Edgar Filing: AETNA INC /PA/

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AETNA INC.

(Name of Registrant as Specified in Its Charter)

Providence Investors, LLC

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PROXY STATEMENT

DATED APRIL 11, 2002
OF

PROVIDENCE INVESTORS, LLC
---------------------
IN OPPOSITION TO ONE MANAGEMENT NOMINEE
TO THE BOARD OF DIRECTORS
OF

AETNA INC.
FOR USE AT THE
ANNUAL MEETING OF STOCKHOLDERS OF
AETNA INC.
TO BE HELD
APRIL 26, 2002

This Proxy Statement is being furnished to holders of common stock, par
value $.01 per share (the "Common Stock"), of Aetna Inc., a Pennsylvania
corporation (the "Company"), with principal executive offices at 151 Farmington
Avenue, Hartford, Connecticut, in connection with a proxy solicitation by
Providence Investors, LLC ("Providence"). Such proxies are to be used at the
annual meeting of stockholders of the Company to be held at the Company's
Headquarters in Hartford, Connecticut, on Friday, April 26, 2002, at 9:30 a.m.,
local time, and at any adjournment thereof (the "Annual Meeting"). The close of
business on February 22, 2002, has been fixed as the record date (the "Record
Date") for the determination of stockholders entitled to receive notice of and
to vote at the Annual Meeting. This Proxy Statement is first being furnished to
stockholders on or about April 10, 2002.

PARTICIPANTS IN THE SOLICITATION

Providence and its affiliates in the aggregate beneficially own 16,800
shares of the issued and outstanding shares of Common Stock of the Company. For
all of the reasons as described in detail below, Providence is soliciting
proxies to elect Lawrence G. Schafran (the "Stockholder Nominee") to the
Company's Board of Directors, to serve as a director until his successor is duly
elected and qualified.

Providence Investors, LLC, a Delaware limited liability company, is a New
York domiciled investment company, of which Herbert A. Denton is a managing
member. Providence Investors, LLC is an affiliate of, and has the same principal
business address as, Providence Capital, Inc. Providence Capital, Inc., a
Delaware corporation, is a private investment firm and an independent NASD
registered broker-dealer based in New York, with a principal business address of
730 Fifth Avenue, Suite 2102, New York, New York 10019. Herbert A. Denton is the
President and majority stockholder.

Providence Capital, LLC, a Delaware limited liability company, invests in
publicly traded companies using applied corporate governance strategies
developed by Herbert A. Denton, the controlling stockholder.

The Stockholder Nominee is described in detail below. The Stockholder
Nominee is not a member of the present Board of Directors of the Company. The
Stockholder Nominee is a citizen of the United States.

Information relating to the number of shares of the Company's Common Stock
beneficially owned, directly or indirectly, by Providence and the Stockholder
Nominee, as of April 2, 2002 is set forth in Appendix A.

Information relating to all purchases and sales of shares of the Company's
Common Stock by Providence and the Stockholder Nominee during the past two years
is set forth in Appendix B.

CERTAIN BACKGROUND INFORMATION

Prior to December 13, 2000, the Company, a Pennsylvania corporation
(formerly, Aetna U.S. Healthcare Inc.), was a subsidiary of a Connecticut
corporation named Aetna Inc. ("Former Aetna"). On December 13, 2000, the Company
changed its name to Aetna Inc., and the Company's common shares were distributed
by Former Aetna to its shareholders in a spin-off. As part of the same
transaction, Former Aetna, which was then comprised of its financial services
and international businesses, was merged into a subsidiary of ING Groep N.V. As
a result, each shareholder of record of Former Aetna as of the close of business
December 13, 2000 received approximately $35.33 in cash in exchange for each of
their existing Former Aetna shares and one share of common stock of the newly
spun-off health care company ("New Aetna").

Throughout the remainder of this document, when we refer to Former Aetna,
we are describing the Connecticut corporation as it existed prior to December
13, 2000. The Company, or just "Aetna", or "New Aetna", refers to the
Pennsylvania corporation that currently trades on the NYSE under the ticker
symbol AET.

WHY YOU SHOULD ELECT THE STOCKHOLDER NOMINEE

This proxy contest is about corporate governance. In the post-Enron era and
as a matter of principle, Providence hereby offers Aetna's shareholders the
choice of electing a shareholder-nominated director.

Here are Providence's reasons why:

- We believe that the Board has an unacceptable attitude toward corporate
governance that leaves it unfairly entrenched and inadequately
accountable to shareholders;

- We believe that the Board and management have failed to deliver
acceptable operating results; and

- We believe that the Board has made several major decisions in the last
two years that, we believe, have decreased all shareholders' wealth.

Providence believes that Aetna's corporate governance inappropriately
entrenches management, and inadequately provides for the Board's and
management's accountability to shareholders. In addition to fostering more
accountability to shareholders, we believe that good corporate governance
ultimately leads to better company operating results and stock performance.

We cite a recent study released in February 2002, but not yet published,
entitled "Corporate Governance and Equity Prices" authored by Paul A. Gompers,
Harvard Business School, Joy L. Ishii, Harvard University, and Andrew Metrick,
from The Wharton School of the University of Pennsylvania(1). The study examined
corporate governance at approximately 1,500 public companies (greater than 93%
of the market capitalization in all of the U.S. stock markets) in the period
beginning September 1990 -- December 1999. The authors of the study created a
Governance Index that tracked 24 corporate governance provisions. The index was
created by adding one point for each governance provision that increased
managerial power versus shareholders (G-score), and was calculated for all 1,500
companies. Companies with a G-score of less than or equal to 5 were placed in
the "Democracy Portfolio," which represents companies with the strongest
shareholder rights. Companies with a G-score of greater than or equal to 14 were
included in the "Dictatorship Portfolio," which represents companies with the
weakest shareholder rights. The study found that companies in the Democracy
Portfolio outperformed the Dictatorship Portfolio by over 9% per year during the
1990's. The report demonstrated that "Dictatorship" companies "earned
significantly lower returns, were valued lower, had poorer operating
performance, and engaged in greater capital expenditure and takeover activity".
We note that while this study found certain correlations between weak
shareholders' rights provisions and poor corporate

---------------

1Dr. Gompers has given us permission to quote from this study in this proxy
statement but has not explicitly approved the form or manner in which the study
has been referred to by us in this proxy statement. We note that Aetna Director,
Dr. Judith Rodin, is President of the University of Pennsylvania.
2

performance, the study has not proven any cause and effect relationship between
corporate governance, on the one hand, and firm value or performance, or the
other.

