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Pursuant To The Letter Agreement - AETNA INC /PA/ - 8-4-2000

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Pursuant To The Letter Agreement - AETNA INC /PA/ - 8-4-2000 Powered By Docstoc
					EXHIBIT 10.3 [AETNA LOGO] INTEROFFICE COMMUNICATION
To Date Subject William H. Donaldson May 31, 2000 Golden Parachute Excise Tax Pursuant to the letter agreement (the "AGREEMENT") provided to you by

Aetna Inc. (together with any successor, "AETNA") as of the date hereof setting forth the terms of your employment with Aetna, the following provisions will apply with respect to the application of Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the "CODE") . 1. Initial Determinations by Accounting Firm. In the event a change in "the ownership or effective control" of Aetna or "the ownership of a substantial portion of the assets" of Aetna occurs or is expected to occur (in either case within the meaning of Section 280G of the Code) (a "CHANGE IN OWNERSHIP"), Aetna shall retain a national accounting firm selected by Aetna and reasonably acceptable to you (the "ACCOUNTING FIRM") to perform the calculations necessary under this memorandum. The Accounting Firm shall have discretion to retain an independent appraiser with adequate expertise (the "APPRAISER") to provide any valuations necessary for the Accounting Firm's calculations hereunder. Aetna shall pay all the fees and costs associated with the work performed by the Accounting Firm and any Appraiser retained by the Accounting Firm. If the Accounting Firm has performed services for any person, entity or group in connection with the Change in Ownership, you may select an alternative national accounting firm to be the Accounting Firm. If the Appraiser otherwise performs work for any of the entities involved in the Change in Ownership or their affiliates (or has performed work for any such entity within the three years preceding the calculations hereunder), then you may select an alternative appraiser of national stature with adequate expertise to be the Appraiser. The Accounting Firm shall provide promptly to both Aetna and you a written report setting forth the calculations required under this memorandum, together with a detail of all relevant supportive data, valuations and calculations. All determinations of the Accounting Firm and the Appraiser shall be binding on you and Aetna. When making the calculations required hereunder, you shall be deemed to pay: - Federal income taxes at the highest applicable marginal rate of Federal income taxation for the taxable year for which any such calculation is made, and - any applicable state and local income taxes at the highest applicable marginal rate of taxation for the taxable year for which any such calculation is made, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes.

Page 2 William H. Donaldson May 31, 2000 The Accounting Firm shall determine: (i) the aggregate amount of all payments, benefits and distributions provided by Aetna to you or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or any other agreement, plan or arrangement of Aetna or otherwise (other than any payment pursuant to this memorandum) which are in the nature of compensation and are contingent upon a Change in Ownership (valued pursuant to Section 280G of the Code) (collectively the "PAYMENTS"); and

Page 2 William H. Donaldson May 31, 2000 The Accounting Firm shall determine: (i) the aggregate amount of all payments, benefits and distributions provided by Aetna to you or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or any other agreement, plan or arrangement of Aetna or otherwise (other than any payment pursuant to this memorandum) which are in the nature of compensation and are contingent upon a Change in Ownership (valued pursuant to Section 280G of the Code) (collectively the "PAYMENTS"); and (ii) the maximum amount of the Payments you would be entitled to receive without being subject to the excise tax imposed by Section 4999 of the Code (the "THRESHOLD AMOUNT") (such excise tax, together with any interest or penalties with respect to such excise tax, are hereinafter collectively referred to as the "EXCISE TAX"). 2. Gross-Up Payment. If the amount of the Payments exceeds the Threshold Amount, then Aetna shall pay to you an additional payment (a "GROSS-UP PAYMENT") in an amount such that after payment by you of all taxes (including any interest and penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment you retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. All determinations required to be made as to whether a Gross-Up Payment is required and the amount of such Gross-Up Payment shall be made by the Accounting Firm. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by Aetna should have been made ("UNDERPAYMENT"), consistent with the calculations required to be made hereunder. In the event that Aetna exhausts its remedies as described below, and you are thereafter required to make a payment or an additional payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by Aetna to you or for your benefit. 3. Procedures With Respect to IRS Claims. You shall notify Aetna in writing of any claim by the Internal Revenue Service relating to any unpaid excise tax applicable to the Payments. Such notification shall be given as soon as practicable but no later than twenty business days after you know of such claim. You shall not pay such claim without Aetna's written consent prior to the expiration of the thirty day period following the date on which you give such notice to Aetna (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If Aetna notifies you in writing prior to the expiration of such period that it desires to contest such claim, you shall: (A) give Aetna any information reasonably requested by Aetna relating to such claim, (B) take such action in connection with contesting such claim as Aetna shall reasonably request in writing from time to time including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by Aetna,

Page 3 William H. Donaldson May 31, 2000 (C) cooperate with Aetna in good faith in order effectively to contest such claim, and (D) permit Aetna to participate in any proceedings relating to such claim; provided, however, that Aetna shall bear and pay directly all costs and expenses (including additional interest and

