FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1994
-------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8282
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Alexander & Alexander Services Inc.
- - -----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0969822
- - ---------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1211 Avenue of the Americas
New York, New York 10036
- - ---------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)840-8500
-------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
---- ----
The number of shares of Common Stock, $1 par value, outstanding as of
August 1, 1994 was 41,072,970.
The number of shares of Class A Common Stock, $.00001 par value,
outstanding as of August 1, 1994 was 2,344,590.
The number of shares of Class C Common Stock, $1 par value,
outstanding as of August 1, 1994 was 381,868.
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. AND SUBSIDIARIES
INDEX
-----
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements:
Unaudited Consolidated Statements of Income for the
Three and Six Months Ended June 30, 1994 and 1993................ 2
Condensed Consolidated Balance Sheets, as of
June 30, 1994 (Unaudited) and December 31, 1993.................. 3
Unaudited Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1994 and 1993.......................... 4
Unaudited Notes to Financial Statements............................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 16
Part II. Other Information:
Item 1. Legal Proceedings............................................. 24
Item 2. Changes in Securities......................................... 26
Item 4. Submission of Matters to a Vote of Security Holders........... 29
Item 5. Other Information............................................. 30
Item 6. Exhibits and Reports on Form 8-K............................. 31
1
<PAGE>
<TABLE> <CAPTION>
PART I. FINANCIAL INFORMATION
------------------------------
Alexander & Alexander Services Inc. and Subsidiaries
Unaudited Consolidated Statements of Income
For the Three and Six Months Ended June 30, 1994 and 1993
-----------------------------------------------------------
(in millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C>
Operating revenues:
Commissions and fees $322.8 $327.5 $ 634.6 $638.5
Fiduciary investment income 12.3 14.4 23.5 28.2
------ ------ ------- -------
Total 335.1 341.9 658.1 666.7
------ ------ ------- -------
Operating expenses:
Salaries and benefits 200.5 194.5 401.2 390.0
Other 120.0 121.8 237.1 232.2
------ ------ ------- -------
Total 320.5 316.3 638.3 622.2
------ ------ ------- ------
Operating income 14.6 25.6 19.8 44.5
------ ------ ------- -------
Other income (expenses):
Investment income 1.5 2.2 3.5 4.7
Interest expense (3.7) (3.4) (7.2) (7.6)
Other (3.3) (4.1) (6.5) (2.1)
------ ------ ------- ------
Total (5.5) (5.3) (10.2) (5.0)
------ ------ ------- ------
Income before income taxes and
minority interest 9.1 20.3 9.6 39.5
Income taxes (4.0) (7.1) (3.8) (14.4)
------ ------ ------- ------
Income before minority interest 5.1 13.2 5.8 25.1
Minority interest (1.3) (0.1) (3.8) (2.1)
------ ------ ------- ------
Income from continuing operations 3.8 13.1 2.0 23.0
Loss from discontinued operations (6.0) - (6.0) -
------ ------ ------ ------
Income (loss) before cumulative effect
of change in accounting (2.2) 13.1 (4.0) 23.0
Cumulative effect of change in
accounting - - (2.6) 3.3
------ ------ ------- -------
Net income (loss) (2.2) 13.1 (6.6) 26.3
Preferred stock dividends (2.1) (2.0) (4.2) (2.0)
------ ------ ------- -------
Earnings (loss) attributable to common
shareholders $ (4.3) $ 11.1 $ (10.8) $ 24.3
====== ====== ======= =======
Per share of common stock:
Income (loss) from continuing operations $ 0.04 $ 0.26 $ (0.05) $ 0.48
Loss from discontinued operations (0.14) - (0.14) -
Cumulative effect of change in
accounting - - (0.06) 0.08
------ ------ ------- -------
Net income (loss) $(0.10) $ 0.26 $ (0.25) $ 0.56
====== ====== ======= =======
Cash dividends $ .025 $ .25 $ .275 $ .50
====== ====== ======= ========
Weighted average number of shares 43.6 43.5 43.5 43.5
====== ====== ======= =======
See accompanying notes to financial statements.
</TABLE>
2
<PAGE>
<TABLE> <CAPTION>
Alexander & Alexander Services Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, 1994 and December 31, 1993
-------------------------------------------
(in millions)
June 30, December 31,
1994 1993
------------- ------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 743.6 $ 642.2
Short-term investments 276.5 246.5
Premiums and fees receivable (less
allowance for doubtful accounts
of $21.6 in 1994 and $20.3 in 1993) 1,171.9 1,172.3
Prepaid expenses and other current assets 158.4 140.6
-------- ---------
Total current assets 2,350.4 2,201.6
Property and equipment - net 147.9 152.4
Intangible assets - net 186.1 188.8
Other 196.1 251.0
-------- ---------
$2,880.5 $2,793.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Premiums payable to insurance companies $1,915.5 $1,744.0
Short-term debt and current portion
of long-term debt 48.7 29.2
Accounts payable and accrued expenses 244.1 312.3
-------- --------
Total current liabilities 2,208.3 2,085.5
-------- --------
Long-term liabilities:
Long-term debt 89.6 111.8
Deferred income taxes 17.2 17.9
Net liabilities of discontinued operations 85.9 106.5
Other 210.8 195.9
-------- --------
Total long-term liabilities 403.5 432.1
-------- --------
Contingent liabilities
Stockholders' equity:
Series A junior participating preferred
stock, issued and outstanding, none - -
$3.625 Series A convertible preferred stock,
issued and outstanding 2.3 and 2.3 shares,
respectively 2.3 2.3
Common stock,issued and outstanding 41.0
and 40.7 shares, respectively 41.0 40.7
Class A common stock, issued and outstanding
2.4 and 2.4 shares, respectively - -
Class C common stock, issued and outstanding
0.4 and 0.4 shares, respectively 0.4 0.4
Paid-in capital 424.4 423.4
Accumulated deficit (141.8) (119.0)
Net unrealized investment gains - net of
deferred income taxes 0.2 -
Accumulated translation adjustments (57.8) (71.6)
-------- --------
Total stockholders' equity 268.7 276.2
-------- --------
$2,880.5 $2,793.8
======== ========
See accompanying notes to financial statements.
</TABLE>
3
<PAGE>
<TABLE> <CAPTION>
Alexander & Alexander Services Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1994 and 1993
------------------------------------------------------
(in millions)
Six Months Ended
June 30,
------------------
1994 1993
---- ----
<S> <C> <C>
Cash provided (used) by:
Operating activities:
Income from continuing operations $ 2.0 $ 23.0
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 26.0 26.8
Deferred income taxes 19.0 (1.6)
Gains on dispositions of subsidiaries and
other assets - net of tax - (3.3)
Other 6.7 5.4
Changes in assets and liabilities, net of
effects from acquisitions and dispositions:
Premiums and fees receivable 31.7 (45.7)
Prepaid expenses and other current assets (9.1) (3.0)
Other assets 14.7 (2.3)
Premiums payable to insurance companies 114.0 194.0
Accounts payable (8.0) 24.4
Other current liabilities (65.0) (31.3)
Other long-term liabilities (9.3) 0.3
Discontinued operations, net (7.3) (13.8)
Cumulative effect of change in accounting (2.6) 3.3
------- -------
Net cash provided by operating activities 112.8 176.2
------- --------
Investing activities:
Net purchases of property and equipment (10.9) (10.3)
Purchases of businesses (0.7) (0.3)
Proceeds from sales of subsidiaries and
other assets 0.4 4.1
Purchases of investments (326.2) (479.7)
Sales/maturities of investments 324.5 425.3
------- -------
Net cash used by investing activities (12.9) (60.9)
------- -------
See accompanying notes to financial statements.
-Continued-
</TABLE>
4
<PAGE>
<TABLE> <CAPTION>
Alexander & Alexander Services Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows (Continued)
For the Six Months Ended June 30, 1994 and 1993
----------------------------------------------------------
(in millions)
Six Months Ended
June 30,
-------------------
1994 1993
---- ----
<S> <C> <C>
Financing activities:
Cash dividends $ (16.2) $ (22.6)
Net change in short-term debt (3.0) -
Proceeds from issuance of long-term debt 0.7 0.5
Repayments of long-term debt (1.8) (2.1)
Issuance of common and preferred stock 0.3 112.2
Distributions of earnings of pooled entity - (3.2)
------- -------
Net cash provided (used) by financing
activities (20.0) 84.8
------- -------
Effect of exchange rate changes on cash and
cash equivalents 21.5 (10.1)
Cash and cash equivalents at beginning
of year 642.2 582.5
------- -------
Cash and cash equivalents at end of period $ 743.6 $ 772.5
======= =======
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 8.0 $ 5.1
Income taxes 24.6 16.0
Non-cash investing and financing activities:
Notes received on dispositions of subsidiaries $ - $ 2.0
See accompanying notes to financial statements.
</TABLE>
5
<PAGE>
Alexander & Alexander Services Inc. and Subsidiaries
(the Company)
Unaudited Notes to Financial Statements
---------------------------------------
1. Interim Financial Presentation
In the opinion of the Company, all adjustments necessary for a
fair presentation have been included in the consolidated
financial statements. The results of operations for the first
six months of the year are not necessarily indicative of
results for the year. Certain prior period amounts have been
reclassified to conform with the current year presentation.
2. Employees' Retirement Plans and Benefits
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" for
its U.S. plans. This statement requires the Company to accrue
the estimated cost of future retiree benefit payments during
the years the employee provides services. The Company
previously expensed the cost of these benefits, which are
principally health care and life insurance, as premiums or
claims were paid. The statement allowed recognition of the
cumulative effect of the liability in the year of the adoption
or the amortization of the obligation over a period of up to
twenty years. The Company elected to recognize the initial
postretirement benefit obligation of $14 million over a period
of twenty years.
Effective January 1, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." This
statement requires that certain benefits provided to former or
inactive employees after employment but prior to retirement,
including disability benefits and health care continuation
coverage, be accrued based upon the employees' services already
rendered. The cumulative effect of this accounting change was
an after-tax charge of $2.6 million or $0.06 per share in the
first quarter of 1994. The increase to the annual cost of
providing such benefits will not be significant.
3. Dispositions
In the first quarter of 1993, the Company sold two small
operations for gross proceeds of $3.8 million. Pre-tax gains
of $3.3 million have been recognized on the sales with
resulting after-tax gains totaling $2.0 million or $0.05 per
share. The pre-tax gains are included in Other Income
(Expenses) in the Consolidated Statements of Operations.
See Note 10 for information relating to the August 1994
announcement of the Company's intent to sell its U.S.-based
personal lines insurance broking business.
4. Income Taxes
Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." The cumulative effect of
adopting this standard increased net income in the first
quarter of 1993 by $3.3 million or $0.08 per share. Tax
benefits of $3.2 million were also allocated to paid-in capital
representing the difference in the tax bases over the book
bases of the net assets of taxable business combinations
accounted for as pooling of interests. These benefits would
have been recognized at the respective dates of combination if
SFAS No. 109 had been applied at that time.
6
<PAGE>
Alexander & Alexander Services Inc. and Subsidiaries (the Company)
Unaudited Notes to Financial Statements (continued)
---------------------------------------------------
4. Income Taxes (continued)
During 1993, the Company reached an agreement with the Appeals
Offices of the Internal Revenue Service (IRS) on settlement of
tax issues with respect to years 1980 through 1986, most of
which relate to issues arising out of the acquisition of
Alexander Howden Group plc. The Company was advised by the
IRS, in a letter dated May 26, 1994, that the Joint Committee
on Taxation had approved that settlement agreement. The
liability for tax and net interest with regard to this
settlement will actually be due for years 1987 through 1989 due
to acceleration in the use of net operating losses and tax
credits. The Company is currently under examination by the IRS
for years 1987 through 1991.
The Company believes that its current tax reserves are adequate
to cover its tax liabilities including the 1980-1986
settlement.
5. Discontinued Operations
In March 1985, the Company discontinued the insurance
underwriting operations acquired in 1982 as part of the
Alexander Howden acquisition. In 1987, the Company sold Sphere
Drake Insurance Group (Sphere Drake) and is currently running-
off the Atlanta and Bermuda insurance companies.
The 1987 Sphere Drake sales agreement provides indemnities by
the Company for various potential liabilities including
provisions covering future losses on the insurance pooling
arrangements from 1953 to 1967 between Sphere Drake and Orion
Insurance Company (Orion), a U.K.-based insurance company and
future losses pursuant to a stop loss reinsurance contract
between Sphere Drake and Lloyd's Syndicate 701.
The types of claims being reported on the Orion insurance
pooling arrangement are primarily asbestosis, environmental
pollution and latent disease claims in the U.S. and are coupled
with substantial litigation expenses. Liabilities for these
claims cannot be estimated by conventional actuarial reserving
techniques because the available historical experience is not
sufficient to apply such techniques for these types of claims
and case law, which will ultimately determine the extent of
these liabilities, is still evolving. To date, U.S. case law
has already altered the intent and scope of these policies to
some extent. Therefore, the Company has obtained advice from
an independent actuarial firm who used available exposure
information and various projection techniques in estimating the
Company's ultimate exposure. The Company has provided as its
ultimate exposure the actuarial firm's latest available point
estimate, which approximates the mid-point within their range
of expected loss, and a provision for Sphere Drake's share of
uncollectible reinsurance recoverables. The $70 million
difference between the low and high estimates of their range is
quite wide due to the expansion of coverage and liability by
certain state courts and legislatures for environmental
pollution and other losses in the past and the possibility of
similar interpretations in the future, as well as the
uncertainty in determining what scientific standards will be
acceptable for measuring site cleanup.
7
<PAGE>
Alexander & Alexander Services Inc. and Subsidiaries (the Company)
Unaudited Notes to Financial Statements (continued)
----------------------------------------------------
5. Discontinued Operations (continued)
Sphere Drake's appeal of a lawsuit against the Names on Lloyd's
Syndicate 701 seeking payment of funds due Sphere Drake
pursuant to a stop-loss reinsurance contract with Syndicate 701
and a determination of continuing stop-loss coverage protecting
Sphere Drake under that contract was heard in October 1993 with
the U.K. Court of Appeal upholding the adverse decision of the
lower court. The Company has provided $45.4 million as its
ultimate exposure under this indemnity based on the latest
available estimate by an independent actuarial firm. However,
unlike the Orion indemnity, the Company's opinion is that this
indemnity is limited in amount pursuant to the terms of the
stop-loss reinsurance contract. The maximum remaining exposure
beyond what the Company has currently provided is $18.6
million.
Zero coupon notes with interest at 10 percent to 12 percent and
warrants to purchase five percent of Sphere Drake stock, which
were acquired in connection with the sale of Sphere Drake, are
subject to offset for indemnities regarding the adequacy of
loss reserves and recoverability of reinsurance receivables on
the books of Sphere Drake at December 31, 1986. Based on
estimates of an independent actuarial firm, there has been
deterioration in loss reserves and uncollectible reinsurance
balances that will offset substantially all of the interest
income of the zero coupon notes. The remaining exposure for
this indemnity is limited to the discounted carrying amount of
the notes which is
19.3 million pounds sterling ($29.8 million and $28.5 million
at June 30, 1994 and December 31, 1993,respectively) plus the
realized proceeds of $6.5 million from the 1993 exercise of the
warrants.
The Sphere Drake indemnities and other liabilities arising out
of the discontinued operations are expected to be settled and
paid over many years and could extend over a 20 to 30 year
period.
Reinsurance agreements provide the Atlanta and Bermuda
insurance companies with insurance coverage for their reserves
as of December 31, 1988, and for up to $50 million of insurance
coverage for potential losses in excess of those reserves,
subject to a deductible for one of the Atlanta companies of
$12.5 million. At June 30, 1994, the Company has recorded $5.6
million of the deductible, which approximates the midpoint of
the actuarial firm's range of expected loss, and has utilized
$21.5 million out of the $50 million of insurance coverage.
The remaining unrecognized deductible of $6.9 million is within
the actuarial firm's range of expected loss. The agreements
also provide for a reinsurance premium adjustment whereby at
any time after January 1, 2001, the reinsurance agreements can
be terminated and any excess funds, net of any reinsurance
premium paid to a substitute reinsurance company, would be
returned to the Company. The reinsurance premium adjustment is
currently estimated to be $11.1 million.
In addition, the Company is exposed to a number of other
indemnities, exposures and contingencies primarily related to
the sale of Sphere Drake.
8
<PAGE>
Alexander & Alexander Services Inc. and Subsidiaries (the Company)
Unaudited Notes to Financial Statements (continued)
----------------------------------------------------
5. Discontinued Operations (continued)
The Company believes that, based on current estimates of
exposures, the established claim and other liabilities, the
estimated reinsurance premium adjustment and the interest
income on the zero coupon notes, will be sufficient to cover
any future indemnifications and offset related to the Sphere
Drake agreement, the future run-off expenses net of any
investment income of the Atlanta and Bermuda operations, and
any other expenses associated with its discontinued operations.
However, there is no assurance that further adverse
developments may not occur due to variables inherent in the
estimation process, including estimating insurance reserves for
environmental pollution, latent disease and other exposures,
the collectibility of reinsurance recoverable balances, the
effect of future legislation and other matters described above.
It is possible that future developments with respect to these
matters could have a material effect on future interim or
annual results of operations. However, the Company presently
believes that such impact will not be material to the Company's
financial condition.
Effective July 1, 1994, certain subsidiaries of the Company entered
into a reinsurance agreement providing $200 million of coverage
for certain discontinued exposures in excess of an aggregate
self-insured retention of $73 million for a premium of $80
million. The reinsurance agreement provides coverage for the
previously disclosed Orion and Syndicate 701 exposures as well
as underwriting exposures related to the activities of Swann &
Everett, an underwriting agency that the Company is running-
off. Included in the $200 million of coverage is $10 million
of additional coverage in excess of the current coverage
provided to the Atlanta and Bermuda insurance companies under
the 1989 reinsurance agreement. The Company may be liable for
certain additional premiums if loss experience deteriorates
significantly beyond what is currently actuarially projected.
In addition, if loss experience proves favorable, the Company
may recover upon termination of the reinsurance agreement an
amount based on a notional experience account. This agreement
can be terminated starting December 31, 1996 at the Company's
option and may be terminated at the reinsurer's option if the
Atlanta and Bermuda reinsurance agreements are terminated prior
to January 1, 2006. In connection with the AIG Agreement discussed
in Note 10, the Company's right to terminate the agreement is subject
to the consent of AIG as long as they are the holder of the shares
related to the AIG Agreement. As a result of this transaction, the
Company recorded a $6 million charge in the second quarter of
1994 representing the cost of the premium and deductible that
exceeded existing reserves for the covered exposures.
6. Per Share Data
Primary earnings per share are computed by dividing earnings
(loss) attributable to common stockholders by the weighted
average number of shares of Common Stock and their equivalents
(Class A and Class C Common Stock) outstanding during the
period and, if dilutive, shares issuable upon the exercise of
stock options and upon conversion of the convertible
subordinated debentures. The $3.625 Series A Convertible
Preferred Stock issued in March 1993 is not a common stock
equivalent. The computation of fully diluted earnings per
share for the periods presented was antidilutive; therefore,
the amounts for primary and fully diluted earnings are the
same.
7. Investments
Effective January 1, 1994, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities." In accordance with the Statement, the Company has
classified all debt and equity securities as available for
sale. As of January 1, 1994, net unrealized holding gains
totaled $5.5 million, net of deferred income taxes of $3.6
million. At June 30, 1994, net unrealized holding gains
totaled $0.2 million, net of deferred income taxes of $0.6
million, and are reported as a separate component of
stockholders' equity. During the first six months of 1994,
proceeds from sales of securities totaled $15.4 million with
gross realized gains totaling $0.4 million.
9
<PAGE>
Alexander & Alexander Services Inc. and Subsidiaries (the Company)
Unaudited Notes to Financial Statements (continued)
----------------------------------------------------
7. Investments (continued)
The amortized cost and estimated fair value of debt and equity
securities and financial instruments used to hedge these
investments as of June 30, 1994 are summarized below:
<TABLE> <CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Equity securities $ 1.7 $4.9 $ - $ 6.6
Euro-time deposits 48.6 - (0.1) 48.5
Certificates of deposit 144.4 - - 144.4
U.S. Government agencies/
state issuances 74.8 - - 74.8
Other 62.4 - (0.1) 62.3
Financial instruments -
used as hedges - 1.2 (5.1) (3.9)
-------- --------- --------- --------
Total debt & equity
securities $331.9 $6.1 $(5.3) $332.7
======== ========= ========= ========
</TABLE>
The amortized cost and estimated fair value of debt securities at
June 30, 1994 by contractual maturity are summarized below:
Estimated
Amortized Fair
Cost Value
--------- ----------
Due in one year or less $ 276.7 $ 276.5
Due after one year through five years 16.0 16.0
Due after five years through ten years 0.2 0.2
-------- ---------
292.9 292.7
Mortgage backed securities 37.3 37.3
-------- ---------
Total debt securities $ 330.2 $ 330.0
======== =========
8. Long-Term Debt
The Company has a long-term credit agreement with various banks
which expires in July 1995. The agreement provides for
unsecured borrowings and contains various covenants including
limits on minimum net worth, maximum consolidated debt, minimum
interest coverage and minimum consolidated cash flow from
operations.
At March 31, 1994, the Company was not in compliance with one of
the financial covenants of the long-term credit agreement;
however, the bank group granted a waiver of this requirement.
In addition, the agreement was amended to reduce the amount of
such commitment from $150 million to $75 million and required
the Company to be in compliance with all of the financial
covenants for two consecutive quarters prior to making
committed borrowings.
Effective July 15, 1994, the long-term credit agreement was
amended to increase the amount of the commitment from $75
million to $150 million and the bank group removed the
condition that the Company must be in compliance with the
financial covenants for two consecutive quarters. In addition,
at June 30, 1994, the Company was not in compliance with two of
the financial covenants; however, the bank group granted a
waiver of such compliance for the second quarter of 1994.
10
<PAGE>
Alexander & Alexander Services Inc. and Subsidiaries (the Company)
Unaudited Notes to Financial Statements (continued)
----------------------------------------------------
8. Long-Term Debt (continued)
As a result of the July 1994 amendment, the Company has full and
immediate access to the $150 million credit line. The Company
has no borrowings outstanding under this agreement and does not
anticipate a need to borrow under the agreement for the
duration of its term.
See Note 10 for information relating to the assumption of the
Company's $19.5 million of non-recourse mortgage notes pursuant
to the July 1994 sale of a Company-owned office building to the
purchasers of Shand, Morahan & Company, Inc. (Shand).
Also, see Note 10 for information relating to additional long-
term financing in July 1994.
9. Contingent Liabilities
The Company and its subsidiaries are subject to various claims
and lawsuits from both private and governmental parties, which
includes claims and lawsuits in the ordinary course of
business, consisting principally of alleged errors and
omissions in connection with the placement of insurance and in
rendering consulting services. In some of these cases, the
remedies that may be sought or damages claimed are substantial.
Additionally, the Company and its subsidiaries are subject to
the risk of losses resulting from the potential
uncollectibility of insurance and reinsurance balances and
claims advances made on behalf of clients and indemnifications
connected with the sales of certain businesses.
Following the acquisition of Alexander Howden in January 1982,
certain claims, relating primarily to the placement of
reinsurance by Alexander Howden subsidiaries and questionable
broking and underwriting practices of former Alexander Howden
officials and others, were asserted. In particular, claims
have been asserted against the Company and certain of its
subsidiaries alleging, among other things, that certain of the
Company's subsidiaries accepted, on behalf of certain insurance
companies, insurance or reinsurance at premium levels not
commensurate with the level of underwriting risks assumed and
retroceded or reinsured those risks with financially unsound
reinsurance companies. In three pending actions, plaintiffs
seek compensatory and punitive damages totaling $147 million
based on treble damage claims under the Racketeer Influenced
and Corrupt Organizations Act (RICO). Management of the Company
believes that there are valid defenses to all the claims that
have been made with respect to these activities and the Company
is vigorously defending the pending actions.
In 1987, the Company sold Shand, its domestic underwriting
management subsidiary. The Company has agreed to indemnify the
purchasers of Shand against certain contingencies, including
the Mutual Fire, Marine and Inland Insurance Company (Mutual
Fire) and the errors and ommissions contingencies described
below.
11
<PAGE>
Alexander & Alexander Services Inc. and Subsidiaries (the Company)
Unaudited Notes to Financial Statements (continued)
----------------------------------------------------
9. Contingent Liabilities (continued)
Prior to its sale in 1987, Shand and its subsidiaries provided
underwriting management services for and placed insurance and
reinsurance with and on behalf of Mutual Fire. Mutual Fire was
placed in rehabilitation by the Courts of the Commonwealth of
Pennsylvania in December 1986. In January 1990, the
Supervisory Court approved a plan of rehabilitation for Mutual
Fire. The rehabilitator, in February 1991, filed a complaint
in the Commonwealth court against Shand and the Company. The
case was subsequently removed to the U.S. District Court for
the Eastern District of Pennsylvania. The complaint alleges
that Shand, and in certain respects the Company, breached
duties to, and agreements with, Mutual Fire. In addition to
claiming compensatory damages, the complaint seeks punitive
damages and recovery of certain commissions paid to Shand and
the Company. The complaint does not specify, to any meaningful
degree, the amount of alleged damages incurred or sought. The
rehabilitator, through an updated expert's report, has
indicated to Shand and the Company that the damages alleged are
in the amount of $234.6 million. The expert's report
previously alleged damages in the amount of $238.5 million.
The Company and Shand strongly disagree with the alleged
damages in the updated report and have substantial arguments to
sustain their position. The Company and Shand have finalized a
series of expert's reports that rebut the rehabilitator's
report. The case is likely to be placed on the trial calendar
in 1994. Management believes that there are valid defenses to
the allegations set forth in the complaint, and the Company
intends to vigorously defend against this action.