According to Professor Gompers, as of March 15, 2002, Aetna had a G-score
of 14 which, if a similar sample were taken today, would place Aetna in the
Dictatorship Portfolio.

Since September 2000, Providence has encouraged Former Aetna's Board and,
later, Aetna's Board to modify its corporate governance to improve
accountability. Nevertheless, both Boards have rejected each and every one of
Providence's recommendations and further, have made a number of major decisions
which Providence believes to be questionable and not in the best interests of
Aetna's shareholders. Therefore, Providence has decided to offer Aetna's
shareholders an alternative shareholder-nominated director who supports
management accountability to shareholders.

Specifically, despite Providence's correspondence and discussion with
management and directors (including members of Aetna's Nominating and Corporate
Governance Committee), Former Aetna's Board and Aetna's Board have adopted and
maintained a corporate governance structure that, we believe, detracts from
accountability to shareholders. Various features include the following:

- Shareholder Rights Plan ("poison pill")

- Super-majority voting required to amend certain bylaws

- Classified Board of Directors (to be declassified in 2004)

- No ability for shareholders to call a special meeting

- No ability for shareholders to act by written consent

- Pennsylvania incorporation

Aetna's filings state that the Company's Articles, Bylaws and the Rights
Agreement ("poison pill") contain certain provisions that could delay or make
more difficult the acquisition of Aetna by means of a tender offer, a proxy
contest or otherwise. These filings also state that the inability of Aetna's
shareholders to act by written consent, together with provisions prohibiting
shareholders from calling shareholder meetings, may have the effect of delaying
consideration of a shareholder proposal until the next annual meeting. These
filings also state that these provisions could prevent the holders of a majority
of the voting power of the voting shares from using the written consent
procedure to take shareholder action. Furthermore, these filings state that if
shareholders want to amend provisions relating to approval of business
combinations, the classified board of directors, and other transactions, the
affirmative vote of the holders of two-thirds of the outstanding voting power of
Aetna will be required. Finally, the Company states that if shareholders would
like to amend provisions relating to the calling of special meetings of
shareholders, and the advance notice provision for shareholder nominations and
shareholder proposals, it will require the approval of at least 80% of the
outstanding voting power of Aetna.

The Company says that its rationale for implementing this corporate
governance structure is to enable Aetna to develop its business in a manner that
will foster long-term growth without disruption caused by the threat of a
takeover not deemed by the Aetna Board to be in the best interests of Aetna and
its shareholders.

Ironically, we note that the last time there was a threat of a takeover, at
a 79.5% premium to the last sale on February 14, 2000(2), Former Aetna's
shareholders were subsequently rewarded with $35.33 per share in cash plus stock
in the "New Aetna" that closed on April 1, 2002 at $38.66. Thus, shareholders
enjoyed a greater than 90% gain in the value of their Aetna shares -- from an
eight year low of $39 just prior to the

---------------

2Former Aetna closed at $39.00 on February 14, 2000. On February 24, 2000,
Former Aetna received a confidential letter from WellPoint Health Networks Inc.
and ING America Insurance Holdings, Inc. proposing a business combination with
Former Aetna for $70 per share (approximately $10.4 billion in stock and cash).
3

takeover threat, to $35.33 in cash plus $38.66 per share in the New Aetna, for a
total equaling $73.99(3) per share today.

Providence believes that the freedom the Aetna Board has sought from
worrying about a possible takeover threat and any ensuing disruption comes at
too great a cost to Aetna's shareholders. Providence believes that the Board
should worry if, because of the Company's performance, the stock price is so low
that an acquirer is willing to put its money on the line to buy the Company at a
premium price. We believe shareholders should be free to accept such a bid
without the artificial barricade of a "poison pill."

In our view, Aetna's corporate governance unreasonably and unjustifiably
entrenches management and provides an inadequate level of accountability on the
part of management and the Board to Aetna's shareholders, thus undermining
fundamental concepts of corporate democracy. Specifically:

- "Poison Pill"

We believe that shareholders, after taking into account management's
recommendation, should be entitled to decide what a fair price is for their
holdings. It is our view that the best defenses against an unwanted
takeover are superior operating results and a high stock price. However, we
believe that as a consequence of the "poison pill", combined with Aetna's
other anti-takeover devices, potential acquirer of Aetna are effectively
discouraged from taking their offer directly to the shareholders.
Furthermore, we believe that "poison pills" may have the unintended
consequence of discouraging communication between two or more large
shareholders due to their concern of inadvertently triggering the "poison
pill" (by arguably constituting a "group" and thereby being required to
file a Schedule 13D) which could allow the Board to effectively confiscate
a portion of their stock. We believe this may inhibit large shareholders
from communicating any of their shared interests or concerns to the Board
in a coordinated way. We note that the top five shareholders of Aetna
control approximately 30% of the shares, well over the 15% trigger
threshold of Aetna's "poison pill."

We acknowledge that Aetna Inc. and some commentators believe poison pills
do confer certain benefits to shareholders. We disagree.

- Super-majority Voting

We believe that with regard to the shareholders' ability to amend bylaws, a
basic tenet of corporate democracy is that the majority rules, not a
super-majority vote.

- Classified Board

We believe that Aetna's classified board reduces the Board's accountability
to shareholders. Shareholders, in our view, ought to have the right to hold
the entire Board to account on an annual basis. Although Aetna has
committed to declassifying the Company's Board in 2004, in the context of
Aetna's multifaceted anti-takeover defenses, we see no compelling reason
why this is not done now.

- Special Meetings

We believe shareholders ought to have the ability to call a special meeting
if a minimum percentage, say 20%, wish to do so. We believe that companies
who do not allow for their shareholders to call a special meeting insulate
themselves from addressing critical issues that shareholders may wish to
raise between annual meetings.

- Shareholder Action by Written Consent

We believe that the owners of a majority of the issued and outstanding
shares ought to have the ability to act by written consent. We believe that
if a majority of shareholders desire a certain action to be taken, no
compelling purpose is served by requiring the formality of holding a
shareholder meeting.