Page 3 William H. Donaldson May 31, 2000 (C) cooperate with Aetna in good faith in order effectively to contest such claim, and (D) permit Aetna to participate in any proceedings relating to such claim; provided, however, that Aetna shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold you harmless, on an after-tax basis, for any and all taxes, including any Excise Tax, and including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing, Aetna shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct you to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and you agree to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as Aetna shall determine; provided, however, that if Aetna directs you to pay such claim and sue for a refund, Aetna shall advance the amount of such payment to you, on an interest-free basis, and shall indemnify and hold you harmless, on an after-tax basis, from any and all taxes, including any Excise Tax, and including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statue of limitations relating to payment of taxes for the taxable year of you with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, Aetna's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and you shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If after the receipt by you of an amount advanced by Aetna pursuant to the foregoing, you become entitled to receive any refund with respect to such claim, you shall (subject to Aetna's complying with the requirements above with respect to any contestation of an excise tax claim) promptly pay to Aetna the amount of such refund (together with any interest paid or credited thereon by the taxing authority after deducting any taxes applicable thereto). If, after the receipt by you of an amount advanced by Aetna hereunder, a determination is made that you shall not be entitled to any refund with respect to such claim and Aetna does not notify you in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid hereunder. The forgiveness of such advance shall be considered part of the Gross-Up Payment and subject to gross-up for any taxes (including interest or penalties) associated therewith.

Page 4 William H. Donaldson May 31, 2000 The terms of this document shall not be amended, modified or curtailed without your written consent.
/s/ Elease E. Wright Elease E. Wright, Senior Vice President, Human Resources

/s/ Michael H. Jordan Michael H. Jordan, Chairman of the Committee on Compensation and Organization of the Board of Directors

Page 4 William H. Donaldson May 31, 2000 The terms of this document shall not be amended, modified or curtailed without your written consent.
/s/ Elease E. Wright Elease E. Wright, Senior Vice President, Human Resources

/s/ Michael H. Jordan Michael H. Jordan, Chairman of the Committee on Compensation and Organization of the Board of Directors

EXHIBIT 10.4 151 Farmington Avenue Hartford, CT 06156-3124 May 31, 2000 Mr. William H. Donaldson 860 United Nation's Plaza New York, NY 10017 Dear Bill: This is to notify you that in addition to a bonus of up to $2,000,000 which you are eligible to receive under the Aetna Annual Incentive Plan for fiscal year 2000, you will be eligible to receive a special bonus (the "Special 2000 Bonus") for fiscal year 2000 outside that plan in an amount determined, and based on the level of achievement of performance objectives established, by the Committee on Compensation and Organization (the "Committee") of the Board of Directors (the "Board") of Aetna. Payment of the Special 2000 Bonus will be deferred until the termination of your employment with Aetna, subject to such deferral arrangements as the Committee shall establish. If prior to the determination of the amount of the Special 2000 Bonus you voluntarily elect to terminate your employment with Aetna without the consent of the Board or your employment with Aetna is terminated by Aetna due to gross misconduct in the performance of your duties which is demonstrably and materially injurious to Aetna, you will not be entitled to receive any portion of the Special 2000 Bonus. If, prior to the determination of the amount of the Special 2000 Bonus, for any reason other than those stated immediately above (including disability or death), (A) you cease to hold the positions of Chief Executive Officer, President and Chairman of Aetna before a spin-off or similar separation of the Aetna healthcare business from the financial services business or (B) you cease to hold the positions of Chief Executive Officer and Chairman of either the healthcare business or the financial services business after the separation of those businesses, then you will be entitled to receive a payment in respect of your Special 2000 Bonus in an amount determined by the Committee (but in no event less than $500,000). In the event of your death, the amount you would have received hereunder will be paid to your estate.
/s/ Michael H. Jordan Michael H. Jordan, Chairman of the Committee

EXHIBIT 10.4 151 Farmington Avenue Hartford, CT 06156-3124 May 31, 2000 Mr. William H. Donaldson 860 United Nation's Plaza New York, NY 10017 Dear Bill: This is to notify you that in addition to a bonus of up to $2,000,000 which you are eligible to receive under the Aetna Annual Incentive Plan for fiscal year 2000, you will be eligible to receive a special bonus (the "Special 2000 Bonus") for fiscal year 2000 outside that plan in an amount determined, and based on the level of achievement of performance objectives established, by the Committee on Compensation and Organization (the "Committee") of the Board of Directors (the "Board") of Aetna. Payment of the Special 2000 Bonus will be deferred until the termination of your employment with Aetna, subject to such deferral arrangements as the Committee shall establish. If prior to the determination of the amount of the Special 2000 Bonus you voluntarily elect to terminate your employment with Aetna without the consent of the Board or your employment with Aetna is terminated by Aetna due to gross misconduct in the performance of your duties which is demonstrably and materially injurious to Aetna, you will not be entitled to receive any portion of the Special 2000 Bonus. If, prior to the determination of the amount of the Special 2000 Bonus, for any reason other than those stated immediately above (including disability or death), (A) you cease to hold the positions of Chief Executive Officer, President and Chairman of Aetna before a spin-off or similar separation of the Aetna healthcare business from the financial services business or (B) you cease to hold the positions of Chief Executive Officer and Chairman of either the healthcare business or the financial services business after the separation of those businesses, then you will be entitled to receive a payment in respect of your Special 2000 Bonus in an amount determined by the Committee (but in no event less than $500,000). In the event of your death, the amount you would have received hereunder will be paid to your estate.
/s/ Michael H. Jordan Michael H. Jordan, Chairman of the Committee on Compensation and Organization of the Board of Directors