Also, the sales contract between the Company and Shand's
purchasers obligates the Company to certain indemnities with
respect to transactions involving Mutual Fire. In November
1992, the purchaser asserted indemnification claims related to
reinsurance recoverables due from Mutual Fire. In February
1993, the Company agreed to settle certain of these claims.
The Company has estimated its exposure under this settlement,
net of anticipated recoveries from certain trusteed assets held
for Shand's benefit of $10.8 million and net of $4.6 million of
set-offs, and established a reserve in 1992. The Mutual Fire
rehabilitator has challenged Shand's right to recover these
assets and utilization of such set-offs.
The purchasers of Shand have also notified the Company of
indemnification claims for reinsurance recoverables arising
under the Company's obligation to indemnify the purchasers for
losses suffered as a result of errors and omissions in
connection with professional services provided by Shand prior
to the sale of Shand in 1987. To date, five reinsurers have
alleged that Shand committed such errors and omissions, and the
purchasers of Shand have advised the Company that based on the
outcome of reviews of other professional services provided by
Shand, other reinsurers may make similar allegations in the
future. To date there has been no adjudication that Shand in
fact committed any error or omission, and in the pending
arbitrations between Shand and its reinsurers in which the
alleged errors and omissions are at issue Shand is actively
disputing the allegations. Of the five indemnification claims
asserted by the purchasers of Shand against the Company, two
have been settled. The remaining three indemnification claims
are the subject of an arbitration proceeding commenced by the
purchasers against the Company in July 1994 in which the
purchasers seek reinsurance recoverables or collateral for such
recoverables in excess of $16.5 million. The Company believes
that, until the merits of the alleged errors and omissions have
been adjudicated, the Company's exposure under the indemnity is
limited to the costs and related expenses incurred by Shand in
adjudicating the merits of the allegations. The Company
intends vigorously to dispute the indemnification claims for
reinsurance recoverables asserted by the purchasers in the
arbitration.
12
<PAGE>
Alexander & Alexander Services Inc. and Subsidiaries (the Company)
Unaudited Notes to Financial Statements (continued)
----------------------------------------------------
9. Contingent Liabilities (continued)
On November 4, 1993, a class action suit was filed against the
Company and two of its directors and officers in the United
States District Court for the Southern District of New York.
In response to the defendant's motion to dismiss, an amended
complaint was filed on February 16, 1994, purportedly on behalf
of a class of persons who purchased the Company's Common Stock
during the period May 1, 1991 to September 28, 1993, alleging
that during said period the Company's financial statements
contained material misrepresentations as a result of inadequate
reserves established by the Company's subsidiary, Alexander
Consulting Group Inc., for unbillable work in progress. The
amended complaint seeks damages in an unspecified amount, as
well as attorneys' fees and other costs, for alleged violations
of the federal securities laws. At a conference with the U.S.
District Court for the Southern District of New York in March
1994, counsel for the plaintiff was directed to inform counsel
for the Company whether plaintiff intended to file a second
amended complaint. Pending a decision by plaintiffs' counsel,
the Company's time to move or answer the amended complaint is
in abeyance. The Company intends to vigorously dispute this
claim.
These contingent liabilities involve significant amounts.
While it is not possible to predict with certainty the outcome
of such contingent liabilities, the applicability of coverage
for such matters under the Company's professional indemnity
insurance program, or their financial impact on the Company,
Management presently believes that such impact will not be
material to the Company's financial condition. However, it is
possible that future developments with respect to these matters
could have a material effect on future interim or annual
results of operations.
10. Subsequent Events
On June 7, 1994, the Company and American International Group,
Inc. (AIG) entered into a Stock Purchase and Sales Agreement
(AIG Agreement). At a special meeting of the stockholders held
on July 15, 1994, stockholders entitled to vote approved all
matters relating to the proposed AIG investment. Following the
special meeting, the transactions contemplated by the AIG
Agreement were completed on July 15, 1994 (Closing).
Under the terms of the AIG Agreement, three wholly owned
subsidiaries of AIG invested an aggregate $200 million in the
Company and received 4 million non-voting shares of the
Company's 8% Series B Cumulative Convertible Preferred
Stock, par value $1.00 (Series B Convertible Preferred Shares),
at a purchase price of $50 per share, with dividends payable at
a rate of 8% per annum per share. Until December 15, 1996,
dividends on the Series B Convertible Preferred Shares are
payable in kind and thereafter, at the election of the Board of
Directors, in cash or in kind until December 15, 1999, provided
that if the Company at any time pays dividends in cash on or
after December 15, 1996, the Company may not thereafter declare
or pay dividends in kind. The Series B Convertible Preferred
Shares have a liquidation preference of $50 per share.
At the option of AIG, the Series B Convertible Preferred Shares
are convertible into the Company's non-voting Class D Common
Stock, $1.00 par value (Class D Shares), at a conversion price
of $17 per share, subject to adjustment. Class D Shares are
exchangeable for the Company's voting Common Stock, par value
$1.00 on a share-for-share basis; however, AIG has agreed to
limit to 9.9% the percentage of the Company's voting shares it
may acquire, absent certain events. AIG has also agreed, with
specified exceptions, to refrain from attempting to increase
its interest in or influence over the Company by tender offer
or proxy solicitation or other means for a period of eight
years following the Closing, subject to the occurrence of
certain events that would terminate AIG's standstill covenants.
13
<PAGE>
Alexander & Alexander Services Inc. and Subsidiaries (the Company)
Unaudited Notes to Financial Statements (continued)
----------------------------------------------------
10. Subsequent Events (continued)
After giving effect to estimated transaction expenses and the
cost of an option for an insurance arrangement, the sale of the
Series B Convertible Preferred Shares will increase the
Company's capital by approximately $196 million. Dividends on
the Series B Convertible Preferred Shares will reduce the
amount of earnings otherwise available for common stockholders
by approximately $16 million in the first year after issuance,
and by approximately $23 million in the fifth year after
issuance, assuming dividends on the Series B Convertible
Preferred Shares were to be paid in kind throughout the first
five years after issuance.
Under the AIG Agreement, the Company has agreed to make certain
payments to AIG if tax payments and reserves relating to
periods before March 31, 1994 exceed the Company's tax reserves
as of March 31, 1994, or if the Company determines that certain
liabilities were greater than, or that certain assets had an
ultimate realizable value less than, the related amounts shown
on the Company's balance sheet as of March 31, 1994. The
making of any such payments by the Company would, in effect,
reduce the consideration received by the Company for the Series
B Convertible Preferred Shares.
In connection with the AIG Investment, the Board of Directors
amended the Rights Agreement, dated as of June 11, 1987, between
the Company and First Chicago Trust Company of New York, as
amended and restated as of March 22, 1990, as amended April 21,
1993 (Rights Agreement). Pursuant to Amendment No. 2 to the
Rights Agreement, effective as of June 6, 1994, the acquisition
of Series B Convertible Preferred Shares upon closing of the AIG
Agreement, the acquisition of Class D Shares upon conversion of
Series B Convertible Preferred Shares, the acquisition of Common
Stock upon exchange for Class D Shares or the acquisition by AIG
or its affiliates or any transferee thereof of any securities of
the Company (if such acquisition is permitted by the Purchase
Agreement) will not (i) cause any person to become an Acquiring
Person, (ii) cause the Distribution Date or the Shares
Acquisition Date to occur, or (iii) give rise to a Section
11(a)(ii) Event (as such capitalized terms are defined in the
Rights Agreement). With respect to the Rights Agreement, the
Class D Shares will be treated as if such shares were Class C
Common Stock, $1.00 par value, of the Company.
In addition, on July 15, 1994, the Board of Directors approved
Amendment No. 3 to the Rights Agreement, which provides for,
among other things, modifications of the definitions of
Acquiring Person and Distribution Date to raise from 10% to 15%
the percentage of stock ownership needed to cause a person to
become an Acquiring Person or to cause a Distribution Date to
occur (as such capitalized terms are defined in the Rights
Agreement).
In connection with the AIG Investment, amendments to the
Company's charter were approved at a special meeting of
stockholders held on July 15, 1994. The amendments authorize
(i) a new class of common stock, Class D Shares, and (ii) an
increase in the number of authorized shares of the capital stock
of the Company from 88,500,000 shares to 292,000,000 shares. In
addition, 4,000,000 shares of Series B Convertible Preferred
Shares were issued on July 15, 1994. In related matters, the
number of authorized shares of the Series A Junior Participating
Preferred Stock, $1.00 par value was increased from 600,000
shares to 1,000,000 shares and certain amendments were made to
the Company's Rights Agreement. Reference is made to Part II,
Item 2 of this report for a description of the rights of Class D
Shares and Series B Convertible Preferred Shares and the
amendments to the Rights Agreement.
14
<PAGE>
Alexander & Alexander Services Inc. and Subsidiaries (the Company)
Unaudited Notes to Financial Statements (continued)
----------------------------------------------------
10. Subsequent Events (continued)
Holders of Series B Convertible Preferred Shares have the right
to require the Company to purchase all or any part of the Series
B Convertible Preferred Shares then held by such holders upon the
occurrence of a Special Event. A Special Event includes the
declaration or payment of dividends aggregating in excess of
$0.075 per share of Common Stock during the last seven months of
1994, cumulatively 25% of earnings in 1995 and 1996, and
cumulatively 50% of earnings thereafter; the disposition by the
Company of assets representing 35% or more of the Company's book
value or gross revenues; and certain mergers of the Company or
any of its principal subsidiaries with or into any other firm or
entity. Other Special Events include the acquisition by a third
party, with the consent or approval of the Company, of beneficial
ownership of securities representing 35% or more of the Company's
total outstanding voting power.
On July 1, 1994, Alexander & Alexander Services Inc. borrowed
$50 million from the reinsurance company that executed the reinsurance
contract discussed in Note 5. The note is payable in five equal
annual installments, commencing July 1, 1997 and bears interest at a
rate of 9.45%. If Alexander & Alexander Services Inc. defaults on the
borrowing, the reinsurance company may utilize Alexander & Alexander
Services Inc.'s note to settle reinsurance claims under the contract.
On July 15, 1994, the purchasers of Shand executed their Purchase
Agreement option to purchase an office building owned and
accounted for by the Company as a direct financing lease by
assuming the non-recourse mortgage notes of $19.5 million. No
gain or loss will be recognized on this transaction.
On August 4, 1994, the Company signed a letter of intent to sell
its U.S.-based personal lines insurance broking business. The
sale is subject to certain conditions, including the execution
of a definitive agreement and obtaining regulatory approvals.
The total proceeds from the sale are expected to approximate
$30 million with a resulting pre-tax gain of approximately $20
million.
15
<PAGE>
Alexander & Alexander Services Inc. & Subsidiaries (the Company)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
----------------------------------------------------------------
Results of Operations
---------------------
General
-------
The Company's Board of Directors and management team have completed a
number of initiatives to improve the Company's financial condition
and future profitability. These actions include the following:
- In June, Frank G. Zarb was appointed as Chairman of the
Board, President and Chief Executive Officer of the Company.
- In June, the quarterly dividend on the Company's Common
Stock and Common Stock equivalents was reduced by 90 percent
from $0.25 to $0.025 per share.
- In July, American International Group, Inc. (AIG) invested
$200 million in the Company and received 4 million shares of
the Company's Series B Convertible Preferred Shares.
- In July, reinsurance coverage was obtained at a cost of $80
million to protect against further deterioration in loss
reserves related to certain of the Company's discontinued
operations.
- In July, the Company's long-term credit agreement with
various banks was amended to restore the Company's ability
to borrow up to $150 million.
- In July, three new directors were elected, increasing the
size of the Company's Board of Directors from 8 to 11
members.
In addition to these actions already taken, a number of initiatives
are underway to further strengthen the Company's balance sheet and
increase operating margins.
The Company is conducting an analysis of its core business
activities and is currently reviewing its options with respect to
selling certain non-core businesses and other assets. In this
regard, in early August the Company announced it has signed a letter
of intent to sell its personal lines insurance brokerage business in
the U.S. The total proceeds on this sale are estimated to be $30
million with a resulting estimated pre-tax gain of approximately $20
million.
The Company is actively reviewing its options with respect to
indemnity exposures relating to operations previously sold, the
largest of these exposures represented by the Mutual Fire lawsuit.
The Company has also begun comprehensive worldwide reviews of its
operations to identify and implement ways of expanding new business
efforts and reducing overall costs. These reviews are expected to
be completed by year-end 1994 and could result in a significant
charge for restructuring and other matters.
The factors that have negatively influenced insurance brokerage
revenues in the past years continued through the first six months of
1994. These factors include soft pricing due to the intense
competition among insurance underwriters and significant declines in
interest rates. Consulting revenues have also been constrained
during this period due to worldwide economic conditions and
uncertainty over health care reform in the U.S. The Company does
not anticipate significant changes in such conditions for the
remainder of 1994.
16
<PAGE>
Alexander & Alexander Services Inc. & Subsidiaries (the Company)
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
---------------------------------------------------------------------
Results of Operations (continued)
---------------------------------
Three Months ended June 30, 1994 vs. 1993
--------------------------------------------
The net loss for the three months ended June 30, 1994 was $2.2
million, or $0.10 per share. Included in the results was a $6
million after-tax charge, or $0.14 per share, relating to the
purchase of reinsurance coverage for indemnities and exposures of
the Company's discontinued operations.
In the comparable period in 1993, the Company reported net income of
$13.1 million, or $0.26 per share.
Operating Revenues
------------------
Consolidated operating revenues were $335.1 million for the
second quarter of 1994, a decrease of $6.8 million or 2 percent
from the corresponding period in 1993. Total revenues were
essentially equal to last year after adjusting for a $4 million
decrease due to changes in foreign exchange rates and $3
million due to the effect from operations sold in 1993.
Broking commissions and fees in the risk management and insurance
services operations increased by $1.8 million, or 0.8 percent,
when compared to the second quarter of 1993. Foreign exchange
rate variances negatively impacted such revenues by $2.3
million.
Broking revenues in the U.S. retail organization decreased by
$5.9 million in the second three months of 1994 compared to
1993 primarily due to lost business and sluggish new business
growth. Offsetting the U.S. retail decline was a $4.7 million
increase in revenues due to the third quarter 1993 acquisition
of a retail broking operation in Mexico and a $2 million
increase from the U.K./Continental Europe operations.
Specialist insurance broking commissions and fees decreased by
$1.9 million in the second quarter of 1994 versus 1993
primarily due to the withdrawal from the market of an
underwriter as well as continued casualty business competition
and lower rates in the U.S.
Reinsurance broking commissions and fees decreased by $2.2
million in the second three months of 1994 compared to 1993, of
which $0.8 million was due to changes in foreign exchange
rates.
Human resource management consulting commissions and fees
increased by $1.4 million in the second quarter of 1994
compared to the corresponding quarter in 1993, primarily due to
new business efforts and higher client retention in the U.S.
Total fiduciary investment income decreased by $2.1 million or
14.9 percent for the second three months of 1994 versus 1993
due to lower interest rates and lower average investment
levels, particularly in the U.S.
Operating Expenses
------------------
Consolidated operating expenses were $320.5 million for the
second three months of 1994, an increase of $4.2 million or 1.3
percent compared to the comparable quarter of 1993. The effect
of changes in foreign exchange rates and hedging contract gains
and losses was favorable by $6 million.
17
<PAGE>
Alexander & Alexander Services Inc. & Subsidiaries (the Company)
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
---------------------------------------------------------------------
Results of Operations (continued)
---------------------------------
Three Months ended June 30, 1994 vs. 1993
--------------------------------------------
Operating Expenses (continued)
------------------------------
Salaries and related benefits increased by $6 million or 3.1
percent, including $2 million relating to the 1993 acquisition
in Mexico. Staff costs in 1994 include normal salary
progressions and higher benefit costs partially offset by a 2.3
percent decline in headcount.
Other operating expenses decreased by $1.8 million or 1.4 percent
in the second quarter of 1994 compared to 1993. The effects of
changes in foreign exchange rates, including currency hedging
gains was favorable by $1.4 million. Offsetting this was $1
million of other operating expenses relating to the Mexico
acquisition.
Other Income (Expenses)
-----------------------
Investment income earned on operating funds decreased by $0.7
million due to lower interest rates and investment levels.
Interest expense increased by $0.3 million primarily due to
acquisition-related debt.
Other income (expenses) decreased by $0.8 million in the second
three months of 1994 compared to 1993 primarily due to lower
litigation costs relating to the Mutual Fire lawsuit.
Income Taxes
------------
The Company reported tax expense of $4 million on pre-tax income
of $9.1 million in the second quarter of 1994. This compared
to an expected tax expense of $3.2 million based upon the U.S.
statutory rate of 35 percent. The tax rate was negatively
impacted by the non-deductibility of certain expenses for tax
purposes, including amortization of goodwill and entertainment
expenses. Partially offsetting these factors were foreign tax
rates which are lower than the U.S. statutory rate.
Discontinued Operations
-----------------------
Effective July 1, 1994, the Company entered into a reinsurance
agreement providing $200 million of coverage for certain
discontinued exposures in excess of an aggregate self-insured
retention of $73 million. The premium paid for this agreement
was $80 million. The reinsurance agreement provides coverage
for the previously disclosed Orion and Syndicate 701 exposures
as well as underwriting exposures related to the activities of
Swann & Everett, an underwriting agency the Company is running-off.
Included in the $200 million of coverage is $10 million of
additional coverage in excess of the current coverage provided
to the Atlanta and Bermuda insurance companies under the 1989
reinsurance agreement. The Company may be liable for certain
additional premiums if loss experience deteriorates significantly
beyond what is currently actuarially projected.
As a result of this transaction, the Company recorded a $6
million charge in the second quarter of 1994 representing the
cost of the premium and deductible that exceeded existing
reserves for the covered exposures.
18
<PAGE>
Alexander & Alexander Services Inc. & Subsidiaries (the Company)
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
---------------------------------------------------------------------
Results of Operations (continued)
---------------------------------
Six Months ended June 30, 1994 vs. 1993
---------------------------------------
The net loss for the six months ended June 30, 1994 was $6.6
million, $0.25 per share. Included in the results was a $6 million
after-tax charge of $0.14 per share, relating to the purchase of
reinsurance coverage for the Company's discontinued operations and a
$2.6 million after-tax charge, or $0.06 per share, for the
cumulative effect of a change in accounting principle relating to
the adoption of SFAS No. 112, "Employers Accounting for
Postemployment Benefits."
Net income for the six months ended June 30, 1993 was $26.3 million
or $0.56 per share, including after-tax gains of $2 million or $0.05
per share from the sale of two small operations and a gain relating
to a cumulative effect adjustment of $3.3 million, or $0.08 per
share, from a change in accounting for income taxes.
Effective January 1, 1993, the Company adopted the provisions of
SFAS No. 106, "Employers Accounting for Postretirement Benefits
Other Than Pensions." The Company elected to amortize the initial
transition obligation of $14 million over a twenty year period. The
effect of this accounting change was not significant to the
Company's results of operations.
Operating Revenues
------------------
Consolidated operating revenues were $658.1 million for the first
six months of 1994, a decrease of $8.6 million or 1.3 percent
from the $666.7 million in the first six months of 1993. The
effects of changes in foreign exchange rates and the revenues
of operations sold in 1993 were unfavorable by $12.8 million.
Total commissions and fees decreased by $3.9 million or 0.6
percent in the first half of 1994 compared to 1993. The
effects of changes in foreign exchange rates and the revenues
from operations sold in 1993 negatively impacted the comparable
period by $9.8 million.
Worldwide risk management and insurance services broking revenues
were essentially flat in the first six months of 1994 versus
the corresponding period in 1993. Broking revenues in the U.S.
decreased by $15.6 million in the first six months of 1994
compared to 1993. The continued softness in certain insurance
markets and lost business had a negative impact on broking
revenues. Offsetting a majority of the U.S. decline was a $9.1
million increase in 1994 revenues due to the third quarter 1993
acquisition in Mexico, a $2.4 million increase in the European
operations and a $2 million increase in the Company's U.S.-
based claims administration operation.
Specialist commissions and fees decreased by $1.8 million in the
first six months of 1994 over 1993 due to the withdrawal of a
significant underwriter for certain classes of business as well
as lower contingent commissions.
Reinsurance broking commissions and fees were up $2.9 million in
the first six months of 1994 versus 1993 primarily due to
selected premium rate increases and new business, particularly
in Canada, France and Latin America.
19
<PAGE>
Alexander & Alexander Services Inc. & Subsidiaries (the Company)
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
-----------------------------------------------------------------------
Results of Operations (continued)
---------------------------------
Six Months ended June 30, 1994 vs. 1993 (continued)
---------------------------------------------------
Operating Revenues (continued)
------------------------------
Human resource management consulting commissions and fees
increased by $2.3 million or 2.3 percent in the first half of
1994 compared to 1993. Revenue growth of $5.4 million or 8.4
percent was reflected in the U.S. operations due to new
business and client retention efforts. Partially offsetting
this increase was a $2.9 million decrease in the Canadian
operations due to changes in foreign exchange rates and a
decline in the expected realization of consulting services.
Fiduciary investment income decreased by 16.7 percent for the
first six months of 1994 compared to 1993 primarily due to
lower interest rates and average investment levels,
particularly in the U.S.
Operating Expenses
------------------
Consolidated operating expenses were $638.3 million for the first
six months of 1994, an increase of $16.1 million or 2.6 percent
compared to the comparable period of 1993. The effect of
changes in foreign exchange rates and hedging contract gains
and losses was favorable by $6.6 million for the comparative
period.
Salaries and related benefits increased by $11.2 million or 2.9
percent, including $4 million relating to the 1993 acquisition
in Mexico. Staff costs in 1994 include normal salary
progressions and higher benefit costs partially offset by a 2.3
percent decline in headcount.
Other operating expenses increased by $4.9 million or 2.1 percent
in the first six months of 1994 compared to 1993, including $2
million relating to the Mexico acquisition. This increase also
reflects higher systems development expenses and insurance
costs.
Other Income (Expenses)
-----------------------
Investment income earned on operating funds decreased by $1.2
million due to lower interest rates and investment levels.
Interest expense decreased by $0.4 million due to lower average
debt levels.
Other income (expenses) in 1994 and 1993 includes $5.4 million
and $6.6 million, respectively, of provisions for legal costs
and, in 1994, estimated indemnities of $1.2 million to the
purchasers of Shand related to the Mutual Fire rehabilitation
and in 1993 included pre-tax gains of $3.3 million on the sales
of two small operations in the U.S., including a retail brokerage
office and a small claims administration operation.
Income Taxes
------------
The Company reported income taxes of $3.8 million on pre-tax
income of $9.6 million in the first half of 1994. This
compares to an expected tax expense of $3.4 million based upon
the U.S. statutory rate of 35 percent. The tax rate was
favorably impacted by state and local tax benefits on losses
generated in the U.S. operations in the first six months of
1994 as well as foreign tax rate lower than the U.S. statutory
rate. Offsetting these factors are certain expenses which are
not deductible, including amortization of goodwill and
entertainment expenses.
20
<PAGE>
Alexander & Alexander Services Inc. & Subsidiaries (the Company)
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
-----------------------------------------------------------------------
Results of Operations (continued)
---------------------------------
Six Months ended June 30, 1994 vs. 1993 (continued)
---------------------------------------------------
Income Taxes (continued)
------------------------
The Company's effective tax rate in the first six months of 1993
was 36.5 percent. This rate was higher than the U.S. rate of
34 percent primarily due to amortization of goodwill and other
non-deductible expenses. The tax rate was favorably impacted
by the results of Clay & Partners, a U.K.-based actuarial
consulting operation acquired in 1993 in a pooling of interests
transaction. Prior to the merger, Clay & Partners operated as
a partnership and accordingly, their results did not reflect
corporate income taxes of approximately $1 million.
As discussed in Note 4, the Company was advised by the IRS, in a
letter dated May 26, 1994, that the Joint Committee on Taxation
had approved that settlement agreement. The liability for tax
and net interest with regard to this settlement will actually
be due for years 1987 through 1989 due to acceleration in the
use of net operating losses and tax credits. The Company is
currently under examination by the IRS for years 1987 through
1991.
The Company believes that its current tax reserves are adequate
to cover its tax liabilities including the 1980-1986
settlement.
Cumulative Effect Adjustments
-----------------------------
Effective January 1, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." This
statement requires that certain benefits provided to former or
inactive employees after employment but prior to retirement,
including disability benefits and health care continuation
coverage, be accrued based upon the employees' service already
rendered. The cumulative effect of this accounting change was
an after-tax charge of $2.6 million or $0.06 per share in the
first quarter of 1994. The increase to the annual cost of
providing such benefits will not be significant.
Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." The cumulative effect of
adopting this standard increased net income in the first
quarter of 1993 by $3.3 million or $0.08 per share. Tax
benefits of $3.2 million were also allocated to paid-in capital
representing the difference in the tax bases over the book
bases of the net assets of taxable business combinations
accounted for as pooling of interests. These benefits would
have been recognized at the respective dates of combination if
SFAS No. 109 had been applied at that time.
Liquidity and Capital Resources
-------------------------------
During the first six months of 1993, cash and cash equivalents
increased by $101.4 million. Of this amount, operating funds
decreased by $41.6 million and fiduciary funds, which are generally
not available for operating needs, increased by $143 million. At
June 30, 1994, the Company's operating cash and cash equivalents
balance was $109.8 million.
The net cash provided by operating activities for the first six
months of 1994 was due largely to changes in fiduciary balances.
