reports filed with the Securities and
Exchange Commission ("SEC").

Sale of Property-Casualty Operations

On April 2, 1996, the company completed the sale of its property-
casualty operations to an affiliate of The Travelers Insurance
Group Inc. (Travelers) for approximately $4.1 billion in cash.
The sale resulted in a gain of approximately $265 million (after
tax) which will be reflected in the second quarter of 1996.

See "Discontinued Operations - Property-Casualty Operations" on
page 35.

<PAGE> 22

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Overview (Continued)
____________________

Strategic Outlook

The agreement to merge with U.S. Healthcare, which follows the
recently completed sale of the company's property-casualty
operations, represents the second step of the company's previously
announced strategic decision to focus its resources on pursuing
growth opportunities in its health care business, and evaluating
opportunities for growth and development of its financial services
and international operations.

The company currently anticipates recording severance charges
related to Aetna Health Plans in the second quarter. (See "Aetna
Health Plans" on page 25.) Further, the company continues to
conduct strategic and financial reviews of all of its continuing
operations in order to make such operations more competitive.
Such reviews may result in restructuring actions in 1996 which
would be in addition to the severance and facilities charges
anticipated in connection with the sale of the company's property-
casualty operations, as well as the Aetna Health Plans' severance
charge, although the amount of any such charges cannot be
estimated at this time.

Income from Continuing Operations

The company reported income from continuing operations of
$166 million for the three months ended March 31, 1996 compared
with $92 million for the same period a year ago. Excluding net
realized capital gains and losses, results for the three months
ended March 31, 1996 increased $21 million from the prior year
reflecting improved earnings in all of the company's continuing
businesses.

Earnings from continuing operations for the balance of 1996 will
be impacted by the earnings from the investment of the net
proceeds received from the property-casualty sale until the U.S.
Healthcare merger closes. It will then be affected, among other
things, by the earnings of U.S. Healthcare, the costs of financing
the merger and the amortization of approximately $8 billion of
intangible assets (primarily goodwill) expected to be created as a
result of the merger. The company also anticipates that the
merger will yield increased operating income for its new combined
health businesses resulting from expense savings and increased
revenues (the "estimated synergies"). The annual increase in
operating income is expected to be approximately $300 million
(after tax) per year, and is expected to be achieved within 18
months of the closing of the transaction. The estimated synergies
set forth above are forward-looking information. For discussion
of factors regarding such forward-looking information, see
"Forward-Looking Information" on page 47.

<PAGE> 23

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Overview (Continued)
____________________

Net Realized Capital Gains and Losses

Net realized after-tax capital gains and losses from continuing
operations included in net income, allocable to experience rated
pension contractholders, and supporting discontinued products were
as follows (in millions):

<TABLE>
<CAPTION>
Three Months Ended March 31
___________________________
1996 1995
____ ____

Net realized capital gains (losses)
from sales................................. $ 41.0 $ (8.6)

Net realized capital gains (losses) from
changes in reserves for mortgage loans
and real estate............................ .4 (2.0)
_______ _______

Net realized capital gains (losses) from
continuing operations...................... $ 41.4 $ (10.6)
_______ _______
_______ _______

Net realized capital gains (losses) allocable
to experience rated pension contractholders
(excluded above)........................... $ 24.8 $ (22.8)
_______ _______
_______ _______

Net realized capital gains (losses) on
assets supporting discontinued products
(excluded above)........................... $ 14.2 $ (6.8)
_______ _______
_______ _______

</TABLE>

Net realized capital gains from sales in the first quarter of 1996
include a $15 million gain from the sale of an HMO subsidiary.

For information about net realized after-tax capital gains on
assets related to Discontinued Operations, see "Discontinued
Operations - Property-Casualty Operations" on page 35.

<PAGE> 24

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Aetna Health Plans
__________________

<TABLE>
<CAPTION>
Operating Summary
(Millions) Three Months Ended March 31
__________________________________
1996 1995 % Change
____ ____ ________

Premiums............................ $ 1,552.1 $ 1,494.7 3.8%
Net investment income............... 93.8 84.7 10.7
Fees and other income............... 355.6 307.5 15.6
Net realized capital gains (losses). 31.2 (4.2) -
_________ _________
Total revenue.................... 2,032.7 1,882.7 8.0

Current and future benefits......... 1,344.9 1,273.3 5.6
Operating expenses.................. 529.9 485.0 9.3
Amortization of deferred policy
acquisition costs.................. 2.8 6.8 (58.8)
_________ _________
Total benefits and expenses...... 1,877.6 1,765.1 6.4
_________ _________

Income before income taxes.......... 155.1 117.6 31.9
Income taxes........................ 53.7 44.0 22.0
_________ _________

Net income.......................... $ 101.4 $ 73.6 37.8
_________ _________
_________ _________
Net realized capital gains (losses),
net of tax (included above)........ $ 21.5 $ (2.8) -
_________ _________
_________ _________
</TABLE>

Aetna Health Plans' net income for the three months ended March
31, 1996 increased by $28 million compared with the same period a
year ago. Excluding net realized capital gains and losses,
results for the three months ended March 31, 1996 increased
$4 million from the prior year.

Results for the first quarter of 1996 reflect increased earnings
in the Group Insurance business resulting from growth in
membership. Earnings in the first quarter of 1996 related to the
Health and Specialty Health businesses were, in the aggregate,
level compared to the same period a year ago. HMO earnings were
$10 million and $11 million for the quarters ended March 31, 1996
and 1995, respectively, reflecting an increase in the medical loss
ratio which was substantially offset by increased membership. The
HMO medical loss ratios were 87.0% and 84.5% for the three months
ended March 31, 1996 and 1995, respectively. The increase in the
loss ratio is primarily attributable to lower premiums per member
due to competitive pricing.

Revenue, excluding net realized capital gains and losses, for the
Health and Specialty Health businesses increased approximately $82
million or 5% in the first quarter of 1996 compared with the same
period in 1995, primarily due to the shift in membership to
managed care products. Membership in managed care products for
the quarter ended March 31, 1996 increased .7 million members from
the same period a year ago. Revenue, excluding net realized
capital gains and losses, for the Group Insurance business
increased approximately $32 million or 9% in the first quarter of
1996 compared with the same period in 1995 resulting from
increased membership.

<PAGE> 25

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Aetna Health Plans (Continued)
______________________________

Operating expenses in the Health business increased in the first
quarter of 1996 compared with the same period in 1995 due to the
continued migration of members from the indemnity to the more
resource-intensive POS product. AHP is continuing to refine its
systems and processes in order to slow the growth of the
administrative costs associated with its managed care products as
the migration to those products from indemnity products continues.

Severance charges of approximately $20 million (after tax) are
currently anticipated for the second quarter related to actions
expected to be taken to reduce costs. Such actions are primarily
related to reducing information technology costs.

Net realized capital gains in the first quarter of 1996 were
primarily attributable to the sale of an HMO subsidiary. The
earnings of this subsidiary were not material to AHP's results.

The number of Health members participating in risk versus nonrisk
plans was as follows:

March 31, 1996 March 31, 1995
__________________________ ___________________________
(Millions) Risk Nonrisk Total Risk Nonrisk Total
___________________________________________________________ __________________________
<S> <C> <C> <C> <C> <C> <C>

Health
HMO 1.3 .3 1.6 1.2 .3 1.5
POS .5 2.1 2.6 .3 1.7 2.0
__________________________ _________________________
Total Gated Managed Care 1.8 2.4 4.2 1.5 2.0 3.5
PPO 1.3 2.8 4.1 1.3 2.8 4.1
__________________________ __________________________
Total Managed Care 3.1 5.2 8.3 2.8 4.8 7.6
Traditional Indemnity .6 3.0 3.6 1.0 3.4 4.4
__________________________ __________________________
Total Health 3.7 8.2 11.9 3.8 8.2 12.0
__________________________ __________________________
__________________________ __________________________
</TABLE>

Membership attributable to a risk contract with the Civilian
Health and Military Program of the Uniformed Services ("Champus")
of .7 million members at March 31, 1996 and 1995 is included in
total managed care membership. Champus has awarded renewal of the
contract to another provider effective April 1, 1996. The company
expects that there will not be a material adverse impact to
earnings of the segment as a result of the loss of this contract.

The number of members covered by Specialty Health products was as
follows:

March 31
__________________
(Millions) 1996(1) 1995(1)
___________________________________________________
<S> <C> <C>

Behavioral Health (2) 14.8 15.1
____ ____
____ ____

Dental (2) 7.9 8.4
____ ____
____ ____

Managed Pharmacy 4.6 3.8
____ ____
____ ____
<FN>

(1) Many Specialty Health members participate in more than one type of AHP
coverage and are therefore counted in each.
(2) The decline in membership was primarily due to increased competition
related to the pricing of such products. Such decline was not material
to AHP's earnings.
</TABLE>

<PAGE> 26

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Aetna Health Plans (Continued)
______________________________

The number of members covered by Group Insurance products was as
follows:

March 31
__________________
(Millions) 1996(1) 1995(1)
___________________________________________________
<S> <C> <C>

Group Life (2) 8.4 7.9
____ ____
____ ____

Disability 2.4 2.2
____ ____
____ ____

Long-Term Care .1 .1
____ ____
____ ____

<FN>

(1) Many Group Insurance members participate in more than one type of AHP
coverage and are therefore counted in each.
(2) Group life includes members with accident coverages.

</TABLE>

Please see "Overview" on page 20 for a discussion related to the
merger of the company and U.S. Healthcare.

<PAGE> 27

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Aetna Retirement Services (formerly named Aetna Life Insurance &
_________________________
Annuity)

<TABLE>
<CAPTION>
Operating Summary
(Millions) Three Months Ended March 31
___________________________________
1996 1995 % Change
____ ____ ________

Premiums............................ $ 26.0 $ 42.4 (38.7)%
Net investment income............... 267.3 245.5 8.9
Fees and other income............... 103.3 84.0 23.0
Net realized capital gains.......... 15.7 3.0 -
_________ _________
Total revenue.................... 412.3 374.9 10.0

Current and future benefits......... 232.1 224.5 3.4
Operating expenses.................. 82.8 74.8 10.7
Amortization of deferred policy
acquisition costs.................. 17.3 11.4 51.8
_________ _________
Total benefits and expenses...... 332.2 310.7 6.9
_________ _________

Income before income taxes.......... 80.1 64.2 24.8
Income taxes........................ 23.6 20.7 14.0
_________ _________

Net income.......................... $ 56.5 $ 43.5 29.9
_________ _________
_________ _________
Net realized capital gains, net
of tax (included above)............ $ 10.2 $ 1.9 -
_________ _________
_________ _________

Deposits not included in premiums
above ............................. $ 1,091.9 $ 784.4 39.2
_________ _________
_________ _________

Assets under management (1)(2)...... $26,430.0 $21,214.4 24.6
_________ _________
_________ _________
<FN>
(1) Excludes net unrealized capital gains (losses) of approximately $302 million
and $(70) million at March 31, 1996 and 1995, respectively.
(2) Includes $3.2 billion and $1.1 billion at March 31, 1996 and 1995, respectively,
related to assets held and managed by unaffiliated mutual funds.
</TABLE>

Aetna Retirement Services' net income for the three months ended
March 31, 1996 increased $13 million from the same period a year
ago. Excluding net realized capital gains, results for the three
months ended March 31, 1996 increased $5 million from the same
period a year ago.

Results in the first quarter of 1996 benefited from increased fees
assessed against policyholders related to the growth in assets
under management, partially offset by an increase in operating
expenses. The increase in operating expenses primarily reflects
continued business growth and investment in nontraditional
distribution channels (e.g., banks and broker/dealers).

Assets under management at March 31, 1996 were 25% higher than a
year earlier primarily as a result of continued business growth
and overall improvement in the stock market.

<PAGE> 28

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Aetna Retirement Services
_________________________

Premiums decreased 39% in the first quarter of 1996 compared to
the first quarter of 1995 primarily because Aetna Retirement
Services ceased writing structured settlements of certain
liabilities in the fourth quarter of 1995. Such decrease did not
and is not expected to have a material effect on results of the
segment.

Current and future benefits increased 3% in the first quarter of
1996 compared to the same period a year ago reflecting continued
business growth, substantially offset by a decrease in current and
future benefits related to the cessation of the structured
settlement product discussed above.

<PAGE> 29

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

International
_____________

Operating Summary
(Millions) Three Months Ended March 31
_____________________________________
1996 1995 % Change
____ ____ ________

Premiums............................ $ 239.6 $ 220.6 8.6%
Net investment income............... 83.0 68.3 21.5
Fees and other income............... 29.4 26.3 11.8
Net realized capital gains (losses). 1.1 (3.8) -
_________ _________
Total revenue.................... 353.1 311.4 13.4

Current and future benefits......... 213.2 196.8 8.3
Operating expenses.................. 86.3 83.3 3.6
Amortization of deferred policy
acquisition costs.................. 16.9 13.8 22.5
_________ _________
Total benefits and expenses...... 316.4 293.9 7.7
_________ _________

Income before income taxes.......... 36.7 17.5 109.7
Income taxes ....................... 12.0 3.4 -
_________ _________

Net income.......................... $ 24.7 $ 14.1 75.2
_________ _________
_________ _________
Net realized capital gains (losses),
net of tax (included above)........ $ .6 $ (2.8) -
_________ _________
_________ _________

</TABLE>

International's net income for the three months ended March 31,
1996 increased by $11 million compared with the same period a year
ago. Excluding net realized capital gains and losses, results for
the three months ended March 31, 1996 increased $7 million from
the same period a year ago. The improvement in the first quarter
reflected increased earnings in the Pacific Rim and Latin America,
primarily reflecting continued revenue growth, as well as lower
growth in operating expenses due to tighter controls over such
costs. Improved earnings in Latin America also reflect higher net
investment income because of the sustained high interest rate
environment in Mexico.

<PAGE> 30

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Large Case Pensions
___________________

<TABLE>

Operating Summary
(Millions) Three Months Ended March 31
___________________________________
1996 1995 % Change
____ ____ ________

Premiums........................... $ 26.2 $ 124.4 (78.9)%
Net investment income.............. 442.9 468.2 (5.4)
Fees and other income.............. 29.3 35.1 (16.5)
Net realized capital gains (losses) 10.2 (7.7) -
_________ _________
Total revenue................... 508.6 620.0 (18.0)

Current and future benefits........ 446.7 581.1 (23.1)
Operating expenses................. 20.3 20.6 (1.5)
_________ _________
Total benefits and expenses..... 467.0 601.7 (22.4)
_________ _________

Income before income taxes......... 41.6 18.3 127.3
Income taxes....................... 14.8 7.0 111.4
_________ _________

Net income......................... $ 26.8 $ 11.3 137.2
_________ _________
_________ _________

Net realized capital gains (losses),
net of tax (included above)...... $ 6.6 $ (5.0) -
_________ _________
_________ _________

Deposits not included in premiums
above ........................... $ 394.4 $ 422.8 (6.7)
_________ _________
_________ _________

Assets under management (1)(2)..... $37,300.0 $46,291.0 (19.4)
_________ _________
_________ _________

<FN>
(1) Excludes net unrealized capital gains (losses) of approximately $266 million
and $(165) million at March 31, 1996 and 1995, respectively.
(2) Includes assets under management related to discontinued products.

</TABLE>

Large Case Pensions' net income for the three months ended
March 31, 1996 increased by $16 million compared with the same
period a year ago. Excluding net realized capital gains and
losses, results for the three months ended March 31, 1996
increased $4 million from the prior year primarily reflecting an
increase in net interest margins.

1995 premiums reflected additional premiums from existing
contractholders which did not have a material effect on results.

Assets under management at March 31, 1996 were 19% lower than a
year earlier primarily as a result of the sale of Insurance
Company Investment Management ("ICIM"), a specialized asset
manager conducting business through the company's Aeltus
Investment Management subsidiary ("Aeltus"), in the first quarter
of 1996. ICIM was not a significant contributor to Large Case
Pensions' earnings in 1995 or in the first quarter of 1996.

<PAGE> 31

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Large Case Pensions (Continued)
_______________________________

Experience rated contractholder and participant withdrawals and
transfers were as follows (excluding contractholder transfers to
other company products) (in millions):

<TABLE>
<CAPTION>
Three Months Ended March 31
____________________________
1996 1995
____ ____
<S> <C> <C>
Scheduled contract maturities
and benefit payments (1).......... $ 318.1 $ 270.3
________ ________
________ ________

Contractholder withdrawals other
than scheduled contract maturities
and benefit payments.............. $ 315.2 (2) $ 97.6
________ ________
________ ________

Participant withdrawals............ $ 56.4 $ 54.5
________ ________
________ ________
<FN>
(1) Includes payments made upon contract maturity and other amounts
distributed in accordance with contract schedules.
(2) Primarily relates to an unscheduled withdrawal by one contractholder.
</TABLE>

The company is exploring sale or other alternatives for certain
portions of its large case pension investment management and advisory
business conducted through its subsidiary, Aeltus. Such actions have
included the signing, in 1996, of a letter of intent to sell Aetna
Realty Investors ("ARI") to TA Associates. The sale is expected to
close in the second quarter of 1996. ARI contributed $2 million to
Large Case Pensions' net income for the three months ended March 31,
1996 and 1995.

Discontinued Products

Results of discontinued fully guaranteed large case pension products
(guaranteed investment contracts ("GICs") and single-premium
annuities ("SPAs")) for the three months ended March 31, 1996 and
1995 were credited/charged to the reserve for anticipated future
losses and did not affect the company's results of operations.
Future net losses (including capital losses) for each product will be
charged to the respective reserve at the time such losses are
realized. Management believes the reserve for anticipated losses at
March 31, 1996 is adequate to provide for future losses associated
with the guaranteed product liabilities. To the extent that actual
future losses are greater than anticipated future net losses, the
company's results of operations would be adversely affected.
Conversely, if actual future losses are less than anticipated future
losses, the company's results of operations would be favorably
affected. (Please refer to the company's 1995 Annual Report to
Shareholders for a more complete discussion of the reserve for
anticipated future losses on discontinued products.)

<PAGE> 32

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Large Case Pensions (Continued)
_______________________________

At the time of discontinuance, a receivable from continuing
business was established for each discontinued product equivalent
to the net present value of the anticipated cash flow shortfalls.
The receivables, on which interest is accrued at the discount
rates used to calculate the loss on discontinuance, will be
funded, net of taxes on the accrued interest, from invested assets
supporting Large Case Pensions. The offsetting payable, on which
interest is similarly accrued, was established in the continuing
business. The interest on such payable generally offsets the
investment income on the assets available to fund the shortfall.
At March 31, 1996, for GICs and SPAs, the receivables from
continuing business, net of the related deferred taxes payable of
$16 million and $23 million, respectively, on the accrued interest
income, were $419 million and $478 million, respectively. As of
March 31, 1996, no funding had taken place.

Results of discontinued products were as follows (in millions):

<TABLE>
<CAPTION>
Three Months Ended March 31
________________________________
1996
________________________________
GICs SPAs Total
____ ____ _____
<S> <C> <C> <C>
Interest margin (a)...................... $ 2.4 $ 6.2 $ 8.6
Net realized capital gains............... 7.0 7.2 14.2
Interest earned on receivable from
continuing business.................... 3.4 5.1 8.5
Other, net............................... 2.7 4.1 6.8
________ ________ ________

Results of discontinued products,
after-tax.............................. $ 15.5 $ 22.6 $ 38.1
________ ________ ________
________ ________ ________

Results of discontinued products,
pretax.................................. $ 25.3 $ 33.8 $ 59.1
________ ________ ________
________ ________ ________

Net realized capital gains from sales
of bonds, after tax, included above.... $ 2.1 $ 4.4 $ 6.5
________ ________ ________
________ ________ ________
</TABLE>

<TABLE>
<CAPTION>
Three Months Ended March 31
________________________________
1995
________________________________
GICs SPAs Total
____ ____ _____
<S> <C> <C> <C>
Negative interest margin (a)............. $ (14.9) $ (2.8) $ (17.7)
Net realized capital gains (losses)...... (12.0) 5.2 (6.8)
Interest earned on receivable from
continuing business.................... 3.3 5.0 8.3
Other, net............................... 1.1 1.6 2.7
________ ________ ________

Results of discontinued products,
after-tax.............................. $ (22.5) $ 9.0 $ (13.5)
________ ________ ________
________ ________ ________

Results of discontinued products, pretax. $ (33.5) $ 12.8 $ (20.7)
________ ________ ________
________ ________ ________

Net realized capital gains (losses)
from sales of bonds, after tax,
included above......................... $ (5.7) $ 9.4 $ 3.7
________ ________ _________
________ ________ _________
<FN>

(a) Represents the amount by which interest credited to holders of fully
guaranteed large case pension contracts (exceeds) or is less than interest
earned on invested assets supporting such contracts.

</TABLE>

<PAGE> 33

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Large Case Pensions (Continued)
_______________________________

The results of the discontinued products in the first quarter of
1996 were favorably affected by nonrecurring items including
rental income received on a foreclosed property of $6 million
(after tax) related to GICs and $3 million (after tax) related to
SPAs. Such rental income had previously not been recognized due
to uncertainties associated with its ultimate collection.
Additionally, the adoption of FAS No. 121, favorably impacted the
results of GICs by $4 million (after tax) and SPAs by $2 million
(after tax).

Despite the improvement in earnings in the first quarter of 1996,
management expects that negative interest margins related to GICs
will recur and negative interest margins related to SPAs will
emerge over the next several years as the average yield from the
investment portfolio declines and will continue as the liabilities
are paid.

The activity in the reserve for anticipated future losses on
discontinued products was as follows (pretax, in millions):

<TABLE>
<CAPTION>
Three Months Ended March 31, 1996
_________________________________
GICs SPAs Total
____ ____ _____
<S> <C> <C> <C>
Reserve at December 31, 1995..... $ 221.4 $ 737.4 $ 958.8
Results of discontinued products. 25.3 33.8 59.1
________ ________ ________
Reserve at March 31, 1996........ $ 246.7 $ 771.2 $1,017.9
________ ________ ________
________ ________ ________
</TABLE>

Distributions on GICs and SPAs were as follows (in millions):

<TABLE>
<CAPTION>
Three Months Ended March 31
____________________________________
1996
____________________________________
GICs SPAs Total
____ ____ _____
<S> <C> <C> <C>
Scheduled contract maturities,
GIC settlements and benefit
payments (1)...................... $ 500.2 $ 133.0 $ 633.2
________ ________ ________
________ ________ ________

Participant directed withdrawals... $ 15.5 $ - $ 15.5
________ ________ ________
________ ________ ________

Three Months Ended March 31
____________________________________
1995
____________________________________
GICs SPAs Total
____ ____ _____
<S> <C> <C> <C>
Scheduled contract maturities,
GIC settlements and benefit
payments (1)...................... $ 644.8 $ 133.7 $ 778.5
________ ________ ________
________ ________ ________

Participant directed withdrawals... $ 27.1 $ - $ 27.1
________ ________ ________
________ ________ ________
<FN>

(1) Includes payments made upon contract maturity, early contractual settlements of
GIC liabilities, and other amounts distributed in accordance with contract schedules.
</TABLE>

Cash required to meet the above payments was provided by earnings
on, sales of, and scheduled payments on, invested assets.

(Please see "General Account Investments" on page 36 for a
discussion of investments supporting discontinued products.)

<PAGE> 34

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Corporate
_________

Operating Summary
(Millions, after-tax) Three Months Ended March 31
___________________________________
1996 1995 % Change
____ ____ ________

Interest expense.................... $ 19.4 $ 18.1 7.2%
Other expense, net.................. 24.5 32.0 (23.4)

</TABLE>

Other expense for the three months ended March 31, 1996 and 1995
included after-tax net realized capital gains of $3 million and
after-tax net realized capital losses of $2 million, respectively.
Excluding net realized capital gains and losses, the decrease of
$3 million in other expenses in 1996 primarily resulted from a
reduction in corporate staff area expenses associated with
continued cost reduction efforts.

In conjunction with the sale of the company's property-casualty
operations, Travelers subleased the space currently occupied by
the company in the CityPlace office facility in Hartford for eight
years at current market rates. The company will reflect a charge
of approximately $190 million (after tax) in the second quarter of
1996 representing the present value of the difference between rent
required to be paid by the company under the lease and future
rentals expected to be received by the company. The company also
expects to reflect additional severance and facilities charges in
the second quarter of 1996 of approximately $45 million (after
tax) due to actions expected to be taken to reduce the level of
corporate expenses and other costs previously absorbed by the
property-casualty operations.

<PAGE> 35

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Discontinued Operations - Property-Casualty Operations
______________________________________________________

Operating Summary
(Millions) Three Months Ended March 31
___________________________________
1996 1995 % Change
____ ____ ________

Premiums............................ $ 1,038.4 $ 1,046.9 (.8)%
Net investment income............... 242.9 215.9 12.5
Fees and other income............... 18.3 22.6 (19.0)
Net realized capital gains.......... 239.7 6.8 -
_________ _________
Total revenue.................... 1,539.3 1,292.2 19.1

Current and future benefits......... 964.0 842.1 14.5
Operating expenses.................. 151.9 198.5 (23.5)
Amortization of deferred policy
acquisition costs.................. 160.7 155.1 3.6
_________ _________
Total benefits and expenses...... 1,276.6 1,195.7 6.8
_________ _________

Income before income taxes.......... 262.7 96.5 172.2
Income taxes........................ 80.5 28.1 186.5
_________ _________

Net income.......................... $ 182.2 $ 68.4 166.4
_________ _________
_________ _________
Net realized capital gains,
net of tax (included above)........ $ 156.4 $ 3.6 -
_________ _________
_________ _________

Statutory combined loss and
expense ratio...................... 125.9% 111.1% -
_________ _________
_________ _________
GAAP combined loss and expense ratio 123.9% 112.7% -
_________ _________
_________ _________
Catastrophe loss ratio (included
in combined ratios above).......... 6.6% 1.9% -
_________ _________
_________ _________
</TABLE>

Discontinued Operations' net income for the three months ended
March 31, 1996 increased $114 million compared with the same
period a year ago. Excluding net realized capital gains, results
for the three months ended March 31, 1996 decreased $39 million
from the prior year primarily reflecting increased catastrophe
losses due to winter storms of $44 million (after-tax and net of
reinsurance) ($91 million pretax and before reinsurance) for the
three months ended March 31, 1996 compared to $13 million (after
tax and net of reinsurance) ($27 million pretax and before
reinsurance) for the three months ended March 31, 1995.

Net realized capital gains (after tax) in the first quarter of
1996 include $129 million from the sale of equity securities and
$33 million from the sale of debt securities in connection with
the agreement to sell the property-casualty operations.

As a result of the sale, the company retained no property-casualty
liabilities other than those associated with indemnifying
Travelers for a portion of certain potential liability exposures.
While there can be no assurances, management currently does not
believe that the aggregate ultimate loss arising from these
indemnifications, if any, will be material to the annual net
income, liquidity or financial condition of the company, although
it is reasonably possible.

<PAGE> 36

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

General Account Investments
___________________________

Investment-related amounts disclosed in the following investment
section relate to assets supporting continuing operations
(including assets supporting discontinued products and experience
rated products). Please see Note 4 of Condensed Notes to
Financial Statements for assets supporting Discontinued
Operations.

The company's invested assets were comprised of the following, net
of impairment reserves:

<TABLE>
<CAPTION>
March 31, December 31,
(Millions) 1996 1995
____________________________________________________________________________

Debt securities:
Available for sale, at fair value
(amortized cost $29,687.7 and $29,962.5) $ 30,344.9 $ 31,860.3
Equity securities, at fair value
(cost $785.1 and $597.8) 929.1 659.7
Short-term investments 637.5 607.8
Mortgage loans 7,947.8 8,327.2
Real estate 1,301.9 1,277.3
Policy loans 639.2 629.4
Other 689.4 688.6
__________________________________________________________________________
Total invested assets $ 42,489.8 $ 44,050.3
__________________________________________________________________________
________________________
</TABLE>

Please refer to the company's 1995 Annual Report to Shareholders for
a description of the company's investment objectives and policies.

The change in the invested assets portfolio from December 31, 1995 to
March 31, 1996 primarily reflected depreciation of debt securities
due to an increase in interest rates and a net decrease in the
aggregate mortgage loan and real estate portfolios. Debt securities
reflected net unrealized capital gains of $657 million at March 31,
1996, compared with net unrealized capital gains of $1.9 billion at
December 31, 1995. Of such net unrealized capital gains at March 31,
1996, $179 million and $314 million related to assets supporting
discontinued products and experience rated pension contractholders,
respectively. The net decrease in the aggregate mortgage loan and
real estate portfolios of $355 million principally reflected
prepayments, payments at maturity on mortgage loans, write-offs on
foreclosures and sales of foreclosed properties.

The risks associated with investments supporting experience rated
pension and annuity products are assumed by those customers subject
to, among other things, certain minimum guarantees. The anticipated
future losses associated with investments supporting discontinued
fully guaranteed large case pension products were provided for in the
reserve established upon discontinuance of those products.

<PAGE> 37

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

General Account Investments (Continued)
_______________________________________

Debt Securities

As of March 31, 1996 and December 31, 1995, the company's
investments in debt securities represented 71% and 72%,
respectively, of total general account invested assets and were as
follows:

<TABLE>

<CAPTION>
March 31, December 31,
(Millions) 1996 1995
__________________________________________________________________________

Supporting discontinued products $ 5,452.5 $ 5,765.2
Supporting experience rated products 13,552.0 14,243.4
Supporting remaining products 11,340.4 11,851.7
____________________________
Total debt securities $30,344.9 $31,860.3
____________________________
____________________________
</TABLE>

Included in the company's debt security balances were the
following categories of debt securities:

<TABLE>
<CAPTION>
(Millions) March 31, 1996
_______________________________________________________________________________________________________
"Below Investment "Problem" Debt "Potential Problem"
Grade" Securities Securities Debt Securities
_________________ ______________ ___________________

Total $1,727.3 $ 72.5 $ 104.3
________ ________ ________
________ ________ ________
Percentage of total:
Supporting discontinued products 28.8% 36.7% 49.6%
Supporting experience rated products 45.4 12.7 20.8
Supporting remaining products 25.8 50.6 29.6
________ ________ ________
100.0% 100.0% 100.0%
________ ________ ________
________ ________ ________

December 31, 1995
________________________________________________________________
"Below Investment "Problem" Debt "Potential Problem"
Grade" Securities Securities Debt Securities
_________________ ______________ ___________________

Total $1,623.8 $ 81.0 $ 90.4
________ ________ ________
________ ________ ________
Percentage of total:
Supporting discontinued products 32.7% 36.9% 57.5%
Supporting experience rated products 42.6 12.5 24.1
Supporting remaining products 24.7 50.6 18.4
________ ________ ________
100.0% 100.0% 100.0%
________ ________ ________
________ ________ ________
</TABLE>

"Below investment grade" securities (which include "problem" debt
securities and "potential problem" debt securities described
below) are defined to be securities that carry a rating below BBB-
/Baa3. Such debt securities have been written down for other than
temporary declines in value.

Management defines "problem" debt securities to be securities for
which payment is in default, securities of issuers which are
currently in bankruptcy or in out-of-court reorganizations, or
securities of issuers for which bankruptcy or reorganization
within six months is considered likely.

<PAGE> 38

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

General Account Investments (Continued)
_______________________________________

"Potential problem" debt securities are currently performing debt
securities for which neither payment default nor debt
restructuring is anticipated within six months, but whose issuers
are experiencing significant financial difficulties. Identifying
such potential problem debt securities requires significant
judgment as to likely future market conditions and developments
specific to individual debt securities.

The company does not accrue interest on problem debt securities
when management believes the likelihood of collection of interest
is doubtful. Lost investment income on problem debt securities
was as follows:

<TABLE>
<CAPTION>
Three Months Ended
March 31,
__________________
(Millions) 1996 1995
___________________________________________________________
<S> <C> <C>
Allocable to discontinued products $ .3 $ .4
Allocable to experience rated products .2 .2
Allocable to remaining products .2 .9
__________________
Total lost investment income $ .7 $ 1.5
__________________
__________________

</TABLE>

Included in the company's total collateralized mortgage
obligations ("CMOs") balances were the following categories of
CMOs:

<TABLE>
<CAPTION>
(Millions) March 31, 1996 December 31, 1995
_______________________________________________________________ _______________________
Fair Amortized Fair Amortized
Value Cost Value Cost
_________ _________ ________ _________
<S> <C> <C> <C> <C>
Total CMOs (1) $ 2,866.9 $ 2,776.7 $ 3,191.1 $ 2,984.4
_________ _________ _________ _________
_________ _________ _________ _________
Percentage of total CMOs:
Sequential and planned
amortization class bonds 70.5% 73.1%
Z-tranches 16.9 15.2
Interest-only strips and
principal-only strips 3.6 3.2
Other 9.0 8.5
_________ _________
100.0% 100.0%
_________ _________
_________ _________

<FN>
(1) At March 31, 1996 and December 31, 1995, approximately 70% and 74%, respectively,
of the company's CMO holdings were collateralized by residential mortgage loans,
on which the timely payment of principal and interest is backed by specified
government agencies (e.g., GNMA, FNMA, FHLMC).

</TABLE>

<PAGE> 39

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

General Account Investments (Continued)
_______________________________________

The principal risks inherent in holding CMOs are prepayment and extension
risks related to dramatic decreases and increases in interest rates whereby
the value of the CMOs would be subject to variability on the repayment of
principal from the underlying mortgages earlier or later than originally
anticipated. The various categories of CMOs are subject to different
degrees of risk from changes in interest rates and defaults (for non-agency-
backed bonds). Sequential and planned amortization class bonds are subject
to less prepayment and extension risk than other CMO instruments. Interest-
only strips ("IOs") receive payments of interest and principal-only strips
("POs") receive payments of principal on the underlying pool of residential
mortgages. The company has mitigated the risks associated with holding IOs
and POs by holding positions in both types of instruments such that exposure
from significant changes in interest rates is reduced. Z-tranches receive
principal payments from the underlying mortgage pool only after all other
priority classes have been retired.

Mortgage Loans

During the first quarter of 1996, the mortgage loan portfolio was
reduced 5% to $7.9 billion, net of impairment reserves. The
company's total mortgage loan investments, net of impairment
reserves, supported the following types of business:

<TABLE>
<CAPTION>
March 31, December 31,
(Millions) 1996 1995
______________________________________________________________________
<S> <C> <C>
Supporting discontinued products $ 3,248.1 $ 3,388.6
Supporting experience rated products 2,440.9 2,642.6
Supporting remaining products 2,258.8 2,296.0
_____________________________
Total mortgage loan investments $ 7,947.8 $ 8,327.2
_____________________________
_____________________________

</TABLE>

During the first quarter of 1996, the company continued to manage its
mortgage loan portfolio to reduce the balance in absolute terms and
relative to invested assets, and to reduce its overall risk. The
principal balance of mortgage loans decreased $511 million since
December 31, 1995 primarily reflecting the effect of repayments of
maturing loans, loan prepayments and foreclosures.

Loans with a principal balance of $135 million and collateral with a
fair market value of $37 million were foreclosed upon in the first
quarter of 1996. Additional loans with a principal balance of
$91 million were in the process of foreclosure at March 31, 1996. In
certain cases, the company has taken substantive possession of the
property supporting its loan, coupled with the borrower surrendering
its interest in the future economic benefits in the property. Where
this has occurred, the loans are considered in-substance
foreclosures, written down to their fair market value less selling
costs and classified as real estate held for sale. At March 31, 1996
and December 31, 1995, there were $136 million and $190 million,
respectively, of in-substance foreclosures (net of write-offs of
$72 million and $126 million, respectively).

<PAGE> 40

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

General Account Investments (Continued)
_______________________________________

Included in the company's total mortgage loan balances were the
following categories of mortgage loans:

<TABLE>
<CAPTION>
(Millions) March 31, 1996
__________________________________________________________________________________________________________
Restructured Potential
Problem Loans Loans Problem Loans Total
_____________ ____________ _____________ _____
<S> <C> <C> <C> <C>

Total $ 201.2 $ 494.8 $ 703.7 $1,399.7
________ ________ ________ ________
________ ________ ________ ________
Percentage of total:
Supporting discontinued products 24.2% 53.4% 46.8%
Supporting experience rated products 35.9 26.2 27.5
Supporting remaining products 39.9 20.4 25.7
________ ________ ________
100.0% 100.0% 100.0%
________ ________ ________
________ ________ ________
Impairment reserves on loans (1) $ 473.6
________
________

Impairment reserves as a percentage
of total 33.8%
________
________

December 31, 1995
__________________________________________________________________________________________________________
Restructured Potential
Problem Loans Loans Problem Loans Total
_____________ ____________ _____________ _____
<S> <C> <C> <C> <C>

Total $ 160.3 $ 514.1 $ 839.1 $1,513.5
________ ________ ________ ________
________ ________ ________ ________
Percentage of total:
Supporting discontinued products 22.6% 50.9% 54.3%
Supporting experience rated products 39.7 30.7 25.2
Supporting remaining products 37.7 18.4 20.5
________ ________ ________
100.0% 100.0% 100.0%
________ ________ ________
________ ________ ________
Impairment reserves on loans (1) $ 604.9
________
________

Impairment reserves as a percentage
of total 40.0%
________
________

<FN>

(1) Please see Note 6 of Condensed Notes to Financial Statements for composition of
impairment reserves between specific and general impairment reserves.
</TABLE>

"Problem loans" are defined to be loans with payments over 60 days
past due, loans on properties in the process of foreclosure, loans on
properties involved in bankruptcy proceedings and loans on properties
subject to redemption. Loans on properties in the process of
foreclosure decreased to $91 million at March 31, 1996 from
$101 million at December 31, 1995.

<PAGE> 41

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

General Account Investments (Continued)
_______________________________________

"Restructured loans" are loans whose original contract terms have
been modified to grant concessions to the borrower and are
currently performing pursuant to such modified terms.
Restructured loans that have a market rate of interest at the time
of the restructure (which represents the interest rate the company
would charge for a new loan with comparable risk) and demonstrate
sustainable performance (as generally evidenced by six months of
pre- or post-restructuring payment performance in accordance with
the restructured terms) may be returned to performing status.
(Please see the company's 1995 Annual Report to Shareholders for a
complete description of the company's restructuring program.) No
such restructures and transfers to performing status occurred
during the three month period ended March 31, 1996.

"Potential problem loans" include all loans which are performing
pursuant to existing terms and are considered likely to become
classified as problem or restructured loans. Such loans are
identified through the portfolio review process on the basis of
known information about the ability of borrowers to comply with
present loan terms. Identifying such potential problem loans
requires significant judgment as to likely future market
conditions and developments specific to individual properties and
borrowers. Provision for losses that management believes are
likely to arise from such potential problem loans is included in
the specific impairment reserves. (Please see Note 6 of Condensed
Notes to Financial Statements for a discussion of mortgage loan
impairment reserves.)

The company does not accrue interest on problem loans or
restructured loans when management believes the collection of
interest is unlikely. The amount of pretax investment income
required by the original terms of such problem and restructured
loans outstanding at March 31 and the portion thereof actually
recorded as income were as follows:

<TABLE>
<CAPTION>
Three Months Ended
March 31,
__________________
(Millions) 1996 1995
_________________________________________________________

Income which would have been
recorded under original terms
of loans $ 17.9 $ 28.6

Income recorded 11.4 10.4
_______ _______

Lost investment income $ 6.5 $ 18.2
_______ _______
_______ _______

Lost investment income allocated to
investments supporting discontinued
products (included above) $ 2.6 $ 9.5
_______ _______
_______ _______

Lost investment income allocated to
investments supporting experience
rated pension products
(included above) $ 3.1 $ 7.1
_______ _______
_______ _______

Lost investment income allocated to
investments supporting remaining
products (included above) $ .8 $ 1.6
_______ _______
_______ _______
</TABLE>

<PAGE> 42

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

General Account Investments (Continued)
_______________________________________

Real Estate

The company's equity real estate balances, net of write-downs and
reserves, were as follows:

(Millions) March 31, 1996
________________________________________________________________________________________________
Investment Properties Total Equity
Real Estate Held for Sale Real Estate
___________ _____________ ____________

Total equity real estate $ 159.5 $1,142.4 (1) $1,301.9
________ ________ ________
________ ________ ________
Percentage of total equity real
estate:
Supporting discontinued products 11.2% 57.6%
Supporting experience rated products 7.6 23.3
Supporting remaining products 81.2 19.1
________ ________
100.0% 100.0%
________ ________
________ ________

December 31, 1995
_________________________________________________________
Investment Properties Total Equity
Real Estate Held for Sale Real Estate
___________ _____________ ____________

Total equity real estate $ 153.0 $1,124.3 (1) $1,277.3
________ ________ ________
________ ________ ________
Percentage of total equity real
estate:
Supporting discontinued products 7.5% 55.5%
Supporting experience rated products 7.8 24.4
Supporting remaining products 84.7 20.1
________ ________
100.0% 100.0%
________ ________
________ ________

<FN>

(1) Includes $136.1 million and $190.4 million of in-substance foreclosures
at March 31, 1996 and December 31, 1995, respectively. (Please see "Mortgage
Loans" on page 39 for discussion of in-substance foreclosures.)

</TABLE>

Real estate which the company has the intent to hold for the
production of income is classified as investment real estate.
Investment real estate is carried at depreciated cost plus capital
additions, net of impairment write downs.

All real estate acquired through foreclosure, including in-
substance foreclosures, is classified as properties held for sale.
The fair value at foreclosure is established as the new cost basis
for these assets, which are carried at the lower of cost or fair
value less estimated selling costs. As a result of adopting FAS
No. 121 on January 1, 1996 (please see Note 6 of Condensed Notes
to Financial Statements), the company no longer depreciates
properties held for sale. Adjustments to the carrying value of
properties held for sale are recorded in a valuation reserve when
the fair value less estimated selling costs is below cost. Fair
value is generally determined using a discounted future cash flow
analysis in conjunction with comparable sales information.
Property valuations are reviewed regularly by investment
management. The company intends to sell a significant amount of
the properties held for sale over the next one to two years, real
estate and capital market conditions permitting.

<PAGE> 43

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

General Account Investments (Continued)
_______________________________________

Foreclosed real estate classified as properties held for sale was
carried at 56% and 61% of the company's cash investment (unpaid
mortgage balance plus capital additions) at March 31, 1996 and
December 31, 1995, respectively. Net investment income included
$65 million (pretax) from the net operations of properties held
for sale for the three months ended March 31, 1996.

Total real estate write-downs and valuation reserves on properties
included in the company's equity real estate balances were as
follows:

<TABLE>
<CAPTION>
March 31, December 31,
(Millions) 1996 1995
______________________________________________________________________
<S> <C> <C>

Allocable to discontinued products $ 462.1 $ 381.0
Allocable to experience rated products 213.8 208.2

Allocable to remaining products 97.4 96.8
________ ________
Total real estate write-downs and
valuation reserves $ 773.3 (*) $ 686.0
________ ________
________ ________

* As a result of the adoption of FAS No. 121 on January 1, 1996, valuation reserves
were increased by $52.9 million in connection with the reversal of previously recorded
accumulated depreciation related to properties held for sale. The adoption of FAS No.
121 resulted in an immaterial impact on results of operations.
</TABLE>

Total after-tax net realized capital gains from real estate write-
downs and changes in the valuation reserves in the first quarter
of 1996 were $3 million. Such gains were attributable to
discontinued products and were credited to the reserve for future
losses which did not affect the company's results of operations.
There were no after-tax net realized capital gains or losses from
real estate write-downs and changes in the valuation reserves in
the first quarter of 1995.