/s/ Elease E. Wright Elease E. Wright, Senior Vice President, Human Resources

EXHIBIT 10.5 INTEROFFICE COMMUNICATION [AETNA LOGO] ELEASE E. WRIGHT
Senior Vice President Corporate Human Resources, RC3A (860) 273-8371

EXHIBIT 10.5 INTEROFFICE COMMUNICATION [AETNA LOGO] ELEASE E. WRIGHT
Senior Vice President Corporate Human Resources, RC3A (860) 273-8371 Fax: (860) 560-8721 To Date Subject Thomas J. McInerney June 26, 2000 Special Severance Arrangements

This memorandum is to outline special severance arrangements for you. This memorandum is intended to replace your letter agreement dated April 6, 1999 which is hereby terminated. Notwithstanding the provisions in this memorandum, you remain an employee-at-will of Aetna Inc. or one of its subsidiaries or affiliates ("the Company") and the Company may terminate your employment at any time with or without cause or notice. In the event that a Change in Control (as defined below) occurs and that during the two year period following such Change in Control (i) your employment is involuntarily terminated for any reason other than gross misconduct in the performance of your duties, (ii) you terminate your employment as a result of a reduction made to your base salary (such termination to be made within 30 days of such reduction) or (iii) you terminate your employment as a result of the Company's relocation of your office 100 miles or more from your then current office (such termination to be made within 30 days of such relocation), you will be entitled to 156 weeks continuation of your cash compensation (calculated at base salary and annual bonus opportunity for target-level performance of 80% of base salary) in lieu of any severance or salary continuation benefit to which you may otherwise have been entitled and without any duplication of benefits upon delivery to the Company of a release of any employment-related claims in the Company's customary form. For these purposes, a Change in Control is described in Attachment A and incorporated herein. In consideration of the foregoing, you agree that you will be subject to the Company's Change in Control Excise Tax Policy for Selected Officers (the "Policy"). You have received a memorandum describing the Policy and understand and agree that application of this Policy may cause a reduction in the amount payable to you hereunder and/or a cancellation or delay in the vesting of awards you have received or may receive under the Company's compensation plans and programs (e.g., stock options, ACEShares, etc.) (collectively, the "Compensation Plans"). The terms of the Policy are incorporated herein by reference and shall have the effect of amending any contrary terms of this agreement, any Compensation Plan and any agreement under any Compensation Plan. In the event your employment is involuntarily terminated by the Company (i) for any reason not involving misconduct, and (ii) paragraph 2 above is not applicable, you will be entitled instead to 52 weeks (or, if greater, the number of weeks of salary continuation and severance payable under the Company's Severance and Salary Continuation Benefits Plan then in effect) continuation of

Page 2 Thomas J. McInerney June 26, 2000 your cash compensation (calculated at base salary and annual bonus opportunity for target-level performance of 80% of base salary) in lieu of any severance or salary continuation benefit to which you may otherwise be entitled upon delivery to the Company of a release of any employment-related claims in the Company's customary form.

Page 2 Thomas J. McInerney June 26, 2000 your cash compensation (calculated at base salary and annual bonus opportunity for target-level performance of 80% of base salary) in lieu of any severance or salary continuation benefit to which you may otherwise be entitled upon delivery to the Company of a release of any employment-related claims in the Company's customary form. Please signify your receipt and agreement to the foregoing by signing and returning a copy of this memorandum to me.
Aetna Inc. Agreed:

By:

/s/ Elease E. Wright ------------------------------------

/s/ Thomas J. McInerney --------------------------Thomas J. McInerney Date: July 11, 2000 --------------------

Att: Enc:

1 (Definition of Change in Control) 1 (Excise Tax Policy for Selected Officers)

ATTACHMENT A

"Change in Control" means the happening of any of the following: (i) When any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding Aetna Inc. (the "Company") and any subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities; (ii) When, during any period of 24 consecutive months, the individuals who, at the beginning of such period, constitute the Company's Board of Directors (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof, provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Paragraph (ii); or (iii) The occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary through purchase of assets, or by merger, or otherwise.

INTEROFFICE COMMUNICATION [AETNA LOGO] JAMES H. GOULD
Vice President Compensation, Benefits & HR Services, RW2A

ATTACHMENT A

"Change in Control" means the happening of any of the following: (i) When any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding Aetna Inc. (the "Company") and any subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities; (ii) When, during any period of 24 consecutive months, the individuals who, at the beginning of such period, constitute the Company's Board of Directors (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof, provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Paragraph (ii); or (iii) The occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary through purchase of assets, or by merger, or otherwise.

