As filed with the Securities and Exchange Commission on March 25, 1994
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AETNA CAPITAL L.L.C. AETNA LIFE AND CASUALTY COMPANY
(Exact name of Registrant as (Exact name of Registrant as
specified in its charter) specified in its charter)
Delaware Connecticut
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
Applied for 06-0843808
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
c/o Jean M. Waggett Jean M. Waggett
Vice President and Corporate Secretary Vice President and Corporate Secretary
Aetna Life and Casualty Company Aetna Life and Casualty Company
151 Farmington Avenue 151 Farmington Avenue
Hartford, Connecticut 06156 Hartford, Connecticut 06156
(203) 273-0123 (203) 273-0123
(Address, including zip code, and (Address, including zip code, and
telephone number, including area telephone number, including area
code, of Registrant's principal code, of Registrant's principal
executive offices and agent for executive offices and agent for
service) service)
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Copy of Correspondence to:
Kirk P. Wickman Robert S. Risoleo Richard J. Sandler
Counsel Sullivan & Cromwell Davis Polk & Wardwell
Aetna Life and Casualty 125 Broad Street 450 Lexington Avenue
Company New York, New York 10004 New York, New York 10017
151 Farmington Avenue (212) 558-4000 (212) 450-4000
Hartford, Connecticut 06156
(203) 273-0123
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Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box: /X/
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CALCULATION OF REGISTRATION FEE
==============================================================================
Proposed Proposed
maximum maximum Amount
Title of each class Amount offering aggregate of
of securities to to be price per offering registration
be registered registered security (1) price (1) fee
- ------------------------------------------------------------------------------
Preferred Securities... 20,000,000 $25.00 $500,000,000 $172,415
Securities
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Backup Undertakings
by Aetna Life and
Casualty Company (2).. (2) (2) (2) None
==============================================================================
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Backup Undertakings consist of certain obligations which may be
incurred by Aetna Life and Casualty Company in connection with the
Preferred Securities, including subordinated debentures of Aetna Life and
Casualty Company and a guarantee by Aetna Life and Casualty Company. The
consideration for the Backup Undertakings is included in the "Proposed
maximum aggregate offering price".
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND
EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 25, 1994
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 1994
[LOGO]
12,000,000 Securities
Aetna Capital L.L.C.
% Cumulative Monthly Income
Preferred Securities ("MIPS"*), Series A
(liquidation preference $25 per security)
guaranteed to the extent set forth herein by
Aetna Life and Casualty Company
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The % Cumulative Monthly Income Preferred Securities, Series A (the
"Series A Preferred Securities") offered hereby are being issued by Aetna
Capital L.L.C., a Delaware limited liability company (the "Company"). All
of the common limited liability company interests of the Company are owned
directly or indirectly by Aetna Life and Casualty Company, a Connecticut
insurance corporation ("AL&C").
The payment of dividends, if and to the extent declared out of funds
held by the Company and legally available therefor, and payments on
liquidation or redemption with respect to the Series A Preferred Securities
are guaranteed by AL&C to the extent described in the accompanying
Prospectus. The Series A Preferred Securities will entitle holders to
receive cumulative preferential cash dividends, at an annual rate of % of
the liquidation preference of $25 per security, accruing from ,
1994 and payable monthly in arrears on the last day of each calendar month
of each year, commencing , 1994.
The Series A Preferred Securities are redeemable, at the option of the
Company with AL&C's consent, in whole or in part, from time to time, on or
after , 1999, at $25 per security plus accumulated and unpaid dividends
to the date fixed for redemption (the "Redemption Price") and will be redeemed
at such price from the proceeds of any repayment of the Series A Debentures
evidencing the loan of the proceeds of the offering described herein to
AL&C. In addition, AL&C may cause the Company at any time to redeem the
Series A Preferred Securities or to exchange the Series A Preferred
Securities for Series A Debentures having an aggregate principal amount and
accrued and unpaid interest equal to the Redemption Price and having an
interest rate equal to the dividend rate on the Series A Preferred
Securities if AL&C and the Company have been advised by legal counsel
(which counsel is not an employee of AL&C or the Company) that, as a result
of any change after the date of this Prospectus Supplement in any
applicable income tax laws or regulations or interpretations thereof
(including the enactment or imminent enactment of any legislation, the
publication of any judicial decisions, regulatory rulings, regulatory
procedures or notices or announcements (including notices or announcements
of intent to adopt such procedures or regulations), or a change in the
official position or in the interpretation of law or regulations by any
legislative body, court, governmental authority or regulatory body), there
exists more than an insubstantial risk that (i) the Company will be subject
to income tax with respect to the interest received on the Series A
Debentures or (ii) AL&C will be precluded from deducting the interest paid
on the Series A Debentures for income tax purposes. See "Description of
the Preferred Securities -- Redemption or Exchange" in the accompanying
Prospectus.
In the event of a liquidation of the Company, holders of Series A
Preferred Securities will be entitled to receive for each Series A
Preferred Security a liquidation preference of $25 plus accumulated and
unpaid dividends (whether or not declared) to the date of payment, subject
to certain limitations. See "Certain Terms of the Series A Preferred
Securities -- Liquidation Preference" herein and "Description of the
Preferred Securities -- Liquidation Distribution" in the accompanying
Prospectus.
For a description of various contractual backup undertakings of AL&C
relating to the Series A Preferred Securities, see "Description of the
Guarantee" and "Description of the Debentures and the Subordinated
Indenture" in the accompanying Prospectus.
Application will be made to list the Series A Preferred Securities on
the New York Stock Exchange.
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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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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Initial Public Underwriting Proceeds to
Offering Price(1) Commission(2) Company(1)(3)(4)
----------------- ------------- ----------------
Per Series A Preferred
Security................ $25 (3) $25
Total(4)(5)........... $300,000,000 (3) $300,000,000
___________
(1) Plus accrued dividends, if any, from , 1994.
(2) The Company and AL&C have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See "Underwriting" herein.
(3) In view of the fact that the proceeds of the sale of the Series A
Preferred Securities will be loaned to AL&C, under the Underwriting
Agreement AL&C has agreed to pay to the Underwriters as compensation
("Underwriters' Compensation") for their services $ per Series
A Preferred Security (or $ in the aggregate). See "Underwriting"
herein.
(4) Expenses of the offering, which are payable by AL&C, are estimated to
be $720,000.
(5) The Company has granted to the Underwriters a 30-day option to
purchase, on the same terms set forth above, up to 1,800,000 additional
Series A Preferred Securities at the Initial Public Offering Price (with
additional Underwriters' Compensation) solely to cover over-allotments,
if any. If the option is exercised in full, the total Initial Public
Offering Price, Underwriters' Compensation and Proceeds to Company will
be $345,000,000, $ and $ , respectively. See
"Underwriting" herein.
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The Series A Preferred Securities offered hereby are offered by the
several Underwriters, as specified herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole
or in part. It is expected that delivery of the Series A Preferred
Securities will be made only in book-entry form through the facilities of
The Depository Trust Company on or about , 1994.
____________
* An application has been filed by Goldman, Sachs & Co. with the United
States Patent and Trademark Office for the registration of the MIPS
servicemark.
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Goldman, Sachs & Co.
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The date of this Prospectus Supplement is , 1994.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A
PREFERRED SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
_____________________
FOR NORTH CAROLINA RESIDENTS: THE COMMISSIONER OF INSURANCE FOR THE STATE
OF NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS.
_______________
AETNA LIFE AND CASUALTY COMPANY
AL&C and its subsidiaries ("Aetna") constitute one of the nation's
largest insurance/financial services organizations based on its assets at
December 31, 1992. Based on 1992 premium rankings, Aetna also is one of
the nation's largest stock insurers of property-casualty lines and one of
the largest writers of group health and managed care products, and group
life, annuity and pension products.
AETNA CAPITAL L.L.C.
The Company is a limited liability company formed under the laws of
Delaware. AL&C owns directly or indirectly all of the common limited
liability company interests (the "Common Securities") in the Company, which
Common Securities are nontransferable. The Company's principal executive
offices are located at 151 Farmington Avenue, Hartford, Connecticut 06156,
telephone: (203) 273-0123. The principal executive offices of the
Managing Members (as defined below) of the Company are located at 151
Farmington Avenue, Hartford, Connecticut 06156, telephone: (203) 273-0123.
The Company exists solely for the purpose of issuing preferred limited
liability company interests ("Preferred Securities") and Common Securities
and lending the proceeds from the issuance thereof and related capital
contributions to AL&C.
Each holder of Series A Preferred Securities will be furnished
annually with unaudited financial statements of the Company as soon as
available after the end of the Company's fiscal year.
CERTAIN INVESTMENT CONSIDERATIONS
Prospective purchasers of Series A Preferred Securities should
carefully review the information contained elsewhere in this Prospectus
Supplement and in the Prospectus and should particularly consider the
following matters:
AL&C's obligations under the Guarantee are subordinate and junior in
right of payment to all other liabilities of AL&C and its obligations under
the Subordinated Indenture are subordinate and junior in right of payment
to all Senior Debt of AL&C. As of December 31, 1993, AL&C had
approximately $ million of Senior Debt outstanding. See "Description of
the Guarantee -- Status of the Guarantee" and "Description of the
Debentures and the Subordinated Indenture -- Subordination" in the
Prospectus.
AL&C has the right under the Series A Debentures to extend interest
payment periods for up to 60 months (which right may be exercised from time
to time), and, as a consequence, monthly dividends on the Series A
Preferred Securities can be deferred (but will continue to accumulate) by
the Company during any such extended interest payment period. In the event
that AL&C exercises this right, AL&C will not be permitted to declare
dividends on any shares of its preferred or common stock, and therefore,
the possibility of an extension of a payment period is, in the view of the
Company and AL&C, remote. See "Description of the Debentures and the
Subordinated Indenture -- Interest" in the Prospectus.
Should an extended interest payment period occur, beneficial owners of
Series A Preferred Securities will be required to include interest accruing
on the Series A Debentures in gross income for U.S. federal income tax
purposes in advance of the receipt of cash, and any beneficial owners who
dispose of Series A Preferred Securities prior to the record date for
payment of dividends following such period will not receive such dividends
from the Company or AL&C. See "Taxation -- Potential Extension of Payment
Period" in the Prospectus.
USE OF PROCEEDS
Based on the offering price of $25 per Series A Preferred Security,
the proceeds from this offering (prior to deducting Underwriters'
Compensation and estimated expenses) will be $300 million ($345 million if
the Underwriters' over-allotment option is exercised in full). The
proceeds from the sale of the Series A Preferred Securities will be loaned
to AL&C to be used for general corporate purposes, including the repayment
of indebtedness.
CAPITALIZATION
The following table sets forth the total consolidated capitalization
of Aetna at December 31, 1993 and as adjusted to give effect to the sale of
the Series A Preferred Securities offered hereby and the application of the
proceeds therefrom as described under "Use of Proceeds" herein.
As of December 31, 1993
-----------------------------
Actual As Adjusted
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(Millions, except share data)
Short-term debt.................................. $ 35.7 $
========= =========
Long-term debt................................... 1,160.0
Preferred securities of consolidated subsidiary.. --
Shareholders' equity:
Preferred Stock (no par value:
40,000,000 shares authorized; no shares
issued or outstanding)......................... -- --
Common Capital Stock (no par value: 250,000,000
shares authorized; 114,939,275 issued and
112,200,567 outstanding)....................... 1,422.0 1,422.0
Net unrealized capital gains................... 648.2 648.2
Retained earnings.............................. 5,103.3 5,103.3
Treasury Stock, at cost (2,738,708 shares)..... (130.4) (130.4)
--------- --------
Total shareholders' equity................... $ 7,043.1 $7,043.1
--------- --------
Total short-term debt and capitalization... $ 8,238.8 $
========= =========
- -----------
For further information, see Notes 8, 9, 11 and 16 of Notes to Financial
Statements in AL&C's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
SUMMARY FINANCIAL INFORMATION OF AETNA
The following summary financial information for the years ended and as
of December 31, 1993, 1992, 1991, 1990 and 1989 has been derived from
previously published audited consolidated financial statements of Aetna, as
adjusted, which have been examined and reported upon by KPMG Peat Marwick,
independent auditors. The summary financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the
consolidated financial statements from which it has been derived and the
accompanying notes thereto incorporated by reference in the Prospectus.
Year Ended December 31,
-------------------------------------------------------
1993(1)(2) 1992(1) 1991 1990 1989
----------- ---------- ---------- --------- -----------
(millions)
Statement of Income Data:
Revenue:
Premiums.......................... $10,574.9 $10,793.9 $11,444.6 $11,923.1 $12,432.6
Net Investment Income............. 4,919.0 5,069.0 5,514.5 5,608.1 5,360.8
Fees and Other Income............. 1,534.0 1,519.4 1,365.5 1,290.5 1,169.3
Net Realized Capital Gains
(Losses)........................ 89.8 114.9 (282.1) (122.5) 250.0
Total Revenue................... 17,117.7 17,497.2 18,042.5 18,699.2 19,212.7
Benefits and Expenses:
Benefits and Expenses (other
than Loss on Discontinuance of
Products and Severance and
Facilities Charges)............. 16,687.1 17,473.6 17,799.0 18,149.6 18,548.9
Loss on Discontinuance of Products 1,270.0 --- --- --- ---
Severance and Facilities Charge... 308.0 145.0 --- 90.0 ---
Income (Loss) from Continuing
Operations before Extraordinary
Item and Cumulative Effect
Adjustments..................... (615.3) (5.3) 366.4 480.6 512.8
Income from Discontinued Operations,
Net of Tax(3)..................... 27.0 173.8 138.8 133.5 126.6
Extraordinary loss on debenture
redemption, net of tax.......... (4.7) --- --- --- ---
Cumulative effect adjustments,
net of tax:
Discounting of workers'
compensation life table
indemnity claims................ 250.0 --- --- --- ---
Change in accounting for
postemployment benefits......... (48.5) --- --- --- ---
Change in accounting for
retrospectively rated
reinsurance contracts........... 26.3 --- --- --- ---
Change in accounting for debt
and equity securities........... ( .7) --- --- --- ---
Change in accounting for income
taxes........................... --- 272.5 --- --- ---
Change in accounting for
postretirement benefits other
than pensions................... --- (385.0) --- --- ---
Net Income (Loss)................... $ (365.9) $ 56.0 $ 505.2 $ 614.1 $ 676.4
Net Realized Capital Gains (Losses),
Net of Tax (included above)....... 59.0 78.6 (187.4) (79.2) 111.7
Balance Sheet Data:
Total Assets(4).....................$100,036.7 $94,519.6 $91,987.6 $89,300.7 $87,099.0
Total Investments................... 61,455.8 58,796.5 58,456.9 60,766.2 58,704.8
Total Long-Term Debt................ 1,160.0 955.6 1,019.6 1,010.3 1,037.7
Total Shareholders' Equity.......... 7,043.1 7,238.3 7,384.5 7,072.4 6,936.7
Business Segment Earnings Data:
Income (Loss) from Continuing Opera-
tions before Extraordinary Item
and Cumulative Effect Adjustments:
Health and Life Insurance
and Services................. $288.1 $280.6 $386.0 $280.3 $241.7
Financial Services............. (808.8) (17.2) (156.9) 28.4 106.9
Commercial Property-Casualty
Insurance and Services....... (115.9) (245.4) 139.5 199.5 232.0
Personal Property-Casualty..... (3.3) (36.2) (28.6) 24.8 (104.6)
International.................. 24.6 12.9 26.4 (52.4) (17.2)
<FN>
___________
1 See AL&C's Annual Report on Form 10-K for the fiscal year ended December
31, 1993 for a discussion of the effects of accounting changes adopted
with respect to 1993 and 1992 and for a discussion of the discontinuance
of Aetna's fully guaranteed large case pension products in 1993.
