<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration Nos. 333-52321 and 333-52321-01
Prospectus Supplement to Prospectus dated June 19, 1998
[AETNA LOGO] $300,000,000
AETNA SERVICES, INC.
5.66% Puttable Reset Securities PURS(SM) due 2009
Unconditionally Guaranteed as to Payment of Principal, Premium,
if any, and Interest by
AETNA INC.
------------------------
Until November 29, 1999, Aetna Services, Inc. will pay interest on the PURS
on each of the following dates: May 15, 1999 and November 29, 1999. The
principal, premium, if any, and interest payable on the PURS is unconditionally
guaranteed by Aetna Inc. The PURS will be issued only in denominations of $1,000
and integral multiples of $1,000.
On November 29, 1999, one of two things will happen. Either (1) Goldman,
Sachs & Co. will exercise its right to purchase all the PURS from the holders or
(2) Aetna Services, Inc. will repurchase the PURS, except for PURS which holders
of at least 10% of the outstanding PURS have elected to continue to hold by
giving proper notice to the Trustee. If either Goldman, Sachs & Co. has
exercised its right to purchase the PURS or holders of at least 10% of the
outstanding PURS have elected to hold the PURS, then the interest rate will be
reset by the Calculation Agent. The new rate will be fixed on the basis of
certain bids the Calculation Agent will request from various dealers as
described in this prospectus.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Per PURS Total
-------- -----
<S> <C> <C>
Initial public offering price............................... 100.00% $300,000,000
Underwriting discount....................................... 0.20% $ 600,000
Proceeds, before expenses, to Aetna Services, Inc........... 102.06% $306,180,000
</TABLE>
The initial public offering price set forth above does not include any
accrued interest. Interest on the PURS will accrue from November 18, 1998 and
must be paid by the purchaser if the PURS are delivered after November 18, 1998.
The proceeds to Aetna Services, Inc. set forth above include a payment by
Goldman, Sachs & Co. for the call option it will have with respect to the PURS.
------------------------
The underwriters expect to deliver the PURS in book-entry form only through
the facilities of The Depository Trust Company against payment in New York, New
York on November 18, 1998.
- ---------------
* PURS is a service mark of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
DEUTSCHE BANK SECURITIES
J.P. MORGAN & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
------------------------
Prospectus Supplement dated November 13, 1998.
<PAGE> 2
THE COMPANIES
Aetna Inc., together with its subsidiaries, is a leading provider of health
and retirement benefit plans and financial services, with three core businesses:
Aetna U.S. Healthcare, Aetna Retirement Services and Aetna International. Aetna
provides nearly 35 million people worldwide with quality products, services and
information that help them manage their health and financial well-being.
Aetna U.S. Healthcare is a leading health care benefits organization with
15.8 million health members at September 30, 1998. Aetna U.S. Healthcare has an
extensive network of health care providers and offers a broad spectrum of
products, including a full range of health, prescription drug, dental and vision
plans, as well as group insurance products such as life, disability and long-
term care.
Aetna Retirement Services provides retirement and investment products
nationwide in the education, nonprofit, government, hospital and small business
sectors. Aetna Retirement Services had approximately $45.1 billion of financial
services assets under management at September 30, 1998, and Aetna's Aeltus
Investment Management Inc. subsidiary ranked among the 100 largest U.S.
investment management firms. In 1997 Aetna Retirement Services also expanded its
financial planning capability by acquiring Financial Network Investment
Corporation, one of the nation's leading financial planning companies.
Aetna International offers life insurance, pension management, health
products and a limited book of property-casualty coverage to 13 million
customers in 14 countries at year-end 1997. Through strategic alliances, the
company also provides group benefits and markets investment products in
countries across the globe.
Aetna also has a Large Case Pensions business that offers pension and
annuity products primarily for defined benefit and defined contribution plans.
Aetna Services, Inc. is a direct subsidiary of Aetna Inc., the ultimate
parent of the Aetna companies. Aetna Services, Inc. primarily serves as a
financing company, and as a holding company for the Aetna Retirement Services,
Aetna International and Large Case Pensions businesses, as well as a portion of
Aetna's health operations.
USE OF PROCEEDS
Aetna Services, Inc. intends to use the net proceeds from the sale of the
PURS and the sale to Goldman, Sachs & Co. of the call option with respect to the
PURS, estimated to be approximately $305.8 million, to repay outstanding
commercial paper borrowings with maturities of up to 120 days from their issue
date and bearing interest at a blended rate of 5.50%.
S-2
<PAGE> 3
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data of Aetna
Inc. for the five years ended December 31, 1997 and for the nine months ended
September 30, 1998 and 1997. The financial data for the nine-month periods ended
September 30, 1998 and 1997 are derived from unaudited financial statements. The
unaudited financial statements include all adjustments necessary for a fair
presentation of Aetna Inc.'s financial position and the results of operations
for such periods. Operating results for the nine-month period ended September
30, 1998 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1998. The selected historical financial data of
Aetna Inc. has been derived from, and should be read in conjunction with, the
historical consolidated financial statements of Aetna Inc., including the notes
thereto, which are incorporated herein by reference.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- --------- ---- ---- ---- ---- ----
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total premiums....................... $ 10,548.0 $ 9,417.5 $12,592.2 $ 9,326.1 $ 7,492.8 $ 6,857.8 $ 5,890.7
Total net investment income, fees and
other income, and net realized
capital gains (losses)............. 4,352.8 4,329.8 5,948.0 5,874.4 5,546.6 5,317.7 5,418.0
---------- --------- --------- --------- --------- --------- ---------
Total revenue...................... $ 14,900.8 $13,747.3 $18,540.2 $15,200.5 $13,039.4 $12,175.5 $11,308.7
========== ========= ========= ========= ========= ========= =========
Income (loss) from continuing
operations before extraordinary
item and cumulative effect
adjustments(1)..................... $ 645.6 $ 627.2 $ 901.1 $ 205.1 $ 473.9 $ 409.4 $ (602.3)
Discontinued operations, net of tax:
Income (loss) from operations(2)... -- -- -- 182.2 (222.2) 58.1 290.3
Gain on sale(3).................... -- -- -- 263.7 -- -- --
---------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item and cumulative effect
adjustments........................ 645.6 627.2 901.1 651.0 251.7 467.5 (312.0)
Extraordinary loss on debenture
redemption, net of tax............. -- -- -- -- -- -- (4.7)
Cumulative effect adjustments, net of
tax................................ -- -- -- -- -- -- (49.2)
---------- --------- --------- --------- --------- --------- ---------
Net income (loss).................... $ 645.6 $ 627.2 $ 901.1 $ 651.0 $ 251.7 $ 467.5 $ (365.9)
========== ========= ========= ========= ========= ========= =========
Net realized capital gains (losses),
net of tax (included above)........ $ 149.6 $ 67.1 $ 198.4 $ 85.9 $ 29.5 $ (41.2) $ (42.0)
---------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA
Total assets......................... $100,895.1 $99,146.6 $96,000.6 $92,912.9 $84,323.7 $75,486.7 $81,572.8
---------- --------- --------- --------- --------- --------- ---------
Total long-term debt................. $ 2,210.0 $ 2,373.5 $ 2,346.2 $ 2,380.0 $ 989.1 $ 1,079.2 $ 1,112.2
---------- --------- --------- --------- --------- --------- ---------
Aetna-obligated Mandatorily
Redeemable Preferred Securities of
subsidiary limited liability
company holding primarily
debentures guaranteed by Aetna..... $ 275.0 $ 275.0 $ 275.0 $ 275.0 $ 275.0 $ 275.0 --
---------- --------- --------- --------- --------- --------- ---------
Shareholders' equity................. $ 11,319.2 $11,363.8 $11,195.4 $10,889.7 $ 7,272.8 $ 5,503.0 $ 7,043.1
---------- --------- --------- --------- --------- --------- ---------
</TABLE>
- ---------------
(1) Continuing operations for 1996 forward reflect Aetna Inc.'s merger with U.S.
Healthcare, Inc. on July 16, 1996.
(2) Discontinued operations from 1993 to 1996 principally reflect Aetna Inc.'s
property-casualty operations, which were sold in 1996.
(3) Relates to 1996 sale of property-casualty operations.
S-3
<PAGE> 4
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth historical ratios of earnings to fixed
charges for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------
1998 1997 1996 1995 1994 1993
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Aetna Inc.(a)............................ 5.11 5.74 2.45 4.97 4.74 (b)
Aetna Services, Inc...................... 4.48 5.78 2.44 (c) (c) (c)
</TABLE>
- ---------------
(a) Aetna Inc. has fully and unconditionally guaranteed the payment of all
principal, premium, if any, and interest on all outstanding debt securities
of Aetna Services, Inc.
(b) Aetna Inc. reported a pretax loss from continuing operations in 1993 which
was inadequate to cover fixed charges by $1.0 billion.
(c) In connection with the acquisition of U.S. Healthcare, Inc. (now named Aetna
U.S. Healthcare Inc.) in July 1996, Aetna Services, Inc. became a
wholly-owned subsidiary of Aetna Inc. Accordingly, the ratio of earnings to
fixed charges for Aetna Services, Inc. for 1995, 1994 and 1993 are the same
as for Aetna Inc.
For purposes of computing the ratios of earnings to fixed charges,
"earnings" represent consolidated earnings from continuing operations before
income taxes, cumulative effect adjustments and extraordinary items plus fixed
charges and minority interests. "Fixed charges" consist of interest (and the
portion of rental expense deemed representative of the interest factor). The
former property-casualty operations of Aetna Services, Inc. (sold to The
Travelers Insurance Group Inc. on April 2, 1996) and certain other operations
are reflected as discontinued operations in its consolidated financial
statements for 1996 and prior years.
S-4
<PAGE> 5
DESCRIPTION OF PURS
The following summary of the particular terms of the PURS supplements, and
to the extent inconsistent therewith replaces, the description of the general
terms and provisions of the Debt Securities set forth in the accompanying
Prospectus, to which description reference is hereby made.
GENERAL
The PURS will be limited to $300,000,000 aggregate principal amount. The
PURS will constitute a series of Senior Debt Securities of Aetna Services, Inc.
(the "Company"), and are to be issued under the Senior Indenture (as defined in
the Prospectus). The PURS are unconditionally guaranteed as to payment of
principal, premium, if any, and interest by Aetna Inc. ("Aetna"). The PURS are
unsecured obligations of the Company and rank equally with all other unsecured
and unsubordinated indebtedness of the Company. The Guarantees of the PURS by
Aetna (the "Guarantees") are unsecured obligations and rank equally with all
other unsecured and unsubordinated indebtedness of Aetna.
The PURS will not have the benefit of any sinking fund. The Senior
Indenture permits the defeasance of the PURS upon the satisfaction of the
conditions described under "Description of Debt Securities and Debt
Guarantees -- Defeasance and Covenant Defeasance" in the accompanying
Prospectus.
The PURS may be transferred or exchanged without any service charge at the
corporate trust office of the Trustee in the City of Hartford, or at any other
office or agency maintained by the Company for such purpose. If any interest,
principal or other payment to be made in respect of the PURS (including any
payment pursuant to the Call Option or any Put Option described below) would
otherwise be due on a day that is not a Business Day (as defined in the Senior
Indenture), payments may be made on the next succeeding day that is a Business
Day, with the same effect as if payment were made on the due date.
Reference is made to the Prospectus for a detailed summary of additional
provisions of the PURS and the Guarantees and of the Senior Indenture under
which the PURS and the Guarantees are issued. Capitalized terms not otherwise
defined herein shall have the meanings given to them in the Prospectus and the
Senior Indenture.