INTEROFFICE COMMUNICATION [AETNA LOGO] JAMES H. GOULD
Vice President Compensation, Benefits & HR Services, RW2A (860) 273-8588 Fax: (860) 273-2030 To: Date: Subject: Thomas J. McInerney June 26, 2000 Change in Control Excise Tax Policy for Selected Officers

Pursuant to the memorandum agreement (the "Agreement") provided to you by Aetna Inc. (together with any successor, "Aetna") as of the date hereof setting forth your severance protection in the event of a change in control, you have agreed that you will be subject to the Aetna Change in Control Excise Tax Policy for Selected Officers. This memorandum sets forth the terms of that policy as it applies to you. 1. Initial Determinations by Accounting Firm. In the event that a change in "the ownership or effective control" of Aetna or "the ownership of a substantial portion of the assets" of Aetna (a "Change in Ownership") occurs or is expected to occur (in either case within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), Aetna shall retain a national accounting firm selected by Aetna and reasonably acceptable to you (the "Accounting Firm") to perform the calculations necessary under this memorandum. The Accounting Firm shall have discretion to retain an independent appraiser with adequate expertise (the "Appraiser") to provide any valuations necessary for the Accounting Firm's calculations hereunder. Aetna shall pay all the fees and costs associated with the work performed by the Accounting Firm and any Appraiser retained by the Accounting Firm. If the Accounting Firm has performed services for any person, entity or group in connection with the Change in Ownership, you may select an alternative national accounting firm to be the Accounting Firm. If the Appraiser otherwise performs work for any of the entities involved in the Change in Ownership or their affiliates (or has performed work for any such entity within the three years preceding the

INTEROFFICE COMMUNICATION [AETNA LOGO] JAMES H. GOULD
Vice President Compensation, Benefits & HR Services, RW2A (860) 273-8588 Fax: (860) 273-2030 To: Date: Subject: Thomas J. McInerney June 26, 2000 Change in Control Excise Tax Policy for Selected Officers

Pursuant to the memorandum agreement (the "Agreement") provided to you by Aetna Inc. (together with any successor, "Aetna") as of the date hereof setting forth your severance protection in the event of a change in control, you have agreed that you will be subject to the Aetna Change in Control Excise Tax Policy for Selected Officers. This memorandum sets forth the terms of that policy as it applies to you. 1. Initial Determinations by Accounting Firm. In the event that a change in "the ownership or effective control" of Aetna or "the ownership of a substantial portion of the assets" of Aetna (a "Change in Ownership") occurs or is expected to occur (in either case within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), Aetna shall retain a national accounting firm selected by Aetna and reasonably acceptable to you (the "Accounting Firm") to perform the calculations necessary under this memorandum. The Accounting Firm shall have discretion to retain an independent appraiser with adequate expertise (the "Appraiser") to provide any valuations necessary for the Accounting Firm's calculations hereunder. Aetna shall pay all the fees and costs associated with the work performed by the Accounting Firm and any Appraiser retained by the Accounting Firm. If the Accounting Firm has performed services for any person, entity or group in connection with the Change in Ownership, you may select an alternative national accounting firm to be the Accounting Firm. If the Appraiser otherwise performs work for any of the entities involved in the Change in Ownership or their affiliates (or has performed work for any such entity within the three years preceding the calculations hereunder), then you may select an alternative appraiser of national stature with adequate expertise to be the Appraiser. The Accounting Firm shall provide promptly to both Aetna and you a written report setting forth the calculations required under this memorandum, together with a detail of all relevant supportive data, valuations and calculations. All determinations of the Accounting Firm shall be binding on you and Aetna. When making the calculations required hereunder, you shall be deemed to pay: - Federal income taxes at the highest applicable marginal rate of Federal income taxation for the taxable year for which any such calculation is made, and - any applicable state and local income taxes at the highest applicable marginal rate of taxation for the taxable year for which any such calculation is made, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes.

The Accounting Firm shall determine (the "Initial Determination"): (i) the aggregate amount of all payments, benefits and distributions provided by Aetna to you or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or any other agreement, plan or arrangement of Aetna or otherwise (other than any payment pursuant to this memorandum) which are in the nature of compensation and contingent upon a Change in Ownership (valued pursuant to Section 280G of the Code) (collectively the "Payments"); and (ii)the maximum amount of the Payments you would be entitled to receive without being subject to the excise tax imposed by Section 4999 of the Code (the "Payment Cap") (such excise tax, together with any interest or