2 In August 1993, the Omnibus Budget Reconciliation Act of 1993 ("OBRA")
was enacted which resulted in an increase in the federal corporate tax
rate from 34% to 35%. The enactment of OBRA resulted in a net benefit of
$21.8 million to continuing operations before extraordinary item and
cumulative effect adjustments. The net benefit resulted from an increase
in Aetna's deferred tax asset partially offset by an increase in current
taxes.
3 In 1992, Aetna sold American Re-Insurance Company, formerly a wholly
owned subsidiary. As a result of the sale, the Reinsurance and Related
Services segment, provided through American Re-Insurance Company, is
presented as a discontinued operation. All prior year financial data has
been restated to reflect the change.
4 Total assets in 1993 include $15.0 billion of assets attributable to
discontinued products.
RECENT DEVELOPMENTS
Actions Announced in January 1994
In January 1994, Aetna announced a number of actions to improve the
profitability of its operations. The announced actions resulted in an
after-tax charge to 1993 operating earnings (income from continuing
operations, excluding capital gains and losses) of $1.28 billion. The
announced actions included the following:
o Aetna discontinued the sale of fully guaranteed large case pension
products. These products principally consist of guaranteed
investment contracts and single-premium annuities. Results in
1993 included an after-tax charge for anticipated future losses on
these products of $825 million.
o Aetna increased its workers' compensation reserves for prior
accident years by $574 million (pre-tax). Aetna also elected,
retroactive to January 1, 1993, to begin discounting a portion of
those reserves consistent with industry practice. After tax and
after the current year effect of discounting, reserves increased
by $259 million.
o Aetna announced expense reduction measures, including the
elimination of 4,000 positions and the abandonment of certain
facilities. Results in 1993 included an after-tax severance and
facilities charge of $200 million related to these measures.
These cost-reduction measures are expected to be substantially
completed in 1994 and are expected to produce annual after-tax
savings in excess of $200 million by 1995, including savings
resulting from a modification of Aetna's post-retirement health
care plan.
1993 Results
Aetna reported a 1993 net loss of $366 million, compared to net income
of $56 million and $505 million in 1992 and 1991, respectively. The 1993
net loss reflected the charges detailed above, as well as income from
discontinued operations of $27 million (compared with $174 million in 1992
and $139 million in 1991) and a net benefit of $227 million for cumulative
effect adjustments for accounting changes (compared with a net charge of
$113 million for such adjustments in 1992).
Excluding the $1.28 billion charge announced in January, 1994,
operating earnings improved to $610 million in 1993 from $192 million in
1992. Results in 1993 benefitted from a $173 million after-tax reduction
in operating expenses as well as improved underwriting and lower
catastrophe losses in the property/casualty businesses.
Adverse conditions in commercial real estate markets have negatively
impacted earnings in recent years and may continue to negatively impact
future results of operations. However, Aetna has reduced its commercial
real estate exposure as a percentage of general account invested assets
from 38% at year-end 1991 ($22.2 billion of real estate and mortgage loans)
to 26% at year-end 1993 ($16.2 billion of real estate and mortgage loans).
In addition, as part of the discontinuance of its fully guaranteed large
case pension products, Aetna took a charge for all anticipated future
capital losses on the $6 billion of real estate and mortgage loans
supporting these products.
For a more complete description of Aetna's financial condition at
December 31, 1993 and 1992 and operating results for the years ended
December 31, 1993, 1992 and 1991, reference is made to AL&C's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
Recent Catastrophe Losses
Aetna expects that claim costs from the Los Angeles earthquake and the
January and February 1994 winter storms will reduce first quarter 1994
results by approximately $120 million, after reinsurance and taxes.
SUMMARY BUSINESS DESCRIPTION
The business of Aetna is conducted through five reportable segments:
Health and Life Insurance and Services; Financial Services; Commercial
Property-Casualty Insurance and Services; Personal Property-Casualty; and
International.
Health and Life Insurance and Services
Group health and life insurance products and services, including
managed health care products and services, are marketed through units of
the Health and Life Insurance and Services segment, primarily to employers
and employer-sponsored groups. These products and services are provided to
employees or other individuals covered under benefit plans sponsored by
those organizations. Individual life insurance products also are included
in Health and Life. Group life insurance consists chiefly of renewable
term coverage, the amounts of which frequently are linked to individual
employee wage levels. Aetna also offers group universal life and sponsored
universal and whole life products. Group health and disability insurance
includes coverage for medical and dental care expenses and for disabled
employees' income replacement benefits.
Health coverage is provided under both traditional indemnity and
prepaid arrangements, whereby Aetna assumes the full insurance risk, and
under alternative risk-sharing plans, whereby employers assume all or a
significant portion of the insurance risk. Managed care products, which
may be sold on a stand-alone basis or in combination with traditional
indemnity products, vary from traditional indemnity products primarily
through the use of health care networks (physicians and hospitals) and the
implementation of medical management procedures designed to enhance the
quality and reduce the cost of medical services provided. Aetna's managed
care products include health maintenance organizations, preferred provider
organizations and point-of-service plans. At year end 1993, Aetna operated
various types of managed care networks in approximately 211 Standard
Metropolitan Statistical Areas, with enrollment of approximately 5 million.
The number of members covered under all arrangements, including traditional
health plans, was approximately 15 million at December 31, 1993.
Both the Clinton Administration and a number of states have proposed
significant health care reform legislation. Aetna is supportive of
initiatives that expand access to and control costs of health care through
expanded reliance on managed care and preserve a strong private sector role
in the financing and delivery of health care. Management currently is not
able to predict the outcome of the various federal and state legislative
initiatives or what effect the resulting legislation, if any, will have on
Aetna's health businesses.
Financial Services
The business units in the Financial Services segment market a variety
of retirement and other savings and investment products (including pension
and annuity products) and services to businesses, government units,
associations, collectively bargained welfare trusts, hospitals, educational
institutions and individuals. Some pension and annuity products provide a
variety of investment guarantees, funding and benefit payment distribution
options and other services. Certain products are tailored for marketing to
pension plans that qualify under Internal Revenue Code of 1986, as amended
(the "Code") Section 401 for tax deferral. Other products qualify for
similar tax status under Code Sections 401, 403, 408 and 457. As of
December 31, 1993, the Financial Services segment, including Separate
Accounts, had $67.1 billion in assets under management (including assets
supporting discontinued products of $14.7 billion).
In January 1994, Aetna announced its decision to discontinue the sale
of its fully guaranteed large case pension products. Fully guaranteed
large case pension products consist of guaranteed investment contracts and
single-premium annuities that generally were offered to larger employers.
See "Recent Developments -- Actions Announced in January 1994".
Commercial Property-Casualty Insurance and Services
The business units in the Commercial Property-Casualty Insurance and
Services segment provide most types of property-casualty insurance, bonds,
and insurance-related services for businesses, government units and
associations. Commercial coverages accounted for 67% of Aetna's 1993
property-casualty net written premiums. These coverages are sold for risks
of all sizes and include fire and allied lines, multiple peril, marine,
workers' compensation, general liability (including product liability),
commercial automobile, certain professional liability, and fidelity and
surety bonds.
Personal Property-Casualty
The business units in the Personal Property-Casualty segment provide
primarily personal automobile insurance and homeowners insurance. Personal
coverages accounted for 33% of Aetna's 1993 property-casualty net written
premiums. Aetna has in recent years withdrawn from or reduced exposure to
personal automobile insurance in certain states in which management has
concluded that it is not in Aetna's interest to continue selling personal
automobile insurance. Management will continue to evaluate market
conditions and maintain or increase Aetna's presence in those states that
offer acceptable returns.
International
The International segment, through subsidiaries and joint venture
operations, sells primarily life insurance and financial services products
in non-U.S. markets including Canada, Malaysia, Taiwan, Chile, Mexico, the
United Kingdom, Hong Kong, Korea and New Zealand. The International
segment's strategy is to invest resources in areas outside the U.S. that
have the potential for attractive returns, with emphasis on the emerging
insurance and financial services markets of newly industrialized countries.
This long-term strategy requires significant up-front investment and a
willingness to accept negative or low returns in the initial years of such
operations.
A more complete description of Aetna's business operations is
contained in "Item 1 -- Business" of AL&C's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
CERTAIN TERMS OF THE SERIES A PREFERRED SECURITIES
General
The following summary of certain terms and provisions of the Series A
Preferred Securities supplements the description of certain terms and
provisions of the Preferred Securities of any series set forth in the
accompanying Prospectus under the heading "Description of the Preferred
Securities", to which description reference is hereby made. Capitalized
terms used and not defined in this Prospectus Supplement shall have the
meanings ascribed to them in the Prospectus. The Series A Preferred
Securities constitute a series of Preferred Securities of the Company,
which Preferred Securities may be issued from time to time in one or more
series with such designations, dividend rights, liquidation preference per
security, redemption or exchange provisions, voting rights and other
rights, preferences, privileges, limitations and restrictions as are
established by the Amended and Restated Limited Liability Company Agreement
of the Company (the "L.L.C. Agreement"), the Delaware Limited Liability
Company Act (the "L.L.C. Act") and the resolutions (the "Resolutions")
adopted, or to be adopted, pursuant to the L.L.C. Agreement and the L.L.C.
Act by AL&C and Aetna Capital Holdings, Inc., in their capacity as the
members of the Company that hold all of the Company's Common Securities
(the "Managing Members"). The summary of certain terms and provisions of
the Series A Preferred Securities set forth below does not purport to be
complete and is subject to, and qualified in its entirety by reference to
the L.L.C. Agreement and the Resolutions establishing the rights,
preferences, privileges, limitations and restrictions relating to the
Series A Preferred Securities. A copy of the Resolutions relating to the
Series A Preferred Securities will be included as an exhibit to a Current
Report on Form 8-K to be filed by AL&C at or prior to the closing of the
sale of the Series A Preferred Securities offered hereby.
Dividends
Dividends on the Series A Preferred Securities will be cumulative,
will accrue from , 1994 and will be payable monthly in arrears on the
last day of each calendar month of each year, commencing , 1994, when,
as and if declared by the Managing Members, except as otherwise
described under "Description of the Preferred Securities -- Dividends"
in the accompanying Prospectus, to holders of record on the Business
Day immediately preceding the relevant payment date. The Company may
only pay dividends on the Series A Preferred Securities to the extent
it has funds legally available therefor. See "Description of the
Preferred Securities -- Dividends" in the accompanying Prospectus.
The dividend payable on each Series A Preferred Security will be fixed
at a rate per annum of % of the stated liquidation preference thereof.
Liquidation Preference
The stated liquidation preference of the Series A Preferred Securities
is $25 per security.
Redemption or Exchange
The Series A Preferred Securities are redeemable or exchangeable for
Series A Debentures as described in the accompanying Prospectus. In
addition, the Series A Preferred Securities are redeemable, at the option
of the Company and subject to the prior consent of AL&C, in whole or in
part, from time to time, on or after , 1999, upon not less than 30
nor more than 60 days' notice, at the redemption price of $25 per security,
plus accumulated and unpaid dividends (whether or not declared) to the date
fixed for redemption.
CERTAIN TERMS OF THE SERIES A DEBENTURES
General
The following summary of certain terms and provisions of the
Debentures relating to the Series A Preferred Securities (the "Series A
Debentures") supplements the description of certain terms and provisions of
the Debentures set forth in the accompanying Prospectus under the heading
"Description of the Debentures and the Subordinated Indenture", to which
description reference is hereby made. Pursuant to the Subordinated
Indenture, AL&C will issue Series A Debentures to the Company in an
aggregate principal amount equal to $300 million, such amount being the sum
of the aggregate stated liquidation preference of the Series A Preferred
Securities issued and sold by the Company and the proceeds from the
issuance of Common Securities to the Managing Members and related capital
contributions (the "Common Securities Payments"). In the event that the
Underwriters' over-allotment option is exercised, AL&C will issue
additional Series A Debentures to the Company pursuant to the Subordinated
Indenture equal to the aggregate stated liquidation preference of the
Series A Preferred Securities so sold plus the related Common Securities
Payments. If the Underwriters' over-allotment option is exercised in full,
such additional Series A Debentures will have an aggregate principal amount
equal to $345 million.
The entire principal amount of the Series A Debentures will become due
and payable, together with any accrued and unpaid interest thereon,
including Additional Interest, if any, on the earlier of , 2024
(subject to AL&C's right to exchange the Series A Debentures for new
Debentures or reborrow the proceeds from the repayment of the Series A
Debentures upon the terms and subject to the conditions set forth under
"Description of the Debentures and Subordinated Indenture -- Exchanges and
Reborrowings" in the accompanying Prospectus) and the date upon which the
Company is dissolved, wound up, liquidated or terminated or either Managing
Member is liquidated, bankrupt or insolvent or withdraws, resigns or is
expelled from the Company.
Prepayment
The Series A Debentures may not be prepaid by AL&C except as described
below or in the accompanying Prospectus. The Series A Debentures may be
prepaid at the option of AL&C, without premium or penalty, in whole or in
part (together with accrued but unpaid interest, including Additional
Interest, if any, on the portion being prepaid) at any time on or after ,
1999, upon not less than 30 nor more than 60 days' notice.
Interest
The Series A Debentures will bear interest at an annual rate equal to
% from the date they are issued until maturity. Such interest will be
payable on the last day of each calendar month of each year, commencing ,
1994.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below, and each of the Underwriters, for whom Goldman, Sachs & Co., ,
and are acting as Representatives, has severally agreed to
purchase, the number of Series A Preferred Securities set forth opposite
its name below:
Number of
Series A
Underwriters Preferred Securities
------------- --------------------
Goldman, Sachs & Co. ......................
----------
Total.................................... 12,000,000
==========
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the Series A Preferred
Securities offered hereby, if any are taken.
The Underwriters propose to offer the Series A Preferred Securities in
part directly to the public at the initial public offering price set forth
on the cover page of this Prospectus Supplement and in part to certain
securities dealers at such price less a concession of $. per Series A
Preferred Security. The Underwriters may allow and such dealers may
reallow a concession not in excess of $. per Series A Preferred Security to
certain brokers and dealers. After the Series A Preferred Securities are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Underwriters.
In view of the fact that the proceeds of the sale of the Series A
Preferred Securities will be loaned to AL&C, under the Underwriting
Agreement AL&C has agreed to pay as compensation for the services of the
Underwriters in New York Clearing House (next day) funds $. per Series A
Preferred Security for the accounts of the several Underwriters.
The Company has granted the Underwriters an option exercisable for 30
days after the date of this Prospectus Supplement to purchase up to
1,800,000 additional Series A Preferred Securities to cover over-
allotments, if any, at the initial public offering price (with additional
Underwriters' Compensation), as set forth on the cover page of this
Prospectus Supplement. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of Series A Preferred Securities to be purchased by each of them, as
shown in the foregoing table, bears to the number of Series A Preferred
Securities initially offered hereby.
Prior to this offering, there has been no market for the Series A
Preferred Securities. In order to meet one of the requirements for listing
the Series A Preferred Securities on the New York Stock Exchange, the
Underwriters will undertake to sell lots of 100 or more Series A Preferred
Securities to a minimum of 400 beneficial holders.
The Company and AL&C have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended.
Certain of the Underwriters from time to time provide investment
banking services to Aetna.
Information contained herein is subject to
completion or amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be accepted prior to
the time the registration statement becomes effective. This prospectus
shall not constitute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 25, 1994
Aetna Capital L.L.C.
