Share Exchange And Registration Rights Agreement

SHARE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT


SHARE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT dated as of December 16, 1999 between Aetna Inc., a Connecticut corporation (the "COMPANY") and Citibank, N.A. ("Citibank").


WHEREAS,


Citibank has entered into the Loan Agreement with Ta Hsing, which Loan Agreement is secured in part by a pledge of 20% of the shares of ALICA Holdings, Inc., a Connecticut corporation that owns all of the non-voting shares of common stock of Aetna Life Insurance Company of America ("ALICA");


Aetna International, Inc. ("AII"), a subsidiary of the Company, owns the remaining shares of ALICA and ALICA Holdings;


In order to assist Ta Hsing in obtaining the loan evidenced by the Loan Agreement, AII has consented to the pledge by Ta Hsing of Ta Hsing's shares of ALICA Holdings in favor of Citibank and the Company has agreed to enter into this Agreement.


In consideration of the foregoing and the agreements contained herein, the parties agree as follows.


ARTICLE I


DEFINITIONS


SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings:


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


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


"AII" has the meaning ascribed to it in the preambles to this Agreement.


"ALICA" has the meaning ascribed to it in the preambles to this Agreement.


"ANCILLARY AGREEMENT" OR "ANCILLARY AGREEMENTS" means all other documents entered into between Ta Hsing and Citibank in connection with the Loan Agreement, including, without limitation, a share mortgage relating to the Collateral. 2
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in either of the States of New Jersey or New York are authorized by law to close.


"COLLATERAL" means the 20% of the shares of common stock of ALICA Holdings, Inc., a Connecticut corporation, owned by Ta Hsing and pledged under a share mortgage to secure payment of the loan under the Loan Agreement.


"COLLATERAL VALUE" has the meaning ascribed to it in Section 2.05.


"COMMISSION" means the Securities and Exchange Commission.


"COMMON STOCK" means the Company's Common Stock, par value $0.01 per share.


"COMPANY'S 1999 FORM 10-Q" means the Company's quarterly report on Form 10-Q as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.


"CONSOLIDATED SUBSIDIARY" means, at any date, any Subsidiary or other entity the accounts of which would be consolidated with those of the Company in its consolidated financial statements if such statements were prepared as of such date.


"LENDER DEFAULT AMOUNT" means the sum of all unpaid principal, accrued interest, costs and other amounts due and owing to Citibank by Ta Hsing under the Loan Agreement from time to time and as certified by Citibank (whose certification shall be conclusive and binding on the Company and Citibank in the absence of demonstrable error) following the occurrence of an Event of Default as defined in the Loan Agreement.


"LOAN AGREEMENT" means that certain revolving credit facility in the original principal amount of US $154 million between Citibank and Ta Hsing dated or to be dated 17 December 1999.


"MINIMUM VALUE" has the meaning ascribed to it in Section 2.05.


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


"PIGGYBACK REGISTRATION" means a Piggyback Registration as defined in Section 3.02.


"REGISTRABLE SECURITIES" means all shares of Common Stock issued to Citibank or its nominee upon the exercise by the Company of the right to issue shares of Common Stock contained in Section 2.01 of this Agreement.


"SHELF REGISTRATION STATEMENT" means the Shelf Registration Statement as defined in Section 3.01.


2 3
"SUBSIDIARY" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Company.


"TA HSING" means Ta Hsing Corp. Limited, a Liberian company controlled by Dr. Samuel Yin.


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


ARTICLE 2


SHARE EXCHANGE RIGHTS


SECTION 2.01 Aetna Options on Event of Default. If any Event of Default, as defined in the Loan Agreement or any Ancillary Agreement, shall occur and be continuing under circumstances in which Citibank has the right to exercise its power of sale in respect of the Collateral, then Citibank shall promptly after becoming aware of the same so notify the Company and certify the Lender Default Amount to the Company. Upon receipt of notice from Citibank that Citibank has elected to exercise such power of sale, the Company shall be obliged forthwith to pay Citibank or its nominee in full the Collateral Value, but not to exceed Lender Default Amount, which it may do in one or a combination of the following, such combination being chosen at the discretion of the Company:


(a) Cash in immediately available funds wired to an account
designated in writing by Citibank;


(b) Registrable Securities, determined in accordance with Section
4.03.