The Company's net capital expenditures for property and equipment
were $10.9 million the first six months of 1994. Capital
expenditures are expected to increase throughout the year as the
Company continues with its investment in redesigning work processes
and enhancing systems technology.
21
<PAGE>
Alexander & Alexander Services Inc. & Subsidiaries (the Company)
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
-----------------------------------------------------------------------
Liquidity and Capital Resources (continued)
-------------------------------------------
The Company has a long-term credit agreement with various banks
which expires in July 1995. The amended agreement provides for
unsecured borrowings and contains various covenants including limits
on minimum net worth, maximum consolidated debt, minimum interest
coverage and minimum consolidated cash flow from operations.
At March 31, 1994, the Company was not in compliance with one of the
financial covenants of the long-term credit agreement. The
Company's bank group granted a waiver of this covenant requirement
for the first quarter of 1994.
In addition, effective as of March 31, 1994, the long-term credit
agreement was amended to reduce the amount of the commitment from
$150 million to $75 million. The Amendment also required that the
Company be in compliance with all of the credit agreement's
financial covenants for two consecutive quarters, without giving
effect to any waiver of compliance which may have been granted,
prior to making committed borrowings under the long-term credit
agreement.
At June 30, 1994, the Company was not in compliance with two of the
financial covenants and the bank group granted a waiver of such
covenant requirements for the second quarter of 1994.
Effective July 15, 1994, the long-term credit agreement was amended
to increase the amount of the commitment from $75 million to $150
million and also to remove the March 31, 1994 provision requiring
the Company to be in compliance with all covenants for two
consecutive quarters prior to borrowing under the facility.
As a result of the July 1994 amendment, the Company has full and
immediate access to the $150 million credit line. The Company has
no borrowings outstanding under this agreement, and does not
anticipate a need to borrow under the agreement for the remainder of
its term.
Supplementing the credit agreement, the Company has unsecured lines
of credit available for general corporate purposes totaling $125.7
million, of which $121.8 million were unused at June 30,1994. These
lines consist of uncommitted cancellable facilities in the U.S. and
other countries. If drawn, the lines bear interest at market rates
and carry annual commitment fees of not greater than 1/2% of the
line.
On July 1, 1994, Alexander & Alexander Services Inc. borrowed
$50 million from the reinsurance company that executed the reinsurance
contract discussed in Note 5. The note is payable in five equal
annual installments, commencing July 1, 1997 and bears interest at a
rate of 9.45%. If Alexander & Alexander Services Inc. defaults on the
borrowing, the reinsurance company may utilize Alexander & Alexander
Services Inc.'s note to settle reinsurance claims under the contract.
At June 30, 1994, the Company has an accumulated deficit of $141.8
million. The Company's current financial position satisfies
Maryland law requirements for the payment of dividends. The Board
of Directors will continue to take into consideration the Company's
financial performance and projections, as well as the provisions of
the AIG Agreement pertaining to dividends described in Note 10, in
connection with future decisions with respect to dividends. As previously
discussed, in May 1994 the Board of Directors reduced the Company's
quarterly dividend from $0.25 to $0.025 per share. The estimated annual cash
flow savings based upon the current number of shares outstanding is
approximately $39 million.
22
<PAGE>
Alexander & Alexander Services Inc. & Subsidiaries (the Company)
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
-----------------------------------------------------------------------
Liquidity and Capital Resources (continued)
-------------------------------------------
As described in Notes 5 and 9 of Unaudited Notes to Financial
Statements, the Company has significant litigation and other
exposures which may require cash resources. In addition, as
described in Note 4 of Unaudited Notes to Financial Statements, the
Company was advised by the IRS in a letter dated May 26, 1994, that
the Joint Committee review has been completed and that the Company's
settlement with the IRS has been approved. The settlement, which
approximates $38 million in tax and net interest, does not require
any cash resources until the examinations of the years 1987 through
1989 are finalized with the IRS. This is expected to occur in the
second half of 1994. The Company has substantial arguments and
legal defenses against its litigation exposures; however, the timing
and ultimate outcome of these issues cannot be predicted with
certainty. When funds are required on the settlement with the IRS
and in the event additional funds are required to meet litigation
exposures, the Company believes it has sufficient resources,
including credit capacity, to cover those tax liabilities and other
potential liabilities which are likely to arise on settlement of
other issues.
On July 15, 1994, pursuant to the terms of a Stock Purchase and
Sales Agreement, AIG purchased from the Company 4,000,000 shares of
Series B Convertible Preferred Shares at a purchase price of $50 per
share for a total purchase price of $200,000,000. Such proceeds,
net of approximately $3.8 million of related expenses, are available
for general corporate purposes, of which $30 million has been used
to fund the reinsurance arrangement with respect to discontinued
operations.
Under the terms of the AIG Agreement, the declaration or payment of
dividends in excess of prescribed amounts may require the Company to
purchase all or part of the then outstanding Series B Convertible
Preferred Shares. Dividends on the Series B Convertible Preferred
Shares will reduce the amount of earnings otherwise available for common
stockholders by approximately $16 million in the first year after
issuance, and by approximately $23 million in the fifth year after
issuance, assuming dividends on the Series B Convertible Preferred
Shares were to be paid in kind throughout the first five years after
issuance. Reference is made to Part II, Item 2 of this report for a
description of the rights of Series B Convertible Preferred Shares.
Also, on July 15, 1994, the purchasers of Shand executed their
Purchase Agreement option to purchase an office building owned and
accounted for by the Company as a direct financing lease by assuming
the non-recourse mortgage notes of $19.5 million. No gain or loss
will be recognized on this transaction.
The Company believes that cash flow from operations, along with
current operating cash balances and supplemented by the proceeds
from the Series B Convertible Preferred Shares and assets sales,
will be sufficient to fund working capital and other operating
requirements. In the event additional funds are required, the
Company believes it will have sufficient resources, including
borrowing capacity, to meet such requirements.
23
<PAGE>
PART II. OTHER INFORMATION
Alexander & Alexander Services Inc. & Subsidiaries
--------------------------------------------------
Item 1. Legal Proceedings
The Company and its subsidiaries are subject to various claims and
lawsuits from both private and governmental parties, which include
claims and lawsuits in the ordinary course of business, consisting
principally of alleged errors and omissions in connection with the
placement of insurance and in rendering consulting services. In
some of these cases, the remedies that may be sought or damages
claimed are substantial. Additionally, the Company and its
subsidiaries are subject to the risk of losses resulting from the
potential uncollectibility of insurance and reinsurance balances
and claims advances made on behalf of clients and indemnifications
connected with the sales of certain businesses.
Reference is made to the discussion under the caption "Item 3.
Legal Proceedings" of the Company's Report on Form 10-K for the
fiscal year ended December 31, 1993 as to the Section captioned
"Mutual Fire and Shand Contingencies" which is amended in its
entirety as follows.
In 1987, the Company sold Shand, Morahan & Company, Inc. (Shand),
its domestic underwriting management subsidiary. The sales
contract between the Company and Shand's purchasers obligates the
Company to certain indemnities with respect to transactions
involving Mutual Fire Marine and Inland Insurance Company (Mutual
Fire). The Company, Alexander & Alexander Inc., a subsidiary of
the Company, and Shand are defendants in a lawsuit brought in 1991
by the Pennsylvania Insurance Commissioner as rehabilitator of
Mutual Fire. The complaint alleges matters within the terms of
such indemnification obligation. The action, in the United States
District Court for the Eastern District of Pennsylvania and styled
Constance B. Foster v. Alexander & Alexander Services Inc. et al.
(Civil Action No. 91-1179), arises out of Shand's relationship as
underwriting manager for Mutual Fire, now insolvent. The
complaint alleges that Shand, and in certain respects the Company,
breached duties to, and agreements with, Mutual Fire. In addition
to claiming compensatory damages, the complaint seeks punitive
damages and recovery of certain commissions paid to Shand and the
Company. The complaint does not specify, to any meaningful
degree, the amount of alleged damages incurred or sought. The
rehabilitator, through an updated expert's report, has indicated
to Shand and the Company that the damages alleged are in the
amount of $234.6 million. The expert's report previously alleged
damages in the amount of $238.5 million. The Company and Shand
strongly disagree with the alleged damages in the updated report
and have substantial arguments to sustain their position. The
Company and Shand have finalized a series of expert reports that
rebut the rehabilitator's report. The case is likely to be placed
on the trial calendar in 1994. Management of the Company believes
that there are valid defenses to the allegations set forth in the
complaint and the Company is vigorously defending this action.
The sales contract between the Company and Shand's purchasers also
obligates the Company to certain other indemnities with respect to
transactions involving Mutual Fire. In November 1992, the
purchaser, by written notice, asserted indemnification claims
related to reinsurance recoverables due from Mutual Fire. In
February 1993, the Company agreed to settle certain of these
claims. The Company has estimated its exposure under this
settlement, net of anticipated recoveries from certain trusteed
assets held for Shand's benefit of $10.8 million and net of $4.6
million of set-offs, and established a reserve in 1992. The
Mutual Fire rehabilitator has challenged Shand's right to recover
these assets and the utilization of such set-offs.
24
<PAGE>
PART II. OTHER INFORMATION (continued)
Alexander & Alexander Services Inc. & Subsidiaries
--------------------------------------------------
Item 1. Legal Proceedings (continued)
The purchasers of Shand have also notified the Company of
indemnification claims for reinsurance recoverables arising under
the Company's obligation to indemnify the purchasers for losses
suffered as a result of errors and omissions in connection with
professional services provided by Shand prior to the sale of Shand
in 1987. To date, five reinsurers have alleged that based on the
outcome of reviews of other professional services provided by
Shand, Shand committed such errors and omissions, and the
purchasers of Shand have advised the Company that other reinsurers
may make similar allegations in the future. To date there has
been no adjudication that Shand in fact committed any error or
omission, and in the pending arbitrations between Shand and
its reinsurers in which the alleged errors and omissions are at
issue Shand is actively disputing the allegations. Of the five
indemnification claims asserted by the purchasers of Shand against
the Company, two have been settled. The remaining three
indemnification claims are the subject of an arbitration
proceeding commenced by the purchasers against the Company in July
1994 in which the purchasers seek reinsurance recoverables or
collateral for such recoverables in excess of $16.5 million. The
Company believes that, until the merits of the alleged errors and
omissions have been adjudicated, the Company's exposure under the
indemnity is limited to the costs and related expenses incurred by
Shand in adjudicating the merits of the allegations. The Company
intends vigorously to dispute the indemnification claims for
reinsurance recoverables asserted by the purchasers in the
arbitration.
Reference is made to the discussion under the caption "Item 3.
Legal Proceedings" of the Company's Report on Form 10-K for the
fiscal year ended December 31, 1993 as to the legal proceeding
captioned The Highway Equipment Company, et al. v. Alexander
Howden Limited, et al. (Case No. 1-85-01667, U.S. Bankruptcy
Court, So. Dist. Ohio, Western Div.) which is incorporated in its
entirety herein, except as amended as follows. In April 1993, the
bankruptcy court ordered a directed verdict in the Company's
favor. That verdict was affirmed in March 1994 in a decision by
the U.S. District Court for the Southern District of Ohio and
plaintiffs have appealed the decision to the U.S. Court of Appeals
for the Sixth Circuit.
Reference is made to the discussion under the caption "Item 3.
Legal Proceedings" of the Company's Report on Form 10-K for the
fiscal year ended December 31, 1993 as to the legal proceeding
captioned Harry Glickman v. Alexander & Alexander Services Inc.,
et al. (Civil Action No. 93 Civ. 7594) (S.D.N.Y.) which is
incorporated in its entirety herein except as amended as follows.
At a conference with the U.S. District Court for the Southern
District of New York in March 1994, counsel for the plaintiff was
directed to inform counsel for the Company whether plaintiff
intended to file a second amended complaint. Pending a decision
by plaintiffs' counsel, the Company's time to move or answer the
amended complaint is in abeyance.
25
<PAGE>
PART II. OTHER INFORMATION (continued)
Alexander & Alexander Services Inc. & Subsidiaries
--------------------------------------------------
Item 2. Changes in Securities
At a special meeting of the Company's stockholders held on July
15, 1994 (Special Meeting) an amendment to the Company's Charter
(Charter Amendment) was approved. The Charter Amendment
authorized (i) an increase in the number of authorized shares of
stock of the Company (ii) the terms of a new class of common
stock, Class D Common Stock, par value $1.00 (Class D Shares) and
(iii) other minor amendments. At the Special Meeting,
stockholders also approved the transactions contemplated by the
Stock Purchase and Sale Agreement entered into by the Company and
American International Group, Inc. (AIG) on June 7, 1994, as it
may be amended from time to time (AIG Agreement), which included
approval of the issuance and sale of 4,000,000 shares of the
Company's 8% Series B Cumulative Convertible Preferred Stock, par
value $1.00 (Series B Convertible Preferred Shares) to three
wholly owned subsidiaries of AIG at a purchase price of $50 per
share for a total purchase price of $200 million (AIG Investment).
In related matters, the Board of Directors authorized an increase
in the number of authorized shares of the Series A Junior
Participating Preferred Stock, par value $1.00 (Participating
Preferred Shares), from 600,000 shares to 1,000,000 shares and
certain amendments were made to the Company's Rights Agreement
associated with the Participating Preferred Shares.
The following describes the Charter Amendment, the rights of
Series B Convertible Preferred Shares and Class D Shares and the
amendments associated with Participating Preferred Shares.
Charter Amendment
The Charter Amendment, which became effective on July 15, 1994,
increased the total authorized capital stock of the Company to
292,000,000 shares of five classes consisting of 200,000,000
shares of Common Stock, par value $1.00 (Common Stock); 26,000,000
shares of Class A Common Stock, par value $.00001 (Class A
Shares); 11,000,000 shares of Class C Common Stock, par value
$1.00 (Class C Shares); 40,000,000 Class D Shares; and 15,000,000
shares of Preferred Stock, par value $1.00 (Preferred Shares).
The aggregate par value of all shares of all classes of stock
which the Company will, pursuant to the Charter Amendment, have
authority to issue is $266,000,260. Prior to the effective date
of the Charter Amendment, the Company had total authorized capital
stock equal to 88,500,000 shares of four classes consisting of
60,000,000 shares of Common Stock; 13,000,000 Class A Shares,
5,500,000 Class C Shares, and 10,000,000 Preferred Shares.
Series B Convertible Preferred Shares
The Series B Convertible Preferred Shares were issued on July 15,
1994. The shares are convertible into Class D Shares at a
conversion price of $17 per share of Class D Share, subject to
adjustment. The holders of the Class D Shares have the right to
exchange Class D Shares for Common Stock, at any time or from time
to time, on a share-for-share basis, subject to certain limitations
discussed below as to the amount of shares which may be converted.
26
<PAGE>
PART II. OTHER INFORMATION (continued)
Alexander & Alexander Services Inc. & Subsidiaries
--------------------------------------------------
Item 2. Changes in Securities (continued)
Series B Convertible Preferred Shares (continued)
Holders of Series B Convertible Preferred Shares are entitled to
receive cumulative dividends at a rate of 8% per annum payable
quarterly in arrears. Until December 15, 1996, dividends on the
Series B Convertible Preferred Shares are payable in kind and
thereafter, at the election of the Board of Directors, in cash or
in kind until December 15, 1999, provided that if the Company at
any time pays dividends in cash on or after December 15, 1996, the
Company may not thereafter declare or pay dividends in kind. With
respect to dividend rights and rights of liquidation, dissolution
and winding up, Series B Convertible Preferred Shares rank senior
to Common Stock, Class A Shares, Class C Shares, Class D Shares
and Participating Preferred Shares (when and if issued) and pari
passu with the $3.625 Series A Convertible Preferred Stock, par
value $1.00 (Series A Convertible Preferred Shares).
In determining whether a distribution by the Company (other than
upon voluntary or involuntary liquidation), by dividend,
redemption or other acquisition of shares or otherwise, is
permitted pursuant to the balance sheet solvency test under the
Maryland General Corporation Law, the aggregate liquidation
preference of the Series B Convertible Preferred Shares will not
be counted as a liability. The Series B Convertible Preferred
Shares have a liquidation preference of $50 per share.
Series B Convertible Preferred Shares are non-voting, except as
provided by law and except that, among other things, holders will
be entitled to vote as a separate class with any other series of
outstanding Preferred Stock to elect a maximum of two directors if
the equivalent of six or more quarterly dividends on the Series B
Convertible Preferred Shares are in arrears. Following the
occurrence of a Specified Corporate Action (as defined in the
Company's Charter) holders shall also have the right to vote as a
class with the holders of the Common Stock and the Class D Shares
on all matters as to which the holders of Common Stock are
entitled to vote. A Specified Corporate Action is defined
generally as an action by the Company that would permit a change
in control and certain related events.
For the purposes of such vote, the holders of the Series B
Convertible Preferred Shares will be deemed holders of that number
of Class D Shares into which such shares would then be
convertible.
The Series B Convertible Preferred Shares may be redeemed in whole
or in part by the Company after December 15, 1999, so long as
after that date the Common Stock has traded 30 consecutive trading
days on the New York Stock Exchange at a price in excess of 150%
of the then effective conversion price. The redemption price will
be $54 per share until December 14, 2000, declining ratably
annually to $50 per share on or after December 14, 2006, plus
accrued and unpaid dividends. All redemptions are to be made pro-
rata.
27
<PAGE>
PART II. OTHER INFORMATION (continued)
Alexander & Alexander Services Inc. & Subsidiaries
--------------------------------------------------
Item 2. Changes in Securities (continued)
Series B Convertible Preferred Shares (continued)
Holders of Series B Convertible Preferred Shares have the right to
require the Company to purchase all or any part of the Series B
Convertible Preferred Shares then held by such holders upon the
occurrence of a Special Event. A Special Event includes the
declaration or payment of dividends aggregating in excess of
$0.075 per share of Common Stock during the last seven months of
1994, cumulatively 25% of earnings in 1995 and 1996, and
cumulatively 50% of earnings thereafter; the disposition by the
Company of assets representing 35% or more of the Company's book
value or gross revenues; and certain mergers of the Company or any
of its principal subsidiaries with or into any other firm or
entity. Other Special Events include the acquisition by a third
party, with the consent or approval of the Company, of beneficial
ownership of securities representing 35% or more of the Company's
total outstanding voting power. The repurchase price, in the
event of a Special Event, is at a specified premium, ranging from
$58.82 per share, if the Special Event occurs on or before six
months after the original issue date, to $72.06 per share, if the
Special Event occurs more than twelve months after the original
issue date, plus in each case accrued and unpaid dividends.
The approximately 11,765,000 shares of Common Stock
issuable upon the ultimate conversion of the Series B
Cumulative Preferred Shares represent approximately 21%
of the aggregate number of voting shares of outstanding
after giving effect to such issuance based on voting shares
outstanding as of August 1, 1994. If dividends on the
Series B Preferred Shares are paid in kind for the full five year
period permitted, approximately 18,069,000 shares of Common Stock
will be issuable upon such exchange, representing approximately
29% of the total number of voting shares of outstanding after
giving effect to such issuance, based on voting shares outstanding
as of August 1, 1994.
Class D Shares
Holders of the Class D Shares have the same rights to receive
dividends as the holders of the Common Stock. In the event of the
voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of Class D Shares and Common Stock
participate ratably in proportion to the number of shares held by
each such holder in any distribution of assets of the Company to
such stockholders. In addition, in the event the Company effects
a subdivision or combination or consolidation of the outstanding
shares of Class D Shares into a greater or lesser number of shares
of Class D Shares, then in each such case the Company will effect
an equivalent subdivision or combination or consolidation of the
outstanding shares of Common Stock into a greater or lesser number
of shares of Common Stock. The Class D Shares are non-voting,
except as provided by law, in the event of a proposed amendment to
the Company's Charter that would adversely affect holders of
shares of Class D Shares and following the occurrence of a
Specified Corporate Event. The holders of the Class D Shares
shall have the right to exchange Class D Shares for Common Stock,
at any time or from time to time, on a share-for-share basis,
provided, however, that no person shall be entitled to acquire
Common Stock upon such exchange if after giving effect thereto
such person shall have, or shall have the then contractual right
to acquire through conversion, exercise of warrants or otherwise,
more than 9.9% of the combined voting power of the Company's
voting shares then outstanding, absent certain events.
Series A Junior Participating Preferred Shares
In addition, on July 15, 1994, the Board of Directors took certain
actions relating to the Company's Series A Junior Participating
Preferred Stock, par value $1.00 (Participating Preferred
Shares). The number of authorized Participating Preferred Shares
increased from 600,000 shares to 1,000,000 shares. The following
amendments to the Company's Rights Agreement (described below)
were made.
28
<PAGE>
PART II. OTHER INFORMATION (continued)
Alexander & Alexander Services Inc. & Subsidiaries
--------------------------------------------------
Item 2. Changes in Securities (continued)
Series A Junior Participating Preferred Shares (continued)
In connection with the AIG Investment, the Board of Directors
amended the Rights Agreement, dated as of June 11, 1987, between
the Company and First Chicago Trust Company of New York, as
amended and restated as of March 22, 1990, as amended April 21,
1993 (Rights Agreement). Pursuant to Amendment No. 2 to the
Rights Agreement, effective as of June 6, 1994, the acquisition of
Series B Convertible Preferred Shares upon closing of the AIG
Agreement, the acquisition of Class D Shares upon conversion of
Series B Convertible Preferred Shares, the acquisition of Common
Stock upon exchange for Class D Shares or the acquisition by AIG
or its affiliates or any transferee thereof of any securities of
the Company (if such acquisition is permitted by the Purchase
Agreement) will not (i) cause any person to become an Acquiring
Person, (ii) cause the Distribution Date or the Shares Acquisition
Date to occur, or (iii) give rise to a Section 11(a)(ii) Event (as
such capitalized terms are defined in the Rights Agreement). With
respect to the Rights Agreement, the Class D Shares will be
treated as if such shares were Class C Shares, $1.00 par value, of
the Company.
In addition, on July 15, 1994, the Board of Directors approved
Amendment No. 3 to the Rights Agreement, which provides for, among
other things, modifications of the definitions of Acquiring Person
and Distribution Date to raise from 10% to 15% the percentage of
stock ownership needed to cause a person to become an Acquiring
Person or to cause a Distribution Date to occur (as such
capitalized terms are defined in the Rights Agreement).
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 19,
1994. At the meeting, the Company's stockholders acted upon the
election of directors and a proposal to ratify the appointment of
Deloitte & Touche LLP as the Company's independent auditors for
1994.
All seven nominees named in the Company's Proxy Statement, dated
April 13, 1994, were elected to hold office until the next Annual
Meeting of Stockholders and until their respective successors are
elected and qualified. The vote for election of directors was as
follows:
FOR WITHHELD
--- --------
Robert E. Boni 39,577,736 10,992
Kenneth Black, 39,253,686 335,042
Jr.
John A. Bogardus, 38,528,468 1,060,260
Jr.
Peter C. Godsoe 39,451,473 137,255
Angus M.M. 39,334,433 254,295
Grossart
Vincent R. McLean 39,339,653 249,075
William M. Wilson 39,266,488 322,240
There were no abstentions or broker non-votes with respect to the
election of directors.
The proposal to ratify the appointment of Deloitte & Touche LLP as
independent auditors of the Company for 1994 was duly adopted.
The vote was as follows: 38,216,353 votes were cast for adoption
of the proposal; 1,141,735 votes were cast against adoption of the
proposal; and there were 230,640 abstentions and broker non-votes
with respect to the proposal.
29
<PAGE>
PART II. OTHER INFORMATION (continued)
Alexander & Alexander Services Inc. & Subsidiaries
--------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
(continued)
A Special Meeting of Stockholders of the Company was held on July
15, 1994. At the meeting, the Company's stockholders acted upon
(i) a proposal to approve a Stock Purchase and Sale Agreement,
dated as of June 6, 1994, between the Company and American
International Group, Inc. (AIG), pursuant to which the Company
would issue and sell 4,000,000 shares of its 8% Series B
Cumulative Convertible Preferred Stock (Series B Convertible
Preferred Shares) to AIG for an aggregate purchase price of
$200,000,000 (AIG Agreement) and all transactions contemplated
pursuant to the AIG Agreement; and (ii) a proposal to approve
certain amendments to the Company's charter (together, Charter
Amendment) to, among other things, (A) increase the number of
authorized shares of capital stock; and (B) establish the terms of
the Class D Shares, into which Series B Convertible Preferred
Shares are convertible.
The proposal to approve the AIG Agreement and related matters was
duly adopted. The vote was as follows: 34,803,859 votes were cast
for adoption of the proposal; 428,046 votes were cast against
adoption of the proposal; and there were 128,806 abstentions and
broker non-votes with respect to the proposal.
The proposal to approve the Charter Amendment was duly adopted.
The vote was as follows: 33,617,605 votes were cast for adoption
of the proposal; 1,596,150 votes were cast against adoption of the
proposal; and there were 146,177 abstentions and broker non-votes
with respect to the proposal.
Item 5. Other Information
At a special meeting of the Board of Directors held on June 6 and
7, 1994, the Board of Directors elected Frank G. Zarb as Chairman
of the Board, President and Chief Executive Officer of the
Company.
On July 15, 1994, the purchasers of Shand exercised their Purchase
Agreement option to purchase an office building owned and
accounted for by the Company as a direct financing lease by
assuming the non-recourse mortgage notes of $19.5 million.
At a special meeting of the Board of Directors on July 15, 1994,
three new directors were elected. The newly elected directors
are: W. Peter Cooke, Chairman, World Regulatory Advisory Practice,
Price Waterhouse, London, England; Joseph L. Dionne, Chairman and
Chief Executive Officer, McGraw-Hill, Inc., New York, New York;
and James D. Robinson III, President, J.D. Robinson Inc., New
York, New York. This increased the size of the board from 8 to 11
members.