Preferred Securities
guaranteed to the extent set forth herein by
Aetna Life and Casualty Company
__________
Aetna Capital L.L.C., a Delaware limited liability company (the
"Company"), may offer from time to time, in one or more series, its
authorized but unissued Preferred Limited Liability Company Interests (the
"Preferred Securities"). All of the Common Limited Liability Company
Interests (the "Common Securities") of the Company are owned directly or
indirectly by Aetna Life and Casualty Company, a Connecticut insurance
corporation ("AL&C"). The payment of dividends, if and to the extent
declared out of funds held by the Company and legally available therefor,
and payments on liquidation or redemption with respect to the Preferred
Securities are guaranteed (the "Guarantee") by AL&C to the extent set forth
herein. No portion of the dividends received by a holder of the Preferred
Securities will be eligible for the dividends received deduction for
federal income tax purposes. The Guarantee will rank subordinate and
junior in right of payment to all other liabilities of AL&C and pari passu
with the most senior preferred stock issued by AL&C. See "Aetna Capital
L.L.C.", "Description of the Guarantee" and "Description of the Debentures
and the Subordinated Indenture" for a description of various contractual
backup obligations of AL&C relating to the Preferred Securities. The total
number of Preferred Securities of all series to be issued under the
registration statement of which this Prospectus forms a part will not
exceed 20,000,000.
The terms of the Preferred Securities of a particular series will be
determined at the time of sale. The specific designation, liquidation
preference per security, initial public offering price, dividend rate (or
method of calculation thereof), dates on which dividends will be payable,
voting rights, any redemption or exchange provisions and the other rights,
preferences, privileges, limitations and restrictions relating to the
Preferred Securities of the particular series in respect of which this
Prospectus is being delivered will be set forth in the Prospectus
Supplement pertaining to such series (the "Prospectus Supplement").
The Preferred Securities may be sold for public offering to or through
underwriters or dealers or may be sold through agents designated from time
to time or directly by the Company. See "Plan of Distribution". The names
of any such underwriters, dealers or agents involved in the sale of the
Preferred Securities of the particular series in respect of which this
Prospectus is being delivered, the number of Preferred Securities to be
purchased by any such underwriters and any applicable commissions or
discounts will be set forth in the Prospectus Supplement. The proceeds to
the Company will also be set forth in the Prospectus Supplement.
----------
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.
----------
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 AL&C, the Company 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
hereunder shall, under any circumstances, create an implication that there
has been no change in the affairs of AL&C and its subsidiaries or the
Company since the date hereof or that the information contained herein is
correct at any time subsequent to the date hereof.
This Prospectus may not be used to consummate sales of Preferred
Securities unless accompanied by a Prospectus Supplement.
----------
The date of this Prospectus is , 1994.
AVAILABLE INFORMATION
AL&C 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 AL&C 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. AL&C's common stock is listed on the New
York Stock Exchange, the Pacific Stock Exchange and on the Swiss exchanges
in Basel, Geneva and Zurich, and such reports, proxy and information
statements and other information concerning AL&C may also be inspected at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005, and the Pacific Stock Exchange, 301 Pine Street, San
Francisco, California 94104.
The Company and AL&C have filed with the Commission a registration
statement under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities 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 AL&C, the Company and the securities
offered hereby.
No separate financial statements of the Company have been included
herein. The Company and AL&C do not consider that such financial
statements would be material to holders of the Preferred Securities because
the Company is a newly formed special purpose entity and has no operating
history. See "Aetna Capital L.L.C.". The Company is a limited liability
company formed under the laws of Delaware and will be managed by AL&C and
Aetna Capital Holdings, Inc. (the "Managing Members"), in their capacity
as the members of the Company that hold all of the Company's Common
Securities. AL&C directly or indirectly owns all of the Common Securities,
which are nontransferable.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
AL&C's Annual Report on Form 10-K for the fiscal year ended December
31, 1993, filed with the Commission pursuant to Section 13 of the Exchange
Act under File No. 1-5704, is incorporated by reference into this
Prospectus and made a part hereof.
All documents filed by AL&C 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 described herein 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.
AL&C 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 Life and Casualty Company, 151 Farmington Avenue, Hartford, CT 06156,
telephone (203) 273-3977.
AETNA LIFE AND CASUALTY COMPANY
AL&C and its subsidiaries ("Aetna") constitute one of the nation's
largest insurance/financial services organizations based on its assets at
December 31, 1992. Based on 1992 premium rankings, Aetna also is one of
the nation's largest stock insurers of property-casualty lines and one of
the largest writers of group health and managed care products, and group
life, annuity and pension products.
AL&C was organized in 1967 as a Connecticut insurance corporation.
The business of Aetna is conducted through five reportable segments: health
and life insurance and services; financial services; commercial property-
casualty insurance and services; personal property-casualty insurance; and
international.
The principal executive offices of AL&C are located at 151 Farmington
Avenue, Hartford, Connecticut 06156; its telephone number is (203) 273-0123.
AETNA CAPITAL L.L.C.
The Company is a limited liability company formed under the laws of
Delaware. AL&C owns directly or indirectly all of the Common Securities of
the Company, which securities are nontransferable. The Company's principal
executive offices are located at 151 Farmington Avenue, Hartford,
Connecticut 06156, telephone: (203) 273-0123. The principal executive
offices of the Managing Members are located at 151 Farmington Avenue,
Hartford, Connecticut 06156, telephone: (203) 273-0123. The Company
exists solely for the purpose of issuing Preferred Securities and Common
Securities and lending the proceeds from the issuance thereof and related
capital contributions to AL&C.
Pursuant to the Company's Amended and Restated Limited Liability
Company Agreement (the "L.L.C. Agreement"), the members of the Company
that hold Common Securities have unlimited liability for the debts,
obligations and liabilities of the Company in the same manner as a general
partner of a Delaware limited partnership (which do not include obligations
to holders of Preferred Securities), to the extent not fully satisfied and
discharged by the Company. That liability on the part of such members is
for the benefit of, and is enforceable by, the liquidating trustee of the
Company in the event of its dissolution, winding up, liquidation or
termination and is for the benefit of third parties to whom the Company
owes such debts, obligations and liabilities. The holders of Preferred
Securities, in their capacity as members of the Company, are not liable for
the debts, obligations or liabilities of the Company.
Each holder of Preferred Securities will be furnished annually with
unaudited financial statements of the Company as soon as available after
the end of the Company's fiscal year.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth Aetna's ratio of earnings to combined
fixed charges and preferred stock dividends for the periods indicated.
Years ended December 31,
---------------------------------
1993 1992 1991 1990 1989
Ratio of Earnings to Combined Fixed ---- ------- ---- ---- ----
Charges and Preferred Stock Dividends.... (a) 0.42(a) 2.13 3.03 4.05
___________
(a) Earnings were inadequate to cover fixed charges by $1.1 billion in
1993 and $112.8 million in 1992.
For purposes of computing the ratio of earnings to combined fixed
charges and preferred stock dividends, "earnings" represent consolidated
earnings from continuing operations before income taxes, cumulative effect
adjustments and extraordinary items plus fixed charges and minority
interest. "Fixed charges" consist of interest (and the portion of rental
expense deemed representative of the interest factor). Preferred stock
dividends, which are not deductible for income tax purposes, have been
increased to a taxable equivalent basis. This adjustment has been
calculated by using the effective tax rate for the applicable year. All
shares of AL&C's preferred stock were redeemed in 1989.
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities will be loaned
to AL&C and, except as may otherwise be set forth in the applicable
Prospectus Supplement, will be used for general corporate purposes.
DESCRIPTION OF THE PREFERRED SECURITIES
The following is a summary of certain terms and provisions of the
Preferred Securities of any series. Certain terms and provisions of the
Preferred Securities of a particular series will be summarized in the
Prospectus Supplement relating to the Preferred Securities of such series.
If so indicated in the Prospectus Supplement, the terms and provisions of
the Preferred Securities of a particular series may differ from the terms
set forth below. The summaries set forth below and in the applicable
Prospectus Supplement address the material terms of the Preferred
Securities of any particular series but do not purport to be complete and
are subject to, and qualified in their entirety by reference to, the L.L.C.
Agreement and the resolutions adopted or to be adopted by the Managing
Members pursuant to the L.L.C. Agreement and the Delaware Limited
Liability Company Act, establishing the rights, preferences, privileges,
limitations and restrictions relating to the Preferred Securities of any
series or of a particular series. A copy of the form of the L.L.C.
Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
General
The Company is authorized to issue common limited liability company
interests and preferred limited liability company interests. The preferred
limited liability company interests may be issued in one or more series or
classes, with such dividend rights, liquidation preference per security,
redemption or exchange provisions, voting rights and other rights,
preferences, privileges, limitations and restrictions as shall be set forth
in the L.L.C. Agreement and the resolutions providing for the issuance
thereof adopted by the Managing Members. All of the Preferred Securities,
to be issued in one or more series or classes, will rank pari passu with
each other with respect to participation in profits and assets.
The Preferred Securities of any series will be issued in registered
form only without dividend coupons. Registration of, and registration of
transfers of, the Preferred Securities of any series will be by book-entry
only. The Preferred Securities of any series will have the dividend
rights, rights upon liquidation, redemption and exchange provisions and
voting rights set forth below, unless otherwise provided in the Prospectus
Supplement relating to the Preferred Securities of a particular series.
Reference is made to the Prospectus Supplement relating to the Preferred
Securities of a particular series for specific terms, including (i) the
designation of the Preferred Securities of such series, (ii) the price at
which the Preferred Securities of such series will be issued, (iii) the
dividend rate (or method of calculation thereof) and the dates on which
dividends will be payable, (iv) the voting rights, (v) any redemption or
exchange provisions, (vi) the stated liquidation preference, (vii) any
other rights, preferences, privileges, limitations and restrictions
relating to the Preferred Securities of such series and (viii) the terms
upon which the proceeds from the sale of the Preferred Securities of such
series will be loaned to AL&C.
Dividends
Dividends on the Preferred Securities will be cumulative. Cumulative
dividends on any series of Preferred Securities will accrue from the date
set forth in the Prospectus Supplement relating to such series and will be
payable monthly in arrears on the last day of each calendar month of each
year, commencing on the date specified in the Prospectus Supplement
relating to such series.
The dividend payable on Preferred Securities of a particular series
will be fixed at the rate per annum specified in the Prospectus Supplement
relating to such series. The amount of dividends payable for any full
monthly dividend period will be computed on the basis of twelve 30-day
months and a 360-day year and, for any period shorter than a full monthly
dividend period, will be computed on the basis of the actual number of days
elapsed in such period. The Company may only pay dividends on Preferred
Securities to the extent it has funds legally available therefor. See
"Description of the Guarantee" and "Description of the Debentures and the
Subordinated Indenture" below.
Dividends on the Preferred Securities of any series will be declared
by the Managing Members of the Company to the extent that the Managing
Members reasonably anticipate that at the time of payment the Company will
have, and must be paid by the Company to the extent that at the time of
proposed payment it has, (i) funds legally available for the payment of
such dividends and (ii) cash on hand sufficient to permit such payments.
It is anticipated that the Company's funds will be limited to payments
under the debentures (the "Debentures") issued by AL&C that will evidence
the loans to be made by the Company to AL&C of the proceeds from the
issuance of the Preferred Securities and the Common Securities and the
related capital contributions. See "Description of the Debentures and the
Subordinated Indenture".
Dividends declared on the Preferred Securities of any series will be
payable to the record holders thereof as they appear on the register for
the Preferred Securities of such series on the relevant record dates, which
will be, unless otherwise specified in the Prospectus Supplement relating
to each such series, one Business Day (as hereinafter defined) prior to the
relevant payment dates. Subject to any applicable fiscal or other laws and
regulations, each such payment will be made as described under "Book-Entry-
Only Issuance; The Depository Trust Company" below. In the event that any
date on which dividends are payable on the Preferred Securities of any
series is not a Business Day, then payment of the dividend payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay) except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such date. A "Business
Day" shall mean any day other than a day on which banking institutions in
The City of New York are authorized or required by law to close.
Except as described herein and in the Prospectus Supplement relating
to the Preferred Securities of a particular series, holders of the
Preferred Securities will have no other right to participate in the profits
of the Company.
Certain Restrictions on the Company
If dividends have not been paid in full on the Preferred Securities of
any series, the Company shall not:
(i) pay, or declare and set aside for payment, any dividends on the
Preferred Securities of any other series or any other limited liability
company interests in the Company ranking pari passu with the Preferred
Securities of such series with respect to participation in profits of the
Company ("Company Dividend Parity Securities"), unless the amount of any
dividends declared on any Company Dividend Parity Securities is paid on the
Company Dividend Parity Securities and the Preferred Securities of such
series on a pro rata basis on the date such dividends are paid on such
Company Dividend Parity Securities, so that the ratio of
(x) (A) the aggregate amount paid as dividends on the Preferred
Securities of such series to (B) the aggregate amount paid as dividends on
the Company Dividend Parity Securities is the same as the ratio of
(y) (A) the aggregate amount of all accumulated arrears of unpaid
dividends on the Preferred Securities of such series to (B) the aggregate
amount of all accumulated arrears of unpaid dividends on the Company
Dividend Parity Securities;
(ii) pay, or declare and set aside for payment, any dividends on any
securities of the Company ranking junior to the Preferred Securities of
such series as to dividends ("Company Dividend Junior Securities"); or
(iii) redeem, purchase or otherwise acquire any Company Dividend
Parity Securities or Company Dividend Junior Securities;
until, in each case, such time as all accumulated arrears of unpaid
dividends on the Preferred Securities of such series shall have been paid
or set aside for payment in full for all dividend periods terminating on or
prior to, in the case of clauses (i) and (ii), such payment, and in the
case of clause (iii), the date of such redemption, purchase or other
acquisition. So long as the Preferred Securities of any series are
represented by one or more global certificates, dividends on such series of
Preferred Securities shall have been paid in full with respect to any
dividend payment date for such series when the amount of dividends payable
on such date has been paid to The Depository Trust Company ("DTC"). See
"Book-Entry-Only Issuance; The Depository Trust Company".
Redemption or Exchange
The Preferred Securities of any series will be redeemable at the
option of the Company and subject to the prior consent of AL&C, in whole or
in part from time to time, on or after the date specified in the Prospectus
Supplement relating to such series, at the stated liquidation preference
per security for such series, plus accumulated and unpaid dividends
(whether or not declared) (the "Redemption Price") to the date fixed for
redemption (the "Redemption Date"). The Preferred Securities of any series
may also be redeemed at the option of the Company on such other terms and
conditions as may be set forth in the Prospectus Supplement relating to
such series.
If at any time after the issuance of the Preferred Securities of any
series, the Company is or would be required to pay Additional Amounts (as
defined below) with respect to any Preferred Securities of such series, the
Company may, upon not less than 30 nor more than 60 days' notice to the
holders of Preferred Securities of such series with respect to which such
Additional Amounts are required to be paid, redeem such Preferred
Securities at the Redemption Price. In connection with any such
redemption, the Company shall (i) cause the global certificate representing
all of the Preferred Securities of such series to be withdrawn from DTC or
its successor securities depository, (ii) issue share certificates in
definitive form representing Preferred Securities of such series and (iii)
redeem the Preferred Securities of such series with respect to which such
Additional Amounts are required to be paid.
In addition, if the Company and AL&C have been advised by legal
counsel (which counsel is not an employee of AL&C or the Company) that, as
a result of any change after the date of the Prospectus Supplement relating
to any series of Preferred Securities in any applicable income tax laws or
regulations or in the interpretation thereof (including but not limited to
the enactment or imminent enactment of any legislation, the publication of
any judicial decisions, regulatory rulings, regulatory procedures, or
notices or announcements (including notices or announcements of intent to
adopt such procedures or regulations), or a change in the official position
or in the interpretation of law or regulations by any legislative body,
court, governmental authority or regulatory body, irrespective of the
manner in which such change is made known), there exists more than an
insubstantial risk that (i) AL&C will be precluded from deducting the
interest paid on the Debentures relating to the Preferred Securities of
such series for income tax purposes or (ii) the Company will be subject to
federal income tax with respect to the interest received on such
Debentures, then the Company and AL&C may, upon not less than 30 nor more
than 60 days' notice to the holders of Preferred Securities of such series,
either (a) redeem the Preferred Securities of such series, in whole or in
part, at the Redemption Price or (b) exchange the Preferred Securities of
such series for Debentures relating to such Preferred Securities having an
aggregate principal amount and accrued and unpaid interest equal to the
Redemption Price and having an interest rate thereon equal to the dividend
rate on such Preferred Securities.