The Accounting Firm shall determine (the "Initial Determination"): (i) the aggregate amount of all payments, benefits and distributions provided by Aetna to you or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or any other agreement, plan or arrangement of Aetna or otherwise (other than any payment pursuant to this memorandum) which are in the nature of compensation and contingent upon a Change in Ownership (valued pursuant to Section 280G of the Code) (collectively the "Payments"); and (ii)the maximum amount of the Payments you would be entitled to receive without being subject to the excise tax imposed by Section 4999 of the Code (the "Payment Cap") (such excise tax, together with any interest or penalties with respect to such excise tax, are hereinafter collectively referred to as the "Excise Tax"). 2. Initial Treatment of Payments. (a) If the amount of the Payments does not exceed the Payment Cap, you shall be entitled to receive the full amount of the Payments. (b) If the amount of the Payments exceeds the Payment Cap by less than 10% of the Payment Cap amount, then, notwithstanding anything to the contrary, the amount of the Payments payable to you shall be reduced to the amount of the Payment Cap. In the event that the Payments are subject to reduction hereunder, you shall have the right to designate which of the Payments will be reduced or eliminated. (c) If the amount of the Payments exceeds the Payment Cap by more than 10% of the Payment Cap amount, then the amount of the Payments you are entitled to receive shall not be reduced and Aetna shall pay to you an additional payment (a "Gross-Up Payment") in an amount such that after payment by you of all taxes (including any interest and penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment you retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. All determinations required to be made as to whether a Gross-Up Payment is required and the amount of such Gross-Up Payment shall be made by the Accounting Firm. 3. Redeterminations Based on IRS or Court Ruling. If after the date of the Initial Determination (A) you become entitled to receive additional Payments (including, without limitation, severance) contingent upon the same Change in Ownership, or (B) you become subject to the terms of any final binding agreement between you and the Internal Revenue Service or any decision of a court of competent jurisdiction which is not appealable or for which the time to appeal has lapsed (a "Final Determination") and which is contrary to the Initial Determination, then based upon such additional Payments or such Final Determination (as the case may be), the Accounting Firm shall recalculate: (i) the aggregate Payments (such recalculated amount, the "Redetermined Payments"); and 2

(ii) the maximum amount of the Redetermined Payments you would be entitled to receive without being subject to the excise tax imposed by Section 4999 of the Code (the "Redetermined Payment Cap") (such excise tax, together with any interest or penalties with respect to such excise tax, are hereinafter referred to as the "Redetermined Excise Tax"). 4. Reconciliations Based on Redeterminations. (a) If the Redetermined Payment Cap is greater than the Payment Cap (and your Payments were reduced pursuant to paragraph 2(b)), then Aetna shall promptly pay you the amount by which the Redetermined Payments Cap exceeds the Payment Cap, together with interest on such difference at the applicable Federal rate (as defined in Section 1274(d) of the Code) (the "Federal Rate") from the original Payment due date to the date of actual payment of the difference by Aetna. (b) If the aggregate value of the Redetermined Payments exceeds the Redetermined Payment Cap by less than 10%, then, notwithstanding anything to the contrary, the amount of the Redetermined Payments that you are entitled to receive and retain shall be reduced to the amount of the Redetermined Payment Cap. In the event that the Redetermined Payments are subject to reduction under this paragraph and any such portion of the

(ii) the maximum amount of the Redetermined Payments you would be entitled to receive without being subject to the excise tax imposed by Section 4999 of the Code (the "Redetermined Payment Cap") (such excise tax, together with any interest or penalties with respect to such excise tax, are hereinafter referred to as the "Redetermined Excise Tax"). 4. Reconciliations Based on Redeterminations. (a) If the Redetermined Payment Cap is greater than the Payment Cap (and your Payments were reduced pursuant to paragraph 2(b)), then Aetna shall promptly pay you the amount by which the Redetermined Payments Cap exceeds the Payment Cap, together with interest on such difference at the applicable Federal rate (as defined in Section 1274(d) of the Code) (the "Federal Rate") from the original Payment due date to the date of actual payment of the difference by Aetna. (b) If the aggregate value of the Redetermined Payments exceeds the Redetermined Payment Cap by less than 10%, then, notwithstanding anything to the contrary, the amount of the Redetermined Payments that you are entitled to receive and retain shall be reduced to the amount of the Redetermined Payment Cap. In the event that the Redetermined Payments are subject to reduction under this paragraph and any such portion of the Redetermined Payments have not yet been paid to you, you shall have the right to designate which portion of such unpaid Redetermined Payments should be reduced or eliminated. If you have previously received any Payments in excess of the Redetermined Payment Cap, such excess Payments shall be deemed for all purposes to be a loan to you made on the date of receipt of such excess Payments, which you shall have an obligation to repay to Aetna on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of your receipt of such excess Payments to the date of repayment by you. Notwithstanding the foregoing, if any portion of such excess Payments which is to be refunded to Aetna has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to you, and interest payable to Aetna shall not exceed interest received or credited to you by such tax authority for the period it held such portion. In addition, if, pursuant to a Final Determination, any such excess Payments are not deemed a loan and as a result you are subject to Redetermined Excise Tax, then you shall be treated as if the aggregate value of the Redetermined Payments exceeds the Redetermined Payment Cap by more than 10% under paragraph 3(c) and you shall be entitled to the Supplemental Gross-Up Payment, subject to all the attendant conditions set forth below. (c) If the aggregate value of the Redetermined Payments exceeds the Redetermined Payment Cap by more than 10%, then the amount of the Redetermined Payments you are entitled to receive and retain shall not be reduced and Aetna shall pay to you an additional payment (a "Supplemental Gross-Up Payment") in an amount such that after payment by you of all taxes (including any interest and penalties imposed with respect to such taxes), including any Redetermined Excise Tax, imposed on the Supplemental Gross-Up Payment you retain an amount of the Supplemental Gross-Up Payment; provided that if you have previously received a Gross-Up Payment, the amount of the Supplemental Gross-Up Payment shall be reduced by the amount of the Gross-Up Payment you previously received, so that you will be 3