On August 4, 1994, the Company signed a letter of intent to sell
its U.S.-based personal lines insurance brokerage business. The
sale is subject to certain conditions, including the execution of
a definitive agreement and obtaining regulatory approvals. The
total proceeds from the sale are expected to approximate $30
million with a resulting pre-tax gain of approximately $20
million.
30
<PAGE>
PART II. OTHER INFORMATION (continued)
Alexander & Alexander Services Inc. & Subsidiaries
--------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Item
---------- ----
3.1 Articles of Amendment, dated July 15,
1994, to the Articles of Incorporation of
the Company.
3.2 Articles Supplementary of the Company,
dated July 15, 1994 relating to the 8%
Series B Cumulative Convertible Preferred
Stock.
3.3 Articles Supplementary of the Company,
dated July 15, 1994 relating to the
Series A Junior Participating Preferred
Stock.
4.1 Amendment No. 2 to Rights Agreement,
effective as of June 6, 1994, between the
Company and First Chicago Trust Company
of New York, as Rights Agent
(incorporated herein by reference to
Report on Form 8-A/A, Amendment No. 4
filed with the Commission on July 15,
1994).
4.2 Amendment No. 3 to Rights Agreement,
dated as of July 15, 1994, between the
Company and First Chicago Trust Company
of New York, as Rights Agent
(incorporated herein by reference to
Report on Form 8-A/A, Amendment No. 4
filed with the Commission on July 15,
1994).
10.1 Stock Purchase and Sale Agreement, dated
as of June 6, 1994, between the Company
and American International Group, Inc.
(incorporated herein by reference to the
Company's Proxy Statement for the Special
Meeting of Stockholders held on July 15,
1994 filed with the Commission on June
27, 1994).
10.2 Registration Rights Agreement, dated as
of July 15, 1994, among the Company and
each of the purchasers listed on the
signature page thereto.
10.3 Agreements relating to the Company's
acquisition of reinsurance protection for
Sphere Drake-Related exposures: (i)
Letter Agreement, dated July 1, 1994,
between Centre Reinsurance (Bermuda)
Limited ("Centre Re") and Alexander
Stenhouse & Partners Limited, having
attached thereto a Binder of Reinsurance;
(ii) Letter Agreement, dated July 1,
1994, between Centre Re and Atlanta
International Insurance Company, American
Special Risk Insurance Company and Trent
Insurance Company Limited, having
attached thereto a Binder of Reinsurance;
(iii) Letter Agreement, dated July 1,
1994, between the Company and Centre Re;
and (iv) Letter Agreement, dated June 30,
1994, between American International
Group, Inc. and the Company.
31
<PAGE>
PART II. OTHER INFORMATION (continued)
Alexander & Alexander Services Inc. & Subsidiaries
--------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K (continued)
(b) Reports on Form 8-K
Current Report on Form 8-K was filed on June 7, 1994
regarding two press releases noticing that (i) American
International Group, Inc. (AIG) had agreed to invest
$200 million in the Company through the issuance and
sale to AIG of the Company's Series B Cumulative
Convertible Preferred Stock, and also that the Board of
Directors had declared a quarterly dividend of $0.025
per share to holders of record on June 17, 1994; and
(ii) the Company's Board of Directors had appointed
Frank G. Zarb as Chairman, President and Chief Executive
Officer of the Company.
Current Report on Form 8-K was filed on July 19, 1994
regarding (i) a Special Meeting of Stockholders of the
Company held on July 15, 1994, at which stockholders
approved the issuance and sale of 4,000,000 shares of
the Company's Series B Convertible Preferred Shares to
AIG at a purchase price of $50 per share, for a total
purchase price of $200,000,000, and certain charter
amendments and agreements related to such issuance and
sale; (ii) certain amendments to the Company's Rights
Agreement; (iii) the amendment of the Company's long-
term credit agreement to restore the Company's line of
credit from $75 million to $150 million; (iv) the
election on July 15, 1994 of three new directors,
thereby increasing the number of directors from 8 to 11;
and (v) the purchase of reinsurance coverage for
indemnities and exposures relating to certain of the
Company's discontinued operations.
32
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, on the 15th day
of August, 1994.
ALEXANDER & ALEXANDER SERVICES INC.
-----------------------------------
(Registrant)
BY:/s/ Paul E. Rohner August 15, 1994
-----------------------------------------
Paul E. Rohner Date
Senior Vice President &
Chief Financial Officer
33
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC.
Quarterly Report on Form 10-Q
For the Quarterly Ended June 30, 1994
INDEX TO EXHIBITS
Certain exhibits to this Report on Form 10-Q have been incorporated by
reference. For a list of these Exhibits see Item 6 hereof. The following
exhibits are being filed herewith:
Exhibit
- - -------
3.1 Articles of Amendment, dated July 15, 1994, to the
Articles of Incorporation of the Company.
3.2 Articles Supplementary of the Company, dated July
15, 1994 relating to the 8% Series B Cumulative
Convertible Preferred Stock.
3.3 Articles Supplementary of the Company, dated July
15, 1994 relating to the Series A Junior
Participating Preferred Stock.
10.2 Registration Rights Agreement, dated as of July 15,
1994, among the Company and each of the purchasers
listed on the signature page thereto.
10.3 Agreements relating to the Company's acquisition of
reinsurance protection for Sphere Drake-Related
exposures: (i) Letter Agreement, dated July 1,
1994, between Centre Reinsurance (Bermuda) Limited
("Centre Re") and Alexander Stenhouse & Partners
Limited, having attached thereto a Binder of
Reinsurance; (ii) Letter Agreement, dated July 1,
1994, between Centre Re and Atlanta International
Insurance Company, American Special Risk Insurance
Company and Trent Insurance Company Limited, having
attached thereto a Binder of Reinsurance; (iii)
Letter Agreement, dated July 1, 1994, between the
Company and Centre Re; and (iv) Letter Agreement,
dated June 30, 1994, between American International
Group, Inc. and the Company.
EXHIBIT 3.1
ARTICLES OF AMENDMENT
OF THE CHARTER OF
ALEXANDER & ALEXANDER SERVICES INC.
ALEXANDER & ALEXANDER SERVICES INC., a Maryland
corporation (the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST, the charter of the Corporation (the "Charter")
is hereby amended as follows:
1. The first paragraph of Article SIXTH of the
Charter is hereby amended to read in its entirety as follows:
SIXTH: The total number of shares of stock
-----
which the Corporation has authority to issue is
two hundred ninety-two million (292,000,000)
shares of five classes, consisting of two hundred
million (200,000,000) shares of Common Stock,
$1.00 par value per share; twenty-six million
(26,000,000) shares of Class A Common Stock,
$.00001 par value per share; eleven million
(11,000,000) shares of Class C Common Stock, $1.00
par value per share; forty million (40,000,000)
shares of Class D Common Stock, $1.00 par value
per share; and fifteen million (15,000,000) shares
of Preferred Stock, $1.00 par value per share.
The aggregate par value of all shares of all
classes of stock which the Corporation has
authority to issue is $266,000,260.
2. Section A.(e) of Article SIXTH of the Charter is
hereby amended to read in its entirety as follows:
(e) redeemable, in whole or in part, at the
option of the Corporation or of the holder or
both, in cash, bonds or other property, at such
price or prices, within such period or periods,
and under such conditions as the Board of
Directors shall so provide, including provision
for the creation of a sinking fund for the
redemption thereof; and/or
3. A new Section J of Article SIXTH of the Charter
is hereby added to the Charter to read in its entirety as
follows:
<PAGE>
-2-
J. Class D Common Stock. Except as
--------------------
expressly provided by law or as set forth in this
Section J, shares of Class D Common Stock shall be
identical in all respects to the Common Stock,
including with respect to stock splits, stock
combinations, the right to receive dividends, or
with respect to distributions upon liquidation,
dissolution, winding up of the Corporation or
otherwise, without preference or distinction,
except that if any dividends in additional shares
of Common Stock are declared on the Common Stock a
like dividend in shares of Class D Common Stock
shall be authorized and declared on the Class D
Common Stock and if any such dividend or
distribution with respect to the Common Stock
includes securities that vote together with the
Common Stock ("Other Securities"), such securities
distributed with respect to shares of Class D
Common Stock shall be identical in all respects to
the Other Securities, except they shall not have
voting rights.
The holders of shares of Class D Common Stock
shall not have any voting rights except (i) to the
extent required by applicable law; (ii) an
amendment to or modification of, the Charter that
would adversely affect the holders of shares of
Class D Common Stock may only be adopted if such
amendment or modification has been approved by the
affirmative vote of the holders of at least
two-thirds of the outstanding shares of Class D
Common Stock, for purpose of which vote the
holders of 8% Series B Cumulative Convertible
Preferred Stock ("Series B Stock") shall be deemed
to be holders of that number of shares of Class D
Common Stock into which such Series B Stock would
then be convertible; and (iii) upon and after a
"change of control" of the Corporation, in which
event the holders of shares of Class D Common
Stock shall have the right to vote on all matters
submitted to a vote to the stockholders of the
Corporation as a single class together with the
Common Stock, the Class A Common Stock, the Class
C Common Stock and the Series B Stock, provided
that with respect to any matter contemplated by
subparagraph (ii) above, such vote shall be a
class vote as specified by such subparagraph.
For purposes of the foregoing provision,
"change of control" means such time as (i) the
<PAGE>
-3-
Corporation shall consent or agree to the
acquisition of, or the commencement of a tender
offer for, or the Board of Directors shall
recommend or, within 10 business days after the
commencement of the tender offer, not recommend
that shareholders' reject, a tender offer for,
"beneficial ownership" (as defined in Rule 13d-3
under the Exchange Act) by any "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended
("the Exchange Act")) other than American
International Group, Inc. ("AIG") and its
affiliates or any transferee thereof, of
securities of the Corporation entitled to vote
generally in the election of directors, or
securities convertible into or exchangeable for
such securities (collectively, "Designated
Securities"), representing, when added to the
Designated Securities already owned by such person
or group, thirty-five percent (35%) or more of
such Designated Securities; (ii) the Corporation
shall amend, modify or supplement, or waive the
benefit of, the Rights Agreement between Alexander
& Alexander Services Inc. and First Chicago Trust
Company of New York, dated as of June 11, 1987, as
amended and restated on March 22, 1990, as amended
on August 21, 1992 and June 6, 1994 (the "Rights
Agreement"), so as to permit any acquisition of
beneficial ownership of thirty-five percent (35%)
or more of the Designated Securities without
causing a person or group (other than AIG and its
affiliates or any transferee thereof) to become an
Acquiring Person (as defined in the Rights
Agreement) or without causing the Distribution
Date or the Shares Acquisition Date (each as
defined in the Rights Agreement) to occur or
without giving rise to a Section 11(a)(ii) Event
(as defined in the Rights Agreement); (iii) the
Corporation shall take any action under Section 3-
603(c) of the Maryland General Corporation Law to
exempt any transaction between the Corporation and
any of its subsidiaries, on the one hand, and any
person or group (other than AIG and its affiliates
or any transferee thereof), or any affiliates of
any such person or group, on the other hand, who
(A) acquire, own or hold beneficial ownership of
Designated Securities representing thirty-five
percent (35%) or more of such Designated
Securities from the provisions of Title 3,
Subtitle 6 of the Maryland General Corporation Law
or (B) acquire,
<PAGE>
-4-
own or hold beneficial ownership of Designated
Securities representing ten percent (10%) or more
of such Designated Securities unless such other
person or group, or any affiliate of such person or
group, enters into a standstill agreement with the
Corporation limiting the acquisition of Designated
Securities by such other person or group, or any
affiliates of such person or group, to less than 35%
of the Designated Securities and such standstill
agreement remains in full force and effect; (iv) the
Corporation shall issue, sell or transfer, in one or
a series of related transactions, Designated Securities
to any person or group (other than AIG and its
affiliates or any transferee thereof) if after
giving effect thereto said person or group shall
have, or shall have the then contractual right to
acquire through conversion, exercise of warrants
or otherwise, more than thirty-five percent (35%)
of the combined voting power to vote generally in
the election of directors of the Corporation; or
(v) the Corporation shall agree to merge or
consolidate with or into any person, firm,
corporation or other legal entity (other than AIG
and its affiliates or any transferee thereof) or
shall agree to sell all or substantially all its
assets to any such person, firm, corporation or
other legal entity other than (i) a merger or
consolidation of one subsidiary of the Corporation
into another or the Corporation, or (ii) a merger
or consolidation in which the securities of the
Corporation outstanding before the merger or
consolidation are not affected and in which the
Corporation issues equity securities having an
aggregate market value of less than 20% of the
total market value of the Corporation's equity
securities outstanding prior to such merger or
consolidation. "Affiliate" means, when used with
reference to any person, any other person directly
or indirectly controlling, controlled by, or under
direct or indirect common control with, the
referent person or such other person, as the case
may be, or any person who beneficially owns,
directly or indirectly, 10% or more of the voting
equity interests of such person or warrants,
options or other rights to acquire or hold more
than 10% of any class of voting equity interests
of such person. For the purposes of this
definition, "control" when used with respect to
any specified person means the power to direct or
cause the direction of management or policies of
such person,
<PAGE>
-5-
directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the
terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
The holders of Class D Common Stock shall
have the right to exchange each share of Class D
Common Stock for one share of Common Stock, at any
time, provided that, other than upon and after a
change of control, no person shall be entitled to
acquire shares of Common Stock upon such exchange
if after giving effect thereto such person shall
have, or shall have the then contractual right to
acquire through conversion, exercise of warrants,
or otherwise, more than 9.9% of the combined
voting power of the Common Stock, Class A Common
Stock and Class C Common Stock then outstanding.
The Corporation shall not be required to
register any transfer of shares of Class D Common
Stock, except as follows:
(a) to any person which acquired shares of
Class D Common Stock on the original issuance of
Class D Common Stock by the Corporation (a
"Purchaser");
(b) to the ultimate parent corporation of
any Purchaser (an "Approved Parent") or any
wholly-owned direct or indirect subsidiary of any
Approved Parent (a "Controlled Subsidiary");
(c) in a transfer (otherwise than to a
Purchaser, an Approved Parent or a Controlled
Subsidiary) pursuant to Rule 144 under the
Securities Act of 1933, as amended (the
"Securities Act"), or a successor provision;
(d) in a private sale (otherwise than to a
Purchaser, an Approved Parent or a Controlled
Subsidiary), provided that, other than upon and
after a change of control, the transferor shall
not knowingly sell to any single person or group
of persons acting in concert a number of shares of
Class D Common Stock which, if exchanged for
Common Stock, when added to other securities owned
by such person or group and to securities that
such person or group has the right to acquire by
conversion, exercise of warrants, or otherwise,
would cause
<PAGE>
-6-
such person or group to own or to have the right to
acquire more than 9.9% of the combined voting power
of the shares of Common Stock, Class A Common Stock
and Class C Common Stock then outstanding (for
purposes of this clause (d) "not knowingly" shall
mean the absence of actual knowledge and of knowledge
that would have then been available from a review of
filings as to the Corporation under section 13 of the
Securities Exchange Act of 1934, as amended, plus
the receipt of a representation from the buyer(s)
to the foregoing effect); and
(e) in the event that shares of Series B
Stock and/or Common Stock exchangeable for shares
of Class D Common Stock are to be offered in any
bona fide public offering registered under the
Securities Act, the Corporation shall provide:
(i) in the event that shares of Series B Stock are
offered publicly, for the conversion of such
shares of Series B Stock into Common Stock at the
election of the holders of shares of Series B
Stock; and (ii) in the event that shares of Common
Stock are offered publicly, for the exchange of
the shares of Class D Common Stock for shares of
Common Stock at the election of the holders of
shares of Class D Common Stock; in each case so
that such offerings can be made without
restriction.
In connection with any sale or transfer
of shares of Class D Common Stock in accordance
with clauses (c) or (d) above, the Corporation
shall issue one share of Common Stock in exchange
for each share of Class D Common Stock to be so
sold or transferred, provided that in no event,
other than upon and after a change of control,
shall the number of shares of Common Stock issued
to such purchaser or transferee cause the combined
voting power of the shares of Common Stock, Class
A Common Stock and Class C Common Stock held by
such purchaser or transferee to exceed 9.9% of the
combined voting power of all such shares then
outstanding.
Any holder of shares of Class D Common
Stock desiring to exchange such shares for Common
Stock shall surrender the certificate or
certificates representing such shares of Class D
Common Stock at the office of the transfer agent
for the Class D Common Stock, which certificate or
certificates, if the Corporation shall so require,
<PAGE>
-7-
shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of
transfer to the Corporation or in blank,
accompanied by irrevocable written notice to the
Corporation that the holder elects so to exchange
such shares of Class D Common Stock and specifying
the name or names (with address or addresses) in
which a certificate or certificates representing
shares of Common Stock are to be issued.
The Corporation shall, as soon as
practicable after such deposit of certificates
representing shares of Class D Common Stock
accompanied by the written notice and compliance
with any other conditions herein contained,
deliver at such office of such transfer agent to
the person for whose account such shares of Class
D Common Stock were so surrendered or to the
nominee or nominees of such person, certificates
representing the number of full shares of Common
Stock to which such person shall be entitled as
aforesaid. Such exchange shall be deemed to have
been made as of the date of such surrender of the
shares of Class D Common Stock to be exchanged,
and the person or persons entitled to receive the
shares of Common Stock deliverable upon exchange
of such shares of Class D Common Stock shall be
treated for all purposes as the record holder or
holders of such Common Stock on such date.
The transfer agent for the Class D
Common Stock and the transfer agent and registrar
for the Common Stock shall not be required to
accept for registration of transfer a certificate
representing any shares of Class D Common Stock or
Common Stock bearing a restrictive legend
affecting transfer, except upon presentation of
satisfactory evidence that the restrictions on
transfer of the Class D Common Stock and Common
Stock referred to in such legend have been
complied with, all in accordance with such
reasonable regulations as the Corporation may from
time to time agree with the transfer agent for the
Class D Common Stock and the transfer agent and
registrar for the Common Stock.
The Corporation shall at all times
reserve and keep available, out of its authorized
and unissued stock, such number of shares of its
Common Stock, free of preemptive rights, as shall
from time to time be sufficient to effect the
<PAGE>
-8-
exchange of all shares of Class D Common Stock.
The Corporation shall from time to time, in
accordance with the laws of the State of Maryland,
increase the number of authorized shares of Common
Stock if at any time the number of authorized and
unissued shares of Common Stock shall not be
sufficient to permit the exchange of all the then
outstanding shares of Class D Common Stock.
If any shares of Common Stock required
to be reserved for purposes of exchange of the
Class D Common Stock hereunder require
registration with or approval of any governmental
authority under any Federal or State law before
such shares may be issued upon conversion, the
Corporation will in good faith and as
expeditiously as possible endeavor to cause such
shares to be duly registered or approved, as the
case may be. If the Common Stock is listed on the
New York Stock Exchange or any other national
securities exchange, the Corporation will, if
permitted by the rules of such exchange, list and
keep listed on such exchange, upon official notice
of issuance, all shares of Common Stock issuable
upon exchange of the Class D Common Stock.
The Corporation shall pay any and all
issue or other taxes that may be payable in
respect of any issue or delivery of shares of
Common Stock on exchange of shares of Class D
Common Stock. The Corporation shall not, however,
be required to pay any tax which may be payable in
respect of any transfer involved in the issue or
delivery of Common Stock (or other securities or
assets) in a name other than that in which the
shares of Class D Common Stock so exchanged were
registered, and no such issue or delivery shall be
made unless and until the person requesting such
issue has paid to the Corporation the amount of
such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid.
Whenever possible, each provision hereof
shall be interpreted in a manner as to be
effective and valid under applicable law, but if
any provision hereof is held to be prohibited by
or invalid under applicable law, such provision
shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or
otherwise adversely affecting the remaining
<PAGE>
-9-
provisions hereof. If a court of competent
jurisdiction should determine that a provision
hereof would be valid or enforceable if a period
of time were extended or shortened or a particular
percentage were increased or decreased, then such
court may make such change as shall be necessary
to render the provision in question effective and
valid under applicable law.
4. Section (b) of Article SEVENTH of the Charter is
hereby deleted in its entirety and Sections (c) and (d) thereof
are relettered (b) and (c), respectively.
SECOND, the Board of Directors of the Corporation
duly adopted resolutions which set forth the foregoing
amendments of the Charter, declaring that the said amendments
to the Charter as proposed were advisable and directed that
they be submitted for action thereon by the stockholders of the
Corporation at a meeting to be held on July 15, 1994.
THIRD, notice setting forth the said amendments of
the Charter and stating that a purpose of the meeting of the
stockholders would be to take action thereon, was given, as
required by law, to all stockholders entitled to vote thereon.
The amendments of the Charter as hereinabove set forth were
approved by the stockholders of the Corporation at said meeting
by the affirmative vote of a majority of all of the votes
entitled to be cast thereon.
FOURTH, the information required to be provided under
subsection (b)(2)(i) of Section 2-607 of the Maryland General
Corporation Law with respect to the Common Stock, the Class A
Common Stock, the Class C Common Stock and the Preferred Stock of
<PAGE>
-10-
the Corporation has not, except as to the number of
authorized shares of Common Stock and Preferred Stock (which
have been increased pursuant to Article FIRST of these Articles
of Amendment), been changed by these Articles of Amendment and
remains as set forth in Article SIXTH of the Charter, which
Article SIXTH, as amended, is incorporated herein in its
entirety.
FIFTH, the total number of shares of stock which the
Corporation had authority to issue immediately prior to this
amendment was eighty-eight million five hundred thousand
(88,500,000) shares of four classes, consisting of sixty
million (60,000,000) shares of Common Stock, $1.00 par value
per share; thirteen million (13,000,000) shares of Class A
Common Stock, $.00001 par value per share; five million five
hundred thousand (5,500,000) shares of Class C Common Stock,
$1.00 par value per share; and ten million (10,000,000) shares
of Preferred Stock, $1.00 par value per share. The aggregate
par value of all shares of all classes of capital stock which
the Corporation had authority to issue was $75,500,130.
SIXTH, the total number of shares of stock which the
Corporation has authority to issue, pursuant to the Charter of
the Corporation as hereby amended, is two hundred ninety-two
million (292,000,000) shares of five classes, consisting of two
hundred million (200,000,000) shares of Common Stock, $1.00 par
value per share; twenty-six million (26,000,000) shares of
<PAGE>
-11-
Class A Common Stock, $.00001 par value per share; eleven
million (11,000,000) shares of Class C Common Stock, $1.00 par
value per share; forty million (40,000,000) shares of Class D
Common Stock, $1.00 par value per share; and fifteen million
(15,000,000) shares of Preferred Stock, $1.00 par value per
share. The aggregate par value of all shares of all classes of
stock which the Corporation has the authority to issue is
$266,000,260.
SEVENTH, the undersigned Vice President of the
Corporation acknowledges these Articles of Amendment to be the
corporate act of the Corporation and as to all matters and
facts required to be verified under oath, the undersigned Vice
President acknowledges that to the best of his knowledge,
information and belief, these matters and facts are true in all
material respects and that this statement is made under the
penalties for perjury.
IN WITNESS WHEREOF, ALEXANDER & ALEXANDER SERVICES
INC. has caused these presents to be signed in its name and on
its behalf by its Vice President and its corporate seal to be
hereunto affixed and attested by its Assistant Secretary on
this 15th day of July, 1994.
ALEXANDER & ALEXANDER
SERVICES INC.
By: /s/ R. A. Kershaw
-----------------------------
Name: R. A. Kershaw
Vice President and Treasurer
ATTEST: /s/ Alice L. Russell
------------------------
Name: Alice L. Russell
Assistant Secretary
EXHIBIT 3.2
ARTICLES SUPPLEMENTARY
classifying
6,200,000 shares of Preferred Stock
as
8% SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
ALEXANDER & ALEXANDER SERVICES INC.
(Pursuant to Section 2-208 of the
Maryland General Corporation Law)
_________________________________
Alexander & Alexander Services Inc., a corporation
organized and existing under the laws of the State of Maryland
(hereinafter called the "Corporation"), and having its
principal office in this State at 10461 Mill Run Circle, Owings
Mills, Maryland 21117, hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority granted to and
-----
vested in the Board of Directors of the Corporation
(hereinafter called the "Board of Directors" or the "Board") in
accordance with the provisions of Article SIXTH of the Charter
of the Corporation (the "Charter"), the Board of Directors, at
a meeting duly convened and held on June 6, 1994, regarding the
sale and issuance by the Corporation of cumulative convertible
preferred stock (the "Securities"), adopted resolutions (the
"Resolutions") classifying 6,200,000 shares of Preferred Stock
of the Corporation into a single series to be designated as "8%
Series B Cumulative Convertible Preferred Stock" and setting
the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of such shares as follows:
8% Series B Cumulative Convertible Preferred Stock
--------------------------------------------------
1. Designation and Amount. There shall be a series
----------------------
of Preferred Stock designated as "8% Series B Cumulative
Convertible Preferred Stock" and the number of shares
constituting such series shall be 6,200,000, of which 4,000,000
shall be issued initially (the date of such issuance, the
"Original Issue Date") and the remainder shall be reserved for
issuance as dividends pursuant to Section 3 below. Such series
<PAGE>
-2-
is referred to herein as the "Series B Convertible Preferred
Stock." The number of shares designated as shares of Series B
Convertible Preferred Stock may be decreased (but not
increased) by the Board of Directors without a vote of
stockholders; provided, however, that such number may not be
-------- -------
decreased below the number of then currently outstanding shares
of Series B Convertible Preferred Stock plus the then maximum
number of such shares which could be issued pursuant to
Section 3 below assuming all dividends payable on or prior to
December 15, 1999 are paid in shares of Series B Convertible
Preferred Stock.