After the date fixed for any exchange of Preferred Securities of any
series for the related series of Debentures, (i) the Preferred Securities
of such series will no longer be deemed to be outstanding, (ii) DTC or its
nominee, as the record holder of such Preferred Securities, will exchange
the global certificate or certificates representing the Preferred
Securities of such series for a registered global certificate or
certificates representing the Debentures of such series to be delivered
upon such exchange and (iii) any certificates representing Preferred
Securities of such series not held by DTC or its nominee will be deemed to
represent Debentures of such series having a principal amount and accrued
and unpaid interest equal to the Redemption Price of such Preferred
Securities until such certificates are presented to the Company or its
agent for exchange.
The Preferred Securities of any series will also be redeemed at the
Redemption Price with the proceeds from the repayment by AL&C when due of
the series of Debentures relating to such Preferred Securities or upon any
optional prepayment by AL&C of such Debentures as described under
"Description of the Debentures and the Subordinated Indenture -- Optional
Prepayment," subject to the provisions in clause (iii) under "Certain
Restrictions on the Company" above. Notwithstanding the foregoing, the
Preferred Securities of any series will not be redeemed if AL&C elects to
exchange the Debentures to be repaid or prepaid for new Debentures or
reborrows the proceeds from any such repayment or prepayment in the manner
described under "Description of the Debentures and the Subordinated
Indenture -- Exchanges and Reborrowings".
The Company may not redeem any Preferred Securities of any series
unless all accumulated arrears of unpaid dividends have been paid on all
Preferred Securities of all series for all monthly dividend periods
terminating on or prior to the date of redemption.
In the event that fewer than all the outstanding Preferred Securities
of a particular series are to be redeemed, the Preferred Securities of such
series to be redeemed will be selected as described under "Book-Entry-Only
Issuance; The Depository Trust Company" below.
If the Company gives a notice of redemption in respect of Preferred
Securities of a particular series, then, by 12:00 noon, New York time, on
the applicable Redemption Date, the Company will irrevocably deposit with
DTC funds sufficient to pay the applicable Redemption Price and will give
DTC irrevocable instructions and authority to pay the Redemption Price to
the holders thereof. See "Book-Entry-Only Issuance; The Depository Trust
Company". If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of
holders of such Preferred Securities of a series so called for redemption
will cease, except the right of the holders of such securities to receive
the Redemption Price, but without interest, and such securities will cease
to be outstanding. In the event that any date on which any payment in
respect of the redemption of Preferred Securities of any series is not a
Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment
will be made on the immediately preceding Business Day. In the event that
payment of the Redemption Price in respect of Preferred Securities of any
series is improperly withheld or refused and not paid either by the Company
or by AL&C pursuant to the Guarantee, dividends on such securities will
continue to accrue, at the then applicable rate, from the Redemption Date
originally established by the Company for such securities to the date such
Redemption Price is actually paid, in which case the actual payment date
will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to the foregoing and applicable law (including, without
limitation, U.S. federal securities laws) AL&C or its subsidiaries may at
any time and from time to time purchase outstanding Preferred Securities of
any series by tender, in the open market or by private agreement.
Liquidation Distribution
In the event of any voluntary or involuntary dissolution, winding up,
liquidation or termination of the Company, the holders of Preferred
Securities of each series at the time outstanding will be entitled to
receive out of the assets of the Company legally available for distribution
to securityholders, before any distribution of assets is made to holders of
Common Securities in the Company or any other class of limited liability
company interests in the Company ranking junior to the Preferred Securities
with respect to participation in assets of the Company, but together with
the holders of Preferred Securities of any other series or any other
limited liability company interests in the Company outstanding ranking pari
passu with the Preferred Securities with respect to participation in the
assets of the Company ("Company Liquidation Parity Securities"), an amount
equal, in the case of the holders of the Preferred Securities of such
series, to the aggregate of the stated liquidation preference for Preferred
Securities of such series as set forth in the Prospectus Supplement and all
accumulated and unpaid dividends (whether or not declared) to the date of
payment (the "Liquidation Distribution"). If, upon any such liquidation,
the Liquidation Distributions can be paid only in part because the Company
has insufficient assets available to pay in full the aggregate Liquidation
Distributions and the aggregate maximum liquidation distributions on the
Company Liquidation Parity Securities, then the amounts payable directly by
the Company on the Preferred Securities of such series and on such Company
Liquidation Parity Securities shall be paid on a pro rata basis, so that
the ratio of
(i)(x) the aggregate amount paid as Liquidation Distributions on the
Preferred Securities of such series to (y) the aggregate amount paid as
liquidation distributions on the Company Liquidation Parity Securities is
the same as the ratio of
(ii)(x) the aggregate Liquidation Distributions to (y) the aggregate
maximum liquidation distributions on the Company Liquidation Parity
Securities.
Pursuant to the L.L.C. Agreement, the Company will automatically
dissolve and be liquidated (i) when the period fixed for the life of the
Company expires, (ii) if the Managing Members by resolution require the
Company to be dissolved, wound up, liquidated, or terminated (subject to
the voting rights of the holders of Preferred Securities described under
"Voting Rights" below) or (iii) if either Managing Member is bankrupt,
insolvent or liquidated or withdraws, resigns or is expelled from the
Company.
Voting Rights
If (i) the Company fails to pay dividends in full on the Preferred
Securities of any series for 18 consecutive monthly dividend periods; (ii)
a Debenture Event of Default (as defined in the Subordinated Indenture)
occurs and is continuing; or (iii) AL&C is in default on any of its
payment obligations under the Guarantee (as described under "Description of
the Guarantee -- Certain Covenants of AL&C"), then the holders of a
majority in stated liquidation preference of the outstanding Preferred
Securities of such series, in the case of clause (i) above, and the holders
of a majority in stated liquidation preference of all outstanding Preferred
Securities, in the case of clauses (ii) and (iii) above, together with the
holders of any other limited liability company interests in the Company
having the right to vote for the appointment of a trustee in such event,
acting as a single class, will be entitled to appoint and authorize a
trustee to enforce the Company's rights under the Debentures against AL&C,
enforce the obligations undertaken by AL&C under the Guarantee and declare
and pay dividends on the Preferred Securities of such series in the case of
clause (i) above. For purposes of determining whether the Company has
failed to pay dividends in full for 18 consecutive monthly dividend
periods, dividends shall be deemed to remain in arrears, notwithstanding
any payments in respect thereof, until full cumulative dividends have been
or contemporaneously are declared and paid with respect to all monthly
dividend periods terminating on or prior to the date of payment of such
full cumulative dividends. Not later than 30 days after such right to
appoint a trustee arises, the Managing Members will convene a meeting for
the above purpose. If the Managing Members fail to convene such meeting
within such 30-day period, the holders of 10% in stated liquidation
preference of the outstanding Preferred Securities of such series, in the
case of clause (i) above, and the holders of 10% in stated liquidation
preference of all outstanding Preferred Securities, in the case of clauses
(ii) and (iii) above, and such other limited liability company interests,
acting as a single class, will be entitled to convene such meeting. Any
trustee so appointed shall vacate office immediately, subject to the terms
of such other limited liability company interests, if the Company shall
have paid in full all accumulated and unpaid dividends on the Preferred
Securities of such series, in the case of clause (i) above, or such default
by AL&C shall have been cured, in the case of clause (ii) or (iii) above.
If any resolution is proposed to be adopted by the securityholders of
the Company providing for, or the Managing Members propose to take any
action to effect, (x) any variation or abrogation of the powers,
preferences and special rights of the Preferred Securities of any series by
way of amendment of the L.L.C. Agreement or otherwise (including, without
limitation, the authorization or issuance of any limited liability company
interests in the Company ranking, as to participation in the profits or
assets of the Company, senior to the Preferred Securities) which variation
or abrogation adversely affects the holders of Preferred Securities of such
series, (y) the dissolution, winding up, liquidation or termination of the
Company or (z) the commencement of any bankruptcy, insolvency,
reorganization or other similar proceeding involving the Company, then the
holders of outstanding Preferred Securities of the series, the powers,
preferences or special rights of which are proposed to be amended in the
case of any action described in clause (x) above, and the holders of all
outstanding Preferred Securities, in the case of any action described in
clauses (y) or (z) above, (and, in the case of any action described in
clause (x) above which would adversely affect the rights, preferences or
privileges of any Company Dividend Parity Securities or any Company
Liquidation Parity Securities, such Company Dividend Parity Securities or
such Company Liquidation Parity Securities, as the case may be, or, in the
case of any action described in clause (y) above, all Company Liquidation
Parity Securities or, in the case of any action described in clause (z)
above, all holders of outstanding Preferred Securities, Company Dividend
Parity Securities and any Company Liquidation Parity Securities other than
holders of any such securities that are also creditors of AL&C or any of
its subsidiaries) will be entitled to vote together as a class on such
resolution or action of the Managing Members (but not any other resolution
or action) and such resolution or action shall not be effective except with
the approval of the holders of a majority in stated liquidation preference
of such outstanding securities (or, under certain circumstances, 100% in
stated liquidation preference of such outstanding securities); provided,
however, that no such approval shall be required under clauses (x) and (y)
if the dissolution, winding up, liquidation or termination of the Company
is proposed or initiated upon the initiation of proceedings, or after
proceedings have been initiated, for the bankruptcy, insolvency or
liquidation of either Managing Member or upon the withdrawal, resignation
or expulsion of either Managing Member of the Company.
The powers, preferences or special rights of the Preferred Securities
of any series will be deemed not to be varied by the creation or issue of,
and no vote will be required for the creation or issue of, any further
limited liability company interests in the Company ranking pari passu with
or junior to the Preferred Securities of any series with respect to voting
rights and rights to participate in the profits or assets of the Company.
Any required approval of holders of Preferred Securities may be given
at a meeting of such holders convened for such purpose or pursuant to
written consent. The Company will cause a notice of any meeting at which
holders of the Preferred Securities of a series are entitled to vote, or of
any matter upon which action may be taken by written consent of such
holders, to be mailed to each holder of record of the Preferred Securities
of such series. Each such notice will include a statement setting forth
(i) the date of such meeting or the date by which such action is to be
taken, (ii) a description of any action proposed to be taken at such
meeting on which such holders are entitled to vote or of such matters upon
which written consent is sought and (iii) instructions for the delivery of
proxies or consents.
Notwithstanding that holders of Preferred Securities of any series are
entitled to vote or consent under any of the circumstances described above,
any of the Preferred Securities of any series that are owned by AL&C or any
entity owned more than 50% by AL&C, either directly or indirectly, shall
not be entitled to vote or consent and shall, for the purposes of such vote
or consent, be treated as if they were not outstanding.
Except as described herein and in the Prospectus Supplement relating
to the Preferred Securities of a particular series, holders of Preferred
Securities will have no other voting rights.
Additional Amounts
All payments in respect of the Preferred Securities by the Company
will be made without withholding or deduction for or on account of any
present or future taxes, duties, assessments or governmental charges of
whatever nature imposed or levied upon or as a result of such payment by or
on behalf of the United States of America, any state thereof or any other
jurisdiction through which or from which such payment is made, or any
authority therein or thereof having power to tax, unless the withholding or
deduction of such taxes, duties, assessments or governmental charges is
required by law. In that event, the Company will pay as a dividend such
additional amounts as may be necessary in order that the net amounts
received by the holders of the Preferred Securities after such withholding
or deduction will equal the amount which would have been receivable in
respect of such Preferred Securities in the absence of such withholding or
deduction ("Additional Amounts"), except that no such Additional Amounts
will be payable to a holder or beneficial owner of Preferred Securities (or
a third party on his behalf) with respect to Preferred Securities:
(a) if such holder or beneficial owner is liable for such taxes,
duties, assessments or governmental charges in respect of such Preferred
Securities by reason of such holder's or owner's having some connection
with the United States, any state thereof or any other jurisdiction through
which or from which such payment is made (including, without limitation,
actual or constructive ownership, past or present, of 10% or more of the
total combined voting power of all classes of stock entitled to vote of
AL&C), other than being a holder or beneficial owner of such Preferred
Securities, or
(b) if the Company has notified such holder of the obligation to
withhold taxes and requested but not received from such holder or
beneficial owner a declaration of non-residence, a valid taxpayer
identification number or other claim for exemption (or information or
certification required to support such claim), and such withholding or
deduction would not have been required had such declaration, taxpayer
identification number or claim been received.
Book-Entry-Only Issuance; The Depository Trust Company
DTC, New York, New York, will act as securities depository for the
Preferred Securities. The Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (DTC's
partnership nominee). One or more fully-registered global Preferred
Security certificates will be issued for each series of Preferred
Securities, representing all of the Preferred Securities of such series,
and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct participants include
securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations ("Direct Participants"). DTC
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship
with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on
file with the Commission.
Purchases of Preferred Securities under the DTC system must be made by
or through Direct Participants, which will receive a credit for the
Preferred Securities on DTC's records. The ownership interest of each
actual purchaser of each Preferred Security ("Beneficial Owner") is in turn
to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written
confirmations providing details of their transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Preferred Securities, except in
the event that use of the book-entry system for the Preferred Securities is
discontinued.
To facilitate subsequent transfers, all Preferred Securities deposited
by Participants with DTC are registered in the name of Cede & Co. The
deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Preferred Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Preferred Securities are credited, which may or may not be
the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. If less than all of the
Preferred Securities of any series are being redeemed, DTC's practice is to
determine by lot the amount of the interest of each Direct Participant in
such series to be redeemed.
Although voting with respect to the Preferred Securities is limited,
in those cases where a vote is required, neither DTC nor Cede & Co. will
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC mails an Omnibus Proxy to the Company as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting
or voting rights to those Direct Participants to whose accounts the
Preferred Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Dividend payments on the Preferred Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payable date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payments
on such payable date. Payments by Participants to Beneficial Owners will
be governed by standing instructions and customary practices and will be
the responsibility of such Participant and not of DTC, the Company or AL&C,
subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of dividends to DTC will be the responsibility
of the Company, disbursement of such payments to Direct Participants will
be the responsibility of DTC and disbursement of such payments to the
Beneficial Owners will be responsibility of the Direct and Indirect
Participants.
DTC may discontinue providing its services as securities depository
with respect to the Preferred Securities of any series at any time by
giving reasonable notice to the Company and AL&C. Under such
circumstances, in the event that a successor securities depository is not
obtained, Preferred Security certificates for such series will be printed
and delivered. Additionally, in the event that the Company were to redeem
only a portion of the Preferred Securities of any series because the
Company is required to pay Additional Amounts with respect to such
Preferred Securities to be redeemed, the Company may cause the global
certificate or certificates representing all of the Preferred Securities of
such series to be withdrawn from DTC (or its successor securities
depository) and may issue certificates in definitive form representing such
Preferred Securities. Thereafter, such Preferred Securities subject to
such requirement to pay Additional Amounts would be redeemed.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Company believes to be
reliable, but neither the Company nor AL&C takes responsibility for the
accuracy thereof.
Registrar, Transfer Agent and Paying Agent
First Chicago Trust Company of New York will act as registrar,
transfer agent and paying agent for the Preferred Securities.
Registration of transfers of Preferred Securities of any series will
be effected without charge by or on behalf of the Company, but upon payment
(with the giving of such indemnity as the Company or AL&C may require) in
respect of any tax or other governmental charges which may be imposed in
connection therewith.