The PURS will mature on November 15, 2009 (the "Final Maturity of the
PURS") but are subject to earlier optional redemption as described in
"-- Optional Redemption of the PURS" below and are subject to earlier repurchase
by the Company as described in "-- Put Option on the PURS" below. The PURS are
not otherwise subject to redemption and are not entitled to the benefit of any
sinking fund.
Interest will accrue on the principal amount of each of the PURS at the
applicable rate described below, from and including November 18, 1998 (the
"Original Issue Date") to but excluding the date on which the principal amount
is paid in full. Interest accrued on the PURS will be payable in arrears on May
15 and November 15 of each year, commencing on May 15, 1999 (except that the
November 1999 interest payment will be made on November 29, 1999), in each case
to the holder of record of the PURS on the May 1 or November 1 next preceding
the interest payment date (or in the case of the May 15, 1999 interest payment
and the November 29, 1999 interest payment, the Business Day next preceding such
interest payment date) (each an "Interest Payment Record Date"). The Interest
Payment Record Date will differ from the record date for the exercise of the
Call Option and Put Option described below.
From and including the Original Issue Date to but excluding November 29,
1999, interest will accrue on the PURS at an annual rate equal to 5.66%. On
November 29, 1999 (the "Reset Date"), the interest rate on the PURS will be
reset so as to equal a fixed rate determined as described under "-- Reset of
Interest Rate on the PURS" below. Notwithstanding the foregoing, the interest
rate on a particular PURS will not be reset on the Reset Date if the Company is
obligated to repurchase
S-5
<PAGE> 6
such PURS on such date, and a reset scheduled to occur on the Reset Date may not
occur because of a Market Disruption Event or a Failed Remarketing. See
"-- Reset of Interest Rate on the PURS" below.
The Company has agreed with Goldman, Sachs & Co., as holder of the Call
Option, that, notwithstanding any provision to the contrary set forth in the
Senior Indenture, the Company will not cause or permit the terms or provisions
of the PURS (or the Senior Indenture, as it relates to the PURS) to be modified
in any way that materially changes the nature of the PURS, the interest rate
reset provisions of the PURS or the payment and settlement provisions of the
PURS or changes any of the terms of the Call Option (as defined below), and may
not make open market or other purchases of the PURS prior to the Reset Date
(except pursuant to the Put Option or in certain limited circumstances), in
either case without the prior written consent of Goldman, Sachs & Co.
CALL OPTION ON THE PURS
Goldman, Sachs & Co. (or any successor firm) may purchase all of the
outstanding PURS (in whole and not in part) from the holders on the Reset Date
(such right, the "Call Option") at a price equal to 100% of the principal amount
of PURS purchased (the "Face Value") and subject to Goldman, Sachs & Co. giving
notice of its intention to purchase the outstanding PURS as described below (a
"Call Notice"). In addition, the Company will remain obligated to pay all
accrued and unpaid interest on the PURS. Interest that becomes payable on the
Reset Date will be payable to the holders of record on the corresponding
Interest Payment Record Date, as provided in the PURS and the Senior Indenture.
To exercise the Call Option, Goldman, Sachs & Co. must give a Call Notice
to the holders of outstanding PURS no later than the tenth Market Day (as
defined below) prior to the Reset Date, in the manner described under
"-- Certain Notices" below. In the event a Call Notice is duly given, each
holder will be obligated to sell to Goldman, Sachs & Co., and Goldman, Sachs &
Co. will be obligated to purchase from each holder, at the Face Value on the
Reset Date, the PURS held of record by the holder on the Reset Date. Such sale
and purchase will be effected through the facilities of DTC, with each holder
being deemed to have automatically tendered its PURS for sale to Goldman, Sachs
& Co. on the Reset Date in accordance with applicable DTC procedures. Each
holder's automatic tender of PURS will be subject to the holder's receipt of
payment of the Face Value of the PURS from Goldman, Sachs & Co. on the Reset
Date. Until purchased or paid by the Company, the PURS will remain outstanding
notwithstanding any exercise of the Call Option by Goldman, Sachs & Co. "Market
Day" means a Business Day in the city of New York other than a day on which
dealings in the U.S. Treasury bond market are generally not being conducted. See
"-- Settlement on Exercise of the Put and Call Options".
If the Call Option is exercised, all PURS outstanding on the Reset Date
will be subject to purchase by Goldman, Sachs & Co. as described above. This
will be the case for every holder (and every beneficial owner) of PURS
outstanding on the Reset Date, including those who acquire an interest in the
PURS after the Call Notice is given or who are otherwise unaware that the Call
Notice has been given.
Prior to the Reset Date, if an Event of Default occurs under the PURS or if
the Company modifies the terms or provisions of the PURS in a manner contrary to
its agreement with Goldman, Sachs & Co. (as described under "-- General"),
Goldman, Sachs & Co. will be entitled to demand settlement of the Call Option.
PUT OPTION ON THE PURS
If Goldman, Sachs & Co. does not exercise the Call Option, each holder of
outstanding PURS may require the Company to repurchase all of the holder's PURS
(in whole and not in part) on the Reset Date (such right, its "Put Option") at a
price equal to 100% of the principal amount of the PURS repurchased (the "Put
Price"), in the circumstances described in the next paragraph. The
S-6
<PAGE> 7
accrued and unpaid interest on the repurchased PURS that becomes payable on the
Reset Date will be payable by the Company to the holders of record on the
corresponding Interest Payment Record Date, as provided in the PURS and Senior
Indenture. If for any reason payment of the Put Price is not made when due, the
accrued interest from the Reset Date to the date payment is made would be
payable by the Company as part of the Put Price.
On the Reset Date, each holder will be deemed to have exercised its Put
Option automatically in respect of the full principal amount of the PURS held of
record by such holder on the Reset Date unless either (x) Goldman, Sachs & Co.
has duly given a Call Notice or (y) if Goldman, Sachs & Co. does not exercise
the Call Option, (i) no later than 10:00 A.M. (New York City time) on the
seventh Market Day prior to the Reset Date, the holder gives notice to the
Trustee that the holder elects not to sell any of its PURS to the Company on the
Reset Date (a "Hold Notice") and (ii) the notice is effective under the 10%
Requirement described in the next paragraph. A Hold Notice must be given in the
manner described under "Certain Notices" below. Consequently, with respect to
each holder, if a Call Notice is not duly given by Goldman, Sachs & Co. and an
effective Hold Notice is not duly given by the holder, the Company will be
obligated to repurchase from the holder, and the holder will be obligated to
sell to the Company, at the Put Price on the Reset Date, the PURS held of record
by the holder on the Reset Date. Such sale and purchase will be effected through
the facilities of DTC, with each holder who has not given an effective Hold
Notice being deemed to have automatically tendered its PURS for sale to the
Company on the Reset Date in accordance with applicable DTC procedures. If the
Company is obligated to purchase any PURS pursuant to the Put Option, the PURS
subject to purchase will remain outstanding until the Put Price (and accrued
interest) in respect thereof has been paid. See "-- Settlement on Exercise of
the Put and Call Options".
Notwithstanding the foregoing, no Hold Notice will be effective unless Hold
Notices are duly given by the holders of record of at least 10% of the aggregate
principal amount of the PURS outstanding on the tenth Market Day prior to the
Reset Date. The provisions described in this paragraph are called the "10%
Requirement". If any holder gives a Hold Notice to the Trustee when the 10%
Requirement has not been satisfied, the Trustee will give written notice of that
fact (a "10% Requirement Notice") to the holder and the Company no later than
the close of business on the seventh Market Day before the Reset Date, in the
manner described under "Certain Notices" below.
RESET OF INTEREST RATE ON THE PURS
The interest rate on each PURS will be reset on the Reset Date, unless the
Company is obligated to repurchase the PURS on such date pursuant to the
holder's Put Option. Consequently, the interest rate on an outstanding PURS will
be reset on the Reset Date if either of the following occurs: (x) Goldman, Sachs
& Co. elects to purchase all of the outstanding PURS on the Reset Date pursuant
to the Call Option or (y) Goldman, Sachs & Co. does not elect to do so, the
holder elects not to exercise its Put Option by giving the Trustee a Hold Notice
and the Hold Notice is effective under the 10% Requirement. Notwithstanding the
foregoing, reset of the interest rate is subject to the occurrence of a Market
Disruption Event or a Failed Remarketing as described below.
The Company has initially appointed Goldman, Sachs & Co. as its agent for
the purpose of resetting the interest rate (such agent or any successor agent,
the "Calculation Agent"). If the interest rate is to be reset on the Reset Date,
the Calculation Agent will effect the reset as follows.
Between the tenth Market Day prior to the Reset Date and 11:00 A.M., New
York City time, on the Calculation Date (as defined below), the Calculation
Agent will select five leading financial institutions (one of which will be
Goldman, Sachs & Co. if it so requests) that deal actively in the Company's debt
securities and have agreed to participate as reference dealers in accordance
with the terms described below (the "Reference Dealers"). If Goldman, Sachs &
Co. has exercised the Call Option, each Reference Dealer must include in its
participation agreement a written commitment (satisfactory to Goldman, Sachs &
Co.) that, if it is selected as the Final Dealer (as defined below), it will
purchase from Goldman, Sachs & Co. on the Calculation Date for settlement on the
Reset Date
S-7
<PAGE> 8
and at the Final Offer Price (as defined below), all the PURS that Goldman,
Sachs & Co. purchases pursuant to the Call Option and tenders for resale to the
Final Dealer on the Reset Date. For each Reference Dealer, the Calculation Agent
will request the name of and telephone and facsimile numbers for one individual
to represent such Reference Dealer.
On the sixth Market Day prior to the Reset Date (the "Calculation Date"),
the Calculation Agent will undertake the following actions to calculate a fixed
rate at which interest will accrue on the PURS from and including the Reset Date
to but excluding the Final Maturity of the PURS (such period, the "Reset
Period"). In paragraphs (a) and (b) below, all references to specific hours are
references to prevailing New York City time, and each notice will be given
telephonically and will be confirmed as soon as possible by facsimile to each of
the Calculation Agent and the Company. The times set forth below are guidelines
for action, and the Calculation Agent will use reasonable efforts to adhere to
these times.