2. Defined Terms. All capitalized terms used
-------------
herein without definition shall have the respective meanings
assigned thereto in the Charter.
3. Dividends. The holders of shares of Series B
---------
Convertible Preferred Stock shall be entitled to receive, when,
as and if authorized and declared by the Board of Directors out
of funds at the time legally available therefor, dividends at
the rate of 8% per annum per share, and no more, which shall be
fully cumulative, shall accrue without interest and shall be
payable quarterly in arrears on March 15, June 15, September 15
and December 15 of each year, commencing September 15, 1994
(except that if any such date is a Saturday, Sunday or legal
holiday, then such dividend shall be payable on the next day
that is not a Saturday, Sunday or legal holiday) to holders of
record as they appear upon the stock transfer books of the
Corporation on each March 1, June 1, September 1 and December 1
immediately preceding the payment dates, or such other dates as
shall be fixed at the time of the authorization and declaration
by the Board of Directors (or, to the extent permitted by
applicable law, a duly authorized committee thereof), which
date shall not be less than ten (10) nor more than sixty (60)
days preceding the relevant dividend payment date. For
purposes hereof, the term "legal holiday" shall mean any day on
which banking institutions are authorized to close in New York,
New York. Subject to the sixth succeeding paragraph of this
Section 3, dividends on account of arrears for any past
dividend period may be declared and paid at any time, without
reference to any regular dividend payment date; provided,
--------
however, that dividends on account of arrears for any past
- - -------
dividends which were required to be made in shares of Series B
Convertible Preferred Stock shall be declared and paid in
shares of Series B Convertible Preferred Stock and shall
include such number of shares of Series B Convertible Preferred
Stock as any holder would have been entitled to receive had all
such dividends been declared and paid on a timely basis. The
amount of dividends payable per share of Series B Convertible
Preferred Stock for each quarterly dividend period shall be
<PAGE>
-3-
computed by dividing the annual dividend amount by four and
shall include fractional shares. The amount of dividends
payable for the initial dividend period and any period shorter
than a full quarterly period shall be computed on the basis of
a 360-day year of twelve 30-day months and the actual number of
days elapsed in the period in which payable. No interest shall
be payable in respect of any dividend payment on the Series B
Convertible Preferred Stock or any other Parity Dividend Stock
(as hereinafter defined) or any Senior Dividend Stock (as
hereinafter defined) which may be in arrears.
Any dividend payments made on or prior to
December 15, 1996 shall be made in additional shares of
Series B Convertible Preferred Stock valued at the liquidation
preference of the Series B Convertible Preferred Stock. Any
dividend payments made after December 15, 1996 and on or prior
to December 15, 1999 may be made, in the sole discretion of the
Board of Directors, either in (i) cash or (ii) additional
shares of Series B Convertible Preferred Stock valued at the
liquidation preference of the Series B Convertible Preferred
Stock but not in any combination of cash and additional shares
of Series B Convertible Preferred Stock. On and after the
earlier of (i) December 16, 1999 or (ii) the first date the
Corporation pays any dividend in cash, dividends on the
Series B Convertible Preferred Stock shall be made only in
cash. All shares of Series B Convertible Preferred Stock
issued as a dividend with respect to the Series B Convertible
Preferred Stock shall thereupon be duly authorized, validly
issued, fully paid and nonassessable.
In the case of shares of Series B Convertible
Preferred Stock issued on the Original Issue Date, dividends
shall accrue and be cumulative from such date. In the case of
shares of Series B Convertible Preferred Stock issued as a
dividend on shares of Series B Convertible Preferred Stock,
dividends shall accrue and be cumulative from the dividend
payment date in respect of which such shares were issued as a
dividend.
Each fractional share of Series B Convertible
Preferred Stock outstanding shall be entitled to a ratably
proportionate amount of all dividends accruing with respect to
each outstanding share of Series B Convertible Preferred Stock,
and all such dividends with respect to such outstanding
fractional shares shall be cumulative and shall accrue (whether
or not declared), and shall be payable in the same manner and
at such times as provided for above with respect to dividends
on each outstanding share of Series B Convertible Preferred
Stock. Each fractional share of Series B Convertible Preferred
Stock outstanding shall also be entitled to a ratably
<PAGE>
-4-
proportionate amount of any other distributions made with
respect to each outstanding share of Series B Convertible
Preferred Stock, and all such distributions shall be payable in
the same manner and at the same time as distributions on each
outstanding share of Series B Convertible Preferred Stock.
No dividends or other distributions, other than
dividends payable solely in shares of Common Stock, Class A
Common Stock, Class C Common Stock or Class D Common Stock or
other stock of the Corporation ranking junior as to dividends
and as to liquidation rights to the Series B Convertible
Preferred Stock, shall be authorized, declared, paid or set
apart for payment on any shares of Common Stock, Class A Common
Stock, Class C Common Stock or Class D Common Stock or other
stock of the Corporation ranking junior as to dividends to the
Series B Convertible Preferred Stock, including the Series A
Junior Participating Preferred Stock, when and if issued
(collectively, the "Junior Dividend Stock"), unless and until
all accrued and unpaid dividends on the Series B Convertible
Preferred Stock for all dividend payment periods ending on or
prior to the date of payment of such dividends or other
distributions on Junior Dividend Stock shall have been
authorized, declared and paid or set apart in trust for payment
and all obligations of the Corporation to purchase shares of
Series B Convertible Preferred Stock tendered to it pursuant to
Section 7 and to make Extra Payments have been fully satisfied.
The Corporation shall not permit Reed Stenhouse
Companies Limited ("RSC") (in respect of RSC Class A Shares) or
Alexander & Alexander Services UK plc ("AAE") (in respect of
AAE Dividend Shares) to authorize, declare, pay or set apart
any dividends or other distributions, other than dividends
payable solely in Junior Dividend Stock, RSC Class A Shares or
AAE Dividend Shares or other stock of the Corporation, RSC or
AAE ranking junior as to dividends to the Series B Convertible
Preferred Stock, unless and until all accrued and unpaid
dividends on the Series B Convertible Preferred Stock for all
dividend payment periods ending on or prior to the date of
payment of such dividends or other distributions on RSC Class A
Shares or AAE Dividend Shares shall have been authorized,
declared and paid or set apart in trust for payment and all
obligations of the Corporation to purchase shares of Series B
Convertible Preferred Stock tendered to it pursuant to
Section 7 and to make Extra Payments have been fully satisfied.
If at any time any dividend on any stock of the
Corporation hereafter issued ranking senior as to dividends to
the Series B Convertible Preferred Stock (the "Senior Dividend
Stock") shall be in arrears, in whole or in part, then (except
to the extent allowed by the terms of such Senior Dividend
<PAGE>
-5-
Stock) no dividend shall be authorized, declared, paid or set
apart for payment on the Series B Convertible Preferred Stock
(other than dividends payable in additional shares of Series B
Convertible Preferred Stock) unless and until all accrued and
unpaid dividends with respect to the Senior Dividend Stock for
all payment periods ending on or prior to the date of payment
of the current dividend on the Series B Convertible Preferred
Stock shall have been authorized, declared and paid or set
apart for payment. No full dividends shall be authorized,
declared, paid or set apart for payment on any class or series
of the Corporation's stock heretofore or hereafter issued
ranking, as to dividends, on a parity with the Series B
Convertible Preferred Stock (including the Series A Convertible
Preferred Stock) (collectively, the "Parity Dividend Stock")
for any period unless full cumulative dividends have been, or
contemporaneously are, authorized, declared and paid or set
apart in trust for such payment on the Series B Convertible
Preferred Stock for all dividend payment periods terminating on
or prior to the date of payment of such full cumulative
dividends. No full dividends (other than dividends payable in
additional shares of Series B Convertible Preferred Stock)
shall be authorized, declared, paid or set apart for payment on
the Series B Convertible Preferred Stock for any period unless
full cumulative dividends have been, or contemporaneously are,
authorized, declared and paid or set apart for payment on the
Parity Dividend Stock for all dividend periods terminating on
or prior to the date of payment of such full cumulative
dividends. When accrued dividends are not paid in full on the
Series B Convertible Preferred Stock and the Parity Dividend
Stock, all cash dividends authorized, declared and paid or set
apart for payment on the Series B Convertible Preferred Stock
and the Parity Dividend Stock shall be authorized, declared,
paid or set apart for payment pro rata so that the amount of
dividends authorized, declared, paid or set apart for payment
per share on the Series B Convertible Preferred Stock and the
Parity Dividend Stock shall in all cases bear to each other the
same ratio that accrued and unpaid dividends per share on the
Series B Convertible Preferred Stock and the Parity Dividend
Stock bear to each other.
Any reference to "distribution" contained in this
Section 3 shall not be deemed to include any distribution made
in connection with any liquidation, dissolution or winding up
of the Corporation, RSC or AAE, whether voluntary or
involuntary.
4. Liquidation Preference. Subject to the full
----------------------
payment of the liquidation preferences of shares of stock of
the Corporation hereafter issued ranking senior as to
liquidation rights to the Series B Convertible Preferred Stock
<PAGE>
-6-
(the "Senior Liquidation Stock"), in the event of a
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of shares of
Series B Convertible Preferred Stock shall be entitled to
receive out of the assets of the Corporation, whether such
assets are stated capital or surplus of any nature, an amount
equal to the dividends accrued and unpaid on such shares on the
date of final distribution to such holders, whether or not
declared, without interest, plus a sum equal to $50.00 per
share, and no more, before any payment shall be made or any
assets distributed to the holders of shares of Common Stock,
Class A Common Stock, Class C Common Stock, Class D Common
Stock or any other class or series of the Corporation's stock
hereafter issued ranking junior as to liquidation rights to the
Series B Convertible Preferred Stock, including the Series A
Junior Participating Preferred Stock (collectively, the "Junior
Liquidation Stock").
Further, in the event of the liquidation, dissolution
or winding up of the Corporation, whether voluntary or
involuntary, (i) the Board of Directors shall determine (which
determination shall be conclusive) whether (1) there is some
likelihood that the holders of Series B Convertible Preferred
Stock will not receive, on such liquidation, dissolution or
winding up of the Corporation, the full amounts to which they
are entitled pursuant to this Section 4, and (2) there is some
likelihood that the holders of RSC Class A Shares will receive
out of the assets of RSC a distribution as the result of any
liquidation, dissolution or winding up, or other action taken
or to be taken by RSC in connection or concurrently with the
liquidation, dissolution or winding up of the Corporation, in
an amount greater than the holders of Common Stock are likely
to receive on the liquidation, dissolution or winding up of the
Corporation, and (ii) if the Board determines that both
likelihoods exist, then, provided that paragraph 2 of the
Keepwell Agreement between the Corporation and RSC dated
July 31, 1985 does not apply, the Corporation shall take such
action as may be reasonably necessary to cause the transfer of
shares of Common Stock of the Corporation to the holders of RSC
Class A Shares in satisfaction of the obligations of RSC to the
holders of such shares; provided, however, that no director of
-------- -------
RSC shall be required to take any action which would cause such
director to breach any duties under applicable law as advised
by independent counsel.
The entire assets of the Corporation available for
distribution after the liquidation preferences of the Senior
Liquidation Stock are fully met shall be distributed ratably
among the holders of the Series A Convertible Preferred Stock,
the Series B Convertible Preferred Stock and any other class or
<PAGE>
-7-
series of the Corporation's stock hereafter issued ranking on a
parity as to liquidation rights with the Series B Convertible
Preferred Stock in proportion to the respective preferential
amounts to which each is entitled (but only to the extent of
such preferential amounts). After payment in full of the
liquidation preferences of the shares of the Series B
Convertible Preferred Stock, the holders of such shares shall
not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a
consolidation or merger of the Corporation with or into another
corporation nor a merger of any other corporation with or into
the Corporation, nor a sale or transfer of all or any part of
the Corporation's assets for cash, securities or other
property, will be considered a liquidation, dissolution or
winding up of the Corporation.
5. Limitation on Share Repurchase. If at any time
------------------------------
any dividends on the Series B Convertible Preferred Stock shall
be in arrears or the Corporation shall have failed to make any
purchase of shares of Series B Convertible Preferred Stock
tendered to it pursuant to Section 7, the Corporation shall
not, and the Corporation shall not permit RSC, AAE or any other
corporation or legal entity directly or indirectly controlled
by the Corporation (collectively, the "subsidiaries") to,
repurchase, redeem, retire or otherwise acquire any shares of
Junior Dividend Stock, Junior Liquidation Stock, RSC Class A
Shares, AAE Dividend Shares or any warrants, rights, calls or
options exercisable for or convertible into any shares of
Junior Dividend Stock, Junior Liquidation Stock, RSC Class A
Shares or AAE Dividend Shares, except by conversion into or
exchange for shares of Junior Dividend Stock or Junior
Liquidation Stock and other than purchases, redemptions,
retirements or acquisitions made pursuant to and as required by
the terms of any employee incentive or benefit plan of the
Corporation or any subsidiary of the Corporation in effect on
June 1, 1994, or for consideration aggregating not more than
$100,000 in any calendar year.
If at any time any dividends on the Series B
Convertible Preferred Stock shall be in arrears or the
Corporation shall have failed to make any purchase of shares of
Series B Convertible Preferred Stock tendered to it pursuant to
Section 7, the Corporation shall not, and shall not permit any
subsidiary to, repurchase, redeem, retire or otherwise acquire
any shares of the Corporation's or any such subsidiary's stock
except (i) as permitted by the immediately preceding paragraph
and (ii) any subsidiary which is wholly owned by the
Corporation may repurchase, redeem, retire or otherwise acquire
shares of its stock.
<PAGE>
-8-
6. Redemption at Option of the Corporation. The
---------------------------------------
Series B Convertible Preferred Stock may not be redeemed by the
Corporation prior to December 15, 1999. Thereafter, so long as
shares of Common Stock shall have traded on the New York Stock
Exchange on each trading day during a 30 consecutive trading
day period (each of which trading days shall be after
December 15, 1999) and had a Closing Price (as hereinafter
defined) on each such day in excess of 150% of the conversion
price then in effect for the Series B Convertible Preferred
Stock for each such trading day, the Series B Convertible
Preferred Stock may thereafter be redeemed by the Corporation,
at its option on any date set by the Board of Directors, in
whole or in part at any time, at a redemption price of $54.00
per share, plus an amount in cash equal to accrued and unpaid
dividends thereon, whether or not authorized or declared, to
but excluding the date fixed for redemption, if redeemed on or
prior to December 14, 2000, and at the following redemption
prices per share, if redeemed during the 12-month period
beginning December 15:
Year Redemption Price
---- ----------------
2000 $53.50
2001 53.00
2002 52.50
2003 52.00
2004 51.50
2005 51.00
2006 50.50
and thereafter at $50.00 per share, plus, in each case, an
amount in cash equal to all dividends on the Series B
Convertible Preferred Stock accrued and unpaid thereon, whether
or not authorized or declared, to but excluding the date fixed
for redemption, such sum being hereinafter referred to as the
"Redemption Price."
In case of the redemption of less than all of the
then outstanding shares of Series B Convertible Preferred
Stock, the Corporation shall effect such redemption pro rata.
Notwithstanding the foregoing, the Corporation shall not redeem
less than all of the shares of Series B Convertible Preferred
Stock at any time outstanding until all dividends accrued and
in arrears upon all shares of Series B Convertible Preferred
Stock then outstanding shall have been paid for all past
dividend periods.
Not more than sixty nor less than forty-five days
prior to the redemption date fixed by the Board of Directors,
notice by first class mail, postage prepaid, shall be given to
<PAGE>
-9-
the holders of record of shares of the Series B Convertible
Preferred Stock to be redeemed, addressed to such holders at
their last addresses as shown upon the stock transfer books of
the Corporation. Each such notice of redemption shall specify
the date fixed for redemption, the Redemption Price, the place
or places of payment, that payment will be made upon
presentation and surrender of the shares of Series B
Convertible Preferred Stock, that on and after the redemption
date dividends will cease to accrue on such shares, the then
effective conversion price pursuant to Section 8 and that the
right of holders to convert shares of Series B Convertible
Preferred Stock shall terminate at the close of business on the
business day prior to the redemption date (unless the
Corporation defaults in the payment of the Redemption Price).
Any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not
the holder of shares of Series B Convertible Preferred Stock
receives such notice; and failure to give such notice by mail,
or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the
proceedings for the redemption of any other shares of Series B
Convertible Preferred Stock. On or after the date fixed for
redemption as stated in such notice, each holder of the shares
called for redemption, subject to such holder's right to
convert shares of Series B Convertible Preferred Stock as
provided above, shall surrender the certificate representing
such shares to the Corporation at the place designated in such
notice and shall thereupon be entitled to receive payment of
the Redemption Price. If less than all the shares evidenced by
any such surrendered certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
Notice having been given as aforesaid, if, on the date fixed
for redemption, funds necessary for the redemption shall be
available therefor and shall have been irrevocably deposited or
set aside in trust for the holders of the shares of Series B
Convertible Preferred Stock, then, notwithstanding that the
certificates representing any shares so called for redemption
shall not have been surrendered, dividends with respect to the
shares so called shall cease to accrue after the date fixed for
redemption, such shares shall no longer be deemed outstanding,
the holders thereof shall cease to be stockholders of the
Corporation and all rights whatsoever with respect to the
shares so called for redemption (except the right of the
holders to receive the Redemption Price without interest upon
surrender of their certificates therefor) shall terminate. If
funds legally available for such purpose are not sufficient for
redemption of the shares of Series B Convertible Preferred
Stock to be redeemed, then the certificates representing such
shares shall be deemed not to be surrendered, such shares shall
<PAGE>
-10-
remain outstanding and the rights of holders of shares of
Series B Convertible Preferred Stock thereafter shall continue
to be only those of a holder of shares of the Series B
Convertible Preferred Stock.
Except as provided in Section 7, the shares of Series
B Convertible Preferred Stock shall not be subject to the
operation of any mandatory purchase, retirement or sinking
fund.
7. Repurchase at Option of the Holder. If one or
----------------------------------
more Special Events shall occur at any time or from time to
time on or after the Original Issue Date, each holder of shares
of the Series B Convertible Preferred Stock shall have the
right, at such holder's option exercisable at any time within
120 days after the happening of each such Special Event, to
require the Corporation to purchase all or any part of the
shares of Series B Convertible Preferred Stock then held by
such holder as such holder may elect at $58.82 per share if the
Special Event occurs on or before six months after the Original
Issue Date, $66.18 per share if the Special Event occurs more
than six months after the Original Issue Date and on or before
twelve months after the Original Issue Date and $72.06 per
share if the Special Event occurs more than twelve months after
the Original Issue Date plus, in each case, an amount in cash
equal to the accrued and unpaid dividends thereon, whether or
not authorized or declared, to but excluding the date fixed for
redemption. Any shares of Series B Convertible Preferred Stock
which would have accrued but have not been paid on any shares
tendered for purchase shall be deemed to be tendered for
purchase. The Corporation shall, immediately upon becoming
aware of any facts or events that could reasonably be expected
to result in the occurrence of a Special Event, give a written
notice thereof by first class mail, postage prepaid, to the
holders of record of shares of the Series B Convertible
Preferred Stock, addressed to such holders at their last
address as shown upon the stock transfer books of the
Corporation.
A "Special Event" shall mean (v) the declaration or
payment on or after the Original Issue Date by the Corporation,
RSC or AAE of an Extraordinary Equity Payment (as hereinafter
defined), (w) the sale or other disposition, directly or
indirectly, by the Corporation or any of its subsidiaries in
one or a series of related transactions of assets representing
35% or more of the then book value of the Corporation's assets
on a consolidated basis or 35% or more of the Corporation's
gross revenues on a consolidated basis in either of the two
most recently ended fiscal years, (x) the merger or
consolidation of the Corporation or any of its Principal
<PAGE>
-11-
Subsidiaries (as hereinafter defined) with or into any other
firm, corporation or other legal entity other than (i) a merger
or consolidation of one subsidiary of the Corporation into
another or the Corporation, or (ii) a merger or consolidation
in which the securities of the Corporation outstanding before
the merger or consolidation are not affected and in which the
Corporation issues equity securities having an aggregate market
value of less than 20% of the total market value of the
Corporation's equity securities outstanding prior to such
merger or consolidation, or (y) the occurrence of a Specified
Corporate Action on or after the Original Issue Date.
"Extraordinary Equity Payment" shall mean (a) the
declaration or payment on or after June 1, 1994 by the
Corporation, RSC, AAE or any of their respective subsidiaries
of any dividend or distribution (except for any dividend or
distribution from one subsidiary of the Corporation to another
subsidiary of the Corporation or from a subsidiary of the
Corporation to the Corporation, RSC or AAE or any of their
respective wholly owned subsidiaries; provided that all of such
--------
dividend paid or distribution made, net of applicable
withholding taxes, is received by the Corporation, RSC or AAE
or such recipient subsidiary) on any class or series of its
stock (other than regularly scheduled quarterly cash dividends
on the Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock in accordance with the terms
thereof as in effect on the Original Issue Date) other than the
declaration and payment by the Corporation, RSC and AAE of
dividends on the Common Stock, the RSC Class A Shares and the
AAE Dividend Shares, respectively, which do not exceed (i) on
and after June 1, 1994 and on and prior to December 31, 1994,
more than $.075 per share, (ii) on and after January 1, 1995
and on and prior to December 31, 1996, in the aggregate more
than 25% of the Corporation's net income available for
distribution to common shareholders (after preferred dividends)
through the end of the last fiscal quarter prior to the date of
declaration of such dividend and (iii) on and after January 1,
1997, in the aggregate more than the sum of (A) 50% of the
Corporation's net income available for distribution to common
shareholders (after preferred dividends) on and after such date
and through the end of the last fiscal quarter prior to the
date of declaration of such dividend and (B) the excess, if
any, of (1) 25% of the Corporation's net income available for
distribution to common shareholders (after preferred dividends)
during the period ending on and after January 1, 1995 through
December 31, 1996 over (2) the aggregate amount of dividends
declared during the period from January 1, 1995 through
December 31, 1996 and (b) any repurchases, redemptions,
retirements or other acquisitions directly or indirectly by the
Corporation or any of its subsidiaries on or after June 1, 1994
<PAGE>
-12-
of any stock of the Corporation or any of its subsidiaries
(other than a wholly-owned subsidiary) (other than redemptions
or repurchases of the Series B Convertible Preferred Stock in
accordance with Sections 6 and 7) in excess of net proceeds on
or after June 1, 1994 to the Corporation from sales of stock of
the Corporation (less amounts expended on redemptions or
repurchases of Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock on or after June 1, 1994).
For purposes of Section 8 below, all amounts treated as an
Extraordinary Equity Payment shall be treated as having been
made by the Corporation.
"Specified Corporate Action" shall mean such time as
(i) the Corporation shall consent or agree to the acquisition
of, or the commencement of a tender offer for, or the Board of
Directors of the Corporation shall recommend or, within 10
business days after the commencement of the tender offer, not
recommend that shareholders reject, a tender offer for,
"beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) by any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended ("the Exchange Act")) other than American
International Group, Inc. ("AIG") and its affiliates or any
transferee thereof, of securities of the Corporation entitled
to vote generally in the election of directors, or securities
convertible into or exchangeable for such securities
(collectively, "Designated Securities"), representing, when
added to the Designated Securities already owned by such person
or group, thirty-five percent (35%) or more of such Designated
Securities; (ii) the Corporation shall amend, modify or
supplement, or waive the benefit of, the Rights Agreement
between Alexander & Alexander Services Inc. and First Chicago
Trust Company of New York, dated as of June 11, 1987, as
amended and restated on March 22, 1990, as amended on
August 21, 1992 and June 6, 1994 (the "Rights Agreement"), so
as to permit any acquisition of beneficial ownership of
thirty-five percent (35%) or more of the Designated Securities
without causing a person or group (other than AIG and its
affiliates or any transferee thereof) to become an Acquiring
Person (as defined in the Rights Agreement) or without causing
the Distribution Date or the Shares Acquisition Date (each as
defined in the Rights Agreement) to occur or without giving
rise to a Section 11(a)(ii) Event (as defined in the Rights
Agreement); (iii) the Corporation shall take any action under
Section 3-603(c) of the Maryland General Corporation Law to
exempt any transaction between the Corporation and any of its
subsidiaries, on the one hand, and any person or group (other
than AIG and its affiliates or any transferee thereof), or any
affiliates of any such person or group, on the other hand, who
(A) acquire, own or hold beneficial ownership of Designated
<PAGE>
-13-
Securities representing thirty-five percent (35%) or more of
such Designated Securities from the provisions of Title 3,
Subtitle 6 of the Maryland General Corporation Law or
(B) acquire, own or hold beneficial ownership of Designated
Securities representing ten percent (10%) or more of such
Designated Securities unless such other person or group, or any
affiliate of such person or group, enters into a standstill
agreement with the Corporation limiting the acquisition of
Designated Securities by such other person or group, or any
affiliates of such person or group, to less than 35% of the
Designated Securities and such standstill agreement remains in
full force and effect; (iv) the Corporation shall issue, sell
or transfer, in one or a series of related transactions,
Designated Securities to any person or group (other than AIG
and its affiliates or any transferee thereof) if after giving
effect thereto said person or group shall have, or shall have
the then contractual right to acquire through conversion,
exercise of warrants or otherwise, more than thirty-five
percent (35%) of the combined voting power to vote generally in
the election of directors of the Corporation; or (v) the
Corporation shall agree to merge or consolidate with or into
any person, firm, corporation or other legal entity (other than
AIG and its affiliates or any transferee thereof) or shall
agree to sell all or substantially all its assets to any such
person, firm, corporation or other legal entity other than (i)
a merger or consolidation of one subsidiary of the Corporation
into another or the Corporation, or (ii) a merger or
consolidation in which the securities of the Corporation
outstanding before the merger or consolidation are not affected
and in which the Corporation issues equity securities having an
aggregate market value of less than 20% of the total market
value of the Corporation's equity securities outstanding prior
to such merger or consolidation.