The Company will not be required to register or cause to be registered
the transfer of Preferred Securities of a particular series after such
Preferred Securities have been called for redemption.
Miscellaneous
The Preferred Securities are not subject to any sinking fund
provisions. Holders of Preferred Securities of any series have no
preemptive rights.
AL&C and the Company will enter into an agreement as to expenses and
liabilities (the "Expense Agreement") pursuant to which AL&C will agree to
guarantee the payment of any liabilities incurred by the Company other than
obligations to holders of Preferred Securities, which will be separately
guaranteed to the extent set forth in the Guarantee. See "Description of
the Guarantee". The Expense Agreement will expressly provide that it is
for the benefit of, and is enforceable by, third parties to whom the
Company owes such obligations. A copy of the form of Expense Agreement has
been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
DESCRIPTION OF THE GUARANTEE
Set forth below is condensed information concerning the guarantee (the
"Guarantee") which will be executed and delivered by AL&C for the benefit
of the holders from time to time of Preferred Securities. This summary
contains all material information concerning the Guarantee but does not
purport to be complete. References to provisions of the Guarantee are
qualified in their entirety by reference to the text of the Payment and
Guarantee Agreement, a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
General
AL&C will irrevocably and unconditionally agree, to the extent set
forth herein, to pay in full, to the holders of the Preferred Securities of
any series, the Guarantee Payments (as defined below) (except to the
extent paid by the Company or by AL&C to any trustee appointed by such
holders (as described under "Description of the Preferred Securities --
Voting Rights")), as and when due, regardless of any defense, right of set-
off or counterclaim which the Company may have or assert. The following
payments to the extent not paid by the Company (the "Guarantee Payments")
will be subject to the Guarantee (without duplication): (i) any
accumulated and unpaid dividends which have been theretofore declared on
the Preferred Securities of any series out of funds legally available
therefor, (ii) the redemption price (including all accumulated and unpaid
dividends) payable out of funds legally available therefor with respect to
Preferred Securities of any series called for redemption by the Company and
(iii) upon the liquidation of the Company, the lesser of (a) the aggregate
of the stated liquidation preference of the Preferred Securities and all
accumulated and unpaid dividends thereon (whether or not declared) to the
date of payment and (b) the amount of assets of the Company legally
available for distribution to holders of Preferred Securities in
liquidation.
Certain Covenants of AL&C
In the Guarantee, AL&C will covenant that, so long as any Preferred
Securities of any series remain outstanding, AL&C will not declare or pay
any dividend on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of AL&C's capital stock or make any guarantee payments
with respect to the foregoing (other than (i) payments under the Guarantee,
(ii) acquisitions of shares of AL&C's common stock in connection with the
satisfaction by AL&C of its obligations under any employee benefit plans
and (iii) redemptions of any share purchase rights (the "Rights") issued by
AL&C pursuant to AL&C's Share Purchase Rights Plan adopted on October 27,
1989, as amended from time to time (the "Rights Plan") or the declaration
of a dividend of similar share purchase rights in the future), if at such
time AL&C will be in default with respect to its payment obligations under
the Guarantee or there shall have occurred an Event of Default under the
Subordinated Indenture.
In the Guarantee, AL&C will also covenant that, so long as Preferred
Securities of any series remain outstanding, it will (i) not cause or
permit any Common Securities of the Company to be transferred, (ii)
maintain direct or indirect ownership of all outstanding securities of the
Company other than (x) the Preferred Securities of any series and (y) any
other securities permitted to be issued by the Company that would not cause
it to become an "investment company"under the Investment Company Act of
1940, as amended, (iii) cause at least 21% of the total value of the
Company and at least 21% of all interests in the capital, income, gain,
loss, deduction and credit of the Company to be represented by Common
Securities, (iv) not voluntarily dissolve, wind up, liquidate or terminate
the Company or either of the Managing Members, (v) cause AL&C and Aetna
Capital Holdings, Inc. to remain the Managing Members of the Company and
timely perform all of their respective duties as Managing Members of the
Company (including the duty to declare and pay dividends on the Preferred
Securities as described under "Description of the Preferred Securities --
Dividends") and (vi) use reasonable efforts to cause the Company to remain
a limited liability company and otherwise continue to be treated as a
partnership for U.S. federal income tax purposes.
Additional Amounts
All Guarantee Payments will be made without withholding or deduction
for or on account of any present or future taxes, duties, assessments or
governmental charges of whatever nature imposed or levied upon or as a
result of such payment by or on behalf of the United States of America, any
state thereof or any other jurisdiction through which or from which such
payment is made, or any authority therein or thereof having power to tax,
unless the withholding or deduction of such taxes, duties, assessments or
governmental charges is required by law. In that event, AL&C will pay such
additional amounts as may be necessary in order that the net amounts
received by the holders of the Preferred Securities after such withholding
or deduction will equal the amount which would have been receivable in
respect of such Preferred Securities in the absence of such withholding or
deduction ("Additional Amounts"), except that no such Additional Amounts
will be payable to a holder or beneficial owner of Preferred Securities (or
a third party on his behalf) with respect to Preferred Securities:
(a) if such holder or beneficial owner is liable for such taxes,
duties, assessments or governmental charges in respect of such Preferred
Securities by reason of such holder's or owner's having some connection
with the United States, any state thereof or any other jurisdiction through
which or from which such payment is made (including, without limitation,
actual or constructive ownership, past or present, of 10% or more of the
total combined voting power of all classes of stock entitled to vote of
AL&C), other than being a holder or beneficial owner of such Preferred
Securities, or
(b) if the Company or AL&C has notified such holder of the obligation
to withhold taxes and requested but not received from such holder or
beneficial owner a declaration of non-residence, a valid taxpayer
identification number or other claim for exemption (or information or
certification required to support such claim), and such withholding or
deduction would not have been required had such declaration, taxpayer
identification number or claim been received.
Amendments and Assignment
Except with respect to any changes which do not adversely affect the
rights of holders of Preferred Securities (in which case no vote will be
required), the Guarantee may be amended only with the prior approval of the
holders of a majority in stated liquidation preference of all Preferred
Securities of all series then outstanding. The manner of obtaining any
such approval of holders of the Preferred Securities will be as set forth
under "Description of the Preferred Securities -- Voting Rights". AL&C
shall have the right to assign the Guarantee with the prior consent of the
holders of a majority in stated liquidation preference of all Preferred
Securities then outstanding. All guarantees and agreements contained in
the Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of AL&C and shall inure to the benefit of the holders of
the Preferred Securities then outstanding.
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect as
to the Preferred Securities of any series upon full payment of the
Redemption Price of all Preferred Securities of such series or upon the
exchange of all Preferred Securities of such series, and shall terminate
completely upon full payment of the amounts payable upon liquidation of the
Company. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Preferred
Securities of any series must restore payment of any sums paid under the
Preferred Securities of such series or the Guarantee.
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of AL&C and will
rank (i) subordinate and junior in right of payment to all other
liabilities of AL&C, (ii) pari passu with the most senior preferred stock
now or hereafter issued by AL&C and with any guarantee now or hereafter
entered into by AL&C in respect of any preferred or preference stock or
interest of any affiliate of AL&C and (iii) senior to AL&C's common stock.
The Guarantee will constitute a guarantee of payment and not of
collection. A holder of Preferred Securities may enforce the Guarantee
directly against AL&C, and AL&C will waive any right or remedy to require
that any action be brought against the Company or any other person or
entity before proceeding against AL&C. The Guarantee will not be
discharged except by payment of the Guarantee Payments in full to the
extent not paid by the Company.
Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
DESCRIPTION OF THE DEBENTURES AND THE SUBORDINATED INDENTURE
Set forth below is condensed information concerning the Debentures
that will evidence the loans to be made by the Company to AL&C of the
proceeds of the issuance of (i) Preferred Securities of each series and
(ii) the Company's Common Securities and related capital contributions
("Common Securities Payments") and the Subordinated Indenture (the
"Subordinated Indenture") between AL&C and the trustee named therein (the
Trustee"). References to provisions of the Subordinated Indenture are
qualified in their entirety by reference to the text of the Subordinated
Indenture, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. All Debentures will be
issued under the Subordinated Indenture.
General
The Subordinated Indenture does not limit the aggregate principal
amount of Debentures which may be issued thereunder and provides that the
Debentures may be issued thereunder from time to time in one or more
series. The aggregate dollar amount of the Debentures relating to
Preferred Securities of any series will be set forth in the Prospectus
Supplement for such series and will be equal to the sum of the aggregate
liquidation preference of the Preferred Securities of such series and the
related Common Securities Payments.
The entire principal amount of the Debentures relating to the
Preferred Securities of any series will become due and payable, together
with any accrued and unpaid interest thereon, including Additional Interest
(as herein defined), if any, on the earlier of (i) the date that is the
30th anniversary of the issuance of such Preferred Securities, subject to
AL&C's right to exchange such Debentures for new Debentures or reborrow the
proceeds from the repayment of such Debentures upon the terms and subject
to the conditions set forth under "Exchanges and Reborrowings" below and
(ii) the date upon which the Company is dissolved, wound up, liquidated or
terminated or either Managing Member is liquidated, bankrupt or insolvent
or withdraws, resigns or is expelled from the Company.
In the event of any exchange of Preferred Securities of any series for
Debentures relating to such series, (i) the Debentures of such series will
no longer be subject to mandatory prepayment upon the dissolution, winding
up, liquidation or termination of the Company, the liquidation, bankruptcy
or insolvency of either Managing Member or the withdrawal, resignation or
expulsion of either Managing Member from the Company, (ii) the Debentures
of such series will not be subject to an election by AL&C to exchange the
Debentures of such series for new debentures or to prepay or repay the
loans evidenced by the Debentures of such series and reborrow the proceeds
from such prepayment or repayment, (iii) AL&C will use its best efforts to
have the Debentures of such series listed on the same exchange as that on
which the Preferred Securities of such series are listed, (iv) the
Subordinated Indenture may, thereafter, be modified or amended with the
consent of the holders of not less than a majority in principal amount of
the Debentures of such series at the time outstanding; provided, however,
that no such modification or amendment may, without the consent of the
holder or each Debenture affected thereby, (a) change the maturity of the
principal of or interest on any such Debenture; (b) reduce the principal
amount of or the interest rate on any such Debenture; (c) change the place
or currency of payment of principal of or the interest on any such
Debenture; (d) impair the right to institute suit for the enforcement of
any such payment on or with respect to such Debenture; (e) reduce the
percentage of holders of Debentures necessary to modify or amend the
Subordinated Indenture; (f) modify the subordination provisions in a
manner adverse to the holders of such Debentures; or (g) modify the
foregoing requirements or reduce the percentage of outstanding Debentures
necessary to waive compliance with certain provisions of the Subordinated
Indenture or for waiver of certain defaults, (v) AL&C's obligation to pay
Additional Interest (other than Additional Interest, if any, accrued and
unpaid to such date of exchange) shall cease, and (vi) the provisions
described under "Description of the Debentures and the Subordinated
Indenture -- Indenture Events of Default" rather than those described under
"Description of the Debentures and the Subordinated Indenture -- Debenture
Events of Default" shall apply.
The Subordinated Indenture does not contain any provisions that limit
AL&C's ability to incur indebtedness or that afford holders of Debentures
protection in the event of a highly leveraged or similar transaction
involving AL&C.
Mandatory Prepayment
If the Company redeems Preferred Securities of any series in
accordance with the terms thereof, the Debentures relating to such series
will become due and payable in a principal amount equal to the aggregate
stated liquidation preference of the Preferred Securities of such series so
redeemed (together with any accrued but unpaid interest, including
Additional Interest, if any, on the portion being prepaid). Any payment
pursuant to this provision shall be made prior to 12:00 noon, New York
time, on the date of such redemption or at such other time on such earlier
date as the Company and AL&C shall agree.
Optional Prepayment
AL&C shall have the right to prepay the Debentures relating to
Preferred Securities of a series, without premium or penalty, in whole or
in part (together with any accrued but unpaid interest, including
Additional Interest, if any, on the portion being prepaid) at any time
following the date, if any, set forth in the Prospectus Supplement for such
series.
So long as the Preferred Securities of any series are outstanding AL&C
shall also have the right to prepay the related series of Debentures
without premium or penalty, in whole or in part (together with any accrued
but unpaid interest, including Additional Interest, if any), if AL&C has
been advised by legal counsel (which counsel is not an employee of AL&C)
that, as a result of any change after the date of the Prospectus Supplement
relating to such series of Preferred Securities in any applicable income
tax laws or regulations or in the interpretation thereof (including but not
limited to the enactment or imminent enactment of any legislation, the
publication of any judicial decisions, regulatory rulings, regulatory
procedures, or notices or announcements (including notices or announcements
of intent to adopt such procedures or regulations), or a change in the
official position or in the interpretation of law or regulations by any
legislative body, court, governmental authority or regulatory body,
irrespective of the manner in which such change is made known), there
exists more than an insubstantial risk that (i) AL&C will be precluded
from deducting the interest paid on such Debentures for income tax purposes
or (ii) the Company will be subject to federal income tax with respect to
the interest received on such Debentures.
In addition, if at any time after the issuance of the Preferred
Securities of any series, the Company is or would be required to pay
Additional Amounts with respect to any Preferred Securities of such series,
AL&C shall have the right to prepay without premium or penalty (together
with accrued but unpaid interest, including Additional Interest, if any, on
the portion being prepaid) the Debentures relating to such series in a
principal amount not to exceed the aggregate liquidation preference of the
Preferred Securities of such series with respect to which such Additional
Amounts are required to be paid.
The Debentures relating to Preferred Securities of any series may also
be prepaid at the option of AL&C on such terms and conditions as may be set
forth in the Prospectus Supplement relating to such series.
Exchanges and Reborrowings
In lieu of repaying any series of Debentures when due or optionally
prepaying such Debentures, AL&C may elect to exchange such Debentures for
new Debentures (any such election, an "Exchange Election") or, in the event
AL&C repays such Debentures when due or optionally prepays such Debentures,
AL&C may elect to reborrow the proceeds from such repayment or prepayment
(any such election, a "Reborrowing Election"). Notwithstanding the
foregoing, AL&C may only make an Exchange Election or a Reborrowing
Election with respect to any series of Debentures if the Company owns all
of such Debentures and, as determined in the judgment of the Managing
Members and the Company's financial advisor (selected by the Managing
Members and who shall be unaffiliated with AL&C and shall be among the 30
largest investment banking firms, measured by total capital, in the United
States at the time of the issuance of the new Debentures that will evidence
the new loan to be made in connection with such election), (a) AL&C is not
bankrupt, insolvent or in liquidation, (b) AL&C is not in default in the
payment of any interest or principal under the Subordinated Indenture, (c)
AL&C has made timely payments on such Debentures for the immediately
preceding 24 months, (d) the Company is not in arrears on payments of
dividends on the Preferred Securities of the series relating to such
Debentures, (e) AL&C is expected to be able to make timely payment of
principal of and interest on such new loan, (f) such new loan is being made
on terms, and under circumstances, that are consistent with those which a
lender would then require for a loan to an unrelated party, (g) such new
loan is being made at a rate sufficient to provide payments equal to or
greater than the amount of dividend payments required under the Preferred
Securities of such series, (h) such new loan is being made for a term that
is consistent with market circumstances and AL&C's financial condition, (i)
immediately prior to the making of such new loan, the senior unsecured
long-term debt is (or if no such debt is outstanding, would be) rated not
less than BBB (or the equivalent) by Standard & Poor's Corporation and Baa2
(or the equivalent) by Moody's Investors Service, Inc. and the subordinated
unsecured long-term debt of AL&C is (or if no such debt is outstanding,
would be) rated not less than BBB- (or the equivalent) by Standard & Poor's
Corporation and Baa3 by Moody's Investors Service, Inc. (or if either of
such rating organizations is not then rating AL&C's senior or subordinated
unsecured long-term debt, as the case may be, the equivalent of such
ratings by any other "nationally recognized statistical rating
organization," as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the Securities Act) and (j) such new loan will mature
no later than the nineteenth anniversary of the date it is made.