Provided that, to the extent that payment is made in whole or in part by Registrable Securities, the Lender Default Amount shall not be reduced and shall continue to accrue interest and/or default interest under the Loan Agreement until the Registrable Securities are sold and the proceeds of such sale applied, as described in Sections 2.03 and 3.04.


SECTION 2.02 Transfer of Collateral to Aetna In exchange for and in consideration of the Company's payment(s) to Citibank or its nominee described in Section 2.01, concurrently with such payment(s), Citibank or its nominee shall immediately exercise its power of sale in favour of AII in respect of all of the Collateral.


SECTION 2.03 Citibank Rights on Receipt of Shares If the Company shall issue Registrable Securities to Citibank or its nominee under Section 2.01, then Citibank or its nominee shall have the right to sell such Registrable Securities under the following terms:


3 4
(a) If the Company provides Citibank or its nominee with an opinion of
reputable outside counsel that the Registrable Securities may
immediately be sold under SEC Rule 144 or any successor rule, then
Citibank or its nominee shall be required to sell such number of
Registrable Securities as may then be sold pursuant to Rule 144
and may not exercise the rights set forth in Article 3 of this
Agreement with respect to such Registrable Shares.


(b) If the Company is unable to or does not provide Citibank or its
nominee with such an opinion as to any or all of the Registrable
Securities, then Citibank or its nominee may exercise the rights
set forth in Article 3 with respect to the Registrable Securities
that are not subject to immediate sale pursuant to the opinion
received pursuant to Section 2.03(a) above by giving written
notice to the Company of its intent to exercise such rights.


Citibank or its nominee shall sell all the Registrable Securities that may be immediately sold promptly after receipt of the opinion referenced in Section 2.03(a) above, and shall apply the proceeds of any such sale in or towards satisfaction of the Lender Default Amount. Where the proceeds of such sale exceed the Lender Default Amount, Citibank will promptly pay such excess amount to the Company in cash in immediately available funds and return to the Company any residual Registrable Securities held by Citibank or its nominee. If the proceeds of such sale are less than the Lender Default Amount, the Company will proceed with the registration as provided in Article 3 below, provided that if all Registrable Securities have been sold by Citibank or its nominee then promptly following receipt of a certificate from Citibank or its nominee stating the amount of the shortfall (which certificate shall be binding on the Company and Citibank and/or its nominee in the absence of demonstrable error) the Company will pay the amount of such shortfall to Citibank or its nominee in cash in immediately available funds.


SECTION 2.04 Nature of Registrable Securities Citibank acknowledges that the Registrable Securities will, when issued to it, be "restricted securities" under the 1933 Act and may not be resold absent compliance with Section 2.03 or Article 3.


SECTION 2.05 Maintenance of Collateral Value Throughout the continuance of this Agreement and in consideration of having no other operating covenants or restrictions related to ALICA, the Company covenants and agrees that it will cause its Subsidiary, Aetna International, Inc. the controlling shareholder of ALICA, to maintain the ALICA in such a manner that the fair market value of the Collateral (the "Collateral Value"), as may be determined by an internationally-recognized independent appraisal company reasonably selected by the Company, will not fall below $175 million (the "Minimum Value"). Immediately upon receipt of notice from pursuant to Clause 2.1 above that Citibank has elected to exercise it right of sale, the Company will furnish Citibank with a estimate of the Collateral Value. If this estimate indicates that Aetna is not in compliance with the covenant contained in the first sentence of this Clause (i.e. the estimate is less than the Minimum Value), then in lieu of any other determination of damages resulting from such non-compliance and in liquidation of any such damages the amount


4 5 payable to Citibank pursuant to Clause 2.1 shall be the Lender Default Amount, without regard to the Collateral Value.


SECTION 2.06 No Default or Acceleration The Company's obligation to make payment under this Article 2, if timely made, shall not be deemed to be an event of default or acceleration of an obligation of Company, notwithstanding the existence of an Event of Default with respect to the Borrower's obligations or a determination of non-compliance pursuant to Clause 2.05 above.