"Principal Subsidiary" means a subsidiary, including
its subsidiaries, which meets any of the following conditions:
(i) The Corporation's and its other subsidiaries'
investments in and advances to the subsidiary exceed ten
percent (10%) of the total assets of the Corporation and
its subsidiaries consolidated as of the end of the most
recently completed fiscal year of the Corporation; or
(ii) The Corporation's and its other subsidiaries'
proportionate share of the total assets (after
intercompany eliminations) of the subsidiary exceed ten
percent (10%) of the total assets of the Corporation and
its subsidiaries consolidated as of the end of the most
recently completed fiscal year of the Corporation; or
<PAGE>
-14-
(iii) The Corporation's and its other subsidiaries'
equity in the income from continuing operations before
income taxes, extraordinary items and cumulative effect of
a change in accounting principles of the subsidiary
exceeds ten percent (10%) of such income of the
Corporation and its subsidiaries consolidated for the most
recently completed fiscal year of the Corporation.
"Affiliate" means, when used with reference to any
person, any other person directly or indirectly controlling,
controlled by, or under direct or indirect common control with,
the referent person or such other person, as the case may be,
or any person who beneficially owns, directly or indirectly,
10% or more of the voting equity interests of such person or
warrants, options or other rights to acquire or hold more than
10% of any class of voting equity interests of such person.
For the purposes of this definition, "control" when used with
respect to any specified person means the power to direct or
cause the direction of management or policies of such person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
The date fixed for each such repurchase shall be the
121st day following the occurrence of the Special Event giving
rise thereto. The place of payment shall be at an office or
agency in the City of New York, New York fixed therefor by the
Corporation or, if not fixed, at the principal executive office
of the Corporation.
The Corporation shall, within 20 days of the
occurrence of a Special Event, give a written notice thereof by
first class mail, postage prepaid, to the holders of record of
shares of the Series B Convertible Preferred Stock, addressed
to such holders at their last addresses as shown upon the stock
transfer books of the Corporation. Each such notice shall
specify the Special Event which has occurred and the date of
such occurrence, the place or places of payment, the then
effective conversion price pursuant to Section 8, the then
effective repurchase price and the date the right of such
holder to require such repurchase shall terminate. Any notice
that is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not the holder of
shares of Series B Convertible Preferred Stock receives such
notice; and failure to give such notice by mail, or any defect
in such notice, to the holders of any shares shall not affect
the validity of the proceedings for the repurchase of any other
shares of Series B Convertible Preferred Stock.
<PAGE>
-15-
On the date fixed for any such repurchase, each
holder of shares of Series B Convertible Preferred Stock who
elects to have shares of Series B Convertible Preferred Stock
held by it purchased shall surrender the certificate
representing such shares to the Corporation at the place
designated in such notice together with an election to have
such purchase made and shall thereupon be entitled to receive
payment therefor provided in this Section 7. If less than all
the shares represented by any such surrendered certificate are
repurchased, a new certificate shall be issued representing the
unpurchased shares. Dividends with respect to the shares of
Series B Convertible Preferred Stock so purchased shall cease
to accrue after the date so purchased, such shares shall no
longer be deemed outstanding and the holders thereof shall
cease to be stockholders of the Corporation and all rights
whatsoever with respect to the shares so purchased shall
terminate. If the funds legally available for such purchase
are not sufficient to purchase all the shares of Series B
Convertible Preferred Stock tendered to the Corporation for
purchase, the Corporation shall purchase the greatest number of
whole shares for which such funds are so available on a pro
rata basis among all tendering holders based on the ratio of
the number of shares tendered by each of them to the aggregate
amount of all shares so tendered, and the certificates
representing the unpurchased shares shall be deemed not to be
surrendered for repurchase, such unpurchased shares shall
remain outstanding and the rights of the holders of shares of
Series B Convertible Preferred Stock thereafter shall continue
to be those of a holder of shares of the Series B Convertible
Preferred Stock; provided, however, the Corporation shall
-------- -------
thereafter be required to repurchase all such remaining shares
at the first date it has sufficient funds legally available for
such purpose at the price it would have paid at the date such
shares were actually tendered and the Corporation shall give
notice as aforesaid to each holder whose shares were not
repurchased for such reason and such holder shall thereafter
have the right to elect to have such shares repurchased, such
election to be made within 30 days of receipt of such notice.
8. Conversion.
----------
(a) Right of Conversion. Each share of Series B
-------------------
Convertible Preferred Stock shall be convertible at the option
of the holder thereof, at any time prior to the close of
business on the business day prior to the date fixed for
redemption of such share as herein provided, into fully paid
and nonassessable shares of Class D Common Stock and such other
securities and property as hereinafter provided, at the rate of
that number of shares of Class D Common Stock for each full
share of Series B Convertible Preferred Stock that is equal to
<PAGE>
-16-
$50.00 divided by the conversion price applicable per share of
Class D Common Stock. For purposes of this resolution, the
"conversion price" applicable per share of Class D Common Stock
shall initially be equal to $17.00, and shall be adjusted from
time to time in accordance with the provisions of this
Section 8.
For the purpose of this Section 8, the term "Common
Stock" shall mean the class designated as Common Stock, par
value $1.00 per share, of the Corporation as of June 1, 1994
and any other shares into which such shares may hereafter be
changed from time to time. For purposes of this Section 8, the
term "Class D Common Stock" shall mean the class designated as
Class D Common Stock, par value $1.00 per share, of the
Corporation as of the Original Issue Date and any other shares
into which such shares may hereafter be changed from time to
time.
(b) Conversion Procedures. Any holder of shares of
---------------------
Series B Convertible Preferred Stock desiring to convert such
shares into Class D Common Stock shall surrender the
certificate or certificates representing such shares of Series
B Convertible Preferred Stock at the office of the transfer
agent for the Series B Convertible Preferred Stock, which
certificate or certificates, if the Corporation shall so
require, shall be duly endorsed to the Corporation or in blank,
or accompanied by proper instruments of transfer to the
Corporation or in blank, accompanied by irrevocable written
notice to the Corporation that the holder elects so to convert
such shares of Series B Convertible Preferred Stock and
specifying the name or names (with address or addresses) in
which a certificate or certificates evidencing shares of Class
D Common Stock are to be issued.
Subject to Section 8(1) hereof, no payments or
adjustments in respect of dividends on shares of Series B
Convertible Preferred Stock surrendered for conversion or on
account of any dividend on the Class D Common Stock issued upon
conversion shall be made upon the conversion of any shares of
Series B Convertible Preferred Stock.
The Corporation shall, as soon as practicable after
such deposit of certificates representing shares of Series B
Convertible Preferred Stock accompanied by the written notice
and compliance with any other conditions herein contained,
deliver at such office of the transfer agent to the person for
whose account such shares of Series B Convertible Preferred
Stock were so surrendered or to the nominee or nominees of such
person certificates representing the number of full shares of
Class D Common Stock to which such person shall be entitled as
<PAGE>
-17-
aforesaid, together with a cash adjustment in respect of any
fraction of a share of Class D Common Stock as hereinafter
provided. Subject to the following provisions of this para-
graph, such conversion shall be deemed to have been made as of
the date of such surrender of the shares of Series B Conver-
tible Preferred Stock to be converted, and the person or
persons entitled to receive the Class D Common Stock deliver-
able upon conversion of such Series B Convertible Preferred
Stock shall be treated for all purposes as the record holder or
holders of such Class D Common Stock on such date.
(c) Adjustment of Conversion Price. The conversion
------------------------------
price at which a share of Series B Convertible Preferred Stock
is convertible into Class D Common Stock shall be subject to
adjustment from time to time as follows:
(i) In case the Corporation shall pay or make a
dividend or other distribution on its Common Stock exclusively
in Common Stock or shall pay or make a dividend or other
distribution on any other class of stock of the Corporation
which dividend or distribution includes Common Stock or shall
exchange outstanding Rights (as defined in Section 8(k) hereof)
for shares of Common Stock, the conversion price in effect at
the opening of business on the day following the date fixed for
the determination of stockholders entitled to receive such
dividend or other distribution or to exchange such Rights shall
be reduced by multiplying such conversion price by a fraction
of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of
such number of shares and the total number of shares
constituting such dividend or other distribution or exchange,
such reduction to become effective immediately after the
opening of business on the day following the date fixed for
such determination.
In case the Corporation shall issue or otherwise sell
or distribute shares of Common Stock for a consideration per
share in cash or property less than the conversion price in
effect at the time of such issuance, the conversion price then
in effect shall be reduced by multiplying such conversion price
by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding immediately prior to such
issuance, sale or distribution plus the number of shares of
Common Stock which the aggregate consideration received by the
Corporation for such issuance, sale or distribution (such
consideration, if other than cash, as determined by the Board
of Directors including a majority of the Directors who are not
officers or employees of the Corporation or any of its
subsidiaries, whose determination shall be conclusive and
<PAGE>
-18-
described in a resolution of the Board of Directors) would
purchase at the conversion price per share and the denominator
shall be the number of shares of Common Stock outstanding
immediately after giving effect to such issuance, sale or
distribution.
(ii) In case the Corporation shall pay or make a
dividend or other distribution on its Common Stock consisting
exclusively of, or shall otherwise issue to all or
substantially all holders of its Common Stock, rights or
warrants entitling the holders thereof to subscribe for or
purchase shares of Common Stock at a price per share less than
the then current market price per share (determined as provided
in subparagraph (vii) of this Section 8(c)) of the Common Stock
on the date fixed for the determination of stockholders
entitled to receive such rights or warrants, the conversion
price in effect at the opening of business on the day following
the date fixed for such determination shall be reduced by
multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock which
the aggregate of the offering price of the total number of
shares of Common Stock so offered for subscription or purchase
would purchase at such current market price and the denominator
shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such determination
plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective
immediately after the opening of business on the day following
the date fixed for such determination. In case any rights or
warrants referred to in this subparagraph (ii) in respect of
which an adjustment shall have been made shall expire
unexercised, the conversion price shall be readjusted at the
time of such expiration to the conversion price that would have
been in effect if no adjustment had been made on account of the
distribution or issuance of such expired rights or warrants.
For the purposes of this Section 8(c)(ii), if both a
Distribution Date and a Section 11(a)(ii) Event (as such terms
are defined in the Rights Agreement) shall have occurred, then
the later to occur of such events shall be deemed to constitute
an issuance of rights to purchase shares of Common Stock.
(iii) In case outstanding shares of Common Stock
shall be subdivided into a greater number of shares of Common
Stock, the conversion price in effect at the opening of
business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced,
and conversely, in case outstanding shares of Common Stock
shall each be combined into a smaller number of shares of
<PAGE>
-19-
Common Stock, the conversion price in effect at the opening of
business on the day following the day upon which such
combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on
the day following the day upon which such subdivision or
combination becomes effective.
(iv) Subject to the last sentence of this subpara-
graph (iv), in case the Corporation shall, by dividend or
otherwise, distribute to all or substantially all holders of
its Common Stock evidences of its indebtedness, shares of any
class of stock, cash or assets (including securities, but
excluding any rights or warrants referred to in subparagraph
(ii) of this Section 8(c), excluding any dividend or
distribution paid exclusively in cash (other than an
Extraordinary Equity Payment) and excluding any dividend or
distribution referred to in subparagraph (i) of this Section
8(c)) (for the purposes of this subparagraph (iv), such
evidence of indebtedness, shares of stock, cash and assets are
herein called "Securities"), the conversion price shall be
reduced so that the same shall equal the price determined by
multiplying the conversion price in effect immediately
following the close of business on the Determination Date (as
defined in Section 8(i)) by a fraction of which the numerator
shall be the current market price per share (determined as
provided in subparagraph (vii) of this Section 8(c)) of the
Common Stock on the Determination Date less the fair market
value (as determined by the Board of Directors including a
majority of the Directors who are not officers or employees of
the Corporation or any of its subsidiaries, whose determination
shall be conclusive and described in a resolution of the Board
of Directors), on the date of such effectiveness, of the
portion of the Securities so distributed applicable to one
share of Common Stock and the denominator shall be such current
market price per share of the Common Stock, such reduction to
become effective immediately prior to the opening of business
on the day following the Determination Date. If the Board of
Directors so determines as aforesaid the fair market value of
any distribution for purposes of this subparagraph (iv) by
reference to the actual or when issued trading market for any
Securities comprising such distribution, it must in doing so
consider the prices in such market over the same period used in
computing the current market price per share of Common Stock
pursuant to subparagraph (vii) of this Section 8(c).
Notwithstanding the foregoing, if the holders of the Series B
Convertible Preferred Stock elect to cause the Corporation to
reserve the Securities to be distributed for distribution to
the holders of the Series B Convertible Preferred Stock upon
the conversion of the shares of Series B Convertible Preferred
<PAGE>
-20-
Stock so that any such holder converting shares of Series B
Convertible Preferred Stock will receive upon such conversion,
in addition to the shares of the Class D Common Stock to which
such holder is entitled, the amount and kind of such Securities
which such holder would have received if such holder had,
immediately prior to the Determination Date for such
distribution of Securities, converted its shares of Series B
Convertible Preferred Stock into Class D Common Stock, the fair
market value of the Securities shall, for purposes of this
subparagraph (iv), be deemed to be zero.
For purposes of this subparagraph (iv), any dividend
or distribution that includes shares of Common Stock, rights or
warrants to subscribe for or purchase shares of Common Stock or
other securities convertible into or exchangeable for shares of
Common Stock shall be deemed instead to be (1) a dividend or
distribution of the evidences of indebtedness, cash, assets or
shares of stock other than such shares of Common Stock, such
rights or warrants or such other convertible or exchangeable
securities (making any conversion price reduction required by
this subparagraph (iv)) immediately followed by (2) in the case
of such shares of Common Stock or such rights or warrants, a
dividend or distribution thereof (making any further conversion
price reduction required by subparagraph (i) or (ii) of this
Section 8(c), except (A) the Determination Date of such
dividend or distribution shall be substituted as "the date
fixed for the determination of stockholders entitled to receive
such dividend or other distribution or to exchange such Rights"
and "the date fixed for such determination" within the meaning
of subparagraphs (i) and (ii) of this Section 8(c) and (B) any
shares of Common Stock included in such dividend or
distribution shall not be deemed "outstanding at the close of
business on the date fixed for such determination" within the
meaning of subparagraph (i) of this Section 8(c)) or (3) in the
case of such other convertible or exchangeable securities, a
dividend or distribution of such number of shares of Common
Stock as would then be issuable upon the conversion or exchange
thereof, whether or not the conversion or exchange of such
securities is subject to any conditions (making any further
conversion price reduction required by subparagraph (i) of this
Section 8(c), except (A) the Determination Date of such
dividend or distribution shall be substituted as "the date
fixed for the determination of stockholders entitled to receive
such dividend or other distribution or to exchange such Rights"
and "the date fixed for such determination" and (B) the shares
deemed to constitute such dividend or distribution shall not be
deemed "outstanding at the close of business on the date fixed
for such determination," each within the meaning of
subparagraph (i) of this Section 8(c)).
<PAGE>
-21-
(v) Subject to the last sentence of this subpara-
graph (v), in case the Corporation shall, by dividend or
otherwise, at any time distribute to all holders of its Common
Stock cash (excluding (1) any cash that is distributed as part
of a distribution referred to in subparagraph (iv) of this
Section 8(c) and constitutes an Extraordinary Equity Payment
and (2) any cash representing an amount per share of Common
Stock of any quarterly cash dividend on the Common Stock to the
extent such cash does not constitute an Extraordinary Equity
Payment), the conversion price shall be reduced so that the
same shall equal the price determined by multiplying the
conversion price in effect immediately prior to the effective-
ness of the conversion price reduction contemplated by this
subparagraph (v) by a fraction of which the numerator shall be
the current market price per share (determined as provided in
subparagraph (vii) of this Section 8(c)) of the Common Stock on
the Determination Date less the amount of cash so distributed
and not excluded as above provided applicable to one share of
Common Stock and the denominator shall be such current market
price per share of the Common Stock, such reduction to become
effective immediately prior to the opening of business on the
day following the Determination Date. Notwithstanding the
foregoing, if the Corporation elects to reserve the cash to be
distributed for distribution to the holders of the Series B
Convertible Preferred Stock upon the conversion of the shares
of Series B Convertible Preferred Stock so that any such holder
converting shares of Series B Convertible Preferred Stock will
receive upon such conversion, in addition to the shares of the
Class D Common Stock to which such holder is entitled, the
amount of cash which such holder would have received if such
holder had, immediately prior to the Determination Date for
such distribution of cash, converted its shares of Series B
Convertible Preferred Stock into Class D Common Stock, then the
conversion price shall not be so reduced.
(vi) In case a tender or exchange offer made by the
Corporation or any subsidiary of the Corporation for all or any
portion of the Corporation's Common Stock shall expire and such
tender or exchange offer shall involve the payment by the
Corporation or such subsidiary of consideration per share of
Common Stock having a fair market value (as determined by the
Board of Directors, including a majority of the Directors who
are not officers or employees of the Corporation or any of its
subsidiaries, whose determination shall be conclusive and
described in a resolution of the Board of Directors) at the
last time (the "Expiration Time") tenders or exchanges may be
made pursuant to such tender or exchange offer (as it shall
have been amended) that exceeds the current market price per
share (determined as provided in subparagraph (vii) of this
Section 8(c)) of the Common Stock on the Trading Day next
<PAGE>
-22-
succeeding the Expiration Time, the conversion price shall be
reduced so that the same shall equal the price determined by
multiplying the conversion price in effect immediately prior to
the Expiration Time by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding (including
any tendered or exchanged shares) on the Expiration Time
multiplied by the current market price per share (determined as
provided in subparagraph (vii) of this Section 8(c)) of the
Common Stock on the Trading Day next succeeding the Expiration
Time and the denominator shall be the sum of (x) the fair
market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance
(up to any maximum specified in the terms of the tender or
exchange offer) of all shares validly tendered or exchanged and
not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the
"Purchased Shares") and (y) the product of the number of shares
of Common Stock outstanding (less any Purchased Shares) on the
Expiration Time and the current market price per share
(determined as provided in subparagraph (vii) of this Section
8(c)) of the Common Stock on the Trading Day next succeeding
the Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day
following the Expiration Time.
(vii) For the purpose of any computation under this
subparagraph and subparagraphs (ii), (iv) and (v) of this
Section 8(c), the current market price per share of Common
Stock on any date shall be deemed to be the average of the
daily Closing Prices (as defined in Section 8(i)) on the five
consecutive Trading Days prior to and including the date in
question; provided, however, that (1) if the "ex" date (as
-------- -------
hereinafter defined) for any event (other than the issuance or
distribution requiring such computation) that requires an
adjustment to the conversion price pursuant to subparagraph
(i), (ii), (iii), (iv), (v) or (vi) above occurs on or after
the twentieth Trading Day prior to the day in question and
prior to the "ex" date for the issuance or distribution
requiring such computation, the Closing Price for each Trading
Day prior to the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the same fraction
by which the conversion price is so required to be adjusted as
a result of such other event, (2) if the "ex" date for any
event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the conversion
price pursuant to subparagraph (i), (ii), (iii), (iv), (v) or
(vi) above occurs on or after the "ex" date for the issuance or
distribution requiring such computation and on or prior to the
day in question, the Closing Price for each Trading Day on and
after the "ex" date for such other event shall be adjusted by
<PAGE>
-23-
multiplying such Closing Price by the reciprocal of the
fraction by which the conversion price is so required to be
adjusted as a result of such other event, and (3) if the "ex"
date for the issuance or distribution requiring such
computation is on or prior to the date in question, after
taking into account any adjustment required pursuant to clause
(2) of this proviso, the Closing Price for each Trading Day on
or after such "ex" date shall be adjusted by adding thereto the
amount of any cash and the fair market value on the day in
question (as determined by the Board of Directors, including a
majority of the Directors who are not officers or employees of
the Corporation, in a manner consistent with any determination
of such value for purposes of paragraph (iv) or (v) of this
Section 8(c), whose determination shall be conclusive and
described in a resolution of the Board of Directors) of the
evidences of indebtedness, shares of stock or assets being
distributed applicable to one share of Common Stock as of the
close of business on the day before such "ex" date. For the
purpose of any computation under subparagraph (vi) of this
Section 8(c), the current market price per share of Common
Stock on any date shall be deemed to be the average of the
daily Closing Prices for such day and the next two succeeding
Trading Days; provided that, if the "ex" date for any event
--------
(other than the tender or exchange offer requiring such
computation) that requires an adjustment to the conversion
price pursuant to subparagraph (i), (ii), (iii), (iv), (v) or
(vi) above occurs on or after the Expiration Time for the
tender or exchange offer requiring such computation and on or
prior to the day in question, the Closing Price for each
Trading Day on and after the "ex" date or such other event
shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the conversion price is so
required to be adjusted as a result of such other event. For
purposes of this subparagraph (vii), the term "ex" date, (1)
when used with respect to any issuance or distribution, means
the first date on which the Common Stock trades regular way on
the relevant exchange or in the relevant market from which the
Closing Price was obtained without the right to receive such
issuance or distribution, (2) when used with respect to any
subdivision or combination of shares of Common Stock, means the
first date on which the Common Stock trades regular way on such
exchange or in such market after the time at which such
subdivision or combination becomes effective, and (3) when used
with respect to any tender or exchange offer, means the first
date on which the Common Stock trades regular way on such
exchange or in such market after the Expiration Time of such
offer.
(viii) The Corporation may make such reductions in
the conversion price, in addition to those required by subpara-
<PAGE>
-24-
graphs (i), (ii), (iii), (iv), (v) and (vi) of this Section
8(c), as it considers to be advisable to avoid or diminish any
income tax to holders of Class D Common Stock or rights to
purchase Class D Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes. The Corporation
from time to time may reduce the conversion price by any amount
for any period of time if the period is at least thirty days,
the reduction is irrevocable during the period and the Board of
Directors shall have made a determination that such reduction
would be in the best interest of the Corporation, which
determination shall be conclusive. Whenever the conversion
price is reduced pursuant to the preceding sentence, the
Corporation shall mail to holders of record of the Series B
Convertible Preferred Stock a notice of the reduction at least
fifteen days prior to the date the reduced conversion price
takes effect, and such notice shall state the reduced
conversion price and the period it will be in effect.
(ix) No adjustment in the conversion price shall be
required unless such adjustment would require an increase or
decrease of at least 1% in the conversion price; provided,
--------
however, that any adjustments which by reason of this
- - -------
subparagraph (ix) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(x) Notwithstanding any other provision of this
Section 8 and without implication that the contrary would
otherwise be true, no issuance, dividend or distribution
requiring adjustment of the conversion price pursuant to
Section 8(c) hereof shall be deemed to have occurred in the
event that, upon, following or in connection with the
redemption or expiration of the Rights or the termination of
the Rights Agreement or otherwise, the Corporation enters into
a new agreement that is comparable in purpose and effect to the
Rights Agreement (as determined by the Board of Directors,
whose determination shall be conclusive) and distributes to the
holders of Common Stock and Class D Common Stock Preferred
Stock, Common Stock or other similar stock purchase rights
under such agreement that are attached to the Common Stock.
(xi) Whenever the conversion price is adjusted as
herein provided:
(1) the Corporation shall compute the adjusted
conversion price and shall prepare a certificate signed by
the Treasurer of the Corporation setting forth the
adjusted conversion price and showing in reasonable detail
the acts upon which such adjustment is based, and such
<PAGE>
-25-
certificate shall forthwith be filed with the transfer
agent for the Series B Convertible Preferred Stock; and
(2) a notice stating the conversion price has been
adjusted and setting forth the adjusted conversion price
shall forthwith be required, and as soon as practicable
after it is required, such notice shall be mailed by the
Corporation to all record holders of shares of Series B
Convertible Preferred Stock at their last addresses as
they shall appear upon the stock transfer books of the
Corporation.
(xii) The occurrence of any correlative event with
respect to the Class A Common Stock or the Class C Common Stock
shall result in adjustments to the conversion price congruent
with those made with respect to the Common Stock.
(d) No Fractional Shares. No fractional shares or
--------------------
scrip representing fractional shares of Class D Common Stock
shall be issued upon conversion of Series B Convertible
Preferred Stock. If more than one certificate representing
shares of Series B Convertible Preferred Stock shall be
surrendered for conversion at one time by the same holder, the
number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of
Series B Convertible Preferred Stock so surrendered. Instead
of any fractional share of Class D Common Stock that would
otherwise be issuable upon conversion of any shares of Series B
Convertible Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount
equal to the same fraction of the market price per share of
Common Stock (as determined by the Board of Directors or in any
manner prescribed by the Board of Directors, which, so long as
the Common Stock is listed on the New York Stock Exchange,
shall be the reported last sale price regular way on the New
York Stock Exchange) at the close of business on the day of
conversion.