---------------

3$35.33 + $38.66 - $73.99
4

- Pennsylvania Incorporation

We view Pennsylvania domiciled companies as among the least favorable for
recognizing shareholder rights. Aetna is incorporated in Pennsylvania
whereas Former Aetna was incorporated in Connecticut.

We acknowledge that one or more of these corporate governance features may
be found in the corporate governance structures of many other companies, not all
of which are necessarily poorly managed or under performing. However, we believe
this thicket of shareholder-unfriendly measures makes Aetna excessively
well-defended against a threat of a takeover not deemed by the Board to be in
the shareholders' best interests. Critically, we believe this represents excess
protection and comes at the expense of the Board's and management's
accountability to shareholders. We have attempted to convince Former Aetna and
Aetna to reform its corporate governance and become more accountable to
shareholders. Specifically, on September 25, 2000, after reviewing New Aetna's
Registration Statement (Form 10-12B filed on September 9, 2000), we wrote to
then Former Aetna's Chairman, President and CEO, William H. Donaldson(4), and
urged him to address a number of corporate governance mechanisms that we
perceived as disenfranchising shareholders. These included:

- Shareholder Rights Plan ("Poison pill")

- No shareholder ability to act by written consent;

- No shareholder ability to call a special meeting, and;

- Certain corporate actions requiring a two-thirds or even an 80%
super-majority vote.

We are not aware of other provisions in Aetna Inc.'s certificate of
incorporation or by-laws which we believe are generally considered as
anti-takeover measures.

On October 18, 2000, the New Aetna filed an Amended 10-12B/A. We were
surprised to discover Aetna had not only failed to address any of our concerns,
but added a "Classified Board" structure for good measure. However, the Board
has committed to declassifying the Board at 2004 Annual Meeting and thereafter.
Lest anyone be tempted to argue that Former Aetna's shareholders voted
affirmatively in favor of this corporate governance structure without other
mitigating factors, we note that in order to approve the plan of restructuring
and get the $35.33 per share cash distribution(5), shareholders had to accept
Aetna's new governance structure. In other words, we believe Aetna's governance
was "crammed down."

More recently, on January 18, 2002, we wrote to Dr. John W. Rowe, Aetna's
Chairman of the Board and Chief Executive Officer:

"As previously communicated, I am writing to remind you that
Providence Capital is considering submitting to Aetna's shareholders an
alternative slate of director nominees to reconstitute Aetna's Board of
Directors and corporate governance practices. As you can imagine, the
recent events at Enron Corporation have inflamed the institutional investor
community with respect to the accountability of management. With Enron's
blood in their eyes, these institutions will demand more independence on
boards and fewer shareholder-unfriendly corporate governance mechanisms
including: poison pills, staggered boards, super-majority voting and the
inability for shareholders to call a special meeting or act by written
consent."

---------------

4Mr. Donaldson became Chairman, President and Chief Executive Officer of
"New Aetna" on May 30, 2000 and served as President and Chief Executive Officer
until September 15, 2000. Mr. Donaldson also served as Chairman, President and
Chief Executive Officer of Former Aetna from February 25, 2000 until December
13, 2000.

5Aetna reorganized by spinning-off its domestic healthcare business to its
shareholders (the "New Aetna"), and selling its financial services and
international businesses to ING Groep N.V. As a result, each shareholder of
record as of the close of business December 13, 2000 received approximately
$35.33 in exchange for each of their existing Former Aetna shares and one share
of common stock of the newly spun-off health care company (New Aetna).
5

On February 6, 2002, at a meeting with Aetna's Nominating and Corporate
Governance Committee, Providence offered that if Aetna would remove just one of
its shareholder-unfriendly mechanisms, the Company's "poison pill", we would not
contest Aetna Inc.'s nominee directors(6). Finally, on March 27, 2002 we offered
to withdraw our slate if Aetna Inc. would put the issue of its poison pill up to
a binding shareholder's vote. Even this was promptly rejected by Aetna Inc. on
March 29, 2002.

The Board's refusal to accept our "pin-point" offer confirmed to us our
opinion regarding the necessity to nominate and elect an independent director
not nominated by the current Board or management, in order to improve Aetna's
corporate governance.

WHY AETNA?

Why have we selected Aetna? First, as discussed earlier, Dr. Gompers' work
would place Aetna's corporate governance structure in the lowest decile for
shareholder rights among the 1,500 companies studied. Second, over the last two
years, Aetna's Board (and Former Aetna's Board) made several major decisions
that, we believe, have decreased all shareholders' wealth and reflect a pattern
of poor business judgments. Furthermore, we believe some of these decisions have
benefited Aetna's Board and management (and Former Aetna's Board and management)
to the detriment of shareholders and demonstrate the need for more
accountability. To wit:

1. Compensation: Mr. Donaldson's Stock Options, Salary & Bonus

On February 14, 2000, Former Aetna's stock price closed at $39.00 -- an
8-year low and down from a recent high of $99.25 reached on May 10,
1999. Ten days later on February 24, 2000, Former Aetna received a
confidential letter from WellPoint Health Networks Inc. and ING America
Insurance Holdings, Inc. inviting negotiations about a business
combination with Former Aetna for $70 per share in stock and cash. On
February 25, 2000, Former Aetna appointed William H. Donaldson, a
Director of Former Aetna and its predecessors since 1977, as Chairman,
President and CEO to replace Richard L. Huber. On February 29, 2000,
while the WellPoint/ING invitation to negotiate had not been made
public, and while the Former Aetna's shares were trading, in
Providence's view, at an unduly depressed level, Former Aetna granted
Mr. Donaldson a stock option for 500,000 shares of Former Aetna common
stock (closing price February 29, 2000 was $41.125). The exercise price
per share was $41.125 for 300,000 shares, $55.00 for 100,000 shares and
$65.00 for 100,000 shares. Mr. Donaldson was also granted 100,000 shares
of restricted Former Aetna common stock. When the $70 per share offer
became public the very next day on March 1, 2000, Former Aetna's stock
immediately jumped and climbed as high as$58.69 by March 10, 2000,
leaving most of Mr. Donaldson's options well in-the-money (to be exact,
excluding time value, the 500,000 options alone were intrinsically worth
a total of $5,638,500 as of the close March 10, 2000). The 100,000
restricted shares were worth an additional $5,869,000 for an aggregate
value of $11,507,500 to Mr. Donaldson.