(a) At 12:00 P.M. the Calculation Agent will:
(i) determine (or obtain from Goldman, Sachs & Co., if Goldman, Sachs
& Co. has exercised the Call Option) the approximate 10-year U.S. Treasury
bond yield at or about such time, which will be expressed as a percentage
(the "Designated Treasury Yield") and will be based on the "offered side"
quotations of the then-current, 10-year U.S. Treasury bond (the "Designated
Treasury Bond");
(ii) calculate and provide to the Reference Dealers, on a preliminary
basis, a hypothetical price at which the PURS might be offered for sale to
a Reference Dealer on the applicable Reset Date (the "Offer Price"). The
Offer Price will be expressed as a percentage of the principal amount of
the PURS and will equal 100% plus the Margin (as defined below), if the
Treasury Rate Difference (as defined below) is positive, or 100% minus the
Margin, if the Treasury Rate Difference is negative. The Margin will also
be expressed as a percentage of the principal amount of the PURS and will
equal the present value of the absolute value of the Treasury Rate
Difference applied to 20 semiannual periods (i.e., 10 years), discounted at
the Designated Treasury Yield divided by two. The "Treasury Rate
Difference" means the percentage (which may be positive or negative) equal
to (x) 4.828% (the "Initial Treasury Yield") minus (y) the Designated
Treasury Yield; and
(iii) request each Reference Dealer to provide to the Calculation
Agent, when notified of the Final Offer Price as described in paragraph (b)
below, a firm bid, expressed as a percentage representing an interest rate
spread over the Designated Treasury Yield (the "Spread"), at which such
Reference Dealer would be willing to purchase on the Calculation Date for
settlement on the Reset Date, at the Final Offer Price, all of the PURS
then outstanding. Each such firm bid is to be given on an "all-in" basis
and is to remain open for at least 30 minutes after it is given,
(b) At 12:30 P.M., the Calculation Agent will determine (or obtain from
Goldman, Sachs & Co., if Goldman, Sachs & Co. has exercised the Call Option) the
Designated Treasury Yield on a final basis, and calculate and provide to the
Reference Dealers the Offer Price on a final basis (the "Final Offer Price") and
request each Reference Dealer to submit its bid immediately as described in
clause (a)(iii) above. If the Calculation Agent receives at least two bids, the
following will occur:
(i) the Reference Dealer providing the bid representing the lowest
all-in Spread (the "Final Spread") will be the "Final Dealer";
(ii) if Goldman, Sachs & Co. has exercised the Call Option, the Final
Dealer will be obligated to purchase from Goldman, Sachs & Co. at the Final
Offer Price, for settlement on the Reset Date, all the PURS that Goldman,
Sachs & Co. purchases pursuant to the Call Option and tenders for resale to
the Final Dealer on the Reset Date (assuming that the interest rate on the
PURS will be reset so as to be equal to the Adjusted Rate (as defined
below) during the Reset
S-8
<PAGE> 9
Period); as described below, the Final Dealer will not be obligated to
purchase any PURS if Goldman, Sachs & Co. has not exercised the Call
Option;
(iii) the Calculation Agent will calculate and provide to the Company
the "Adjusted Rate", which will be the semiannual, bond-equivalent, fixed
interest rate on the PURS required to produce, during the Reset Period, a
semiannual, bond-equivalent yield on the PURS that equals the sum of the
Final Spread plus the final Designated Treasury Yield, assuming that the
PURS are purchased on the Reset Date at the Final Offer Price; and
(iv) the interest rate on the PURS will be adjusted so as to equal the
Adjusted Rate, effective from and including the Reset Date to but excluding
the Final Maturity of the PURS. If Goldman, Sachs & Co. has not exercised
the Call Option and any holder gives an effective Hold Notice to the
Trustee, the Company will promptly give written notice of the Adjusted Rate
to the holder.
As indicated above, all determinations regarding the Designated Treasury
Yield and the Designated Treasury Bond as described in clause (a)(i) and the
first sentence of clause (b) above will be made by Goldman, Sachs & Co. if
another party is acting as the Calculation Agent, unless Goldman, Sachs & Co.
has elected not to exercise the Call Option.
If the Calculation Agent determines that, on the Calculation Date, (x) a
Market Disruption Event (as defined below) has occurred and is continuing or (y)
fewer than two Reference Dealers have provided firm bids in a timely manner
pursuant to participation agreements satisfactory to Goldman, Sachs & Co.
substantially as described above (a "Failed Remarketing"), the steps
contemplated above will be taken on the next Market Day on which the Calculation
Agent determines that no Market Disruption Event has occurred and is continuing
and at least two Reference Dealers have provided bids pursuant to participation
agreements satisfactory to Goldman, Sachs & Co. substantially as contemplated
above. If the Calculation Agent determines that a Market Disruption Event and/or
a Failed Remarketing has occurred and is continuing for at least four
consecutive Market Days starting on the Calculation Date, then Goldman, Sachs &
Co. will be deemed not to have exercised the Call Option, all holders will be
deemed to have exercised their Put Options and the Company will repurchase all
the PURS from the holders on the Reset Date at the Put Price and, if Goldman,
Sachs & Co. has exercised the Call Option, the Company will pay to Goldman,
Sachs & Co. an amount equal to the Margin, provided the Treasury Rate Difference
is positive. In these circumstances, the holders of the PURS may not continue to
hold the PURS by giving a Hold Notice. The Calculation Agent will notify the
Company of such determination promptly after the close of business on such
fourth Market Day. The Company will give notice to the holders that the PURS
will be repurchased by the Company from the holders on the Reset Date at the Put
Price, no later than the second Market Day prior to the Reset Date in the manner
described under "Certain Notices" below. If at any time Goldman, Sachs & Co. is
not acting as Calculation Agent, then the determinations and notice to the
Company described in this paragraph will be made and given by Goldman, Sachs &
Co. unless Goldman, Sachs & Co. has elected not to exercise the Call Option.
"Market Disruption Event" means any of the following: (i) a suspension or
material limitation in trading in securities generally on the New York Stock
Exchange or the establishment of minimum prices on such exchange; (ii) a general
moratorium on commercial banking activities declared by either federal or New
York State authorities; (iii) any material adverse change in the existing
financial, political or economic conditions in the United States of America;
(iv) an outbreak or escalation of hostilities involving the United States of
America or the declaration of a national emergency or war by the United States
of America; or (v) any material disruption of the U.S. government securities
market, U.S. corporate bond market and/or U.S. federal wire system.
There is no assurance that the Calculation Agent will receive at least two
qualifying bids from Reference Dealers in connection with the Reset Date. All
determinations regarding Market Disruption Events and Failed Remarketings,
including whether or not any event has occurred or is continuing, will be made
by Goldman, Sachs & Co. in its sole discretion.
S-9
<PAGE> 10
If Goldman, Sachs & Co. has not exercised the Call Option, the Final Dealer
will not be obligated to purchase PURS from any holder, and no holder will be
obligated to sell PURS to the Final Dealer. Consequently, in deciding whether to
give a Hold Notice, holders should not assume that any dealer will be prepared
to purchase their PURS at the Final Offer Price or otherwise.
All determinations made by the Calculation Agent (or Goldman, Sachs & Co.)
regarding the matters described above will, absent manifest error, be final,
conclusive and binding on all concerned and will not give rise to any liability
on the part of the Calculation Agent (or Goldman, Sachs & Co.), the Trustee or
the Company.
SETTLEMENT ON EXERCISE OF THE PUT AND CALL OPTIONS
If the Call Option is exercised, then, on the Reset Date, all beneficial
interests in the PURS will be transferred to a DTC account designated by
Goldman, Sachs & Co. The transfers will be made automatically, without any
action on the part of any beneficial owner, by book entry through DTC. Goldman,
Sachs & Co. will be obligated to make payment of the Face Value of the PURS to
DTC, for credit to the accounts of the DTC participants through which beneficial
interests in the PURS are held, by the close of business on the Reset Date. Each
transfer will be made against the corresponding payment, and each payment will
be made against the corresponding transfer, in accordance with applicable DTC
procedures. If Goldman, Sachs & Co. fails to pay the Face Value of the PURS on
the applicable Reset Date, the Call Option will be deemed not to have been
exercised and the Put Option will be deemed to have been exercised with respect
to all of the outstanding PURS. In these circumstances, the holders of the PURS
may not continue to hold the PURS by giving an effective Hold Notice, and the
Company will be obligated to pay, not later than two Business Days following the
Reset Date, the Put Price for the PURS (plus accrued interest from the Reset
Date to the date payment is made), with settlement occurring as described in the
next paragraph. In any event, the Company will remain obligated to make payment
of accrued and unpaid interest due on the PURS, with interest payable on the
Reset Date being payable to the holders of record on the corresponding Interest
Payment Record Date, as provided in the PURS and in the Senior Indenture.
If the Put Option is exercised, then, on the Reset Date, all beneficial
interests in the PURS to be purchased will be transferred to a DTC account
designated by the Company. The transfers will be made automatically, without any
action on the part of any beneficial owner, by book entry through DTC. The
Company will be obligated to make payment of the Put Price of the relevant PURS
to DTC, for credit to the accounts of the DTC participants through which
beneficial interests in these PURS are held, by the close of business on the
Reset Date. Each transfer will be made against the corresponding payment, and
each payment will be made against the corresponding transfer, in accordance with
applicable DTC procedures. If the Company fails to pay the Put Price of the
relevant PURS on the Reset Date, accrued interest from the Reset Date to the
date the payment is made will be payable as part of the Put Price. With respect
to all the PURS, whether or not purchased pursuant to the Put Option, the
Company will remain obligated to make payment of accrued and unpaid interest due
on the PURS, with interest payable on the Reset Date being payable to the
holders of record on the corresponding Interest Payment Record Date, as provided
in the PURS and in the Senior Indenture.
The transactions described above will be executed on the Reset Date through
DTC in accordance with the procedures of DTC, and the accounts of the respective
DTC participants will be debited and credited and the PURS delivered by book
entry as necessary to effect the purchases and sales thereof. The transactions
will settle in immediately available funds through DTC's settlement system.
The settlement procedures described above, including those for payment for
and delivery of PURS purchased by Goldman, Sachs & Co. or the Company on the
Reset Date, may be modified, notwithstanding any contrary terms of the Senior
Indenture, to the extent required by DTC or, if the
S-10
<PAGE> 11
book-entry system is no longer available for the PURS at the relevant time, to
the extent required to facilitate these transactions in PURS in certificated
form. In addition, Goldman, Sachs & Co. and the Company may, notwithstanding any
contrary terms of the Senior Indenture, modify the settlement procedures
referred to above in order to facilitate the settlement process.
Under the terms of the PURS, the Company has agreed that, notwithstanding
any provision to the contrary set forth in the Senior Indenture, at all times
prior to the Reset Date (i) it will use its best efforts to maintain the PURS in
book-entry form with DTC or any successor thereto and to appoint a successor
depository to the extent necessary to maintain the PURS in the book-entry form
and (ii) it will waive any discretionary right it otherwise may have under the
Senior Indenture to cause the PURS to be issued in certificated form.
For further information with respect to payments, transfers and settlement
through DTC, see "-- Book Entry, Delivery and Form" below.
OPTIONAL REDEMPTION OF THE PURS
Prior to the Reset Date, the PURS will not be redeemable.
Following the Reset Date, the PURS will be redeemable, in whole or in part,
at the option of the Company at any time, upon not less than 30 nor more than 60
days' notice, at a redemption price equal to the greater of (i) 100% of the
principal amount of the PURS to be redeemed and (ii) as determined by an
Independent Investment Banker, the sum of the present values of the remaining
scheduled payments of principal and interest thereon (not including any portion
of such payments of interest accrued as of the date of redemption) discounted to
the redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate plus 15 basis points, plus accrued
interest thereon to the date of redemption. Unless the Company defaults in
payment of the redemption price, on and after the redemption date, interest will
cease to accrue on the PURS or portions thereof called for redemption on such
date.
"Treasury Rate" means, with respect to any redemption date with respect to
the applicable Offered Securities, the rate per annum equal to the semiannual
equivalent yield to maturity of the Comparable Treasury Issue, assuming a price
for the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the period of time remaining between the date of redemption of such PURS and the
Final Maturity of the PURS that would be utilized, at the time of selection and
in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the period of time remaining
between the date of redemption of such PURS and the Final Maturity of the PURS.
"Comparable Treasury Price" means, with respect to any redemption date (A)
the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest of such Reference Treasury Dealer
Quotations (if any), or (B) if the Company obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the Company.
"Reference Treasury Dealer" means each of Goldman, Sachs & Co., J.P. Morgan
Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated, Salomon Smith Barney Inc. and their respective
successors; provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer.
S-11
<PAGE> 12
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Company, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Company by such Reference Treasury Dealer at 5:00 P.M. (New York
City time) on the third Business Day preceding such redemption date.