ARTICLE 3


REGISTRATION RIGHTS


SECTION 3.01. Shelf Registration. (a) Promptly following receipt of a notice from Citibank or its nominee under Section 2.03(b), the Company shall prepare and file with the Commission a shelf registration statement (as amended and supplemented from time to time, the "SHELF REGISTRATION STATEMENT") relating to the Registrable Securities in accordance with Rule 415 under the 1933 Act and will use its best efforts to cause such Shelf Registration Statement to be declared effective no later than the date which is forty-five (45) days from the date of such notice under Section 2.03(b) and, subject to Section 6.01 hereof, to keep such Shelf Registration Statement continuously effective and in compliance with the 1933 Act and usable for resale of such Registrable Securities, for the greater of (a) a period from the date on which the Commission declares such Shelf Registration Statement effective until the first date upon which the aggregate amount of Registrable Securities then owned by Citibank or its nominee could be sold without restriction as to amount or manner of sale pursuant to Rule 144 under the 1933 Act within 15 trading days or (b) for at least a period of sixty (60) days; provided, however, that such 60-day period shall be extended for a period of time equal to the period Citibank or its nominee refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) engaged by the Company.


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


SECTION 3.02. Piggyback Registration. If the Company proposes to file a registration statement under the 1933 Act with respect to an offering of Common Stock (i) for the Company's own account (other than a registration statement on Form S-4 or S-8 (or any substitute form that may be adopted by the Commission)) or (ii) for the account of any of its holders of Common Stock, then the Company shall give written notice of such proposed filing to Citibank or its nominee as soon as practicable (but in no event less than 10 days before the anticipated filing date), and such notice shall offer Citibank or its nominee the opportunity to register such number


5 6 of shares of Registrable Securities as Citibank or its nominee may request on the same terms and conditions as the Company's or such holder's Common Stock (a "PIGGYBACK REGISTRATION").


SECTION 3.03. Reduction of Offering. Notwithstanding anything contained herein, if the managing Underwriter of an offering described in Section 3.02 delivers a written opinion to the Company that (i) the size of the offering that Citibank, the Company and any other Persons intend to make or (ii) the combination of securities that Citibank, the Company and such other Persons intend to include in such offering are such that the success of the offering would be materially and adversely affected, then (A) if the size of the offering is the basis of such Underwriter's opinion, the amount of Registrable Securities to be offered for the account of Citibank shall be reduced to the extent necessary to reduce the total amount of securities to be included in such offering to the amount recommended by such managing Underwriter; provided that in the case of a Piggyback Registration, if securities are being offered for the account of Persons other than the Company, then the proportion by which the amount of such Registrable Securities intended to be offered for the account of Citibank is reduced shall not exceed the proportion by which the amount of such securities intended to be offered for the account of such other Persons is reduced; and (B) if the combination of securities to be offered is the basis of such Underwriter's opinion, (x) the Registrable Securities to be included in such offering shall be reduced as described in clause (A) above (subject to the proviso in clause (A)), and (y) if the actions described in sub-clause (x) of this clause (B) would, in the judgment of the managing Underwriter, be insufficient substantially to eliminate the adverse effect that inclusion of the Registrable Securities requested to be included would have on such offering, such Registrable Securities will be excluded from such offering.


SECTION 3.04. Sale following registration. Citibank agrees, and agrees to cause its nominee to use all reasonable efforts to sell all the Registrable Securities promptly after the effective date of any relevant registration referred to in this Article 3 and to apply the proceeds of any such sale in or towards satisfaction of the Lender Default Amount. Where the proceeds of such sale exceed the Lender Default Amount, Citibank will promptly pay such excess amount to the Company in cash in immediately available funds and return to the Company any residual Registrable Securities held by Citibank or its nominee. If on the earlier of (i) the date Citibank and/or its nominee have sold all of the Registrable Securities or (ii) on hundred and twenty (120) days following the date of notice from Citibank pursuant to Section 2.03(b), if the aggregate proceeds received by Citibank and it ...