Interest
The Debentures relating to Preferred Securities of a series shall bear
interest at the annual rate set forth in the Prospectus Supplement for such
series, accruing from the date they are issued until maturity. Such
interest shall be payable monthly on the last day of each calendar month,
commencing on the date specified in the Prospectus Supplement relating to
such series. In the event that any date on which interest is payable on
the Debentures relating to the Preferred Securities of any series is not a
Business Day, then payment of the interest payable on such date will be
made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay) except that, if
such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with
the same force and effect as if made on such date; provided that AL&C shall
have the right at any time or times during the term of such Debentures, so
long as AL&C is not in default in the payment of interest under the
Subordinated Indenture, to extend the interest payment period for such
Debentures up to 60 months, at the end of which period AL&C will pay all
interest then accrued and unpaid on such Debentures (together with interest
thereon at the rate specified for such Debentures to the extent permitted
by applicable law). Prior to the termination of any such extended interest
payment period AL&C may further extend the interest payment period for such
Debentures; provided that such extended interest payment period for such
Debentures, together with all such further extensions thereof, may not
exceed 60 months. Following the termination of any extended interest
payment period, if the Company has paid all accrued and unpaid interest
required by such Debentures for such period, then the Company shall have
the right to again extend the interest payment period up to 60 months as
herein described. While the Company holds the Debentures of any series,
AL&C shall give the Company notice of its selection of any extended
interest payment period for such Debentures one Business Day prior to the
earlier of (i) the date the Company declares the dividend on the related
series of Preferred Securities and (ii) the date the Company is required to
give notice of the record or payment date of such dividend to the New York
Stock Exchange or other applicable self-regulatory organization or to
holders of such series of Preferred Securities, but in any event not less
than two Business Days prior to such record date. AL&C will cause the
Company to give such notice of AL&C's selection of any extended interest
payment period to the holders of the related series of Preferred
Securities. After the Debentures of a series have been exchanged for the
related series of Preferred Stock, AL&C shall give the holders of such
Debentures notice of its selection of any extended interest payment period
for such Debentures not less than two Business Days prior to the record
date for the first interest payment which AL&C for which such extension
will be effective.
During any extended interest period, AL&C shall not pay or declare any
dividends on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of its capital stock (other than (i) acquisitions of
shares of AL&C's common stock in connection with the satisfaction by AL&C
of its obligations under any employee benefit plans and (ii) redemptions of
any Rights issued by AL&C under the Rights Plan or the declaration of a
dividend of similar share purchase rights in the future).
Additional Interest
In addition, so long as the Company owns the Debentures of any series,
if at any time following the date of issue of the related series of
Preferred Securities, (i) the Company shall be required to pay any
Additional Amounts or (ii) the Company shall be required to pay, with
respect to its income derived from the interest payments on such
Debentures, any amounts for or on account of any taxes, duties, assessments
or governmental charges of whatever nature imposed by the United States, or
any other taxing authority, then, in any such case, AL&C will pay as
interest such additional amounts ("Additional Interest") as may be
necessary in order that the net amounts received and retained by the
Company after paying such Additional Amounts or after the payment of such
taxes, duties, assessments or governmental charges shall result in the
Company's having such funds as it would have had in the absence of the
payment of such taxes, duties, assessments or governmental charges. The
obligation to pay Additional Interest under (i) above shall be reduced
proportionately to the extent that (x) AL&C or the Company has notified
holders of Preferred Securities of such series of the obligation to
withhold taxes and requested but not received from such holders
declarations of nonresidence or other similar claim for exemption and (y)
such withholding or deduction would not have been required had such
declaration or similar claim been received.
Method and Place of Payment
While the Company holds the Debentures of any series, principal of and
interest (including Additional Interest, if any) on such Debentures shall
be payable in lawful money of the United States, at such place and to such
account as may be designated by the Company. After the Debentures of any
series have been exchanged for the related series of Preferred Stock,
principal of and interest on such Debentures shall be payable at the office
or agency of AL&C maintained for such purposes in the city of Hartford;
provided, however, that at the option of Aetna, payment of interest may be
made by check mailed to the address of the person entitled thereto as such
address shall appear in the Debenture register.
Set-off
Notwithstanding anything to the contrary in the Subordinated Indenture
or Debentures, AL&C shall have the right to set-off any payment it is
otherwise required to make thereunder with and to the extent AL&C has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
Subordination
The Subordinated Indenture will provide that AL&C and the holders of
the Debentures covenant and agree (and each holder of Preferred Securities
by acceptance thereof agrees) that each of the Debentures is subordinate
and junior in right of payment to all Senior Debt as provided in the
Subordinated Indenture. The term "Senior Debt" means 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 AL&C to the extent that such claim for post-petition interest
is allowed in such proceeding) on Debt, 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 Debentures or to other Debt which is pari passu with, or
subordinated to the Debentures; provided, however, that Senior Debt shall
not be deemed to include the Debentures. The term "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 AL&C, whether
recourse is to all or a portion of the assets of AL&C and whether or not
contingent, (i) every obligation of AL&C for money borrowed, (ii) every
obligation of AL&C 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 AL&C with respect to letters of credit, bankers' acceptances
or similar facilities issued for the account of AL&C, (iv) every obligation
of AL&C 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 AL&C, 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, AL&C has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise.
In the event of (i) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, arrangement, reorganization, debt
restructuring or other similar case or proceeding in connection with any
insolvency or bankruptcy proceeding, relative to AL&C or to its assets, or
(ii) any liquidation, dissolution or other winding up of AL&C, whether
voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (iii) any assignment for the benefit of creditors or any
other marshalling of assets and liabilities of AL&C, then and in any such
event specified in (i), (ii) or (iii) above (each such event, if any,
herein sometimes referred to as a "Proceeding") the holders of Senior Debt
shall be entitled to receive payment in full of all amounts due or to
become due on or in respect of all Senior Debt, or provision shall be made
for such payment in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Debt, before the holders of the
Debentures are entitled to receive any payment or distribution of any kind
or character, whether in cash, property or securities (including any
payment or distribution which may be payable or deliverable by reason of
the payment of any other Debt of AL&C subordinated to the payment of the
Debentures, such payment or distribution being hereinafter referred to as
"Junior Subordinated Payment"), on account of principal of or interest on
the Debentures and the holders of Senior Debt shall be entitled to receive,
for application to the payment thereof, any payment or distribution of any
kind or character, whether in cash, property or securities, including any
Junior Subordinated Payment, which may be payable or deliverable in respect
of the Debentures in any such Proceeding.
In the event that, notwithstanding the foregoing, the holders of the
Debentures shall have received any payment or distribution of assets of
AL&C of any kind or character, whether in cash, property or securities,
including any Junior Subordinated Payment, before all Senior Debt is paid
in full or payment thereof is provided for in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior Debt, and if
such fact shall, at or prior to the time of such payment or distribution,
have been made known to such holders, then and in such event such payment
or distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other person making payment or distribution of assets of AL&C for
application to the payment of all Senior Debt remaining unpaid, to the
extent necessary to pay all Senior Debt in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
In the event that any Debentures are declared due and payable before
their stated maturity, then and in such event the holders of the Senior
Debt outstanding at the time such Debentures so become due and payable
shall be entitled to receive payment in full of all amounts due on or in
respect of such Senior Debt, or provision shall be made for such payment in
cash or cash equivalents or otherwise in a manner satisfactory to the
holders of Senior Debt, before the holders of the Debentures are entitled
to receive any payment (including any payment which may be payable by
reason of the payment of any other indebtedness of AL&C being subordinated
to the payment of the Debentures) by AL&C on account of the principal of or
interest on the Debentures. In the event that, notwithstanding the
foregoing, AL&C shall make any payment to the holders of the Debentures
prohibited by the foregoing, and if such fact shall, at or prior to the
time of such payment, have been made known to such holders, then and in
such event such payment shall be paid over and delivered forthwith to AL&C.
In the event and during the continuation of any default in the payment
of principal of (or premium, if any) or interest on any Senior Debt, or in
the event that any event of default with respect to any Senior Debt shall
have occurred and be continuing and shall have resulted in such Senior Debt
becoming or being declared due and payable prior to the date on which it
would otherwise have become due and payable, unless and until such event of
default shall have been cured or waived or shall have ceased to exist and
such acceleration shall have been rescinded or annulled, or in the event
any judicial proceeding shall be pending with respect to any such default
in payment or such event of default, then no payment (including any payment
which may be payable by reason of the payment of any other indebtedness of
AL&C being subordinated to the payment of the Debentures) shall be made by
AL&C on account of principal of or interest on the Debentures. In the
event that, notwithstanding the foregoing, AL&C shall make any payment to
the holders of the Debentures prohibited by the foregoing, and if such fact
shall, at or prior to the time of such payment, have been made known to
such holders, then and in such event such payment shall be paid over and
delivered forthwith to AL&C.
Subject to the payment in full of all Senior Debt, or the provision of
such payment in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Debt, the holders of the Debentures
shall be subrogated to the extent of the payments or distributions made to
the holders of such Senior Debt (equally and ratably with the holders of
all indebtedness of AL&C which by its express terms is subordinated to
indebtedness of AL&C to substantially the same extent as the Debentures are
subordinated to the Senior Debt and is entitled to like rights of
subrogation by reason of any payments or distributions made to holders of
such Senior Debt) to the rights of the holders of such Senior Debt to
receive payments and distributions of cash, property and securities
applicable to the Senior Debt until the principal of and interest on the
Debentures shall be paid in full.
By reason of such subordination, in the event of liquidation or
insolvency, creditors of AL&C who are not holders of Senior Debt may
recover less, ratably, than holders of Senior Debt and may recover more
ratably, than the holders of the Debentures with respect to the Debentures.
In addition, since AL&C is a holding company, the rights of AL&C and hence
the rights of creditors of AL&C (including the rights of holders of the
Debentures), to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is
necessarily subject to the prior claims of creditors of the subsidiary,
except to the extent that claims of AL&C itself as a creditor of the
subsidiary may be recognized.
Covenants
In the Subordinated Indenture, AL&C will covenant that, so long as any
Debentures remain outstanding, AL&C will not declare or pay any dividend
on, or redeem, purchase, acquire or make a liquidation payment with respect
to, any of AL&C's capital stock or make any guarantee payments with respect
to the foregoing (other than (i) payments under the Guarantee, (ii)
acquisitions of shares of AL&C's common stock in connection with the
satisfaction by AL&C of its obligations under any employee benefit plans
and (iii) redemptions of any Rights issued by AL&C pursuant to the Rights
Plan or the declaration of a dividend of similar share purchase rights in
the future), if at such time AL&C is in default with respect to its payment
obligations under the Guarantee or there shall have occurred an Event of
Default.
In the Subordinated Indenture, AL&C will also covenant for the benefit
of the holders of the Debentures of any series, that, so long as Preferred
Securities of the related series remain outstanding, it will (i) not cause
or permit any Common Securities of the Company to be transferred, (ii)
maintain direct or indirect ownership of all outstanding securities of the
Company other than (x) the Preferred Securities of any series and (y) any
other securities permitted to be issued by the Company that would not cause
the Company to become an "investment company" under the Investment Company
Act of 1940, as amended, (iii) cause at least 21% of the total value of the
Company and at least 21% of all interests in the capital, income, gain,
loss, deduction and credit of the Company to be represented by Common
Securities, (iv) not voluntarily dissolve, wind up, liquidate or terminate
the Company or either of the Managing Members, (v) cause AL&C and Aetna
Capital Holdings, Inc. to remain the Managing Members of the Company and
timely perform all of their respective duties as Managing Members of the
Company (including the duty to declare and pay dividends on the Preferred
Securities as described under "Description of the Preferred Securities --
Dividends"), and (vi) use reasonable efforts to cause the Company to remain
a limited liability company and otherwise continue to be treated as a
partnership for U.S. federal income tax purposes.
Debenture Events of Default
If one or more of the following events (each a "Debenture Event of
Default") shall occur and be continuing while the Company holds the
Debentures of any series:
(a) failure to pay any principal of the Debentures of any series when
due (whether or not payment is prohibited by the provisions described above
under "Subordination" or otherwise);
(b) failure to pay any interest on the Debentures of any series,
including any Additional Interest, when due and such failure continues for
a period of 30 days (whether or not payment is prohibited by the provisions
described above under "Subordination" or otherwise); provided that a valid
extension of the interest payment period by AL&C shall not constitute a
default in the payment of interest for this purpose;
(c) failure by AL&C to perform in any material respect any other
covenant in the Debentures of any series continued for a period of 90 days
after written notice to AL&C from the Company or any holder of Preferred
Securities;
(d) the dissolution, winding up, liquidation or termination of the
Company;
(e) the withdrawal, resignation or expulsion of either Managing Member
from the Company; or
(f) certain events of bankruptcy, insolvency or liquidation of either
of the Managing Members;
then the Company will have the right to declare the principal of and the
interest on such Debentures (including any Additional Interest and any
interest subject to an extension election) to be forthwith due and payable
and to enforce its other rights under such Debentures. No such Debentures
may be so accelerated by the Company unless all Debentures of such series
are so accelerated. Under the terms of the Preferred Securities, the
holders of the series of Preferred Securities related to such Debentures
will have the rights referred to under "Description of the Preferred
Securities -- Voting Rights", including the right to appoint a trustee,
which trustee shall be authorized to exercise the Company's right to
accelerate the principal amount of such Debentures and to enforce the
Company's other creditor rights under such Debentures; provided that any
trustee so appointed shall vacate office immediately if any such Debenture
Event of Default shall have been cured by AL&C. In addition, in the event
AL&C fails to pay any principal of or interest on any series of Debentures
held by the Company when due, holders of the related series of Preferred
Securities shall, under certain circumstances, be entitled to enforce the
Company's right to receive such payments under such Debentures directly
against AL&C.
Indenture Events of Default
If one or more of the following events (each an "Indenture Event
of Default" and, together with each "Debenture Event of Default", an "Event
of Default") shall occur and be continuing after the Debentures of a series
have been exchanged for the related series of Preferred Securities:
(a) failure to pay any principal of the Debentures of any series when
due (whether or not payment is prohibited by the provisions described above
under "Subordination" or otherwise);
(b) failure to pay any interest on the Debentures of any series,
including any Additional Interest, when due and such failure continues for
a period of 30 days (whether or not payment is prohibited by the provisions
described above under "Subordination" or otherwise); provided that a valid
extension of the interest payment period by AL&C shall not constitute a
default in the payment of interest for this purpose;
(c) failure by AL&C to perform in any material respect any other
covenant in the Debentures of any series continued for a period of 90 days
after written notice to AL&C from any holder of Debentures; or
(d) certain events of bankruptcy, insolvency or liquidation of AL&C;
then the Trustee or the holders of at least 25% in principal amount of such
Debentures may declare the principal amount of all such Debentures to be
due and payable immediately; provided, however, that under certain
circumstances the holders of a majority in aggregate principal amount of
such Debentures may rescind or annul such declaration and its consequences.
The Subordinated Indenture provides that the Trustee may withhold notice to
the holders of such Debentures of any default (except in payment of
principal or interest, if any) if it considers it in the interest of such
holders to do so.
AL&C will be required to furnish to the Trustee annually a statement
by certain officers of AL&C as to the compliance with all conditions and
covenants of the Subordinated Indenture.
Following any exchange of Preferred Securities for a series of
Debentures, the holders of a majority in principal amount of such series of
Debentures 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 such series of Debentures and to waive certain
defaults.