fully reimbursed, but will not receive duplicative reimbursements. If, however, the Excise Tax exceeds the Redetermined Excise Tax, the excess Gross-Up Payment that has been paid to you shall be deemed for all purposes to be a loan to you made on the date of receipt of such excess Gross-Up Payment, which you shall have an obligation to repay to Aetna on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of your receipt of such excess Gross-Up Payment to the date of repayment by you. Notwithstanding the foregoing, in the event any portion of the Gross-Up Payment to be refunded to Aetna has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to you, and interest payable to Aetna shall not exceed interest received or credited to you by such tax authority for the period it held such portion. You and Aetna shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if your good faith claim for refund or credit is denied. 5. Procedures With Respect to IRS Claims. You shall notify Aetna in writing of any claim by the Internal Revenue Service relating to any unpaid excise tax

fully reimbursed, but will not receive duplicative reimbursements. If, however, the Excise Tax exceeds the Redetermined Excise Tax, the excess Gross-Up Payment that has been paid to you shall be deemed for all purposes to be a loan to you made on the date of receipt of such excess Gross-Up Payment, which you shall have an obligation to repay to Aetna on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of your receipt of such excess Gross-Up Payment to the date of repayment by you. Notwithstanding the foregoing, in the event any portion of the Gross-Up Payment to be refunded to Aetna has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to you, and interest payable to Aetna shall not exceed interest received or credited to you by such tax authority for the period it held such portion. You and Aetna shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if your good faith claim for refund or credit is denied. 5. Procedures With Respect to IRS Claims. You shall notify Aetna in writing of any claim by the Internal Revenue Service relating to any unpaid excise tax applicable to the Payments. Such notification shall be given as soon as practicable but no later than twenty business days after you know of such claim and shall apprise Aetna of the nature of such claim, any assessment under such claim and the date on which such assessment is requested to be paid. You shall not pay such claim prior to the expiration of the thirty day period following the date on which you give such notice to Aetna (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If Aetna notifies you in writing prior to the expiration of such period that it desires to contest such claim, you shall: (a) give Aetna any information reasonably requested by Aetna relating to such claim, (b) take such action in connection with contesting such claim as Aetna shall reasonably request in writing from time to time including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by Aetna, (c) cooperate with Aetna in good faith in order to effectively contest such claim, and (d) permit Aetna to participate in any proceedings relating to such claim; provided, however, that Aetna shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold you harmless, on an after-tax basis, for any Excise Tax, Redetermined Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing, Aetna shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct you to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and you agree to prosecute such contest to a determination before any administrative tribunal, in a court 4

of initial jurisdiction and in one or more appellate courts, as Aetna shall determine; provided, however, that if Aetna directs you to pay such claim and sue for a refund, Aetna shall advance the amount of such payment to you, on an interest-free basis, and shall indemnify and hold you harmless, on an after-tax basis, from any Excise Tax, Redetermined Excise Tax or income tax, including interest and penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of you with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, Aetna's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and you shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If after the receipt by you of an amount advanced by Aetna pursuant to the foregoing, you become entitled to receive any refund with respect to such claim, you shall (subject to Aetna's complying with the requirements of

of initial jurisdiction and in one or more appellate courts, as Aetna shall determine; provided, however, that if Aetna directs you to pay such claim and sue for a refund, Aetna shall advance the amount of such payment to you, on an interest-free basis, and shall indemnify and hold you harmless, on an after-tax basis, from any Excise Tax, Redetermined Excise Tax or income tax, including interest and penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of you with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, Aetna's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and you shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If after the receipt by you of an amount advanced by Aetna pursuant to the foregoing, you become entitled to receive any refund with respect to such claim, you shall (subject to Aetna's complying with the requirements of above with respect to any contestation of an excise tax claim) promptly pay to Aetna the amount of such refund (together with any interest paid or credited thereon by the taxing authority after deducting any taxes applicable thereto). If, after the receipt by you of an amount advanced by Aetna hereunder, a determination is made that you shall not be entitled to any refund with respect to such claim and Aetna does not notify you in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of the Supplemental Gross-Up Payment required to be paid hereunder. The forgiveness of such advance shall be considered part of the Supplemental Gross-Up Payment and subject to gross-up for any taxes (including interest or penalties) associated therewith. The terms of this document shall not be amended, modified or curtailed without your written consent. 5

EXHIBIT 10.6 INTEROFFICE COMMUNICATION [AETNA LOGO] JAMES H. GOULD
Vice President Compensation, Benefits & HR Services, RW2A (860) 273-8588 Fax: (860) 273-2030 To Date Subject Thomas J. McInerney July 5, 2000 Enhanced Severance