<PAGE> 44

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

General Account Investments (Continued)
_______________________________________

Use of Derivatives and Other Investments

The company's use of derivatives is limited to hedging activity and
has principally consisted of using foreign exchange forward
contracts, futures and forward contracts and interest rate swap
agreements to hedge interest rate risk and currency risk. These
instruments, viewed separately, subject the company to varying
degrees of market and credit risk. However, when used for hedging,
the expectation is that these instruments would reduce overall market
risk. Market risk is the possibility that future changes in market
prices may decrease the market value of one or all of these financial
instruments. Credit risk arises from the potential inability of
counterparties to perform under the terms of the contracts.
Management does not believe that the current level of hedging
activity will have a material effect on the company's liquidity or
results of operations. (Please see Note 8 of Condensed Notes to
Financial Statements for a discussion of the company's hedging
activities.)

The company also had investments in certain debt instruments with
derivative characteristics, including those where market value is
at least partially determined by, among other things, levels of or
changes in domestic and/or foreign interest rates (short term or
long term), exchange rates, prepayment rates, equity markets or
credit ratings/spreads. The amortized cost and fair value of
these securities included in the debt securities portfolio as of
March 31, 1996 was as follows:

Amortized Fair
(Millions) Cost Value
_____________________________________________________________________________

Collateralized mortgage obligations:............ $ 2,776.7 $ 2,866.9
Interest-only strips (included above)......... 40.7 54.8
Principal-only strips (included above)........ 37.1 48.0
Structured notes (1)............................ 113.9 117.9
Warrants to purchase debt securities (2)........ 2.8 3.8

<FN>

(1) Represents nonleveraged instruments whose fair values and credit risk are
based on underlying securities, including fixed-income securities and
interest rate swap agreements.

(2) Represents the right to purchase specific debt securities and is accounted
for as a hedge. Upon exercise, the cost of the warrants will be added to
the basis of the debt securities purchased and amortized over their lives.

</TABLE>

<PAGE> 45

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Liquidity and Capital Resources
_______________________________

Cash and cash equivalents at March 31, 1996 and December 31, 1995
were $1.6 billion and $1.7 billion, respectively. For the three
months ended March 31, 1996 and 1995, net cash used for operating
activities was $539 million and $67 million, respectively.

For the first three months of 1996, net cash provided by investing
activities was $714 million and included $408 million from
maturities and repayments of mortgage loans and $359 million from
a net decrease in debt securities. Net cash provided by investing
activities of $441 million for the three months ended March 31,
1995 included $496 million from maturities and repayments of
mortgage loans.

Short-term borrowings are used from time to time to provide for
timing differences between receipts and disbursements in various
portfolios. The maximum amount of domestic short-term borrowings
outstanding during the first three months of 1996 was
$491 million.

The company has extended the maturity of, and adjusted interest
rates to current market on, certain maturing mortgage loans where
the borrower was unable to obtain financing elsewhere due to tight
lending practices by banks and other financial institutions over
the past several years. For the three months ended March 31,
1996, the mortgage loan portfolio generated $376 million in cash
which included $155 million of payoffs or 39% of scheduled
maturities, $189 million of prepayments, and $32 million of
amortization. Despite various indications that liquidity has
returned to certain real estate markets, the company expects it
will continue to extend or refinance maturing loans.

In the second quarter of 1996, the company invested $200 million
in the common stock of the entity which acquired Aetna's property-
casualty operations. On April 25, 1996, such investment had a
market value of approximately $349 million.

The merger of the company and U.S. Healthcare is expected to close
in the third quarter of 1996 and the company expects to finance
the transaction with a combination of $5.3 billion in cash ($3.9
billion from the net proceeds received from the sale of its
property-casualty operations and $1.4 billion of additional bank
debt, which may initially be financed with commercial paper) and
the issuance of $2.7 billion of new Aetna Inc. common stock and
$0.9 billion of Aetna Inc. mandatorily convertible preferred
stock. Pending the closing of this transaction, the company
expects to invest the proceeds from the sale of its property-
casualty operations in high quality short-term investments.

As indicated above, a portion of the approximately $8.9 billion of
consideration to be paid in connection with the merger will be
raised through the issuance of new common and mandatorily
convertible preferred stock. The additional shares of common and
mandatorily convertible preferred stock expected to be issued
would increase the common shares outstanding by approximately 31%
(or by approximately 40% assuming the conversion of the
mandatorily convertible preferred stock into common stock).

<PAGE> 46

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Liquidity and Capital Resources (Continued)
___________________________________________

The annual amortization of goodwill and other intangibles expected
to occur as a result of the merger with U.S. Healthcare is
expected to be material to earnings, but is not expected to affect
the liquidity and capital resources of the company.

Pursuant to shelf registration statements declared effective by
the Securities and Exchange Commission, the company may offer and
sell up to $550 million of various types of securities, and Aetna
Capital L.L.C., a subsidiary of the company, may offer and sell up
to an additional $225 million of preferred securities.

Rating Agencies

The ratings of Aetna Life and Casualty Company and certain of its
subsidiaries at February 6, 1996, as set forth in the 1995 Form 10-K,
and at April 26, 1996 follow:

<TABLE>
<CAPTION>
Rating Agencies
____________________________________________________________
Moody's Investors Standard
A.M. Best Duff & Phelps Service & Poor's
____________________________________________________________
<S> <C> <C> <C> <C>
Aetna Life and Casualty Company
(senior debt)
February 6, 1996 * A ** A2 A- **
April 26, 1996 * A ** A2 ** A- ****

Aetna Life and Casualty Company
(commercial paper)
February 6, 1996 * D-1 ** P-1 A-2 **
April 26, 1996 * D-1 ** P-1 A-2 ****

Aetna Life Insurance Company
(claims paying)
February 6, 1996 A AA- ** Aa3 A+ **
April 26, 1996 A *** AA- ** Aa3 A+ ****

Aetna Life Insurance and Annuity Company
(claims paying)
February 6, 1996 A+ AA+ Aa2 AA **
April 26, 1996 A+ *** AA+ Aa2 AA ****

<FN>

* Not rated by the agency.
** On rating watch-up or credit watch with positive implications.
*** On rating watch with developing implications.
**** On credit watch negative.

</TABLE>

Dividends

On February 23, 1996, the Board of Directors declared a quarterly
dividend of $.69 per share of common capital stock for
shareholders of record at the close of business on April 26, 1996,
payable May 15, 1996.

Upon consummation of the merger with U.S. Healthcare, the company
intends to adopt a dividend policy to maintain an annual payout of
10% - 20% of operating earnings before amortization of goodwill
and other intangibles. Pursuant to the merger agreement, the
company has agreed that initially after the consummation of the
merger, subject to applicable law, the annual dividend on Aetna
Inc. common stock will not be less than $0.80 per share.

<PAGE> 47

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

New Accounting Pronouncements
_____________________________

Please see Note 3 of Condensed Notes to Financial Statements for a
discussion of recently issued accounting pronouncements.

Forward-Looking Information
___________________________

The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a new "safe harbor" for forward-looking statements to
encourage companies to provide prospective information about their
companies, so long as those statements are identified as forward-
looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The
company desires to take advantage of the new "safe harbor"
provisions of the Act. Certain information contained herein,
particularly the information relating to synergies anticipated
upon completion of the merger with U.S. Healthcare appearing under
the heading "Overview" herein, is forward-looking. The estimate
of synergies is based upon a variety of assumptions relating to
the business of the company and U.S. Healthcare which may not be
realized and are subject to significant uncertainties and
contingencies, many of which are beyond the control of the company
and U.S. Healthcare. For example, the achievement of such
synergies depends upon, among other things, (i) the successful
offering of U.S. Healthcare managed care products to existing
company corporate customers and cross-selling of company group
life, specialty health and other products through U.S.
Healthcare's existing network; (ii) timely integration of U.S.
Healthcare management and information systems with those of the
company; (iii) timely elimination of redundant administrative
expenses; and (iv) achievement of revenue enhancements and medical
cost reductions. See also prior SEC filings for additional
factors that may affect the company's health and other businesses.

<PAGE> 48

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Item 5. Other Information.

(a) NAIC IRIS Ratios

The NAIC IRIS ratios cover 12 categories of financial data with
defined usual ranges for each category. The ratios are intended
to provide insurance regulators "early warnings" as to when a
given company might warrant special attention. An insurance
company may fall out of the usual range for one or more ratios and
such variances may result from specific transactions that are in
themselves immaterial or eliminated at the consolidated level. As
of the date of this filing, none of Aetna Life and Casualty
Company's significant subsidiaries had more than two IRIS ratios
that were outside of the NAIC usual ranges for 1995.

(b) Ratios of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends

The following table sets forth the company's ratio of earnings to
fixed charges and ratio of earnings to combined fixed charges and
preferred stock dividends for the periods indicated.

<TABLE>

<CAPTION>
Three Months Ended Years ended December 31
____________________________________
March 31, 1996 1995 1994 1993 1992 1991
__________________ ____ ____ ____ ____ ____

Ratio of Earnings to Fixed Charges.... 6.04 4.97 4.74 (a) 1.90 .54(b)
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends 6.04 4.97 4.74 (a) 1.90 .54(b)

<FN>

(a) The company reported a pretax loss from continuing operations in 1993 which was
inadequate to cover fixed charges by $1.0 billion.

(b) Earnings were inadequate to cover fixed charges by $92.0 million in 1991.

</TABLE>

<PAGE> 49

Item 5. Other Information. (Continued)

For purposes of computing both the ratio of earnings to fixed
charges and the ratio of earnings to combined fixed charges and
preferred stock dividends, "earnings" represent consolidated
earnings from continuing operations before income taxes, cumulative
effect adjustments and extraordinary items plus fixed charges and
minority interest. "Fixed charges" consist of interest (and the
portion of rental expense deemed representative of the interest
factor) and includes the dividends paid to preferred shareholders
of a subsidiary. (See Note 11 of Notes to Financial Statements in
the company's 1995 Annual Report to Shareholders.) For the three
months ended March 31, 1996 and for the years ended December 31,
1995, 1994, 1993, 1992 and 1991 there was no preferred stock
outstanding. As a result, the ratios of earnings to combined fixed
charges and preferred stock dividends were the same as the ratios
of earnings to fixed charges.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

(4) Instruments defining the rights of security holders,
including indentures.

(4.1) Conformed copy of Amendment No. 1 to Rights
Agreement dated as of December 19, 1995, between
Aetna Life and Casualty Company and First Chicago
Trust Company of New York, incorporated herein by
reference to the company's Form 8-A filed on December
19, 1995.

(10) Material contracts

(10.1) Agreement and Plan of Merger, dated as of March 30,
1996, among Aetna Life and Casualty Company, U.S.
Healthcare, Inc., Aetna Inc. (formerly named
Butterfly, Inc.), Antelope Sub, Inc. and New Merger
Corporation.

(10.2) Voting Agreement, dated as of March 30, 1996, among
Leonard Abramson, Aetna Life Insurance Company and
Aetna Life Insurance and Annuity Company.

(10.3) Registration Rights Agreement, dated as of March 30,
1996, between Aetna Inc. (formerly named Butterfly,
Inc.) and Leonard Abramson.

(10.4) Agreement, dated as of March 30, 1996, by and between
Aetna Inc. and Leonard Abramson.

(10.5) Letter Agreement, dated January 31, 1996, between Aetna
Life and Casualty Company and The Travelers Insurance
Group Inc.

(10.6) Amendment, dated April 2, 1996, to Stock Purchase
Agreement, dated as of November 28, 1995, between
Aetna Life and Casualty Company and The Travelers
Insurance Group Inc.

<PAGE> 50

Item 6. Exhibits and Reports on Form 8-K (Continued).

(a) Exhibits (Continued)

(12) Statement Re Computation of Ratios.

(12.1) Computation of ratio of earnings to fixed charges and
ratio of earnings to combined fixed charges and
preferred stock dividends for the three months ended
March 31, 1996 and for the years ended December 31,
1995, 1994, 1993, 1992 and 1991.

(15) Letter Re Unaudited Interim Financial Information.

(15.1) Letter from KPMG Peat Marwick LLP acknowledging
awareness of the use of a report on unaudited interim
financial information, dated April 25, 1996.

(27) Financial Data Schedule.

(b) Reports on Form 8-K

None.

<PAGE> 51

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.

Aetna Life and Casualty Company
_______________________________
(Registrant)

Date April 26, 1996 By /s/ Robert J. Price
______________________________
(Signature)

Robert J. Price
Vice President
and Corporate Controller
(Chief Accounting Officer)

CONFORMED COPY

AGREEMENT AND PLAN OF MERGER

dated as of

March 30, 1996

among

AETNA LIFE AND CASUALTY COMPANY

U.S. HEALTHCARE, INC.

BUTTERFLY, INC.,

ANTELOPE SUB, INC.

AND

NEW MERGER CORPORATION

TABLE OF CONTENTS(1)

Page

ARTICLE 1

THE MERGERS

SECTION 1.1. U.S. Healthcare Sub Merger . . . . . . . 1
SECTION 1.2. Aetna Sub Merger. . . . . . . . . . . . . 4
SECTION 1.3. Surrender and Payment . . . . . . . . . . 5
SECTION 1.4. Cancellation of Parent Stock . . . . . . 7
SECTION 1.5. The Merger Date . . . . . . . . . . . . . 7
SECTION 1.6. Dissenting Shares . . . . . . . . . . . . 8
SECTION 1.7. Stock Options of U.S.
Healthcare; Restricted Stock . . . . . 9
SECTION 1.8. Stock Options of Aetna . . . . . . . . . 11
SECTION 1.9. Adjustments . . . . . . . . . . . . . . . 12
SECTION 1.10. Fractional Shares . . . . . . . . . . . . 12

ARTICLE 2

THE SURVIVING CORPORATIONS

SECTION 2.1. Articles and Certificate of
Incorporation; Bylaws . . . . . . . . . 13
SECTION 2.2. Directors and Officers . . . . . . . . . 13

ARTICLE 3

REPRESENTATIONS AND WARRANTIES
OF U.S. HEALTHCARE

SECTION 3.1. Corporate Existence and Power . . . . . . 14
SECTION 3.2. Corporate Authorization . . . . . . . . . 14
SECTION 3.3. Governmental Authorization . . . . . . . 15
SECTION 3.4. Non-Contravention . . . . . . . . . . . . 15
SECTION 3.5. Capitalization . . . . . . . . . . . . . 16
SECTION 3.6. Subsidiaries . . . . . . . . . . . . . . 17
SECTION 3.7. SEC Filings . . . . . . . . . . . . . . . 17
SECTION 3.8. Financial Statements. . . . . . . . . . . 18
SECTION 3.9. Disclosure Documents. . . . . . . . . . . 18
SECTION 3.10. Information Supplied . . . . . . . . . . 19
(1) The Table of Contents is not a part of this Agreement.
SECTION 3.11. Absence of Certain Changes . . . . . . . 20
SECTION 3.12. No Undisclosed Material
Liabilities . . . . . . . . . . . . . . 23
SECTION 3.13. Litigation; Investigations . . . . . . . 24
SECTION 3.14. Taxes . . . . . . . . . . . . . . . . . . 24
SECTION 3.15. ERISA . . . . . . . . . . . . . . . . . . 26
SECTION 3.16. Permits; Compliance with Laws . . . . . . 29
SECTION 3.17. Finders' Fees . . . . . . . . . . . . . . 30
SECTION 3.18. Intellectual Property Rights . . . . . . 30
SECTION 3.19. Takeover Statutes . . . . . . . . . . . . 31
SECTION 3.20. Fairness Opinion . . . . . . . . . . . . 31

ARTICLE 4

REPRESENTATIONS AND WARRANTIES
OF AETNA

SECTION 4.1. Corporate Existence and Power . . . . . . 32
SECTION 4.2. Corporate Authorization . . . . . . . . . 32
SECTION 4.3. Governmental Authorization . . . . . . . 33
SECTION 4.4. Non-Contravention . . . . . . . . . . . . 33
SECTION 4.5. Capitalization . . . . . . . . . . . . . 34
SECTION 4.6. SEC Filings . . . . . . . . . . . . . . . 34
SECTION 4.7. Financial Statements . . . . . . . . . . 34
SECTION 4.8. Disclosure Documents . . . . . . . . . . 35
SECTION 4.9. Information Supplied . . . . . . . . . . 35
SECTION 4.10. Absence of Certain Changes . . . . . . . 36
SECTION 4.11. No Undisclosed Material
Liabilities . . . . . . . . . . . . . . 38
SECTION 4.12. Litigation; Investigations . . . . . . . 39
SECTION 4.13. Subsidiaries . . . . . . . . . . . . . . 39
SECTION 4.14. Taxes . . . . . . . . . . . . . . . . . . 40
SECTION 4.15. ERISA . . . . . . . . . . . . . . . . . . 41
SECTION 4.16. Permits; Compliance with Laws . . . . . . 42
SECTION 4.17. Intellectual Property Rights . . . . . . 43
SECTION 4.18. Fairness Opinions . . . . . . . . . . . . 44

ARTICLE 5

COVENANTS OF U.S. HEALTHCARE

SECTION 5.1. Conduct of U.S. Healthcare . . . . . . . 44
SECTION 5.2. Shareholder Meeting; Proxy
Material . . . . . . . . . . . . . . . 48
SECTION 5.3. Access to Information . . . . . . . . . . 49
SECTION 5.4. Other Offers Relating to U.S.
Healthcare . . . . . . . . . . . . . . 49
SECTION 5.5. Notices of Certain Events . . . . . . . . 51
SECTION 5.6. Fiduciary Matters . . . . . . . . . . . . 51

ARTICLE 6

COVENANTS OF AETNA

SECTION 6.1. Voting of U.S. Healthcare Stock . . . . . 52
SECTION 6.2. Shareholder Meeting; Proxy
Materials . . . . . . . . . . . . . . . 52
SECTION 6.3. Access to Information . . . . . . . . . . 53
SECTION 6.4. Notices of Certain Events . . . . . . . . 53
SECTION 6.5. Certain Corporate Actions . . . . . . . . 53
SECTION 6.6. Other Offers Relating to Aetna . . . . . 56
SECTION 6.7. Amendment of the Stock Purchase
Agreement . . . . . . . . . . . . . . . 57
SECTION 6.8. Dividends . . . . . . . . . . . . . . . . 57

ARTICLE 7

COVENANTS OF AETNA,
U.S. HEALTHCARE AND PARENT

SECTION 7.1. Best Efforts . . . . . . . . . . . . . . 58
SECTION 7.2. Cooperation . . . . . . . . . . . . . . . 58
SECTION 7.3. Public Announcements . . . . . . . . . . 58
SECTION 7.4. Further Assurances . . . . . . . . . . . 59
SECTION 7.5. Rule 145 Affiliates . . . . . . . . . . . 59
SECTION 7.6. Director and Officer Liability . . . . . 59
SECTION 7.7. Subsidiary Agreements . . . . . . . . . . 62
SECTION 7.8. Plans Following the Closing . . . . . . . 62
SECTION 7.9. Voting of Shares . . . . . . . . . . . . 62
SECTION 7.10. Form S-4 . . . . . . . . . . . . . . . . 62
SECTION 7.11. Certain Corporate Matters with
Respect to Parent . . . . . . . . . . . 62
SECTION 7.12. Governmental Authorization . . . . . . . 65
SECTION 7.13. Disclosure Documents . . . . . . . . . . 65
SECTION 7.14. Listing of Stock . . . . . . . . . . . . 65

ARTICLE 8

CONDITIONS TO THE MERGERS

SECTION 8.1. Conditions to the Obligations of
Each Party . . . . . . . . . . . . . . 65
SECTION 8.2. Conditions to the Obligations of
Aetna . . . . . . . . . . . . . . . . . 67
SECTION 8.3. Conditions to the Obligations of
U.S. Healthcare . . . . . . . . . . . . 68

ARTICLE 9

TERMINATION

SECTION 9.1. Termination . . . . . . . . . . . . . . . 69
SECTION 9.2. Effect of Termination . . . . . . . . . . 71

ARTICLE 10

MISCELLANEOUS

SECTION 10.1. Notices . . . . . . . . . . . . . . . . 71
SECTION 10.2. Entire Agreement; Survival of
Representations and
Warranties . . . . . . . . . . . . . . 72
SECTION 10.3. Amendments; No Waivers . . . . . . . . . 72
SECTION 10.4. Expenses . . . . . . . . . . . . . . . . 73
SECTION 10.5. Successors and Assigns . . . . . . . . . 74
SECTION 10.6. Governing Law . . . . . . . . . . . . . 74
SECTION 10.7. Jurisdiction . . . . . . . . . . . . . . 74
SECTION 10.8. Counterparts; Effectiveness . . . . . . 75

Exhibit A Form of Designations, Rights and
Preferences of Parent Preferred
Stock

Exhibit B Forms of Affiliate Letters
TABLE OF DEFINITIONS

Term Section

1933 Act 1.7(d)
1933 Act Affiliates 7.5
1934 Act 1.7(a)
Acquisition Proposal 5.4
Aetna preamble
Aetna Acquisition Proposal 6.6
Aetna Balance Sheet 4.7
Aetna Balance Sheet Date 4.7
Aetna Benefit Arrangements 4.15(c)
Aetna Certificate of Merger 1.5
Aetna Common Stock 4.5
Aetna Class A Stock 4.5
Aetna Class B Stock 4.5
Aetna Class C Stock 4.5
Aetna Disclosure Documents 4.8(a)
Aetna Employee Plan 4.15(a)
Aetna Health Operations 4.10(d)
Aetna Merger Consideration 1.2(b)
Aetna Permits 4.16(a)
Aetna Proxy Statement 4.8(a)
Aetna Shareholder Meeting 6.2(a)
Aetna Software 4.17(b)
Aetna Stock 1.2(b)
Aetna Stock Option 1.8(a)
Aetna Sub preamble
Aetna Sub Common Stock 1.2(b)
Aetna Sub Merger 1.2(a)
Aetna Subsidiary Securities 4.13(b)
Aetna Substitute Option 1.8(a)
Aetna Surviving Corporation 1.2(a)
Aetna Surviving Corporation Common Stock 1.2(b)
Aetna 10-K 4.6(a)
Affiliate 1.1(b)
Average Closing Stock Price 8.3(b)
Cash Consideration 1.1(b)
Claim 7.6(a)
Class B Stock 1.1(b)
Code preamble
Common Stock 1.1(b)
Confidentiality Agreement 5.4
Connecticut Law 1.2(b)
The Consolidated Health Operations 7.11(c)
Co-Presidents 7.11(c)
D&O Insurance 7.6(d)
Employee Benefit Plan 3.15(a)
ERISA 3.15(a)
ERISA Affiliate 3.15(a)
Excess Shares 1.10
Exchange Agent 1.3(a)
Form S-4 7.10
HSR Act 3.3
Indemnified Party 7.6(a)
Initial Number of U.S. Healthcare Option Shares 1.7(a)(i)
Lien 3.4
Material Adverse Effect 3.1
Mergers 1.4
Merger Date 1.5
Merger Consideration 1.1(b)
Multiemployer Plan 3.15(b)
New Annual Dividend 6.8
NYSE 1.10
Parent preamble
Parent Common Stock 1.1(b)
Parent Disclosure Documents 7.13
Parent Preferred Stock 1.1(b)
Pennsylvania Law 1.1(b)
Pension Plans 3.15(a)
Person 1.3(c)
Pre-Merger Matters 7.6(a)
Principal Shareholder 7.11(b)
SEC 1.7(d)
Scheduled Contracts 7.7
Specified U.S. Healthcare Officer 3.11(j)
Stock Purchase Agreement 8.1(i)
Subject Company 7.5
Subsidiary 1.1(b)
Taxes 3.14(k)
Taxing Authorities 3.14(k)
Tax Return 3.14(k)
U.S. Healthcare preamble
U.S. Healthcare Articles of Merger 1.5
U.S. Healthcare Balance Sheet 3.8
U.S. Healthcare Balance Sheet Date 3.8
U.S. Healthcare Benefit Arrangements 3.15(e)
U.S. Healthcare Designees 7.11(b)
U.S. Healthcare Disclosure Documents 3.9(a)
U.S. Healthcare Employee Stock Option 1.7(a)
U.S. Healthcare Merger Consideration 1.1(b)
U.S. Healthcare Non-Employee Stock Option 1.7(a)
U.S. Healthcare Permits 3.16(a)
U.S. Healthcare Proxy Statement 3.9(a)
U.S. Healthcare Restricted Stock 1.7(b)
U.S. Healthcare Securities 3.5
U.S. Healthcare Shareholder Meeting 5.2(a)
U.S. Healthcare Software 3.18(b)
U.S. Healthcare Stock 1.1(b)
U.S. Healthcare Stock Option 1.7(a)
U.S. Healthcare Sub preamble
U.S. Healthcare Sub Common Stock 1.1(b)
U.S. Healthcare Sub Merger 1.1(a)
U.S. Healthcare Substitute Option 1.7(a)(i)
U.S. Healthcare Surviving Corporation 1.1(a)
U.S. Healthcare Surviving Corporation Common 1.1(b)
Stock
U.S. Healthcare 10-K 3.6(a)
Voting Agreement 9.1(d)

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER dated as of March
30, 1996 among Aetna Life and Casualty Company, a
Connecticut insurance corporation ("Aetna"), U.S.
Healthcare, Inc., a Pennsylvania corporation ("U.S.
Healthcare"), Butterfly, Inc., a Connecticut corporation
("Parent"), Antelope Sub, Inc., a Connecticut corporation
and a wholly-owned subsidiary of Parent ("Aetna Sub"),
and New Merger Corporation, a Pennsylvania corporation
and a wholly-owned subsidiary of Parent ("U.S. Healthcare
Sub").

WHEREAS, the respective Boards of Directors of
Aetna and U.S. Healthcare have determined that it is in
the best interests of their respective shareholders to
combine their health businesses and to enter into this
Agreement;

WHEREAS, the respective Boards of Directors of
Aetna and U.S. Healthcare have approved this Agreement
and the mergers contemplated hereby; and

WHEREAS, for United States federal income tax
purposes, it is intended that the transactions
contemplated by this Agreement qualify as transfers
subject to Section 351(a) of the Internal Revenue Code of
1986, as amended, and the rules and regulations
promulgated thereunder (the "Code") and that the
shareholders of U.S. Healthcare be treated as if they
transferred their U.S. Healthcare Stock to Parent in
exchange for the U.S. Healthcare Merger Consideration and
that the shareholders of Aetna be treated as if they
transferred their Aetna Stock to Parent in exchange for
the Aetna Merger Consideration;

NOW, THEREFORE, in consideration of the promises
and the representations, warranties, covenants, and
agreements set forth herein, intending to be legally
bound hereby, the parties hereto agree as follows:

ARTICLE 1

THE MERGERS

SECTION 1.1. U.S. Healthcare Sub Merger. (a)
__________________________
Upon the terms and subject to the conditions set forth
herein, on the Merger Date, U.S. Healthcare Sub shall
merge into U.S. Healthcare (the "U.S. Healthcare Sub
Merger") and the separate existence of U.S. Healthcare
Sub shall cease. U.S. Healthcare shall be the surviving
corporation in the U.S. Healthcare Sub Merger
(hereinafter sometimes referred to as the "U.S.
Healthcare Surviving Corporation") and its separate
corporate existence, with all its purposes, objects,
rights, privileges, powers and franchises, shall continue
unaffected and unimpaired by the U.S. Healthcare Sub
Merger.
(b) Pursuant to the U.S. Healthcare Sub Merger:

(i) Each share of Common Stock, par value $0.005
per share, of U.S. Healthcare (the "Common Stock"),
and each share of Class B Stock, par value $0.005 per
share, of U.S. Healthcare (the "Class B Stock", and
together with the Common Stock, the "U.S. Healthcare
Stock") held by U.S. Healthcare as treasury stock or
owned by Aetna or any Subsidiary of Aetna immediately
prior to the Merger Date shall be canceled and no
payment shall be made with respect thereto; provided
________
that any shares of U.S. Healthcare Stock (i) held by
Aetna or any Subsidiary of Aetna for the account of
another Person, (ii) as to which Aetna or any
Subsidiary or Affiliate of Aetna is or may be required
to act as a fiduciary or in a similar capacity or
(iii) the cancellation of which would violate any
legal duties or obligations of Aetna or any Subsidiary
or Affiliate of Aetna shall not be canceled but,
instead, shall be treated as set forth in Section
1.1(b)(ii) or 1.6. For purposes of this Agreement,
the term "Subsidiary", when used with respect to any
Person, means any corporation or other organization,
whether incorporated or unincorporated, (A) of which
(i) at least a majority of the securities or other
interests having by their terms ordinary voting power
to elect a majority of the board of directors or
others performing similar functions with respect to
such corporation or other organization is directly or
indirectly owned or controlled by such Person or (ii)
such Person or any other Subsidiary of such Person is
a general partner or (B) which is controlled, directly
or indirectly, by such Person (through ownership of
securities, by contract or otherwise) but shall not
include investment companies managed by subsidiaries
of Aetna. For purposes of this Agreement, the term
"Affiliate", when used with respect to any Person,
means any other Person directly or indirectly
controlling, controlled by, or under common control
with such Person; and

(ii) Each share of U.S. Healthcare Stock
outstanding immediately prior to the Merger Date
shall, except as otherwise provided in Section
1.1(b)(i) or as provided in Section 1.6 with respect
to shares of U.S. Healthcare Stock as to which
dissenters rights have been exercised (which shares
shall be treated in accordance with Section 1930 of
the Pennsylvania Business Corporation Law of 1988, as
amended (the "Pennsylvania Law")), be converted into
the following (the consideration referred to in the
following clauses (A), (B) and (C) is referred to
collectively as the "U.S. Healthcare Merger
Consideration"):

(A) the right to receive 0.2246 shares of
Common Capital Stock, par value $1.00 per share,
of Parent ("Parent Common Stock");

(B) the right to receive 0.0749 shares of
6.25% Class C Non-Voting Preferred Stock, par
value $.01 per share, of Parent (the terms of

which are set forth in Exhibit A hereto) (the
"Parent Preferred Stock"); and

(C) subject to any adjustment as
contemplated by Section 8.3(b) hereof, the right
to receive in cash without interest an amount
equal to $34.20 (the "Cash Consideration").

(iii) At the Merger Date, each share of common
stock, without par value, of U.S. Healthcare Sub
("U.S. Healthcare Sub Common Stock") outstanding
immediately prior to the Merger Date shall be
converted into an equal number of shares of Common
Stock, par value $1.00 per share, of the U.S.
Healthcare Surviving Corporation ("U.S. Healthcare
Surviving Corporation Common Stock").

From and after the Merger Date, all shares of U.S.
Healthcare Stock converted in accordance with Section
1.1(b)(ii) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to
exist, and each holder of such shares shall cease to have
any rights with respect thereto, except the right to
receive the U.S. Healthcare Merger Consideration, the
right to exercise dissenters rights in accordance with
and subject to the provisions of the Pennsylvania Law and
the other rights specified in this Agreement. From and
after the Merger Date, all certificates representing U.S.
Healthcare Sub Common Stock shall be deemed for all
purposes to represent the number of shares of U.S.
Healthcare Surviving Corporation Common Stock into which
they were converted in accordance with Section
1.1(b)(iii).

SECTION 1.2. Aetna Sub Merger. (a) Upon the
________________
terms and subject to the conditions set forth herein, on
the Merger Date, Aetna Sub shall merge into Aetna (the
"Aetna Sub Merger") and the separate existence of Aetna
Sub shall cease. Aetna shall be the surviving
corporation in the Aetna Sub Merger (hereinafter
sometimes referred to as the "Aetna Surviving
Corporation") and its separate corporate existence, with
all its purposes, objects, rights, privileges, powers and
franchises, shall continue unaffected and unimpaired by
the Aetna Sub Merger.

(b) Pursuant to the Aetna Sub Merger:

(i) Each share of common capital stock without
par value of Aetna (the "Aetna Stock") held by Aetna
as treasury stock or owned by U.S. Healthcare or any
Subsidiary of U.S. Healthcare immediately prior to the
Merger Date shall be canceled and no payment shall be
made with respect thereto;

(ii) Each share of Aetna Stock outstanding
immediately prior to the Merger Date shall, except as
otherwise provided in Section 1.2(b)(i) or as provided
in Section 1.6 with respect to shares of Aetna Stock
as to which rights of objecting shareholders have been
exercised (which shares shall be treated in accordance
with Sections 33-373 and 33-374 of the Connecticut
Stock Corporation Act (the "Connecticut Law")), be
converted into the right to receive one share of
Parent Common Stock (the "Aetna Merger Consideration"
and, together with the U.S. Healthcare Merger
Consideration, the "Merger Consideration").

(iii) At the Merger Date, each share of common
stock, par value $1.00 per share, of Aetna Sub ("Aetna
Sub Common Stock"), outstanding immediately prior to
the Merger Date shall be converted into an equal
number of shares of Common Stock, par value $.01 per
share, of the Aetna Surviving Corporation ("Aetna
Surviving Corporation Common Stock").

From and after the Merger Date, all shares of Aetna Stock
converted in accordance with Section 1.2(b)(ii) shall no
longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of
such shares shall cease to have any rights with respect
thereto, except the right to receive the Aetna Merger
Consideration, the right to exercise dissenters rights in
accordance with and subject to the provisions of the
Connecticut Law and the other rights specified in this
Agreement. From and after the Merger Date, all
certificates representing Aetna Sub Common Stock shall be
deemed for all purposes to represent the number of shares
of the Aetna Surviving Corporation Common Stock into
which they were converted in accordance with Section
1.2(b)(iii).

(c) Upon consummation of the Aetna Sub Merger,
the Rights Agreement (the "Rights Agreement") dated as of
October 27, 1989 between Aetna and First Chicago Trust
Company of New York shall automatically terminate and be
of no further force or effect; and Aetna shall effect any
amendments to the Rights Agreement necessary to effect
the foregoing.

SECTION 1.3. Surrender and Payment. (a) Prior
_____________________
to the Merger Date, Aetna and U.S. Healthcare shall cause
Parent to appoint an agent (the "Exchange Agent") for the
purpose of exchanging certificates representing shares of
U.S. Healthcare Stock for the U.S. Healthcare Merger
Consideration. Parent will make available to the
Exchange Agent, as needed, certificates representing the
Parent Common Stock and the Parent Preferred Stock in
respect of the U.S. Healthcare Merger Consideration and
the Cash Consideration to be paid in respect of shares of
U.S. Healthcare Stock, in accordance with the terms of
Section 1.1(b). Promptly after the Merger Date, Parent
shall send, or shall cause the Exchange Agent to send, to
each holder of shares of U.S. Healthcare Stock at the
Merger Date a letter of transmittal for use in such
exchange (which shall specify that delivery of the U.S.
Healthcare Merger Consideration shall be effected, and
risk of loss and title shall pass, only upon proper
delivery of the certificates representing shares of U.S.
Healthcare Stock, to the Exchange Agent). Upon the
conversion of Aetna Stock into Parent Common Stock in
accordance with Section 1.2(b), all shares of Aetna Stock
so converted shall be cancelled and cease to exist, and
each certificate theretofore representing any such shares
shall, without any action on the part of the holder
thereof, be deemed to represent an equivalent number of
shares of Parent Common Stock.

(b) Each holder of shares of U.S. Healthcare
Stock that have been converted into a right to receive
the U.S. Healthcare Merger Consideration upon surrender
to the Exchange Agent of a certificate or certificates
representing such shares of U.S. Healthcare Stock
together with a properly completed letter of transmittal
covering such shares of U.S. Healthcare Stock will be
entitled to receive the U.S. Healthcare Merger
Consideration payable in respect of such shares of U.S.
Healthcare Stock and the other amounts, if any, specified
in this Agreement. Until so surrendered, each such
certificate shall, after the Merger Date, represent for
all purposes only the right to receive the U.S.
Healthcare Merger Consideration and the other amounts, if
any, specified in this Agreement.

(c) If any portion of the U.S. Healthcare Merger
Consideration is to be paid to a Person other than the
registered holder of the shares of U.S. Healthcare Stock
represented by the certificate or certificates
surrendered in exchange therefor, it shall be a condition
to such payment that the certificate or certificates so
surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the Person requesting
such payment shall pay to the Exchange Agent any transfer
or other taxes required as a result of such payment to a
Person other than the registered holder of such shares of
U.S. Healthcare Stock or establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not
payable. For purposes of this Agreement, "Person" means
an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any
other entity or organization, including, without
limitation, a government or political subdivision or any
agency or instrumentality thereof.

(d) After the Merger Date, there shall be no
further registration of transfers of shares of U.S.
Healthcare Stock. If, after the Merger Date,
certificates representing shares of U.S. Healthcare Stock
or Aetna Stock are presented to the respective surviving
corporations in the Mergers, they shall be canceled and
exchanged for the consideration provided for, and in
accordance with the procedures set forth, in this Article
1.

(e) Any portion of the U.S. Healthcare Merger
Consideration made available to the Exchange Agent
pursuant to Section 1.3(a) that remains unclaimed by the
holders of shares of U.S. Healthcare Stock six months
after the Merger Date shall be returned to Parent, upon
demand, and any such holder who has not exchanged his
shares of U.S. Healthcare Stock for the U.S. Healthcare
Merger Consideration in accordance with this Section 1.3
prior to that time shall thereafter look only to Parent
for his claim for Parent Common Stock, Parent Preferred
Stock, any cash in lieu of fractional shares of Parent
Common Stock or Parent Preferred Stock, as applicable,
and any dividends or distributions with respect to Parent
Common Stock or Parent Preferred Stock, as applicable,
and the Cash Consideration. Notwithstanding the
foregoing, Parent shall not be liable to any holder of
shares of U.S. Healthcare Stock for any amount paid to a
public official pursuant to applicable abandoned property
laws. Any amounts remaining unclaimed by holders of
shares of U.S. Healthcare Stock immediately prior to such
time as such amounts would otherwise escheat to or become
property of any governmental entity shall, to the extent
permitted by applicable law, become the property of
Parent free and clear of any claim or interest of any
Person previously entitled thereto.

(f) Any portion of the U.S. Healthcare Merger
Consideration made available to the Exchange Agent
pursuant to Section 1.3(a) to pay for shares of U.S.
Healthcare Stock in respect of which dissenters rights
have been perfected shall be returned to Parent, upon
demand.

(g) No dividends or other distributions with
respect to the Parent Common Stock or Parent Preferred
Stock, as applicable, constituting all or a portion of
the U.S. Healthcare Merger Consideration shall be paid to
the holder of any unsurrendered certificate representing
U.S. Healthcare Stock until such certificates are
surrendered as provided in this Section 1.3. Subject to
the effect of applicable laws, following such surrender,
there shall be paid, without interest, to the record
holder of the certificates representing the Parent Common
Stock or Parent Preferred Stock, as applicable, (i) at
the time of such surrender, the amount of dividends or
other distributions with a record date after the Merger
Date payable prior to or on the date of such surrender
with respect to such whole shares of Parent Common Stock
or Parent Preferred Stock, as applicable, and not paid,
less the amount of any withholding taxes which may be
required thereon, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with
a record date after the Merger Date but prior to the date
of surrender and a payment date subsequent to the date of
surrender payable with respect to such whole shares of
Parent Common Stock or Parent Preferred Stock, as
applicable, less the amount of any withholding taxes
which may be required thereon.

SECTION 1.4. Cancellation of Parent Stock. All
____________________________
outstanding shares of the capital stock of Parent
immediately prior to the Merger Date shall be canceled
immediately upon consummation of the Aetna Sub Merger.
The U.S. Healthcare Sub Merger and the Aetna Sub Merger
are sometimes together referred to as the "Mergers".

SECTION 1.5. The Merger Date. As soon as
_______________
practicable (but in no event more than two business days)
after the satisfaction or, to the extent permitted
hereunder or under applicable law, waiver of all
conditions to each of the Mergers, (a) U.S. Healthcare
and U.S. Healthcare Sub shall file the articles of merger
required to effect the U.S. Healthcare Sub Merger (the
"U.S. Healthcare Articles of Merger") with the Department
of State of the Commonwealth of Pennsylvania and make all
other filings or recordings required by the Pennsylvania
Law in connection with the U.S. Healthcare Sub Merger,
and (b) Aetna and Aetna Sub shall file a certificate of
merger (the "Aetna Certificate of Merger") with the
Secretary of the State of the State of Connecticut and
make all other filings or recordings required by the
Connecticut Law in connection with the Aetna Sub Merger,
and (c) the Mergers shall become effective, it being
understood that the U.S. Healthcare Sub Merger shall
become effective immediately prior to the Aetna Sub
Merger in accordance with the terms of such U.S.
Healthcare Articles of Merger and Aetna Certificate of
Merger (such time and date are referred to as the "Merger
Date").

SECTION 1.6. Dissenting Shares. Notwithstanding
_________________
Section 1.1 or Section 1.2, as applicable, shares of U.S.
Healthcare Stock or Aetna Stock outstanding immediately
prior to the Merger Date and held by a holder who has not
voted in favor of the U.S. Healthcare Sub Merger or the
Aetna Sub Merger, as applicable, and who has exercised
dissenters rights in respect of such shares of U.S.
Healthcare Stock in accordance with the Pennsylvania Law,
or rights of objecting shareholders in respect of such
shares of Aetna Stock in accordance with the Connecticut
Law, shall not be converted into a right to receive the
U.S. Healthcare Merger Consideration or the Aetna Merger
Consideration, as applicable, unless such holder fails to
perfect or withdraws or otherwise loses his dissenters'
or objecting shareholders' rights. Shares of U.S.
Healthcare Stock in respect of which dissenters rights
have been exercised shall be treated in accordance with
Section 1930 of the Pennsylvania Law. Shares of Aetna
Stock in respect of which objecting shareholders' rights
have been exercised shall be treated in accordance with
Sections 33-373 and 33-374 of the Connecticut Law. If
after the Merger Date such holder fails to perfect or
withdraws or otherwise loses his right to demand the
payment of fair value for shares of U.S. Healthcare Stock
under Pennsylvania Law, or shares of Aetna Stock under
Connecticut Law, as applicable, such shares of U.S.
Healthcare Stock or Aetna Stock shall be treated as if
they had been converted as of the Merger Date into a
right to receive the U.S. Healthcare Merger Consideration
or the Aetna Merger Consideration, as applicable. U.S.
Healthcare shall give Aetna prompt notice of any demands
received by U.S. Healthcare for the exercise of
dissenters rights with respect to shares of U.S.
Healthcare Stock and Aetna shall have the right to
participate in all negotiations and proceedings with
respect to such demands. U.S. Healthcare shall not,
except with the prior written consent of Aetna, make any
payment with respect to, or settle or offer to settle,
any such demands.