On March 12, 2000, Former Aetna announced it had rejected the $70
invitation to negotiate from WellPoint and ING. It is possible that
Aetna Inc. might have been able to negotiate a higher price from
WellPoint and ING. It is also possible that negotiations would have led
to a lower price and that Aetna Inc. and WellPoint would not have been
able to reach agreement at any price. In any event, the invitation to
negotiate was rejected. Mr. Donaldson, in a company press release on
March 12, 2000, stated that, "The financial consideration mentioned in
the ING/WellPoint letter, even if taken at face value, significantly
understates the value of our company and does not reflect the current
value or future potential of our core businesses." Further, in 2000, Mr.
Donaldson also earned a $1 million salary and $6 million bonus even
though Mr. Donaldson's tenure as CEO of Former Aetna lasted less than
eleven months (from February 25, 2000 until December 13, 2000).
Providence believes that if

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6Mr. Herbert A. Denton and Providence's nominee, Mr. Lawrence G. Schafran,
met with Aetna Board Members William H. Donaldson, Gerald Greenwald, Barbara H.
Franklin, and Michael H. Jordan.
6

$70 was dismissed as too low a price for the Aetna shares, perhaps the Board
should have struck all of Mr. Donaldson's options at no less than $70.

Mr. Donaldson's options and restricted stock vested on December 13, 2000, when
the spin-off to New Aetna and the sale of the financial services and
international businesses to ING were closed. Mr. Donaldson's tenure as
Chairman of Aetna terminated on April 1, 2001.

In our view, the implementation of this compensation package by the Board was
highly questionable in light of:

- the grant of 300,000 Former Aetna options at an unduly depressed
strike price reflecting last sale of $41.125 when a premium offer at
$70 had been received the day before and had not been made public.
Providence believes the 300,000 options should have been struck at
higher prices, such as $70.

- In Providence's view the Board transferred wealth from Former Aetna's
shareholders to Mr. Donaldson under disadvantageous circumstances to
Former Aetna's shareholders. Indeed, by granting other options to Mr.
Donaldson with substantially higher strike prices, the Board, in
Providence's opinion, implicitly recognized this issue; and

- a situation wherein Mr. Donaldson found his replacement as CEO of the
Former Aetna within seven months of his appointment. We believe that
the size of the options award and the $7 million in salary and bonus
were not commensurate with the service that was expected to be
performed.

Providence believes this transfer of wealth from shareholders to Mr.
Donaldson was not in the best interest of Aetna Inc. or its
shareholders.

2. Strategic Decision: Rejection of Premium Offer

The Board's decision to reject a premium offer of $70 per share for the
Former Aetna from WellPoint Health Networks Inc. and ING America
Insurance Holdings, Inc. was subsequently followed by a different
strategic plan(7) that, two years later, has resulted in a total value
of $73.99(8) to Aetna's long-term shareholders. A portion of that
$73.99 return consists of New Aetna stock. Aetna continues to lose
money with shrinking revenues and, in Providence's opinion, with
uncertain prospects of a turnaround (see, for example, the headline,
"Aetna Losses Mount As CEO Seeks Right Turnaround Formula" -- Bloomberg
News February 21, 2002).

In contrast, we note that part of the consideration in the $70 offer
made by WellPoint Health Networks Inc. and ING America Insurance
Holdings, Inc. was to be paid in the form of WellPoint common stock.
Since the original offer (February 24, 2000), WellPoint's share price
has risen from the mid $60's(9) level to the split adjusted $120 level
today implying that had Aetna's Board accepted the offer, without any
negotiation for a better price, Providence believes that Aetna's
shareholders today might have had total value of approximately
$90 - $100 per share, with part of that value reflected in a profitable
and growing enterprise. Of course, Providence notes that had the above

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7Aetna reorganized by spinning-off its domestic healthcare business to its
shareholders (the "New Aetna"), and selling its financial services and
international businesses to ING Groep N.V. As a result, each shareholder of
record as of the close of business December 13, 2000 received approximately
$35.33 in exchange for each of their existing shares and one share of common
stock of the newly spun-off health care company (New Aetna).

8 Aetna's close April 1, 2002 was $38.66, plus the payment of $35.33 in
cash equals $73.99.

9WellPoint's stock closed at $67.50 as of February 29, 2000 before the
public announcement and $57.00 after the announcement on March 6, 2000.
7

mentioned transaction been completed, there is no assurance that
WellPoint's operating performance or stock performance would have been
similar.(10)

Given WellPoint's demonstrated history of growth and profitability in
the health care arena versus Aetna's performance, what was the Board
thinking? Now, two years later, Aetna is still losing money. Providence
believes the Board of Former Aetna failed to understand the severity of
Aetna's healthcare business problems.

3. Leadership Decision

We believe the Former Aetna Board's decision to hire Dr. John W.
Rowe(11) as CEO of "New Aetna" in September 2000, a person with no
executive experience at a public company, was not in the best interest
of Aetna Inc, or its shareholders and we said so when he was hired. As
we stated to Bloomberg News ("Aetna Health-Care Chief to Face Investor
Concerns") on September 6, 2000:

"It'll certainly be interesting to see if Mr. Rowe can elicit the
support of Wall Street, given his lack of experience in running a
public company -- especially one badly in need of a turnaround in its
bottom line and in its culture."

Providence believes Dr. Rowe's appointment is even more puzzling when
you consider that Aetna was, and still is, in need of a massive
financial turnaround.