This memo is to confirm how benefits are to be administered in connection with the enhanced severance letter you received. During the period you receive severance payments, you will be eligible for the same employee benefits, if any, as are provided under the severance plan or program in which you otherwise would have been eligible to participate but for this special arrangement. Let me know if you have any further questions.
/s/ James H. Gould

Exhibit 12

EXHIBIT 10.6 INTEROFFICE COMMUNICATION [AETNA LOGO] JAMES H. GOULD
Vice President Compensation, Benefits & HR Services, RW2A (860) 273-8588 Fax: (860) 273-2030 To Date Subject Thomas J. McInerney July 5, 2000 Enhanced Severance

This memo is to confirm how benefits are to be administered in connection with the enhanced severance letter you received. During the period you receive severance payments, you will be eligible for the same employee benefits, if any, as are provided under the severance plan or program in which you otherwise would have been eligible to participate but for this special arrangement. Let me know if you have any further questions.
/s/ James H. Gould

Exhibit 12 AETNA INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Six Months Ended Years Ended June 30, December 31, ---------------------------------------------------------(Millions) 2000 1999 1998 1997 199 --------------------------------------------------------------------------------------------------------Pretax income from continuing operations $ 598.8 $1,224.2 $1,408.3 $ 1,511.2 $ 338 Add back fixed charges 226.8 399.5 358.5 321.9 245 Minority interest 12.7 17.5 10.7 14.7 16 --------------------------------------------------------------------------------------------------------Income as adjusted $ 838.3 $1,641.2 $1,777.5 $ 1,847.8 $ 600 ========================================================================================================= Fixed charges: Interest on indebtedness (1) $ 150.7 $ 279.4 $ 250.9 $ 235.8 $ 168 Portion of rents representative of interest factor 76.1 120.1 107.6 86.1 76 --------------------------------------------------------------------------------------------------------Total fixed charges $ 226.8 $ 399.5 $ 358.5 $ 321.9 $ 245 ========================================================================================================= Preferred stock dividend requirements 52.1 92.2 92.4 41 --------------------------------------------------------------------------------------------------------Total combined fixed charges and preferred stock dividend requirements $ 226.8 $ 451.6 $ 450.7 $ 414.3 $ 286 =========================================================================================================

Exhibit 12 AETNA INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Six Months Ended Years Ended June 30, December 31, ---------------------------------------------------------(Millions) 2000 1999 1998 1997 199 --------------------------------------------------------------------------------------------------------Pretax income from continuing operations $ 598.8 $1,224.2 $1,408.3 $ 1,511.2 $ 338 Add back fixed charges 226.8 399.5 358.5 321.9 245 Minority interest 12.7 17.5 10.7 14.7 16 --------------------------------------------------------------------------------------------------------Income as adjusted $ 838.3 $1,641.2 $1,777.5 $ 1,847.8 $ 600 ========================================================================================================= Fixed charges: Interest on indebtedness (1) $ 150.7 $ 279.4 $ 250.9 $ 235.8 $ 168 Portion of rents representative of interest factor 76.1 120.1 107.6 86.1 76 --------------------------------------------------------------------------------------------------------Total fixed charges $ 226.8 $ 399.5 $ 358.5 $ 321.9 $ 245 ========================================================================================================= Preferred stock dividend requirements 52.1 92.2 92.4 41 --------------------------------------------------------------------------------------------------------Total combined fixed charges and preferred stock dividend requirements $ 226.8 $ 451.6 $ 450.7 $ 414.3 $ 286 ========================================================================================================= Ratio of earnings to fixed charges 3.70 4.11 4.96 5.74 2. ========================================================================================================= Ratio of earnings to combined fixed charges and preferred stock dividends 3.70 3.63 3.94 4.46 2. =========================================================================================================

(1) Includes the dividends paid to preferred shareholders of a subsidiary. (Refer to Note 13 of Notes to Consolidated Financial Statements in the Company's Exhibit 13 of the 1999 Form 10-K.) Page 1

Exhibit 12 (Continued) AETNA SERVICES, INC. (1) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Six Months Ended Years Ended June 30, December 31, --------------------------------------------------------------(Millions) 2000 1999 1998 1997 --------------------------------------------------------------------------------------------------------Pretax income from continuing operations $ 671.7 $1,017.3 $ 1,162.7 $ 1,505.2 $ Add back fixed charges 216.9 396.5 354.3 318.1