BOOK-ENTRY, DELIVERY AND FORM
The PURS will be issued in the form of one or more fully registered
certificates registered in the name of Cede & Co., the nominee of DTC. Except as
provided below, owners of beneficial interests in the certificates for the PURS
registered in the name of DTC's nominee ("Global Securities") will not be
entitled to have the Global Securities registered in their names and will not
receive or be entitled to receive physical delivery of any PURS in definitive
form. Unless and until definitive PURS are issued to owners of beneficial
interests in the Global Securities, such owners of beneficial interests will not
be recognized as Holders of the PURS by the Trustee. Hence, until such time,
owners of beneficial interests in the Global Securities will only be able to
exercise the rights of Holders indirectly through DTC and its participating
organizations. Except as set forth below, the Global Securities may not be
transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC
to DTC or another nominee of DTC or by DTC or any nominee to a successor of DTC
or a nominee of such successor.
DTC has advised the Company and Aetna that it is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions among its participants in
such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers
(including the Underwriters), banks, trust companies, clearing corporations and
certain other organizations, some of which (and/or their representatives) own
DTC. Access to DTC's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Persons who are not participants may beneficially own securities held by DTC
only through participants.
DTC advises that pursuant to procedures established by it (i) upon the
issuance of the PURS by the Company, DTC will credit the accounts of
participants designated by the Underwriters with the amount of the Global
Securities purchased by the Underwriters, and (ii) ownership of beneficial
interests in the certificates representing the Global Securities will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by DTC (with respect to participants' interests) and the participants
and the indirect participants (with respect to beneficial owners' interests).
The laws of some states require that certain persons take physical delivery in
definitive form of securities which they own. Consequently, the ability to
transfer beneficial interests in such certificates is limited to such extent.
None of the Company, Aetna, the Trustee, any Paying Agent, or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the certificates representing the Global Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Principal and interest payments on the Global Securities registered in the
name of DTC's nominee will be made by the Trustee to DTC's nominee as the
registered owner of the certificates relating to the Global Securities. The
Senior Indenture provides that the Company, Aetna and the Trustee will treat the
persons in whose names the Global Securities are registered (DTC or its nominee)
as the owners of the Global Securities for the purpose of receiving payment of
principal
S-12
<PAGE> 13
and interest on the Global Securities and for all other purposes whatsoever.
Therefore, neither the Company, Aetna, the Trustee nor any Paying Agent has any
direct responsibility or liability for the payment of principal or interest on
the Global Securities to owners of beneficial interests in the certificates
relating to the Global Securities. DTC has advised the Company, Aetna and the
Trustee that its present practice is, upon receipt of any payment of principal
or interest, to immediately credit the accounts of the participants with such
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the certificates relating to the Global
Securities, as shown on the records of DTC. Payments by participants and
indirect participants to owners of beneficial interests in the certificates
relating to the Global Securities will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of the participants or indirect participants.
If DTC is at any time unwilling or unable to continue as depository and a
successor depository is not appointed by the Company, the Company will issue the
PURS in definitive form, having the guarantee of Aetna endorsed thereon, in
exchange for the total amount of the certificates representing the Global
Securities. In addition, the Company may at any time after the Reset Date
determine not to have the PURS represented by Global Securities, and, in such
event, the Company will issue PURS in definitive form, having the guarantee of
Aetna endorsed thereon, in exchange for the total amount of the certificates
representing the Global Securities. In addition, if any event shall have
happened and be continuing that constitutes an Event of Default with respect to
the PURS, the owners of beneficial interests in certificates for the Global
Securities will be entitled to receive PURS in certificated form in exchange for
the book-entry certificate or certificates representing the Global Securities.
In any such instance, an owner of a beneficial interest in such certificates
will be entitled to physical delivery in definitive form of PURS equal in amount
to such beneficial interest and to have such PURS registered in its name.
CERTAIN NOTICES
With respect to any PURS represented by a Global Security, Call Notices and
10% Requirement Notices and any other notices to be given to the holders of the
PURS will be deemed to have been duly given to the holders when given to DTC, or
its nominee, in accordance with DTC's policies and procedures. The Company
believes that DTC's practice is to inform its participants of any such notice it
receives, in accordance with its policies and procedures. Persons who hold
beneficial interests in the PURS through DTC or its direct or indirect
participants may wish to consult with them about the manner in which notices and
other communications relating to the PURS may be given and received through the
facilities of DTC. None of the Company, Aetna, the Calculation Agent, Goldman,
Sachs & Co. or the Trustee will have any responsibility with respect to those
policies and procedures or for any notices or other communications among DTC,
its direct and indirect participants and the beneficial owners of the PURS in
global form.
With respect to any PURS not represented by a Global Security, Call Notices
and 10% Requirement Notices and any other notices to be given to the holders of
the PURS will be deemed to have been duly given to the holders upon the mailing
of such notices to the holders at their respective addresses as they appear on
the relevant securities register maintained by the Company or its agent as of
the close of business preceding the day notice is given.
Neither the failure to give any notice nor any defect in any notice given
to a particular holder will affect the sufficiency of any notice given to
another holder.
S-13
<PAGE> 14
Hold Notices may be given by a holder of a PURS to the Trustee only by
facsimile transmission or by mail and must actually be received by the Trustee
at the following address no later than 10:00 A.M., New York City time, on the
seventh Market Day prior to the Reset Date:
<TABLE>
<S> <C>
Attention: Corporate Trust Department
Facsimile no.: (617) 664-5371
</TABLE>
Hold Notices may be given with respect to a PURS only by the registered
holder of the PURS. Therefore, in the case of any beneficial interest in a PURS
represented by a Global Security, a Hold Notice must be given by DTC or its
agent, and any owner of a beneficial interest that wants a Hold Notice to be
given with respect to the interest will need to make arrangements with DTC
and/or the applicable direct or indirect participants for the notice to be given
in a timely manner.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material U.S. federal income
tax considerations relevant to ownership and disposition of the PURS to initial
holders purchasing a PURS at its "issue price". The "issue price" of a PURS will
equal the first price to the public (not including bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers) at which a substantial amount of PURS is sold
for money. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), and existing and proposed Treasury regulations, revenue
rulings, administrative interpretations and judicial decisions, all as currently
in effect, any of which are subject to change, possibly on a retroactive basis.
Moreover, it deals only with purchasers who hold PURS as "capital assets" within
the meaning of Section 1221 of the Code, and does not purport to deal with
persons in special tax situations, such as financial institutions, insurance
companies, regulated investment companies, dealers in securities or currencies
and traders in securities and commodities that elect to mark-to-market, persons
holding PURS as a hedge or as a position in a "straddle", "conversion" or
another integrated transaction for tax purposes, or U.S. Holders (as defined
below) whose functional currency is not the U.S. dollar. In addition, because
the Company intends to treat the PURS as maturing on the Reset Date for purposes
of accounting for income from a PURS, as discussed below, this discussion only
addresses the U.S. federal income tax consequences of the PURS until the Reset
Date.
As used herein, the term "U.S. Holder" means a beneficial owner of a PURS
that is, for U.S. federal income tax purposes, (i) a citizen or resident of the
United States, (ii) a corporation or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof, or
(iii) an estate or trust whose income is subject to U.S. federal income tax
regardless of its source.
TAX TREATMENT OF THE PURS
GENERAL
The Company intends to treat the PURS as maturing on the Reset Date for
purposes of accounting for income from a PURS. By purchasing a PURS, a holder
agrees (in the absence of an administrative determination or judicial ruling to
the contrary) to follow such treatment for U.S. federal income tax purposes.
Because no debt instrument closely comparable to the PURS has been the subject
of any Treasury regulation, revenue ruling or judicial decision, the U.S.
federal income tax treatment of the PURS is not certain. No ruling on any of the
issues discussed below will be sought from the Internal Revenue Service ("IRS").
Due to the absence of authorities that directly address instruments that are
similar to the PURS, significant aspects of the U.S. federal income tax
consequences of an investment in the PURS are uncertain, and no assurance can be
given that the IRS or the courts will agree with the treatment described above.
PROSPECTIVE PURCHASERS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISERS
REGARDING THE
S-14
<PAGE> 15
U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE PURS (INCLUDING
ALTERNATIVE CHARACTERIZATIONS OF THE PURS). EXCEPT WHERE INDICATED TO THE
CONTRARY, THE FOLLOWING DISCUSSION ASSUMES THAT THE COMPANY'S TREATMENT OF THE
PURS WILL BE RESPECTED FOR U.S. FEDERAL INCOME TAX PURPOSES. PROSPECTIVE
PURCHASERS SHOULD ALSO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
Assuming the treatment of the PURS as maturing on the Reset Date for
purposes of accounting for income from the PURS is correct, the following U.S.
federal income tax consequences described under "-- Payments of Interest" and
"-- Sale, Exchange or Redemption" below will result with respect to U.S.
Holders:
PAYMENTS OF INTEREST
Interest on the PURS will be taxable as ordinary income for U.S. federal
income tax purposes when received or accrued by a U.S. Holder in accordance with
its usual method of accounting. The Company does not anticipate that the initial
issuance of the PURS will result in original issue discount ("OID" ), generally
defined as the excess of the stated redemption price at the maturity of a PURS
over its issue price. However, if a PURS is issued with OID and such OID is
greater than the statutory de minimis amount (generally, 1/4 of one percent of a
PURS's Put Price at the Reset Date multiplied by the number of complete years to
the Reset Date from the issue date), the holder of a PURS will be required to
recognize as ordinary income the amount of OID on the PURS as such discount
accrues, in accordance with a constant yield method.
SALE, EXCHANGE OR REDEMPTION
When a PURS is sold or redeemed, the U.S. Holder will recognize gain or
loss equal to the difference between the amount realized on the sale or
redemption (excluding any amount attributable to accrued interest not previously
included in income which will be taxed as described above under "Payments of
Interest") and the adjusted basis in its PURS. The adjusted basis of the PURS
generally would equal the U.S. Holder's cost, increased by any OID previously
includible in the U.S. Holder's income with respect to the PURS, and reduced by
any payments (other than interest paid on the PURS) received by the U.S. Holder.
Gain or loss on sale or redemption of a PURS would generally be capital gain or
loss.
Capital gains of individuals derived with respect to capital assets held
for more than one year are eligible for reduced rates of taxation, depending on
the holding period of such capital assets. The deductibility of capital losses
is subject to certain limitations.
ALTERNATIVE CHARACTERIZATION
There can be no assurance that the IRS will agree with, or that a court
will uphold, the Company's treatment of the PURS as maturing on the Reset Date
for purposes of accounting for income from the PURS, and it is possible that the
IRS could assert another treatment. In particular, the IRS could seek to treat
the PURS as maturing at Final Maturity for all purposes, including for purposes
of accounting for income from the PURS, and possibly also to treat the issue
price of the PURS as including the value of the Call Option. In such a case,
Treasury regulations relating to contingent payment debt obligations (the
"Contingent Payment Debt Regulations") would apply, and the timing and character
of income on the PURS would be significantly affected. Among other things, U.S.
Holders, regardless of their usual method of tax accounting, would be required
to accrue income annually as OID, subject to the adjustments described below, at
a "comparable yield" on the adjusted issue price, which could be higher than the
actual cash payments received on a PURS in a taxable year. For this purpose, the
Contingent Payment Debt Regulations require that a projected payment schedule be
determined, and that adjustments to income accruals be made to
S-15
<PAGE> 16
account for differences between actual payments and projected payments.