SECTION 1.7. Stock Options of U.S. Healthcare;
________________________________
Restricted Stock. (a) As of the date of this Agreement,
________________
each outstanding option granted to (i) a U.S. Healthcare
employee to acquire U.S. Healthcare Stock (a "U.S.
Healthcare Employee Stock Option") and (ii) each
outstanding option granted to a non-employee to acquire
U.S. Healthcare Stock (a "U.S. Healthcare Non-Employee
Stock Option" and together with the U.S. Healthcare
Employee Stock Options, the "U.S. Healthcare Stock
Options"), in each case, under any incentive plan of U.S.
Healthcare, shall become fully vested and exercisable.
At the Merger Date, each U.S. Healthcare Stock Option
then outstanding shall be canceled and treated as
follows:

(i) with respect to all U.S. Healthcare Non-
Employee Stock Options and the number of shares
subject to U.S. Healthcare Employee Stock Options held
by each holder which, if all such holder's canceled
U.S. Healthcare Employee Stock Options were exercised
immediately prior to the Merger Date, would give rise
to 40% of the income which would be recognized by such
holder upon such exercise (assuming, for these
purposes, that all such options were nonqualified
options) (the "Initial Number of U.S. Healthcare
Option Shares"), Parent shall issue in substitution
therefor options to purchase Parent Common Stock on
the terms and conditions described herein (each such
substitute option, a "U.S. Healthcare Substitute
Option"). U.S. Healthcare Substitute Options shall be
issued under a Parent stock option plan to be adopted
prior to the Merger Date and which shall comply in all
respects with the applicable requirements of Rule 16b-
3 promulgated under the Securities Exchange Act of
1934, as amended, and the rules and regulations
promulgated thereunder (the "1934 Act"). The number
of shares of Parent Common Stock subject to each such
U.S. Healthcare Substitute Option and the exercise
price thereunder shall be computed in compliance with
the requirements of Section 424(a) of the Code, and
each such U.S. Healthcare Substitute Option shall
otherwise be subject to the other applicable terms and
conditions of the U.S. Healthcare Stock Option for
which it is substituted. Without limiting the
generality of the foregoing, (A) the exercise price of
each U.S. Healthcare Substitute Option shall equal the
exercise price of the U.S. Healthcare Stock Option for
which such U.S. Healthcare Substitute Option was
substituted, multiplied by a fraction, the numerator
of which is the average closing price of Parent Common
Stock for the five trading days following the Merger
Date ("X") and the denominator of which is the closing
price of U.S. Healthcare Stock on the last trading day
preceding the Merger Date ("Y") and (B) the number of
shares subject to such U.S. Healthcare Substitute
Option shall equal the Initial Number of U.S.
Healthcare Option Shares, multiplied by a fraction,
the numerator of which is Y and the denominator of
which is X. The U.S. Healthcare Stock Options for
which U.S. Healthcare Substitute Options shall be
issued with respect to each holder shall be selected
in the following order:

(1) first, incentive stock options, and

(2) second, nonqualified options,

in each case giving priority to those with the highest
exercise price.

(ii) with respect to each remaining canceled U.S.
Healthcare Employee Stock Option, the holder shall
receive in cash, within two business days following
the Merger Date, an amount equal to the excess of (A)
the closing price of U.S. Healthcare Stock on the last
trading day preceding the Merger Date, over (B) the
exercise price of such U.S. Healthcare Stock Option,
multiplied by the number of shares of U.S. Healthcare
Stock subject to such remaining U.S. Healthcare
Employee Stock Option.

(b) As of the date of this Agreement, each
outstanding share of restricted stock of U.S. Healthcare
issued to U.S. Healthcare employees (the "U.S. Healthcare
Restricted Stock") shall become fully vested and entitled
to receive the U.S. Healthcare Merger Consideration.
Each outstanding share of restricted stock of U.S.
Healthcare issued to any Person who is not an employee of
U.S. Healthcare shall become fully vested and entitled to
receive the U.S. Healthcare Merger Consideration on the
Merger Date.

(c) Prior to the Merger Date, U.S. Healthcare
(i) shall use its best efforts to obtain any consents
from holders of any U.S. Healthcare Stock Options or U.S.
Healthcare Restricted Stock and (ii) shall make any
amendments to the terms of any of their respective
incentive plans or arrangements, in each case that are
necessary to give effect to the transactions contemplated
by this Section 1.7.

(d) As soon as practicable after the Merger
Date, Parent shall file with the Securities and Exchange
Commission ("SEC") a registration statement on Form S-8
with respect to the shares of Parent Common Stock
underlying the U.S. Healthcare Substitute Options and use
its reasonable best efforts to have such registration
statement declared effective under the Securities Act of
1933, as amended, and the rules and regulations
thereunder (the "1933 Act")

SECTION 1.8. Stock Options of Aetna. (a) At
______________________
the Merger Date, each outstanding option to purchase
shares of Aetna Stock (an "Aetna Stock Option") under any
of Aetna's incentive plans, whether vested or unvested,
shall be canceled and Parent shall issue in substitution
therefor an option to purchase Parent Common Stock on the
terms and conditions described herein (each such
replacement option an "Aetna Substitute Option"). Aetna
Substitute Options shall be issued under a Parent stock
option plan to be adopted prior to the Merger Date and
which shall comply in all respects with the applicable
requirements of Rule 16b-3 promulgated under the 1934
Act. The number of shares of Parent Common Stock subject
to each such Aetna Substitute Option and the exercise
price thereunder shall be computed in compliance with the
requirements of Section 424(a) of the Code and each such
Aetna Substitute Option shall be subject to substantially
all of the other terms and conditions (including vesting
schedule) of the Aetna Stock Option it replaces. Without
limiting the generality of the foregoing, (A) the
exercise price of each Aetna Substitute Option shall
equal the exercise price of the Aetna Stock Option for
which such Aetna Substitute Option was substituted,
multiplied by a fraction, the numerator of which is the
average closing price of Parent Common Stock for the five
trading days following the Merger Date ("X") and the
denominator of which is the closing price of Aetna Stock
on the last trading day preceding the Merger Date ("Y")
and (B) the number of shares subject to such Aetna
Substitute Option shall equal the number of Aetna Option
shares, multiplied by a fraction, the numerator of which
is Y and the denominator of which is X.

(b) Prior to the Merger Date, Aetna shall (i)
use its best efforts to obtain any consents from holders
of any Aetna Stock Options and (ii) make any amendments
to the terms of any of its incentive plans or
arrangements, in each case, that are necessary to give
effect to the transactions contemplated by this Section
1.8.

(c) As soon as practicable after the Merger
Date, Parent shall file with the SEC a registration
statement on Form S-8 with respect to the shares of
Parent Common Stock underlying the Aetna Substitute
Options and use its reasonable best efforts to have such
registration statement declared effective under the 1933
Act.

SECTION 1.9. Adjustments. If at any time during
___________
the period between the date of this Agreement and the
Merger Date, any change in the outstanding shares of
Aetna Stock or U.S. Healthcare Stock shall occur,
including by reason of any reclassification,
recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon
with a record date during such period, the Merger
Consideration shall be appropriately adjusted.

SECTION 1.10. Fractional Shares. No fractional
_________________
shares of Parent Common Stock or Parent Preferred Stock
shall be issued in the U.S. Healthcare Sub Merger, but in
lieu thereof each holder of U.S. Healthcare Stock
otherwise entitled to a fractional share of Parent Common
Stock or Parent Preferred Stock, as applicable, will be
entitled to receive, from the Exchange Agent in
accordance with the provisions of this Section 1.10, a
cash payment in lieu of such fractional shares of Parent
Common Stock or Parent Preferred Stock, as applicable,
representing such holder's proportionate interest, if
any, in the net proceeds from the sale by the Exchange
Agent in one or more transactions (which sale
transactions shall be made at such times, in such manner
and on such terms as the Exchange Agent shall determine
in its reasonable discretion) on behalf of all such
holders of the aggregate of the fractional shares of
Parent Common Stock or Parent Preferred Stock, as
applicable, which would otherwise have been issued (the
"Excess Shares"). The sale of the Excess Shares by the
Exchange Agent shall be executed on the New York Stock
Exchange, Inc. (the "NYSE") through one or more member
firms of the NYSE and shall be executed in round lots to
the extent practicable. Until the net proceeds of such
sale or sales have been distributed to the holders of
shares of U.S. Healthcare Stock, the Exchange Agent will
hold such proceeds in trust for the holders of U.S.
Healthcare Stock. Parent shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs,
including, without limitation, the expenses and
compensation of the Exchange Agent, incurred in
connection with such sale of the Excess Shares. As soon
as practicable after the determination of the amount of
cash, if any, to be paid to holders of U.S. Healthcare
Stock in lieu of any fractional shares of Parent Common
Stock or Parent Preferred Stock, as applicable, the
Exchange Agent shall make available such amounts to such
holders of shares of U.S. Healthcare Stock without
interest.

ARTICLE 2

THE SURVIVING CORPORATIONS

SECTION 2.1. Articles and Certificate of
___________________________
Incorporation; Bylaws. (a) The articles of incorporation
_____________________
and bylaws of U.S. Healthcare in effect at the Merger
Date shall be the articles of incorporation and bylaws,
respectively, of the U.S. Healthcare Surviving
Corporation until amended in accordance with applicable
law. The U.S. Healthcare Surviving Corporation shall
have the same name as U.S. Healthcare. The U.S.
Healthcare Surviving Corporation shall succeed to all of
the rights, privileges, powers and franchises, of a
public as well as of a private nature, of U.S. Healthcare
and U.S. Healthcare Sub, all of the properties and assets
and all of the debts of U.S. Healthcare and U.S.
Healthcare Sub, chooses in action and other interests due
or belonging to U.S. Healthcare and U.S. Healthcare Sub
and shall be subject to, and responsible for, all of the
debts, liabilities and duties of U.S. Healthcare and U.S.
Healthcare Sub with the effect set forth in the
Pennsylvania Law.

(b) The certificate of incorporation and bylaws
of Aetna in effect at the Merger Date shall be the
certificate of incorporation and bylaws, respectively, of
the Aetna Surviving Corporation until amended in
accordance with applicable law. The Aetna Surviving
Corporation shall have the same name as Aetna. The Aetna
Surviving Corporation shall succeed to all of the rights,
privileges, powers and franchises, of a public as well as
of a private nature, of Aetna and Aetna Sub, all of the
properties and assets of and all of the debts of Aetna
and Aetna Sub, chooses in action and other interests due
or belonging to Aetna and Aetna Sub and shall be subject
to, and responsible for, all of the debts, liabilities
and duties of Aetna and Aetna Sub with the effect set
forth in the Connecticut Law.

SECTION 2.2. Directors and Officers. From and
______________________
after the Merger Date, until successors are duly elected
or appointed and qualified in accordance with applicable
law, (a) the directors of the U.S. Healthcare Surviving
Corporation immediately after the Merger Date shall be
designated by Parent and shall include, without
limitation, the two Co-Presidents, (b) the directors of
Parent immediately after the Merger Date shall be the
directors of the Aetna Surviving Corporation, (c) the
officers of U.S. Healthcare immediately prior to the
Merger Date (other than the Principal Shareholder) shall
be the officers of the U.S. Healthcare Surviving
Corporation and (d) the officers of Aetna immediately
prior to the Merger Date shall be the officers of the
Aetna Surviving Corporation.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES
OF U.S. HEALTHCARE

U.S. Healthcare represents and warrants to Aetna
that:

SECTION 3.1. Corporate Existence and Power.
_____________________________
U.S. Healthcare is a corporation duly incorporated,
validly existing and in good standing under the laws of
the Commonwealth of Pennsylvania, and has all corporate
powers and all governmental licenses, authorizations,
consents and approvals required to carry on its business
as now conducted. U.S. Healthcare is duly qualified to
do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its
activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a
Material Adverse Effect on U.S. Healthcare. For purposes
of this Agreement, a "Material Adverse Effect" means,
with respect to any Person, a material adverse effect on
the condition (financial or otherwise), business, assets,
or results of operations of such Person and its
Subsidiaries taken as a whole or on the ability of such
Person to perform its obligations hereunder. U.S.
Healthcare has heretofore delivered to Aetna true and
complete copies of U.S. Healthcare's articles of
incorporation and bylaws as currently in effect.

SECTION 3.2. Corporate Authorization. The
_______________________
execution, delivery and, subject to receipt of the
approvals referred to in Section 3.3, the performance by
U.S. Healthcare of this Agreement and the consummation by
U.S. Healthcare of the transactions contemplated by this
Agreement are within U.S. Healthcare's corporate powers
and, except as set forth in the third sentence of this
Section 3.2, have been duly authorized by all necessary
corporate action. Without limiting the generality of the
foregoing, the Board of Directors of U.S. Healthcare has
unanimously adopted a resolution adopting and approving
this Agreement. The affirmative vote of a majority of
the total voting power represented by the outstanding
shares of U.S. Healthcare Stock entitled to vote thereon,
voting as a single class, is the only vote of any class
or series of U.S. Healthcare's capital stock necessary to
approve and adopt this Agreement and the transactions
contemplated by this Agreement. This Agreement has been
duly executed and delivered by U.S. Healthcare and
constitutes a valid and binding agreement of U.S.
Healthcare, enforceable against U.S. Healthcare in
accordance with its terms, subject to (a) bankruptcy,
insolvency, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors'
rights generally and (b) general principles of equity
(regardless of whether considered in a proceeding at law
or in equity).

SECTION 3.3. Governmental Authorization. The
__________________________
execution, delivery and performance by U.S. Healthcare of
this Agreement, and the consummation by U.S. Healthcare
of the transactions contemplated by this Agreement
require no action, by or in respect of, or filing with,
any governmental body, agency, official or authority
other than (a) the filing of the U.S. Healthcare Articles
of Merger in accordance with the Pennsylvania Law; (b)
compliance with any applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"); (c) compliance with any
applicable requirements of the 1934 Act; (d) compliance
with any applicable requirements of the 1933 Act; (e)
compliance with any applicable foreign or state
securities or Blue Sky laws; (f) approvals or filings
required under laws, rules and regulations governing
insurance and insurance companies, health maintenance
organizations, health care service plans, third party
administrators or other managed health care
organizations; and (g) filings and notices not required
to be made or given until after the Merger Date.

SECTION 3.4. Non-Contravention. Except as
_________________
disclosed on Schedule 3.4, the execution, delivery and
performance by U.S. Healthcare of this Agreement and the
consummation by U.S. Healthcare of the transactions
contemplated by this Agreement do not and will not (a)
assuming receipt of the approvals referred to in Sections
3.2, contravene or conflict with the articles of
incorporation or bylaws of U.S. Healthcare, (b) assuming
compliance with the matters referred to in Section 3.3,
contravene or conflict with or constitute a violation of
any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to
U.S. Healthcare or any Subsidiary of U.S. Healthcare, (c)
constitute a default (or an event which with notice, the
lapse of time or both would become a default) under or
give rise to a right of termination, cancellation or
acceleration of any right or obligation of U.S.
Healthcare or any Subsidiary of U.S. Healthcare or to a
loss of any benefit to which U.S. Healthcare or any
Subsidiary of U.S. Healthcare is entitled under any
provision of any agreement, contract or other instrument
binding upon U.S. Healthcare or any Subsidiary of U.S.
Healthcare or any license, franchise, permit or other
similar authorization held by U.S. Healthcare or any
Subsidiary of U.S. Healthcare, or (d) result in the
creation or imposition of any Lien on any asset of U.S.
Healthcare or any Subsidiary of U.S. Healthcare, except
for such contraventions, conflicts or violations referred
to in clause (b) or defaults, rights of termination,
cancellation or acceleration, losses or Liens referred to
in clause (c) or (d) that would not, individually or in
the aggregate, have a Material Adverse Effect on U.S.
Healthcare. For purposes of this Agreement, "Lien"
means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any
kind in respect of such asset.

SECTION 3.5. Capitalization. As of February 29,
______________
1996, the authorized capital stock of U.S. Healthcare
consists of 275,000,000 shares of Common Stock,
50,000,000 shares of Class B Stock and 50,000,000 shares
of preferred stock. As of February 29, 1996, there were
(i) 139,481,136 shares of Common Stock outstanding,
including 748,481 shares of employee and non-employee
unvested restricted common stock, (ii) 14,429,867 shares
of Class B Stock outstanding and (iii) no shares of
preferred stock outstanding. As of February 29, 1996,
there were employee and non-employee stock options to
purchase an aggregate of 4,004,857 shares of Common Stock
outstanding (of which options to purchase an aggregate of
802,346 shares of Common Stock were exercisable). All
outstanding shares of capital stock of U.S. Healthcare
have been duly authorized and validly issued and are
fully paid and nonassessable. Except as set forth in
this Section 3.5 and except for changes since February
29, 1996 resulting from the exercise of stock options
outstanding on such date, there are outstanding (a) no
shares of capital stock or other voting securities of
U.S. Healthcare, (b) no securities of U.S. Healthcare
convertible into or exchangeable for shares of capital
stock or voting securities of U.S. Healthcare, and (c) no
options or other rights to acquire from U.S. Healthcare,
and no obligation of U.S. Healthcare to issue, any
capital stock, voting securities or securities
convertible into or exchangeable for capital stock or
voting securities of U.S. Healthcare (the items in
clauses (a), (b) and (c) being referred to collectively
as the "U.S. Healthcare Securities"). There are no
outstanding obligations of U.S. Healthcare or any
Subsidiary of U.S. Healthcare to repurchase, redeem or
otherwise acquire any U.S. Healthcare Securities other
than put rights with respect to not more than 100,000
shares of Common Stock held by providers of medical
services.

SECTION 3.6. Subsidiaries. (a) Each Subsidiary
____________
of U.S. Healthcare is duly incorporated, validly existing
(as an insurance corporation, corporation organized as a
health maintenance organization or otherwise) and in good
standing under the laws of its jurisdiction of
incorporation, has all corporate powers and all
governmental licenses, authorizations, consents and
approvals required to carry on its business as now
conducted and is duly qualified to do business as a
foreign corporation or is duly licensed to do business as
an insurer, a health maintenance organization or
otherwise and is in good standing in each jurisdiction
where the character of the property owned or leased by it
or the nature of its activities makes such qualification
necessary, except for those jurisdictions where failure
to be so qualified or licensed would not, individually or
in the aggregate, have a Material Adverse Effect on U.S.
Healthcare. All Subsidiaries and their respective
jurisdictions of incorporation are identified in U.S.
Healthcare's annual report on Form 10-K for the fiscal
year ended December 31, 1995 (the "U.S. Healthcare
10-K").

(b) Except as disclosed on Schedule 3.6, all of
the outstanding capital stock of, or other ownership
interests in, each Subsidiary of U.S. Healthcare, is
owned by U.S. Healthcare, directly or indirectly, free
and clear of any Lien and free of any other limitation or
restriction (including, without limitation, any
restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership
interests). Except as disclosed on Schedule 3.6, there
are no outstanding (i) securities of U.S. Healthcare or
any Subsidiary of U.S. Healthcare convertible into or
exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary of
U.S. Healthcare, and (ii) options or other rights to
acquire from U.S. Healthcare or any Subsidiary of U.S.
Healthcare, and no other obligation of U.S. Healthcare or
any Subsidiary of U.S. Healthcare to issue, any capital
stock, voting securities or other ownership interests in,
or any securities convertible into or exchangeable for,
any capital stock, voting securities or ownership
interests in, any Subsidiary of U.S. Healthcare (the
items in clauses (i) and (ii) being referred to
collectively as the "U.S. Healthcare Subsidiary
Securities"). Except as disclosed on Schedule 3.6, there
are no outstanding obligations of U.S. Healthcare or any
Subsidiary of U.S. Healthcare to repurchase, redeem or
otherwise acquire any outstanding U.S. Healthcare
Subsidiary Securities.

SECTION 3.7. SEC Filings. (a) U.S. Healthcare
___________
has delivered to Aetna (i) U.S. Healthcare's annual
reports on Form 10-K for its fiscal years ended December
31, 1995, 1994 and 1993, (ii) its proxy or information
statements relating to meetings of, or actions taken
without a meeting by, the shareholders of U.S. Healthcare
held since January 1, 1993, and (iii) all of its other
reports, statements, schedules and registration
statements filed with the SEC since January 1, 1993.

(b) As of its filing date, each such report,
statement, schedule or registration statement filed
pursuant to the 1934 Act did not contain any untrue
statement of a material fact or omit to state any
material fact necessary in order to make the statements
made therein, in the light of the circumstances under
which they were made, not misleading.

(c) Each such registration statement, as amended
or supplemented, if applicable, filed pursuant to the
1933 Act as of the date such registration statement or
amendment became effective did not contain any untrue
statement of a material fact or omit to state any
material fact required to be stated therein or necessary
to make the statements therein not misleading.

SECTION 3.8. Financial Statements. The audited
____________________
consolidated financial statements of U.S. Healthcare
included in its annual reports on Form 10-K referred to
in Section 3.7 fairly present, in conformity with
generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes
thereto), the consolidated financial position of U.S.
Healthcare and its consolidated Subsidiaries as of the
dates thereof and their consolidated results of
operations and cash flows for the periods then ended.
For purposes of this Agreement, "U.S. Healthcare Balance
Sheet" means the consolidated balance sheet of U.S.
Healthcare as of December 31, 1995 set forth in the U.S.
Healthcare 10-K and "U.S. Healthcare Balance Sheet Date"
means December 31, 1995.

SECTION 3.9. Disclosure Documents. (a) Each
____________________
document required to be filed by U.S. Healthcare with the
SEC in connection with the transactions contemplated by
this Agreement (the "U.S. Healthcare Disclosure
Documents"), including, without limitation, the proxy or
information statement of U.S. Healthcare (the "U.S.
Healthcare Proxy Statement"), if any, to be filed with
the SEC in connection with the U.S. Healthcare Sub
Merger, and any amendments or supplements thereto, will,
when filed, comply as to form in all material respects
with the applicable requirements of the 1934 Act.

(b) At the time the U.S. Healthcare Proxy
Statement or any amendment or supplement thereto is first
mailed to shareholders of U.S. Healthcare and at the time
such shareholders vote on the adoption and approval of
this Agreement, the U.S. Healthcare Proxy Statement, as
supplemented or amended, if applicable, will not contain
any untrue statement of a material fact or omit to state
any material fact necessary in order to make the
statements made therein, in the light of the
circumstances under which they were made, not misleading.
At the time of the filing of any U.S. Healthcare
Disclosure Document other than the U.S. Healthcare Proxy
Statement and at the time of any distribution thereof,
such U.S. Healthcare Disclosure Document will not contain
any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements
made therein, in the light of the circumstances under
which they were made, not misleading. The
representations and warranties contained in this Section
3.9(b) will not apply to statements included in or
omissions from the U.S. Healthcare Disclosure Documents
based upon information furnished to U.S. Healthcare in
writing by Aetna or Parent specifically for use therein.

SECTION 3.10. Information Supplied. The
____________________
information supplied or to be supplied by U.S. Healthcare
for inclusion or incorporation by reference in (i) the
Aetna Proxy Statement or any amendment or supplement
thereto will not, at the time the Aetna Proxy Statement
is first mailed to shareholders of Aetna and at the time
such shareholders vote on the proposals relating to the
Aetna Sub Merger set forth therein, contain any untrue
statement of a material fact or omit to state any
material fact necessary in order to make the statements
made therein, in light of the circumstances under which
they were made is not misleading, (ii) the Form S-4 or
any amendment or supplement thereto will not, at the time
the Form S-4 becomes effective under the 1933 Act and at
the Merger Date, contain any untrue statement of a
material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading and (iii) any Aetna Disclosure
Document or Parent Disclosure Document (other than the
Aetna Proxy Statement, the Form S-4 and any amendments or
supplements to either) will not, at the time of
effectiveness of such Aetna Disclosure Document or Parent
Disclosure Document and at the time of any distribution
thereof, contain any untrue statement of a material fact
or omit to state a material fact necessary in order to
make the statements made therein, in light of the
circumstances under which they were made, not misleading.

SECTION 3.11. Absence of Certain Changes. Except
__________________________
as disclosed in the U.S. Healthcare 10-K, as set forth on
Schedule 3.11, or as specifically permitted by Section
5.1, since the U.S. Healthcare Balance Sheet Date U.S.
Healthcare and its Subsidiaries have conducted their
business in the ordinary course consistent with past
practice and there has not been:

(a) any event, occurrence or facts which has had
or is reasonably expected to have a Material Adverse
Effect on U.S. Healthcare;

(b) any declaration, setting aside or payment of
any dividend or other distribution with respect to any
shares of capital stock of U.S. Healthcare (other than
payment of U.S. Healthcare's regular quarterly
dividend on U.S. Healthcare Common Stock in an amount
not exceeding $0.275 per share and on Class B Stock in
an amount not exceeding $0.248 per share), or any
repurchase, redemption or other acquisition by U.S.
Healthcare or any Subsidiary of U.S. Healthcare of any
amount of outstanding shares of capital stock or other
securities of, or other ownership interests in, U.S.
Healthcare, which repurchase, redemption or other
acquisition, individually or in the aggregate, is
material to U.S. Healthcare and its Subsidiaries,
taken as a whole;

(c) any amendment of any term of any outstanding
security of U.S. Healthcare or any Subsidiary of U.S.
Healthcare (other than amendments to the U.S.
Healthcare Stock Options or the restricted stock of
U.S. Healthcare to accelerate the vesting thereof upon
execution of this Agreement);

(d) any incurrence, assumption or guarantee by
U.S. Healthcare or any Subsidiary of U.S. Healthcare
of any indebtedness from any third party for borrowed
money other than in the ordinary course of business
and in amounts and on terms consistent with past
practices;

(e) any creation or assumption by U.S.
Healthcare or any Subsidiary of U.S. Healthcare of any
Lien on any material asset other than in the ordinary
course of business consistent with past practices;

(f) any making of any loan, advance or capital
contribution to or investment in any Person other than
(i) loans, advances or capital contributions to or
investments in Subsidiaries of U.S. Healthcare, (ii)
investments in securities consistent with past
practice or (iii) other loans, advances, capital
contributions or investments in an aggregate amount
not exceeding $25,000,000;

(g) any damage, destruction or other casualty
loss (whether or not covered by insurance) affecting
the business or assets of U.S. Healthcare or any
Subsidiary of U.S. Healthcare which, individually or
in the aggregate, is or may reasonably be expected to
be material to U.S. Healthcare and its Subsidiaries,
taken as a whole;

(h) any transaction or commitment made, or any
contract or agreement entered into, by U.S. Healthcare
or any Subsidiary of U.S. Healthcare relating to its
assets or business (including, without limitation, the
acquisition or disposition of any assets) or any
relinquishment by U.S. Healthcare or any Subsidiary of
U.S. Healthcare of any contract, license or other
right which, in any such case, individually or in the
aggregate, would have a Material Adverse Effect on
U.S. Healthcare, other than transactions, commitments,
contracts or agreements contemplated by this
Agreement;

(i) any change in any method of accounting or
accounting principle or practice by U.S. Healthcare or
any Subsidiary of U.S. Healthcare, except for any such
change required by reason of a concurrent change in
generally accepted accounting principles or statutory
accounting principles;

(j) (A) except for new employment agreements
with the Persons listed on Schedule 3.11(j) (each, a
"Specified U.S. Healthcare Officer"), entered into as
of the date hereof, or in the case of those Specified
U.S. Healthcare Officers listed on Schedule 8.2(b), in
the form of Schedule 3.11(j)(A) hereto (i) any grant
by U.S. Healthcare or any of its Subsidiaries of any
severance or termination pay to, or entry into any
employment, termination or severance arrangement with,
any Specified U.S. Healthcare Officer or, (ii) except
in the ordinary course of business consistent in
magnitude and character with past practice and with
the terms of severance or termination arrangements in
effect or pending on the U.S. Healthcare Balance Sheet
Date with respect to individuals with comparable
positions or responsibilities, any grant of any
severance or termination pay to, or entry into any
employment, termination or severance arrangement with,
any other employees; (B)(i) any amendment in any
material respect of any employment, termination or
severance arrangement with any Specified U.S.
Healthcare Officer or (ii) except in the ordinary
course, any amendment in any material respect of any
employment termination or severance arrangement with
any other directors, officers or employees (it being
understood that for the purposes of clauses (i) and
(ii), any increase or acceleration of benefits under
any such agreement or arrangement shall be deemed
material); (C) any (x) establishment, adoption, entry
into, or (y) except (I) the matters described in the
parenthetical clause of Section 3.11(c) hereof and
(II) the acceleration of vesting of U.S. Healthcare
Non-Employee Stock Options and restricted stock of
U.S. Healthcare issued to Persons who are not
employees of U.S. Healthcare, amendment or action to
accelerate or enhance any rights or benefits under,
(i) any plan providing for options, stock, performance
awards or other forms of incentive or deferred
compensation or (ii) any collective bargaining, bonus,
profit sharing, thrift, compensation, restricted
stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the
benefit of any of its directors, officers or
employees; (D) any grant, conferment or award of any
options, stock, performance awards or other awards to
acquire any shares of capital stock of U.S. Healthcare
(other than an aggregate of 150,000 options to acquire
U.S. Healthcare Stock and/or shares of restricted
stock of U.S. Healthcare pursuant to the terms
existing on the date hereof of U.S. Healthcare's plans
to persons other than the Specified U.S. Healthcare
Officers); (E) any increase in the contribution
percentages under U.S. Healthcare's defined
contribution plans; or (F) (i) other than an annual
adjustment with respect to the 1997 calendar year if
the Merger Date occurs after December 31, 1996, which
adjustment shall be of a magnitude and character
consistent with past practice, any increase in the
compensation or benefits of Specified U.S. Healthcare
Officers or any payment of any benefit not required by
any plan or arrangement in effect as of the date
hereof or (ii) except in the ordinary course of
business consistent in magnitude and character with
past practice and in no event greater than 6% in the
aggregate on a per annum basis for all other
individuals as a group, any increase in the
compensation or benefits of any other employees or
payment of any benefit not required by any plan or
arrangement as in effect on the U.S. Healthcare
Balance Sheet Date;

(k) except such contracts as would not be
material to U.S. Healthcare and its Subsidiaries as a
whole or material to their operations in any Standard
Metropolitan Statistical Area, any entry by U.S.
Healthcare or any of its Subsidiaries into any
contract limiting the right of U.S. Healthcare or any
of its Subsidiaries at any time on or after the date
of this Agreement or Aetna or any of its Subsidiaries
or Affiliates at or after the Merger Date, to engage
in, or to compete with any Person in, any business,
including, without limitation, any contract which
includes exclusivity provisions restricting the
geographical area in which, or the method by which,
any such business may be conducted by U.S. Healthcare
or any of its Subsidiaries or Affiliates, or by Aetna
or any of its Subsidiaries or Affiliates after the
Merger Date;

(l) any entry by U.S. Healthcare or any of its
Subsidiaries into any acquisition, joint venture, or
franchising agreement or arrangement which is material
to U.S. Healthcare and its Subsidiaries, taken as a
whole; or

(m) any entry by U.S. Healthcare or any of its
Subsidiaries into any agreement or arrangement with a
third party on an exclusive basis to offer or market
any of the following services of such third party:
group life, disability, managed workers' compensation,
long term care, dental, behavioral or pharmacy
benefits.

SECTION 3.12. No Undisclosed Material
_______________________
Liabilities. There are no liabilities, commitments or
___________
obligations (whether pursuant to contracts or otherwise)
of U.S. Healthcare or any Subsidiary of U.S. Healthcare
of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise,
including, without limitation, any fines, disciplinary
actions or other adverse actions that may be taken or
reported concerning the conduct of U.S. Healthcare or any
of its Subsidiaries, other than:

(a) liabilities, commitments or obligations
disclosed or provided for in the U.S. Healthcare
Balance Sheet or in the U.S. Healthcare 10-K;

(b) liabilities, commitments or obligations
incurred in the ordinary course of business since the
U.S. Healthcare Balance Sheet Date;

(d) liabilities, commitments or obligations
which, individually or in the aggregate, have not had,
and are not reasonably likely to have, a Material
Adverse Effect on U.S. Healthcare.

SECTION 3.13. Litigation; Investigations. Except
__________________________
as disclosed or referred to in the U.S. Healthcare 10-K
or in Schedule 3.13, there is no action, claim, suit,
investigation, proceeding or examination, including,
without limitation, any insurance or health related
investigations, proceedings or examinations pending
against or affecting, or to the knowledge of U.S.
Healthcare threatened against or affecting, U.S.
Healthcare or any Subsidiary of U.S. Healthcare or any of
their respective properties before any court or
arbitrator or any governmental body, agency, authority or
official which, net of reserves established therefor
reflected in the U.S. Healthcare 10-K and giving effect
to reinsurance probable of recovery, individually or in
the aggregate, is reasonably likely to have a Material
Adverse Effect on U.S. Healthcare.

SECTION 3.14. Taxes. (a) All Tax Returns
_____
required to be filed (taking into account all extensions
heretofore granted) on or before the date hereof or the
Merger Date by or on behalf of U.S. Healthcare or any of
its Subsidiaries have been filed within the time and in
the manner prescribed by law, other than those Tax
Returns the failure of which to file would not have a
Material Adverse Effect on U.S. Healthcare.

(b) As of the time of filing, all such Tax
Returns correctly reflected in all material respects
all facts regarding the income, business, assets,
operations, activities and status of U.S. Healthcare
and its Subsidiaries and any other information
required to be shown therein.

(c) All Taxes shown to be due and payable by
U.S. Healthcare and any of its Subsidiaries on all
such Tax Returns have been timely paid, or withheld
and remitted to the appropriate Taxing Authorities.

(d) Except as set forth on Schedule 3.14, all
applicable statutes of limitations for the assessment
of material Taxes against U.S. Healthcare and any of
its Subsidiaries have expired. No deficiency payment
of any Taxes for any period has been asserted by any
Taxing Authority which remains unsettled at the date
hereof except for deficiencies which would not have a
Material Adverse Effect on U.S. Healthcare.

(e) Except for Tax Returns required to be filed
with respect to the 1995 taxable year, neither U.S.
Healthcare nor any of its Subsidiaries has requested
any extension of time within which to file any Tax
Return which has not yet been filed.

(f) There are no material Liens upon any
property or assets of U.S. Healthcare or any of its
Subsidiaries for Taxes, except for Tax liens in
respect of Taxes not yet due or which are being
contested in good faith and by appropriate proceedings
(and for the payment of which adequate reserves have
been provided) and reflected in the U.S. Healthcare
10-K.

(g) Except as set forth on Schedule 3.14, there
is no claim, audit, action, suit, proceeding, or
investigation now pending or threatened against or
with respect to U.S. Healthcare or any of its
Subsidiaries in respect of any Taxes.

(h) Neither U.S. Healthcare nor any of its
Subsidiaries has any contractual obligations under any
tax sharing agreement or similar agreement or tax
indemnity agreement with any corporation which is not
a member of the affiliated group of corporations of
which U.S. Healthcare is the common parent.

(i) There are no requests for rulings or
determinations in respect of any Tax pending between
U.S. Healthcare or any of its Subsidiaries and any
Taxing Authorities.

(j) Neither U.S. Healthcare nor any of its
Subsidiaries owns any interest in real property in the
State of New York or in any other jurisdiction in
which a Tax is imposed on the transfer of a
controlling interest in an entity that owns any
interest in real property.

(k) For purposes of this Agreement, "Taxes"
means all United States Federal, state, local and
foreign taxes, levies and other assessments,
including, without limitation, all income, sales, use,
goods and services, value added, capital, capital
gains, net worth, transfer, profits, withholding,
payroll, employer health, unemployment insurance
payments, excise, real property and personal property
taxes, and any other taxes, assessments or similar
charges in the nature of a tax, including, without
limitation, interest, additions to tax, fines and
penalties, imposed by a governmental or public body,
agency, official or authority (the "Taxing
Authorities"). For purposes of this Agreement, "Tax
Return" shall mean any return, report, information
return or other document (including any related or
supporting information) required to be filed with any
Taxing Authority in connection with the determination,
assessment, collection, administration or imposition
of any Taxes.

SECTION 3.15. ERISA. (a) Schedule 3.15 contains
_____
a list identifying each "Employee Benefit Plan", as
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"), which (i) is subject to
any provision of ERISA and (ii) is maintained,
administered or contributed to by U.S. Healthcare or any
Subsidiary of U.S. Healthcare and covers any employee or
former employee of U.S. Healthcare or any Subsidiary of
U.S. Healthcare or under which U.S. Healthcare or any
Subsidiary of U.S. Healthcare has any liability. Copies
of such plans (and, if applicable, related trust
agreements) and all amendments thereto and written
interpretations thereof have been furnished to Aetna
together with (A) the three most recent annual reports
(Form 5500 including, if applicable, Schedule B thereto)
prepared in connection with any such plan and (B) the
most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred
to collectively herein as the "U.S. Healthcare Employee
Plans". For purposes of this Section, "ERISA Affiliate"
of any Person means any other Person which, together with
such Person, would be treated as a single employer under
Section 414 of the Code. The only U.S. Healthcare
Employee Plans which individually or collectively would
constitute an "employee pension benefit plan" as defined
in Section 3(2) of ERISA (the "Pension Plans") are
identified as such in the list referred to above. U.S.
Healthcare has provided Aetna with complete age, salary,
service and related data as of a recent date for
employees and former employees of U.S. Healthcare and any
Subsidiary of U.S. Healthcare covered under the Pension
Plans.

(b) Except as set forth in Schedule 3.15, no
U.S. Healthcare Employee Plan (i) constitutes a
"multiemployer plan", as defined in Section 3(37) of
ERISA (a "Multiemployer Plan"), (ii) is maintained in
connection with any trust described in Section 501(c)(9)
of the Code or (iii) is subject to Title IV of ERISA.
Neither U.S. Healthcare nor any ERISA Affiliate of U.S.
Healthcare has (i) engaged in, or is a successor or
parent corporation to an entity that has engaged in, a
transaction described in Sections 4069 or 4212(c) of
ERISA or (ii) incurred, or reasonably expects to incur
prior to the Merger Date, (A) any liability under Title
IV of ERISA arising in connection with the termination
of, or a complete or partial withdrawal from, any plan
covered or previously covered by Title IV of ERISA or (B)
any liability under Section 4971 of the Code that in
either case could become a liability of Parent or any of
its Affiliates after the Merger Date. Nothing done or
omitted to be done and no transaction or holding of any
asset under or in connection with any U.S. Healthcare
Employee Plan has or will make U.S. Healthcare or any
Subsidiary of U.S. Healthcare, or any officer or director
of U.S. Healthcare or any Subsidiary of U.S. Healthcare,
subject to any liability under Title I of ERISA or liable
for any tax pursuant to Section 4975 of the Code that
could have a Material Adverse Effect on U.S. Healthcare.

(c) With respect to each U.S. Healthcare
Employee Plan which is intended to be qualified under
Section 401(a) of the Code, U.S. Healthcare has received
a favorable determination letter that the plan is so
qualified and that each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code
and, to the knowledge of U.S. Healthcare, no event has
occurred since the date of such determination that would
adversely affect such qualification and exception. U.S.
Healthcare has furnished to Aetna copies of the most
recent Internal Revenue Service determination letters
with respect to each such Plan. Each U.S. Healthcare
Employee Plan has been maintained in all material
respects in compliance with its terms and with the
requirements prescribed by any and all statutes, orders,
rules and regulations, including but not limited to ERISA
and the Code, which are applicable to such Plan.

(d) Except as set forth in Schedule 3.15 or in,
connection with the transactions contemplated by this
Agreement, there is no contract, agreement, plan or
arrangement covering any employee or former employee of
U.S. Healthcare or any Subsidiary of U.S. Healthcare
that, individually or collectively, could give rise to
the payment of any amount that would not be deductible
pursuant to the terms of Sections 162(a)(1), 162(m) or
280G of the Code.

(e) U.S. Healthcare has provided Aetna with a
list of each employment, severance or other similar
contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms
of incentive compensation or post-retirement insurance,
compensation or benefits which (i) is not an U.S.
Healthcare Employee Plan, (ii) is entered into,
maintained or contributed to, as the case may be, by U.S.
Healthcare or any of its Subsidiaries and (iii) covers
any employee or former employee of U.S. Healthcare or any
of its Subsidiaries. Such contracts, plans and
arrangements as are described above, copies or
descriptions of all of which have been furnished or made
available previously to Aetna, are referred to
collectively herein as the "U.S. Healthcare Benefit
Arrangements". Each U.S. Healthcare Benefit Arrangement
has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations that are
applicable to such U.S. Healthcare Benefit Arrangement.

(f) Except for the Retiree Health Benefit Plan,
neither U.S. Healthcare nor any Subsidiary of U.S.
Healthcare has any current or projected liability in
respect of post-employment or post-retirement health or
medical or life insurance benefits for retired, former or
current employees of U.S. Healthcare or any Subsidiary of
U.S. Healthcare, except as required to avoid excise tax
under Section 4980B of the Code. No condition exists
that would prevent U.S. Healthcare or any Subsidiary of
U.S. Healthcare from amending or terminating any U.S.
Healthcare Employee Plan or U.S. Healthcare Benefit
Arrangement providing health or medical benefits in
respect of any active employee of U.S. Healthcare or any
Subsidiary other than limitations imposed under the terms
of a collective bargaining agreement.

(g) Except as disclosed in writing to Aetna
prior to the date hereof, there has been no amendment to,
written interpretation or announcement (whether or not
written) by U.S. Healthcare or any of its Subsidiaries
relating to, or change in employee participation or
coverage under, any U.S. Healthcare Employee Plan or U.S.
Healthcare Benefit Arrangement which would increase
materially the expense of maintaining such U.S.
Healthcare Employee Plan or U.S. Healthcare Benefit
Arrangement above the level of the expense incurred in
respect thereof for the fiscal year ended on the U.S.
Healthcare Balance Sheet Date.

(h) Except as set forth in Schedule 3.15,
neither U.S. Healthcare nor any Subsidiary of U.S.
Healthcare is a party to or subject to any union contract
or any employment contract or arrangement providing for
annual future cash compensation of $250,000 or more with
any officer, director or employee.

(i) U.S. Healthcare has provided or made
available a list of (a) the names, titles, annual
salaries and other compensation of all officers of U.S.
Healthcare or its Subsidiaries and all other employees of
U.S. Healthcare or its Subsidiaries whose annual base
salary exceeds $250,000 and (b) the wage rates for non-
salaried employees of U.S. Healthcare and its
Subsidiaries (by classification). None of the employees
referred to in clause (a) and no other key employee of
U.S. Healthcare or its Subsidiaries has disclosed to U.S.
Healthcare and its Subsidiaries that he or she intends to
resign or retire as a result of the transactions
contemplated by this Agreement, or otherwise for any
other reason within one year after the date of this
Agreement (other than the Principal Shareholder).

(j) U.S. Healthcare and its Subsidiaries are in
compliance with all currently applicable laws respecting
employment and employment practices, terms and conditions
of employment and wages and hours, and are not engaged in
any unfair labor practice, failure to comply with which
or engagement in which, as the case may be, would
reasonably be expected to have a Material Adverse Effect
on U.S. Healthcare. There is no unfair labor practice
complaint pending or, to the knowledge of U.S.
Healthcare, threatened against U.S. Healthcare or any
Subsidiary of U.S. Healthcare before the National Labor
Relations Board which would reasonably be expected to
have a Material Adverse Effect on U.S. Healthcare; and

(k) None of the assets of U.S. Healthcare
constitute the assets of any employee benefit plan
subject to Title I of ERISA or Section 4975 of the Code.

SECTION 3.16. Permits; Compliance with Laws. (a)
_____________________________
U.S. Healthcare and its Subsidiaries hold all
governmental licenses, authorizations, consents and
approvals required to carry on their respective
businesses as now conducted (the "U.S. Healthcare
Permits") and are in compliance in all respects with the
terms of the U.S. Healthcare Permits, except for any
noncompliance which, individually or in the aggregate,
has not had and is not reasonably likely to have a
Material Adverse Effect on U.S. Healthcare or as
disclosed in the U.S. Healthcare 10-K. Except as
disclosed in the U.S. Healthcare 10-K, neither U.S.
Healthcare nor any Subsidiary of U.S. Healthcare is in
violation of, or has violated, any applicable provisions
of any laws, rules, ordinances or regulations, in any
such case, in a manner that, individually or in the
aggregate, has had or is reasonably likely to have a
Material Adverse Effect on U.S. Healthcare. U.S.
Healthcare has advised Aetna of the facts underlying
currently pending formal proceedings with respect to any
potentially material violations of any of the foregoing.