Further adding to our concern, Aetna reported in its March 5, 2002
Proxy Statement that: "Dr. Rowe served as President and Chief Executive
Officer of Mount Sinai NYU Health, a position he assumed in 1998 after
overseeing the 1998 merger of the Mount Sinai and NYU Medical Centers;"
however, as reported in the N.Y. Times on December 2, 2001:

". . . the merged medical centers of Mount Sinai and New Your
University seem to share little else these days but $700 million in
debt and lots of resentment . . . Though merged in name, the two
institutions, on Manhattan's East Side, have already severed their
boards, kept their schools and

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10We make the following assumptions when performing our analysis:

- That $26 in the $70 offer was to be paid in WellPoint stock;

- That the conversion ratio that gets to $26 in the form of WellPoint
stock would be based on either WellPoint's stock price just before
the public announcement or WellPoint's stock price just after the
announcement (reason for the range);

- That shareholders of Former Aetna would have received the balance of
the consideration, i.e. $44, in cash;

- That the transaction would have received regulatory approval;

- That the transaction would have received the necessary shareholder
approval;

- That the transaction was completed; and

- That the stock price of the combined entity, had the transaction
been completed, would follow the same stock price pattern WellPoint
stock exhibited on a standalone basis.

Factors we did not consider in our valuation methodology are:

- That the price of the combined entity would not follow the price of
WellPoint on a standalone basis;

- That the invitation to negotiate was not a firm commitment, and that
a different price may have resulted from negotiations;

- Merger integration issues inherent to these types of transactions.

11Dr. Rowe became President and Chief Executive Officer of the "New Aetna"
on September 15, 2000, when the Company was Former Aetna's health and related
benefits subsidiary, and continued in that role following the spin-off when "New
Aetna" became an independent public company. Dr. Rowe was also an executive
officer of Former Aetna from September 15, 2000 until December 13, 2000.
8

departments apart and started separate advertising campaigns. Some
involved say that were it not for the debt linking the two, the
institutions would have already split . . . Last year, N.Y.U.
cleared $22.7 million in profit, while Mount Sinai had operating
losses of $26.4 million and has called in a budget-slashing
consultant that has staff members fearing lay-offs."

Furthermore, within four months of Dr. Rowe leaving as CEO of the
merged entities, serious financial liquidity problems became acute.
While these problems may have been caused by many factors for which Dr.
Rowe may not have been responsible, Providence believes "the bottom
line" is that since these problems developed under Dr. Rowe's watch, as
"Captain of the Ship" he must bear some responsibility for them. In a
research report dated April 19, 2001, by Lebenthal Municipal
Research(12) stated:

"Moody's placed Mount Sinai-NYU Medical Center & Health System
Obligated Group on a watch list for a downgrade on April 6, 2001. The
reason: the 2000 audit revealed cash balances to be materially lower
than levels anticipated at time of the 2000 bond closing."

"Moody's indicated that it expected to have 120 days cash on hand
rather than the 60 days cash on hand per the audited financial
statements."(13)

Providence believes that the apparent failure of the Mount Sinai and
NYU Medical Center merger provides Providence grounds for significant
concerns over the Board's selection to effect a large-scale financial
turnaround of Aetna. How could the Board conclude that Dr. Rowe had the
necessary qualifications and experience to lead a public company
through an operational and financial turnaround? Again, Providence
believes the Board underestimated the seriousness of Aetna's healthcare
problems and chose a CEO that was unqualified for the task at hand.

4. Operating Results

According to the Company's 10-K405 filed February 25, 2002, "Loss
before income tax benefit and equity in earnings of affiliates, net"
totaled negative $299.3 million during fiscal 2001. Aetna has lost
money in each of the last four quarters. Although the Aetna turnaround
may still be in the works, Providence believes that Aetna remains in
intensive care.

In a Merrill Lynch research report(14) dated February 21, 2002, analyst
Roberta W. Goodman wrote that:

". . .we view the sequential deterioration in results not to be
supportive of an imminent turnaround."

"Enrollment attrition was stunning (down 11% vs. prior year and
348,000 sequentially)."

". . .what we hear from the marketplace about Aetna's operating and
claims processing capabilities (that the company is in "turmoil" at the
regional level and that an above-industry proportion of its claims are
being paid late or incorrectly or not at all) suggests to us that
despite good intentions, it is likely that the company really does not
have a handle on the medical cost experience for the book of business
generally, let alone segmented by retained vs. departing members."

"We would remind investors that the "plan" for 2002 is much the
same as that which failed to deliver during 2001. . . With the massive
enrollment churn we are seeing and in light of the

---------------

12We have not asked for, nor have we received, Lebenthal Municipal
Research's permission to utilize the referenced quotes.

13Standard and Poor's had a more accurate prior expectation of about 62
days cash on hand.

14We have not asked for, nor have we received, Merrill Lynch's permission
to utilize the referenced quotes.
9

company's numerous strategic shifts over the last several years, we
think it unlikely that AET will be competitive any time soon relative to
other national or regional players."

However, in 2001, Aetna reported that Dr. Rowe received a $1 million
salary, $1 million bonus and $1.5 million in "other compensation."
Although we believe the jury is still out for Dr. Rowe's turnaround, it
will soon be time for the Board to make its judgment about Dr. Rowe's
suitability to lead Aetna. What will the Board be thinking this time
next year if Aetna continues to lose money?

5. Aetna's Stock Performance

The following is a chart comparing Aetna Inc.'s stock price with the Morgan
Stanley Healthcare Payor Index from the date of spin-off (December 13, 2000) to
April 1, 2002.

PERCENTAGE
INCREASE DURING
THE INDICATED
DECEMBER 13, 2000 APRIL 1, 2002 PERIOD
----------------- ------------- ----------------

Aetna Inc................................. $34.125 $ 38.66 13.3%
Morgan Stanley Healthcare Payor Index*.... $429.49 $512.94 19.4%

---------------

* The companies currently included in the Morgan Stanley Healthcare Payor Index
are: Aetna Inc., CIGNA Corporation, Coventry Health Care, Inc., First Health
Group Corp., Health Net, Inc., Humana Inc., MidAtlantic Medical Services,
Inc., Oxford Health Plans, Inc., PacifiCare Health Systems, Inc., Trigon
Healthcare, Inc., UnitedHealth Group Incorporated and Wellpoint Health
Networks, Inc. The comparison might be different if some other index, such as
the S&P 500, were used.

So in conclusion, despite the distinguished backgrounds of Aetna's Board
members, Providence contends certain key decisions have cost Aetna's
shareholders dearly and, if the Board continues along unfettered by better
accountability to Aetna's shareholders, it is uncertain whether the Board, based
on its track record, will increase shareholders' wealth.