Furthermore, any gain realized with respect to a PURS would generally be treated
as ordinary income, and any loss realized would generally be treated as ordinary
loss to the extent of the U.S. Holder's ordinary income inclusions with respect
to the PURS. Any remaining loss generally would be treated as capital loss. In
addition, upon the sale of a PURS (other than through the exercise of the Call
Option), the IRS could take the position that the gain or loss with respect to
the Call Option and the gain or loss with respect to the debt obligation must be
separately determined, in which case any deemed loss with respect to the Call
Option would be treated as capital loss, and a corresponding amount of
additional ordinary income would need to be recognized by the U.S. Holder with
respect to the sale. The ability to use capital losses to off-set ordinary
income in determining taxable income is generally limited.
Gain from the sale of PURS might also be treated, in whole or in part, as
ordinary income under certain rules relating to "conversion transactions", or as
short-term capital gain by operations of certain rules relating to "straddles".
Prospective purchasers are strongly urged to consult their tax advisors
regarding the U.S. federal income tax consequences of an investment in the PURS.
INFORMATION REPORTING AND BACKUP WITHHOLDING
A holder may be subject to backup withholding at the rate of 31% of the
interest and other "reportable payments" (including, under certain
circumstances, principal payments and sales proceeds) paid with respect to the
PURS if, in general, the holder fails to comply with certain certification
procedures and is not an exempt recipient under applicable provisions of the
Code.
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
will generally be effective for payments made after December 31, 1999, subject
to certain transition rules. Prospective investors are urged to consult their
own tax advisers regarding the New Regulations.
S-16
<PAGE> 17
UNDERWRITING
The Company, Aetna and the underwriters for the offering (the
"Underwriters") named below have entered into an underwriting agreement and a
pricing agreement with respect to the PURS. Subject to certain conditions, each
Underwriter has severally agreed to purchase the principal amount of PURS
indicated in the following table.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITERS PURS
------------ ---------
<S> <C>
Goldman, Sachs & Co. ....................................... $180,000,000
Deutsche Bank Securities Inc. .............................. 24,000,000
J.P. Morgan Securities Inc. ................................ 24,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 24,000,000
Morgan Stanley & Co. Incorporated........................... 24,000,000
Salomon Smith Barney Inc. .................................. 24,000,000
------------
Total............................................. $300,000,000
============
</TABLE>
PURS sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this Prospectus
Supplement. Any PURS sold by the Underwriters to securities dealers may be sold
at a discount from the initial public offering price of up to 0.10% of the
principal amount of the PURS. If all the PURS are not sold at the initial
offering price, the Underwriters may change the offering price and the other
selling terms.
In consideration of the Call Option it will receive with respect to the
PURS as described herein, Goldman, Sachs & Co. will pay the Company an amount
equal to 2.26% of the principal amount of the PURS.
The PURS are a new issue of securities with no established trading market.
The Company and Aetna have been advised by the Underwriters that the
Underwriters intend to make a market in the PURS but are not obligated to do so
and may discontinue market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the PURS.
In connection with the offering, the Underwriters may purchase and sell
PURS in the open market. These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short sales. Short
sales involve the sale by the Underwriters of a greater number of PURS than they
are required to purchase in the offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the PURS while the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased PURS sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the PURS. As a result, the price of the PURS may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the Underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
The Company and Aetna have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
The Company estimates that its expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $350,000.
The Underwriters and certain of their affiliates from time to time provide
various investment banking, commercial banking and other services to the Company
and Aetna.
S-17
<PAGE> 18
[AETNA LOGO]
AETNA SERVICES, INC.
DEBT SECURITIES
UNCONDITIONALLY GUARANTEED AS TO
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY,
AND INTEREST BY
AETNA INC.
Aetna Services, Inc. (the "Company") may from time to time offer its debt
securities (the "Debt Securities") which may be either senior debt securities
(the "Senior Debt Securities") or subordinated debt securities (the
"Subordinated Debt Securities") in amounts, at prices and on terms to be
determined at the time of offering. The Senior Debt Securities are
unconditionally guaranteed (the "Senior Debt Guarantees") as to the payment of
principal, premium, if any, and interest by Aetna Inc. ("Aetna") and the
Subordinated Debt Securities are unconditionally guaranteed on a subordinated
basis (the "Subordinated Debt Guarantees" and, together with the Senior Debt
Guarantees, the "Debt Guarantees") as to the payment of principal, premium, if
any, and interest by Aetna. The Company is a wholly-owned subsidiary of Aetna.
The Debt Securities offered pursuant to this Prospectus may be issued in
one or more series. By separate prospectus, the form of which is included in the
Registration Statement of which this Prospectus forms a part, four Delaware
statutory business trusts (the "Trusts"), which are direct or indirect wholly
owned subsidiaries of Aetna, may from time to time severally offer preferred
securities guaranteed by Aetna and the Company to the extent set forth therein
and the Company may offer from time to time, either directly or to a Trust,
junior subordinated debt securities, guaranteed on a junior subordinated basis
as to the payment of principal, premium, if any, and interest by Aetna. The
aggregate initial public offering price of the securities to be offered by this
Prospectus and such other prospectus shall not exceed $1,700,000,000 (or its
equivalent (based on the applicable exchange rate at the time of sale) in one or
more foreign currencies, currency units or composite currencies as shall be
designated by the Company).
Certain specific terms of the particular Debt Securities in respect of
which this Prospectus is being delivered are set forth in the accompanying
Prospectus Supplement (the "Prospectus Supplement"), including, where
applicable, the specific title, aggregate principal amount, the denomination,
whether such Debt Securities are secured or unsecured obligations, maturity,
premium, if any, the interest rate (which may be fixed, floating or adjustable),
the time and method of calculating payment of interest, if any, the place or
places where principal of (and premium, if any) and interest, if any, on such
Debt Securities will be payable, the currency in which the principal (and
premium, if any) and interest, if any, on such Debt Securities will be payable,
any terms of redemptions at the option of the Company or the holder, any sinking
fund provisions, the initial public offering price and other special terms. If
so specified in the applicable Prospectus Supplement, Debt Securities of a
series may be issued in whole or in part in the form of one or more temporary or
permanent global securities.
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities and the Senior Debt Guarantees, when issued, will be unsecured and
will rank equally with all other unsecured and unsubordinated indebtedness of
the Company and Aetna, respectively, and the Subordinated Debt Securities and
the Subordinated Debt Guarantees, when issued, will be unsecured and will be
subordinated in right of payment to all Senior Debt (as defined) of the Company
and Senior Debt of Aetna, respectively.
The Prospectus Supplement will contain information concerning certain U.S.
federal income tax considerations relating to the Debt Securities offered, if
applicable.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Debt Securities will be sold directly, through agents, underwriters or
dealers as designated from time to time, or through a combination of such
methods. If agents of the Company or any dealers or underwriters are involved in
the sale of the Debt Securities in respect of which this Prospectus is being
delivered, the names of such agents, dealers or underwriters and any applicable
commissions or discounts are set forth in or may be calculated from the
Prospectus Supplement with respect to such Debt Securities.
THE DATE OF THIS PROSPECTUS IS JUNE 19, 1998.
<PAGE> 19
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, AETNA OR ANY UNDERWRITERS, AGENTS OR
DEALERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY AND ITS
SUBSIDIARIES OR AETNA AND ITS SUBSIDIARIES SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
AVAILABLE INFORMATION
Aetna is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy and information statements and
other information filed by Aetna can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy
and information statements and other information concerning Aetna may also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005. Such material may also be accessed electronically by means
of the Commission's home page on the Internet at http://www.sec.gov.
The Company and Aetna have filed with the Commission a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Debt Securities and Debt Guarantees offered hereby (the
"Registration Statement"). This prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is made to the Registration Statement and to the exhibits relating
thereto for further information with respect to the Company and Aetna and the
Debt Securities and Debt Guarantees offered hereby.
No separate financial statements of the Company have been included or
incorporated by reference herein because the Company and Aetna do not believe
that such financial statements would be material to the holders of Debt
Securities. However, summarized financial information for the Company (i) at and
for the years ended December 31, 1997 and 1996 are included in Note 13 of
Aetna's consolidated financial statements for the year ended December 31, 1997
incorporated by reference in Aetna's Annual Report on Form 10-K for the year
ended December 31, 1997 incorporated by reference herein and (ii) at and for the
three month periods ended March 31, 1998 and 1997 are included in Note 11 of
Aetna's consolidated financial statements included in Aetna's Quarterly Report
on Form 10-Q for the three month period ended March 31, 1998 incorporated by
reference herein.
2
<PAGE> 20
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission (File No.
1-11913) by Aetna pursuant to the Exchange Act are incorporated by reference
into this Prospectus:
1. Aetna's Annual Report on Form 10-K for the year ended December 31,
1997.
2. Aetna's Quarterly Report on Form 10-Q for the three month period
ended March 31, 1998.
3. Aetna's Current Report on Form 8-K dated March 16, 1998.
4. Aetna's Current Report on Form 8-K dated May 21, 1998.
All documents filed by Aetna with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior
to the termination of the offering of the Debt Securities shall hereby be deemed
to be incorporated by reference into this Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained herein or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein or in
any Prospectus Supplement modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company and Aetna will provide without charge to each person to whom
this Prospectus is delivered, on written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). Requests for such copies should
be directed to the office of the Corporate Secretary, Aetna Inc., 151 Farmington
Avenue, Hartford CT 06156, telephone (860) 273-3977.
3
<PAGE> 21
THE COMPANIES
Aetna Inc., together with its subsidiaries, is a leading provider of health
and retirement benefit plans and financial services, with three core businesses:
Aetna U.S. Healthcare, Aetna Retirement Services and Aetna International. Aetna
provides nearly 35 million people worldwide with quality products, services and
information that help them manage their health and financial well-being.
Aetna U.S. Healthcare is a leading health care benefits organization with
nearly 14 million health members at March 31, 1998. Aetna U.S. Healthcare has an
extensive network of health care providers and offers a broad spectrum of
products, including a full range of health, prescription drug, dental and vision
plans, as well as group insurance products such as life, disability and
long-term care.
Aetna Retirement Services provides retirement and investment products
nationwide in the education, nonprofit, government, hospital and small business
sectors. Aetna Retirement Services had approximately $45 billion of financial
services assets under management at March 31, 1998, and Aetna's Aeltus
Investment Management Inc. subsidiary ranked among the 100 largest U.S.
investment management firms. In 1997 Aetna Retirement Services also expanded its
financial planning capability by acquiring Financial Network Investment
Corporation, one of the nation's leading financial planning companies.
Aetna International offers life insurance, pension management, health
products and a limited book of property-casualty coverage to 13 million
customers in 14 countries at year-end 1997. Through strategic alliances, the
company also provides group benefits and markets investment products in
countries across the globe.
Aetna also has a Large Case Pensions business that offers pension and
annuity products primarily for defined benefit and defined contribution plans.
Aetna Services, Inc. is a direct subsidiary of Aetna Inc., the ultimate
parent of the Aetna companies, that primarily serves as a financing company, and
as a holding company for the Aetna Retirement Services, Aetna International and
Large Case Pensions businesses, as well a portion of Aetna's health operations.
4
<PAGE> 22
USE OF PROCEEDS
Except as may otherwise be set forth in the applicable Prospectus
Supplement, the net proceeds from the sale of the Debt Securities will be added
to the Company's general funds and used for general corporate purposes,
including the repayment of indebtedness.