(e) Reclassification, Consolidation, Merger or
------------------------------------------
Sale of Assets. In the event that the Corporation shall be a
- - --------------
party to any transaction (including without limitation any
recapitalization or reclassification of the Common Stock (other
than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a
subdivision or combination of the Common Stock), any
consolidation of the Corporation with, or merger of the
Corporation into, any other person, any merger of any other
person into the Corporation (other than a merger which does not
result in a reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the
<PAGE>
-26-
Corporation), any sale or transfer of all or substantially all
of the assets of the Corporation or any compulsory share
exchange pursuant to which the Common Stock is converted into
the right to receive other securities, cash or other property,
then lawful provision shall be made as part of the terms of
such transaction whereby the holder of each share of Series B
Convertible Preferred Stock then outstanding shall have the
right thereafter to convert such share only into (i) in the
case of any such transaction other than a Common Stock
Fundamental Change (as defined in Section 8(i)) and subject to
assets being legally available for such purpose under
applicable law at the time of such conversion, the kind and
amount of securities, cash and other property receivable upon
such recapitalization, reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of
shares of Common Stock of the Corporation into which such share
of Series B Convertible Preferred Stock might have been
converted immediately prior to such recapitalization,
reclassification, consolidation, merger, sale, transfer or
share exchange, after giving effect, in the case of any Non-
Stock Fundamental Change (as defined in Section 8(i)), to any
adjustment in the conversion price required by the provisions
of Section 8(h), and (ii) in the case of a Common Stock
Fundamental Change, into Common Stock of the kind received by
holders of Common Stock as a result of such Common Stock
Fundamental Change in an amount determined pursuant to the
provisions of Section 8(h). The Corporation or the person
formed by such consolidation or resulting from such merger or
which acquires such assets or which acquires the Corporation's
shares, as the case may be, shall make provisions in its
certificate or articles of incorporation or other constituent
document to establish such right. Such certificate or articles
of incorporation or other constituent document shall provide
for adjustments which, for events subsequent to the effective
date of such certificate or articles of incorporation or other
constituent document, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 8.
The above provisions shall similarly apply to successive
recapitalizations, reclassifications, consolidations, mergers,
sales, transfers or share exchanges.
(f) Reservation of Shares; Transfer Taxes; Etc.
------------------------------------------
The Corporation shall at all times reserve and keep available,
out of its authorized and unissued stock, solely for the
purpose of effecting the conversion of the Series B Convertible
Preferred Stock, such number of shares of its Class D Common
Stock or Common Stock free of preemptive rights as shall from
time to time be sufficient to effect the conversion of all
shares of Series B Convertible Preferred Stock from time to
time outstanding. The Corporation shall from time to time, in
<PAGE>
-27-
accordance with the laws of the State of Maryland, increase the
number of authorized shares of Class D Common Stock if at any
time the number of shares of authorized and unissued Class D
Common Stock shall not be sufficient to permit the conversion
of all the then outstanding shares of Series B Convertible
Preferred Stock. The Corporation shall at all times reserve
and keep available, out of its authorized and unissued stock,
solely for the purpose of effecting the exchange of shares of
Class D Common Stock or conversion of Series B Convertible
Preferred Stock, such number of shares of its Common Stock or
Class D Common Stock, as the case may be, free of preemptive
rights as shall from time to time be sufficient to effect the
exchange of all shares of Class D Common Stock or conversion of
Series B Convertible Preferred Stock from time to time.
If any shares of Class D Common Stock required to be
reserved for purposes of conversion of the Series B Convertible
Preferred Stock hereunder require registration with or approval
of any governmental authority under any Federal or State law
before such shares may be issued upon conversion, the
Corporation will in good faith and as expeditiously as possible
endeavor to cause such shares to be duly registered or
approved, as the case may be. If the Class D Common Stock is
listed on the New York Stock Exchange or any other national
securities exchange, the Corporation will, if permitted by the
rules of such exchange, list and keep listed on such exchange,
upon official notice of issuance, all shares of Class D Common
Stock issuable upon conversion of the shares of Series B
Convertible Preferred Stock.
The Corporation shall pay any and all issue or other
taxes that may be payable in respect of any issue or delivery
of shares of Class D Common Stock on conversion of the Series B
Convertible Preferred Stock. The Corporation shall not,
however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue or delivery of
Class D Common Stock (or other securities or assets) in a name
other than that in which the shares of Series B Convertible
Preferred Stock so converted were registered, and no such issue
or delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of
such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(g) Prior Notice of Certain Events. In case:
------------------------------
(i) the Corporation shall (1) authorize and
declare any dividend (or any other distribution) on its
Common Stock, other than (A) a dividend payable in shares
of Common Stock or (B) a dividend payable in cash, other
<PAGE>
-28-
than any regularly scheduled quarterly cash dividend which
does not constitute an Extraordinary Equity Payment, or
(2) declare or authorize a redemption or repurchase of in
excess of 10% of the then outstanding shares of Common
Stock; or
(ii) the Corporation shall authorize the granting
to all holders of Common Stock of rights or warrants to
subscribe for or purchase any shares of stock of any class
or of any other rights or warrants; or
(iii) of any reclassification of Common Stock (other
than a subdivision or combination of the outstanding
Common Stock, or a change in par value, or from par value
to no par value, or from no par value to par value), or of
any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the
Corporation shall be required, or of the sale or transfer
of all or substantially all of the assets of the
Corporation or of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash
or other property; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed with the transfer
agent for the Series B Convertible Preferred Stock, and shall
cause to be mailed to the holders of record of the Series B
Convertible Preferred Stock, at their last addresses as they
shall appear upon the stock transfer books of the Corporation,
at least fifteen days prior to the applicable record date
hereinafter specified, a notice stating, as the case may be,
(x) the record date (if any) for the purpose of such dividend,
distribution, redemption, repurchase or granting of rights or
warrants or, if no record date is to be set, the date as of
which the holders of Common Stock of record to be entitled to
such dividend, distribution, redemption, rights or warrants are
to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share
exchange, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that
holders of shares of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up (but no failure to mail
such notice or any defect therein or in the mailing thereof
shall affect the validity of the corporate action required to
be specified in such notice).
<PAGE>
-29-
(h) Adjustments in Case of Fundamental Changes.
------------------------------------------
Notwithstanding any other provision in this Section 8 to the
contrary, if any Fundamental Change (as defined in
Section 8(i)) occurs, then the conversion price in effect will
be adjusted immediately after such Fundamental Change as
described below. In addition, in the event of a Common Stock
Fundamental Change (as defined in Section 8(i)), each share of
Series B Convertible Preferred Stock shall be convertible
solely into shares of common stock of the kind received by
holders of Common Stock as the result of such shares of Common
Stock Fundamental Change.
For purposes of calculating any adjustment to be made
pursuant to this Section 8(h) in the event of a Fundamental
Change, immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change
(as defined in Section 8(i)), the conversion price of the
Series B Convertible Preferred Stock shall become the
lower of (A) the conversion price immediately prior to
such Non-Stock Fundamental Change, but after giving effect
to any other prior adjustments effected pursuant to this
Section 8, and (B) the result obtained by multiplying the
greater of the Applicable Price (as defined in Section
8(i)) or the then applicable Reference Market Price (as
defined in Section 8(i)) by a fraction the numerator of
which shall be $50.00 and the denominator of which shall
be $54.00 prior to September 15, 1999 and thereafter the
then current Redemption Price per share of Series B
Convertible Preferred Stock plus an amount equal to all
dividends accrued and unpaid thereon, whether or not
declared, to but excluding the date of such Non-Stock
Fundamental Change; and
(ii) in the case of a Common Stock Fundamental
Change, the conversion price shall be the conversion price
in effect immediately prior to such Common Stock
Fundamental Change, but after giving effect to any other
prior adjustments effected pursuant to this Section 8,
multiplied by a fraction, the numerator of which is the
Purchaser Stock Price (as defined in Section 8(i)) and the
denominator of which is the Applicable Price; provided,
--------
however, that in the event of a Common Stock Fundamental
-------
Change in which (A) 100% by value of the consideration
received by a holder of Common Stock is common stock of
the successor, acquiror or other third party (and cash, if
any, is paid with respect to any fractional interests in
such common stock resulting from such Common Stock
Fundamental Change) and (B) all of the Common Stock shall
have been exchanged for, converted into or acquired for
<PAGE>
-30-
common stock (and cash with respect to fractional
interests) of the successor, acquiror or other third
party, the conversion price of the shares of Series B
Convertible Preferred Stock immediately following such
Common Stock Fundamental Change shall be the conversion
price in effect immediately prior to such Common Stock
Fundamental Change multiplied by a fraction, the numerator
of which is one (1) and the denominator of which is the
number of shares of common stock of the successor,
acquiror or other third party received by a holder of one
share of Common Stock as a result of such Common Stock
Fundamental Change.
(i) Definitions. The following definitions shall
-----------
apply to terms used in this Section 8:
(1) "Applicable Price" shall mean (i) in the
event of a Non-Stock Fundamental Change in which the
holders of shares of Common Stock receive only cash, the
amount of cash received by the holder of one share of
Common Stock and (ii) in the event of any other Non-Stock
Fundamental Change or any Common Stock Fundamental Change,
the average of the last reported sale price for the Common
Stock during the ten Trading Days immediately prior to the
record date for the determination of the holders of Common
Stock entitled to receive cash, securities, property or
other assets in connection with such Non-Stock Fundamental
Change or Common Stock Fundamental Change, or, if there is
no such record date, the date upon which the holders of
the Common Stock shall have the right to receive such
cash, securities, property or other assets.
(2) "Closing Price" on any day shall mean the
closing sale price regular way on such day or, in case no
such sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in each
case on the New York Stock Exchange, or, if the Common
Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange or
quotation system on which the Common Stock is quoted or
listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange
or quotation system, the average of the closing bid and
asked prices of the Common Stock on the over-the-counter
market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similarly generally
accepted reporting service, or if not so available in such
manner, as furnished by any New York Stock Exchange member
firm selected from time to time by the Board of Directors
of the Corporation for that purpose.
<PAGE>
-31-
(3) "Common Stock Fundamental Change" shall
mean any Fundamental Change in which more than 50% by
value (as determined in good faith by the Board of
Directors) of the consideration received by holders of
Common Stock consists of common stock that for the
consecutive ten Trading Days immediately prior to such
Fundamental Change has been admitted for listing or
admitted for listing subject to notice of issuance on a
national securities exchange or quoted on the National
Association of Securities Dealers, Inc. ("NASDAQ")
National Market System; provided, however, that a
-------- -------
Fundamental Change shall not be a Common Stock Fundamental
Change unless either (i) the Corporation continues to
exist after the occurrence of such Fundamental Change and
the outstanding shares of Series B Convertible Preferred
Stock continue to exist as outstanding shares of Series B
Convertible Preferred Stock, or (ii) not later than the
occurrence of such Fundamental Change, the outstanding
shares of Series B Convertible Preferred Stock are
converted into or exchanged for shares of convertible
preferred stock of a corporation succeeding to the
business of the Corporation, which convertible preferred
stock has powers, preferences and relative, participating,
optional or other rights, and qualifications, limitations
and restrictions, substantially similar to those of the
Series B Convertible Preferred Stock.
(4) "Determination Date" shall mean, with
respect to any dividend, distribution or other transaction
or event in which the holders of Common Stock have the
right to receive any cash, securities or other property or
assets or in which the Common Stock (or other applicable
security) is exchanged for or converted into any
combination of cash, securities or other property, the
date fixed for determination of stockholders entitled to
receive such cash, securities or other property or assets
(whether such date is fixed by the Board of Directors or
by statute, contract or otherwise).
(5) "Fundamental Change" shall mean the
occurrence of any transaction or event in connection with
a plan pursuant to which all or substantially all of the
shares of Common Stock shall be exchanged for, converted
into, acquired for or constitute solely the right to
receive cash, securities, property or other assets
(whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise);
provided, however, in the case of a plan involving more
-------- -------
than one such transaction or event, for purposes of
<PAGE>
-32-
adjustment of the conversion price, such Fundamental
Change shall be deemed to have occurred when substantially
all of the shares of Common Stock of the Corporation shall
be exchanged for, converted into or acquired for or
constitute solely the right to receive cash, securities,
property or other assets, but the adjustment shall be
based upon the consideration which the holders of Common
Stock received in such transaction or event as a result of
which more than 50% of the shares of Common Stock of the
Corporation shall have been exchanged for, converted into,
or acquired for or constitute solely the right to receive
cash, securities, property or other assets; provided,
--------
further, that such term does not include (i) any such
-------
transaction or event in which the Corporation and/or any
of its subsidiaries are the issuers of all the cash,
securities, property or other assets exchanged, acquired
or otherwise issued in such transaction or event, or
(ii) any such transaction or event in which the holders of
Common Stock receive securities of an issuer other than
the Corporation if, immediately following such transaction
or event, such holders hold a majority of the securities
having the power to vote normally in the election of
directors of such other issuer outstanding immediately
following such transaction or other event.
(6) "Non-Stock Fundamental Change" shall mean
any Fundamental Change other than a Common Stock
Fundamental Change.
(7) "Purchaser Stock Price" shall mean, with
respect to any Common Stock Fundamental Change, the
average of the last reported sales price for the common
stock, on the principal national securities exchange or
the NASDAQ National Market System on which such common
stock is listed, received in such Common Stock Fundamental
Change during the ten Trading Days immediately prior to
the record date for the determination of the holders of
Common Stock entitled to receive such common stock or, if
there is no such record date, the date upon which the
holders of the Common Stock shall have the right to
receive such common stock; provided, however, if no such
-------- -------
last reported sales price for the common stock during the
last ten Trading Days prior to the record date exists,
then the Purchaser Stock Price shall be set at a price
determined in good faith by the Board of Directors.
(8) "Reference Market Price" shall initially
mean $11.33 and in the event of any adjustment to the
conversion price other than as a result of a Fundamental
Change, the Reference Market Price shall also be adjusted
<PAGE>
-33-
so that the ratio of the Reference Market Price to the
conversion price after giving effect to any such
adjustment shall always be the same as the ratio of $11.33
to the initial conversion price set forth above.
(9) "Trading Day" shall mean a day on which the
national securities exchange or the NASDAQ National Market
System used to determine the Closing Price is open for the
transaction of business or the reporting of trades.
(j) Dividend or Interest Reinvestment Plans.
---------------------------------------
Notwithstanding the foregoing provisions, the issuance of any
shares of Common Stock pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of
the Corporation and the investment of additional optional
amounts in shares of Common Stock under any such plan, and the
issuance of any shares of Common Stock or options or rights to
purchase such shares pursuant to any employee benefit plan or
program of the Corporation or pursuant to any option, warrant,
right or exercisable, exchangeable or convertible security
outstanding as of the date the Series B Convertible Preferred
Stock was first designated (except as expressly provided in
Section 8(c)(i) or 8(c)(ii) with respect to certain events
under the Rights Agreement), and any issuance of Rights (as
hereinafter defined), shall not be deemed to constitute an
issuance of Common Stock or exercisable, exchangeable or
convertible securities by the Corporation or any of its
subsidiaries to which any of the adjustment provisions
described above applies. There shall also be no adjustment of
the conversion price in case of the issuance of any stock (or
securities convertible into or exchangeable for stock) of the
Corporation except as specifically described in this Section 8.
If any action would require adjustment of the conversion price
pursuant to more than one of the provisions described above,
only one adjustment shall be made and such adjustment shall be
the amount of adjustment which has the highest absolute value
to the holders of Series B Convertible Preferred Stock.
(k) Preferred Share Purchase Rights. So long as
-------------------------------
Preferred Share Purchase Rights, of the kind authorized and
declared on June 11, 1987 and distributed by the Corporation in
June 1987 as the same have been and may hereafter be amended
("Rights"), are attached to the outstanding shares of Class D
Common Stock of the Corporation, each share of Class D Common
Stock issued upon conversion of the shares of Series B
Convertible Preferred Stock prior to the earliest of any
Distribution Date (as defined in the Rights Agreement), the
date of redemption of the Rights or the date of expiration of
the Rights shall be issued with Rights in an amount equal to
the amount of Rights then attached to each such outstanding
<PAGE>
-34-
share of Class D Common Stock, provided that, at the option of
any holder of shares of Class D Common Stock, any securities
issued upon exercise of such Rights shall be voting only to the
extent that the Class D Common Stock is voting.
(l) Certain Additional Rights. In case the
-------------------------
Corporation shall, by dividend or otherwise, authorize, declare
or make a distribution on its Common Stock referred to in
Section 8(c)(iv) or Section 8(c)(v), the holder of each share
of Series B Convertible Preferred Stock, upon the conversion
thereof subsequent to the close of business on the date fixed
for the determination of stockholders entitled to receive such
distribution and prior to the effectiveness of the conversion
price adjustment in respect of such distribution pursuant to
Section 8(c)(iv) or Section 8(c)(v), shall also be entitled to
receive for each share of Class D Common Stock into which such
share of Series B Convertible Preferred Stock is converted, the
portion of the evidences of indebtedness, shares of stock, cash
and assets so distributed applicable to one share of Class D
Common Stock; provided, however, that, at the election of the
-------- -------
Corporation (whose election shall be evidenced by a resolution
of the Board of Directors) with respect to all holders so
converting, the Corporation may, in lieu of distributing to
such holder any portion of such distribution not consisting of
cash or securities of the Corporation, pay such holder an
amount in cash equal to the fair market value thereof (as
determined by the Board of Directors, including a majority of
the Directors who are not officers or employees of the
Corporation or any of its subsidiaries, whose determination
shall be conclusive and described in a resolution of the Board
of Directors). If any conversion of a share of Series B
Convertible Preferred Stock described in the immediately
preceding sentence occurs prior to the payment date for a
distribution to holders of Class D Common Stock which the
holder of the share of Series B Convertible Preferred Stock so
converted is entitled to receive in accordance with the
immediately preceding sentence, the Corporation may elect (such
election to be evidenced by a resolution of the Board of
Directors) to distribute to such holder a due bill for the
evidences of indebtedness, shares of stock, cash or assets to
which such holder is so entitled; provided that such due bill
--------
(i) meets any applicable requirements of the principal national
securities exchange or other market on which the Class D Common
Stock is then traded and (ii) requires payment or delivery of
such evidences of indebtedness, shares of stock, cash or assets
no later than the date of payment or delivery thereof to
holders of Class D Common Stock receiving such distribution.
(m) Other. Notwithstanding any other provision in
-----
this Section 8 to the contrary, if the Corporation shall, by
<PAGE>
-35-
dividend or otherwise, authorize, declare or make a distribu-
tion on its Common Stock referred to in Section 8(c)(iv) and
such distribution shall include shares of stock of one or more
corporations that immediately prior to such distribution was or
would have been a subsidiary (a "Spin-Off"), the holder of each
share of Series B Convertible Preferred Stock shall be
entitled, if it so elects, in addition to any other adjustment
provided in respect thereof in this Section 8, to receive share
for share convertible preferred stock of each such corporation
which has powers, preferences and relative, participating,
optional and other rights, and qualifications, limitations and
restrictions with respect to such corporation, as are
substantially identical to those of the Series B Convertible
Preferred Stock (the "Additional Preferred Stock" and
collectively with the Series B Preferred Stock, the "Total
Preferred Stock"). The then effective conversion price of the
Additional Preferred Stock shall be such as shall preserve
fully the conversion rights of the Series B Convertible
Preferred Stock in such corporation. The shares of Series B
Convertible Stock and the Additional Preferred Stock shall each
thereafter remain outstanding; provided, however, that any
-------- -------
payment, redemption or retirement in respect of either the
Series B Convertible Preferred Stock or the Additional
Preferred Stock shall operate to reduce the remaining payment,
redemption or retirement rights in respect of both, so that
the holder shall be entitled to receive in the aggregate the
full benefits with respect to payments, redemption and
retirement rights of holding one half of the number of shares
of Total Preferred Stock held by such holder and the full
benefits with respect to all other rights of holding the total
number of shares of Total Preferred Stock held by such holder.
(n) Certain Special Events. Notwithstanding
----------------------
anything in this Section 8 to the contrary, neither the
Corporation nor any of its subsidiaries shall declare, pay or
make any dividend or distribution or commence a tender or
exchange offer for any of the Corporation's securities that are
subordinate to or pari passu with the Series B Convertible
---- -----
Preferred Stock as to liquidation preference or dividends or be
a party to any transaction (including without limitation any
recapitalization or reclassification of stock), any
consolidation of the Corporation or any such subsidiary with,
or merger of the Corporation or any such subsidiary into, or
share exchange with, any other person, any merger of any other
person into the Corporation or any such subsidiary or any sale
or transfer of assets which, in any such case, would constitute
a Special Event unless after giving effect thereto the
Corporation would have the ability and the right (and the Board
of Directors, including a majority of the Directors who are not
officers or employees of the Corporation or any of its
<PAGE>
-36-
subsidiaries, shall have adopted a resolution confirming such
ability and right) to purchase at the then applicable price
specified in Section 7 all of the then issued and outstanding
shares of Series B Convertible Preferred Stock, assuming all
such stock is tendered to it for purchase pursuant to
Section 7.
9. Voting Rights.
-------------
(a) General. The holders of shares of Series B
-------
Convertible Preferred Stock will not have any voting rights
except as set forth below. In connection with such rights to
vote pursuant to Sections 9(b) and 9(c), each holder of
Series B Convertible Preferred Stock will have one vote for
each share held. Any shares of Series B Convertible Preferred
Stock held by the Corporation or any entity controlled by the
Corporation shall not have voting rights hereunder and shall
not be counted in determining the presence of a quorum.
(b) Default Voting Rights. Whenever dividends on
---------------------
the Series B Convertible Preferred Stock or any other class or
series of Parity Dividend Stock shall be in arrears in an
aggregate amount equal to at least six quarterly dividends
(whether or not consecutive), (i) the number of members of the
Board of Directors shall be increased by two, effective as of
the time of election of such directors as hereinafter provided
and (ii) the holders of the Series B Convertible Preferred
Stock (voting separately as a class with all other affected
classes or series of the Parity Dividend Stock upon which like
voting rights have been conferred and are exercisable) will
have the exclusive right to vote for and elect such two
additional directors of the Corporation at each meeting of
stockholders of the Corporation at which directors are to be
elected held during the period such dividends remain in
arrears. The right of the holders of the Series B Convertible
Preferred Stock to vote for such two additional directors shall
terminate when all accrued and unpaid dividends on the Series B
Convertible Preferred Stock have been authorized, declared,
paid or set apart for payment. The term of office of all
directors so elected shall terminate immediately upon the
termination of the right of the holders of the Series B
Convertible Preferred Stock and such Parity Dividend Stock to
vote for such two additional directors, and the number of
directors of the Board of Directors shall immediately
thereafter be reduced by two.
The foregoing right of the holders of the Series B
Convertible Preferred Stock with respect to the election of two
directors may be exercised at each annual meeting of
stockholders or at any special meeting of stockholders held for
<PAGE>
-37-
such purpose. If the right to elect directors shall have
accrued to the holders of the Series B Convertible Preferred
Stock more than ninety days preceding the date established for
the next annual meeting of stockholders, the President of the
Corporation shall, within twenty days after the delivery to the
Corporation at its principal office of a written request for a
special meeting signed by the holders of at least 10% of all
outstanding shares of the Series B Convertible Preferred Stock,
call a special meeting of the holders of the Series B
Convertible Preferred Stock to be held within sixty days after
the delivery of such request for the purpose of electing such
additional directors.
The holders of the Series B Convertible Preferred
Stock and any Parity Dividend Stock referred to above voting as
a class shall have the right to remove with or without cause at
any time and replace any directors such holders shall have
elected pursuant to this Section 9 and the holders of each
other class of stock of the Corporation shall not have the
right to remove any such directors.
(c) Class Voting Rights. So long as any shares of
-------------------
the Series B Convertible Preferred Stock are outstanding, the
Corporation shall not, directly or indirectly, without the
affirmative vote or consent of the holders of at least 66-2/3%
(unless a higher percentage shall then be required by
applicable law or the Corporation's charter) of all outstanding
shares of the Series B Convertible Preferred Stock voting
separately as a class (i) amend, alter or repeal any provision
of the charter or by the bylaws of the Corporation, if such
amendment, alteration or repeal would alter the contract
rights, as expressly set forth herein, of the Series B
Convertible Preferred Stock so as to adversely affect the
rights of the holders thereof or the holders of the Class D
Common Stock or the Common Stock or (ii) create, authorize or
issue, or reclassify shares of any authorized stock of the
Corporation into, or increase the authorized amount of, any
Senior Dividend Stock or Senior Liquidation Stock, or any
security convertible into such Senior Dividend Stock or Senior
Liquidation Stock. A class vote on the part of the Series B
Convertible Preferred Stock shall, without limitation,
specifically not be deemed to be required (except as otherwise
required by law or resolution of the Board of Directors) in
connection with (a) the authorization, issuance or increase in
the authorized amount of any shares of any other class or
series of stock which ranks junior to, or on a parity with, the
Series B Convertible Preferred Stock in respect of the payment
of dividends and distributions upon liquidation, dissolution or
winding up of the Corporation or (b) the authorization,
<PAGE>
-38-
issuance or increase in the amount of any bonds, mortgages,
debentures or other obligations of the Corporation.
(d) Voting Rights after Occurrence of a Specified
---------------------------------------------
Corporate Action. Following the occurrence of a Specified
- - ----------------
Corporate Action, the holders of shares of Series B Convertible
Preferred Stock shall have the right to vote as a class with
the holders of Common Stock and Class D Common Stock on all
matters as to which the holders of Common Stock are entitled to
vote, whether by law or otherwise. In connection with such
rights to vote, each holder of Series B Convertible Preferred
Stock shall have the number of votes for each share held equal
to the number of shares of Common Stock then exchangeable for
the shares of Class D Common Stock into which such share is
then convertible.