WHAT OUR NOMINEE EXPECTS TO DO

The Stockholder Nominee, Lawrence G. Schafran, is an individual of
substantial business experience and integrity. The Stockholder Nominee is wholly
independent of management and is committed to the maximization of shareholder
value through better corporate governance. The following description outlines
pertinent portions of Mr. Schafran's background: Mr. Schafran, as a
shareholder-nominated director of COMSAT Corporation, maximized shareholder
value through COMSAT's acquisition by Lockheed Martin Corporation. Currently,
Mr. Schafran, as Chairman, Interim CEO and President of Banyan Strategic Realty
Trust (NMS: BSRTS) is concluding its liquidation in order to maximize
shareholder value.

The Stockholder Nominee intends to immediately ask to have the Board
conduct a thorough review of the Company's corporate governance and will seek to
improve Aetna's corporate governance in order to hold management and the Board
more accountable to shareholders. He intends to begin by addressing, and seeking
to change or eliminate, the corporate governance features described above which
we believe to be contrary to the best interests of the Aetna Inc. shareholders.

If elected, the Stockholder Nominee is committed to acting in the best
interests of Aetna's stockholders and, subject to his fiduciary duty as a
Director of Aetna, intends to pursue diligently and promptly the actions
described above. No assurance can be given that he will be successful in these
efforts or that, if successful, Aetna's profitability will be restored. We note
that where we have been successful in the past in placing nominees on corporate
boards, such directors have been in a distinct minority. As a result, they have
not had

the ability to affect directly the operational results or shareholder values of
the companies on whose boards they sit. If elected, the Stockholder Nominee
would have no practical ability to cause any of the changes Providence believes
should be made at Aetna Inc. We believe that election of the Stockholder Nominee
is critical to stockholders interested in making Aetna more accountable to its
shareholders.

THE STOCKHOLDER NOMINEE AS A DIRECTOR

The Board of Directors of the Company currently is composed of twelve
Directors. The company announced in its Proxy Statement filed with the SEC on
March 5, 2002 that one Director, William H. Donaldson, is retiring from the
Board as of the Annual Meeting because he has reached the mandatory retirement
age. Under the terms of Aetna's By-Laws, the Board has reduced the size of the
Board to eleven members effective immediately prior to the opening of the Annual
Meeting. In the future the Board may increase the size of the board and appoint
new Directors.

The terms of office for the Directors elected at the 2002 Annual Meeting
will run until the Annual Meeting in 2004 and until their successors are duly
elected and qualified. The three Directors elected at the 2002 Annual Meeting,
together with the eight Directors whose terms continue beyond the 2002 Annual
Meeting, will comprise the Board. Aetna Inc. has stated that at and after its
Annual Meeting in 2004, shareholders will elect all Directors annually for a
one-year term.

Under Pennsylvania corporation law, the approval of any corporate action
taken at a shareholder meeting is based on the votes cast. "Votes cast" means
votes actually cast "for" or "against" a particular proposal, whether by proxy
or in person. Directors are elected by a plurality (i.e., the greatest number)
of votes cast. When you return the Stockholder Participants GREEN proxy card,
you are voting for the Stockholder Nominee. The Stockholder Nominee has
consented in writing to being named as a nominee for election as a director and,
if elected, has consented to serve as a director.

If you wish to vote for the Stockholder Nominee, you must submit the
enclosed GREEN proxy card and must NOT submit the Company's proxy card, even if
you wish to vote for any of the Company nominees. For additional information,
see "Eligible Shares and Vote Required" and "Voting and Proxy Procedures." There
is no assurance that any of Aetna Inc.'s nominees will serve as director if the
Stockholder Nominee is elected to the Board. Section 2.02 of Aetna's By-Laws
provide that, if there is a vacancy on the Board, the Board may by affirmative
vote of a majority of the directors fill the vacancy or call a special meeting
of shareholders to do so.

The following information concerning age, principal occupation, business
experience during the last five years and directorships of other publicly owned
companies has been furnished to Providence by the Stockholder Nominee, who has
expressed his willingness to serve on the Board of Directors of the Company.

Lawrence G. Schafran (age 63). Since 1984, Mr. Schafran has served as the
Managing General Partner of L. G. Schafran & Associates, a private investment,
advisory and development firm. Mr. Schafran is also Managing Director and COO of
CancerAdvisors, Inc., since 2001, a privately held provider of comprehensive
information to cancer patients and associated oncologists that matches patients
to clinical trials. Mr. Schafran also serves as Chairman, Interim CEO and
President of Banyan Strategic Realty Trust. Since 1996, Mr. Schafran has also
served as Chairman and Co-CEO of Delta-Omega Technologies, Inc. a specialty
chemical company and is a Director of PubliCard, Inc., Tarragon Realty
Investors, Inc., Vertex Interactive, Inc. and WorldSpace, Inc. Mr. Schafran's
principal business address is at Banyan Strategic Realty Trust, 2625 Butterfield
Road, Oak Brook, IL 60512.

Except as set forth in this Proxy Statement or in the Appendices attached
hereto, none of the Stockholder Participants, the Stockholder Nominee, nor any
associate of any of the foregoing persons (i) owns beneficially, directly or
indirectly, or has the right to acquire, any securities of the Company or any
parent or subsidiary of the Company, (ii) owns any securities of the Company of
record but not beneficially, (iii) has purchased or sold any securities of the
Company within the past two years, (iv) has incurred indebtedness for the
purpose of acquiring or holding securities of the Company, (v) is or has been a
party to any contract, arrangement or understanding with any person with respect
to any securities of the Company within the past year, (vi) has been indebted to
the Company or any of its subsidiaries since the beginning of the Company's last
fiscal year
11

or (vii) has any arrangement or understanding with respect to future employment
by the Company or with respect to any future transactions to which the Company
or any of its affiliates will or may be a party. In addition, except as set
forth in this Proxy Statement or in the Appendices hereto, none of Stockholder
Participants, the Stockholder Nominee, nor any associate or immediate family
member of any of the foregoing persons has had or is to have a direct or
indirect material interest in any transaction with the Company since the
beginning of the Company's last fiscal year, or any proposed transaction, to
which the Company or any of its affiliates was or is a party.