(b) U.S. Healthcare and its Subsidiaries have
complied in all respects with all laws, rules, ordinances
and regulations governing all Medicare, Medicaid and any
other contracts with any government entity and have filed
all returns, cost reports and other filings in the manner
prescribed by applicable laws, rules, ordinances or
regulations, except for any such non-compliance or
failure to make any such filing or filings, which
individually or in the aggregate, has not had and is not
reasonably expected to have a Material Adverse Effect on
U.S. Healthcare. All returns, cost reports and other
financial filings made by U.S. Healthcare or any of its
Subsidiaries to Medicare, Medicaid or any other
governmental health or welfare related entity or third
party payor were true, correct and complete in all
material respects as of their date of filing. Neither
U.S. Healthcare nor any of its Subsidiaries has been
subject to any written finding of fraudulent procedures
or practices arising out of the provision of health care
services relating to Medicare, Medicaid or any other
government entity with which U.S. Healthcare or any
Subsidiary of U.S. Healthcare has a contract to provide
health care services or benefits, and except as disclosed
in Schedule 3.16, neither U.S. Healthcare nor any of its
Subsidiaries is currently subject to any pending or
threatened audit relating to such fraudulent procedures
or practices.

SECTION 3.17. Finders' Fees. Except for Goldman,
_____________
Sachs & Co. and Merrill Lynch & Co., Inc., copies of
whose engagement agreements have been or will be promptly
provided to Aetna, there is no investment banker, broker,
finder or other intermediary which has been retained by,
or is authorized to act on behalf of, U.S. Healthcare or
any Subsidiary of U.S. Healthcare who might be entitled
to any fee or commission from U.S. Healthcare, Aetna or
any Subsidiary or Affiliate of either upon consummation
of the transactions contemplated by this Agreement.

SECTION 3.18. Intellectual Property Rights. (a)
____________________________
U.S. Healthcare and its Subsidiaries own or have rights
to use, free and clear of all Liens, and have not
assigned, hypothecated or otherwise encumbered, the name
"U.S. Healthcare" and any of U.S. Healthcare's related
trademarks, tradenames, service marks or logos. Except
as set forth on Schedule 3.18, U.S. Healthcare has no
knowledge of any current pending or threatened
infringement or challenge by any Person with respect to
the name "U.S. Healthcare" and the U.S. Healthcare logo.

(b) Except as set forth on Schedule 3.18, each
of U.S. Healthcare and its Subsidiaries owns outright or
holds valid and enforceable licenses to all copies of the
operating and applications computer software programs and
databases material to the conduct by U.S. Healthcare and
its Subsidiaries of their respective businesses (other
than programs and databases that are generally
commercially available) as of the date hereof
(collectively, the "U.S. Healthcare Software"). None of
the U.S. Healthcare Software used by U.S. Healthcare and
its Subsidiaries, and no use thereof, infringes upon or
violates any patent, copyright, trade secret or other
proprietary right of any other Person and, to the best
knowledge of U.S. Healthcare, no claim with respect to
any such infringement or violation is pending or
threatened, except for any such infringement which,
individually or in the aggregate, has not had and is not
reasonably expected to have a Material Adverse Effect on
U.S. Healthcare. Upon consummation of the transactions
contemplated by this Agreement, except for U.S.
Healthcare Software sold or otherwise disposed of in the
ordinary course of business after the date hereof, each
of U.S. Healthcare and its Subsidiaries (i) will continue
to own all the U.S. Healthcare Software owned by it, free
and clear of all claims, Liens, encumbrances, obligations
and liabilities and (ii) with respect to all agreements
for the lease or license of U.S. Healthcare Software
which require consents or other actions as a result of
the consummation of the transactions contemplated by this
Agreement in order for U.S. Healthcare and its
Subsidiaries to continue to use and operate such U.S.
Healthcare Software after the consummation of the
transactions contemplated by this Agreement, shall have
obtained such consents or taken such other actions so
required prior to the Merger Date, except for such
consents or actions that if not obtained or taken,
individually or in the aggregate, would not be reasonably
expected to have a Material Adverse Effect on U.S.
Healthcare.

SECTION 3.19. Takeover Statutes. The provisions
_________________
of Subchapters G, H, I and J of Chapter 25 of the
Pennsylvania Law are not applicable to U.S. Healthcare.

SECTION 3.20. Fairness Opinion. U.S. Healthcare
________________
has received the opinion of Merrill Lynch & Co., Inc. to
the effect that, as of the date hereof, the U.S.
Healthcare Merger Consideration to be received by the
holders of U.S. Healthcare Stock (other than Aetna and
its Affiliates) in the U.S. Healthcare Sub Merger is fair
to such holders from a financial point of view and the
opinion of Goldman, Sachs & Co. that the U.S. Healthcare
Merger Consideration to be received by the holders of
U.S. Healthcare Stock pursuant to this Agreement is, as
of the date of this Agreement, fair to such holders. It
is agreed and understood that such opinions are for the
sole benefit of the Board of Directors of U.S. Healthcare
and may not be relied upon by Parent, Aetna or any third
party.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES
OF AETNA

Aetna represents and warrants to U.S. Healthcare
that:

SECTION 4.1. Corporate Existence and Power.
_____________________________
Aetna is duly incorporated and validly existing as an
insurance corporation in good standing under the laws of
its jurisdiction of incorporation, and has all corporate
powers and all governmental licenses, authorizations,
consents and approvals required to carry on its business
as now conducted. Aetna is duly qualified to do business
as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions
where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse
Effect on Aetna. Aetna has heretofore delivered to U.S.
Healthcare true and complete copies of Aetna's
certificate of incorporation and bylaws as currently in
effect.

SECTION 4.2. Corporate Authorization. The
_______________________
execution, delivery and, subject to receipt of the
approvals referred to in Section 4.3, the performance by
Aetna of this Agreement and the consummation by Aetna of
the transactions contemplated by this Agreement are
within the corporate powers of Aetna and have been duly
authorized by all necessary corporate action, except for
any required approval by Aetna's shareholders of this
Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Aetna
and constitutes a valid and binding agreement of Aetna
enforceable against Aetna in accordance with its terms,
subject to (a) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium and other similar laws
now or hereafter in effect relating to or affecting
creditors' rights generally and, in the case of Aetna,
the rights of creditors of insurance companies generally
and (b) general principles of equity (regardless of
whether considered in a proceeding at law or in equity).

SECTION 4.3. Governmental Authorization. The
__________________________
execution, delivery and performance by Aetna of this
Agreement and the consummation by Aetna of the
transactions contemplated by this Agreement require no
action by or in respect of, or filing with, any
governmental body, agency, official or authority other
than (a) the filing of an Aetna Certificate of Merger in
accordance with the Connecticut Law; (b) compliance with
any applicable requirements of the HSR Act; (c)
compliance with any applicable requirements of the 1934
Act; (d) compliance with any applicable requirements of
the 1933 Act; (e) compliance with any applicable foreign
or state securities or Blue Sky laws; (f) approvals or
filings required under laws, rules and regulations
governing insurance and insurance companies, health
maintenance organizations, health care services plans,
third party administrators or other managed health care
organizations; (g) the filing with the Secretary of the
State and, if required, the Insurance Commissioner of the
State of Connecticut of an amendment to Parent's
certificate of incorporation to reflect the changes
contemplated by Section 7.11 hereof; and (h) filings and
notices not required to be made or given until after the
Merger Date.

SECTION 4.4. Non-Contravention. Except as
_________________
disclosed on Schedule 4.4, the execution, delivery and
performance by Aetna of this Agreement and the
consummation by Aetna of the transactions contemplated by
this Agreement do not and will not (a) assuming receipt
of the approvals referred to in Section 4.2, contravene
or conflict with the certificate of incorporation or
bylaws of Aetna, (b) assuming compliance with the matters
referred to in Section 4.3, contravene or conflict with
or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding
upon or applicable to Aetna or any Subsidiary of Aetna,
(c) constitute a default (or an event which with notice,
the lapse of time or both would become a default) under
or give rise to a right of termination, cancellation or
acceleration of any right or obligation of Aetna or any
Subsidiary of Aetna or to a loss of any benefit to which
Aetna or any Subsidiary of Aetna is entitled under any
provision of any agreement, contract or other instrument
binding upon Aetna or any Subsidiary of Aetna or any
license, franchise, permit or other similar authorization
held by Aetna or any Subsidiary of Aetna, or (d) result
in the creation or imposition of any Lien on any asset of
Aetna or any Subsidiary of Aetna, except for such
contraventions, conflicts or violations referred to in
clause (b) or defaults, rights of termination,
cancellation or acceleration, losses or Liens referred to
in clause (c) or (d) that would not, individually or in
the aggregate, have a Material Adverse Effect on Aetna.

SECTION 4.5. Capitalization. As of February 29,
______________
1996, the authorized capital stock of Aetna consisted of
10,000,000 shares of Class A Voting Preferred Stock
without par value ("Aetna Class A Stock"), 15,000,000
shares of Class B Voting Preferred Stock without par
value ("Aetna Class B Stock"), 15,000,000 shares of Class
C Non-Voting Preferred Stock without par value ("Aetna
Class C Stock") and 250,000,000 shares of Aetna common
stock without par value ("Aetna Common Stock"). As of
February 29, 1996, there were (i) no shares of Aetna
Class A Stock outstanding, (ii) no shares of Aetna Class
B Stock outstanding, (iii) no shares of Aetna Class C
Stock outstanding and (iv) 114,990,477 shares of Aetna
Common Stock outstanding. As of February 29, 1996, an
aggregate of 15,208,090 shares of Aetna Common Stock were
reserved for issuance or issuable under employee benefit
or other compensation plans or programs or dividend
reinvestment plans of Aetna. All outstanding shares of
capital stock of Aetna have been duly authorized and
validly issued and are fully paid and nonassessable.

SECTION 4.6. SEC Filings. (a) Aetna has
___________
delivered to U.S. Healthcare (i) Aetna's annual reports
on Form 10-K for its fiscal years ended December 31, 1995
(the "AETNA 10-K"), 1994 and 1993, (ii) its proxy or
information statements relating to meetings of or actions
taken without a meeting by Aetna's shareholders held
since January 1, 1993, and (iii) all of its other
reports, statements, schedules and registration
statements filed with the SEC since January 1, 1993.

(b) As of its filing date, each such report or
statement, schedule or registration filed pursuant to the
1934 Act did not contain any untrue statement of a
material fact or omit to state any material fact
necessary in order to make the statements made therein,
in the light of the circumstances under which they were
made, not misleading.

SECTION 4.7. Financial Statements. The audited
____________________
consolidated financial statements of Aetna included in
its annual reports on Form 10-K referred to in Section
4.6 fairly present, in conformity with generally accepted
accounting principles applied on a consistent basis
(except as may be indicated in the notes thereto), the
consolidated financial position of Aetna and its
consolidated Subsidiaries as of the dates thereof and
their consolidated results of operations and cash flows
for the periods then ended. For purposes of this
Agreement, "Aetna Balance Sheet" means the consolidated
balance sheet of Aetna as of December 31, 1995 set forth
in the Aetna 10-K and the "Aetna Balance Sheet Date"
means December 31, 1995.

SECTION 4.8. Disclosure Documents. (a) Each
____________________
document required to be filed by Aetna with the SEC in
connection with the transactions contemplated by this
Agreement (the "Aetna Disclosure Documents"), including,
without limitation, the proxy or information statement of
Aetna (the "Aetna Proxy Statement"), if any, to be filed
with the SEC in connection with this Agreement and the
Aetna Sub Merger, and any amendments or supplements
thereto, will, when filed, comply as to form in all
material respects with the applicable requirements of the
1934 Act.

(b) At the time the Aetna Proxy Statement or any
amendment or supplement thereto is first mailed to
shareholders of Aetna and at the time such shareholders
vote on the proposals relating to this Agreement and the
Aetna Sub Merger set forth therein, the Aetna Proxy
Statement, as supplemented or amended, if applicable,
will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to
make the statements made therein, in light of the
circumstances under which they were made, not misleading.
At the time of the filing of any Aetna Disclosure
Document other than the Aetna Proxy Statement and at the
time of any distribution thereof, such Aetna Disclosure
Document will not contain any untrue statement of a
material fact or omit to state a material fact necessary
in order to make the statements made therein, in the
light of the circumstances under which they were made,
not misleading. The representations and warranties
contained in this Section 4.8 will not apply to
statements included in or omissions from the Aetna
Disclosure Documents based upon information furnished to
Aetna in writing by U.S. Healthcare or Parent
specifically for use therein.

SECTION 4.9. Information Supplied. The
____________________
information supplied or to be supplied by Aetna for
inclusion or incorporation by reference in (i) the U.S.
Healthcare Proxy Statement or any amendment or supplement
thereto will not, at the time the U.S. Healthcare Proxy
Statement is first mailed to shareholders of U.S.
Healthcare and at the time such shareholders vote on the
approval and adoption of this Agreement, contain any
untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements
made therein, in the light of the circumstances under
which they were made, not misleading, (ii) the Form S-4
or any amendment or supplement thereto will not, at the
time the Form S-4 or any amendment or supplement thereto
become effective under the 1933 Act and on the Merger
Date, contain any untrue statement of a material fact or
omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading and (iii) any U.S. Healthcare Disclosure
Document or Parent Disclosure Document (other than the
U.S. Healthcare Proxy Statement and the Form S-4) will
not, at the time of effectiveness of such U.S. Healthcare
Disclosure Document and at the time of any distribution
thereof contain any untrue statement of a material fact
or omit to state a material fact necessary in order to
make the statements made therein, in light of the
circumstances under which they were made, not misleading.

SECTION 4.10. Absence of Certain Changes. Except
__________________________
as disclosed on Schedule 4.10 or as specifically
permitted by Section 6.5 and except as disclosed in the
Aetna 10-K and except for the proposed sale of Aetna's
property-casualty business and transactions related
thereto, since the Aetna Balance Sheet Date, Aetna has
conducted the Aetna Health Operations in the ordinary
course consistent with past practice and there has not
been:

(a) any event, occurrence or facts which has had
or is reasonably expected to have a Material Adverse
Effect on Aetna;

(b) any declaration, setting aside or payment of
any dividend or other distribution with respect to any
shares of capital stock of Aetna (other than payment
of Aetna's regular quarterly dividend on Aetna Common
Stock in an amount not exceeding $0.69 per share), or
any repurchase, redemption or other acquisition by
Aetna or any Subsidiary of Aetna of any amount of
outstanding shares of capital stock or other
securities of, or other ownership interests in, Aetna
which repurchase, redemption or other acquisition,
individually or in the aggregate, is material to Aetna
and its Subsidiaries taken as a whole;

(d) any incurrence, assumption or guarantee by
any of Aetna's domestic (U.S.) health care operations
("Aetna Health Operations") of any indebtedness from
any third party for borrowed money other than in the
ordinary course of business and in amounts and on
terms consistent with past practices;

(e) any creation or assumption by Aetna Health
Operations of any Lien on any material asset other
than in the ordinary course of business consistent
with past practices;

(f) any making of any loan, advance or capital
contribution by any Aetna Health Operations to or
investment in any Person other than (i) loans,
advances or capital contributions to or investments in
Subsidiaries of Aetna, (ii) investments in securities
consistent with past practice or (iii) other loans,
advances, capital contributions or investments in an
aggregate amount not exceeding $25,000,000;

(g) any damage, destruction or other casualty
loss (whether or not covered by insurance) affecting
the business or assets of Aetna or any Subsidiary of
Aetna which, individually or in the aggregate, is or
may reasonably be expected to be material to Aetna and
its Subsidiaries, taken as a whole;

(h) any transaction or commitment made, or any
contract or agreement entered into, by any Aetna
Health Operations relating to its assets or business
(including, without limitation, the acquisition or
disposition of any assets) or any relinquishment by
any Aetna Health Operations of any contract, license
or other right, which in any such case, individually
or in the aggregate, would have a Material Adverse
Effect on Aetna, other than transactions, commitments,
contracts or agreements contemplated by this
Agreement;

(i) any change in any method of accounting or
accounting principle or practice by Aetna or any
Subsidiary of Aetna, except for any such change
required by reason of a concurrent change in generally
accepted accounting principles or statutory accounting
principles;

(j) except for such contracts as would not be
material to Aetna and its Subsidiaries taken as a
whole or material to their operation in any Standard
Metropolitan Statistical Area, any entry by any Aetna
Health Operations into any contract limiting the right
of any Aetna Health Operations at any time on or after
the date of this Agreement or U.S. Healthcare or any
of its Subsidiaries or Affiliates at or after the
Merger Date, to engage in, or to compete with any
Person in, any business conducted by U.S. Healthcare,
including, without limitation, any contract which
includes exclusivity provisions restricting the
geographical area in which, or the method by which,
any such business may be conducted by Aetna or any of
its Subsidiaries or Affiliates, or by U.S. Healthcare
or any of its Subsidiaries or Affiliates after the
Merger Date; or

(k) any entry by any Aetna Health Operations
into any acquisition, joint venture or franchising
agreement or arrangement which is material to Aetna
and its Subsidiaries taken as a whole; or

(m) any entry by any Aetna Health Operations or
any of its Subsidiaries into any agreement or
arrangement with a third party on an exclusive basis
to offer or market any of the following services of
such third party: group life, disability, managed
workers' compensation, long term care, dental,
behavioral or pharmacy benefits.

SECTION 4.11. No Undisclosed Material
_______________________
Liabilities. There are no liabilities, commitments or
___________
obligations (whether pursuant to contracts or otherwise)
of Aetna or any Subsidiary of Aetna of any kind
whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances
which could reasonably be expected to result in such a
liability, commitment or obligation, including, without
limitation, any fines, disciplinary actions or other
adverse actions that may be taken or reported concerning
the conduct of Aetna or any of its Subsidiaries, other
than:

(a) liabilities, commitments or obligations
disclosed or provided for in the Aetna Balance Sheet
or in the Aetna 10-K;

(b) liabilities, commitments or obligations
incurred in the ordinary course of business since the
Aetna Balance Sheet Date;

(d) liabilities, commitments or obligations
which, individually or in the aggregate, have not had,
and are not reasonably likely to have, a Material
Adverse Effect on Aetna.

SECTION 4.12. Litigation; Investigations. Except
__________________________
as disclosed or referred to in the Aetna 10-K or on
Schedule 4.12, there is no action, claim, suit,
investigation, proceeding or examination, including,
without limitation, any insurance or health related
investigations, proceedings or examinations pending
against or affecting, or to the knowledge of Aetna
threatened against or affecting, Aetna or any Subsidiary
of Aetna or any of their respective properties before any
court or arbitrator or any governmental body, agency,
authority or official which, net of reserves established
therefor reflected in the Aetna 10-K and giving effect to
reinsurance probable of recovery, individually or in the
aggregate, is reasonably likely to have a Material
Adverse Effect on Aetna.

SECTION 4.13. Subsidiaries. (a) Each Subsidiary
____________
of Aetna is duly incorporated, validly existing (as an
insurance corporation, corporation organized as a health
maintenance organization or otherwise) and in good
standing under the laws of its jurisdiction of
incorporation, has all corporate powers and all
governmental licenses, authorizations, consents and
approvals required to carry on its business as now
conducted and is duly qualified to do business as a
foreign corporation or is duly licensed to do business as
an insurer, a health maintenance organization or
otherwise and is in good standing in each jurisdiction
where the character of the property owned or leased by it
or the nature of its activities makes such qualification
necessary, except for those jurisdictions where failure
to be so qualified or licensed would not, individually or
in the aggregate, have a Material Adverse Effect on
Aetna. All material Subsidiaries and their respective
jurisdictions of incorporation are identified in the
Aetna 10-K.

(b) Except as disclosed on Schedule 4.13, all of
the outstanding capital stock of, or other ownership
interests in, each Subsidiary of Aetna, is owned by
Aetna, directly or indirectly, free and clear of any Lien
and free of any other limitation or restriction
(including, without limitation, any restriction on the
right to vote, sell or otherwise dispose of such capital
stock or other ownership interests). Except as disclosed
on Schedule 4.13, there are no outstanding (i) securities
of Aetna or any Subsidiary of Aetna convertible into or
exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary of
Aetna, and (ii) options or other rights to acquire from
Aetna or any Subsidiary of Aetna, and no other obligation
of Aetna or any Subsidiary of Aetna to issue, any capital
stock, voting securities or other ownership interests in,
or any securities convertible into or exchangeable for,
any capital stock, voting securities or ownership
interests in, any Subsidiary of Aetna (the items in
clauses (i) and (ii) being referred to collectively as
the "Aetna Subsidiary Securities"). Except as disclosed
in Schedule 4.13, there are no outstanding obligations of
Aetna or any Subsidiary of Aetna to repurchase, redeem or
otherwise acquire any outstanding Aetna Subsidiary
Securities.

SECTION 4.14. Taxes. (a) All Tax Returns
_____
required to be filed (taking into account all extensions
heretofore granted) on or before the date hereof or the
Merger Date by or on behalf of Aetna or any of its
Subsidiaries have been filed within the time and in the
manner prescribed by law, other than those Tax Returns
the failure of which to file would not have a Material
Adverse Effect on Aetna.

(b) As of the time of filing, all such Tax
Returns correctly reflected in all material respects all
facts regarding the income, business, assets, operations,
activities and status of Aetna and its Subsidiaries and
any other information required to be shown therein.

(c) All Taxes shown to be due and payable by
Aetna and any of its Subsidiaries on all such Tax Returns
have been timely paid, or withheld and remitted to the
appropriate Taxing Authorities.

(d) Except as set forth on Schedule 4.14(d), all
applicable statutes of limitations for the assessment of
material Taxes against Aetna and any of its Subsidiaries
have expired. No deficiency payment of any Taxes for any
period has been asserted by any Taxing Authority which
remains unsettled at the date hereof except for
deficiencies which would not have a Material Adverse
Effect on Aetna.

(e) Except for Tax Returns required to be filed
with respect to the 1995 taxable year, neither Aetna nor
any of its Subsidiaries has requested any extension of
time within which to file any Tax Return which has not
yet been filed.

(f) There are no material Liens upon any
property or assets of Aetna or any of its Subsidiaries
for Taxes, except for Tax liens in respect of Taxes not
yet due or which are being contested in good faith and by
appropriate proceedings (and for the payment of which
adequate reserves have been provided) and reflected in
the Aetna 10-K.

(g) Except as set forth on Schedule 4.14(g),
there is no claim, audit, action, suit, proceeding, or
investigation now pending or threatened against or with
respect to Aetna or any of its Subsidiaries in respect of
any Taxes.

(h) Except as set forth in Schedule 4.14(h),
neither Aetna nor any of its Subsidiaries has any
contractual obligations under any tax sharing agreement
or similar agreement or tax indemnity agreement with any
corporation which is not a member of the affiliated group
of corporations of which Aetna is the common parent.

(i) Except as set forth on Schedule 4.14(i),
there are no requests for rulings or determinations in
respect of any Tax pending between Aetna or any of its
Subsidiaries and any Taxing Authorities.

SECTION 4.15. ERISA. (a) Neither Aetna nor any
_____
ERISA Affiliate of Aetna has (i) engaged in, or is a
successor or parent corporation to an entity that has
engaged in, a transaction described in Sections 4069 or
4212(c) of ERISA or (ii) incurred, or reasonably expects
to incur prior to the Merger Date, (A) any liability
under Title IV of ERISA arising in connection with the
termination of, or a complete or, except as may be
incurred by reason of the transactions contemplated by
the Stock Purchase Agreement, partial withdrawal from,
any plan covered or previously covered by Title IV of
ERISA or (B) any liability under Section 4971 of the Code
that in either case could become a liability of Parent or
any of its Affiliates after the Merger Date. Nothing
done or omitted to be done, and no transaction or holding
of any asset under or in connection with any "employee
benefit plan" as defined in Section 3(3) of ERISA which
(i) is subject to any provision of ERISA and (ii) is
maintained, administered or contributed to by Aetna or
any Subsidiary of Aetna and covers any employees or
former employees of Aetna or any Subsidiary of Aetna
under which Aetna or any Subsidiary of Aetna has any
liability (each an "Aetna Employee Plan") has or will
make Aetna or any Subsidiary of Aetna, or any officer or
director of Aetna or any Subsidiary of Aetna, subject to
any liability under Title I of ERISA or liable for any
tax pursuant to Section 4975 of the Code that could have
a Material Adverse Effect on Aetna.

(b) With respect to each Aetna Employee Plan
which is intended to be qualified under Section 401(a) of
the Code, Aetna has received a favorable determination
letter that the plan is so qualified and that each trust
forming a part thereof is exempt from tax pursuant to
Section 501(a) of the Code. Each Aetna Employee Plan has
been maintained in all material respects in compliance
with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which
are applicable to such Plan.

(c) Each employment, severance or other similar
contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms
of incentive compensation or post-retirement insurance,
compensation or benefits which (i) is not an Aetna
Employee Plan, (ii) is entered into, maintained or
contributed to, as the case may be, by Aetna or any of
its Subsidiaries and (iii) covers any employee or former
employee of Aetna or any of its Subsidiaries (the "Aetna
Benefit Arrangements") has been maintained in substantial
compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and
regulations that are applicable to such Aetna Benefit
Arrangement.

(d) Aetna and its Subsidiaries are in compliance
with all currently applicable laws respecting employment
and employment practices, terms and conditions of
employment and wages and hours, and are not engaged in
any unfair labor practice, failure to comply with which
or engagement in which, as the case may be, would
reasonably be expected to have a Material Adverse Effect
on Aetna. There is no unfair labor practice complaint
pending or, to the knowledge of Aetna, threatened against
Aetna or any Subsidiary of Aetna before the National
Labor Relations Board which would reasonably be expected
to have a Material Adverse Effect on Aetna.

(e) None of the assets of Aetna constitute the
assets of any employee benefit plan subject to Title I of
ERISA or Section 4975 of the Code.

SECTION 4.16. Permits; Compliance with Laws. (a)
_____________________________
Aetna and its Subsidiaries hold all governmental
licenses, authorizations, consents and approvals required
to carry on their respective businesses as now conducted
(the "Aetna Permits") and are in compliance in all
respects with the terms of the Aetna Permits, except for
any noncompliance which, individually or in the
aggregate, has not had and is not reasonably likely to
have a Material Adverse Effect on Aetna or as disclosed
in the Aetna 10-K. Except as disclosed in the Aetna 10-
K, neither Aetna nor any Subsidiary of Aetna is in
violation of, or has violated, any applicable provisions
of any laws, rules, ordinances or regulations, in any
such case, in a manner that, individually or in the
aggregate, has had or is reasonably likely to have a
Material Adverse Effect on Aetna. Aetna has advised U.S.
Healthcare of the facts underlying currently pending
formal proceedings with respect to any potentially
material violations of any of the foregoing.

(b) Neither Aetna nor any of its Subsidiaries has
been subject to any written finding of fraudulent
procedures or practices arising out of the provision of
health care services relating to Medicare, Medicaid or
any other government entity with which Aetna or any
Subsidiary of Aetna has a contract to provide health care
services or benefits, and except as disclosed in Schedule
4.16, neither Aetna nor any of its Subsidiaries is
currently subject to any pending or threatened audit
relating to such fraudulent procedures or practices.

SECTION 4.17. Intellectual Property Rights. (a)
____________________________
Aetna and its Subsidiaries own or have rights to use,
free and clear of all Liens, and have not assigned,
hypothecated or otherwise encumbered, the name "Aetna"
and any of Aetna's related trademarks, tradenames,
service marks or logos. Aetna has no knowledge of any
current pending or threatened infringement or challenge
by any Person with respect to the name "Aetna" and the
Aetna logo.

(b) Except as set forth on Schedule 4.17, each
of Aetna and its Subsidiaries owns outright or holds
valid and enforceable licenses to all copies of the
operating and applications computer software programs and
databases material to the conduct by Aetna and its
Subsidiaries of their respective businesses (other than
programs and databases that are generally commercially
available) as of the date hereof (collectively, the
"Aetna Software"). None of the Aetna Software used by
Aetna and its Subsidiaries, and no use thereof, infringes
upon or violates any patent, copyright, trade secret or
other proprietary right of any other Person and, to the
best knowledge of Aetna, no claim with respect to any
such infringement or violation is pending or threatened,
except for any such infringement which, individually or
in the aggregate, has not had and is not reasonably
expected to have a Material Adverse Effect on Aetna.
Upon consummation of the transactions contemplated by
this Agreement, except for Aetna Software sold or
otherwise disposed of in the ordinary course of business
after the date hereof, each of Aetna and its Subsidiaries
(i) will continue to own all the Aetna Software owned by
it, free and clear of all claims, Liens, encumbrances,
obligations and liabilities and (ii) with respect to all
agreements for the lease or license of Aetna Software
which require consents or other actions as a result of
the consummation of the transactions contemplated by this
Agreement in order for Aetna and its Subsidiaries to
continue to use and operate such Aetna Software after the
consummation of the transactions contemplated by this
Agreement, shall have obtained such consents or taken
such other actions so required prior to the Merger Date,
except for such consents or actions that if not obtained
or taken, individually or in the aggregate, would not be
reasonably expected to have a Material Adverse Effect on
Aetna.

SECTION 4.18. Fairness Opinions. Aetna has
_________________
received opinions of Wasserstein Perella & Co., Inc. and
J.P. Morgan & Co. to the effect that, as of the date
hereof, the consideration to be paid to the holders of
U.S. Healthcare Stock in the U.S. Healthcare Sub Merger
is fair, from a financial point of view, to Aetna. It is
agreed and understood that such opinions are for the sole
benefit of the Board of Directors of Aetna and may not be
relied upon by Parent, U.S. Healthcare or any third
party.

ARTICLE 5

COVENANTS OF U.S. HEALTHCARE

U.S. Healthcare agrees that:

SECTION 5.1. Conduct of U.S. Healthcare. From
__________________________
the date hereof until the Merger Date, U.S. Healthcare
and its Subsidiaries shall conduct their business in the
ordinary course consistent with past practice and shall
use their best efforts to preserve intact their business
organizations and relationships with third parties and to
keep available the services of their present officers and
employees. Without limiting the generality of the
foregoing, from the date hereof until the Merger Date,
except as contemplated by this Agreement, without the
prior written consent of Aetna:

(a) U.S. Healthcare will not adopt or propose
any change in its articles of incorporation or bylaws;

(b) U.S. Healthcare will not, and will not
permit any Subsidiary of U.S. Healthcare to, (i) merge
or consolidate with any other Person (other than a
merger of consolidation of a Subsidiary of U.S.
Healthcare with a wholly-owned Subsidiary of U.S.
Healthcare) or (ii) acquire, whether by means of
merger, consolidation or otherwise, any business or
assets, other than acquisitions of products or
services used in the ordinary course operations of the
business of U.S. Healthcare and its Subsidiaries in a
manner consistent with past practice and other
acquisitions in an aggregate amount not exceeding
$75,000,000;

(c) U.S. Healthcare will not, and will not
permit any Subsidiary of U.S. Healthcare to, sell,
lease, license or otherwise dispose of any material
assets or property except in the ordinary course of
business pursuant to contracts or commitments existing
on the date hereof;

(d) U.S. Healthcare will not, and will not
permit any Subsidiary of U.S. Healthcare to, declare,
set aside or pay any dividend (other than the payment
of U.S. Healthcare regular quarterly dividend on U.S.
Healthcare Common Stock in an amount not exceeding
$0.275 per share and on Class B Stock in an amount not
exceeding $0.248 per share) or make any other
distribution with respect to any shares of U.S.
Healthcare' capital stock;

(e) U.S. Healthcare will not, and will not
permit any Subsidiary of U.S. Healthcare to, create or
assume any Lien on any material asset other than in
the ordinary course consistent with past practices;

(f) except pursuant to contracts or commitments
existing on the date hereof and other than the
issuance of an aggregate of 150,000 options to acquire
U.S. Healthcare Stock and/or shares of restricted
stock of U.S. Healthcare to Persons other than the
Specified U.S. Healthcare Officers, U.S. Healthcare
will not, and will not permit any Subsidiary of U.S.
Healthcare to, issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any U.S.
Healthcare Securities, any U.S. Healthcare Subsidiary
Securities or any securities convertible into or
exchangeable for, or any rights, warrants or options
to acquire, any U.S. Healthcare Securities or U.S.
Healthcare Subsidiary Securities;

(g) Except as disclosed on Schedule 5.1(g), (i)
U.S. Healthcare will not split, combine or reclassify,
or take any other similar action with respect to, any
capital stock of U.S. Healthcare, and (ii) U.S.
Healthcare will not, and will not permit any
Subsidiary of U.S. Healthcare to, repurchase, redeem
or otherwise acquire an amount of shares of capital
stock of, or other ownership interests in, U.S.
Healthcare or any Subsidiary of U.S. Healthcare, which
repurchase, redemption or other acquisition,
individually or in the aggregate, is material to U.S.
Healthcare and its Subsidiaries, taken as a whole;

(h) Except for borrowings or guarantees in the
ordinary course of business consistent with past
practice, U.S. Healthcare will not, and will not
permit any Subsidiary of U.S. Healthcare to, incur or
assume any indebtedness from any third party for
borrowed money or guarantee any such indebtedness;

(i) Except for (i) loans, advances or capital
contributions to or investments in Subsidiaries of
U.S. Healthcare, (ii) investments in securities
consistent with past practices or (iii) other loans,
advances, capital contributions or investments in an
aggregate amount not exceeding $25,000,000, U.S.
Healthcare will not, and will not permit any
Subsidiary of U.S. Healthcare to, make any material
loans, advances or capital contributions to, or
investments in, any other Person;

(j) except for new employment agreements with
those Specified U.S. Healthcare Officers listed on
Schedule 8.2(b) in the form attached hereto as
Schedule 3.11(j)(A), U.S. Healthcare will not, and
will not permit any of its Subsidiaries to: (i) (A)
grant any severance or termination pay to, or enter
into any employment, termination or severance
arrangement with, any Specified U.S. Healthcare
Officer or, (B) except in the ordinary course of
business consistent in magnitude and character with
past practice and with the terms of severance or
termination arrangements in effect or pending on the
date hereof with respect to individuals with
comparable positions or responsibilities, grant any
severance or termination pay to, or enter into any
employment, termination or severance arrangement with,
any other employees; (ii) (A) amend in any material
respect any employment, termination or severance
arrangement with any Specified U.S. Healthcare Officer
or (B) except in the ordinary course, amend in any
material respect any employment, termination or
severance arrangement with any other directors,
officers or employees (it being understood that for
purposes of clauses (A) and (B) any increase or
acceleration of benefits under any such agreement
shall be deemed material); (iii) (x) establish, adopt,
enter into, or (y) except (I) the matters described in
the parenthetical clause of Section 3.11(c) hereof and
(II) the acceleration of vesting of U.S. Healthcare
Non-Employee Stock Options and restricted stock of
U.S. Healthcare issued to Persons who are not
employees of U.S. Healthcare, amend or take action to
accelerate or enhance any rights or benefits under,
(A) any plan providing for options, stock, performance
awards or other forms of incentive or deferred
compensation or (B) any collective bargaining, bonus,
profit sharing, thrift, compensation, restricted
stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the
benefit of any of its directors, officers or
employees; (iv) grant, confer or award any options,
stock, performance awards or other awards to acquire
any shares of its capital stock (other than an
aggregate of 150,000 options to acquire U.S.
Healthcare Stock and/or shares of restricted stock of
U.S. Healthcare pursuant to the terms existing on the
date hereof of U.S. Healthcare's plans to Persons
other than the Specified U.S. Healthcare Officers; (v)
increase the contribution percentages under U.S.
Healthcare's defined contribution plans; or (vi) (A)
other than an annual adjustment with respect to the
1997 calendar year if the Merger Date occurs after
December 31, 1996, which adjustment shall be of a
magnitude and character consistent with past practice,
increase the compensation or benefits of any Specified
U.S. Healthcare Officer or pay any benefit not
required by any plan or arrangement as in effect as of
the date hereof or (B) except in the ordinary course
of business consistent in magnitude and character with
past practice and in no event greater than 6% in the
aggregate on a per annum basis for all such
individuals as a group, increase the compensation or
benefits of any other employees or pay any benefit not
required by any plan or arrangement as in effect as of
the date hereof; provided that Aetna agrees it will
________
not unreasonably withhold its consent, if requested by
U.S. Healthcare, to transactions proposed under this
paragraph (j);

(k) U.S. Healthcare will not, and will not
permit any of its Subsidiaries to, authorize,
recommend, propose or announce an intention to adopt a
plan of complete or partial liquidation or dissolution
of U.S. Healthcare or any Subsidiary of U.S.
Healthcare, or any plan of division or share exchange
involving U.S. Healthcare or any of its Subsidiaries;

(l) U.S. Healthcare will not, and will not
permit any Subsidiary of U.S. Healthcare to, change
any method of accounting or any accounting principle
or practice used by U.S. Healthcare or any Subsidiary
of U.S. Healthcare, except for any such change
required by reason of a concurrent change in generally
accepted accounting principles or statutory accounting
principles;

(m) except as previously disclosed to Aetna and
except for such contracts as would not be material to
U.S. Healthcare and its Subsidiaries taken as a whole
or material to their operation in any Standard
Metropolitan Statistical Area, U.S. Healthcare will
not and will not permit any Subsidiary of U.S.
Healthcare to enter into any contract limiting the
right of U.S. Healthcare or any of its Subsidiaries at
any time on or after the date of this Agreement or
Aetna or any of its Subsidiaries or Affiliates at or
after the Merger Date, to engage in, or to compete
with any Person in, any business, including, without
limitation, any contract which includes exclusivity
provisions restricting the geographical area in which,
or the method by which, any such business may be
conducted by U.S. Healthcare or any of its
Subsidiaries or Affiliates, or by Aetna or any of its
Subsidiaries or Affiliates after the Merger Date;

(n) subject (in the case of an acquisition) to
Section 5.1(b), U.S. Healthcare will not and will not
permit any of its Subsidiaries to enter into any
acquisition, joint venture, national vendor or
franchising agreement or arrangement which is material
to U.S. Healthcare and its Subsidiaries, taken as a
whole;

(o) U.S. Healthcare will not, and will not permit
any of its Subsidiaries to, enter into any agreement
or arrangement with a third party on an exclusive
basis to offer or market any of the following services
of such third party: group life, disability, managed
workers' compensation, long term care, dental,
behavioral or pharmacy benefits; and

(p) U.S. Healthcare will not, and will not
permit any Subsidiary of U.S. Healthcare to, agree,
commit or adopt any plan or proposal to do any of the
foregoing.

SECTION 5.2. Shareholder Meeting; Proxy
__________________________
Material. (a) U.S. Healthcare shall cause a meeting of
________
its shareholders (the "U.S. Healthcare Shareholder
Meeting") to be duly called and held as soon as
reasonably practicable for the purpose of voting on the
approval and adoption of this Agreement and, to the
extent submitted to U.S. Healthcare's shareholders for
approval, the transactions contemplated by this
Agreement, and the Board of Directors of U.S. Healthcare
shall recommend approval and adoption of this Agreement
and the U.S. Healthcare Sub Merger by U.S. Healthcare's
shareholders; provided that such meeting need not be
________
called and held and, prior to the U.S. Healthcare
Shareholder Meeting, such recommendation may be
withdrawn, modified or amended to the extent that, as a
result of the commencement or receipt of an Acquisition
Proposal with respect to U.S. Healthcare, the Board of
Directors of U.S. Healthcare determines in good faith
that it is necessary to so act in order to comply with
its fiduciary duties under applicable law after
consultation with independent counsel.

(b) In connection with the U.S. Healthcare
Shareholder Meeting, and subject to the proviso to
Section 5.2(a), U.S. Healthcare (i) will promptly prepare
and file with the SEC, will use its best efforts to have
cleared by the SEC and will thereafter mail to its
shareholders as promptly as practicable the U.S.
Healthcare Proxy Statement and all other proxy materials
for such meeting, (ii) will use its best efforts to
obtain the shareholder approvals referred to in Section
5.2(a) and (iii) will otherwise comply with all legal
requirements applicable to such meeting.

SECTION 5.3. Access to Information. To the
_____________________
extent permitted by applicable law, from the date hereof
until the Merger Date, U.S. Healthcare will give (or
cause to be given) Aetna, its counsel, financial
advisors, auditors and other authorized representatives
full access to the offices, properties, books and records
of U.S. Healthcare and its Subsidiaries, will furnish (or
cause to be furnished) to Aetna, its counsel, financial
advisors, auditors and other authorized representatives
such financial and operating data and other information
as such Persons may reasonably request and will instruct
the employees, counsel and financial advisors of U.S.
Healthcare and its Subsidiaries to cooperate with Aetna
in its investigation of the business of U.S. Healthcare
and its Subsidiaries; provided that no investigation
pursuant to this Section shall affect any representation
or warranty given by U.S. Healthcare to Aetna hereunder.

SECTION 5.4. Other Offers Relating to U.S.
____________________________
Healthcare. From the date hereof until the termination
__________
of this Agreement, U.S. Healthcare will not, and will
cause its Subsidiaries and the directors, officers,
employees, financial advisors and other agents or
representatives of U.S. Healthcare or any of its
Subsidiaries not to, directly or indirectly, take any
action to solicit, initiate or encourage any Acquisition
Proposal with respect to U.S. Healthcare or engage in
negotiations with, or disclose any nonpublic information
relating to U.S. Healthcare or any Subsidiary of U.S.
Healthcare or afford access to the properties, books or
records of U.S. Healthcare or any Subsidiary of U.S.
Healthcare to, any Person that may be considering making,
or has made, an Acquisition Proposal with respect to U.S.
Healthcare; provided that nothing contained in this
________
Section 5.4 shall prevent U.S. Healthcare from furnishing
non-public information to, or entering into discussions
or negotiations with, any Person in connection with an
unsolicited bona fide Acquisition Proposal with respect
to U.S. Healthcare, if and only to the extent that
(1) the Board of Directors of U.S. Healthcare determines
in good faith after consultation with independent counsel
that such action is necessary in order to comply with its
fiduciary duties under applicable law and (2) prior to
furnishing non-public information to, or entering into
discussions or negotiations with, such Person, U.S.
Healthcare receives from such Person an executed
confidentiality agreement with terms no less favorable to
U.S. Healthcare than those contained in the
Confidentiality Agreement dated as of January 16, 1996
between U.S. Healthcare and Aetna (the "Confidentiality
Agreement"). U.S. Healthcare will promptly (and in no
event later than 24 hours after receipt of the relevant
Acquisition Proposal with respect to U.S. Healthcare),
notify (which notice shall be provided orally and in
writing and shall identify the Person making the relevant
Acquisition Proposal with respect to U.S. Healthcare and
set forth the material terms thereof) Aetna after receipt
of any Acquisition Proposal with respect to U.S.
Healthcare or any request for nonpublic information
relating to U.S. Healthcare or any Subsidiary of U.S.
Healthcare or for access to any properties, books or
records of U.S. Healthcare or any Subsidiary of U.S.
Healthcare by any Person that may be considering making,
or has made, an Acquisition Proposal with respect to U.S.
Healthcare and will keep Aetna fully informed of the
status and details of any such Acquisition Proposal with
respect to U.S. Healthcare. U.S. Healthcare shall give
Aetna at least one days' advance notice of any
information to be supplied to, and at least three days'
advance notice of any agreement to be entered into with,
any Person making such Acquisition Proposal with respect
to U.S. Healthcare. U.S. Healthcare shall, and shall
cause its Subsidiaries and the directors, officers,
employees, financial advisors and other agents or
representatives of U.S. Healthcare or any of its
Subsidiaries to, cease immediately and cause to be
terminated all activities, discussions or negotiations,
if any, with any Persons conducted heretofore with
respect to any Acquisition Proposal with respect to U.S.
Healthcare. For purposes of this Agreement, with respect
to any Person, "Acquisition Proposal" means any offer or
proposal for, or any indication of interest in, (i) a
merger or other business combination involving such
Person or any Subsidiary of such Person or (ii) the
acquisition in any manner of any significant equity
interest in, or a substantial portion of the assets of,
such Person or any Subsidiary of such Person, in each
case other than the transactions contemplated by this
Agreement.