The Subordinated Indenture provides that, in case an Indenture Event
of Default shall occur and be continuing, the Trustee shall exercise such
of its rights and powers under the Subordinated Indenture, 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. Subject
to such provisions, the Trustee will be under no obligation to exercise any
of its rights or powers under the Subordinated Indenture at the request of
any of the holders of Debentures 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.
Modification and Waiver
Modifications and amendments of the Subordinated Indenture may be made
by AL&C and the Trustee, with the consent of the holders of not less than a
majority in aggregate principal amount of each series of the Debentures
which is affected by the modification or amendment; provided, however, that
no such modification or amendment may, without the consent of each such
holder of Debentures affected thereby: (i) change the maturity of the
principal of or interest on any such Debenture; (ii) reduce the principal
amount of or the interest rate on any such Debenture; (iii) change the
place or currency of payment of principal of or the interest on any such
Debenture; (iv) impair the right to institute suit for the enforcement of
any such payment on or with respect to such Debenture; (v) reduce the
percentage of holders of Debentures necessary to modify or amend the
Subordinated Indenture; (vi) modify the subordination provisions in a
manner adverse to the holders of such Debentures; or (vii) modify the
foregoing requirements or reduce the percentage of outstanding Debentures
necessary to waive compliance with certain provisions of the Subordinated
Indenture or for waiver of certain defaults.
So long as the Company holds the Debentures of any series, it may not
waive compliance or waive any default in compliance by AL&C with certain
restrictive provisions of the Subordinated Indenture without the approval
of the same percentage of the holders of Preferred Securities of the
related series, obtained in the same manner, as would be required if the
holders of such Preferred Securities then held such Debentures; provided
that if no approval would be required for any such amendment, the Company
may waive such compliance or default in any manner that the parties agree.
The holders of at least a majority of the aggregate principal amount
of the Debentures of any series for which the related Preferred Securities
have been exchanged may, on behalf of all holders of that series, waive
compliance by AL&C with certain restrictive provisions of the Subordinated
Indenture and waive any past default under the Subordinated Indenture,
except a default in the payment of principal or interest or in the
performance of certain covenants.
Global Securities
If at the time of any exchange of Debentures of any series for the
related Preferred Securities such Preferred Securities are held by DTC,
such Debentures, upon such exchange, will be represented by one or more
global securities in a denomination or aggregate denominations equal to the
aggregate principal amount of such Debentures that will be deposited with
DTC. Unless and until it is exchanged in whole or in part for such
Debentures in definitive registered form, a global security may not be
registered for transfer or exchange except as a whole by DTC to a nominee
for DTC.
For a description of DTC and DTC's book-entry system, see "Description
of the Preferred Securities -- Book-Entry-Only Issuance; The Depository
Trust Company". As of the date of this Prospectus, the description therein
of DTC's book-entry system and DTC's practices as they relate to purchases,
transfers, notices and payments with respect to the Preferred Securities
apply in all material respects to any debt obligations represented by one
or more global securities held by DTC.
Governing Law
The Debentures and the Subordinated Indenture will be governed by and
construed in accordance with the laws of the State of New York.
The Trustee
The Subordinated Indenture contains limitations on the right of the
Trustee, as a creditor of AL&C, 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 Subordinated Indenture it is a creditor of
AL&C.
The Trustee or its affiliates may act as depositary for funds of, make
loans to and perform other services for, or may be a customer of, Aetna in
the ordinary course of business.
Miscellaneous
AL&C shall have the right at all times to assign any of its rights or
obligations under the Debentures to a direct or indirect wholly owned
subsidiary of AL&C other than any subsidiary that is an insurance company;
provided that, in the event of any such assignment, AL&C shall remain
jointly and severally liable for all such obligations. AL&C may not
otherwise assign any of its obligations under the Debentures. Except as
described above under "Description of the Preferred Securities --
Redemption or Exchange", the Company may not assign any of its rights under
the Debentures without the prior written consent of AL&C. Subject to the
foregoing, the Debentures shall be binding upon and inure to the benefit of
AL&C and the holders thereof and their respective successors and assigns.
The Subordinated Indenture will provide that AL&C may not consolidate
with or merge into any other person or sell its property and assets as, or
substantially as, an entirety to any person and may not permit any person
to merge into or consolidate with AL&C unless (i) either AL&C 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 AL&C's obligations under the
Subordinated Indenture and (ii) immediately after giving effect to the
transaction no Event of Default shall have occurred and be continuing.
TAXATION
The following discussion is a summary of certain United States federal
income tax consequences of the purchase, acquisition, ownership and
disposition of Preferred Securities and Debentures and is based upon the
advice of Davis Polk & Wardwell, counsel to AL&C and the Company. It deals
only with Preferred Securities and Debentures held as capital assets by
initial purchasers who acquire the Preferred Securities at the original
offering price ("Initial Purchasers"), and not with special classes of
holders, such as dealers in securities or currencies, life insurance
companies, persons holding Preferred Securities and Debentures as a hedge
or hedged against currency risks or as part of a straddle, or persons whose
functional currency is not the U.S. dollar. This summary is based on tax
laws in effect in the United States, regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change (possibly on a retroactive basis). This
summary deals only with holders who purchase Preferred Securities of any
series, and is subject to additional discussion of material United States
federal income tax consequences that may appear in a Prospectus Supplement
delivered in connection with a particular series of Preferred Securities.
PROSPECTIVE PURCHASERS OF PREFERRED SECURITIES ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE UNITED STATES OR OTHER TAX CONSEQUENCES OF
THE PURCHASE, ACQUISITION, OWNERSHIP AND DISPOSITION OF PREFERRED
SECURITIES AND DEBENTURES, INCLUDING THE EFFECT OF ANY STATE OR LOCAL TAX
LAWS.
Income from the Preferred Securities and Debentures
The Company will be treated as a partnership for federal income tax
purposes. Each holder of Preferred Securities (a "Securityholder") will be
required to include in gross income the Securityholder's distributive share
of the Company's net income. Such income will not exceed dividends
received on a Preferred Security, except in limited circumstances as
described below under "Potential Extension of Payment Period of the
Debentures". Any amount so included in a Securityholder's gross income
will increase his tax basis in the Preferred Securities, and the amount of
cash dividends to the Securityholder will reduce such Securityholder's tax
basis in the Preferred Securities. No portion of the amounts received on a
Preferred Securities will be eligible for the dividends received deduction.
The Company does not presently intend to make an election under
Section 754 of the Internal Revenue Code of 1986, as amended (the "Code").
As a result, a subsequent purchaser of Preferred Securities will not be
permitted to adjust its taxable income from the Company to reflect any
difference between its purchase price for the Preferred Securities and the
Company's underlying tax basis for its assets.
The interest payments on the Debentures will be treated as "original
issue discount" under Treasury Regulations. Each holder of Debentures (a
"Debenture Holder") will be required to include the interest on the
Debentures in income as it accrues, in accordance with a constant yield
method based on a compounding of interest, before the receipt of the
interest. The Debenture Holder's tax basis in the Debentures will be
increased by accrued interest previously included as income by the
Debenture Holder and reduced by the payment of such interest.
Market Discount and Bond Premium of the Debentures
Debenture Holders other than Initial Purchasers may be considered to
have acquired the Debentures with market discount, acquisition premium or
amortizable bond premium. Such holders are advised to consult their own
tax advisors as to the income tax consequences of the acquisition,
ownership and disposition of the Debentures.
Disposition of the Preferred Securities
Gain or loss will be recognized on a sale, exchange or other
disposition of the Preferred Securities (including a distribution of cash
in redemption of all of a Securityholder's Preferred Securities but
excluding the exchange of Preferred Securities for Debentures) equal to the
difference between the amount realized and the Securityholder's tax basis
in the Preferred Securities disposed of. In the case of a cash
distribution in partial redemption of a Securityholder's Preferred
Securities, no loss will be recognized, the Securityholder's tax basis in
the Preferred Securities will be reduced by the amount of the distribution,
and the Securityholder will recognize gain to the extent, if any, that the
amount of the distribution exceeds the Securityholder's tax basis in the
Preferred Securities. Gain or loss recognized by a Securityholder on the
sale or exchange of Preferred Securities held for more than one year will
generally be taxable as long-term capital gain or loss. In certain
circumstances, a portion of the proceeds received upon a disposition of a
Preferred Security by a purchaser other than an Initial Purchaser may be
treated as ordinary income.
Disposition or Retirement of the Debentures
Upon the sale, exchange or retirement of a Debenture, a Debenture
Holder will recognize taxable gain or loss equal to the difference between
the amount realized on the sale, exchange or retirement and such holder's
adjusted tax basis in the Debenture. Subject to the discussion above under
"Market Discount and Bond Premium of the Debentures", such gain or loss
will be capital gain or loss.
Exchange of the Preferred Securities for Debentures of AL&C
Upon a distribution by Aetna Capital L.L.C. of the Debentures of AL&C
in exchange for the Preferred Securities as described under the caption
"Description of the Preferred Securities -- Redemption or Exchange", such
an exchange will be treated as a non-taxable exchange to each
Securityholder and will result in the Securityholder receiving an aggregate
tax basis in the Debentures equal to such Securityholder's aggregate tax
basis in its Preferred Securities. A Debenture Holder's holding period in
the Debentures so received in exchange for Preferred Securities will
include the period for which the Preferred Securities were held by the
Debenture Holder.
Potential Extension of Payment Period of the Debentures
Under the terms of the Debentures, AL&C may be permitted to extend the
interest payment period up to 60 months. In the event that AL&C exercises
this right, AL&C may not declare dividends on any share of its preferred or
common stock, and therefore, the likelihood of extension of the payment
period is, in the view of the Company and AL&C, remote. In the event that
the payment period is extended before the Preferred Securities are
exchanged for the Debentures, the Company will continue to accrue income,
which will be allocated, but not distributed, to beneficial owners on the
last day of each calendar month. As a result, beneficial owners during an
extended interest payment period will include interest in gross income in
advance of the receipt of cash and any such owners who dispose of Preferred
Securities prior to the record date for the payment of dividends following
such extended interest payment period will include interest in gross income
but will not receive from the Company any cash related thereto.
The tax basis of a Preferred Security will be increased by the amount
of any interest that is included in income without a receipt of cash, and
will be decreased again when such holders of record subsequently receive
cash from the Company.
United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the
United States, a foreign corporation, a non-resident alien individual, a
foreign partnership or a non-resident fiduciary of a foreign estate or
trust.
Under present United States federal income tax law:
(i) payments by the Company or any of its paying agents to any holder
of a Preferred Security who or which is a United States Alien Holder and
payments of principal or interest by AL&C on the Debentures to any holder
of a Debenture who or which is a United States Alien Holder will not be
subject to United States federal withholding tax; provided that (a) the
beneficial owner of the Preferred Security or Debenture, as the case may
be, does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of AL&C entitled to vote, (b)
the beneficial owner of the Preferred Security or Debenture, as the case
may be, is not a controlled foreign corporation that is related to AL&C
through stock ownership, and (c) either (A) the beneficial owner of the
Preferred Security or Debenture certifies to the Company or its agent,
under penalties of perjury, that it is not a United States holder and
provides its name and address or (B) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "Financial Institution") and
holds the Preferred Security or Debenture certifies to the Company or its
agent under penalties of perjury that such statement has been received from
the beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the Company or its agent with a copy
thereof; and
(ii) a United States Alien Holder of a Preferred Security or Debenture
will not be subject to United States federal withholding tax on any gain
realized upon the sale or other disposition of a Preferred Security or
Debenture.
Company Information Returns
Within 90 days after the close of every taxable year of the Company,
the Managing Members of the Company will furnish or cause to be furnished
each holder of the Preferred Securities with a Schedule K-1 setting forth
such Securityholder's allocable share of income for the Company's taxable
year.
Any person who holds Preferred Securities as a nominee for another
person is required to furnish to the Company (a) the name, address and
taxpayer identification number of the beneficial owner and the nominee;
(b) notice of whether each beneficial owner is (i) a person who is not a
United States person, (ii) a foreign government, an international
organization or any wholly owned agency or instrumentality of either of the
foregoing, or (iii) a tax-exempt entity; (c) the amount and description of
Preferred Securities held, acquired or transferred for the beneficial
owner; and (d) certain information including the dates of acquisitions and
transfers, methods of acquisition and the costs thereof, as well as net
proceeds from transfers. Brokers and financial institutions are required
to furnish additional information, including whether they are a United
States person and certain information on Preferred Securities they acquire,
hold or transfer for their own account. A penalty of $50 is imposed for
each failure to report the above information to the Company, up to a
maximum of $100,000 per calendar year for all failures.
PLAN OF DISTRIBUTION
The Company may sell Preferred Securities (i) through underwriters,
(ii) through dealers, (iii) through agents or (iv) directly to purchasers.
The Prospectus Supplement relating to the Preferred Securities of a
particular series will set forth the terms of such offering, including the
names of any underwriters, dealers or agents involved in the sale of such
Preferred Securities, the number of Preferred Securities of such series to
be purchased by any underwriters and any applicable commissions or
discounts. The estimated proceeds to the Company from such series of
Preferred Securities will also be set forth in the Prospectus Supplement.
If underwriters are used in the sale, the Preferred Securities being
sold will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices
determined at the time of sale. Unless otherwise set forth in the
Prospectus Supplement relating to the Preferred Securities of a particular
series, the obligations of the underwriters to purchase such Preferred
Securities will be subject to certain conditions precedent and the
underwriters will be obliged to purchase all of such Preferred Securities
if any of such Preferred Securities are purchased. Any initial public
offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
If dealers are used in the sale, unless otherwise indicated in the
Prospectus Supplement relating to the Preferred Securities of a particular
series, the Company will sell such Preferred Securities to the dealers as
principals. The dealers may then resell such Preferred Securities to the
public at varying prices to be determined by such dealers at the time of
resale.
Preferred Securities of a particular series may also be sold through
agents designated by the Company from time to time or directly by the
Company. Any agent involved in the offering and sale of any such Preferred
Securities will be named, and any commissions payable by the Company or
AL&C to such agent will be set forth, in the Prospectus Supplement relating
to the Preferred Securities of such series. Unless otherwise indicated in
such Prospectus Supplement, any such agent will act on a best efforts basis
for the period of its appointment.
Underwriters, dealers and agents may be entitled under agreements
entered into with the Company or AL&C to indemnification by the Company or
AL&C against certain civil liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments which the
underwriters, dealers or agents may be required to make in respect thereof.
Underwriters, dealers and agents may be customers of, engage in
transactions with, or perform services for, the Company or AL&C in the
ordinary course of business.
The Preferred 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 Preferred Securities.
VALIDITY OF SECURITIES
The validity of the Preferred Securities will be passed upon on behalf
of the Company by Davis Polk & Wardwell, special counsel to AL&C and the
Company. The validity of the Guarantee and the Debentures will be passed
upon on behalf of AL&C by Zoe Baird, Senior Vice President and General
Counsel of AL&C, and Davis Polk & Wardwell, special counsel to AL&C. The
validity of the Guarantee, the Preferred Securities and the Debentures will
be passed upon on behalf of any agents or underwriters by Sullivan &
Cromwell. Davis Polk & Wardwell and Sullivan & Cromwell will rely upon the
opinion of Zoe Baird as to certain matters governed by Connecticut law. As
of February 28, 1994, Zoe Baird beneficially owned 745, and had options to
purchase 11,000, shares of AL&C's common stock.
EXPERTS
The consolidated financial statements and schedules of Aetna as of
December 31, 1993 and 1992, and for each of the years in the three year
period ended December 31, 1993, incorporated by reference in this
Prospectus and elsewhere in the Registration Statement have been audited by
KPMG Peat Marwick, independent certified public accountants, as indicated
in their reports with respect thereto, and are incorporated by reference
herein in reliance upon the authority of said firm as experts in accounting
and auditing. The reports of KPMG Peat Marwick on the December 31, 1993
consolidated financial statements and schedules refer to a change in 1993
in the Company's method of accounting for certain investments in debt and
equity securities, reinsurance of short-duration and long-duration
contracts, postemployment benefits, workers' compensation life table
indemnity reserves and retrospectively rated reinsurance contracts and a
change in 1992 in the Company's methods of accounting for income taxes and
postretirement benefits other than pensions.