Exhibit 12 (Continued) AETNA SERVICES, INC. (1) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Six Months Ended Years Ended June 30, December 31, --------------------------------------------------------------(Millions) 2000 1999 1998 1997 --------------------------------------------------------------------------------------------------------Pretax income from continuing operations $ 671.7 $1,017.3 $ 1,162.7 $ 1,505.2 $ Add back fixed charges 216.9 396.5 354.3 318.1 Minority interest 12.3 17.2 10.8 15.7 --------------------------------------------------------------------------------------------------------Income as adjusted $ 900.9 $1,431.0 $ 1,527.8 $ 1,839.0 $ ========================================================================================================= Fixed charges: Interest on indebtedness (2) $ 150.7 $ 279.4 $ 250.9 $ 234.0 $ Portion of rents representative of interest factor 66.2 117.1 103.4 84.1 --------------------------------------------------------------------------------------------------------Total fixed charges $ 216.9 $ 396.5 $ 354.3 $ 318.1 $ ========================================================================================================= Preferred stock dividend requirements --------------------------------------------------------------------------------------------------------Total combined fixed charges and preferred stock dividend requirements $ 216.9 $ 396.5 $ 354.3 $ 318.1 $ ========================================================================================================= Ratio of earnings to fixed charges 4.15 3.61 4.31 5.78 ========================================================================================================= Ratio of earnings to combined fixed charges and preferred stock dividends 4.15 3.61 4.31 5.78 =========================================================================================================

(1) Aetna Inc. has fully and unconditionally guaranteed the payment of all principal, premium, if any, and interest on all outstanding debt securities of Aetna Services, Inc. (Refer to Note 12 of Notes to Consolidated Financial Statements in the Company's Exhibit 13 of the 1999 Form 10-K.) (2) Includes the dividends paid to preferred shareholders of a subsidiary. (Refer to Note 13 of Notes to Consolidated Financial Statements in the Company's Exhibit 13 of the 1999 Form 10-K.) Page 2

Exhibit 15 Letter Re: Unaudited Interim Financial Information Aetna Inc. Hartford, Connecticut Ladies and Gentlemen: Re: Registration Statements No. 333-07169, 333-08427, 333-08429, 333-08431, 333-52321, 333-68881,

Exhibit 15 Letter Re: Unaudited Interim Financial Information Aetna Inc. Hartford, Connecticut Ladies and Gentlemen: Re: Registration Statements No. 333-07169, 333-08427, 333-08429, 333-08431, 333-52321, 333-68881, 333-52321-01, 333-52321-02, 333-52321-03, 333-52321-04, and 333-52321-05. With respect to the Registration Statements filed by Aetna Inc. or its Subsidiaries, we acknowledge our awareness of the use therein of our report dated August 3, 2000 related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act.
/s/ KPMG LLP Hartford, Connecticut August 3, 2000

ARTICLE 7 This schedule contains summary financial information extracted from the financial statements contained in the Form 10-Q for the six months ended June 30, 2000 for Aetna Inc. and is qualified in its entirety by reference to such statements. MULTIPLIER: 1,000,000

PERIOD TYPE FISCAL YEAR END PERIOD END DEBT HELD FOR SALE DEBT CARRYING VALUE DEBT MARKET VALUE EQUITIES MORTGAGE REAL ESTATE TOTAL INVEST CASH RECOVER REINSURE DEFERRED ACQUISITION TOTAL ASSETS POLICY LOSSES UNEARNED PREMIUMS POLICY OTHER POLICY HOLDER FUNDS NOTES PAYABLE PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY PREMIUMS INVESTMENT INCOME INVESTMENT GAINS OTHER INCOME BENEFITS UNDERWRITING AMORTIZATION UNDERWRITING OTHER INCOME PRETAX INCOME TAX

6 MOS DEC 31 2000 JUN 30 2000 30,736 150 0 711 3,169 497 39,483 3,755 3,914 2,459 120,236 23,497 433 4,991 14,925 4,147 0 0 3,642 7,442 120,236 13,153 1,524 (54) 1,413 12,161 117 0 599 243

ARTICLE 7 This schedule contains summary financial information extracted from the financial statements contained in the Form 10-Q for the six months ended June 30, 2000 for Aetna Inc. and is qualified in its entirety by reference to such statements. MULTIPLIER: 1,000,000

PERIOD TYPE FISCAL YEAR END PERIOD END DEBT HELD FOR SALE DEBT CARRYING VALUE DEBT MARKET VALUE EQUITIES MORTGAGE REAL ESTATE TOTAL INVEST CASH RECOVER REINSURE DEFERRED ACQUISITION TOTAL ASSETS POLICY LOSSES UNEARNED PREMIUMS POLICY OTHER POLICY HOLDER FUNDS NOTES PAYABLE PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY PREMIUMS INVESTMENT INCOME INVESTMENT GAINS OTHER INCOME BENEFITS UNDERWRITING AMORTIZATION UNDERWRITING OTHER INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS BASIC EPS DILUTED RESERVE OPEN PROVISION CURRENT PROVISION PRIOR PAYMENTS CURRENT PAYMENTS PRIOR RESERVE CLOSE CUMULATIVE DEFICIENCY

6 MOS DEC 31 2000 JUN 30 2000 30,736 150 0 711 3,169 497 39,483 3,755 3,914 2,459 120,236 23,497 433 4,991 14,925 4,147 0 0 3,642 7,442 120,236 13,153 1,524 (54) 1,413 12,161 117 0 599 243 356 0 0 0 356 2.52 2.49 0 0 0 0 0 0 0


				
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