SECTION 5.5. Notices of Certain Events. U.S.
_________________________
Healthcare shall promptly notify Aetna of:

(a) any notice or other communication from any
Person alleging that the consent of such Person is or
may be required in connection with the transactions
contemplated by this Agreement;

(b) any notice or other communication from any
governmental body, agency, official or authority in
connection with the transactions contemplated by this
Agreement; and

(c) any actions, suits, claims, investigations,
proceedings or health or insurance related proceedings
or market conduct examinations or audits commenced or,
to the best of U.S. Healthcare's knowledge threatened
against, relating to or involving or otherwise
affecting U.S. Healthcare or any Subsidiary of U.S.
Healthcare which, if pending on the date of this
Agreement, would have been required to have been
disclosed pursuant to Section 3.13 or which relate to
the consummation of the transactions contemplated by
this Agreement.

SECTION 5.6. Fiduciary Matters. U.S. Healthcare
_________________
shall, and shall direct the appropriate fiduciaries to,
exercise all appropriate fiduciary responsibilities with
respect to shares of U.S. Healthcare Stock held in any of
its U.S. Healthcare Employee Plans.

ARTICLE 6

COVENANTS OF AETNA

Aetna agrees that:

SECTION 6.1. Voting of U.S. Healthcare Stock.
_______________________________
Aetna agrees to vote or cause to be voted all shares of
U.S. Healthcare Stock owned by it or any of its
Subsidiaries in favor of the approval and adoption of
this Agreement at the U.S. Healthcare Shareholder
Meeting; provided that this Section 6.1 shall not impose
________
any obligations in respect of shares of U.S. Healthcare
Stock (i) held by Aetna or any Subsidiary of Aetna for
the account of another Person, (ii) as to which Aetna or
any Subsidiary or Affiliate of Aetna is or may be
required to act as fiduciary or in a similar capacity or
(iii) the voting of which pursuant to the provisions of
this Section 6.1 would violate any legal duties or
obligations of Aetna or any Subsidiary or Affiliate of
Aetna.

SECTION 6.2. Shareholder Meeting; Proxy
__________________________
Materials. (a) Aetna shall cause a special meeting of
_________
its shareholders (the "Aetna Shareholder Meeting") to be
duly called and held as soon as reasonably practicable
for the purpose of voting on the approval and adoption of
this Agreement, and, to the extent submitted to Aetna's
shareholders for approval, the transactions contemplated
by this Agreement, and the Board of Directors of Aetna
shall recommend approval and adoption of this Agreement
by Aetna's shareholders; provided that such special
________
meeting need not be called and held and, prior to the
Aetna Shareholder Meeting, such recommendation may be
withdrawn, modified or amended, to the extent that, as a
result of the commencement or receipt of an Aetna
Acquisition Proposal, the Board of Directors of Aetna
determines in good faith that it is necessary to so act
in order to comply with its fiduciary duties under
applicable law after consultation with independent
counsel.

(b) In connection with the Aetna Shareholder
Meeting, and subject to the proviso to Section 6.2(a),
Aetna (i) will promptly prepare and file with the SEC,
will use its best efforts to have cleared by the SEC and
will thereafter mail to its shareholders as promptly as
practicable the Aetna Proxy Statement and all other proxy
materials for such meeting, (ii) will use its best
efforts to obtain the shareholder approvals referred to
in Section 6.2(a), and (iii) will otherwise comply with
all legal requirements applicable to such meeting.

SECTION 6.3. Access to Information. To the
_____________________
extent permitted by applicable law, from the date hereof
until the Merger Date, Aetna will give (or cause to be
given) U.S. Healthcare, its counsel, financial advisors,
auditors and other authorized representatives full access
to the offices, properties, books and records of Aetna
and its Subsidiaries, will furnish (or cause to be
furnished) to U.S. Healthcare, its counsel, financial
advisors, auditors and other authorized representatives
such financial and operating data and other information
as such Persons may reasonably request and will instruct
the employees, counsel and financial advisors of Aetna
and its Subsidiaries to cooperate with U.S. Healthcare in
its investigation of the business of Aetna and its
Subsidiaries; provided that no investigation pursuant to
this Section shall affect any representation or warranty
given by Aetna to U.S. Healthcare hereunder.

SECTION 6.4. Notices of Certain Events. Aetna
_________________________
shall promptly notify U.S. Healthcare of:

(a) any notice or other communication from any
Person alleging that the consent of such Person is or
may be required in connection with the transactions
contemplated by this Agreement;

(b) any notice or other communication from any
governmental body, agency, official or authority in
connection with the transactions contemplated by this
Agreement; and

(c) any actions, suits, claims, investigations,
proceedings or health or insurance related proceedings
or market conduct examinations commenced or, to the
best of Aetna's knowledge threatened against, relating
to or involving or otherwise affecting Aetna or any
Subsidiary of Aetna which relate to the consummation
of the transactions contemplated by this Agreement.

SECTION 6.5. Certain Corporate Actions. Prior
_________________________
to the Merger Date, except as contemplated by this
Agreement or in Schedule 6.5, unless U.S. Healthcare has
consented in writing thereto:

(a) Aetna will not adopt or propose any change
in its certificate of incorporation or bylaws;

(b) (i) Aetna will not, and will not permit any
Subsidiary of Aetna to, merge or consolidate with any
other Person (other than a merger or consolidation of
a Subsidiary of Aetna with a wholly-owned Subsidiary
of Aetna) and (ii) Aetna shall cause the Aetna Health
Operations not to acquire, whether by means of merger,
consolidation or otherwise, any business or assets,
other than acquisitions of products or services used
in the ordinary course operations of the business of
Aetna and its Subsidiaries in a manner consistent with
past practice and other acquisitions in an aggregate
amount not exceeding $75,000,000;

(c) Aetna will not permit any Aetna Health
Operations to, sell, lease, license or otherwise
dispose of any material assets or property except in
the ordinary course of business pursuant to contracts
or commitments existing on the date hereof;

(d) Aetna will not, and will not permit any
Subsidiary of Aetna to, declare, set aside or pay any
dividend (other than the payment of a regular
quarterly dividend on Aetna Common Stock in an amount
not exceeding $0.69 per share), or make any other
distribution, with respect to any shares of Aetna's
capital stock;

(e) Aetna will not, and will not permit the
Aetna Health Operations to, create or assume any Lien
on any material asset other than in the ordinary
course consistent with past practices;

(f) Aetna will not, and will not permit any
Subsidiary of Aetna to, issue, deliver or sell, or
authorize or propose the issuance, delivery or sale
of, any capital stock of Aetna or Aetna Subsidiary
Securities or any securities convertible into or
exchangeable for, or any rights, warrants or options
to acquire, any such securities of Aetna or any Aetna
Subsidiary Securities except (i) pursuant to contracts
and commitments existing on the date hereof, (ii) the
issuance of Aetna Stock pursuant to existing Aetna
stock plans or in connection with the exercise of
Aetna Stock Options, and (iii) any such securities
issued in one or a series of transactions at fair
market value which would not require the approval of
the shareholders of Aetna under the applicable NYSE
rules;

(g) except as disclosed in Schedule 6.5(g), (i)
Aetna will not split, combine or reclassify, or take
any other similar action with respect to, any capital
stock of Aetna, and (ii) Aetna will not, and will not
permit any Subsidiary of Aetna to, repurchase, redeem
or otherwise acquire an amount of shares of capital
stock of, or other ownership interests in, Aetna or
any Aetna Subsidiary Securities which repurchase,
redemption or other acquisition, individually or in
the aggregate, is material to Aetna and its
Subsidiaries taken as a whole;

(h) except for borrowings or guarantees in the
ordinary course of business consistent with past
practice, Aetna will not permit any Aetna Health
Operation to incur or assume any indebtedness from any
third party for borrowed money or guarantee any such
indebtedness;

(i) except for (i) loans, advances or capital
contributions to or investments in Subsidiaries of
Aetna, (ii) investments in securities consistent with
past practice or (iii) other loans, advances, capital
contributions or investments in an aggregate amount
not exceeding $25,000,000, Aetna will not permit any
Aetna Health Operation to, make any material loans,
advances or capital contributions to, or investments
in, any other Person;

(j) Aetna will not, and will not permit any of
its Subsidiaries to, authorize, recommend, propose or
announce an intention to adopt a plan of complete or
partial liquidation or dissolution of Aetna or any
Subsidiary of Aetna, or any plan of division or share
exchange involving Aetna or any of its Subsidiaries;

(k) Aetna will not, and will not permit any
Subsidiary of Aetna to, change any method of
accounting or any accounting principle or practice
used by Aetna or any Subsidiary of Aetna, except for
any such change required by reason of a concurrent
change in generally accepted accounting principles or
statutory accounting principles;

(l) except as previously disclosed to U.S.
Healthcare and except for such contracts as would not
be material to Aetna or the Aetna Health Operation or
material to their operation in any Standard
Metropolitan Statistical Area, Aetna will not permit
any Aetna Health Operation to enter into any contract
limiting the right of any Aetna Health Operation at
any time on or after the date of this Agreement or
U.S. Healthcare or any of its Subsidiaries or
Affiliates at or after the Merger Date, to engage in,
or to compete with any Person in, any business,
including, without limitation, any contract which
includes exclusivity provisions restricting the
geographical area in which, or the method by which,
any such business may be conducted by Aetna or any of
its Subsidiaries or Affiliates, or by U.S. Healthcare
or any of its Subsidiaries or Affiliates after the
Merger Date;

(m) Aetna will not permit any Aetna Health
Operation to enter into any acquisition, joint
venture, national vendor or franchising agreement or
arrangement which is material to Aetna and its
Subsidiaries, taken as a whole;

(n) subject (in the case of an acquisition) to
Section 6.5(b), Aetna will not permit any Aetna Health
Operation to enter into any agreement or arrangement
with a third party on an exclusive basis to offer or
market any of the following services of such third
party: group life, disability, managed workers'
compensation, long term care, dental, behavioral or
pharmacy benefits; and

(o) Aetna will not, and will not permit any
Subsidiary of Aetna to, agree, commit or adopt any
plan or proposal to do any of the foregoing.

SECTION 6.6. Other Offers Relating to Aetna.
______________________________
From the date hereof until the termination hereof, Aetna
will not, and will cause its Subsidiaries and the
directors, officers, employees, financial advisors and
other agents or representatives of Aetna or any of its
Subsidiaries not to, directly or indirectly, take any
action to solicit, initiate or encourage any Aetna
Acquisition Proposal or engage in negotiations with, or
disclose any nonpublic information relating to Aetna or
any Subsidiary of Aetna or afford access to the
properties, books or records of Aetna or any Subsidiary
of Aetna to, any Person that may be considering making,
or has made, an Aetna Acquisition Proposal; provided that
nothing contained in this Section 6.6 shall prevent Aetna
from furnishing non-public information to, or entering
into discussions or negotiations with, any Person in
connection with an unsolicited bona fide Aetna
Acquisition Proposal, with respect to if and only to the
extent that (1) the Board of Directors of Aetna
determines in good faith after consultation with
independent counsel that such action is necessary in
order to comply with its fiduciary duties under
applicable law and (2) prior to furnishing non-public
information to, or entering into discussions or
negotiations with, such Person, Aetna receives from such
Person an executed confidentiality agreement with terms
no less favorable to Aetna than those contained in the
Confidentiality Agreement. Aetna will promptly (and in
no event later than 24 hours after receipt of the
relevant Aetna Acquisition Proposal) notify (which notice
shall be provided orally and in writing and shall
identify the Person making the relevant Aetna Acquisition
Proposal and set forth the material terms thereof) U.S.
Healthcare after receipt of any Aetna Acquisition
Proposal or any request for nonpublic information
relating to Aetna or any Subsidiary of Aetna or for
access to any properties, books or records of Aetna or
any Subsidiary of Aetna by any Person that may be
considering making, or has made, an Aetna Acquisition
Proposal and will keep U.S. Healthcare fully informed of
the status and details of any such Aetna Acquisition
Proposal. Aetna shall give U.S. Healthcare at least one
days' advance notice of any information to be supplied
to, and at least three days' advance notice of any
agreement to be entered into with, any Person making such
Aetna Acquisition Proposal. Aetna shall, and shall cause
its Subsidiaries and the directors, officers, employees,
financial advisors and other agents or representatives of
Aetna or any of its Subsidiaries to, cease immediately
and cause to be terminated all activities, discussions or
negotiations, if any, with any Persons conducted
heretofore with respect to any Aetna Acquisition
Proposal. For purposes of this Agreement, "Aetna
Acquisition Proposal" means any offer or proposal for, or
any indication of interest in, (i) a merger or other
business combination involving Aetna or any of the Aetna
Health Operations or (ii) the acquisition in any manner
of any significant equity interest in, or a substantial
portion of the assets of, the Aetna Health Operations, in
each case other than the transactions contemplated by
this Agreement.

SECTION 6.7. Amendment of the Stock Purchase
_______________________________
Agreement. Aetna agrees that it will not agree to any
_________
amendment, modification or waiver of the Stock Purchase
Agreement which would have a Material Adverse Effect on
Aetna or which would materially impair or adversely
affect in a material respect the ability of Aetna to
satisfy its obligations under this Agreement.

SECTION 6.8. Dividends. It is understood by
_________
U.S. Healthcare that the annual dividend to be paid in
respect of Parent Common Stock (the "New Annual
Dividend") will be an amount below the dividend currently
paid in respect of Aetna Common Stock. Initially after
the Merger Date, subject to applicable law, the New
Annual Dividend will not be less than $0.80 per share of
Parent Common Stock.

ARTICLE 7

COVENANTS OF AETNA,
U.S. HEALTHCARE AND PARENT

The parties hereto agree that:

SECTION 7.1. Best Efforts. Subject to the terms
____________
and conditions of this Agreement, each party will use its
reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate the Mergers and the other
transactions contemplated by this Agreement.

SECTION 7.2. Cooperation. Without limiting the
___________
generality of Section 7.1, Aetna and U.S. Healthcare
shall together, or pursuant to an allocation of
responsibility to be agreed between them, coordinate and
cooperate (i) with respect to the timing of the Aetna
Shareholder Meeting and U.S. Healthcare Shareholder
Meeting and shall use their reasonable best efforts to
hold such meetings on the same day, (ii) in connection
with the preparation of U.S. Healthcare Disclosure
Documents, the Aetna Disclosure Documents and the Parent
Disclosure Documents, (iii) in determining whether any
action by or in respect of, or filing with, any
governmental body, agency, official or authority is
required, or any actions, consents, approvals or waivers
are required to be obtained from parties to any material
contracts, in connection with the consummation of the
Mergers or the other transactions contemplated by this
Agreement, (iv) in seeking any such actions, consents,
approvals or waivers or making any such filings,
furnishing information required in connection therewith
or with the U.S. Healthcare Disclosure Documents, the
Aetna Disclosure Documents and the Parent Disclosure
Documents, and timely seeking to obtain any such actions,
consents, approvals or waivers and (v) in diligently
opposing any objections to, appeals from or other similar
actions with respect to any such actions, consents,
approvals or waivers. Subject to the terms and
conditions of this Agreement, Parent, Aetna and U.S.
Healthcare will each use its reasonable best efforts to
have the Form S-4 declared effective under the 1933 Act
as promptly as practicable after the Form S-4 is filed.

SECTION 7.3. Public Announcements. Aetna and
____________________
U.S. Healthcare will (i) mutually agree on the text of
any press release and (ii) consult with each other before
making any other public statement with respect to this
Agreement and the transactions contemplated by this
Agreement, except, in each such case, as may be required
by applicable law or any listing or similar agreement
with any national securities exchange or the National
Association of Securities Dealers Automated Quotation
System.

SECTION 7.4. Further Assurances. At and after
__________________
the Merger Date, the directors and officers of each of
the surviving corporations in the Mergers will be
authorized to execute and deliver, in the name and on
behalf of (x) U.S. Healthcare or U.S. Healthcare Sub, and
(y) Aetna or Aetna Sub, any deeds, bills of sale,
assignments or assurances and to take and do, in the name
and on behalf of (x) U.S. Healthcare or U.S. Healthcare
Sub, and (y) Aetna or Aetna Sub, any other actions and
things to vest, perfect or confirm of record or otherwise
in such surviving corporation any and all right, title
and interest in, to and under any of the rights,
properties or assets of U.S. Healthcare or Aetna, as
applicable, acquired or to be acquired by such surviving
corporation as a result of, or in connection with, the
Mergers.

SECTION 7.5. Rule 145 Affiliates. At least 40
___________________
days prior to the Merger Date, each of U.S. Healthcare
and Aetna (each of which is referred to for purposes of
this Section 7.5 as a "Subject Company") shall cause to
be delivered to Parent a letter identifying all Persons
who are at the time of the Subject Company's Shareholder
Meeting described in Section 5.2 or 6.2, as applicable,
deemed to be "affiliates" of the Subject Company for
purposes of Rule 145 under the 1933 Act (the "1933 Act
Affiliates"). Each Subject Company shall use its best
efforts to cause each person who is identified as a 1933
Act Affiliate to deliver to Parent at least 30 days prior
to the Merger Date an agreement substantially in the form
of Exhibit B-1 or B-2, as applicable, to this Agreement.

SECTION 7.6. Director and Officer Liability.
______________________________
(a) From and after the Merger Date, Parent shall, and
shall cause the U.S. Healthcare Surviving Corporation to,
indemnify, defend and hold harmless any person who is on
the date hereof, or has been at any time prior to the
date hereof, or who becomes prior to the Merger Date, an
officer, director, or employee or agent, and the
Principal Shareholder (the "Indemnified Party") of U.S.
Healthcare or any of its Subsidiaries against all losses,
claims, damages, liabilities, costs and expenses
(including attorney's fees and expenses), judgments,
fines, losses, and amounts paid in settlement in
connection with any actual or threatened action, suit,
claim, proceeding or investigation (each a "Claim") to
the extent that any such Claim is based on, or arises out
of, (i) the fact that such person is or was a director,
officer, employee or agent or the Principal Shareholder
of U.S. Healthcare or any of its Subsidiaries at any time
prior to the Merger Date or is or was serving at the
request of U.S. Healthcare or any of its Subsidiaries as
a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise at any time prior to the Merger Date, or (ii)
this Agreement, the Voting Agreement or any of the
transactions contemplated hereby or thereby, or (iii)
Claims relating to the facts specified in the
consolidated lawsuit captioned J.H. Realty et. al. v.
_____________________
U.S. Healthcare (C.A. 95-CV-4176 and 95-CV-7180 (E.D.
_______________
Pa.)) in each case to the extent that any such Claim
pertains to any matter or fact arising, existing, or
occurring prior to or at the Merger Date, regardless of
whether such Claim is asserted or claimed prior to, at or
after the Merger Date (the matters described in clauses
(i), (ii) and (iii) the "Pre-Merger Matters"), to the
fullest extent indemnified under U.S. Healthcare's
articles of incorporation, bylaws in effect as of the
date hereof or indemnification agreements in effect at
the date hereof, including provisions relating to
advancement of expenses incurred in the defense of any
action or suit; provided that, for purposes of the
________
foregoing, the Principal Shareholder, in his capacity as
such, shall be deemed to be a beneficiary of such
indemnification provisions; and, provided further that
________ _______
such indemnification shall be subject to any limitation
imposed from time to time under applicable laws.

(b) Parent and the U.S. Healthcare Surviving
Corporation agree that all rights to indemnification and
all limitations or exculpation of liabilities existing in
favor of the Indemnified Party as provided in U.S.
Healthcare's articles of incorporation and bylaws as in
effect as of the date hereof shall continue in full force
and effect with respect to Pre-Merger Matters, without
any amendment thereto, for a period of six years from the
Merger Date to the extent such rights are consistent with
Pennsylvania Law; provided that, in the event any Claim
________ ____
or Claims with respect to any such Pre-Merger Matters are
asserted or made within such six year period, all rights
to indemnification in respect of any such Claim or Claims
shall continue until disposition of any and all such
Claims; provided further, that any determination required
________ _______
to be made with respect to whether an Indemnified Party's
conduct complies with the standards set forth under
Pennsylvania Law, U.S. Healthcare's articles of
incorporation or bylaws or such agreements, as the case
may be, shall be made by independent legal counsel
selected by the Indemnified Party and reasonably
acceptable to Parent; and provided further, that nothing
________ _______
in this Section 7.6 shall impair any rights or
obligations of any present or former directors or
officers of U.S. Healthcare.

(c) In the event Parent or the U.S. Healthcare
Surviving Corporation or any of their successors or
assigns (i) consolidates with or merges into any other
Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, or
(ii) transfers or conveys all or substantially all of its
properties and assets to any Person, then, and in each
such case, to the extent necessary to effectuate the
purposes of this Section 7.6, proper provision shall be
made so that the successors and assigns of Parent and
U.S. Healthcare assume the obligations set forth in this
Section 7.6 and none of the actions described in clause
(i) or (ii) shall be taken until such provision is made.

(d) Parent or the U.S. Healthcare Surviving
Corporation shall maintain U.S. Healthcare's officers'
and directors' liability insurance policy as of the
Merger Date ("D&O Insurance") with respect to Pre-Merger
Matters for a period of not less than six years after the
Merger Date, provided, that Parent or the U.S. Healthcare
________
Surviving Corporation may substitute therefor policies of
substantially similar coverage and amounts containing
terms no less advantageous to such former directors or
officers; provided, further, if the existing D&O
________ _______
Insurance with respect to Pre-Merger Matters expires or
is canceled during such period, Parent or the U.S.
Healthcare Surviving Corporation will use their best
efforts to obtain substantially similar D&O Insurance;
and provided further that in satisfying its obligations
________ _______
under this Section, Parent shall not be obligated to pay
premiums in excess of 150% of the premium for D&O
Insurance paid by U.S. Healthcare as of the date hereof,
which amount has previously been disclosed to Aetna.

(e) The terms of Section 7.6(a) - 7.6(d) shall
also apply, mutatis mutandis, to Aetna, and Parent shall
_______ ________
have obligations with respect to Aetna corresponding to
those of Parent with respect to U.S. Healthcare set forth
in Section 7.6.

(f) Notwithstanding anything to the contrary in
Section 7.6(a), the obligations of Parent to indemnify
the Principal Shareholder set forth in Section 7.6(a) in
his capacity as such and not as a director or officer
shall (i) take effect as of the date hereof, (ii) prior
to the Merger Date, be the obligations of Aetna and (iii)
be limited to Claims based on, or arising out of, this
Agreement, the Voting Agreement or any of the
transactions contemplated hereby or thereby involving the
Principal Shareholder in his capacity as such. Expenses
that are subject to indemnification under this Section
7.6 shall be advanced by Parent or Aetna, as applicable,
and indemnification shall be paid in accordance with the
procedures set forth in U.S. Healthcare's bylaws in
effect as of the date hereof as the same have been
modified pursuant to Section 7.6(b).

SECTION 7.7. Subsidiary Agreements. Parent
_____________________
shall cause the U.S. Healthcare Surviving Corporation to
perform its obligations under the agreements described in
Schedule 7.7 (the "Scheduled Contracts") and the
employment agreements with the Specified U.S. Healthcare
Officers. In addition, Parent shall not permit the U.S.
Healthcare Surviving Corporation to terminate the
Scheduled Contracts until 2004 absent a breach by any
other party thereto.

SECTION 7.8. Plans Following the Closing.
___________________________
Through December 31, 1998, Parent will maintain employee
plans and benefit arrangements for the benefit of U.S.
Healthcare employees that are reasonably comparable in
the aggregate to the U.S. Healthcare Employee Plans and
U.S. Healthcare Benefit Arrangements. Any changes shall
be deemed reasonably comparable in the aggregate unless
unanimously rejected by the two Co-Presidents of U.S.
Healthcare in their reasonable good faith discretion.

SECTION 7.9. Voting of Shares. Aetna and U.S.
________________
Healthcare shall cause Parent to vote, whether by means
of written consent or otherwise, all shares of capital
stock of U.S. Healthcare Sub and Aetna Sub owned by
Parent or any of its Subsidiaries in favor of the
approval and adoption of this Agreement.

SECTION 7.10. Form S-4. Subject to Sections 5.2
________
and 6.2, Aetna and U.S. Healthcare shall cause Parent to
promptly prepare and file with the SEC a registration
statement on Form S-4 with respect to the Parent Common
Stock and Parent Preferred Stock issuable in connection
with the Mergers (the "Form S-4") and to take any action
required to be taken under applicable Blue Sky law in
connection with such issuance of Parent Common Stock and
Parent Preferred Stock.

SECTION 7.11. Certain Corporate Matters with
______________________________
Respect to Parent. (a) Aetna and U.S. Healthcare shall
_________________
cause Parent to take all necessary corporate action to
amend the certificate of incorporation and bylaws of
Parent prior to the Merger Date (x) to be in
substantially the form of the certificate of
incorporation and bylaws of Aetna in effect on the date
hereof (modified (i) as may be appropriate to effect the
transactions contemplated by this Agreement, (ii) as may
be appropriate to reflect the fact that Parent is not an
"insurance corporation", (iii) to change the par value of
the Parent Common Stock from $1.00 to $.01, (iv) to
change the name of Parent to Aetna, Inc., (v) to increase
the authorized capital stock of the Parent and (vi) as
may be agreed by U.S. Healthcare and Aetna), and (y) to
fix the designation, rights and preferences of the Parent
Preferred Stock substantially in the form of Exhibit A
hereto.

(b) From and after the Merger Date, until
successors are duly elected or appointed and qualified in
accordance with applicable law, the Board of Directors of
Parent shall consist of the Board of Directors of Aetna
immediately prior to the Merger Date, and, no later than
sixty days following the Merger Date, the Board of
Directors of Parent shall be expanded to include Leonard
Abramson (the "Principal Shareholder"), and two other
Persons designated by U.S. Healthcare (the Principal
Shareholder and such Persons, the "U.S. Healthcare
Designees"), provided that such other Persons may elect
________
to become members of the Board of Directors of Parent at
any time during such sixty day period. The U.S.
Healthcare Designees shall be nominated by the Parent
Board of Directors for election to the Parent Board of
Directors for a period of no less than two consecutive
years immediately following the Merger Date. The Parent
Board of Directors shall appoint the Principal
Shareholder to any committee of the Parent Board of
Directors that is constituted for the purpose of
identifying and recommending a candidate to become Chief
Executive Officer of Parent at such time as the current
Chief Executive Officer of Parent retires.

(c) From and after the Merger Date, all of the
lines of business and operations of U.S. Healthcare
(including but not limited to all HMO, POS, indemnity
health insurance and other lines of business and
operations) and all of the domestic (U.S.) lines of
business and operations of Aetna Health Plans (including
but not limited to all Health, Specialty Health and Group
Insurance lines of business and operations) (hereinafter
referred to collectively as "The Consolidated Health
Operations") shall report to the two Co-Presidents of
U.S. Healthcare as of the date hereof, who will then
assume the positions of Co- Presidents of the
Consolidated Health Operations (hereinafter referred to
as the "Co-Presidents"). The Co-Presidents shall have
their principal offices in Blue Bell, PA or such other
location as they shall determine, and shall report
directly and exclusively to the Chief Executive Officer
of Aetna. Reporting directly and exclusively to the Co-
Presidents shall be the individuals who serve as the
Chief Financial Officer, Chief Medical Officer, Senior
Sales Officer and Chief Legal Officer of U.S. Healthcare
as of the date hereof, who will each assume similar
positions and responsibilities for the Consolidated
Health Operations as of the Merger Date except as may
otherwise be mutually agreed between the Co-Presidents
and any of the specific officers. The Co-Presidents will
also select and appoint those other senior officers who
will be reporting directly to the Co-Presidents and
responsible for other areas of responsibility for the
Consolidated Health Operations (including but not limited
to Group Insurance, Information Technology, Operations,
Sales, National Accounts, Behavioral Health, Dental,
Pharmacy, Health Education, and Human Resources),
provided, however, that such appointments shall be made
only in consultation with and with the approval of the
Chief Executive Officer of Aetna. The Co-Presidents will
also serve as Co-Chairs of a transition group consisting
of U.S. Healthcare and Aetna executives who will plan for
and oversee the integration activities of the
Consolidated Health Operations to occur on and after the
Merger Date. For a period of twenty-four (24) months
from the Merger Date, no person employed by U.S.
Healthcare as of the date hereof will be discharged with
or without cause or have his or her compensation reduced
or his or her principal office location changed absent
the prior consent and approval of the Co-Presidents. Any
change or termination in the use of the U.S. Healthcare
name or apple logo with respect to U.S. Healthcare
products marketed as of the date hereof shall be as
mutually agreed by the Chairman of Aetna and the Co-
Presidents. The provisions of this paragraph shall be
subject to the terms of any employment agreements entered
into by U.S. Healthcare with any of its employees as of
the date hereof or with the Specified U.S. Healthcare
Officers as contemplated by this Agreement.

(d) Each of U.S. Healthcare and Aetna shall cause
Parent to take all necessary corporate action for the
establishment of the Parent stock option plan
contemplated by Sections 1.7 and 1.8 hereof and agrees to
vote the shares of capital stock of Parent owned by it in
favor of the adoption of such plan as required under the
laws of the State of Connecticut.

(e) From the date hereof until the Merger Date,
Aetna and U.S. Healthcare shall cause Parent (x) not to
take any action inconsistent with the provisions of this
Agreement and (y) not to conduct business or activity
other than in connection with this Agreement.

SECTION 7.12. Governmental Authorization. Aetna
__________________________
and U.S. Healthcare shall cause Parent to take all
actions by or in respect of, or filing with, any
governmental body, agency, official or authority required
for the execution, delivery and performance by Parent of
this Agreement and the consummation by Parent of the
transactions contemplated by this Agreement, including
(a) compliance with any applicable requirements of the
HSR Act; (b) compliance with any applicable requirements
of the 1934 Act; (c) compliance with any applicable
requirements of the 1933 Act; (d) compliance with any
applicable foreign or state securities or Blue Sky laws;
(e) approvals or filings required under laws, rules and
regulations governing insurance and insurance companies,
health maintenance organizations, health care services
plans, third party administrators or other managed health
care organizations; and (f) the filing with the Secretary
of the State and, if required, the Insurance Commissioner
of the State of Connecticut of an amendment to the
Parent's certificate of incorporation to reflect the
matters contemplated by Section 7.11.

SECTION 7.13. Disclosure Documents. Aetna and
____________________
U.S. Healthcare shall cause each document required to be
filed by Parent with the SEC in connection with the
transactions contemplated by this Agreement (the "Parent
Disclosure Documents"), including, without limitation,
the Form S-4, if any, to be filed with the SEC in
connection with the Mergers, and any amendments or
supplements thereto, to, when filed, comply as to form in
all material respects with the applicable requirements of
the 1934 Act.

SECTION 7.14. Listing of Stock. Each of Aetna
________________
and U.S. Healthcare shall, subject to the terms of this
Agreement, use its reasonable best efforts to make
application to the NYSE or such other stock exchanges as
shall be agreed for the listing of the Parent Common
Stock and Parent Preferred Stock and to list such stock
on the NYSE or such other exchanges.

ARTICLE 8

CONDITIONS TO THE MERGERS

SECTION 8.1. Conditions to the Obligations of
________________________________
Each Party. The obligations of U.S. Healthcare to
__________
consummate the U.S. Healthcare Sub Merger and of Aetna to
consummate the Aetna Sub Merger are subject to the
satisfaction (or waiver by the party for whose benefit
such conditions exist) of the following conditions:

(a) this Agreement and the transactions
contemplated by this Agreement shall have been
approved and adopted by the shareholders of U.S.
Healthcare in accordance with the laws of the
Commonwealth of Pennsylvania;

(b) this Agreement and the transactions
contemplated by this Agreement shall have been
approved and adopted by the shareholders of Aetna in
accordance with the laws of the State of Connecticut;

(c) any applicable waiting period under the HSR
Act relating to the transactions contemplated by this
Agreement shall have expired;

(d) no provision of any applicable law or
regulation and no judgment, injunction, order or
decree of a court of competent jurisdiction shall
prohibit the consummation of either of the Mergers;

(e) the Form S-4 shall have been declared
effective under the 1933 Act and no stop order
suspending the effectiveness of the Form S-4 shall be
in effect and no proceedings for such purpose shall be
pending before or threatened by the SEC;

(f) (i) U.S. Healthcare shall have received an
opinion of Skadden, Arps, Slate, Meagher & Flom in
form and substance reasonably satisfactory to U.S.
Healthcare, and (ii) Aetna shall have received an
opinion of Davis Polk & Wardwell in form and substance
satisfactory to Aetna, in each case on the basis of
certain facts, representations and assumptions set
forth in such opinion which are consistent with the
state of facts existing on the Merger Date, to the
effect that neither it nor any of its shareholders
shall recognize gain or loss for U.S. Federal income
tax purposes as a result of the Merger to which it is
a party (other than in respect of (x) the Cash
Consideration or (y) any cash paid in lieu of
fractional shares). In rendering the opinions
described in the preceding sentence, such counsel may
require and rely upon representations contained in
certificates of officers of Parent, U.S. Healthcare,
Aetna and their respective Subsidiaries;

(g) the shares of Parent Common Stock and Parent
Preferred Stock issuable in the Mergers shall have
been approved for listing on the NYSE upon official
notice of issuance or such other stock exchanges as
shall be agreed;

(h) all actions by or in respect of or filings
with any governmental body, agency, official or
authority required to permit the consummation of the
U.S. Healthcare Sub Merger and the Aetna Sub Merger
including, without limitation, any approvals or
filings required under federal or state laws, rules
and regulations governing insurance and insurance
companies, health maintenance organizations, health
care services plans, third party administrators or
other managed health care organizations, or any
actions or filings pursuant to the New Jersey
Industrial Site Recovery Act shall have been made or
obtained; and

(i) the transaction contemplated by the Stock
Purchase Agreement dated as of November 28, 1995
between The Travelers Insurance Group Inc. and Aetna
(the "Stock Purchase Agreement") relating to the
purchase and sale of 100% of the Common Stock of The
Aetna Casualty and Surety Company and The Standard
Fire Insurance Company shall have been consummated.

SECTION 8.2. Conditions to the Obligations of
________________________________
Aetna. The obligations of Aetna to consummate the Aetna
_____
Sub Merger are subject to the satisfaction (or waiver by
Aetna) of the following further conditions:

(a) (i) U.S. Healthcare shall have performed in
all material respects all of its obligations hereunder
required to be performed by it at or prior to the
Merger Date, (ii) the representations and warranties
of U.S. Healthcare contained in this Agreement shall
be true at and as of the Merger Date, as if made at
and as of the Merger Date (without giving effect to
any materiality or Material Adverse Effect
qualifications or materiality exceptions contained
therein); provided that the condition set forth in
________
clause (ii) shall be deemed satisfied if any
inaccuracies in any such representations and
warranties at and as of the Merger Date (without
giving effect to any materiality or Material Adverse
Effect qualifications or materiality exceptions
contained therein) would not, individually or in the
aggregate, have or reasonably be expected to have a
Material Adverse Effect on U.S. Healthcare; and Aetna
shall have received a certificate signed by an
executive officer of U.S. Healthcare to the effect set
forth in clauses (i) and (ii) (after giving effect to
the proviso therein); and

(b) At least twelve of the Persons listed on
Schedule 8.2(b) shall have entered into employment
agreements with U.S. Healthcare substantially in the
form of Schedule 3.11(j)(A) hereto.

SECTION 8.3. Conditions to the Obligations of
________________________________
U.S. Healthcare. The obligations of U.S. Healthcare to
_______________
consummate the U.S. Healthcare Sub Merger are subject to
the satisfaction (or waiver by U.S. Healthcare) of the
following further conditions:

(a) (i) Aetna shall have performed in all
material respects all of its obligations hereunder
required to be performed by it at or prior to the
Merger Date, (ii) the representations and warranties
of Aetna contained in this Agreement shall be true at
and as of the Merger Date, as if made at and as of the
Merger Date (without giving effect to any materiality
or Material Adverse Effect qualifications or
materiality exceptions contained therein); provided
________
that the condition set forth in clause (ii) shall be
deemed satisfied if any inaccuracies in any such
representations and warranties at and as of the Merger
Date (without giving effect to any materiality or
Material Adverse Effect qualifications or materiality
exceptions contained therein) would not, individually
or in the aggregate, have or reasonably be expected to
have a Material Adverse Effect on Aetna; and U.S.
Healthcare shall have received a certificate signed by
an executive officer of Aetna to the effect set forth
in clauses (i) and (ii) hereof (after giving effect to
the proviso therein); and

(b) the average of the closing prices per share
of the Aetna Common Stock on the NYSE Composite Tape
for the 20 consecutive trading days immediately prior
to the proposed Merger Date (the "Average Closing
Stock Price") is not less than $60.90, provided that
________
this condition shall be deemed to be satisfied
notwithstanding the fact that the Average Closing
Stock Price is less than $60.90 if Aetna, in its sole
discretion, agrees to increase that portion of the
Merger Consideration payable in respect of each share
of U.S. Healthcare Stock by an amount in cash equal to
(A) the difference between (I) a fraction, the
numerator of which is $60.90 and the denominator of
which is the Average Closing Stock Price and (II) 1,
and multiplying such difference by (B) the product of
(y) 0.2995 and (z) the Average Closing Stock Price.

ARTICLE 9

TERMINATION

SECTION 9.1. Termination. This Agreement may be
___________
terminated and the Mergers may be abandoned at any time
prior to the Merger Date (notwithstanding any approval of
this Agreement by the shareholders of U.S. Healthcare or
Aetna):

(a) by mutual written consent of U.S. Healthcare
and Aetna;

(b) by either U.S. Healthcare or Aetna, if the
Merger has not been consummated by the date twelve
months following the date of this Agreement;

(c) by either U.S. Healthcare or Aetna, if there
shall be any law or regulation that makes consummation
of either of the Mergers illegal or otherwise
prohibited or if any judgment, injunction, order or
decree enjoining Aetna or U.S. Healthcare from
consummating their respective Mergers is entered and
such judgment, injunction, order or decree shall
become final and nonappealable;

(d) by Aetna, in the event of any breach by the
Principal Shareholder of any obligations under the
Voting Agreement dated as of the date hereof (the
"Voting Agreement") among the Principal Shareholder,
Aetna Life Insurance and Annuity Company and Aetna
Life Insurance Company;

(e) (i) by U.S. Healthcare, if the approvals of
the shareholders of Aetna contemplated by this
Agreement shall not have been obtained by reason of
the failure to obtain the required vote at a duly held
meeting of shareholders or any adjournment thereof or
(ii) by Aetna, if the approvals of the shareholders of
U.S. Healthcare contemplated by this Agreement shall
not have been obtained by reason of the failure to
obtain the required vote at a duly held meeting of
shareholders or any adjournment thereof;

(f) by Aetna, if, (i) the Board of Directors of
U.S. Healthcare determines not to call or hold the
U.S. Healthcare Shareholder Meeting or (ii) prior to
the U.S. Healthcare Shareholder Meeting, the Board of
Directors of U.S. Healthcare shall have withdrawn,
modified or changed in a manner adverse to Aetna its
approval or recommendation of this Agreement or the
U.S. Healthcare Sub Merger;

(g) by U.S. Healthcare, if, (i) the Board of
Directors of Aetna determines not to call or hold the
Aetna Shareholder Meeting or (ii) prior to the Aetna
Shareholder Meeting, the Board of Directors of Aetna
shall have withdrawn, modified or changed in a manner
adverse to U.S. Healthcare its approval or
recommendation of this Agreement or the Aetna Sub
Merger;

(h) by Aetna, upon a breach of any
representation, warranty, covenant or agreement of
U.S. Healthcare, or if any representation or warranty
of U.S. Healthcare shall become untrue, in either case
such that the conditions set forth in Section 8.2(a)
would be incapable of being satisfied by the first
anniversary of the date hereof (or as otherwise
extended);

(i) by U.S. Healthcare, upon a breach of any
representation, warranty, covenant or agreement of
Aetna, or if any representation or warranty of Aetna
shall become untrue, in either case such that the
conditions set forth in Section 8.3(a) would be
incapable of being satisfied by the first anniversary
of the date hereof (or as otherwise extended);

(j) by U.S. Healthcare, upon payment to Aetna of
the amounts referred to in Section 10.4(b), if prior
to the U.S. Healthcare Shareholder Meeting, the Board
of Directors of U.S. Healthcare shall have withdrawn
or modified in a manner adverse to Aetna its approval
or recommendation of this Agreement or the U.S.
Healthcare Sub Merger in order to permit U.S.
Healthcare to execute a definitive agreement in
connection with an Acquisition Proposal with respect
to U.S. Healthcare which the Board of Directors of
U.S. Healthcare determines in good faith (based on the
presentation of an investment banking firm of national
reputation) to be more favorable to U.S. Healthcare's
shareholders than the U.S. Healthcare Sub Merger; and

(k) by U.S. Healthcare, if the Stock Purchase
Agreement is terminated in accordance with its terms.

The party desiring to terminate this Agreement pursuant
to this Section 9.1 shall give written notice of such
termination to the other party in accordance with Section
10.1.

SECTION 9.2. Effect of Termination. If this
_____________________
Agreement is terminated pursuant to Section 9.1, this
Agreement shall become void and of no effect with no
liability on the part of any party hereto, except that
(a) the agreements contained in this Section 9.2 and in
Section 10.4 shall survive the termination hereof and
(b) no such termination shall relieve any party of any
liability or damages resulting from any breach by that
party of this Agreement.

ARTICLE 10

MISCELLANEOUS

SECTION 10.1. Notices. Except as provided in
_______
Section 5.4, all notices, requests and other
communications to any party hereunder shall be in writing
(including telecopy or similar writing) and shall be
given,

if to Aetna, to:
Aetna Life and Casualty Company
151 Farmington Avenue
Hartford, CT 06156-7505
Fax: 860-549-6755
Attention: Richard L. Huber
Vice Chairman

with a copy to:

Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax: (212) 450-4800
Attention: Lewis B. Kaden

if to U.S. Healthcare, to:

U.S. Healthcare, Inc.
780 Jolly Road
P.O. Box 1109
Blue Bell, PA 19422
Fax: 215-283-6401
Attention: David Simon

with a copy to:

Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attention: Stephen M. Banker

if to Parent, to:

each of the addresses set forth above

or such other address or telecopy number as such party
may hereafter specify for the purpose by notice to the
other parties hereto. Each such notice, request or other
communication shall be effective (a) if given by
telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section and the
appropriate telecopy confirmation is received or (b) if
given by any other means, when delivered at the address
specified in this Section.