With respect to any unaudited interim financial information which may
be incorporated by reference in this Prospectus, the independent certified
public accountants may report that they applied limited procedures in
accordance with professional standards for a review of such information.
However, any separate report included in AL&C's Quarterly Reports on Form
10-Q and incorporated by reference herein will state that they did not
audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on any report on such
information should be restricted in light of the limited nature of the
review procedures applied. The accountants are not subject to the
liability provisions of Section 11 of the Securities Act for any report on
the unaudited interim financial information because that report is not a
"report" or a "part" of the Registration Statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Securities
Act.
ERISA MATTERS
The fiduciary considerations summarized below provide a general
discussion that does not include all of the investment considerations
relevant to pension plans, profit-sharing plans, Individual Retirement
Accounts or other employee benefit plans ("ERISA Plans") subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
the employee benefit provisions of the Code. This summary is based on the
current provisions of ERISA and regulations and rulings thereunder, which
may be changed by future legislative, administrative or judicial actions.
This discussion should not be construed as legal advice and ERISA Plan
fiduciaries proposing to invest in the Preferred Securities should consult
with and rely upon their own advisors in evaluating these matters.
Prohibited Transactions
Section 406 of ERISA provides that plan fiduciaries are prohibited
from causing a plan to engage in certain types of transactions with certain
persons or entities that are parties in interest. AL&C and certain
affiliates of AL&C may each be considered a "party in interest" within the
meaning of ERISA or a "disqualified person" within the meaning of the Code
with respect to ERISA Plans. Due to the ownership by AL&C directly or
indirectly of all of the Common Securities, as well as the nature of the
Guarantee and the ability of the Company under certain circumstances to
exchange the Preferred Securities for Debentures, prohibited transactions
within the meaning of ERISA or the Code, may arise, for example, if
Preferred Securities are acquired by an ERISA Plan with respect to which
AL&C or any of its affiliates is a service provider, unless such Preferred
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.
Plan Assets
In addition, if the assets of the Company were deemed to be plan
assets of ERISA Plans that are shareholders, the Plan's investment in the
Preferred Securities might be deemed to constitute a delegation under ERISA
of the duty to manage plan assets by a fiduciary of an ERISA Plan investing
in Preferred Securities. Thus, the fiduciary responsibility provisions of
ERISA could extend to the Company's actions and certain transactions
involving the operation of the Company might be deemed to constitute
prohibited transactions under ERISA and the Code. The U.S. Department of
Labor (the "DOL") has issued a final regulation with regard to whether the
underlying assets of an entity in which ERISA Plans acquire equity
interests would be deemed to be plan assets. The regulation provides that
the underlying assets of an entity will not be considered to be plan assets
if the equity interests acquired by ERISA Plans are "publicly-offered
securities" -- that is, they are (1) widely held (i.e., owned by more than
100 investors independent of AL&C and of each other), (2) freely
transferable and (3) sold as part of an offering pursuant to an effective
registration statement under the Securities Act and then timely registered
under Section 12(b) or 12(g) of the Exchange Act. It is expected that the
Preferred Securities will meet the criteria of "publicly-offered
securities" above. The Company expects (although no assurances can be
given) that the Preferred Securities will be held by at least 100
independent investors, there are no restrictions imposed on the transfer of
the Preferred Securities and the Preferred Securities will be sold as part
of an offering pursuant to an effective registration statement under the
Securities Act and then will be timely registered under the Exchange Act.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
DESCRIBED IN THIS PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
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TABLE OF CONTENTS
Page
____
Prospectus Supplement
Aetna Life and Casualty Company...........S-2
Aetna Capital L.L.C.......................S-2
Certain Investment Considerations.........S-3
Use of Proceeds...........................S-3
Capitalization............................S-4
Summary Financial Information of Aetna....S-4
Recent Developments.......................S-7
Summary Business Description..............S-8
Certain Terms of the Series A
Preferred Securities.....................S-10
Certain Terms of the Series A Debentures..S-11
Underwriting..............................S-12
Prospectus
Available Information..................... 2
Incorporation of Certain Documents
by Reference............................. 2
Aetna Life and Casualty Company........... 3
Aetna Capital L.L.C....................... 3
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends................................ 4
Use of Proceeds........................... 4
Description of the Preferred Securities... 4
Description of the Guarantee.............. 14
Description of the Debentures and
the Subordinated Indenture........... 17
Taxation................................. 28
Plan of Distribution..................... 31
Validity of Securities................... 32
Experts.................................. 32
ERISA Matters............................ 33
12,000,000 Securities
Aetna Capital L.L.C.
guaranteed to the extent set forth
herein by
Aetna Life and
Casualty Company
% Cumulative
Monthly Income Preferred Securities,
Series A
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[Aetna Logo]
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Goldman, Sachs & Co.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with the
issuance and distribution of the securities being registered, other than
underwriting compensation. Except for the Registration Fee, all amounts
are estimates.
Registration Fee................................. $ 172,415
Accounting Fees and Expenses..................... 70,000
Blue Sky Fees and Expenses....................... 27,500
Legal Fees and Expenses.......................... 425,000
Printing and Engraving Fees...................... 90,000
Rating Agency Fees............................... 250,000
Stock Exchange Listing Fees...................... 100,000
Trustee Fees..................................... 20,000
Miscellaneous.................................... 45,085
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Total......................................... $1,200,000
==========
Item 15. Indemnification of Directors and Officers.
AL&C is a Connecticut corporation. Section 33-320a of the Connecticut
General Statutes ("C.G.S.") provides that a Connecticut corporation shall,
under certain circumstances, indemnify its directors, officers, employees,
agents and certain other persons.
Subsection (b) of C.G.S. Section 33-320a provides that a corporation
shall indemnify any shareholder, director, officer, employee or agent of
the corporation or an eligible outside party, who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
against judgments, fines, penalties, amounts paid in settlement and
reasonable expenses (including attorneys' fees) actually incurred by such
person in connection with such action, suit or proceeding provided (1) that
such person was successful on the merits in the defense of such action,
suit or proceeding, or (2) that it shall be concluded that such person
acted in good faith and in a manner he reasonably believed to be in the
best interests of the corporation and, with respect to any criminal action
or proceeding, provided that such person had no reason to believe his
conduct was unlawful, or (3) a court shall have determined that in view of
all the circumstances, such person is fairly and reasonably entitled to be
indemnified, and then for such amount as the court shall determine; except
that, in connection with an alleged claim based upon the purchase or sale
of securities, the corporation shall only indemnify such person after a
court shall have determined that in view of all the circumstances, he is
fairly and reasonably entitled to be indemnified, and then for such amount
as the court shall determine.
Subsection (c) of C.G.S. Section 33-320a provides that, where a
director or officer was or is a party or was threatened to be made a party
to a proceeding by or in the right of the corporation, the corporation
shall indemnify him against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the proceeding or any
appeal therein, in relation to matters as to which he is finally adjudged
not to have breached his duty to the corporation. The corporation shall
also indemnify a director or officer if a court determines that in view of
all the circumstances, such person is fairly and reasonably entitled to be
indemnified; however, in such a situation, the individual shall only be
indemnified for such amount as the court determines to be appropriate.
Furthermore, the statute provides that the corporation shall not indemnify
a director or officer for amounts paid to the corporation, to a plaintiff
or to counsel for a plaintiff in settling or otherwise disposing of a
threatened or pending action, with or without court approval, or for
expenses incurred in defending a threatened action or a pending action
which is settled or otherwise disposed of without court approval.
C.G.S. Section 33-320a is an exclusive statute. A corporation cannot
indemnify a director or officer to an extent either greater or less than
that authorized by the statute; provided, however, that the statute
specifically authorizes a corporation to procure insurance providing
greater indemnification rights than those set out in C.G.S. Section 33-
320a.
Consistent with the statute, AL&C has procured insurance from several
carriers for its directors and officers which supplements the
indemnification rights provided to those individuals by C.G.S. Section 33-
320a. Unlike the statute, these policies do not require an after-the-fact
determination of good faith in order for the insured director or officer to
receive the benefits provided under the policies nor do they require
affirmative judicial or corporate action as a prerequisite to the insurance
company's duty to defend (and pay for the defense of) the insured director
or officer under the policies. Furthermore, the insurance policies cover
directors and officers for any acts not specifically excluded for which the
director or officer is not eligible for indemnification under C.G.S.
Section 33-320a to the extent such coverage does not violate public policy.
Section 5 of AL&C's Certificate of Incorporation limits the personal
liability of directors for monetary damages to the corporation and its
shareholders for a breach of duty as a director to the amount of the
compensation received by the director for serving the corporation during
the year of the alleged breach of duty.
Reference is made to the Underwriting Agreement filed as Exhibit 1 to
this Registration Statement for certain provisions relating to the
indemnification of directors and officers of AL&C against certain
liabilities, including liabilities under the Securities Act.
Item 16. Exhibits.
1 -- Form of Underwriting Agreement
3.1-- Certificate of Formation of Aetna Capital L.L.C.
3.2-- Form of Amended and Restated Limited Liability Company Agreement of
Aetna Capital L.L.C.
4.1-- Specimen of Preferred Security Certificate
4.2-- Form of Payment and Guarantee Agreement by Aetna Life and Casualty
Company
* 4.3-- Form of Debentures
* 4.4-- Form of Subordinated Indenture
* 5.1-- Opinion of Zoe Baird, Senior Vice President and General Counsel of
Aetna Life and Casualty Company
* 5.2-- Opinion of Davis Polk & Wardwell
* 8.1-- Opinion of Davis Polk & Wardwell as to tax matters
10.1-- Form of Agreement as to Expenses and Liabilities between Aetna
Capital L.L.C. and Aetna Life and Casualty Company
12 -- Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends (incorporated by reference to Aetna Life
and Casualty Company's 1993 Annual Report on Form 10-K filed on
March 18, 1994 (File No. 1-5704))
23.1-- Consent of KPMG Peat Marwick
23.2-- Consent of Zoe Baird, Senior Vice President and General Counsel of
Aetna Life and Casualty Company (included in Exhibit 5.1)
23.3-- Consent of Davis Polk & Wardwell (included in Exhibit 5.2)
23.4-- Consent of Davis Polk & Wardwell (included in Exhibit 8.1)
24 -- Powers of Attorney
*25 -- Statement of Eligibility and Qualification of the Trustee
under the Trust Indenture Act
28 -- Information from Reports Furnished to State Insurance Regulatory
Authorities (incorporated herein by reference to Aetna Life and
Casualty Company's 1993 Annual Report on Form 10-K, filed on March
18, 1994 (File No. 1-5704))
___________
* To be filed by amendment.
Item 17. Undertakings.
Each of the Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being
made of the securities registered hereby, a post-effective amendment to
this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
provided, however, that the undertakings set forth in paragraphs (1)(i) and
(1)(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by a Registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of AL&C's Annual Report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new Registration Statement relating to the Securities offered therein,
and the offering of such Securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) That (a) for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrants pursuant to Rule
424(b)(1) or (4) or Rule 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification (other than pursuant to the insurance
described in Item 15 above) for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrants pursuant to the provisions specified in the first
paragraph of Item 15 of this Registration Statement or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in said Act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of their counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Aetna
Capital L.L.C. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford, State of Connecticut on
March 25, 1994.
AETNA CAPITAL L.L.C.
(Registrant)
By Aetna Life and Casualty Company,
as Managing Member
By /s/ ROBERT E. BROATCH
--------------------------------
Robert E. Broatch
Senior Vice President,
Finance and Corporate Controller
of Aetna Life and Casualty Company
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities indicated on March 25, 1994.
Signature Title
--------- -----
* President and Chief Executive Officer
-------------------------------- of Aetna Life and Casualty Company
Ronald E. Compton (Principal Executive Officer)
Group Executive, Finance and
* Administration of Aetna Life
-------------------------------- and Casualty Company
Patrick W. Kenny (Principal Financial Officer)
* Senior Vice President, Finance
-------------------------------- and Corporate Controller of Aetna
Robert E. Broatch Life and Casualty Company
(Principal Accounting Officer)
*By /s/ KIRK P. WICKMAN
-------------------
Kirk P. Wickman
(Attorney-in-fact)
Pursuant to the requirements of the Securities Act of 1933, Aetna Life
and Casualty Company certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hartford, State of
Connecticut on March 25, 1994.
AETNA LIFE AND CASUALTY COMPANY
(Registrant)
By /s/ ROBERT E. BROATCH
--------------------------------
Robert E. Broatch
Senior Vice President,
Finance and Corporate Controller
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities indicated on March 25, 1994.
Signature Title
--------- -----
* Chairman, President, Chief Executive
-------------------------------- Officer and Director
Ronald E. Compton (Principal Executive Officer)
* Group Executive, Finance and Administration
-------------------------------- (Principal Financial Officer)
Patrick W. Kenny
* Senior Vice President,
-------------------------------- Finance and Corporate Controller
Robert E. Broatch (Principal Accounting Officer)
* Director
--------------------------------
Wallace Barnes
* Director
--------------------------------
John F. Donahue
* Director
--------------------------------
William H. Donaldson
* Director
--------------------------------
Barbara Hackman Franklin
* Director
--------------------------------
Earl G. Graves
* Director
--------------------------------
Gerald Greenwald
Director
--------------------------------
Michael H. Jordan
* Director
--------------------------------
Jack D. Kuehler
* Director
--------------------------------
Frank R. O'Keefe, Jr.
* Director
--------------------------------
David M. Roderick
*By /s/ KIRK P. WICKMAN
--------------------
Kirk P. Wickman
(Attorney-in-Fact)
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Pages
- -------- ----------- ------------
1 -- Form of Underwriting Agreement
3.1 -- Certificate of Formation of Aetna Capital L.L.C.
3.2 -- Form of Amended and Restated Limited Liability
Company Agreement of Aetna Capital L.L.C.
4.1 -- Specimen of Preferred Security Certificate
4.2 -- Form of Payment and Guarantee Agreement by Aetna
Life and Casualty Company
* 4.3 -- Form of Debentures
* 4.4 -- Form of Subordinated Indenture
* 5.1 -- Opinion of Zoe Baird, Senior Vice President and
General Counsel of Aetna Life and Casualty Company
* 5.2 -- Opinion of Davis Polk & Wardwell
* 8.1 -- Opinion of Davis Polk & Wardwell as to tax matters
10.1 -- Form of Agreement as to Expenses and Liabilities
between Aetna Capital L.L.C. and Aetna Life and
Casualty Company
12 -- Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends (incorporated
by reference to Aetna Life and Casualty Company's
1993 Annual Report on Form 10-K filed on March 18,
1994 (File No. 1-5704))
23.1 -- Consent of KPMG Peat Marwick
23.2 -- Consent of Zoe Baird, Senior Vice President and
General Counsel of Aetna Life and Casualty Company
(included in Exhibit 5.1)
23.3 -- Consent of Davis Polk & Wardwell (included in
Exhibit 5.2)
23.4 -- Consent of Davis Polk & Wardwell (included in
Exhibit 8.1)
24 -- Powers of Attorney
*25 -- Statement of Eligibility and Qualification of the
Trustee under the Trust Indenture Act
28 -- Information from Reports Furnished to State
Insurance Regulatory Authorities (incorporated
herein by reference to Aetna Life and Casualty
Company's 1993 Annual Report on Form 10-K, filed on
March 18, 1994 (File No. 1-5704))
____________
* To be filed by amendment.