RATIOS OF EARNINGS TO FIXED CHARGES OF AETNA AND THE COMPANY
The following table sets forth Aetna's and the Company's historical ratios
of earnings to fixed charges for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------- ------------------------------------
1998 1997 1996 1995 1994 1993
--------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Aetna(a).............................. 4.23 5.74 2.45 4.97 4.74 (b)
The Company........................... 3.77 5.78 2.44 (c) (c) (c)
</TABLE>
- ---------------
(a) Aetna has fully and unconditionally guaranteed the payment of all principal,
premium, if any, and interest on all outstanding debt securities of the
Company.
(b) Aetna reported a pretax loss from continuing operations in 1993 which was
inadequate to cover fixed charges by $1.0 billion.
(c) In connection with the acquisition of U.S. Healthcare, Inc. (now named Aetna
U.S. Healthcare Inc. ("Aetna U.S. Healthcare")) in July 1996, the Company
became a wholly-owned subsidiary of Aetna. Accordingly, the Company's ratio
of earnings to fixed charges for 1995, 1994 and 1993 are the same as
Aetna's.
For purposes of computing the ratios of earnings to fixed charges,
"earnings" represent consolidated earnings from continuing operations before
income taxes, cumulative effect adjustments and extraordinary items plus fixed
charges and minority interests. "Fixed charges" consist of interest (and the
portion of rental expense deemed representative of the interest factor). The
Company's former property-casualty operations (sold to The Travelers Insurance
Group Inc. on April 2, 1996) and certain other operations are reflected as
discontinued operations in its consolidated financial statements for 1996 and
prior years.
DESCRIPTION OF DEBT SECURITIES AND DEBT GUARANTEES
The following description sets forth certain general terms and provisions
of the Debt Securities and Debt Guarantees to which any Prospectus Supplement
may relate. The particular terms of the Debt Securities and Debt Guarantees
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may not apply to the Debt Securities and Debt Guarantees so
offered will be described in the Prospectus Supplement relating to such Debt
Securities and Debt Guarantees.
The Senior Debt Securities and the Senior Debt Guarantees are to be issued
under an Indenture dated as of July 1, 1996 (the "Senior Indenture"), between
the Company, Aetna and State Street Bank and Trust Company of Connecticut,
National Association, as trustee. The Subordinated Debt Securities and the
Subordinated Debt Guarantees are to be issued under a separate Indenture dated
as of July 1, 1996 (the "Subordinated Indenture"), also between the Company,
Aetna and State Street Bank and Trust Company of Connecticut, National
Association, as trustee. The Senior Indenture and the Subordinated Indenture are
sometimes referred to collectively as the "Indentures." Copies of the Senior
Indenture and the Subordinated Indenture have been filed as exhibits to the
Registration Statement. State Street Bank and Trust Company of Connecticut,
National Association is hereinafter referred to as the "Trustee." The following
summaries of certain provisions of the Senior Debt Securities, the Subordinated
Debt Securities, the Senior Debt Guarantees, the Subordinated Debt Guarantees
and the Indentures do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Indentures applicable to a particular series of Debt Securities and the related
Debt Guarantees, including the definitions therein of
5
<PAGE> 23
certain terms. Wherever particular Sections, Articles or defined terms of the
Indentures are referred to, it is intended that such Sections, Articles or
defined terms shall be incorporated herein by reference. Article and Section
references used herein are references to the applicable Indenture. Capitalized
terms not otherwise defined herein shall have the meaning given in the
Indentures.
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and each Indenture provides that Debt
Securities may be issued thereunder from time to time in one or more series.
Unless otherwise specified in the Prospectus Supplement, the Senior Debt
Securities and the Senior Debt Guarantees when issued will be unsecured and
unsubordinated obligations of the Company and Aetna, respectively, and will rank
equally and ratably with all other unsecured and unsubordinated indebtedness of
the Company and Aetna, respectively. The Subordinated Debt Securities and the
Subordinated Debt Guarantees when issued will be unsecured and subordinated in
right of payment to the prior payment in full of all Senior Debt (as defined) of
the Company and Aetna, respectively, as described under "Subordination of
Subordinated Debt Securities and Subordinated Debt Guarantees" and in the
Prospectus Supplement applicable to an offering of Subordinated Debt Securities
and the Subordinated Debt Guarantees.
Reference is made to the Prospectus Supplement relating to the particular
Debt Securities offered thereby (the "Offered Debt Securities") which shall set
forth whether the Offered Debt Securities shall be Senior Debt Securities,
guaranteed on a senior basis by Aetna pursuant to the Senior Debt Guarantees, or
Subordinated Debt Securities, guaranteed on a subordinated basis by Aetna
pursuant to the Subordinated Debt Guarantees, and shall further set forth the
following terms of the Offered Debt Securities: (1) the title of the Offered
Debt Securities; (2) any limit on the aggregate principal amount of the Offered
Debt Securities; (3) the Person to whom any interest on the Offered Debt
Securities will be payable, if other than the Person in whose name such Offered
Debt Securities are registered on any Regular Record Date; (4) the date or dates
on which the principal of the Offered Debt Securities will be payable; (5) the
rate or rates per annum (which may be fixed, floating or adjustable) at which
the Offered Debt Securities will bear interest, if any, or the formula pursuant
to which such rate or rates shall be determined, the date or dates from which
such interest will accrue and the dates on which such interest, if any, will be
payable, the right, if any, of the Company to defer or extend an interest
payment date and the duration of such deferral or extension and the Regular
Record Dates for such interest payment dates; (6) whether the Offered Debt
Securities will be secured; (7) the place or places where principal of (and
premium, if any) and interest, if any, on Offered Debt Securities will be
payable; (8) if applicable, the price at which, the periods within which and the
terms and conditions upon which the Offered Debt Securities may be redeemed at
the option of the Company pursuant to a sinking fund or otherwise; (9) if
applicable, any obligation of the Company to redeem or purchase Offered Debt
Securities pursuant to any sinking fund or analogous provisions or at the option
of a Holder thereof, and the period or periods within which, the price or prices
at which and the terms and conditions upon which the Offered Debt Securities
will be redeemed or purchased, in whole or in part; (10) if other than
denominations of $1,000 and any integral multiple thereof, the denominations in
which the Offered Debt Securities will be issuable; (11) the currency or
currencies, including composite currencies or currency units, in which payment
of the principal of (or premium, if any) or interest, if any, on any of the
Offered Debt Securities will be payable if other than the currency of the United
States of America; (12) if the amount of payments of principal of (or premium,
if any) or interest, if any, on the Offered Debt Securities may be determined
with reference to one or more indices, the manner in which such amounts will be
determined; (13) if the principal of (or premium if any) or interest, if any, on
any of the Offered Debt Securities of the series is to be payable, at the
election of the Company or a Holder thereof, in one or more currencies,
including composite currencies, or currency units other than that or those in
which the Debt Securities are stated to be payable, the currency, currencies,
including composite currencies, or currency units in which payment of the
principal of (or premium if any) or interest, if any, on Debt Securities of such
series as to which such election is made will be payable, and the periods within
which and the terms and conditions upon which such election is to be made; (14)
the portion of the principal amount of the Offered Debt Securities, if other
than the principal amount thereof, payable upon acceleration of maturity
thereof; (15) whether all or any part of the Offered Debt Securities will be
issued in the form of a Global Security or Securities and, if so, the depositary
for, and other
6
<PAGE> 24
terms relating to, such Global Security or Securities; (16) any event or events
of default applicable with respect to the Offered Debt Securities in addition to
those provided in the Indentures; (17) any other covenant or warranty included
for the benefit of the Offered Debt Securities in addition to (and not
inconsistent with) those included in the Indentures for the benefit of Debt
Securities in lieu of any covenant or warranty included in the Indentures for
the benefit of the Debt Securities of all series, or any provision that any
covenant or warranty included in the Indentures for the benefit of Debt
Securities of all series shall not be for the benefit of the Offered Debt
Securities, or any combination of such covenants, warranties or provisions; (18)
the guarantee of Aetna of the Debt Securities if other than as described herein;
(19) any restriction or condition on the transferability of the Offered Debt
Securities; (20) any authenticating or paying agents, registrars, conversion
agents or any other agents with respect to the Offered Debt Securities; and (21)
any other terms of the Offered Debt Securities. (Section 301)
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Offered Debt Securities are to be issued as registered securities without
coupons in denominations of $1,000 or any integral multiple of $1,000. (Section
302) No service charge will be made for any transfer or exchange of such Offered
Debt Securities, but the Company or the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 305)
Debt Securities may be issued under the Indentures as Original Issue
Discount Securities to be sold at a substantial discount below their stated
principal amount. Federal income tax consequences and other considerations
applicable thereto will be described in the Prospectus Supplement relating
hereto.
If any index is used to determine the amount of payment of principal of,
premium, if any, or interest on any series of Debt Securities, special Federal
income tax, accounting and other considerations applicable thereto will be
described in the applicable Prospectus Supplement.
Since each of Aetna and the Company is a holding company, the rights of
Aetna and the Company, respectively, and hence the right of creditors of Aetna
and the Company (including the Holders of Debt Securities), to participate in
any distribution of the assets of their respective subsidiaries (including in
the case of Aetna, the Company and Aetna U.S. Healthcare), upon any such
Subsidiary's liquidation or reorganization or otherwise is necessarily subject
to the prior claims of creditors of the subsidiary, except to the extent that
claims of Aetna or the Company, as a creditor of the subsidiary, may be
recognized.
The Indentures do not contain any provisions that limit the ability of the
Company or Aetna to incur indebtedness or that afford Holders of the Debt
Securities protection in the event of a highly leveraged or similar transaction
involving the Company or Aetna.
EVENTS OF DEFAULT AND NOTICE THEREOF
Unless otherwise specified in the Prospectus Supplement, the following
events are defined in the Indentures as "Events of Default" with respect to Debt
Securities of any series: (a) failure to pay principal (including any sinking
fund payment) of, or premium (if any) on, any Debt Security of that series when
due (in the case of the Subordinated Indenture, whether or not payment is
prohibited by the subordination provisions); (b) failure to pay interest, if
any, on any Debt Security of that series when due and such failure continues for
a period of 30 days; (c) failure by the Company or Aetna to perform in any
material respect any other covenant in the Indentures (other than a covenant
included in the Indentures solely for the benefit of a series of Debt Securities
other than that series) continued for a period of 90 days after written notice
to the Company and Aetna; (d) due acceleration (which acceleration shall not
have been rescinded within 30 days after written notice to the Company and
Aetna) of any indebtedness for borrowed money in a principal amount in excess of
$50,000,000 for which the Company, Aetna or a Principal Subsidiary (as defined)
is liable, including Debt Securities for another series (other than acceleration
of Non-Recourse Debt for borrowed money which does not exceed in the aggregate
4% of Aetna's total shareholders' equity, as set forth in the most recently
published audited consolidated balance sheet of Aetna), or a default by the
Company, Aetna or any Principal Subsidiary in the payment at final maturity of
outstanding indebtedness for borrowed money in a principal amount in excess of
$50,000,000 (other than default in payment at final maturity of Non-Recourse
Debt which does not exceed in the aggregate of 4% of Aetna's total shareholders'
equity, as set forth
7
<PAGE> 25
in the most recently published audited consolidated balance sheet of Aetna)
unless such acceleration or default at maturity shall be remedied or cured by
the Company, Aetna or such Principal Subsidiary or rescinded, annulled or waived
by the holders of such indebtedness, in which case such acceleration or default
at maturity shall not constitute an Event of Default under this provision and
any acceleration relating thereto shall be rescinded; and (e) certain events of
insolvency, reorganization, receivership or liquidation of the Company or Aetna.