SECTION 10.2. Entire Agreement; Survival of
_____________________________
Representations and Warranties. (a) This Agreement
______________________________
(including the Exhibits hereto), the other agreements
referred to in this Agreement and the Confidentiality
Agreement constitute the entire agreement among the
parties with respect to the subject matter hereof and
thereof and supersede all prior agreements,
understandings and negotiations, both written and oral,
between the parties with respect to such subject matter.
None of this Agreement, the Confidentiality Agreement or
any other agreement contemplated hereby or thereby (or
any provision hereof or thereof) is intended to confer on
any Person other than the parties hereto or thereto any
rights or remedies (except that Sections 7.6 and 7.7 are
intended to confer rights and remedies on the Persons
specified therein, Sections 7.8 and 7.11(c) are intended
to confer rights and remedies on the Co-Presidents and
Section 7.11(b) is intended to confer rights and remedies
on the Principal Shareholder).

(b) The representations and warranties contained
herein shall not survive the Merger Date.

SECTION 10.3. Amendments; No Waivers. (a) Any
______________________
provision of this Agreement may be amended or waived
prior to the Merger Date if, and only if, such amendment
or waiver is in writing and signed, in the case of an
amendment, by U.S. Healthcare, Aetna and Parent or, in
the case of a waiver, by the party against whom the
waiver is to be effective; provided that after the
________
adoption of this Agreement by the shareholders of (i)
U.S. Healthcare, no such amendment or waiver shall,
without the further approval of such shareholders, alter
or change (A) the amount or kind of consideration to be
received in exchange for any shares of capital stock of
U.S. Healthcare, or (B) any of the terms or conditions of
this Agreement if such alteration or change would
adversely affect the holders of any shares of capital
stock of U.S. Healthcare and (ii) Aetna, no such
amendment or waiver shall, without the further approval
of such shareholders, alter or change (A) the amount or
kind of consideration to be received in exchange for any
shares of capital stock of Aetna or (B) any of the terms
or conditions of this Agreement if such alteration or
change would adversely affect the holders of any shares
of capital stock of Aetna.

(b) No failure or delay by any party in
exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right,
power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any
rights or remedies provided by law.

SECTION 10.4. Expenses. (a) Except as
________
otherwise specified in this Section 10.4 or agreed in
writing by the parties, all costs and expenses incurred
in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party
incurring such cost or expense.

(b) U.S. Healthcare agrees that if this
Agreement shall be terminated pursuant to Section
9.1(e)(ii), (f), or (j), it will pay Aetna an amount
equal to $100,000,000 plus all out-of-pocket expenses,
____
not to exceed $25,000,000, incurred by Aetna in
connection with this Agreement, the Mergers and all
related transactions by wire transfer of immediately
available funds promptly, but in no event later than two
business days, after such termination; provided that no
________
payment will be required pursuant to this Section 10.4(b)
if this Agreement is terminated pursuant to Section
9.1(e)(ii) unless, after the date hereof, U.S. Healthcare
shall have received, or there shall have been commenced,
an Acquisition Proposal with respect to U.S. Healthcare.

(c) U.S. Healthcare agrees that if this
Agreement shall be terminated pursuant to Section
9.1(e)(ii) and no payment is required by it pursuant to
Section 10.4(b), it will reimburse Aetna for all out-of-
pocket expenses (not to exceed $25,000,000) incurred by
Aetna in connection with this Agreement, the Merger and
all related transactions. Such payment shall be made by
wire transfer of immediately available funds promptly,
but in no event later than two business days, after such
termination.

(d) Aetna agrees that if this Agreement shall be
terminated (i) pursuant to Section 9.1(e)(i), (g) or (k),
or (ii) pursuant to Section 9.1(b) and (A) the condition
set forth in Section 8.1(i) has not been satisfied or
waived by Aetna and (B) all other conditions set forth in
Section 8.1 and 8.2 have theretofore been, or are then
capable of being satisfied, it will pay U.S. Healthcare
an amount equal to $100,000,000 plus all out-of-pocket
____
expenses, not to exceed $25,000,000, incurred by U.S.
Healthcare in connection with this Agreement, the Mergers
and all related transactions by wire transfer of
immediately available funds promptly, but in no event
later than two business days, after such termination;
provided that no payment will be required pursuant to
________
this Section 10.4(d) if this Agreement is terminated
pursuant to Section 9.1(e)(i) unless, after the date
hereof, Aetna shall have received, or there shall have
been commenced, an Aetna Acquisition Proposal.

(e) Aetna agrees that if this Agreement shall be
terminated pursuant to Section 9.1(e)(i) and no payment
is required by it pursuant to Section 10.4(d), it will
reimburse U.S. Healthcare for all out-of-pocket expenses
(not to exceed $25,000,000) incurred by U.S. Healthcare
in connection with this Agreement, the Mergers and all
related transactions. Such payment shall be made by wire
transfer of immediately available funds promptly, but in
no event later than two business days, after receipt by
Aetna of a written notice given by U.S. Healthcare
setting forth the amount of such expenses.

SECTION 10.5. Successors and Assigns. The
______________________
provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party
________
may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the
consent of the other parties hereto; provided further
________ _______
that Aetna may assign its rights, but not its
obligations, under this Agreement to a wholly-owned
subsidiary of Aetna.

SECTION 10.6. Governing Law. This Agreement
_____________
shall be construed in accordance with and governed by the
law of the State of New York (without regard to
principles of conflict of laws).

SECTION 10.7. Jurisdiction. Any suit, action or
____________
proceeding seeking to enforce any provision of, or based
on any matter arising out of or in connection with, this
Agreement or the transactions contemplated by this
Agreement may be brought against any of the parties in
the United States District Court for the Southern
District of New York or any state court sitting in the
City of New York, Borough of Manhattan, and each of the
parties hereto hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate
appellate courts) in any such suit, action or proceeding
and waives any objection to venue laid therein. Process
in any such suit, action or proceeding may be served on
any party anywhere in the world, whether within or
without the State of New York. Without limiting the
generality of the foregoing, each party hereto agrees
that service of process upon such party at the address
referred to in Section 10.1, together with written notice
of such service to such party, shall be deemed effective
service of process upon such party.

SECTION 10.8. Counterparts; Effectiveness. This
___________________________
Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the
same instrument. This Agreement shall become effective
when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.

IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above
written.

AETNA LIFE AND CASUALTY COMPANY

By /s/ Ronald Compton
_____________________
Name: Ronald Compton
Title: Chairman and Chief Executive Officer

U.S. HEALTHCARE, INC.

By /s/ Joseph T. Sebastianelli
______________________________
Name: Joseph T. Sebastianelli
Title: Co-President

BUTTERFLY, INC.

By /s/ Richard Huber
____________________
Name: Richard Huber
Title: Vice President

ANTELOPE SUB, INC.

By /s/ Richard Huber
____________________
Name: Richard Huber
Title: Vice President

NEW MERGER CORPORATION

By /s/ James Dickerson
______________________
Name: James Dickerson
Title: President

EXHIBIT A

FORM OF

Designations, Rights and Preferences of
6.25% Class C Non-Voting Preferred Stock

The terms, limitations and relating rights and
preferences of shares of the Corporation's Class C Non-
Voting Preferred Stock without par value to be designated
as 6.25% PACS, Class C Non-Voting Preferred Stock are
hereby fixed as follows:

SECTION 1. DESIGNATION AND AMOUNT.

The designation of the series of Class C Non-
Voting Preferred Stock created by this Article ___ shall
be "6.25% PACS, Class C Non-Voting Preferred Stock" (the
"PACS"). The authorized number of shares constituting
the PACS shall be ________ shares.

SECTION 2. DIVIDENDS.

(a) The holders of outstanding shares of PACS
shall be entitled to receive, when, as and if declared by
the Board of Directors of the Corporation, out of funds
legally available therefor, cumulative preferential
dividends from [closing date], 1996, at the rate per
share of $4.7578 per annum,* in cash payable quarterly in
equal amounts (other than with respect to the initial
dividend period) on _______________, ________________,
________________, and ____________ of each year (each
such date being hereinafter referred to as a "Dividend
Payment Date"), or, if any Dividend Payment Date is not a
business day, then the Dividend Payment Date shall be the
next succeeding business day; provided, however, that
________ _______
with respect to any dividend period during which a
redemption occurs, the Corporation may, at its option,
declare accrued dividends to, and pay such dividends on,
the redemption date, in which case such dividends would
be payable on the redemption date in cash to the holders
of the shares of PACS as of the record date for such
dividend payment and such accrued dividends would not be
included in the calculation of the related Call Price (as
hereinafter defined). Each dividend on the shares of
PACS shall be payable to holders of record as they appear
on the stock register of the Corporation on such record
date, not less than 10 nor more than 70 days preceding
the payment dates thereof, as shall be fixed by the Board
of Directors of the Corporation. The first dividend
payment shall be for the period from [closing date], 1996
to ________, 1996 and the first dividend will be payable
on _________, 1996. Dividends (or amounts equal to
accrued and unpaid dividends) payable on shares of PACS
for any period less than a full quarterly dividend period
will be computed on the basis of a 360-day year of twelve
30-day months and the actual number of days elapsed in
any period less than one month.

*If the annual dividend for the Aetna Common Stock
at the Merger Date is set at a level above $0.83 per
share, the annual PACS dividend will be determined as
follows: $4.7578 + [(annual dividend per share on Aetna
Common Stock - $0.83) x 0.8197]

Dividends on the shares of PACS will accrue on
a daily basis beginning on the date immediately following
a Dividend Payment Date (except that, with respect to the
initial Dividend Payment Date, dividends on the shares of
PACS will accrue beginning on [closing date], 1996)
whether or not there are funds legally available for the
payment of such dividends and whether or not such
dividends are declared. Accumulated unpaid dividends
shall not bear interest. Dividends will cease to accrue
in respect of shares of PACS on the Mandatory Conversion
Date (as hereinafter defined) or on the date of their
earlier conversion or redemption.

(b) So long as any shares of PACS are
outstanding, no dividends or other distributions (other
than dividends payable in Junior Securities (as defined
below) or warrants, rights or options exercisable for or
convertible into Junior Securities, together with cash in
lieu of fractional shares of Junior Securities or
fractional interests in any such warrants, rights or
options), and no redemption, purchase or other
acquisition for value (other than redemptions, purchases
or acquisitions payable in Junior Securities or warrants,
rights or options exercisable for or convertible into
Junior Securities, together with cash in lieu of
fractional shares of Junior Securities or fractional
interests in any such warrants, rights or options), shall
be paid or made, as the case may be, with respect to, nor
may any funds be set aside or made available for any
sinking fund for the purchase or redemption of, (a) the
Common Capital Stock ____ par value of the Corporation
("Common Stock") or any other class or series of the
Corporation's capital stock ranking junior to the PACS
with respect to dividends or liquidation preferences
(such capital stock, including the Common Stock,
collectively "Junior Securities") or (b) Parity Preferred
Stock (as defined below) until cumulative dividends on
the PACS and Parity Preferred Stock in the full amounts
owing for all dividend periods ending, and all amounts
payable upon redemption or conversion of PACS and Parity
Preferred Stock, on or prior to the date on which the
proposed dividend or distribution is paid, or the
proposed redemption, purchase or other acquisition is
effected, have been, in the case of dividends, declared
and, in all cases, paid or set apart for payment.

(c) If any dividends are not paid or set apart
in full, as aforesaid, with respect to shares of PACS and
any Parity Preferred Stock, all dividends declared with
respect to shares of PACS and any Parity Preferred Stock
shall be declared pro rata based on the number of shares
so that the amount of dividends declared per share on
shares of PACS and such Parity Preferred Stock shall in
all cases bear to each other the same ratio that accrued
dividends per share on shares of PACS and such Parity
Preferred Stock bear to each other. Holders of the
shares of PACS shall not be entitled to any dividends,
whether payable in cash, property or stock, in excess of
full cumulative dividends as provided in Section (2)(a).

(d) Subject to the foregoing provisions of
this Section (2), the Board of Directors may declare and
the Corporation may pay or set apart for payment
dividends and other distributions on any of the Junior
Securities and Parity Preferred Stock and may redeem,
purchase or otherwise acquire any Junior Securities and
Parity Preferred Stock, in either case from time to time,
and the holders of the shares of PACS shall not be
entitled to share therein.

(e) Any dividend payment made on shares of
PACS shall first be credited against the earliest accrued
but unpaid dividend due with respect to shares of PACS.

(f) All dividends paid with respect to shares
of PACS pursuant to this Section (2) shall be paid pro
rata to the holders entitled thereto.

SECTION 3. REDEMPTION AND CONVERSION.

(a) Mandatory Conversion. On [anniversary
date of closing date], 2000 (the "Mandatory Conversion
Date"), subject to (x) the right of the Corporation to
redeem the shares of PACS on or after [anniversary date
of closing date], 1999 (the "Initial Redemption Date")
and prior to the Mandatory Conversion Date, as described
below, and (y) the conversion of the shares of PACS at
the option of the holder at any time prior to the
Mandatory Conversion Date, as described below, each
outstanding share of PACS shall convert automatically
(the "Mandatory Conversion") into

(i) shares of Common Stock at the Common
Equivalent Rate (as hereinafter defined)
in effect on the Mandatory Conversion
Date; and

(ii) the right to receive an amount in cash
equal to all accrued and unpaid dividends
on such share of PACS (the "Accrued
Dividend Amount") (other than previously
declared dividends payable to a different
holder of record on a prior date) to the
Mandatory Conversion Date, whether or not
declared, out of funds legally available
for the payment of dividends. The Common
Equivalent Rate is initially one share of
Common Stock for each share of PACS and is
subject to adjustment as set forth below
(the "Common Equivalent Rate").

(b) Redemption by the Corporation.

(i) Right to Redeem. Shares of PACS are not
_______________
redeemable by the Corporation prior to the
Initial Redemption Date. At any time and
from time to time on or after the Initial
Redemption Date and prior to the Mandatory
Conversion Date, the Corporation shall
have the right to redeem, in whole or in
part, the outstanding shares of PACS.
Upon any such redemption, the Corporation
shall deliver to the holders of shares of
PACS in exchange for each share so
redeemed, the greater of (A) a number of
shares of Common Stock equal to the Call
Price (as hereinafter defined) in effect
on the redemption date, divided by the
Current Market Price of the Common Stock
determined as of the second trading day
immediately preceding the Notice Date (as
hereinafter defined) or (B) .8197 of a
share of Common Stock (each a "Redemption
Rate")(subject to adjustment as set forth
below). The public announcement of any
call for redemption shall be made prior
to, or at the time of, the mailing of the
notice of such call to holders of shares
of PACS as described below. If fewer than
all the outstanding shares of PACS are to
be redeemed, shares of PACS to be redeemed
shall be selected by the Corporation from
outstanding shares of PACS not previously
redeemed by lot or pro rata (as nearly as
may be practicable). As used in this
subparagraph (b), the term "Notice Date"
with respect to any notice given by the
Corporation in connection with a
redemption of shares of PACS means the
date on which first occurs either the
public announcement of such redemption or
the commencement of mailing of such notice
to the holders of shares of PACS.

(ii) Notice of Redemption. The Corporation
____________________
shall provide notice of any redemption of
the shares of PACS pursuant to this
subparagraph (b) to holders of record of
PACS to be called for redemption not less
than 15 days nor more than 60 days prior
to the date fixed for such redemption.
The earliest Notice Date for any call for
redemption of shares of PACS is not
earlier than [60 days prior to anniversary
date of closing], 1999. Such notice shall
be provided by mailing notice of such
redemption, first class postage prepaid,
to each holder of record of shares of PACS
to be redeemed, at such holder's address
as it appears on the stock register of the
Corporation; provided that neither failure
________
to give such notice nor any defect therein
shall affect the validity of the
proceeding for the redemption of any
shares of PACS to be redeemed except as to
the holders to whom the Corporation has
failed to give said notice or whose notice
was defective.

Each such notice shall state, as
appropriate, the following and may contain
such other information as the Corporation
deems advisable:

(A) the redemption date;

(B) that all outstanding shares of PACS
are to redeemed or, in the case of a call
for redemption of fewer than all
outstanding shares of PACS, the number of
such shares held by such holder to be
redeemed;

(C) the number of shares of Common Stock
deliverable upon redemption of each share
of PACS to be redeemed and, if applicable,
the Redemption Rate and the Current Market
Price used to calculate such number of
shares of Common Stock;

(D) the place or places where
certificates for such shares are to be
surrendered for redemption; and

(E) that dividends on the shares of PACS
to be redeemed shall cease to accrue on
such redemption date (except as otherwise
provided herein).

(i) Deposit of Shares and Funds. The
___________________________
Corporation's obligation to deliver shares
of Common Stock and provide funds upon
redemption in accordance with Sections
3(a) and 3(b) shall be deemed fulfilled
if, on or before the Mandatory Conversion
Date or a redemption date, as applicable,
the Corporation shall irrevocably deposit,
with a bank or trust company, or an
affiliate of a bank or trust company,
having an office or agency in New York
City, or shall set aside or make other
reasonable provision for the issuance of
such number of shares of Common Stock as
are required to be delivered by the
Corporation pursuant to Section 3(a) or
3(b), as the case may be, upon the
occurrence of the Mandatory Conversion or
the related redemption (and for the
payment of cash in lieu of the issuance of
fractional share amounts and accrued and
unpaid dividends payable in cash on the
shares to be redeemed as and to the extent
provided by Section 3(a) or 3(b), as the
case may be). Any interest accrued on
such funds shall be paid to the
Corporation from time to time. Subject to
applicable laws, any shares of Common
Stock or funds so deposited and unclaimed
at the end of two years from such
redemption date shall be repaid and
released to the Corporation, after which
time the holder or holders of such shares
of PACS so converted or called for
redemption shall look only to the
Corporation for delivery of such shares of
Common Stock or funds.

(ii) Surrender of Certificates; Status. Each
_________________________________
holder of shares of PACS to be converted
or redeemed pursuant to Section 3(a) or
3(b), as the case may be, shall surrender
the certificates evidencing such shares
(properly endorsed or assigned for
transfer, if the Board of Directors shall
so require and the notice shall so state)
to the Corporation at the place designated
by the Corporation and shall thereupon be
entitled to receive certificates
evidencing shares of Common Stock and to
receive any funds payable pursuant to
Sections 3(a) or 3(b), as the case may be,
following such surrender and following the
date of such conversion or redemption. In
case fewer than all the shares represented
by any such surrendered certificate are
called for redemption, a new certificate
shall be issued at the expense of the
Corporation representing the unredeemed
shares. If, on the Mandatory Conversion
Date, or, in the event of a redemption, on
the date fixed for redemption, as the case
may be, shares of Common Stock and funds
necessary for such Mandatory Conversion or
redemption, as applicable, shall have been
irrevocably either set aside by the
Corporation separate and apart from its
other funds or assets in trust for the
account of the holders of the shares to be
converted or to be redeemed (and so as to
be and continue to be available therefor)
or deposited with a bank or trust company
or an affiliate thereof or the Corporation
shall have made other reasonable provision
therefor, then, notwithstanding that the
certificates evidencing any shares of PACS
so converted or called for redemption
shall not have been surrendered, the
shares of PACS represented thereby so
converted or called for redemption shall
be deemed no longer outstanding, dividends
with respect to the shares so converted or
called for redemption shall cease to
accrue on the Mandatory Conversion Date or
the date fixed for redemption, as
applicable, (except that holders of shares
of PACS at the close of business on a
record date for any payment of dividends
shall be entitled to receive the dividend
payable on such shares on the
corresponding Dividend Payment Date
notwithstanding the redemption of such
shares following such record date and
prior to such Dividend Payment Date) and
all rights with respect to the shares so
converted or called for redemption shall
forthwith after such date cease and
terminate, except for the rights of the
holders to receive the shares of Common
Stock and funds, if any, payable pursuant
to Sections 3(a) or 3(b) without interest
upon surrender of their certificates
therefor (unless the Corporation defaults
on the delivery of such shares or the
payment of such funds). Holders of shares
of PACS that are converted or redeemed
shall not be entitled to receive dividends
declared and paid on such shares of Common
Stock, and such shares of Common Stock
shall not be entitled to vote, until such
shares of Common Stock are issued upon the
surrender of the certificates representing
such shares of PACS and upon such
surrender such holders shall be entitled
to receive such dividends declared and
paid on such shares of Common Stock
subsequent to such redemption date or
Mandatory Conversion Date with interest
thereon. Amounts payable in cash in
respect of shares of PACS or shares of
Common Stock shall not bear interest.

(d) Conversion at Option of Holder. Shares of
PACS are convertible, in whole or in part, at the option
of the holder thereof, at any time prior to the Mandatory
Conversion Date, unless previously redeemed, into shares
of Common Stock at a rate of .8197 of a share of Common
Stock for each share of PACS (the "Optional Conversion
Rate"), subject to adjustment as set forth below. The
right to convert shares of PACS called for redemption
shall terminate immediately prior to the close of
business on the redemption date with respect to such
shares.

Conversion of shares of PACS at the option of
the holder may be effected by delivering certificates
evidencing such shares, together with written notice of
conversion and a proper assignment of such certificates
to the Corporation or in blank, to the office or agency
to be maintained by the Corporation for that purpose
(and, if applicable, cash payment of an amount equal to
the dividend payable on such shares), and otherwise in
accordance with conversion procedures established by the
Corporation. Each optional conversion shall be deemed to
have been effected immediately prior to the close of
business on the date on which the foregoing requirements
shall have been satisfied. The conversion shall be at
the Optional Conversion Rate in effect at such time and
on such date.

Holders of shares of PACS at the close of
business on a record date for any payment of declared
dividends shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend
Payment Date notwithstanding the conversion of such
shares following such record date and prior to the
corresponding Dividend Payment Date. However, shares of
PACS surrendered for conversion after the close of
business on a record date for any payment of dividends
and before the opening of business on the next succeeding
Dividend Payment Date must be accompanied by payment to
the Corporation in cash of an amount equal to the
dividend thereon which is to be paid on such Dividend
Payment Date (unless such shares have been called for
redemption on a redemption date between such record date
and such Dividend Payment Date). A holder of shares of
PACS called for redemption on [anniversary date of
closing date], 1999 or any other Dividend Payment Date
thereafter will receive the dividend on such shares
payable on that date without paying an amount equal to
such dividend to the Corporation upon conversion. Except
as provided above, upon any optional conversion of shares
of PACS, the Corporation shall make no payment or
allowance for unpaid dividends, whether or not in
arrears, on converted shares of PACS or for previously
declared dividends or distributions on the shares of
Common Stock issued upon such conversion.

(e) Adjustments of the Common Equivalent Rate,
Optional Conversion Rate and Redemption Rate. The Common
Equivalent Rate, the Optional Conversion Rate and the
Redemption Rates (collectively, the "Rates") shall be
each subject to adjustment from time to time as provided
below in this section (e).

(i) If the Corporation shall, after
[closing date], 1996:

(A) pay a stock dividend or make a
distribution with respect to its
Common Stock in shares of such
Common Stock,

(B) subdivide or split its
outstanding Common Stock into a
greater number of shares,

(D) issue by reclassification of its
shares of Common Stock any
shares of Common Stock of the
Corporation;

then, in any such event, the Rates in
effect immediately prior to such
event shall each be adjusted so that
the holder of any shares of PACS
shall thereafter be entitled to
receive, upon Mandatory Conversion or
upon conversion at the option of the
holder or redemption, the number of
shares of Common Stock of the
Corporation which such holder would
have owned or been entitled to
receive immediately following any
event described above had such shares
of PACS been converted immediately
prior to such event or any record
date with respect thereto. Such
adjustment shall become effective at
the opening of business on the
business day next following the
record date for determination of
stockholders entitled to receive such
dividend or distribution, in the case
of a dividend or distribution, and
shall become effective immediately
after the effective date, in the case
of a subdivision, split, combination
or reclassification. Such
adjustments shall be made
successively.

(ii) If the Corporation shall, after
[closing date], 1996, issue rights or
warrants to all holders of its Common
Stock (other than Rights issued
pursuant to any Rights Plan of the
Corporation) entitling them to
subscribe for or purchase shares of
Common Stock at a price per share
less than the Current Market Price at
the time of such issue, then, in any
such event unless such rights or
warrants are issued to holders of
shares of PACS on a pro rata basis
with the shares of Common Stock based
on the Common Equivalent Rate on the
date immediately preceding such
issuance, each Rate shall be adjusted
by multiplying such Rate, in effect
immediately prior to the date of
issuance of such rights or warrants,
by a fraction, of which the numerator
shall be the number of shares of
Common Stock outstanding on the date
of issuance of such rights or
warrants, immediately prior to such
issuance, plus the number of
additional shares of Common Stock
offered for subscription or purchase
pursuant to such rights or warrants,
and of which the denominator shall be
the number of shares of Common Stock
outstanding on the date of issuance
of such rights or warrants,
immediately prior to such issuance,
plus the number of additional shares
of Common Stock which the aggregate
offering price of the total number of
shares of Common Stock so offered for
subscription or purchase pursuant to
such rights or warrants would
purchase at such Current Market Price
(determined by multiplying such total
number of shares by the exercise
price of such rights or warrants and
dividing the product so obtained by
such Current Market Price). Such
adjustment shall become effective at
the opening of business on the
business day next following the
record date for the determination of
stockholders entitled to receive such
rights or warrants. To the extent
that shares of Common Stock are not
delivered after the expiration of
such rights or warrants, each Rate
shall be readjusted to the applicable
Rate which would then be in effect
had the adjustments been made upon
the issuance of such rights or
warrants upon the basis of delivery
of only the number of shares of
Common Stock actually delivered.
Such adjustment shall be made
successively.

(iii) If the Corporation shall after
[closing date], 1996, pay a
dividend or make a distribution
to all holders of its Common
Stock of evidences of its
indebtedness, cash or other
assets (including capital stock
of the Corporation or any
subsidiary of the Corporation,
but excluding (x) the
Corporation's regular quarterly
cash dividend and (y) dividends
referred to in subparagraph (i)
above) or shall issue to all
holders of its Common Stock
rights or warrants to subscribe
for or purchase any of its
securities (other than Rights
issued pursuant to any Rights
Plan of the Corporation and
those referred to in
subparagraph (ii) above), then
unless such dividend is paid or
distribution is made to each
holder of shares of PACS on a
pro rata basis with the shares
of Common Stock based on the
Common Equivalent Rate on the
date immediately preceding such
payment or distribution, in any
such event, each Rate shall be
adjusted by multiplying such
Rate in effect on the record
date mentioned below, by a
fraction of which the numerator
shall be the Current Market
Price per share of the Common
Stock on the record date for the
determination of stockholders
entitled to receive such
dividend or distribution, and of
which the denominator shall be
such Current Market Price per
share of Common Stock less the
fair market value (as determined
in good faith by the Board of
Directors, whose good faith
determination shall be
conclusive, and described in a
resolution adopted with respect
thereto) as of such record date
of the portion of the assets or
evidences of indebtedness so
distributed or of such
subscription rights or warrants
applicable to one share of
Common Stock. Such adjustment
shall become effective on the
opening of business on the
business day next following the
record date for the
determination of stockholders
entitled to receive such
dividend or distribution. Such
adjustment shall be made
successively.

(iv) Any shares of Common Stock issuable
in payment of a dividend or other
distribution shall be deemed to have
been issued immediately prior to the
close of business on the record date
for such dividend or other
distribution for purposes of
calculating the number of outstanding
shares of Common Stock under
subsection (ii) above.

(v) The Corporation shall also be
entitled to make upward adjustments
in the Common Equivalent Rate, the
Optional Conversion Rate, the
Redemption Rate and the Call Price,
as it in its sole discretion shall
determine to be advisable, in order
that any stock dividends,
subdivisions of shares, distribution
of rights to purchase stock or
securities, or distribution of
securities convertible into or
exchangeable for stock (or any
transaction which could be treated as
any of the foregoing transactions
pursuant to Section 305 of the
Internal Revenue Code of 1986, as
amended) made by the Corporation to
its stockholders after [closing
date], 1996 shall not be taxable.

(vi) In any case in which subsection 4(e)
shall require that an adjustment as a
result of any event becomes effective
at the opening of business on the
business day next following a record
date and the date fixed for
conversion pursuant to subsection
3(a) or redemption pursuant to
subsection 3(b) or 3(d) occurs after
such record date, but before the
occurrence of such event, the
Corporation may, in its sole
discretion, elect to defer the
following until after the occurrence
of such event: (A) issuing to the
holder of any converted or redeemed
shares of PACS the additional shares
of Common Stock issuable upon such
conversion or redemption over the
shares of Common Stock issuable
before giving effect to such
adjustments and (B) paying to such
holder any amount in cash in lieu of
a fractional share of Common Stock
pursuant to subsection 3(j).

(vii) All adjustments to the Rates
shall be calculated to the
nearest 1/100th of a share of
Common Stock. No adjustment in
the Rates shall be required
unless such adjustment would
require an increase or decrease
of at least one percent therein;
provided, however, that any
adjustment which by reason of
this subsection (vii) is not
required to be made shall be
carried forward and taken into
account in any subsequent
adjustment.

(f) Adjustment for Consolidation or Merger.
In case of any consolidation or merger to which the
Corporation is a party (other than a merger or
consolidation in which the Corporation is the surviving
or continuing corporation and in which the Common Stock
outstanding immediately prior to the merger or
consolidation remains unchanged), or in the case of any
sale or transfer to another corporation of the property
of the Corporation as an entirety or substantially as an
entirety, proper provisions shall be made so that each
share of PACS shall, after consummation of such
transaction, be subject to (i) conversion at the option
of the holder into the kind and amount of securities,
cash or other property receivable upon consummation of
such transaction by a holder of the number of shares of
Common Stock into which such share of PACS might have
been converted immediately prior to consummation of such
transaction, (ii) conversion on the Mandatory Conversion
Date into the kind and amount of securities, cash or
other property receivable upon consummation of such
transaction by a holder of the number of shares of Common
Stock into which such shares of PACS would have converted
if the conversion on the Mandatory Conversion Date had
occurred immediately prior to the date of consummation of
such transaction, plus the right to receive cash in an
amount equal to all accrued and unpaid dividends on such
shares of PACS (other than previously declared dividends
payable to a holder of record as of a prior date), and
(iii) redemption on any redemption date in exchange for
the kind and amount of securities, cash or other property
receivable upon consummation of such transaction by a
holder of the number of shares of Common Stock that would
have been issuable at the Redemption Rate in effect on
such redemption date upon a redemption of such share
immediately prior to consummation of such transaction,
assuming in each case that such holder of Common Stock
failed to exercise rights of election, if any, as to the
kind or amount of securities, cash or other property
receivable upon consummation of such transaction
(provided that if the kind or amount of securities, cash
or other property receivable upon consummation of such
transaction is not the same for each non-electing share,
then the kind and amount of securities, cash or other
property receivable upon consummation of such transaction
for each non-electing share shall be deemed to be the
kind and amount so receivable per share by a plurality of
the non-electing shares). The kind and amount of
securities into or for which the shares of PACS shall be
convertible or redeemable after consummation of such
transaction shall be subject to adjustment as described
in Section 3(e) following the date of consummation of
such transaction. The Corporation may not become a party
to any such transaction unless (A) the terms thereof are
consistent with the foregoing or (B) the holders of
shares of PACS shall have approved other terms in
accordance with the provisions of Section 5(c).

For purposes of the immediately preceding
paragraph, any sale or transfer to another corporation of
property of the Corporation which did not account for at
least 50% of the consolidated net income of the
Corporation for its most recent fiscal year ending prior
to the consummation of such transaction shall not in any
event be deemed to be a sale or transfer of the property
of the Corporation as an entirety or substantially as an
entirety.

(g) Notices of Adjustments. (i) Whenever the
Rates are adjusted as herein provided, the Corporation
shall:

(A) forthwith compute the adjusted Rates
in accordance herewith and prepare a
certificate signed by an officer of
the Corporation setting forth the
adjusted Rates, the method of
calculation thereof in reasonable
detail and the facts requiring such
adjustment and upon which such
adjustment is based, which
certificate shall be conclusive,
final and binding evidence of the
correctness of the adjustment, and
file such certificate forthwith with
the transfer agent for the shares of
PACS and the Common Stock; and

(B) make a prompt public announcement and
mail a notice to the holders of the
outstanding shares of PACS stating
that the Rates have been adjusted,
the facts requiring such adjustment
and upon which such adjustment is
based and setting forth the adjusted
Rates, such notice to be mailed at
or prior to the time the Corporation
mails an interim statement to its
stockholders covering the fiscal
quarter during which the facts
requiring such adjustment occurred,
but in any event within 45 days of
the end of such fiscal quarter.

(ii) In case, at any time while any of the
shares of PACS are outstanding,

(A) the Corporation shall declare a
dividend (or any other distribution)
on its Common Stock, excluding any
cash dividends; or

(B) the Corporation shall authorize the
issuance to all holders of its Common
Stock of rights or warrants to
subscribe for or purchase shares of
its Common Stock or of any other
subscription rights or warrants; or

(C) the Corporation shall authorize any
reclassification, subdivision or
split of its Common Stock (other
than a subdivision or combination
thereof) or any consolidation or
merger to which the Corporation is a
party and for which approval of any
stockholders of the Corporation is
required (except for a merger of the
Corporation into one of its
subsidiaries solely for the purpose
of changing the corporate domicile of
the Corporation to another state of
the United States and in connection
with which there is no substantive
change in the rights or privileges of
any securities of the Corporation
other than changes resulting from
differences in the corporate statutes
of the then existing and the new
state of domicile), or the sale or
transfer to another corporation of
the property of the Corporation as an
entirety or substantially as an
entirety; or

(D) the Corporation shall authorize the
voluntary or involuntary dissolution,
liquidation or winding up of the
Corporation;

then the Corporation shall cause to be filed at each
office or agency maintained for the purpose of conversion
of the shares of PACS, and shall cause to be mailed to
the holders of shares of PACS at their last addresses as
they shall appear on the stock register, at least 10 days
before the date hereinafter specified (or the earlier of
the dates hereinafter specified, in the event that more
than one date is specified), a notice stating (A) the
date on which a record is to be taken for the purpose of
such dividend, distribution, rights or warrants, or, if a
record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such
dividend, distribution, rights or warrants are to be
determined, or (B) the date on which any such
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected
that holders of Common Stock of record shall be entitled
to exchange their Common Stock for securities or other
property (including cash), if any, deliverable upon such
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up. The failure to
give or receive the notice required by this subsection
(g)(ii) or any defect therein shall not affect the
legality or validity of such dividend, distribution,
right or warrant or other action.

(h) Effect of Conversions and Redemptions.
The person or persons in whose name or names any
certificate or certificates for shares of Common Stock
shall be issuable upon any conversion or redemption shall
be deemed to have become on the date of any such
conversion or redemption the holder or holders of record
of the shares represented thereby; provided, however,
that any such surrender on any date when the stock
transfer books of the Corporation shall be closed shall
constitute the person or persons in whose name or names
the certificate or certificates for such shares are to be
issued as the record holder or holders thereof for all
purposes at the opening of business on the next
succeeding day on which such stock transfer books are
open.

(i) No Fractional Shares. No fractional
shares or scrip representing fractional shares of Common
Stock shall be issued upon the redemption or conversion
of any shares of PACS. In lieu of any fractional share
otherwise issuable in respect of the aggregate number of
shares of PACS of any holder which are redeemed or
converted on any redemption date or upon Mandatory
Conversion or any optional conversion, such holder shall
be entitled to receive an amount in cash (computed to the
nearest cent) equal to the value of such fractional
shares based on the (i) Current Market Price as of the
second Trading Date immediately preceding the Notice
Date, in the case of redemption, or (ii) Closing Price of
the Common Stock determined (A) as of the fifth Trading
Date immediately preceding the Mandatory Conversion Date,
in the case of Mandatory Conversion, or (B) as of the
second Trading Date immediately preceding the effective
date of conversion, in the case of an optional conversion
by a holder. If more than one share shall be surrendered
for conversion or redemption at one time by or for the
same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of PACS so
surrendered or redeemed.

(j) Reissuance. Shares of PACS that have been
issued and reacquired in any manner, including shares
purchased, exchanged, redeemed or converted, shall not be
reissued as part of PACS and shall (upon compliance with
any applicable provisions of the laws of the State of
Connecticut) have the status of authorized and unissued
shares of preferred stock of the Corporation ("Preferred
Stock") undesignated as to series and may be redesignated
and reissued as part of any series of Preferred Stock.

(k) Definitions. As used in this Article ___:

(i) the term "Business Day" shall mean any day
other than a Saturday, Sunday, or a day on
which banking institutions in the State of
New York or the State of Connecticut are
authorized or obligated by law or
executive order to close or are closed
because of a banking moratorium or
otherwise;

(ii) the term "Call Price" of each share of
PACS shall be the sum of (x) $76 1/8 and
(y) all accrued and unpaid dividends
thereon to but not including the
redemption date (other than previously
declared dividends payable to a holder of
record as of a prior date);

(iii) the term "Closing Price" on any day
shall mean the last reported sales
price on such day or, in case no such
sale takes place on such day, the
average of the reported closing high
and low quotations, in either case on
the principal national securities
exchange on which the Common Stock is
listed or admitted to trading or, if
the Common Stock is not listed or
admitted to trading on a national
securities exchange, on the Nasdaq
National Market System, or, if the
Common Stock is not listed or
admitted to trading on a national
securities exchange or the Nasdaq
National Market System, the average
of the high bid and low-asked
quotations of the Common Stock in the
over-the-counter market on the day in
question as reported by the National
Quotation Bureau Incorporated, or a
similarly generally accepted
reporting service, or, if no such
quotations are available, the fair
market value of the Common Stock as
determined by any New York Stock
Exchange member firm selected from
time to time by the Board of
Directors for such purpose;

(iv) the term "Current Market Price" per share
of Common Stock at any date shall be
deemed to be the lesser of (x) the average
of the daily Closing Prices for the twenty
consecutive Trading Dates ending on and
including the date in question or (y) the
Closing Price of the Common Stock for such
date of determination; provided, that, if
________
any event that results in an adjustment of
the Common Equivalent Rate occurs during
such twenty day period, the Current Market
Price as determined pursuant to the
foregoing shall be appropriately adjusted
to reflect the occurrence of such event;

(v) the term "Parity Preferred Stock" means
the Corporation's Class A Voting Preferred
Stock without par value and Class B
Preferred Stock without par value and any
other class or series of the Corporation's
Preferred Stock that by its terms ranks on
a parity as to both the payment of
dividends and distribution of assets upon
a liquidation of the Corporation; and

(vi) the term "Trading Date" shall mean a date
on which the New York Stock Exchange (or
any successor thereto) is open for the
transaction of business.

(l) Payment of Taxes. The Corporation shall
pay any and all documentary, stamp or similar issue or
transfer taxes payable in respect of the issue or
delivery of shares of Common Stock on the redemption or
conversion of shares of PACS pursuant to this Section 3;
provided, however, that the Corporation shall not be
________ _______
required to pay any tax which may be payable in respect
of any registration of transfer involved in the issue or
delivery of shares of Common Stock in a name other than
that of the registered holder of shares of PACS redeemed
or converted or to be redeemed or converted, and no such
issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation
the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been
paid.

(m) Reservation of Common Stock. The
Corporation shall at all times reserve and keep
available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock
and/or its issued Common Stock held in its treasury, for
the purpose of effecting any Mandatory Conversion of the
shares of PACS or any conversion of the shares of PACS at
the option of the holder, the full number of shares of
Common Stock then deliverable upon any such conversion of
all outstanding shares of PACS.

SECTION 4. LIQUIDATION RIGHTS.

(a) In the event of the liquidation,
dissolution, or winding up of the business of the
Corporation, whether voluntary or involuntary, the
holders of shares of PACS then outstanding, after payment
or provision for payment of the debts and other
liabilities of the Corporation and the payment or
provision for payment of any distribution on any shares
of the Corporation having a preference and a priority
over the shares of PACS on liquidation, and before any
distribution to the holders of Junior Securities, shall
be entitled to be paid out of the assets of the
Corporation available for distribution to its
stockholders an amount per share of PACS in cash equal to
the sum of (i) $76 1/8 plus (ii) all accrued and unpaid
dividends thereon. All amounts paid in respect of such
liquidation, dissolution or winding up shall be paid pro
rata to the holders of PACS entitled thereto. In the
event the assets of the Corporation available for
distribution to the holders of the shares of PACS upon
any dissolution, liquidation or winding up of the
Corporation shall be insufficient to pay in full the
liquidation payments payable to the holders of
outstanding shares of PACS and of all other series of
Parity Securities, the holders of shares of PACS and of
all series of Parity Securities shall share ratably in
such distribution of assets in proportion to the amount
which would be payable on such distribution if the
amounts to which the holders of outstanding shares of
PACS and the holders of outstanding shares of such Parity
Preferred Stock were paid in full. Except as provided in
this Section 4, holders of PACS shall not be entitled to
any distribution in the event of liquidation, dissolution
or winding up of the affairs of the Corporation.

(b) For the purposes of this Section 4, none
of the following shall be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation:

(i) the sale, transfer, lease or exchange
of the assets of the Corporation as
an entirety or substantially as an
entirety; or

(ii) the consolidation or merger of the
Corporation with one or more other
corporations (whether or not the
Corporation is the corporation
surviving such consolidation or
merger).

SECTION 5. VOTING RIGHTS.

(a) The holders of record of shares of PACS
shall not be entitled to any voting rights except as
provided in Section 5 or as otherwise provided by law.**

(**) At Aetna's election, the terms of the PACS may be
modified to provide for voting rights as determined by
Aetna. In that event, the PACS shall be designated
"6.25% Class A Voting Preferred Stock."

(b) For so long as any shares of PACS are
outstanding, if at any time dividends payable on the
shares of PACS or any other series of Preferred Stock are
in arrears and unpaid in an aggregate amount equal to or
exceeding the aggregate amount of dividends payable
thereon for six quarterly dividend periods, or if any
other series of Preferred Stock shall be entitled for any
other reason to exercise voting rights, separate from the
Common Stock, to elect any Directors of the Corporation
("Preferred Stock Directors"), the holders of the shares
of PACS, voting separately as a class with the holders of
all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable,
with each share of PACS entitled to vote on this and
other matters upon which holders of Preferred Stock vote
as a group, shall have the right to vote for the election
of two Preferred Stock Directors of the Corporation, such
Directors to be in addition to the number of Directors
constituting the Board of Directors immediately prior to
the accrual of such right. Such right of the holders of
shares of PACS to elect two Preferred Stock Directors
shall, when vested, continue until all dividends in
arrears on the shares of PACS and such other series of
Preferred Stock shall have been paid in full and the
right of any other series of Preferred Stock to exercise
voting rights, separate from the Common Stock, to elect
Preferred Stock Directors shall terminate or have
terminated and, when so paid, and any such termination
occurs or has occurred, such right of the holders of
shares of PACS to elect two Preferred Stock Directors
separately as a class shall cease, subject always to the
same provisions for the vesting of such right of the
holders of the shares of PACS to elect two Preferred
Stock Directors in the case of future dividend defaults.

The term of office of each Director elected
pursuant to the preceding paragraph shall terminate on
the earlier of (i) the next annual meeting of
stockholders at which a successor shall have been elected
and qualified or (ii) the termination of the right of the
holders of shares of PACS and such other series of
Preferred Stock to vote for Directors pursuant to the
preceding paragraph. Vacancies on the Board of Directors
resulting from the death, resignation or other cause of
any such Director shall be filled exclusively by no less
than two-thirds of the remaining Directors and the
Director so elected shall hold office until a successor
is elected and qualified.