None of the corporations or organizations in which the Stockholder Nominee
has conducted his principal occupation or employment is a parent, subsidiary or
other affiliate of the Company, and the Stockholder Nominee does not hold any
position or office with the Company. Nor does he have any family relationship
with any executive officer or director of the Company, or has he been involved
in any legal proceedings of the type required to be disclosed by the rules
governing this solicitation other than as described herein.

RATIFICATION OF APPOINTMENT OF AUDITORS

Providence has no objection to the ratification of the appointment of KPMG
LLP as the Company's independent auditors for the fiscal year ending December
31, 2002.

APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN

Providence has no comment concerning the approval of the Employee Stock
Purchase Plan and will abstain.

SHAREHOLDER PROPOSAL TO IMPLEMENT CUMULATIVE VOTING IN THE
ELECTION OF DIRECTORS

Providence affirmatively supports the shareholder submitted proposal for
cumulative voting. Aetna's Board objects to cumulative voting because they
believe it ". . .is one of those issues that favors special interest groups."
Aetna's Board states that "cumulative voting would make it possible for such a
group to elect one or more Directors beholden to the group's narrow interests."

In our view, any shareholder gaining enough of the vote through cumulative
voting is entitled to Board representation and cannot so easily be dismissed as
being a "special interest." An investor, or a united group of investors, with
that much money invested in Aetna has a right to representation at Board
meetings alongside company-designated directors who will likely have, in
aggregate, far less capital at stake.

Furthermore, we believe that cumulative voting is another important
corporate governance factor that is directly related to company success.(15)

---------------

15"Studies linking cumulative voting practices to company success date back
to 1984. A study produced that year by University of Utah professors Sanjai
Bhagat and James Brickley found that "cumulative voting can have a positive
effect on firm value" and, conversely, that efforts to restrict cumulative
voting rights -- and as such to inhibit non-management shareholders'
activity -- were associated with negative stock price reactions. The study
("Cumulative Voting: The Value of Minority Shareholder Voting Rights") was
published in the Journal of Law and Economics (Vol.27 October 1984), and
summarized in the Council of Institutional Investors' 1994 collection of
studies, Does Ownership Add Value?" IRRC Corporate Governance Service 2001
Background Report F: Cumulative Voting, by Glenn Davis, Feb. 1, 2001, page 11:
Economic Impact of Cumulative Voting.
12

SHAREHOLDER PROPOSAL RELATING TO
SHAREHOLDER RIGHTS PLANS

Providence affirmatively supports the shareholder submitted proposal for
shareholder rights plans. Providence believes that, at a minimum, before the
Company implements a shareholder rights (ie "Poison Pill") plan, it should seek
shareholder approval. See "Why You Should Elect the Stockholder Nominee" above.

YOUR VOTE IS IMPORTANT

To vote for the Stockholder Nominee, you must submit the enclosed GREEN
proxy card and must NOT submit the Company's proxy card, even if you wish to
vote for any of the Company nominees.

- If you believe Aetna is overly protected from the threat of a possible
takeover at the expense of accountability to shareholders, vote the GREEN
card for change.

- If you agree with the reasons for Providence's solicitation set forth
herein, and believe that the election of the Stockholder Nominee to the
Board of Directors can make a difference, we urge you to vote for the
election of the Stockholder Nominee, no matter how many or how few shares
you own, by signing, dating and mailing the enclosed GREEN proxy card.

- If you are concerned that Aetna's Board may be prone to offering
excessive compensation to Aetna's management, vote the GREEN card for
change.

- If you are concerned that Aetna's Board may be prone to making an error
of judgment in the future concerning Aetna's leadership, vote the GREEN
card for fresh thinking.

- If, in the post-Enron environment, you wish to signal Aetna specifically,
and Corporate America generally, to take their fiduciary duties to
shareholders more seriously, vote the GREEN card for change.

Providence urges you NOT to sign any proxy card sent to you by the Company.
ONLY YOUR LATEST DATED PROXY WILL COUNT AT THE ANNUAL MEETING.

* IMPORTANT *

If your shares are held in the name of a brokerage firm, bank or nominee,
only they can vote such shares and only upon receipt of your specific
instructions. Accordingly, please contact the person responsible for your
account and give instructions for such shares to be voted.

If you have any questions or need assistance in voting your shares, please
call Providence's representative:

Garland Associates, Inc
909 Third Ave.
5th Floor
New York, New York 10022-4731,
Telephone (646) 495-3079
Telecopy (646) 495-3071

ELIGIBLE SHARES AND VOTE REQUIRED

Only holders of Common Stock of record on the Record Date will be entitled
to vote at the Annual Meeting. Holders of record of shares of Common Stock on
the Record Date are urged to submit a proxy even if such shares have been sold
after the Record Date. A majority of shares of Common Stock outstanding as of
the close of business on February 22, 2002 must be present in person or by proxy
for the Company to hold the Annual meeting and transact business. This is
referred to as a quorum. Both abstentions and broker non-votes are counted as
present for the purpose of determining a quorum. Each share of Common Stock
entitles its

owner to one vote. For information concerning voting procedures at the Annual
Meeting, see "Voting and Proxy Procedures."

Each nominee for election as a director requires a plurality of the votes
cast in order to be elected. A plurality means that the nominees with the
largest number of votes are elected as directors up to the maximum number of
directors to be elected at the Annual Meeting. Except for proposals relating to
the election of directors, shareholder approval of any proposal at the Annual
Meeting occurs if the votes cast in favor of the proposal exceed the votes cast
against the proposal. In the election of directors, an abstention or broker non-
vote will have no effect on the outcome. In the case of any other matter,
abstention from voting will have the practical effect of voting against such
matter.

Broker non-votes will be included in determining the presence of a quorum
at the Annual Meeting but will have no effect on the outcome of any matters,
other than to reduce the number of "FOR" votes necessary to approve such
matters.

SOLICITATION EXPENSES

Providence has retained Garland Associates, Inc. to assist in the
solicitation of proxies and for related services. Providence will pay Garland
Associates, Inc. a fee of up to $50,000 and has agreed to reimburse it for its
reasonable out-of-pocket expenses. Garland Associates, Inc. will use
approximately 5 persons in its solicitation efforts. In addition to the use of
the mails, solicitations of proxies may be made by means of personal calls upon,
or telephonic communications to or with, stockholders or their personal
representatives by Providence, employees or members of Providence and by Garland
Associates, Inc. Copies of Providence's soliciting materials will be furnished
to banks, brokerage houses, fiduciaries and other nominees for forwarding to
beneficial owners of shares and Providence will reimburse them for their
reasonable out-of-pocket expenses for forwarding such materials.