(Section 501)
No Event of Default with respect to Debt Securities of a particular series
shall necessarily constitute an Event of Default with respect to Debt Securities
of any other series. If an Event of Default with respect to Debt Securities of
any series at the time Outstanding shall occur and be continuing, either the
Trustee or the Holders of at least 25% in principal amount of the Outstanding
Debt Securities of that series may declare the principal amount (or, if the Debt
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of that series) of all
Debt Securities of that series to be due and payable immediately; provided,
however, that under certain circumstances the Holders of a majority in aggregate
principal amount of Outstanding Debt Securities of that series may rescind or
annul such acceleration and its consequences. (Section 502)
Reference is made to the Prospectus Supplement relating to any series of
Offered Debt Securities which are Original Issue Discount Securities for the
particular provisions relating to the principal amount of such Original Issue
Discount Securities due on acceleration upon the occurrence of an Event of
Default and the continuation thereof.
The Indentures provide that the Trustee may withhold notice to the Holders
of the Debt Securities of any default (except in payment of principal (or
premium, if any) or interest, if any) if it considers it in the interest of the
holders of the Debt Securities to do so. (Section 602)
The Company and Aetna will be required to furnish to the Trustee annually a
statement by certain officers of the Company and Aetna as to the compliance with
all conditions and covenants of the Indentures. (Section 1004)
The Holders of a majority in principal amount of the Outstanding Debt
Securities of any series affected will have the right, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee with respect to the Debt Securities of such series, and
to waive certain defaults. (Sections 512 and 513)
The Indentures provide that, in case an Event of Default shall occur and be
continuing, the Trustee shall exercise such of its rights and powers under the
Indentures, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs. (Section 601) Subject to such provisions, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indentures at
the request of any of the Holders of Debt Securities unless they shall have
offered to the Trustee security or indemnity in form and substance reasonably
satisfactory to the Trustee against the costs, expenses and liabilities which
might be incurred by it in compliance with such request. (Section 603)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written notice of
a continuing Event of Default with respect to the Debt Securities of such series
and unless also the Holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of the same series shall have made written request,
and offered indemnity to the Trustee in form and substance reasonably
satisfactory to the Trustee, to institute such proceeding as trustee, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the Outstanding Debt Securities of the same series a
direction inconsistent with such request and shall have failed to institute such
proceeding within 60 days. (Section 507) However, such limitations do not apply
to a suit instituted by a Holder of a Debt Security for enforcement of payment
of the principal of (or premium, if any) or interest, if any, on such Debt
Security on or after the respective due dates expressed in such Debt Security.
(Section 508)
8
<PAGE> 26
MODIFICATION AND WAIVER
Modifications and amendments of the Indentures may be made by the Company,
Aetna and the Trustee, with the consent of the Holders of not less than a
majority of aggregate principal amount of each series of the Outstanding Debt
Securities issued under the Indentures which is affected by the modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of each Holder of such Debt Security affected thereby: (1)
change the Stated Maturity of the principal of (or premium if any) or any
installment of principal or interest, if any, on any such Debt Security; (2)
reduce the principal amount of (or premium, if any) or the interest rate, if
any, on any such Debt Security or the principal amount due upon acceleration of
an Original Issue Discount Security; (3) change the place or currency of payment
of principal of (or premium if any) or the interest, if any, on any such Debt
Security; (4) impair the right to institute suit for the enforcement of any such
payment on or with respect to any such Debt Security; (5) reduce the percentage
of Holders of Debt Securities necessary to modify or amend the Indentures; (6)
modify or affect in any manner adverse to the interest of Holders of Debt
Securities the obligation of Aetna under the Debt Guarantees in respect of the
due and punctual payment of the principal of (and premium, if any) or interest
on the Debt Securities; (7) in the case of the Subordinated Indenture, modify
the subordination provisions in a manner adverse to the holders of the
Subordinated Debt Securities; or (8) modify the foregoing requirements or reduce
the percentage of Outstanding Debt Securities necessary to waive compliance with
certain provisions of the Indentures or for waiver of certain defaults. (Section
902)
The holders of at least a majority of the aggregate principal amount of the
Outstanding Debt Securities of any series may, on behalf of all Holders of that
series, waive compliance by the Company and Aetna with certain restrictive
provisions of the Indentures and waive any past default under the Indentures,
except a default in the payment of principal, premium or interest or in the
performance of certain covenants. (Sections 907 and 513)
DEFEASANCE AND COVENANT DEFEASANCE
The Indentures provide that the Company and Aetna, at the Company's option,
(A) will be defeased and discharged from any and all of their respective
obligations with respect to such Debt Securities and the Debt Guarantees
(including, in the case of Subordinated Debt Securities and Subordinated Debt
Guarantees, the provisions described under "Subordination of Subordinated Debt
Securities and Subordinated Debt Guarantees" herein and except for the
obligations to exchange or register the transfer of such Debt Securities, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of the Debt Securities, and to hold
monies for payments in trust) ("defeasance"), or (B) will be released from their
respective obligations under the Indentures concerning the restrictions
described under "Limitations on Liens on Common Stock of Principal Subsidiaries"
and "Consolidation, Merger and Sale of Assets" and any other covenants
applicable to such Debt Securities and the Debt Guarantees (including, in the
case of the Subordinated Debt Securities and the Subordinated Debt Guarantees,
the provisions described under "Subordination of Subordinated Debt Securities
and Subordinated Debt Guarantees" herein) which are subject to covenant
defeasance ("covenant defeasance"), and the occurrence of an event described and
notice thereof in clauses (c) and (d) under "Events of Default and Notice
Thereof" (with respect to covenants subject to covenant defeasance) shall no
longer be an Event of Default, in each case, upon the irrevocable deposit with
the Trustee (or other qualifying trustee), in trust for such purpose, of money,
and/or U.S. Government Obligations (as defined) (or Foreign Government
Obligations (as defined) in the case of Debt Securities denominated in foreign
currencies) which through the payment of principal and interest in accordance
with their terms will provide money in an amount sufficient to pay the principal
of (and premium, if any) and interest, if any, on such Debt Securities, and any
mandatory sinking fund or analogous payments thereon, on the scheduled due dates
therefor. Such a trust may only be established if, among other things, (i) the
Company has delivered to the Trustee an opinion of counsel (as specified in the
Indentures) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for Federal income tax purposes as a result of
such defeasance or covenant defeasance and will be subject to Federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred, (ii) no
Event of Default or event which with the giving of notice or
9
<PAGE> 27
lapse of time, or both, would become an Event of Default under the Indenture
shall have occurred and be continuing on the date of such deposit (or, with
respect to any event specified in clause (e) under "Events of Default and Notice
Thereof", at any time on or prior to the 90th day after the date of such
deposit) and (iii) in the case of Subordinated Debt Securities, (x) no default
in the payment of principal of (or premium, if any) or interest, if any, on any
Senior Debt of the Company or Aetna beyond any applicable grace period shall
have occurred and be continuing, or (y) no other default with respect to any
Senior Debt of the Company or Aetna shall have occurred and be continuing and
shall have resulted in the acceleration of such Senior Debt. (Article Twelve)
The Company may exercise its defeasance option with respect to such Debt
Securities and Debt Guarantees notwithstanding its prior exercise of its
covenant defeasance option. If the Company exercises its defeasance option,
payment of such Debt Securities may not be accelerated because of an Event of
Default. If the Company exercises its covenant defeasance option, payment of
such Debt Securities may not be accelerated by reference to the covenants noted
under clause (B) above. In the event the Company and Aetna omit to comply with
their remaining obligations with respect to such Debt Securities and Debt
Guarantees under the Indentures after the exercise by the Company of its
covenant defeasance option and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations (or Foreign Government Obligations in the case of Debt
Securities denominated in foreign currencies) on deposit with the Trustee may be
insufficient to pay amounts due on the Debt Securities of such series at the
time of the acceleration resulting from such Event of Default. However, the
Company and Aetna will remain liable in respect of such payments. (Article
Twelve)
LIMITATIONS ON LIENS ON COMMON STOCK OF PRINCIPAL SUBSIDIARIES
As long as any of the Debt Securities remains outstanding, Aetna will not,
and will not permit any Principal Subsidiary to, issue, assume, incur or
guarantee any indebtedness for borrowed money secured by a mortgage, pledge,
lien or other encumbrance, directly or indirectly, on any of the Common Stock of
a Principal Subsidiary, which Common Stock is owned by Aetna, by the Company or
by any Principal Subsidiary, unless the obligations of the Company under the
Debt Securities and, if the Company or Aetna so elects, any other indebtedness
of the Company or Aetna ranking on a parity with, or prior to, the Debt
Securities or Aetna's obligations under the Debt Guarantees, as the case may be,
shall be secured equally and ratably with, or prior to, such secured
indebtedness for borrowed money so long as it is outstanding and is so secured.
(Section 1005)
"Principal Subsidiary" means only Aetna Life Insurance Company, Aetna Life
Insurance and Annuity Company and Aetna U.S. Healthcare and any other Subsidiary
of Aetna which shall hereafter succeed by merger or otherwise to a major part of
the business of one or more of the Principal Subsidiaries. The decision as to
whether a Subsidiary shall have succeeded to a major part of the business of one
or more of the Principal Subsidiaries shall be made in good faith by the Board
of Directors of Aetna or a committee thereof by the adoption of a resolution so
stating, and Aetna shall within 30 days of the date of the adoption of such
resolution deliver to the Trustee a copy thereof, certified by the Corporate
Secretary or an Assistant Corporate Secretary of Aetna. (Section 101)
"Common Stock" means, with respect to any Principal Subsidiary, stock of
any class, however designated, except stock which is non-participating beyond
fixed dividend and liquidation preferences and the holders of which have either
no voting rights or limited voting rights entitling them, only in the case of
certain contingencies, to elect less than a majority of the directors (or
persons performing similar functions) of such Principal Subsidiary, and shall
include securities of any class, however designated, which are convertible into
such Common Stock. (Section 101)
CONSOLIDATION, MERGER AND SALE OF ASSETS; ASSUMPTION BY AETNA OR SUBSIDIARY OF
COMPANY OBLIGATIONS
Neither the Company nor Aetna may consolidate with or merge into any other
Person or sell its property and assets as, or substantially as, an entirety to
any Person and neither the Company nor Aetna may permit any Person to merge into
or consolidate with the Company or Aetna, as the case may be, unless (i) either
the
10
<PAGE> 28
Company or Aetna, as the case may be, will be the resulting or surviving entity
or any successor or purchaser is a corporation, partnership or trust organized
under the laws of the United States of America, any State or the District of
Columbia, and any such successor or purchaser expressly assumes the Company's or
Aetna's obligations on the Debt Securities or the Debt Guarantees, as
applicable, under a supplemental Indenture, (ii) immediately after giving effect
to the transaction no Event of Default shall have occurred and be continuing,
and (iii) certain other conditions are met. (Section 801)
Aetna or any Subsidiary of Aetna may, where permitted by law, assume the
obligations of the Company for the due and punctual payment of the principal of
(premium, if any) and interest on and any other payments with respect to the
Debt Securities of any series and the performance of every covenant of the
Indenture and the Debt Securities on the part of Company to be performed or
observed if (i) Aetna or such Subsidiary, as the case may be, shall expressly
assume such obligations by a supplemental indenture, in form reasonably
satisfactory to the Trustee, and, if such Subsidiary assumed such obligations,
Aetna shall, by such supplemental indenture, confirm that its Debt Guarantees
with respect to the Debt Securities of such series shall apply to such
Subsidiary's obligations under the Debt Securities of such series and the
Indenture; (ii) immediately after giving effect to such transaction, no Event of
Default shall have occurred and be continuing; and (iii) certain other
conditions are met. (Section 803)
SUBORDINATION OF SUBORDINATED DEBT SECURITIES AND SUBORDINATED DEBT GUARANTEES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities and Subordinated Debt
Guarantees.
The Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior payment
in full of all Senior Debt of the Company, including the Senior Debt Securities,
and the Subordinated Debt Guarantees will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior payment
in full of all Senior Debt of Aetna, including the Senior Debt Guarantees. Upon
any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company or Aetna, as the case may be, the holders
of Senior Debt of the Company or Aetna, as the case may be, will first be
entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt of the Company or Aetna, as the case may
be, before the holders of the Subordinated Debt Securities will be entitled to
receive or retain any payment in respect of the principal of (and premium, if
any) or interest, if any, on the Subordinated Debt Securities. (Subordinated
Indenture Sections 1402 and 1602)
By reason of such subordination, in the event of liquidation or insolvency,
(i) creditors of the Company who are not holders of Senior Debt of the Company
or Subordinated Debt Securities may recover less, ratably, than holders of
Senior Debt of the Company and may recover more, ratably, than the holders of
the Subordinated Debt Securities and (ii) creditors of Aetna who are not holders
of Senior Debt of Aetna or Subordinated Debt Securities may recover less,
ratably, than holders of Senior Debt of Aetna and may recover more, ratably,
than holders of Subordinated Debt Securities.
In the event of the acceleration of the maturity of any Subordinated Debt
Securities, the holders of all Senior Debt of the Company and Aetna outstanding
at the time of such acceleration will first be entitled to receive payment in
full of all amounts due thereon before the Holders of Subordinated Debt
Securities will be entitled to receive any payment upon the principal of (or
premium, if any) or interest, if any, on the Subordinated Debt Securities.
(Subordinated Indenture Sections 1403 and 1603)
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Subordinated Debt Securities may be made if there shall
have occurred and be continuing a default in the payment of principal of (or
premium, if any) or interest on Senior Debt of the Company or Aetna, or an event
of default with respect to any Senior Debt of the Company or Aetna resulting in
the acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default. (Subordinated Indenture Sections 1404
and 1604)
11
<PAGE> 29
"Debt" means (without duplication and without regard to any portion of
principal amount that has not accrued and to any interest component thereof
(whether accrued or imputed) that is not due and payable) with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed; (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses; (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person; (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of such Person; and (vi) every obligation of the type
referred to in clauses (i) through (v) of another Person and all dividends of
another Person the payment of which, in either case, such Person has guaranteed
or is responsible or liable, directly or indirectly, as obligor or otherwise.
(Subordinated Indenture Section 101)
"Senior Debt" means with respect to any Person the principal of (and
premium, if any) and interest, if any (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to such
Person to the extent that such claim for post-petition interest is allowed in
such proceeding), on Debt of such Person, whether incurred on or prior to the
date of the Subordinated Indenture or thereafter incurred, unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the Subordinated Debt Securities, in the case of the Company, or the
Subordinated Debt Guarantees, in the case of Aetna, or to other Debt of such
Person which is pari passu with, or subordinated to the Subordinated Debt
Securities, in the case of the Company, or the Subordinated Debt Guarantees, in
the case of Aetna; provided, however, that Senior Debt shall be deemed not to
include (i) in the case of the Company, the Subordinated Debt Securities, (ii)
in the case of Aetna, the Subordinated Debt Guarantees or (iii) any other debt
securities or guarantees in respect thereof issued to any other trusts,
partnerships or other entity affiliated with the Company or Aetna which is a
financing vehicle of the Company or Aetna ("Financing Entity") in connection
with the issuance of preferred securities of such Financing Entity, including,
without limitation indebtedness of the Company and Aetna's guarantee in respect
thereof issued to Aetna Capital L.L.C. pursuant to that certain Indenture dated
as of November 1, 1994 between the Company and The First National Bank of
Chicago, as trustee, as amended by the First Indenture Supplement dated August
1, 1996 among the Company, Aetna and The First National Bank of Chicago, as
trustee. (Subordinated Indenture Section 101)
The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Debt of the Company or Aetna, which may include indebtedness
that is senior to the Subordinated Debt Securities and the Subordinated Debt
Guarantees, but subordinate to other obligations of the Company or Aetna,
respectively. The Senior Debt Securities and the Senior Debt Guarantees, when
issued, will constitute Senior Debt of the Company and Aetna, respectively.
At March 31, 1998, each of the Company and Aetna had $2.2 billion of Senior
Debt outstanding, no Subordinated Debt Securities or Subordinated Debt
Guarantees outstanding, and $348 million of indebtedness which would rank junior
in right of payment to the Subordinated Debt Securities and the Subordinated
Debt Guarantees. All such Debt of Aetna consists of guarantees of Debt of the
Company.
The Prospectus Supplement may further describe the provisions, if any,
applicable to the subordination of the Subordinated Debt Securities of a
particular series or the Subordinated Debt Guarantees with respect thereto.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in the form of one or more
Global Securities that will be deposited with a Depositary or its nominee. In
such a case, one or more Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of Outstanding Debt Securities of the series to be represented by such Global
Security or Securities. Unless and until it is exchanged in whole or in part for
Debt Securities in definitive registered form, a Global Security may
12
<PAGE> 30
not be registered for transfer or exchange except as a whole by the Depositary
for such Global Security to a nominee for such Depositary and except in the
circumstances described in the applicable Prospectus Supplement. (Sections 204
and 305)
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
and a description of the Depositary will be contained in the applicable
Prospectus Supplement.
THE TRUSTEE
The Indentures contain limitations on the right of the Trustee, as a
creditor of the Company and Aetna, to obtain payment of claims in certain cases,
or to realize on certain property received in respect of any such claim as
security or otherwise. In addition, the Trustee may be deemed to have a
conflicting interest and may be required to resign as Trustee if at the time of
a default under the Indentures it is a creditor of the Company or Aetna.
The Trustee or its affiliates act as depositary for funds of, makes loans
to and performs other services for, or may be a customer of, the Company and
Aetna in the ordinary course of business.
GOVERNING LAW
The Indentures are governed by and shall be construed in accordance with
the laws of the State of New York, but without regard to principles of conflicts
of laws.
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to one or more underwriters for public
offering and sale by them or may sell Debt Securities to investors or other
persons directly or through agents. The Company may sell Debt Securities as soon
as practicable after effectiveness of the Registration Statement, provided that
favorable market conditions exist. Any such underwriter or agent involved in the
offer and sale of the Debt Securities will be named in an applicable Prospectus
Supplement.
Underwriters may offer and sell the Debt Securities at a fixed price or
prices, which may be changed, or at prices related to prevailing market prices
or at negotiated prices. The Company also may, from time to time, authorize
firms acting as the Company's agents to offer and sell the Debt Securities upon
the terms and conditions as shall be set forth in any Prospectus Supplement. In
connection with the sale of Debt Securities, underwriters may be deemed to have
received compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Debt Securities
for whom they may act as agent. Underwriters may sell Debt Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
(which may be changed from time to time) from the purchasers for whom they may
act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Debt Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Debt Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Debt Securities may be deemed
to be underwriting discounts and commissions under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements with the
Company and Aetna, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act, and to
reimbursement by the Company for certain expenses.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Company and Aetna in the ordinary
course of business.
13
<PAGE> 31
If so indicated in an applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Debt Securities from the Company at the public offering
price set forth in such Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Contract will be for an amount
specified in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except that (i) the purchase by an institution of the Debt Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject and
(ii) if the Debt Securities are being sold to underwriters, the Company shall
have sold to such underwriters such amount specified in the applicable
Prospectus Supplement. Agents and underwriters will have no responsibility in
respect of the delivery or performance of Contracts.
The Debt Securities may or may not be listed on a national securities
exchange or a foreign securities exchange. No assurances can be given that there
will be a market for the Debt Securities.
VALIDITY OF THE SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of the Debt Securities and the Debt Guarantees offered hereby will be
passed upon for the Company and Aetna by Thomas J. Calvocoressi, General Counsel
to the Company and Aetna, and Davis Polk & Wardwell, 450 Lexington Avenue, New
York, New York 10017, and for any agents or underwriters by Sullivan & Cromwell,
125 Broad Street, New York, New York 10004. Davis Polk & Wardwell and Sullivan &
Cromwell will rely upon the opinion of Thomas J. Calvocoressi as to certain
matters governed by Connecticut law. As of March 31, 1998, Thomas J.
Calvocoressi beneficially owned 2,701 shares, and had options to purchase 46,704
shares, of Aetna's Common Stock.
EXPERTS
The consolidated financial statements and schedules of Aetna and its
subsidiaries (including the Company) as of December 31, 1997 and 1996, and for
each of the years in the three-year period ended December 31, 1997 which are
incorporated by reference in Aetna's Annual Report on Form 10-K for the year
ended December 31, 1997, have been incorporated by reference in this Prospectus
in reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, and upon the authority of said firm as experts in accounting
and auditing.
With respect to the unaudited interim financial information of Aetna
incorporated by reference in this Prospectus and of Aetna to be incorporated by
reference in this Prospectus, the independent certified public accountants have
reported and may report that they applied limited procedures in accordance with
professional standards for a review of such information. However, any separate
report included in Aetna's Quarterly Reports on Form 10-Q and incorporated by
reference herein states and will state that they did not audit and they did not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on any report on such information should be restricted in
light of the limited nature of the review procedures applied. The accountants
are not subject to the liability provisions of Section 11 of the Securities Act
for any report on the unaudited interim financial information because that
report is not a "report" or a "part" of the Registration Statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.
14
<PAGE> 32
ERISA MATTERS
Aetna and the Company and certain of their affiliates, including Aetna Life
Insurance Company, Aetna Life Insurance and Annuity Company and Aetna U.S.
Healthcare, may each be considered a "party in interest" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or a
"disqualified person" within the meaning of the Internal Revenue Code of 1986,
as amended (the "Code") with respect to many employee benefit plans. Prohibited
transactions within the meaning of ERISA or the Code may arise, for example, if
Debt Securities are acquired by a pension or other employee benefit plan with
respect to which Aetna, the Company or any of their affiliates is a service
provider, unless such Debt Securities are acquired pursuant to an exemption for
transactions effected on behalf of such plan by a "qualified professional asset
manager" or pursuant to any other available exemption. Any such pension or
employee benefit plan proposing to invest in the Debt Securities should consult
with its legal counsel.
15
<PAGE> 33
- -------------------------------------------------------
- -------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the PURS offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of the date hereof.
------------------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Companies.......................... S-2
Use of Proceeds........................ S-2
Selected Historical Financial Data..... S-3
Ratio of Earnings to Fixed Charges..... S-4
Description of PURS.................... S-5
Certain United States Federal Income
Tax Considerations................... S-14
Underwriting........................... S-17
Prospectus
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 3
The Companies.......................... 4
Use of Proceeds........................ 5
Ratios of Earnings to Fixed Charges of
Aetna and the Company................ 5
Description of Debt Securities and Debt
Guarantees........................... 5
Plan of Distribution................... 13
Validity of the Securities............. 14
Experts................................ 14
ERISA Matters.......................... 15
</TABLE>
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
$300,000,000
AETNA SERVICES, INC.
5.66% Puttable Reset
Securities PURS(SM) due 2009
Unconditionally Guaranteed
as to Payment of Principal,
Premium, if any,
and Interest by
AETNA INC.
------------------
[AETNA LOGO]
------------------
GOLDMAN, SACHS & CO.
DEUTSCHE BANK SECURITIES
J.P. MORGAN & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
- -------------------------------------------------------
- -------------------------------------------------------