(c) For as long as any shares of PACS remain
outstanding, the affirmative consent of the holders of at
least two-thirds thereof actually voting (voting
separately as a class) given in person or by proxy, at
any annual meeting or special meeting of the shareholders
called for such purpose, shall be necessary to (i) amend,
alter or repeal any of the provisions of the Articles of
Incorporation of the Corporation which would adversely
affect the powers, preferences or rights of the holders
of the shares of PACS then outstanding or reduce the
minimum time required for any notice to which holders of
shares of PACS then outstanding may be entitled;
provided, however, that any such amendment, alteration or
________ _______
repeal that would authorize, create or increase the
authorized amount of any additional shares of Junior
Securities or any other shares of stock (whether or not
already authorized) ranking on a parity with the shares
of PACS shall be deemed not to adversely affect such
powers, preferences or rights and shall not be subject to
approval by the holders of shares of PACS; and provided
________
further that clause (i) shall not be applicable to the
_______
amendment, alteration or repeal of any provisions of the
Articles of Incorporation of the Corporation approved at
a meeting of the shareholders the record date of which is
prior to the issuance of any shares of PACS; (ii)
authorize or create, or increase the authorized amount
of, any capital stock, or any security convertible into
capital stock, of any class ranking senior to PACS as to
payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of the
Corporation; or (iii) merge or consolidate with or into
any other corporation, unless each holder of the shares
of PACS immediately preceding such merger or
consolidation shall have the right either to (A) receive
or continue to hold in the resulting corporation the same
number of shares, with substantially the same rights and
preferences, as correspond to the shares of PACS so held
or (B) convert into shares of Common Stock at the Common
Equivalent Rate in effect on the date immediately
preceding the announcement of any such merger or
consolidation.

There is no limitation on the issuance by the
Corporation of Parity Preferred Stock or of any class
ranking junior to the shares of PACS.

Notwithstanding the provisions summarized in
the preceding two paragraphs, however, no such approval
described therein of the holders of the shares of PACS
shall be required to authorize an increase in the number
of authorized shares of Preferred Stock or if, at or
prior to the time when such amendment, alteration, or
repeal is to take effect or when the authorization,
creation or increase of any such senior stock or security
is to be made, or when such consolidation or merger,
liquidation, dissolution or winding up is to take effect,
as the case may be, provision is made for the redemption
of all shares of PACS at the time outstanding.

SECTION 6. PREEMPTIVE RIGHTS.

The holders of shares of PACS shall have no
preemptive rights, including rights with respect to any
shares of capital stock or other securities of the
Corporation convertible into or carrying rights or
options to purchase any such shares.

SECTION 7. LIMITATIONS.

Except as may otherwise be required by law, the
shares of PACS shall not have any terms, limitations, and
relating rights and preferences other than those
specifically set forth in this resolution (as such
resolution may be amended from time to time) or otherwise
in the Certificate of Incorporation of the Corporation.

EXHIBIT B-1

FORM OF AFFILIATE LETTER
(U.S. Healthcare)

Butterfly, Inc.
[address]
[address]

Ladies and Gentlemen:

I have been advised that as of the date of this
letter I may be deemed to be an "affiliate" of U.S.
Healthcare, Inc., a Pennsylvania corporation ("U.S.
Healthcare"), as the term "affiliate" is defined for
purposes of paragraphs (c) and (d) of Rule 145 of the
rules and regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act").
Pursuant to the terms of the Agreement and Plan of Merger
dated as of March 30, 1996 (the "Agreement") among U.S.
Healthcare, Aetna Life and Casualty Company, a
Connecticut insurance corporation ("Aetna"), Butterfly,
Inc., a Connecticut corporation ("Parent"), New Merger
Corporation, a Pennsylvania corporation and a wholly
owned subsidiary of Parent ("U.S. Healthcare Sub") and
Antelope Sub, Inc., a Connecticut corporation and a
wholly owned subsidiary of Parent, U.S. Healthcare will
be merged with and into U.S. Healthcare Sub with U.S.
Healthcare to be the survivor in the merger (the "U.S.
Healthcare Sub Merger").

As a result of the U.S. Healthcare Sub Merger,
I will receive shares of Common Stock, par value $1.00
per share, and Preferred Stock, par value $.01 per share,
of Parent (the "Parent Securities") in exchange for
shares owned by me of Common Stock, par value $0.005 per
share, and Class B Stock, par value $0.005 per share, of
U.S. Healthcare.

I represent, warrant and covenant to Parent
that as of the date I receive any Parent Securities as a
result of the U.S. Healthcare Sub Merger:

A. I shall not make any sale, transfer or
other disposition of the Parent Securities in violation
of the Act or the Rules and Regulations.

B. I have carefully read this letter and the
Agreement and discussed the requirements of such
documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the
Parent Securities to the extent I felt necessary with my
counsel or counsel for U.S. Healthcare.

C. I have been advised that the issuance of
Parent Securities to me pursuant to the U.S. Healthcare
Sub Merger has been registered with the Commission under
the Act on a Registration Statement on Form S-4.
However, I have also been advised that, since at the time
the U.S. Healthcare Sub Merger was submitted for a vote
of the shareholders of U.S. Healthcare, I may be deemed
to have been an affiliate of U.S. Healthcare and the
distribution by me of the Parent Securities has not been
registered under the Act, I may not sell, transfer or
otherwise dispose of the Parent Securities issued to me
in the U.S. Healthcare Sub Merger unless (i) such sale,
transfer or other disposition has been registered under
the Act, (ii) such sale, transfer or under other
disposition is made in conformity with Rule 145
promulgated by the Commission under the Act, or (iii) in
the opinion of counsel reasonably acceptable to Parent,
or a "no action" letter obtained by the undersigned from
the staff of the Commission, such sale, transfer or other
disposition is otherwise exempt from registration under
the Act.

D. I understand that Parent is under no
obligation to register the sale, transfer or other
disposition of the Parent Securities by me or on my
behalf under the Act or to take any other action
necessary in order to make compliance with an exemption
from such registration available.*

E. I also understand that there will be
placed on the certificates for the Parent Securities
issued to me or any substitutions therefor, a legend
stating in substance: * Affiliate Letter of the Principal
Stockholder will contain the following additional
language: "other than pursuant to the terms of the
Registration Rights Agreement, dated as of March 30,
1996, between Parent and the Principal Stockholder."

"THE SHARES REPRESENTED BY THIS CERTIFICATE
WERE ISSUED IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY ONLY BE TRANSFERRED IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
___________ BETWEEN THE REGISTERED HOLDER
HEREOF AND BUTTERFLY, INC., A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES
OF BUTTERFLY, INC."

"THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH
RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE
IN CONNECTION WITH, ANY DISTRIBUTION THEREOF
WITHIN THE MEANING OF THE SECURITIES ACT OF
1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933."

It is understood and agreed that the legends
set forth in paragraphs E and F above shall be removed by
delivery of substitute certificates without such legend
if such legend is not required for purposes of the Act or
this Agreement.

Execution of this letter should not be
considered an admission on my part that I am an
"affiliate" of U.S. Healthcare as described in the first
paragraph of this letter or as a waiver of any rights I
may have to object to any claim that I am such an
affiliate on or after the date of this letter.

Very truly yours,

______________________
Name:

Accepted this ____ day of
____________, 1996 by
BUTTERFLY, INC.

By: _____________________________
Name:
Title
EXHIBIT B-2

FORM OF AFFILIATE LETTER
(Aetna)

Butterfly, Inc.
[address]
[address]

Ladies and Gentlemen:

I have been advised that as of the date of this
letter I may be deemed to be an "affiliate" of Aetna Life
and Casualty Company, a Connecticut insurance corporation
("Aetna"), as the term "affiliate" is defined for
purposes of paragraphs (c) and (d) of Rule 145 of the
rules and regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the
"Act"). Pursuant to the terms of the Agreement and Plan
of Merger dated as of March 30, 1996, (the "Agreement")
among Aetna, U.S. Healthcare, Inc., a Pennsylvania
corporation ("U.S. Healthcare"), Butterfly, Inc., a
Connecticut corporation ("Parent"), Antelope Sub, Inc., a
Connecticut corporation and a wholly owned subsidiary of
Parent ("Aetna Sub") and New Merger Corporation, a
Pennsylvania corporation and wholly owned subsidiary of
Parent, Aetna will be merged with and into Aetna Sub with
Aetna to be the survivor in the merger (the "Aetna Sub
Merger").

As a result of the Aetna Sub Merger, I will
receive shares of Common Stock, par value $1.00 per
share, of Parent (the "Parent Securities") in exchange
for shares owned by me of Common Stock, without par
value, of Aetna.

I represent, warrant and covenant to Parent
that as of the date I receive any Parent Securities as a
result of the Aetna Sub Merger:

A. I shall not make any sale, transfer or
other disposition of the Parent Securities in violation
of the Act or the Rules and Regulations.

C. I have been advised that the issuance of
Parent Securities to me pursuant to the Aetna Sub Merger
has been registered with the Commission under the Act on
a Registration Statement on Form S-4. However, I have
also been advised that, since at the time the Aetna Sub
Merger was submitted for a vote of the shareholders of
Aetna, I may be deemed to have been an affiliate of Aetna
and the distribution by me of the Parent Securities has
not been registered under the Act, I may not sell,
transfer or otherwise dispose of the Parent Securities
issued to me in the Aetna Sub Merger unless (i) such
sale, transfer or other disposition has been registered
under the Act, (ii) such sale, transfer or under other
disposition is made in conformity with Rule 145
promulgated by the Commission under the Act, or (iii) in
the opinion of counsel reasonably acceptable to Parent,
or a "no action" letter obtained by the undersigned from
the staff of the Commission, such sale, transfer or other
disposition is otherwise exempt from registration under
the Act.

E. I also understand that there will be placed
on the certificates for the Parent Securities issued to
me or any substitutions therefor, a legend stating in
substance:

F. I also understand that unless the transfer
by me of my Parent Securities has been registered under
the Act or is a sale made in conformity with the
provisions of Rule 145, Parent reserves the right to put
the following legend on the certificates issued to my
transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH
RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE
IN CONNECTION WITH, ANY DISTRIBUTION THEREOF
WITHIN THE MEANING OF THE SECURITIES ACT OF
1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933."

Execution of this letter should not be
considered an admission on my part that I am an
"affiliate" of Aetna as described in the first paragraph
of this letter or as a waiver of any rights I may have to
object to any claim that I am such an affiliate on or
after the date of this letter.

Very truly yours,

______________________
Name:

Accepted this ____ day of
____________, 1996 by
BUTTERFLY, INC.

By: _____________________________
Name:
Title:

CONFORMED COPY

VOTING AGREEMENT

Agreement dated as of March 30, 1996 among
Leonard Abramson (the "Principal Shareholder"), Aetna
Life Insurance Company, a Connecticut insurance
corporation, Aetna Life Insurance and Annuity Company, a
Connecticut insurance corporation (collectively, the
"Other Shareholders"). Capitalized terms used but not
defined herein shall have the meanings ascribed to such
terms in the Merger Agreement (as defined below).

In consideration of the execution by Aetna Life
and Casualty Company, a Connecticut insurance corporation
("Aetna"), of the Agreement and Plan of Merger dated as
of March 30, 1996 (the "Merger Agreement") among Aetna,
U.S. Healthcare, Inc., a Pennsylvania corporation ("U.S.
Healthcare"), Butterfly, Inc. ("Parent"), a Connecticut
corporation, New Merger Corporation, a Pennsylvania
corporation, and Antelope Merger Sub, Inc., a Connecticut
corporation, a copy of which is attached as Exhibit A
hereto, and other good and valuable consideration,
receipt of which is hereby acknowledged, the Principal
Shareholder and the Other Shareholders hereby agree as
follows:

1. Representations and Warranties of Principal
___________________________________________
Shareholder. The Principal Shareholder hereby represents
___________
and warrants to the Other Shareholders as follows:

(a) Title. As of the date hereof, the
_____
Principal Shareholder beneficially owns 1,818,755 shares
(including 1,806,803 shares held in various trusts for
the benefit of his children and grandchildren, but not
including any stock options owned by him) of Common Stock
("Common Stock"), par value $0.005 per share, of U.S.
Healthcare and 14,441,955 shares of Class B Stock ("Class
B Stock"), par value $0.005 per share, of U.S. Healthcare
(the shares of Class B Stock so owned by Principal
Shareholder, the "Class B Shares"). As of the date
hereof, the Principal Shareholder holds options to
purchase 450,000 shares of Common Stock, all of which
will become exercisable upon execution and delivery of
the Merger Agreement. The Principal Shareholder holds no
options to purchase Class B Stock and, except as set
forth in this Section 1(a), as of the date hereof the
Principal Shareholder does not (i) beneficially own any
shares of any class or series of capital stock of U.S.
Healthcare or any securities convertible into or
exercisable for shares of any class or series of U.S.
Healthcare's capital stock or (ii) have any rights to
acquire any shares of any class or series of capital
stock of U.S. Healthcare or any securities convertible
into or exercisable for shares of any class of U.S.
Healthcare's capital stock. The Principal Shareholder
owns the Class B Shares free and clear of all liens,
claims, options, charges or other encumbrances. The
Class B Shares represent approximately 83.7% of the total
voting power of U.S. Healthcare's capital stock as of the
date hereof.

(b) Right to Vote. The Principal Shareholder
_____________
has full legal power, authority and right to vote all
Class B Shares in favor of approval and adoption of the
Merger Agreement and the transactions contemplated by the
Merger Agreement without the consent or approval of, or
any other action on the part of, any other person or
entity. Without limiting the generality of the
foregoing, except for this Agreement, the Principal
Shareholder has not entered into any voting agreement
with any person or entity with respect to any of the
Class B Shares, granted any person or entity any proxy
(revocable or irrevocable) or power of attorney with
respect to any of the Class B Shares, deposited any of
the Class B Shares in a voting trust or entered into any
arrangement or agreement with any person or entity
limiting or affecting the Principal Shareholder's legal
power, authority or right to vote the Class B Shares in
favor of the approval and adoption of the Merger
Agreement or any of the transactions contemplated by the
Merger Agreement. As of the date of the U.S. Healthcare
shareholders meeting to vote on approval and adoption of
the Merger Agreement and, to the extent submitted to
shareholders for approval, the transactions contemplated
by the Merger Agreement, including any adjournment or
postponement thereof (the "U.S. Healthcare Shareholders
Meeting"), except for this Agreement, the Principal
Shareholder will have full legal power, authority and
right to vote all Class B Shares in favor of the approval
and adoption of the Merger Agreement and the transactions
contemplated by the Merger Agreement without the consent
or approval of, or any other action on the part of, any
other person or entity. From and after the date hereof,
the Principal Shareholder will not commit any act that
could restrict or otherwise affect such legal power,
authority and right to vote all Class B Shares in favor
of the approval and adoption of the Merger Agreement and
the transactions contemplated by the Merger Agreement.
Without limiting the generality of the foregoing, from
and after the date hereof the Principal Shareholder will
not enter into any voting agreement with any person or
entity with respect to any of the Class B Shares, grant
any person or entity any proxy (revocable or irrevocable)
or power of attorney with respect to any of the Class B
Shares, deposit any of the Class B Shares in a voting
trust or otherwise enter into any agreement or
arrangement limiting or affecting the Principal
Shareholder's legal power, authority or right to vote the
Class B Shares in favor of the approval and adoption of
the Merger Agreement and the transactions contemplated by
the Merger Agreement (other than this Agreement).

(c) Authority. The Principal Shareholder has
_________
full legal power, authority and right to execute and
deliver, and to perform his obligations under, this
Agreement. This Agreement has been duly executed and
delivered by the Principal Shareholder and constitutes a
valid and binding agreement of the Principal Shareholder
enforceable against the Principal Shareholder in
accordance with its terms, subject to (i) bankruptcy,
insolvency, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors'
rights generally and (ii) general principles of equity
(regardless of whether considered in a proceeding at law
or in equity).

(d) Conflicting Instruments; No Transfer.
____________________________________
Neither the execution and delivery of this Agreement nor
the performance by the Principal Shareholder of his
agreements and obligations hereunder will result in any
breach or violation of or be in conflict with or
constitute a default under any term of (i) any agreement,
judgment, injunction, order, decree, law, regulation or
arrangement to which the Principal Shareholder is a party
or by which the Principal Shareholder (or any of his
assets) is bound, except for any such breach, violation,
conflict or default which, individually or in the
aggregate, would not impair or affect the Principal
Shareholder's ability to cast all votes necessary to
approve and adopt the Merger Agreement and the
transactions contemplated by the Merger Agreement or (ii)
the Articles of Incorporation of U.S. Healthcare.

2. Representations and Warranties of Other
_______________________________________
Shareholders. Each Other Shareholder hereby represents
____________
and warrants to the Principal Shareholder that this
Agreement has been duly authorized by all necessary
corporate action on its part, has been duly executed and
delivered by such Other Shareholder and is a valid and
binding agreement of such Other Shareholder enforceable
against such Other Shareholder in accordance with its
terms, subject to (i) bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and other
similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and the rights of
creditors of insurance companies generally and (ii)
general principles of equity (regardless of whether
considered in a proceeding at law or in equity).

3. Restriction on Transfer. The Principal
_______________________
Shareholder agrees that (other than pursuant to the
Merger Agreement) he will not, and will not agree to, (i)
sell, assign, dispose of, encumber, mortgage, hypothecate
or otherwise transfer (collectively, "Transfer") any
Class B Shares or any options, warrants or other rights
to acquire Class B Stock to any person or entity or (ii)
convert (or allow the conversion of) any Class B Shares
into shares of Common Stock of U.S. Healthcare; provided
________
that, notwithstanding clause (i), the Principal
Shareholder shall be permitted to Transfer Class B Shares
to any "Permitted Transferee" (as defined in U.S.
Healthcare's Articles of Incorporation) if prior to and
as a condition of such Transfer such Permitted Transferee
enters into a written agreement with the Other
Shareholders (in form and substance satisfactory to the
Other Shareholders) agreeing to be bound by the terms of
this Agreement binding on the Principal Shareholder.

4. Agreement to Vote of Principal Shareholder.
__________________________________________
The Principal Shareholder hereby irrevocably and
unconditionally agrees to vote or to cause to be voted
all Class B Shares at the U.S. Healthcare Shareholders
Meeting and at any other annual or special meeting of
shareholders of U.S. Healthcare where such matters arise
(a) in favor of the approval and adoption of the Merger
Agreement and the transactions contemplated by the Merger
Agreement and (b) against (i) approval of any proposal
made in opposition to or in competition with the Mergers
or any of the other transactions contemplated by the
Merger Agreement, (ii) any merger, consolidation, sale of
assets, business combination, share exchange,
reorganization or recapitalization of U.S. Healthcare or
any of its subsidiaries, with or involving any party
other than Aetna, the Other Shareholders or one of their
respective subsidiaries, (iii) any liquidation or winding
up of U.S. Healthcare, (iv) any extraordinary dividend by
U.S. Healthcare, (v) any change in the capital structure
of U.S. Healthcare (other than pursuant to the Merger
Agreement) and (vi) any other action that may reasonably
be expected to impede, interfere with, delay, postpone or
attempt to discourage the Mergers or the other
transactions contemplated by the Merger Agreement or
result in a breach of any of the covenants,
representations, warranties or other obligations or
agreements of U.S. Healthcare under the Merger Agreement
which would materially and adversely affect U.S.
Healthcare or its ability to consummate the transactions
contemplated by the Merger Agreement.

5. Action in Principal Shareholder Capacity Only.
_____________________________________________
The Principal Shareholder makes no agreement or
understanding herein as director or officer of U.S.
Healthcare. The Principal Stockholder signs solely in
his capacity as a recordholder and beneficial owner of
the Class B Shares, and nothing herein shall limit or
affect any actions taken in his capacity as an officer or
director of U.S. Healthcare.

6. Invalid Provisions. If any provision of this
__________________
Agreement shall be invalid or unenforceable under
applicable law, such provision shall be ineffective to
the extent of such invalidity or unenforceability only,
without it affecting the remaining provisions of this
Agreement.

7. Executed in Counterparts. This Agreement may
________________________
be executed in counterparts each of which shall be an
original with the same effect as if the signatures hereto
and thereto were upon the same instrument.

8. Specific Performance. The parties hereto agree
____________________
that if for any reason the Principal Shareholder fails to
perform any of his agreements or obligations under this
Agreement irreparable harm or injury to the Other
Shareholders and Aetna would be caused for which money
damages would not be an adequate remedy. Accordingly,
the Principal Shareholder agrees that, in seeking to
enforce this Agreement against the Principal Shareholder,
the Other Shareholders and Aetna shall be entitled to
specific performance and injunctive and other equitable
relief. The provisions of this Section 8 constitute the
Other Shareholders' and Aetna's sole remedy in the event
of a breach by the Principal Shareholder of any of his
representations or warranties under this Agreement;
provided that, with respect to the Principal
________ ____
Shareholder's agreements and obligations under this
Agreement, the provisions of this Section 8 are without
prejudice to any other rights or remedies, whether at law
or in equity, that the Other Shareholders or Aetna may
have against the Principal Shareholder for any failure to
perform any of his agreements or obligations under this
Agreement.

9. Governing Law. This Agreement shall be
_____________
governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania without giving effect to
the principles of conflicts of laws thereof.

10. Amendments; Termination. (a) This Agreement
_______________________
may not be modified, amended, altered or supplemented,
except upon the execution and delivery of a written
agreement executed by the parties hereto.

(b) The provisions of this Agreement shall
terminate upon the earliest to occur of (i) the
consummation of the Mergers, (ii) the date which is 18
months after the date hereof or (iii) the termination of
the Merger Agreement if, but only if, the Merger
Agreement is terminated solely for reasons that are not
directly or indirectly related to the commencement of, or
any Person's direct or indirect indication of interest in
making, an Acquisition Proposal with respect to U.S.
Healthcare.

(c) For purposes of this Agreement, the term
"Merger Agreement" includes the Merger Agreement, as the
same may be modified or amended from time to time;
provided that no such amendment or modification amends or
________
modifies the Merger Agreement in a manner such that the
Merger Agreement, as so amended or modified, is less
favorable to the Principal Shareholder in any material
respect than is the Merger Agreement in effect on the
date hereof.

11. Additional Shares. If, after the date hereof,
_________________
the Principal Shareholder acquires beneficial ownership
of any shares of Class B Stock (any such shares,
"Additional Shares"), including, without limitation, upon
exercise of any option, warrant or right to acquire Class
B Stock or through any stock dividend or stock split, the
provisions of this Agreement (other than those set forth
in Section 1) applicable to Class B Shares shall be
applicable to such Additional Shares as if such
Additional Shares had been Class B Shares as of the date
hereof. The provisions of the immediately preceding
sentence shall be effective with respect to Additional
Shares without action by any person or entity immediately
upon the acquisition by the Principal Shareholder of
beneficial ownership of such Additional Shares.

12. Action by Written Consent. If, in lieu of the
_________________________
U.S. Healthcare Shareholders Meeting, shareholder action
in respect of the Merger Agreement or any of the
transactions contemplated by the Merger Agreement is
taken by written consent, the provisions of this
Agreement imposing obligations in respect of or in
connection with the U.S. Healthcare Shareholders Meeting
shall apply mutatis mutandis to such action by written
________________
consent.

13. Successors and Assigns. The provisions of this
______________________
Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective legal
successors (including, in the case of the Principal
Shareholder or any other individual, any executors,
administrators, estates, legal representatives and heirs
of the Principal Shareholder or such individual) and
permitted assigns; provided that no party may assign,
________
delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of
the Other Shareholders (in the case of the Principal
Shareholder or any of his permitted assigns) or the
Principal Shareholder (in the case of the Other
Shareholders or any of their permitted assigns), except
that the Other Shareholders' rights under this Agreement
may be transferred to Aetna or any wholly-owned
subsidiary of Aetna. Without limiting the scope or
effect of the restrictions on Transfer set forth in
Section 3 hereof, Principal Shareholder agrees that this
Agreement and the obligations hereunder shall attach to
the Class B Shares and shall be binding upon any person
or entity to which legal or beneficial ownership of such
Class B Shares shall pass, whether by operation of law or
otherwise.

IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of this 30th day of March, 1996.

/s/ Leonard Abramson
_______________________
LEONARD ABRAMSON

AETNA LIFE INSURANCE COMPANY

By: /s/ Richard Huber
________________________
Name: Richard Huber
Title: Vice Chairman

AETNA LIFE INSURANCE AND
ANNUITY COMPANY

By: /s/Susan Schechter
_________________________
Name: Susan Schechter
Title: Secretary

CONFORMED COPY

REGISTRATION RIGHTS AGREEMENT
_____________________________

REGISTRATION RIGHTS AGREEMENT dated as of March
30, 1996 between Butterfly, Inc., a Connecticut
corporation (the "Company") and Leonard Abramson (the
"Shareholder").

ARTICLE I

DEFINITIONS

1.1. Definitions. The following terms, as
___________
used herein, have the following meanings:

"1933 Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder.

"1934 Act" means the Securities Exchange Act of
1934, as amended and the rules and regulations
thereunder.

"Business Day" means any day except a Saturday,
Sunday or other day on which commercial banks in New York
are authorized by law to close.

"Commission" means the Securities and Exchange
Commission.

"Common Stock" means the Company's Common
Stock, par value $1.00 per share.

"Merger Agreement" means the Agreement and Plan
of Reorganization dated as of the date hereof among
Adonis, Inc., Antelope, Inc., the Company, Adonis Merger
Sub, Inc. and Antelope Merger Sub, Inc.

"Person" means an individual, a corporation, a
partnership, limited liability company, an association, a
trust or other entity or organization, including a
government or political subdivision or an agency or
instrumentality thereof.

"Piggyback Registration" means a Piggyback
Registration as defined in Section 2.2.

"Preferred Stock" means the Company's Class C
Preferred Stock, par value $.01 per share.

"Registrable Securities" means all shares of
Common Stock and Preferred Stock owned by the
Shareholder.

"Shelf Registration Statement" means the Shelf
Registration Statement as defined in Section 2.1.

"Underwriter" means a securities dealer who
purchases any Registrable Securities as principal and not
as part of such dealer's market-making activities.

ARTICLE II

REGISTRATION RIGHTS

2.1. Shelf Registration. (a) The Company shall
__________________
prepare and file with the Commission a shelf registration
statement (as amended and supplemented from time to time,
the "Shelf Registration Statement") relating to the
Registrable Securities in accordance with Rule 415 under
the 1933 Act and will use its best efforts to cause such
Shelf Registration Statement to be declared effective no
later than the Merger Date (as defined in the Merger
Agreement) and to keep such Shelf Registration Statement
continuously effective and in compliance with the 1933
Act and usable for resale of such Registrable Securities,
for a period from the date on which the Commission
declares such Shelf Registration Statement effective
until the first date upon which the aggregate amount of
Registrable Securities then owned by the Shareholder
could be sold pursuant to Rule 145 under the 1933 Act
within 15 trading days calculated in accordance with Rule
144 of the 1933 Act as of such date.

(b) If the aggregate proceeds from an offering
of Registrable Securities pursuant to the Shelf
Registration Statement are expected to be more than $100
million and if Shareholder so elects, such offering may
be in the form of an underwritten offering. Shareholder
shall select the managing Underwriters and any additional
investment bankers and managers to be used in connection
with such offering; provided that such managing
________
Underwriters and additional investment bankers must be
reasonably satisfactory to the Company.

2.2. Piggyback Registration. If the Company
______________________
proposes to file a registration statement under the 1933
Act with respect to an offering of Common Stock or
Preferred Stock (i) for the Company's own account (other
than a registration statement on Form S-4 or S-8 (or any
substitute form that may be adopted by the Commission))
or (ii) for the account of any of its holders of Common
Stock or Preferred Stock, then the Company shall give
written notice of such proposed filing to Shareholder as
soon as practicable (but in no event less than 10 days
before the anticipated filing date), and such notice
shall offer Shareholder the opportunity to register such
number of shares of Registrable Securities as Shareholder
may request on the same terms and conditions as the
Company's or such holder's Common Stock or Preferred
Stock (a "Piggyback Registration").

2.3. Reduction of Offering. Notwithstanding
_____________________
anything contained herein, if the managing Underwriter of
an offering described in Section 2.2 delivers a written
opinion to the Company that (i) the size of the offering
that Shareholder, the Company and any other Persons
intend to make or (ii) the combination of securities that
Shareholder, the Company and such other Persons intend to
include in such offering are such that the success of the
offering would be materially and adversely affected, then
(A) if the size of the offering is the basis of such
Underwriter's opinion, the amount of Registrable
Securities to be offered for the account of Shareholder
shall be reduced to the extent necessary to reduce the
total amount of securities to be included in such
offering to the amount recommended by such managing
Underwriter; provided that in the case of a Piggyback
________
Registration, if securities are being offered for the
account of Persons other than the Company, then the
proportion by which the amount of such Registrable
Securities intended to be offered for the account of
Shareholder is reduced shall not exceed the proportion by
which the amount of such securities intended to be
offered for the account of such other Persons is reduced;
and (B) if the combination of securities to be offered is
the basis of such Underwriter's opinion, (x) the
Registrable Securities to be included in such offering
shall be reduced as described in clause (A) above
(subject to the proviso in clause (A)), and (y) in the
case of a Piggyback Registration, if the actions
described in sub-clause (x) of this clause (B) would, in
the judgment of the managing Underwriter, be insufficient
substantially to eliminate the adverse effect that
inclusion of the Registrable Securities requested to be
included would have on such offering, such Registrable
Securities will be excluded from such offering.

ARTICLE III

REGISTRATION PROCEDURES

3.1. Filings; Information. In connection with
____________________
the Shelf Registration Statement pursuant to Section 2.1
hereof, the Company and Shareholder agree as follows:

(a) Shareholder will notify Company at least
10 days prior to making any offer or sale of any
Registrable Securities pursuant to the Shelf
Registration Statement. The Company shall be
entitled, by notifying Shareholder within 5 days of
receiving the aforementioned notice from the
Shareholder, to postpone or suspend for a reasonable
period of time (in no event to exceed 75 days) the
offering of any Registrable Securities if the
Company shall determine in good faith that such
offering will interfere with a pending or
contemplated financing, merger, sale or acquisition
of assets, recapitalization or other corporate
action or policies of the Company. If the Company
elects to so postpone or suspend the offering of any
Registrable Securities, the Company shall, to the
extent necessary, amend or supplement the Shelf
Registration Statement to permit the offering of
Registrable Securities within 75 days of receiving
the aforementioned notice from the Shareholder.

(b) The Company will, if requested, prior to
filing the Shelf Registration Statement or any
amendment or supplement thereto, furnish to
Shareholder and each applicable managing
Underwriter, if any, without charge, copies thereof,
and thereafter furnish to Shareholder and each such
Underwriter, if any, without charge, such number of
copies of such registration statement, amendment and
supplement thereto (in each case including all
exhibits thereto and documents incorporated by
reference therein) and the prospectus included in
such registration statement (including each
preliminary prospectus) as Shareholder or each such
Underwriter may reasonably request in order to
facilitate the sale of the Registrable Securities.

(c) After the filing of the Shelf Registration
Statement, the Company will promptly notify
Shareholder of any stop order issued or, to the
Company's knowledge, threatened to be issued by the
Commission and use its best efforts to prevent the
entry of such stop order or to remove it if entered
at the earliest possible date.

(d) The Company will use its best efforts in
cooperation with Shareholder and the Underwriters or
agents, as the case may be, to qualify the
Registrable Securities for offer and sale under such
other securities or blue sky laws of such
jurisdictions in the United States as Shareholder
reasonably requests; provided that the Company will
________
not be required to (i) qualify generally to do
business in any jurisdiction where it would not
otherwise be required to qualify but for this
paragraph (d), (ii) subject itself to taxation in
any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction.

(e) The Company will as promptly as is
practicable notify Shareholder, at any time when a
prospectus relating to the sale of the Registrable
Securities is required by law to be delivered in
connection with sales by an Underwriter or dealer,
of the occurrence of any event requiring the
preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a
material fact or omit to state any material fact
required to be stated therein or necessary to make
the statements therein, in the light of the
circumstances under which they were made, not
misleading and shall as promptly as practicable make
available to Shareholder and to the Underwriters any
such supplement or amendment. Shareholder agrees
that, upon receipt of any notice from the Company of
the occurrence of any event of the kind described in
the preceding sentence, Shareholder will forthwith
discontinue the offer and sale of Registrable
Securities pursuant to the registration statement
covering such Registrable Securities until receipt
by Shareholder and the Underwriters of the copies of
such supplemented or amended prospectus and, if so
directed by the Company, Shareholder will deliver to
the Company all copies, other than permanent file
copies then in Shareholder's possession, of the most
recent prospectus covering such Registrable
Securities at the time of receipt of such notice.

(f) The Company will deliver to Shareholder
and each Underwriter or agent participating in an
offering pursuant to the Shelf Registration
Statement, without charge, as many copies of each
preliminary prospectus as Shareholder or such
Underwriter or agent may reasonably request, and the
Company hereby consents to the use of such copies
for purposes permitted by the 1933 Act. The Company
will deliver to Shareholder and each Underwriter or
agent participating in such offering, without
charge, from time to time during the period when a
prospectus is required to be delivered under the
1933 Act, such number of copies of such prospectus
(as supplemented or amended) as Shareholder or such
Underwriter or agent may reasonably request.

(g) The Company will comply with the 1933 Act
and the rules and regulations of the Commission
thereunder, and the 1934 Act and the rules and
regulations of the Commission thereunder so as to
permit the completion of the distribution of the
Registrable Securities pursuant to the Shelf
Registration Statement in accordance with the
intended method or methods of distribution
contemplated in the prospectus relating thereto.

(h) Upon the request of Shareholder or the
managing Underwriter or agent, as the case may be,
or if required by the rules, regulations or
instructions applicable to the registration form
used by the Company, or by the 1933 Act or by any
other rules and regulations thereunder in connection
with the offering of Registrable Securities pursuant
to the Shelf Registration Statement, the Company
will prepare a prospectus supplement that complies
with the 1933 Act and the rules and regulations of
the Commission thereunder and that sets forth the
aggregate amount of the Registrable Securities being
sold, the name or names of any Underwriters or
agents participating in the offering, the price at
which the Registrable Securities are to be sold, any
discounts, commissions or other items constituting
compensation, and such other information as
Shareholder or the managing Underwriter or agent, as
the case may be, and the Company deem appropriate in
connection with the offering of the Registrable
Securities prior to its being used or filed with the
Commission.

(i) The Company may require the Shareholder to
promptly furnish in writing to the Company such
information regarding the distribution of the
Registrable Securities as may be legally required in
connection with such registration.

(j) The Company will enter into customary
agreements (including an underwriting agreement in
customary form) and take such other actions as are
reasonably required in order to expedite or
facilitate the sale of such Registrable Securities.

(k) The Company will furnish to Shareholder
and to each Underwriter a signed counterpart,
addressed to Shareholder or such Underwriter, of (i)
an opinion or opinions of counsel to the Company and
(ii) a comfort letter or comfort letters from the
Company's independent public accountants, each in
customary form and covering such matters of the type
customarily covered by opinions or comfort letters,
as the case may be, as Shareholder or the managing
Underwriter reasonably requests.

(l) The Company will make generally available
to its security holders, as soon as reasonably
practicable, an earnings statement covering a period
of 12 months, beginning within three months after
the effective date of the registration statement,
which earnings statement shall satisfy the
provisions of Section 11(a) of the 1933 Act and the
rules and regulations of the Commission thereunder.

(m) The Company will use its reasonable
efforts to cause all such Registrable Securities to
be listed on each securities exchange on which
similar securities issued by the Company are then
listed.

3.2. Registration Expenses. In connection
_____________________
with the Shelf Registration Statement and in connection
with any Piggyback Registration, the Company shall pay,
the following expenses incurred in connection with such
registration: (i) filing fees with the Commission, (ii)
fees and expenses of compliance with securities or blue
sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) printing expenses, (iv)
fees and expenses incurred in connection with the listing
of the Registrable Securities, (v) fees and expenses of
counsel and independent certified public accountants for
the Company and (vi) the reasonable fees and expenses of
any additional experts retained by the Company in
connection with such registration. The Shareholder shall
pay any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities and
any out-of-pocket expenses of Shareholder.

ARTICLE IV

INDEMNIFICATION AND CONTRIBUTION

4.1. Indemnification by the Company. The
______________________________
Company agrees to indemnify and hold harmless
Shareholder, its officers and directors, and each Person,
if any, who controls Shareholder within the meaning of
either Section 15 of the 1933 Act or Section 20 of the
1934 Act from and against any and all losses, claims,
damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in
any registration statement or prospectus relating to the
Registrable Securities (as amended or supplemented if the
Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or
caused by any omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or
omission or alleged untrue statement or omission based
upon information, relating to Shareholder or the plan of
distribution furnished in writing to the Company by or on
behalf of Shareholder expressly for use therein; provided
________
that the foregoing indemnity agreement with respect to
any preliminary prospectus shall not inure to the benefit
of Shareholder if a copy of the most current prospectus
at the time of the delivery of the Registrable Securities
was not provided to purchaser and such current prospectus
would have cured the defect giving rise to such loss,
claim, damage or liability and was in fact previously
furnished to the Shareholder and the managing
Underwriters, if any, in quantities sufficient to deliver
the same to all such purchasers. The Company also agrees
to indemnify any Underwriters of the Registrable
Securities, their officers and directors and each person
who controls such Underwriters on substantially the same
basis as that of the indemnification of Shareholder
provided in this Section 4.1.

4.2. Indemnification by Shareholder.
______________________________
Shareholder agrees to indemnify and hold harmless the
Company, its officers and directors, and each Person, if
any, who controls the Company within the meaning of
either Section 15 of the 1933 Act or Section 20 of the
1934 Act to the same extent as the foregoing indemnity
from the Company to Shareholder, but only with reference
to information relating to Shareholder or the plan of
distribution furnished in writing by or on behalf of
Shareholder expressly for use in any registration
statement or prospectus relating to the Registrable
Securities, or any amendment or supplement thereto, or
any preliminary prospectus. Shareholder also agrees to
indemnify and hold harmless any Underwriters of the
Registrable Securities, their officers and directors and
each person who controls such Underwriters on
substantially the same basis as that of the
indemnification of the Company provided in this Section
4.2.

4.3. Conduct of Indemnification Proceedings.
______________________________________
In case any proceeding (including any governmental
investigation) shall be instituted involving any Person
in respect of which indemnity may be sought pursuant to
Section 4.1 or Section 4.2, such Person (the "Indemnified
Party") shall promptly notify the Person against whom
such indemnity may be sought (the "Indemnifying Party")
in writing and the Indemnifying Party, upon the request
of the Indemnified Party, shall retain counsel reasonably
satisfactory to such Indemnified Party to represent such
Indemnified Party and any others the Indemnifying Party
may designate in such proceeding and shall pay the fees
and disbursements of such counsel related to such
proceeding. In any such proceeding, any Indemnified
Party shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have
mutually agreed to the retention of such counsel or (ii)
the named parties to any such proceeding (including any
impleaded parties) include both the Indemnified Party and
the Indemnifying Party and representation of both parties
by the same counsel would be inappropriate due to actual
or potential differing interests between them. It is
understood that the Indemnifying Party shall not, in
connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the fees and
expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all such
Indemnified Parties, and that all such fees and expenses
shall be reimbursed as they are incurred. In the case of
any such separate firm for the Indemnified Parties, such
firm shall be designated in writing by the Indemnified
Parties. The Indemnifying Party shall not be liable for
any settlement of any proceeding effected without its
written consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the
Indemnifying Party shall indemnify and hold harmless such
Indemnified Parties from and against any loss or
liability (to the extent stated above) by reason of such
settlement or judgment.

4.4. Contribution. If the indemnification
____________
provided for in this Article IV is unavailable to an
Indemnified Party in respect of any losses, claims,
damages or liabilities referred to herein, then in lieu
of such indemnification (i) as between the Company, on
the one hand, and the Shareholder, on the other hand, the
Company and Shareholder shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the
nature contemplated by such indemnity incurred by the
Company and Shareholder, as incurred, in such proportion
as is appropriate to reflect the relative fault of the
Company, on the one hand, and of Shareholder, on the
other hand, in connection with the statements or
omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other
relevant equitable considerations and (ii) as between the
Company and the Shareholder, on the one hand, and the
Underwriters or agents, on the other hand, the Company,
Shareholder, Underwriters and agents shall contribute to
such aggregate losses, liabilities, claims, damages and
expenses in proportion such that (x) the Underwriters and
agents are responsible for that portion represented by
the percentage that the underwriting discounts and
commissions for the offering appearing on the cover page
of the relevant prospectus (or, if not set forth on the
cover page, that are applicable to the relevant offering)
bear to the initial public offering price appearing on
the cover page (or, if not set forth on the cover page,
that are applicable to the offering), and (y) Shareholder
and the Company are responsible to contribute pro rata,
based upon the amount of net proceeds realized by each,
in respect of the balance.

The relative fault of the Company on the one hand
and Shareholder on the other hand shall be determined by
reference to, among other things, whether any such untrue
or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact
relates to information supplied by the Company or by
Shareholder and the parties' relative intent, knowledge,
access to information and opportunity to correct or
prevent such statement or omission.

The Company and Shareholder agree that it would
not be just and equitable if contribution pursuant to
this Section 4.4 were determined by pro rata allocation
or by any other method of allocation that does not take
account of the equitable considerations referred to in
the immediately preceding paragraph. The amount paid or
payable by an Indemnified Party as a result of the
losses, claims, damages or liabilities referred to in the
immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or
defending any such action or claim. Notwithstanding the
provisions of this Article IV, no Underwriter shall be
required to contribute any amount in excess of the amount
by which the total price at which the Securities
underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages
which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or
omission or alleged omission, and Shareholder shall not
be required to contribute any amount in excess of the
amount by which the net proceeds of the offering (before
deducting expenses) received by Shareholder exceeds the
amount of any damages which Shareholder has otherwise
been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.

ARTICLE V

MISCELLANEOUS

5.1. Participation in Underwritten
_____________________________
Registrations. No Person may participate in any
_____________
underwritten registered offering contemplated hereunder
unless such Person (a) agrees to sell its securities on
the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all
questionnaires, powers of attorney, underwriting
agreements and other documents reasonably required under
the terms of such underwriting arrangements and these
Registration Rights.

5.2. Rule 144. The Company covenants that it
________
will file any reports required to be filed by it under
the 1933 Act and the 1934 Act and that it will take such
further action as Shareholder may reasonably request to
the extent required from time to time to enable
Shareholder to sell Registrable Securities without
registration under the 1933 Act within the limitation of
the exemptions provided by Rule 144 under the 1933 Act,
as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the
Commission. Upon the request of Shareholder, the Company
will deliver to Shareholder a written statement as to
whether it has complied with such reporting requirements.

5.3. Holdback Agreements. Shareholder agrees
___________________
not to offer, sell, contract to sell or otherwise dispose
of any Registrable Securities, or any securities
convertible into or exchangeable or exercisable for such
securities, including any sale pursuant to Rule 144 under
the 1933 Act, during the 14 days prior to, and during the
90-day period beginning on, the effective date of a
registration statement for any shares of Common Stock or
Preferred Stock.

5.4. Transfer of Registration Rights. None of
_______________________________
the rights of Shareholder under this Agreement shall be
assignable by Shareholder, except to "Permitted
Transferees" as defined under the Articles of
Incorporation of Adonis.