The entire expense of preparing, assembling, printing, and mailing this
Proxy Statement and related materials and the cost of soliciting proxies will be
borne by Providence. Although no precise estimate can be made at the present
time, Providence currently estimates that the total expenditures relating to the
proxy solicitation incurred by Providence will be approximately $ 250,000 of
which $ 75,000 has been incurred to date. If Providence's Nominee is elected to
the Board, Providence intends to seek reimbursement of the costs of this
solicitation from the Company.

VOTING SECURITIES OUTSTANDING;
INFORMATION ABOUT THE COMPANY

There were 144,908,566 shares of Common Stock reported outstanding by the
Company in its Schedule 14A Proxy Statement filed with the SEC on March 5, 2002.
Each share of Common Stock entitles its owner to one vote.

Stockholders are referred to the Company's proxy statement containing
certain information regarding the Company's Common Stock, the beneficial
ownership of Company Common Stock held by Company directors, nominees,
management and 5% shareholders, other information concerning the Company's
management and the procedures for submitting proposals for consideration at the
next Annual Meeting of stockholders. Providence has no independent knowledge as
to, and assumes no responsibility for, the accuracy of the Company's proxy
statement.

VOTING AND PROXY PROCEDURES

For the proxy solicited hereby to be voted, the enclosed GREEN proxy card
must be signed, dated and returned to Providence, c/o Garland Associates, Inc.,
909 Third Avenue, 5th floor, New York, New York 10022-4731, in the enclosed
envelope in time to be voted at the Annual Meeting. If you wish to vote for the
Stockholder Nominee, you must submit the enclosed GREEN proxy card and must NOT
submit the Company's proxy card, even if you wish to vote for any of the Company
nominees. If you have already
14

returned the Company's proxy card to the Company, you have the right to revoke
it as to all matters covered thereby and may do so by subsequently signing,
dating and mailing the enclosed GREEN proxy card. ONLY YOUR LATEST DATED PROXY
WILL COUNT AT THE ANNUAL MEETING.

Execution of a GREEN proxy card will not affect your right to attend the
Annual Meeting and to vote in person. Any proxy may be revoked as to all matters
covered thereby at any time prior to the time a vote is taken by (i) filing with
the Secretary of the Company a later dated written revocation, (ii) submitting a
duly executed proxy bearing a later date to the Secretary of the Company or
(iii) attending and voting at the Annual Meeting in person. Attendance at the
Annual Meeting will not in and of itself constitute a revocation.

Shares of Common Stock represented by a valid, unrevoked GREEN proxy card
will be voted as specified. You may vote FOR the election of the Stockholder
Nominee or withhold authority to vote for the election of the Stockholder
Nominee by marking the proper box on the GREEN proxy card. You may also withhold
your vote from the Stockholder Nominee by writing the name of such nominee in
the space provided on the GREEN proxy card. In addition, you may withhold
authority to vote for one or more additional Company nominees by writing the
name(s) of such Company nominee(s) in the space provided on the GREEN proxy
card. Stockholders are referred to the proxy statement distributed by the
Company for the names, background, qualifications and other information
concerning the Company nominees. If no specification is made, such shares will
be voted FOR the election of the Stockholder Nominee, FOR the election of Judith
Rodin and Joseph P. Newhouse (Ms. Rodin and Dr. Newhouse are Aetna Inc. nominee
directors), FOR the implementation of cumulative voting in the election of
directors, FOR the shareholder proposal relating to shareholders' rights plans,
if presented to the meeting, and will be voted FOR KPMG LLP, as auditors. Such
shares will abstain on the vote to approve the proposed Employee Stock Purchase
Plan.

Except as set forth in this Proxy Statement, Providence is not aware of any
other matter to be considered at the Annual Meeting. However, if Providence
learns of any other proposals made at a reasonable time before the Annual
Meeting, Providence will either supplement this Proxy Statement and provide an
opportunity to stockholders to vote by proxy directly on such matter or will not
exercise discretionary authority with respect thereto. If other proposals are
made thereafter, the person named as proxy on the enclosed GREEN proxy card will
vote proxies solicited hereby in his discretion.

Only holders of record of Common Stock on the Record Date will be entitled
to vote at the Annual Meeting. If you are a Stockholder of record on the Record
Date, you will retain the voting rights in connection with the Annual Meeting
even if you sell such shares after the Record Date. Accordingly, it is important
that you vote the shares of Common Stock held by you on the Record Date, or
grant a proxy to vote such shares on the GREEN proxy card, even if you sell such
shares after such date.

Providence believes that it is in your best interest to elect the
Stockholder Nominee as a director at the Annual Meeting. PROVIDENCE STRONGLY
RECOMMENDS A VOTE FOR THE STOCKHOLDER NOMINEE.

April 11, 2002 PROVIDENCE INVESTORS, LLC

APPENDIX A

The table below sets forth the shares of Common Stock of the Company
beneficially owned, directly and indirectly, by each of the Shareholder
Participants and the Shareholder Nominee as of April 1, 2002. Their transactions
in the Company's stock during the past two years is set forth in Appendix B.

AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP CLASS
---- ----------------- ----------

Providence Investors, LLC................................... 5,000 *
Providence Capital, LLC..................................... 10,000 *
Chris C. Riedel............................................. 800 *
Lawrence G. Schafran**...................................... 1,000 *

---------------

* Less than one percent (1%).

** Lawrence G. Schafran beneficially owns 1,000 shares in a joint account with
his wife, Lynn H. Schafran. Lynn H. Schafran is an investor in Providence
Investors, LLC.

A-1

APPENDIX B

The following table sets forth information with respect to all purchases
and sales of shares of Common Stock of the Company by Stockholder Participants
and the Stockholder Nominee during the past two years:

Transactions in Common Stock by Providence Investors, LLC, of which Herbert
A. Denton is a managing member, are as follows. All such transactions comprise
open market purchases of Common Stock.

Purchase and Sales of Securities in the Past Two Years
Transactions by:

Providence Investors, LLC