5.5. Notices. All notices, requests and other
_______
communications to either party hereunder shall be in
writing (including telecopy or similar writing) and shall
be given,

if to the Company, to:

Butterfly, Inc.
c/o Aetna Life and Casualty Company
151 Farmington Avenue
Hartford, CT 06156-7505
Telecopier: 860-549-6755
Attention: Richard L. Huber
Vice Chairman

and

Butterfly, Inc.
c/o U.S. Healthcare, Inc.
980 Jolly Road
P.O. Box 1109
Blue Bell, PA 19422
Telecopier: 215-283-6401
Attention: David Simon

with a copy to:

David L. Caplan
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800

if to Shareholder, to:

Leonard Abramson
c/o U.S. Healthcare, Inc.
980 Jolly Road
P.O. Box 1109
Blue Bell, PA 19422
Telecopier: 215-283-6858

with a copy to:

Howard S. Godwin, Jr.
Brown & Wood
One World Trade Center
New York, New York 10048
Telecopy: (212) 839-5599

or such other address or telecopier number as such party
may hereafter specify for the purpose by notice to the
other party hereto. Each such notice, request or other
communication shall be effective when delivered at the
address specified in this Section 5.5.

5.6. Amendments; No Waivers.
______________________

(a) Any provision of this Agreement may be
amended or waived if, and only if, such amendment or
waiver is in writing and signed, in the case of an
amendment, by Shareholder and the Company, or in the case
of a waiver, by the party against whom the waiver is to
be effective.

(b) No failure or delay by any party in
exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or future
exercise thereof or the exercise of any other right,
power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any
rights or remedies provided by law.

5.7. Successors and Assigns. The provisions
______________________
of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective
successors and assigns. Neither this Agreement nor any
provision hereof is intended to confer upon any Person
other than the parties hereto any rights or remedies
hereunder.

5.8. Counterparts; Effectiveness. This
___________________________
Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the
same instrument. This Agreement shall become effective
when each party hereto shall have received a counterpart
hereof signed by the other party hereto.

5.9. Entire Agreement. This Agreement
________________
constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersede all
prior agreements, understandings and negotiations, both
written and oral, between the parties with respect
thereto. No representation, inducement, promise,
understanding, condition or warranty not set forth herein
or therein has been made or relied upon by any of the
parties hereto.

5.10. Governing Law. This Agreement shall be
_____________
construed in accordance with and governed by the laws of
the State of New York, without regard to the conflicts of
law rules of such state.

IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed as of the day
and year first above written.

BUTTERFLY, INC.

By: /s/ Richard Huber
________________________
Name: Richard Huber
Title: Vice President

/s/ Leonard Abramson
____________________
LEONARD ABRAMSON

AGREEMENT

AGREEMENT, dated as of March 30, 1996, by and
between Butterfly, Inc., a Connecticut corporation (the
"Company"), and Leonard Abramson ("Consultant").

WHEREAS, Consultant is the founder, principal
executive officer and a shareholder of U.S. Healthcare,
Inc., a Pennsylvania corporation ("U.S. Healthcare"); and

WHEREAS, U.S. Healthcare, the Company, Aetna
Life and Casualty Company, a Connecticut insurance corpo-
ration, New Merger Corporation, a Pennsylvania corpora-
tion, and Antelope Sub, Inc., a Connecticut corporation,
contemporaneously herewith have entered into an Agreement
and Plan of Merger (the "Merger Agreement"); and

WHEREAS, due to the highly competitive nature
of the business of the Company and in order for the
Company to operate its business following the consumma-
tion of the transactions contemplated by the Merger
Agreement, the Company desires to enter into a non-compe-
tition agreement with Consultant on the terms and condi-
tions hereinafter set forth in this Agreement; and

WHEREAS, the Company acknowledges the singular
contribution of Consultant in having developed and ex-
panded the business of U.S. Healthcare and in its conse-
quent success and, accordingly, desires to retain the
expertise and advisory services of Consultant and, to
that end, desires to enter into an independent consulting
agreement with him to become effective upon the consumma-
tion of the transaction contemplated by the Merger Agree-
ment, upon the terms and conditions herein set forth; and

WHEREAS, Consultant desires to serve as an
independent consultant for the Company upon such terms
and conditions; and

NOW THEREFORE, in consideration of the premises
and the mutual agreements set forth below, the parties
agree as follows:

1. Cancellation of Prior Agreement. It is agreed
______________________________
that subject to, and effective upon, the consummation of
the transactions contemplated by the Merger Agreement
("Merger Date"), the employment agreement dated as of
January 1, 1993 between U.S. Healthcare and Consultant
(other than those provisions relating to compensation
payable upon termination of such Agreement) shall be
cancelled and superseded by this Agreement.

2. Term. The initial term of this Agreement shall
____
be for a period of five years commencing on the Merger
Date and ending on the fifth anniversary of the Merger
Date (the "Initial Term"). Commencing on the fourth
anniversary of the Merger Date and on each such subse-
quent anniversary, the Term shall automatically be ex-
tended for one additional year unless, not later than 180
days prior to such anniversary, the Company or Consultant
shall have given notice that the Term of this Agreement
will not be extended. The Initial Term together with any
extensions thereof shall be referred to in this Agreement
as the "Term of this Agreement." The period commencing
upon the Merger Date and ending on the earlier of the
termination of this Agreement by its terms, or the termi-
nation of Consultant's services pursuant to Section 7
hereof, shall be referred to in this Agreement as the
"Consulting Period".

3. Duties and Status.
_________________

(a) Consultant agrees to make himself reason-
ably available to the Chief Executive Officer of the
Company during normal business hours (and upon reasonable
advance notice) to provide advice on the strategic busi-
ness activities, marketing strategies and public rela-
tions efforts of U.S. Healthcare and the Company, includ-
ing the Company's efforts to promote the history of U.S.
Healthcare and Consultant's personal involvement in its
development and success ("Consulting Services"). In the
performance of his duties hereunder, Consultant shall not
be required to devote any specified percentage of his
business or professional time to the advisory services
contemplated herein.

(b) During the Consulting Period, Consultant
may engage in other employment or consulting work, or in
any trade or business, for his own account or on behalf
of any person or entity and may serve on any corporate,
political, civic or charitable boards or committees,
provided, in each case, such activities do not violate
any of his obligations under Section 6.

(c) Consultant acknowledges that he is acting
as an independent contractor, and that nothing in this
Agreement shall be construed to create an employment
relationship between the parties. Consultant is not
authorized to enter into contracts or agreements on
behalf of the Company or to otherwise create obligations
of the Company to third parties. Consultant shall not be
treated as an employee with respect to the services
performed hereunder for Federal, state, or local tax
purposes. Consultant shall be solely responsible for,
and shall file, on a timely basis, tax returns and pay-
ments required to be filed with, or made to, any Federal
or state, or local tax authority with respect to his
performance of Consulting Services under this Agreement.
Neither Federal, nor state, nor local income tax of any
kind shall be withheld from, or paid by, the Company with
respect to the Consulting Fee, as defined below in Sec-
tion 4(a).

4. Compensation. In consideration of his avail-
____________
ability to provide Consulting Services and of the Con-
sulting Services provided by him under this Agreement,
Consultant shall be compensated as follows:

(a) Consulting Fee. The Company shall pay to
______________
Consultant, during the Term of this Agreement, a consult-
ing fee of two million dollars ($2,000,000) per year
("Consulting Fee"), payable in equal monthly install-
ments, in arrears, during the Term of this Agreement.

(b) Welfare Benefits. During the Term of this
________________
Agreement, as additional consideration for the provision
by Consultant of the advisory services hereunder, the
Company shall arrange to provide Consultant with life
(including split dollar), disability, accident, and
health insurance benefits substantially similar to those
which Consultant is provided in his capacity as principal
executive officer of U.S. Healthcare and is receiving as
of the date of this Agreement, or the economic equivalent
thereof. Consultant shall not be eligible to participate
in, or accrue or receive benefits under, any of the
Company's employee compensation or benefit plans, poli-
cies and programs.

(c) Expense Reimbursement. During the Con-
_____________________
sulting Period, Consultant shall be entitled to receive
prompt reimbursement of all reasonable out-of-pocket
expenses properly incurred by him in connection with his
duties under this Agreement, including reasonable expens-
es for entertainment and travel, provided that such
expenses are properly approved, documented and reported
in accordance with the policies and procedures of the
Company applicable at the time the expenses are in-
curred.

(d) Office and Secretarial Support. During
______________________________
the Term of this Agreement, the Company shall furnish
Consultant with the exclusive use of appropriate office
space and full-time secretarial services commensurate
with the office and services he was provided as principal
executive officer of U.S. Healthcare at a site acceptable
to Consultant not located in a U.S. Healthcare facility.
All furnishings and decorative items in the Consultant's
office on the date hereof shall be relocated to such new
office.

5. Additional Matters. On the Merger Date the
__________________
Company shall transfer, convey, and assign to Consultant
(or to any person or entity designated in writing by
Consultant) all its ownership rights and interests in,
and title to, the Company-owned G-4 ("G-4") aircraft. In
addition, during the Term of this Agreement, the Company
shall pay directly (or, at Consultant's election, shall
reimburse Consultant for) any and all costs and expenses
incurred in the operation and maintenance of the G-4 up
to a maximum amount of two million dollars, including,
without limitation, all costs and expenses associated
with all maintenance and repairs of the G-4, all costs
and expenses for fuel, insurance, airport and landing
fees, and all costs and expenses associated with provid-
ing Consultant with the services of duly licensed pilots,
on a full-time basis, comparable in experience to those
pilots employed by U.S. Healthcare on the day immediately
preceding the Merger Date. If the Internal Revenue
Service or any state or local taxing authorities (indi-
vidually and collectively referred to as "Taxing Authori-
ty") takes the position that the benefits provided pursu-
ant to the second sentence of this Section 5 during the
Term of this Agreement results in the receipt of taxable
income to Consultant, the Company shall pay Consultant an
amount equal to the sum of (x) the aggregate Federal,
state, and local income and employment taxes (and any
penalties and interest thereon) imposed on Consultant as
a direct result of the use of these benefits during the
Term of this Agreement, (y) any costs reasonably incurred
by Consultant (including reasonable attorneys' fees and
expenses) directly resulting from Consultant's participa-
tion in proceedings with any Taxing Authority relating to
the tax consequences of the use of these benefits during
the Term of this Agreement, and (z) the aggregate Feder-
al, state, and local income and employment taxes imposed
on Consultant with respect to the amounts payable hereun-
der, including taxes payable under this clause (z) (col-
lectively, the "Gross-Up Payment"). Subject to Section
10 below, Consultant shall be responsible for all such
taxes and costs arising out of the transaction referred
to in the first sentence of this Section 5.

6. Confidential Information; Non-Competition;
_________________________________________
Company Property. Consultant and the Company recognize
________________
that, due to the nature of his prior history with U.S.
Healthcare and his independent consulting relationship
with the Company, Consultant has had and will continue to
have access to and an opportunity to develop confidential
business information, proprietary information, and trade
secrets relating to the business and operations of U.S.
Healthcare and the Company. Consultant acknowledges that
such information is valuable to the business of the
Company and that disclosure to, or use for the benefit
of, any person or entity other than the Company or any
affiliate of the Company, would cause substantial damage
to the Company. Consultant further acknowledges that the
Consulting Services he provides to the Company include
the duty to develop and maintain client, customer, em-
ployee, supplier and other business relationships on
behalf of the Company; and that access to and development
of those close business relationships for the Company
render his services special, unique and extraordinary.
In recognition that the good will and business relation-
ships described herein are assets and part of the value
being acquired pursuant to the Merger Agreement, and that
loss of or damage to those relationships would destroy or
diminish the value of the Company, Consultant agrees as
follows:

6.1. Non-Competition. During the Consulting
_______________
Period and for a period of five years thereafter (the
"Non-Competition Period"), and regardless of the reason
Consultant's services are terminated, Consultant shall
not engage in any of the following activities, either
directly or indirectly (individually, or through or on
behalf of another entity as owner, investor, director,
partner, agent, employee, consultant, or in any other
capacity):

(i) engage in any business which is, as of
the time of any occurrence under this Section 6.1 (and,
for the period after Consultant's Date of Termination,
was, as of Consultant's Date of Termination), in competi-
tion with any of the health care operations conducted
directly or indirectly by the Company or any of its
affiliates: (A) in the United States; or (B) in any other
country (except Israel) where, as of the Merger Date, the
Company or any of its affiliates, is engaged in any
health care operations ("Competitive Business");

(ii) contact, communicate with, solicit,
or accept the business of any Company Client (as defined
below) for the purpose of making arrangements to provide
such Company Client with services of the type then or
previously provided by the Company, except on behalf of
and for the benefit of the Company;

(iii) engage in any activity to interfere
with, disrupt or damage the business of the Company or
any affiliate; or

(iv) hire any Employee (as defined below)
of the Company or any of its affiliates; or solicit,
encourage, or engage in any activity to induce any Em-
ployee of the Company or any of its affiliates to termi-
nate employment with the Company or such affiliate, or to
become employed by, or to enter into a business relation-
ship with, any other person or entity.

Nothing herein, however, will prohibit Consul-
tant from acquiring or holding not more than five percent
of any class of publicly traded securities of any Compet-
itive Business; provided that such securities entitle
Consultant to no more than five percent of the total
outstanding votes entitled to be cast by securityholders
of such business in matters on which such securityholders
are entitled to vote. For purposes of the Non-Competi-
tion Period of this Agreement, the term "Company Client"
shall mean: (A) any person or entity who as of the date
immediately preceding Consultant's Date of Termination:
(i) is a supplier, customer or client of the Company or
any of its affiliates; or (ii) during the 12 month period
prior to Consultant's Date of Termination had been solic-
ited by Consultant on behalf of the Company or any of its
affiliates to provide or receive services as a supplier,
client or customer of the Company or any of its affili-
ates; and (B) any other supplier, client or customer of
the Company or any of its affiliates, as the Company and
Consultant shall mutually agree to in writing after
Consultant's Date of Termination. The term "Employee" as
used in this Agreement means: (i) any employee or consul-
tant of the Company or any of its affiliates, or (ii) any
person or entity who, within 12 months prior to
Consultant's Date of Termination, had left the employment
or service of the Company or any of its affiliates.

6.2. Confidential Information. During the Non-
________________________
Competition Period, and at all times thereafter, Consul-
tant shall maintain the confidentiality of all trade
secrets and confidential or proprietary information of
the Company or its affiliates and, except in furtherance
of the business of the Company or its affiliates, he
shall not directly or indirectly disclose any such infor-
mation to any person or entity.

6.3. Company Property. Consultant acknowledges
________________
that all originals and copies of materials, records and
documents relating to the business of U.S. Healthcare or
the Company generated by him or coming into his posses-
sion during his employment with U.S. Healthcare or during
the Term of this Agreement are the sole property of the
Company ("Company Property"). Upon the expiration of the
Consulting Period, or upon request of the Company at any
time, Consultant shall promptly deliver to the Company
all copies of Company Property in his possession or
control.

6.4. Company's Remedies for Breach. Consultant
_____________________________
acknowledges that if he breaches any provision of this
Section 6, the Company or its affiliates will suffer
irreparable injury. It is therefore agreed that the
Company (or its affiliates) shall have the right to
enjoin any such breach, without posting any bond. The
existence of this right to injunctive, or other equitable
relief, shall not limit any other rights or remedies the
Company may have at law or in equity including, without
limitation, the right to monetary, compensatory and
punitive damages. Consultant acknowledges and agrees
that the provisions of this Section 6.4 are reasonable
and necessary for the successful operation of the Company.

6.5 Compensation for Non-Competition Agree-
______________________________________
ment. In recognition of his singular contribution to the
____
success of U.S. Healthcare and in consideration of the
Consultant's agreement to abide by the restrictive cove-
nants set forth above in Sections 6.1, 6.2 and 6.3 the
Company shall pay Consultant (or his legal representative
or estate, as the case may be), the following amounts,
regardless of any termination of his services as a Con-
sultant under this Agreement for any reason: (i) the sum
of ten million dollars ($10,000,000), payable on the
Merger Date; (ii) during the five-year period commencing
on the Merger Date, two million dollars ($2,000,000) per
year in equal quarterly installments, in arrears; and
(iii) a final lump sum payment in the amount of five
million dollars ($5,000,000), payable upon the Termina-
tion or expiration of the Consulting Period. The amounts
payable under this Section 6.5 shall be payable half in
cash and half in shares of common stock of the Company
("Company Common Stock") that has a Fair Market Value
(calculated as described below) equal to half of the
required payment. The Fair Market Value of the Company
Common Stock shall be determined on any date of determi-
nation as follows: (A) if the Company Common Stock then
trades on the New York Stock Exchange (or any other
national securities exchange), the Fair Market Value of
the Company Common Stock, on a per share basis, shall be
the average of the last reported sale prices per share of
the Company Common Stock (or, in the case of the first
payment hereunder, the common stock of Aetna Life and
Casualty Company) during the 15 trading days immediately
preceding the date of determination on the New York Stock
Exchange (or such other exchange as has the greatest
trading volume in such security during such period); or
(B) if the Company Common Stock is no longer traded on
the New York Stock Exchange or any other national securi-
ties exchange, then any amount payable to Consultant
under this Section 6.5 shall be paid entirely in cash.
The Company and Consultant agree to enter into an agree-
ment providing for certain registration rights to be
provided to Consultant covering the Company Common Stock
on terms and conditions that are mutually satisfactory to
the Company and Consultant.

6.6. Survival and Independent Covenants. The
__________________________________
provisions of this Section 6 shall survive termination of
this Agreement. The covenants of Section 6 shall be
construed as independent of any of the other provisions
contained in this Agreement.

7. Termination of Consultant's Services. The
____________________________________
Consulting Period may be terminated during the Term of
this Agreement as follows:

(a) Death. Consultant's services shall termi-
_____
nate automatically upon Consultant's death, which date
shall be the Date of Termination.

(b) Disability. If, as a result of
__________
Consultant's incapacity due to physical or mental illness
(as determined by a medical doctor mutually agreed to by
Consultant or his legal representative and the Company),
Consultant shall have been absent from his duties for a
period of six consecutive months and, within 30 days
after written Notice of Termination (as defined in sub-
section (f) of this Section 7) is given, shall not have
returned to the performance of his duties hereunder
("Disability"), the Company may terminate Consultant's
services hereunder. In this event, the Date of Termina-
tion shall be 30 days after Notice of Termination is
given (provided that Consultant shall not have returned
to the performance of his advisory services during such
30 day period).

(c) Cause. The Board of Directors of the
_____
Company (the "Board") may terminate Consultant's services
at any time for "Cause." For purposes of this Agreement,
"Cause" shall mean that the Board concludes, in good
faith and after reasonable investigation that: (i) Con-
sultant is convicted of a felony involving dishonesty
with respect to the Company; or (ii) Consultant committed
an act of fraud relating to the business of the Company.
If Consultant's services are terminated for Cause, the
Date of Termination is the day that Consultant receives
the Notice of Termination.

(d) Without Cause. The Board may terminate
_____________
Consultant's services at any time without Cause, and the
Date of Termination is the day that Consultant receives
the Notice of Termination.

(e) Resignation. If Consultant resigns or
___________
otherwise terminates his services under this Agreement
with the Company, the Date of Termination is the date of
such resignation or termination as set forth in the
Notice of Termination received by the Company.

(f) Notice of Termination. Any termination of
_____________________
Consultant's services by the Company or by Consultant,
other than termination as a result of death, shall be
communicated by Notice of Termination, which shall be in
writing and shall set forth in detail the reasons there-
for.

8. Payments Upon Termination.
_________________________

(a) Death, Disability, or Without Cause. In
___________________________________
the event the Consultant's services are terminated during
the term of this Agreement by reason of Consultant's
death or Disability (as defined above in Section 7(b)),
or by the Company without Cause, the Company shall pay to
Consultant or, in the event of his death, to Consultant's
estate or, in the event of his Disability, to Consultant
or his legal representative, within seven days of the
Date of Termination: (i) all unpaid Consulting Fees
accrued as of the Date of Termination; (ii) any accrued,
unpaid compensation or benefits due to Consultant upon
death or Disability under the terms of any benefit or
insurance plan, policy or program of U.S. Healthcare or
provided by the Company pursuant to Section 4(b) in
effect at the time Consultant receives Notice of Termina-
tion or at the time of death; and (iii) all Consulting
Fees to which Consultant would have been entitled had
Consultant continued working through the remainder of the
Term of this Agreement, payable in a lump sum. In addi-
tion, the Company shall (i) continue to make any pay-
ments required by and in accordance with Section 6.5; and
(ii) provide for the continuation of Consultant's cover-
age, at the Company's sole cost and expense, in any
disability, accident or health insurance plans, policies
or programs provided by the Company pursuant to Section
4(b) through the remainder of the Term of this Agreement.
Except as so provided, no further benefits, compensation
or rights continue to accrue to Consultant after the Date
of Termination.

(b) For Cause or Resignation. If Consultant's
________________________
services are terminated for Cause, or Consultant resigns
or terminates his services with the Company for any
reason (other than the Company's breach of its obligation
to make any payments due to Consultant under this Agree-
ment), the Company shall pay to Consultant: (i) all
unpaid Consulting Fees accrued and payable as of the Date
of Termination; (ii) any other compensation or benefits
due and payable to Consultant under the terms of any
benefit or insurance plan, policy or program of provided
by the Company pursuant to Section 4(b) in effect at the
time the Notice of Termination is received; and (iii) in
the event Consultant resigns or terminates his services
hereunder, any amounts owed to Consultant pursuant to,
and in accordance with Section 6.5. Except as so provid-
ed, no further benefits, compensation or rights continue
to accrue to Consultant after the Date of Termination.

(d) Expiration of the Term. If Consultant's
______________________
services by the Company terminate because either the
Company or Consultant gives timely written notice to the
other party in accordance with Section 2 above, then this
Agreement (other than Section 6) shall terminate at the
end of the Initial Term and, until that time, the rights
and obligations of the Company and Consultant under this
Agreement shall continue in full force and effect.

9. Indemnification; Attorneys' Fees. The Company
________________________________
shall indemnify and hold Consultant harmless to the
maximum extent permitted by the laws of the State of
Connecticut and the Charter and By-Laws of the Company,
as applicable: (i) against all costs, expenses, liabili-
ties and legal fees which Consultant may incur in the
discharge of his services under this Agreement; and (ii)
against all judgments, fines, amounts paid in settlement
and reasonable expenses, including attorneys' fees in-
curred by Consultant, in connection with the defense, or
as a result of any action or proceeding (or any appeal
from any action or proceeding) in which Consultant is
made or is threatened to be made a party by reason of the
fact that he is or was an officer, director or agent of
U.S. Healthcare or the Company, regardless of whether
such action or proceeding is one brought by or in the
right of the Company to procure a judgment in its favor.
The Company shall cause Consultant to be insured under
the Company's Directors and Officers' Liability Insurance
Policy as in effect from time to time or, if such Policy
would not permit the Consultant to be covered thereby,
the Company shall provide Consultant with an insurance
policy providing comparable coverage. In connection with
any dispute or proceeding arising under this Agreement
where Consultant is ultimately the substantially prevail-
ing party, the Company shall promptly reimburse Consul-
tant for all costs, including, without limitation, the
reasonable attorneys' fees of any attorney of
Consultant's choosing, incurred by Consultant in any such
dispute or proceeding arising under this Agreement. Any
termination of Consultant's services, or of this Agree-
ment, shall have no effect on the continuing operation of
this Section 9.

10. Gross-Up For Excise Tax.
_______________________

(a) Whether or not Consultant becomes entitled
to any payments under Section 8 hereof, if any payments
or benefits received or to be received by Consultant
(including, without limitation, any payments or benefits
received or to be received by Consultant pursuant to any
U.S. Healthcare stock options), whether pursuant to
Sections 4 or 5 hereof, or any other provision of this
Agreement or any other plan, arrangement or agreement
with the Company or U.S. Healthcare or its affiliates in
effect on the date hereof in connection with the services
rendered by Consultant to U.S. Healthcare or the Company
(such payments or benefits, excluding the Gross-Up Pay-
ment described herein, being hereinafter referred to as
the "Total Payments"), will be subject to any excise tax
imposed under section 4999 of the Internal Revenue Code
of 1986, as amended (the "Excise Tax"), the Company shall
pay to Consultant an additional amount (the "Gross-Up
Payment"), such that the net amount retained by Consul-
tant after deduction of any Excise Tax on the Total
Payments and any Federal, state and local income and
employment taxes and Excise Tax upon the Gross-Up Pay-
ment, shall be equal to the Total Payments.

(b) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and
the amount of such Excise Tax: (i) all of the Total
Payments shall be treated as "parachute payments" (within
the meaning of section 280G(b) (2) of the Code) unless,
in the opinion of tax counsel selected by the Company and
reasonably acceptable to Consultant ("Tax Counsel"), a
reasonable basis exists for determining that such pay-
ments or benefits (in whole or in part) do not constitute
parachute payments, including by reason of section
280G(b) (4) (A) of the Code; (ii) all "excess parachute
payments" within the meaning of section 280G(b) (1) of
the Code shall be treated as subject to the Excise Tax
unless, in the opinion of Tax Counsel, a reasonable basis
exists for determining that such excess parachute pay-
ments (in whole or in part) represent reasonable compen-
sation for services actually rendered (within the meaning
of section 280G(b) (4) (B) of the Code) in excess of the
"base amount" (within the meaning of section 280G(b) (3)
of the Code) allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax; and (iii)
the value of any noncash benefits or any deferred payment
or benefit shall be determined by an independent auditor
selected by the Company and reasonably acceptable to
Consultant, in accordance with the principles of sections
280G(d) (3) and (4) of the Code. For purposes of deter-
mining the amount of the Gross-Up Payment, Consultant
shall be deemed to pay Federal income tax at the highest
marginal rate of Federal income taxation in the calendar
year in which the Gross-Up Payment is to be made, and
state and local income taxes at the highest marginal rate
of taxation in the state and locality of Consultant's
residence on the Date of Termination (or if there is no
Date of Termination, then the date on which the Gross-Up
Payment is calculated for purposes of this Section 10),
net of the maximum reduction in Federal income taxes
which could be obtained from deduction of such state and
local taxes.

(c) In the event that the Excise Tax is final-
ly determined to be less than the amount taken into
account hereunder in calculating the Gross-Up Payment,
Consultant shall repay to the Company, at the time that
the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attribut-
able to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and Federal,
state, and local income and employment taxes imposed on
the Gross-Up Payment being repaid by Consultant to the
extent that such repayment results in a reduction in
Excise Tax and/or a Federal, state, or local income or
employment tax deduction) plus interest on the amount of
such repayment at 120% of the rate provided in section
1274(b) (2) (B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into
account hereunder in calculating the Gross-Up Payment
(including by reason of any payment the existence or
amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable to Consultant
with respect to such excess) at the time that the amount
of such excess is finally determined. Consultant and the
Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceed-
ings concerning the existence or amount of liability for
Excise Tax with respect to the Total Payments.

11. No Setoff. The Company's obligations to make
_________
the payments provided for in this Agreement and otherwise
to perform its obligations hereunder shall not be affect-
ed by any setoff, counterclaim, recoupment, defense or
other claim, right or action which the Company may have
against Consultant.

12. Compliance with Other Agreements. Consultant
________________________________
represents and warrants to the Company that the execution
of this Agreement by him and the performance of his
obligations hereunder, will not conflict with, breach, or
constitute a default under any agreement to which Consul-
tant is a party or by which Consultant is bound.

13. Enforceability. If any provision of this Agree-
______________
ment is determined by a court of competent jurisdiction
to be not enforceable in the manner set forth in this
Agreement, Consultant and the Company agree that it is
the intention of the parties that such provision should
be enforceable to the maximum extent possible under
applicable law. If any provisions of this Agreement are
held to be invalid or unenforceable, such invalidation or
unenforceability shall not affect the validity or en-
forceability of any other provision of this Agreement (or
any portion thereof).

14. Governing Law. This Agreement shall be gov-
_____________
erned by and construed in accordance with the laws of the
State of Connecticut, without giving effect to the con-
flicts of laws principles thereof.

15. Amendments. This Agreement may not be amended
__________
or modified except by a written agreement executed by
Consultant and the Company (upon approval by the Board),
or by their successors or legal representatives.

16. Notices. All notices and other communications
_______
under this Agreement shall be in writing and shall be
given by hand delivery to the other party or by regis-
tered or certified mail, return receipt requested, post-
age prepaid, addressed as follows:

If to Consultant:
________________

Mr. Leonard Abramson
c/o U.S. Healthcare
980 Jolly Road
Blue Bell, PA 19422

With copies to:

Howard G. Godwin, Jr., Esq.
Brown & Wood
One World Trade Center
New York, NY 10048

If to the Company:
_________________

Aetna Life and Casualty Company
151 Farmington Avenue
Hartford, Connecticut 06156

With copies to:

David L. Caplan, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017

or to such other address as either party shall have
furnished to the other in writing in accordance with this
Agreement. Notices and communications shall be effective
when actually received by the addressee.

17. Waiver. Consultant's or the Company's failure
______
to insist upon strict compliance with any provision
hereof shall not be deemed to be a waiver of that provi-
sion, or of any other provision of this Agreement. Any
waiver by the Company shall not be effective unless
approved by the Board and set forth in a writing signed
by the Chief Executive Officer of the Company.

18. No Other Agreements. This Agreement contains
___________________
the entire understanding of the Company and Consultant
with respect to the independent consulting relationship
between the Company and Consultant, except as to benefit
plans of U.S. Healthcare or provided by the Company
pursuant to Section 4(b) which are governed by the terms
thereof. Any prior agreements, oral or written, and any
prior representations are hereby superseded and are of no
further force and effect. Neither the Company nor Con-
sultant has relied on any representations in connection
with entering into this Agreement other than those ex-
pressly set forth herein, and those set forth in the
Merger Agreement.

19. Cooperation. Consultant agrees to give prompt
___________
written notice to the Company of any claim or injury
relating to the Company, and to fully cooperate in good
faith and to the best of his ability with the Company in
connection with all pending, potential or future claims,
investigations or actions which directly or indirectly
relate to any transaction, event or activity about which
Consultant may have knowledge because of his employment
with U.S. Healthcare or his Consulting Services to the
Company. Such cooperation shall include all assistance
that the Company, its counsel, or its representatives may
reasonably request, including reviewing documents, meet-
ing with counsel, providing factual information and
material, and appearing or testifying as a witness. If
the Company requires such assistance from Consultant
after the expiration of the Term of this Agreement, this
Company shall reasonably compensate Consultant for his
time based on a per diem rate derived, pro rata, from the
Consulting Fee.

20. Binding Effect. This Agreement shall be bind-
______________
ing upon and inure solely to the benefit of the parties
hereto and their respective successors, permitted as-
signs, heirs, and legal representatives, including any
corporation or other business organization with which the
Company may merge or consolidate. Nothing in this Agree-
ment, express or implied, is intended to confer upon any
other person or entity any rights or remedies.

21. Business Days. If any action or payment is due
_____________
on a day which is not a Business Day, as defined below,
then such action or payment (without any additional
interest) shall be made on the next Business Day. For
purposes of this Agreement, "Business Day" shall mean any
day excluding Saturday, Sunday, and any day on which
banking institutions close.

22. Headings. The captions of this Agreement are
________
not part of the provisions hereof and shall have no force
or effect.

IN WITNESS WHEREOF, the parties have executed
this Agreement as of the day and year first above written.

/s/ Leonard Abramson
____________________
Leonard Abramson

Butterfly, Inc.

By:/s/ Ronald Compton
_____________________
Name: Ronald Compton
Title: President

ADDENDUM TO AGREEMENT

Dated as of April 1, 1996

1. This addendum shall constitute an amendment to the
Agreement, dated as of March 30, 1996, between the parties
hereto (the "Agreement"), in accordance with Section 15 of
the Agreement. Notwithstanding anything to the contrary in
Section 6.1 of the Agreement, during the term of the Agree-
ment and thereafter, Leonard Abramson, at his discretion,
may hire or solicit any of the following employees of U.S.
Healthcare, Inc.:

(a) up to two (2) secretaries;

(b) up to three (3) security personnel;

(d) with prior consent of Butterfly, Inc. (which
shall not be unreasonably withheld), a limited number of
non-key employees.

2. Except as otherwise specified herein, all of the
terms of the Agreement shall remain in full force and
effect. This Addendum will be governed by and construed
in accordance with the Laws of the State of Connecticut
applicable to agreements made and to be performed in that
State, without giving effect to the conflicts of laws
principles thereof.

/s/ Leonard Abramson
____________________
Leonard Abramson

Butterfly, Inc.

By:/s/ Richard L. Huber
_____________________
Name: Richard L. Huber
Title: Vice President

<PAGE> 1

January 31, 1996

Mr. Richard L. Huber
Aetna Life and Casualty Company
151 Farmington Avenue
Hartford, CT 06156

Dear Dick:

This is to confirm our understanding with respect to the use
of "Aetna" in the name of the corporate entity that will own The
Aetna Casualty and Surety Company and The Standard Fire Insurance
Company. You have agreed to permit us limited rights to use the
name "Travelers/Aetna Property Casualty Corp." as the name of such
holding company and we have agreed as follows: (i) the name will
only be used in full in similar size type; (ii) the entity will
not be an insurance company; (iii) no later than December 31,
1997, the name of the entity will be changed to eliminate the word
"Aetna"; and (iv) it is our mutual intent that the name be used
only for the corporate holding company and for holding company
types of activities [such as selling holding company securities
(provided that any prospectus state that the holding company is
not controlled by Aetna Life and Casualty Company, or its
successor), dealing with the investment community, corporate
advertising of the existence of the holding company, and usage of
business cards and letterheads by the senior employees on matters
directly related to holding company types of activities] and
expressly not used for operating company types of activities [such
as sales, advertising, marketing or transmitting insurance
policies, bonds or other products or services to customers or
potential customers, executing leases, purchase agreements and
other agreements related to the operation of the operating
companies, or pursuing causes of action which arise out of the
activities of the operating companies]. The rights to the names
and marks licensed under the License Agreement dated as of
November 28, 1995 (the "License Agreement"), which was annexed as
Exhibit 7.4(a) to the Stock Purchase Agreement between The
Travelers Insurance Group Inc., and Aetna Life and Casualty
Company (the "Stock Purchase Agreement"), shall not be otherwise
affected in any way by this letter agreement and our rights to use
the "Travelers/Aetna Property Casualty Corp." name shall be
governed by the License Agreement as if the name had been included
on its Schedule A, except to the extent that this letter agreement
imposes additional restrictions on our rights to such name.

This letter agreement constitutes and amendment to Section 7.4(b)
of the Stock Purchase Agreement. Except as otherwise specifically
set forth herein, the Stock Purchase Agreement remains in full
force and effect.

<PAGE> 2

If the foregoing sets forth your understanding of our
agreement, please so indicate by signing two copies of this letter
in the space provided below and return one fully executed copy to
me at your earliest convenience.

The Travelers Insurance Group Inc.

By: /s/ Jay S. Fishman
__________________________________
Jay S. Fishman
Vice Chairman

ACKNOWLEDGED AND AGREED:
Aetna Life and Casualty Company

By: /s/ Richard L. Huber
_______________________________
Richard L. Huber
Vice Chairman

<PAGE> 1

AMENDMENT TO
STOCK PURCHASE AGREEMENT

Pursuant to Section 13.2(a) of the Stock Purchase Agreement (the
"Purchase Agreement") dated as of November 28, 1995 between Aetna
Life and Casualty Company, a Connecticut stock insurance
corporation (the "Seller") and The Travelers Insurance Group Inc.,
a Connecticut stock insurance corporation, which entity has
assigned its rights and obligations under the Purchase Agreement
to Travelers/Aetna Property Casualty Corp. a Delaware corporation
(the "Buyer"), and relating to the purchase and sale of 100% of
the common stock of The Aetna Casualty and Surety Company and The
Standard Fire Insurance Company, Buyer and Seller hereby:

1. amend Section 6.3 of the Purchase Agreement by
deleting the phrase "Regulation 113 of the New York
Insurance Department" from such section and replacing
such phrase with the phrase: "Regulation 114 of the
New York Insurance Department";

2. amend Section 7.4(f) of the Purchase Agreement
by inserting after the phrase "other printed material
or matter which are included as of the Closing in the
assets or inventory of any Company or any Subsidiary
of any Company" the phrase "as well as any system-
generated material or matter used by any Company or
any Subsidiary of any Company" and by inserting after
the phrase "(excluding signs" the phrase "and
discontinue use of such system-generated material or
matter";

3. amend the Purchase Agreement by adding a new
Section 7.14 as follows:

7.14 Certain Agreements Relating to Real Property.
_____________________________________________

(a) Buyer and Seller hereby agree to
reasonably cooperate from and after the Closing
Date to modify existing property tax consulting
agreements entered into by Aetna Life Insurance
Company on its own behalf and on behalf of
entities under common control with or controlled
by Aetna Life Insurance Company, to the extent
that such agreements relate to properties owned
by the Companies or by Subsidiaries of the
Companies as of the Closing Date to equitably
apportion the rights and responsibilities
thereunder based on the ownership of the
properties affected thereby, and to obtain any
required consent of the parties to such
agreements.

<PAGE> 2

(b) Buyer and Seller hereby agree to
reasonably cooperate from and after the Closing
Date to modify or, if Buyer and Seller agree, to
terminate that certain Management Agreement
dated as of November 30, 1993 by and between
Aetna Life Insurance Company, Aetna Casualty and
Surety Company and AE Properties, Inc. as it
relates to Pratt Street Limited Partnership
(collectively, "Owner") and LaSalle Partners
("Manager"), which agreement relates to
CityPlace I, 242 Trumbull Street, Pratt Street
Retail and Civic Center Mall ("CityPlace I"), to
secure a replacement agreement between Aetna
Casualty and Surety Company and Manager relating
to CityPlace I and to obtain the consent of the
Manager to such termination and replacement
agreement; provided, however, that Buyer will
not be required to incur any costs in obtaining
such consents; and

4. agree that if there are any books, records,
assets or other items that Seller is obligated
to produce, make available or deliver under the
terms of the Purchase Agreement, such obligation
in respect of such books, records, assets or
other items shall survive the Closing (as
defined in the Purchase Agreement) to the extent
that any such books, records, assets or other
items have not been delivered to Buyer as of the
Closing.

5. agree that the representations contained in
Section 3.11(b) shall survive the Closing for
ninety (90) days but only to the extent of
written notice received prior to the Closing by
the executive officers, the chief legal or
compliance officers of the Seller or the
Companies or the senior in-house counsel for
property and casualty insurance matters of the
Companies and their Subsidiaries; provided,
however, that the Agreement dated April 2, 1996
by and between Aetna Life and Casualty Company,
The Aetna Casualty and Surety Company and
Travelers/Aetna Property Casualty Corp. relating
to American Re Corporation shall be the sole
remedy with respect to the subject matter
thereof.

<PAGE> 3

This amendment shall be governed by and construed in
accordance with the law of the State of New York, without regard
to the conflict of laws rules of such state.

This amendment may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

Except as amended hereby, the terms of the Purchase Agreement
are unmodified and remain in full force and effect.

IN WITNESS WHEREOF, Buyer and Seller have caused this
amendment to be duly executed by their respective authorized
officers as of the 2nd day of April, 1996.

TRAVELERS/AETNA PROPERTY CASUALTY CORP.

BY: /s/William P. Hannon
___________________________
Name: William P. Hannon
Title: CFO

AETNA LIFE AND CASUALTY COMPANY

By: /s/Robert E. Broatch
___________________________
Name: Robert E. Broatch
Title: Senior Vice President, Finance

<PAGE> 1

AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

<TABLE>

3 Months Ended
(Millions) March 31, 1996 1995 1994 1993 1992 1991
______________ ____ ____ ____ ____ ____

Pretax income (loss) from
continuing operations........... $ 246.3 $ 726.2 $ 627.5 $(1,014.7) $ 145.5 $ (97.9)

Add back fixed charges............ 49.7 187.0 170.8 154.7 171.5 200.5
Minority interest................ 4.0 16.1 11.4 7.0 8.6 5.9
________ _________ ________ ________ ________ ________

Income (loss) as adjusted..... $ 300.0 $ 929.3 809.7 $ (853.0) $ 325.6 $ 108.5
________ _________ ________ _________ ________ ________
________ _________ ________ _________ ________ ________

Fixed charges:
Interest on indebtedness....... $ 31.7(1) $ 115.9(1) $ 98.6(1) $ 77.4 $ 81.4 $ 110.9
Portion of rents representative
of interest factor............ 18.0 71.1 72.2 77.3 90.1 89.6
________ _________ ________ _________ ________ ________

Total fixed charges........... $ 49.7 $ 187.0 $ 170.8 $ 154.7 $ 171.5 $ 200.5
________ _________ ________ _________ ________ ________
________ _________ ________ _________ ________ ________

Preferred stock dividend
requirements.................... - - - - - -
________ _________ ________ _________ ________ ________

Total combined fixed charges
and preferred stock dividend
requirements.................... $ 49.7 $ 187.0 $ 170.8 $ 154.7 $ 171.5 $ 200.5
________ _________ ________ _________ ________ ________
________ _________ ________ _________ ________ ________

Ratio of earnings to fixed
charges......................... 6.04 4.97 4.74 (5.51) 1.90 .54
________ _________ ________ _________ ________ ________
________ _________ ________ _________ ________ ________

Ratio of earnings to combined
fixed charges and preferred
stock dividends................. 6.04 4.97 4.74 (5.51) 1.90 .54
________ _________ ________ _________ ________ ________
________ _________ ________ _________ ________ ________

<FN>

(1) Includes the dividends paid to preferred shareholders of a subsidiary.
(See Note 11 of Notes to Financial Statements in the company's 1995 Annual
Report to Shareholders.)

</TABLE>

<PAGE> 1

Letter Re: Unaudited Interim Financial Information
___________________________________________________

Aetna Life and Casualty Company
Hartford, Connecticut

Gentlemen:

Re: Registration Statements No. 2-73911, 2-91514, 33-12993,
33-49543, 33-50427, 33-52819, 33-52819-01 and 33-62893

With respect to the subject registration statements, we
acknowledge our awareness of the use therein of our report dated
April 25, 1996 related to our review of interim financial
information.

Pursuant to Rule 436(c) under the Securities Act of 1933, such
report is not considered a part of a registration statement
prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11
of the Act.

By /s/ KPMG PEAT MARWICK LLP
_____________________________
(Signature)
KPMG Peat Marwick LLP

Hartford, Connecticut
April 25, 1996

<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the Form 10-Q for the quarterly period ended
March 31, 1996 for Aetna Life and Casualty Company and is qualified in its
entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 30,345
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 929
<MORTGAGE> 7,948
<REAL-ESTATE> 1,302
<TOTAL-INVEST> 42,490
<CASH> 1,559
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,007
<TOTAL-ASSETS> 84,102
<POLICY-LOSSES> 18,460
<UNEARNED-PREMIUMS> 159
<POLICY-OTHER> 1,479
<POLICY-HOLDER-FUNDS> 21,703
<NOTES-PAYABLE> 986
0
0
<COMMON> 1,474
<OTHER-SE> 5,554
<TOTAL-LIABILITY-AND-EQUITY> 84,102
1,844
<INVESTMENT-INCOME> 886
<INVESTMENT-GAINS> 62
<OTHER-INCOME> 518
<BENEFITS> 2,237
<UNDERWRITING-AMORTIZATION> 37
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 246
<INCOME-TAX> 81
<INCOME-CONTINUING> 166
<DISCONTINUED> 182
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348
<EPS-PRIMARY> 3.00
<EPS-DILUTED> 0<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>There is no difference between primary and fully diluted earnings
per share.
</FN>

</TABLE>