10. Outstanding Shares. For purposes of these
------------------
Articles Supplementary, all shares of Series B Convertible
Preferred Stock issued by the Corporation shall be deemed
outstanding except (i) from the date fixed for redemption
pursuant to Section 6 hereof, all shares of Series B
Convertible Preferred Stock that have been so called for
redemption under Section 6, to the extent provided thereunder;
(ii) from the date of surrender of certificates representing
shares of Series B Convertible Preferred Stock, all shares of
Series B Convertible Preferred Stock converted into Class D
Common Stock or repurchased pursuant to Section 7 hereof; and
(iii) from the date of registration of transfer, all shares of
Series B Convertible Preferred Stock held of record by the
Corporation or any majority-owned subsidiary of the
Corporation.
11. Transfer Restrictions.
---------------------
(a) Legends on Series B Convertible Preferred Stock
-----------------------------------------------
and Common Stock. The certificates representing shares of
- - ----------------
Series B Convertible Preferred Stock shall, unless otherwise
agreed by the Corporation and the holders of any such
certificates, bear a legend substantially to the following
effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE AND ANY
SECURITIES ISSUABLE UPON CONVERSION OR EXCHANGE HEREOF MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION
THEREUNDER. ANY SALE PURSUANT TO CLAUSE (ii) OF THE
PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO ALEXANDER & ALEXANDER
SERVICES INC. TO THE EFFECT THAT SUCH EXEMPTION FROM
<PAGE>
-39-
REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
IN ADDITION, THE VOTING, SALE, ASSIGNMENT, TRANSFER,
PLEDGE OR HYPOTHECATION OF THE SHARES REPRESENTED BY THIS
CERTIFICATE IS FURTHER SUBJECT TO RESTRICTIONS WHICH ARE
CONTAINED IN THE CHARTER OF ALEXANDER & ALEXANDER SERVICES
INC., IN THE ARTICLES SUPPLEMENTARY GOVERNING THESE SHARES
AND IN A STOCK PURCHASE AND SALE AGREEMENT DATED AS OF
JUNE 6, 1994, A COPY OF EACH OF WHICH IS ON FILE WITH
ALEXANDER & ALEXANDER SERVICES INC. AND WILL BE FURNISHED
BY THE CORPORATION TO THE STOCKHOLDER ON REQUEST AND
WITHOUT CHARGE."
(b) Transfer Agent Requirements. The transfer agent
---------------------------
for the Series B Convertible Preferred Stock shall not be
required to accept for registration of transfer any shares of
Series B Convertible Preferred Stock bearing the legend
contained in paragraph (a) above, except upon presentation of
satisfactory evidence that the restrictions on transfer of
shares of the Series B Convertible Preferred Stock referred to
in the legend in paragraph (a) have been complied with, all in
accordance with such reasonable regulations as the Corporation
may from time to time agree with the transfer agent for shares
of the Series B Convertible Preferred Stock.
12. Status of Acquired Shares. Shares of Series B
-------------------------
Convertible Preferred Stock redeemed or repurchased by the
Corporation, received upon conversion pursuant to Section 8 or
otherwise acquired by the Corporation will be restored to the
status of authorized but unissued shares of Preferred Stock,
without designation as to class, and may thereafter be issued,
but not as shares of Series B Convertible Preferred Stock.
13. Special Covenants. The Corporation shall not on
-----------------
or after June 1, 1994 issue or sell any shares of any Senior
Dividend Stock or Senior Liquidation Stock.
14. Permissible Distributions. In determining
-------------------------
whether a distribution (other than upon voluntary or
involuntary liquidation), by dividend, redemption or other
acquisition of shares or otherwise, is permitted under the
Maryland General Corporation Law, amounts that would be needed,
if the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon
dissolution of holders of Series B Convertible Preferred Stock
whose preferential rights upon dissolution are superior to
those receiving the distribution shall not be added to the
Corporation's total liabilities.
15. Preemptive Rights. Holders of shares of
-----------------
Series B Convertible Preferred Stock are not entitled to any
<PAGE>
-40-
preemptive or subscription rights in respect of any securities
of the Corporation.
16. Severability of Provisions. Whenever possible,
--------------------------
each provision hereof shall be interpreted in a manner as to be
effective and valid under applicable law, but if any provision
hereof is held to be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating or
otherwise adversely affecting the remaining provisions hereof.
If a court of competent jurisdiction should determine that a
provision hereof would be valid or enforceable if a period of
time were extended or shortened or a particular percentage were
increased or decreased, then such court may make such change as
shall be necessary to render the provision in question
effective and valid under applicable law.
SECOND: The Series B Convertible Preferred Stock has
------
been classified by the Board of Directors under a power
contained in the Charter.
THIRD: These Articles Supplementary have been
-----
approved by the Board of Directors in the manner and by the
vote required by law.
FOURTH: The undersigned acknowledges these Articles
------
Supplementary to be the act of the Corporation and states as to
all matters and facts required to be verified under oath that,
to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and such
statement is made under penalties for perjury.
IN WITNESS WHEREOF, these Articles Supplementary are
executed on behalf of the Corporation by its Vice President and
attested by its Assistant Secretary this 15th day of July,
1994.
ALEXANDER & ALEXANDER SERVICES INC.
By: /s/ R. A. Kershaw
----------------------------------
Name: R. A. Kershaw
Vice President and Treasurer
Attest:
/s/ Alice L. Russell
- - ---------------------------
Name: Alice L. Russell
Assistant Secretary
EXHIBIT 3.3
ALEXANDER & ALEXANDER SERVICES INC.
-----------------------------------
ARTICLES SUPPLEMENTARY
Classifying 400,000 shares of Preferred Stock
as
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Alexander & Alexander Services Inc., a Maryland corporation
(the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland ("Department") that:
FIRST: Pursuant to the authority granted to and vested
-----
in the Board of Directors of the Corporation (hereinafter called the
"Board of Directors" or the "Board") in accordance with the
provisions of Article SIXTH of the charter of the Corporation, the
Board of Directors, at a meeting duly convened and held on July
15, 1994, adopted a resolution classifying 400,000 of the
Corporation's authorized but unissued shares of Preferred Stock,
$1.00 par value per share (the "Preferred Stock"), as "Series A
Junior Participating Preferred Stock," and fixing the preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions
of redemption thereof as follows:
Series A Junior Participating Preferred Stock
I. Designation and Amount
----------------------
The shares classified hereby shall be designated as
"Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock"). The number of shares
classified hereby shall be 400,000 and, when aggregated
with the shares classified as Series A Preferred Stock
under Article SIXTH of the charter of the Corporation and
pursuant to the Articles Supplementary filed by the
Corporation with the Department on December 3, 1993, the
total number of shares constituting the Series A Preferred
Stock shall be 1,000,000. Such total number of shares may
be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the
--------
number of shares of Series A Preferred Stock to a number
less than the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock.
<PAGE>
II. Dividends and Distributions
---------------------------
(A) Subject to the rights of the holders of any
shares of any series of Preferred Stock (or any similar
stock) ranking prior and superior to the Series A Preferred
Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of
Common Stock, $1.00 par value per share (the "Common
Stock"), of the Corporation, and of any other junior stock,
shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the
first day of March, June, September and December in each
year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of
a share or fraction of a share of Series A Preferred Stock,
in an amount per share (rounded to the nearest cent) equal
to the greater of (a) $10 or (b) subject to the provision
for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions, other than a
dividend payable in shares of Common Stock or a subdivision
of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common
Stock since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock.
In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the
amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which
is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in
- 2 -
<PAGE>
paragraph (A) of this Section immediately after it declares
a dividend or distribution on the Common Stock (other than
a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have
been declared on the Common Stock during the period between
any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $10 per
share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series A Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of
issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may
fix a record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon,
which record date shall be not more than 60 days prior to
the date fixed for the payment thereof.
III. Voting Rights
-------------
The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Preferred
Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision
- 3 -
<PAGE>
or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in
each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which
is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Articles Supplementary creating a series of Preferred Stock
or any similar stock, or by law, the holders of shares of
Series A Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one
class on all matters submitted to a vote of shareholders of
the Corporation.
(C) Except as set forth herein, or as otherwise
provided by law, holders of Series A Preferred Stock shall
have no voting rights.
IV. Certain Restrictions
--------------------
(A) Whenever quarterly dividends or other dividends
or distributions payable on the Series A Preferred Stock as
provided in Section II are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
- 4 -
<PAGE>
dividends paid ratably on the Series A Preferred Stock and
all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or
any shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary
of the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless
the Corporation could, under paragraph (A) of this
Section IV purchase or otherwise acquire such shares at
such time and in such manner.
V. Reacquired Shares
-----------------
Any shares of Series A Preferred Stock purchased or
otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after
the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and
restrictions on issuance set forth herein, in the Restated
Articles of Incorporation, as amended, in any other
Articles Supplementary classifying a series of Preferred
Stock or any similar stock or as otherwise required by law.
- 5 -
<PAGE>
VI. Liquidation, Dissolution or Winding Up
--------------------------------------
Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the
holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock unless, prior thereto, the
holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or
not declared, to the date of such payment, provided that
the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject
to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate amount to be distributed
per share to holders of shares of Common Stock, or (2) to
the holders of shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding
up) with the Series A Preferred Stock, except distributions
made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which
the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the
Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the proviso in
clause (1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which
is the number of shares of Common Stock that were
outstanding immediately prior to such event.
VII. Consolidation, Merger, etc.
---------------------------
In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any
other property, then in any such case each share of
Series A Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per share,
subject to the provision for adjustment hereinafter set
- 6 -
<PAGE>
forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the
event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred
Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such
event.
VIII. Redemption
----------
The shares of Series A Preferred Stock shall not be
redeemable.
IX. Rank
----
The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets,
junior to all series of any other class of the
Corporation's Preferred Stock.
X. Amendment
---------
The charter of the Corporation shall not be amended in
any manner which would materially alter or change the
powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of
the outstanding shares of Series A Preferred Stock, voting
together as a single series.
SECOND: The undersigned Vice President acknowledges these
------
Articles Supplementary to be the corporate act of the Corporation
and, as to all matters or facts required to be verified under oath,
the undersigned Vice President acknowledges that, to the best of his
knowledge, information and belief, these matters and facts are true
in all material respects and that this statement is made under the
penalties for perjury.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these
Articles Supplementary to be executed under seal in its name and on
its behalf by its Vice President and attested to by its Assistant
Secretary on this 15th day of July, 1994.
ATTEST: ALEXANDER & ALEXANDER SERVICES
INC.
/s/ Alice L. Russell By:/s/ R. Alan Kershaw
- - ---------------------------- -----------------------------------
(SEAL)
Alice L. Russell, R. Alan Kershaw, Vice President
Assistant Secretary and Treasurer
- 8 -
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
Dated as of July 15, 1994
by and among
ALEXANDER & ALEXANDER SERVICES INC.
and
THE PURCHASERS WHO ARE SIGNATORIES HERETO
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . 1
-----------
SECTION 2. REGISTRATION RIGHTS . . . . . . . . . . . . 5
-------------------
2.1 Demand Registration Rights . . . . . . 5
2.2 Incidental Registration . . . . . . . . 7
2.3 Supplements and Amendments . . . . . . 8
2.4 Restrictions on Public Sale by
the Company and Others . . . . . . . . 9
2.5 Underwritten Registrations . . . . . . 10
2.6 Registration Procedures . . . . . . . . 11
2.7 Registration Expenses . . . . . . . . . 18
2.8 Rule 144 . . . . . . . . . . . . . . . 20
SECTION 3. INDEMNIFICATION . . . . . . . . . . . . . . 20
---------------
3.1 Indemnification by the Company . . . . 20
3.2 Indemnification by Holder of
Registrable Securities . . . . . . . . 21
3.3 Conduct of Indemnification
Proceeding . . . . . . . . . . . . . . 22
3.4 Contribution . . . . . . . . . . . . . 23
3.5 Other Indemnities . . . . . . . . . . . 24
SECTION 4. MISCELLANEOUS . . . . . . . . . . . . . . . 24
-------------
4.1 Remedies . . . . . . . . . . . . . . . 24
4.2 No Inconsistent Agreements . . . . . . 24
4.3 Amendments and Waivers . . . . . . . . 24
4.4 Notices . . . . . . . . . . . . . . . . 25
4.5 Successors and Assigns . . . . . . . . 25
4.6 Counterparts . . . . . . . . . . . . . 25
4.7 Headings . . . . . . . . . . . . . . . 25
4.8 Governing Law . . . . . . . . . . . . . 26
4.9 Severability . . . . . . . . . . . . . 26
4.10 Entire Agreement . . . . . . . . . . . 26
4.11 Attorneys' Fees . . . . . . . . . . . . 26
4.12 Securities Held by the Company
or Its Subsidiaries . . . . . . . . . . 26
Signature Pages. . . . . . . . . . . . . . . . . . . . . . S-1
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement"), dated
as of July 15, 1994, by and among ALEXANDER & ALEXANDER SERVICES
INC., a Maryland corporation (or any successor, the "Company"), and
the purchasers whose signatures appear on the execution pages of
this Agreement (each a "Purchaser" and collectively, the
"Purchasers").
This Agreement is entered into in connection with the Stock
Purchase and Sale Agreement, dated as of June 6, 1994, among the
Company and American International Group, Inc. (the "Purchase
Agreement"), relating to the issuance and sale by the Company of an
aggregate of 4,000,000 shares of the Company's 8% Series B
Cumulative Convertible Preferred Stock, par value $1.00 per share
(together with additional shares of such Preferred Stock issued as
dividends thereon, the "Preferred Stock"). In order to induce the
purchaser party thereto to enter into the Purchase Agreement, the
Company has agreed to provide the registration rights set forth in
this Agreement for the equal benefit of each of the Purchasers and
their direct and indirect transferees. The execution and delivery
of this Agreement is a condition to each Purchaser's obligation to
purchase the Preferred Stock under the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
-----------
Capitalized terms used herein without definition shall have
their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following terms shall have the
following meanings:
"Advice" has the meaning set forth in the last paragraph of
------
Section 2.6.
"Affiliate" means, when used with reference to any Person,
---------
any other Person directly or indirectly controlling, controlled by,
or under direct or indirect common control with, the referent
Person or such other Person, as the case may be, or any Person who
beneficially owns, directly or indirectly, 5% or more of the equity
interests of such Person or warrants, options or other rights to
acquire or hold more than 5% of any class of equity interests of
such Person. For the purposes of this definition, "control" when
used with respect to any specified Person means the power to
direct or cause the direction of management or policies of such
Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms
<PAGE>
-2-
"affiliated", "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" has the meaning set forth in the first
---------
paragraph of this Agreement.
"Articles Supplementary" means the Articles Supplementary
----------------------
of the Company classifying the Preferred Stock filed by the Company
with the State Department of Assessments and Taxation of the State
of Maryland on July 15, 1994, which Articles Supplementary is
substantially in the form of Exhibit 2 to the Purchase Agreement.
"Charter" means the Articles of Restatement of the Company
-------
as filed with the State Department of Assessments and Taxation of
the State of Maryland as amended through the date hereof.
"Class D Common Stock" means the Class D Common Stock, par
--------------------
value $1.00 per share, of the Company.
"Company" has the meaning set forth in the first paragraph
-------
of this Agreement.
"Conversion Shares" means the shares of Class D Common
-----------------
Stock issuable or issued upon conversion of the Preferred Stock
pursuant to the terms of the Purchase Agreement and the Articles
Supplementary.
"DTC" has the meaning set forth in Section 2.6(i) of this
---
Agreement.
"Effectiveness Date" has the meaning set forth in
------------------
Section 2.1(a) of this Agreement.
"Effectiveness Period" has the meaning set forth in
--------------------
Section 2.1(a) of this Agreement.
"Exchange Act" has the meaning set forth in Section 2.6(a)
------------
of this Agreement.
"Exchange Shares" means the shares of Common Stock, par
---------------
value $1.00 per share, of the Company issuable or issued (x) in
exchange for the Class D Common Stock pursuant to the terms of the
Purchase Agreement and the Charter or (y) upon conversion of the
Preferred Stock pursuant to the terms of the Purchase Agreement and
the Articles Supplementary.
"Filing Date" has the meaning set forth in Section 2.1(a)
-----------
of this Agreement.
"Holder" means any holder of a Registrable Security.
------
<PAGE>
-3-
"Incidental Registration" has the meaning set forth in
-----------------------
Section 2.2(a) of this Agreement.
"Inspectors" has the meaning set forth in Section 2.6(n) of
----------
this Agreement.
"NASD" has the meaning set forth in Section 2.7 of this
----
Agreement.
"Person" means any individual, trustee, corporation,
------
partnership, joint stock company, trust, unincorporated
association, union, business association, firm or other legal
entity.
"Preferred Stock" has the meaning set forth in the second
---------------
paragraph of this Agreement.
"Prospectus" means the prospectus included in any
----------
Registration Statement (including, without limitation, a prospectus
that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement, and all other amendments
and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to
be incorporated by reference in such Prospectus.
"Purchase Agreement" has the meaning set forth in the
------------------
second paragraph of this Agreement.
"Purchaser" has the meaning set forth in the first
---------
paragraph of this Agreement.
"Purchasers" has the meaning set forth in the first
----------
paragraph of this Agreement.
"Registrable Securities" means the Preferred Stock, the
----------------------
Exchange Shares and any other securities issued or issuable with
respect to the Preferred Stock or the Exchange Shares by way of a
stock dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other
reorganization; provided, however, that a security ceases to be a
-------- -------
Registrable Security when it is no longer a Transfer Restricted
Security. In determining the number of Registrable Securities
outstanding at any time or whether the holders of the requisite
number of Registrable Securities have taken any action hereunder
and in calculating the number of Registrable Securities for all
other purposes under this Agreement, each share of Preferred Stock
<PAGE>
-4-
shall be deemed to be equal to the number of Exchange Shares then
deliverable upon (i) the conversion of such share of Preferred
Stock into Conversion Shares in accordance with the Articles
Supplementary and (ii) the exchange of such Conversion Shares in
accordance with the Charter.
"Registration Statement" means any registration statement
----------------------
of the Company that covers any of the Registrable Securities
pursuant to the provisions of Section 2.1 of this Agreement,
including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all
exhibits, and all material incorporated by reference or deemed to
be incorporated by reference in such registration statement.
"Rule 144" means Rule 144 under the Securities Act, as such
--------
Rule may be amended from time to time, or any similar rule (other
than Rule 144A) or regulation hereafter adopted by the SEC
providing for offers and sales of securities made in compliance
therewith resulting in offers and sales by subsequent holders that
are not affiliates of an issuer of such securities being free of
the registration and prospectus delivery requirements of the
Securities Act.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as
--------------
amended, and the rules and regulations of the SEC promulgated
thereunder.
"Transfer Restricted Security" means a share of Preferred
----------------------------
Stock or an Exchange Share until such share of Preferred Stock or
Exchange Share, as the case may be, (i) has been effectively
registered under the Securities Act and disposed of in accordance
with a registration statement filed under the Securities Act
covering it or (ii) is distributed to the public pursuant to Rule
144.
"underwritten registration" or "underwritten offering"
----------------------------------------------------
means a registration in which securities of the Company (including
Registrable Securities) are sold to an underwriter for reoffering
to the public.
SECTION 2. REGISTRATION RIGHTS
-------------------
2.1 Demand Registration Rights. (a) The Company
--------------------------
covenants and agrees with each Holder of Registrable Securities
that if on or after July 15, 1995, the Company receives a written
request from Holders of not less than 33 1/3% of the then
outstanding Registrable Securities, then within thirty (30) days
after receipt of such notice (the 30th day after such notice, the
<PAGE>
-5-
"Filing Date") the Company shall use its best efforts to file a
Registration Statement and cause such Registration Statement to
become effective under the Securities Act at the earliest possible
date after such notice (such date, the "Effectiveness Date") with
respect to the offering and sale or other disposition of such
Registrable Securities as such Holders desire to have covered by
such Registration Statement; provided, however, that the Company
-------- -------
shall not be obligated to file any other Registration Statement or
cause any such other Registration Statement to become effective,
pursuant to this Section 2.1(a), (i) for a period of 360 days
following the Filing Date of a Registration Statement filed
pursuant to this Section 2.1(a), (ii) for a period of 180 days
following the effective date of a Registration Statement covering
not less than 25% of the then outstanding Registrable Securities,
which Registrable Securities have been included in such
registration pursuant to Section 2.2 hereof, (iii) for a period of
90 days following the filing of a public offering of common stock
by the Company, (iv) for a period of up to 90 days if such filing
would require disclosure of bona fide confidential information
relating to an acquisition or disposition of material assets then
in progress or (v) which would cover less than 1,000,000
Registrable Securities (or if the number of Registrable Securities
then outstanding is less than 1,000,000, which would cover less
than the aggregate amount of Registrable Securities then
outstanding). The Company shall use its best efforts to
continuously maintain the effectiveness of such Registration
Statement until the earlier of (i) 270 days after the effective
date of the Registration Statement or (ii) the consummation of the
distribution by the Holders of all of the Registrable Securities
covered by such Registration Statement (the "Effectiveness
Period"). The Company shall not include any securities other than
the Registrable Securities in any such Registration Statement
pursuant to any "piggyback" or similar registration rights granted
by the Company without the consent of the Holders of a majority of
the Registrable Securities to be covered by such Registration
Statement, other than "piggyback" registration rights provided for
in the Registration Rights Agreement between the Company and the
Selling Shareholders as defined therein dated November 30, 1993
(the "1993 Registration Rights Agreement") as in effect on June 5,
1994. Notwithstanding anything in this Agreement to the contrary,
the Company shall not be required to comply with more than three
requests for registration pursuant to this Section 2.1. Each
notice to the Company requesting registration to be effected shall
set forth (1) the number of shares of Preferred Stock and the
number of Exchange Shares to be included; (2) the name of the
Holders of the Registrable Securities and the amount to be sold;
and (3) the proposed manner of sale. Within 10 (ten) days after
receipt of such notice, the Company shall notify each Holder of
Registrable Securities who is not a party to the written notice
served on the Company (or the transferee(s) of such Holder) and
<PAGE>
-6-
offer to them the opportunity to include their Registrable
Securities in such registration. A Registration Statement will not
count as complying with the terms hereof unless it is declared
effective by the SEC and remains continuously effective for the
Effectiveness Period, provided that a Registration Statement which
--------
does not become effective after the Company has filed it solely by
reason of the refusal to proceed of the Holders of Registrable
Securities requesting the registration shall not be deemed to have
been effected by the Company at the request of such Holders but the
Holders of Registrable Securities covered by such Registration
Statement shall reimburse the Company for 50% of the out-of-pocket
costs paid by the Company in the performance of its obligations
hereunder in respect of such Registration Statement.
(b) Each Holder of Registrable Securities agrees, if
requested by the managing underwriter or underwriters in an
underwritten offering, not to effect any public sale or
distribution of Registrable Securities or of securities of the
Company of the same class as any securities included in such
Registration Statement, including a sale pursuant to Rule 144 under
the Securities Act (except as part of such underwritten
registration), during the 10-day period prior to, and during the
180-day period beginning on, the closing date of each underwritten
offering made pursuant to such Registration Statement, to the
extent timely notified in writing by the Company or the managing
underwriter or underwriters.
(c) The foregoing provisions of Section 2.1(b) shall not
apply to any Holder of Registrable Securities if such Holder is
prevented by applicable statute or regulation from entering into
any such agreement; provided, however, that any such Holder shall
-------- -------
undertake, in its request to participate in any such underwritten
offering, not to effect any public sale or distribution of any
applicable class of Registrable Securities commencing on the date
of sale of such applicable class of Registrable Securities unless
it has provided 45 days prior written notice of such sale or
distribution to the underwriter or underwriters.
2.2 Incidental Registration. (a) If the Company at any
-----------------------
time before the third anniversary of this Agreement proposes to
register any of its securities under the Act (other than a
registration on Form S-4 or S-8 or any successor form thereto),
whether or not for sale for its own account, and the registration
form to be used therefor may be used for the registration of
Registrable Securities, it will each such time give prompt written
notice to all Holders of Registrable Securities of the Company's
intention to do so and, upon the written request of any such Holder
to the Company made within 10 days after the receipt of any such
notice (which request shall specify the Registrable Securities
intended to be disposed of by such Holder and the intended method
<PAGE>
-7-
of disposition thereof), the Company will use its best efforts to
effect the registration (an "Incidental Registration") under the
Act of all Registrable Securities which the Company has been so
requested to register by the Holders thereof; provided, however,
-------- -------
that at any time prior to the first anniversary of this Agreement
the Company will not be obligated under this Section 2.2(a) to
include Registrable Securities in any registration of securities of
the Company which is solely on behalf of the holders of such
securities and which is being conducted pursuant to registration
rights agreements with such holders in existence on the date of the
Purchase Agreement.
(b) Subject to Section 2.2(c), if an Incidental
Registration is an underwritten registration, and the managing
underwriters thereof advise the Company in writing that in their
opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering
without adversely affecting the marketability of the offering, the
Company will include in such registration (i) first, the securities
the Company proposes to sell for its own account in such
registration, (ii) second, the Registrable Securities requested to
be included in such registration and the securities entitled to
participate in such registration pursuant to the terms of the 1993
Registration Rights Agreement as in effect on June 5, 1994, pro
rata among the Holders of such Registrable Securities and the
beneficiaries of the "piggyback" registration rights contained in
the 1993 Registration Rights Agreement as in effect on June 5, 1994
on the basis of the number of shares owned by each such Holder and
such beneficiaries and (iii) third, other securities requested to
be included in such registration.
(c)Notwithstanding Section 2.2(b), if an Incidental
Registration is an underwritten secondary registration solely on
behalf of holders of the Company's securities, and the managing
underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering
without adversely affecting the marketability of the offering, the
Company will include in such registration (i) first, the securities
requested to be included therein by the holders requesting such
registration, (ii) second, the Registrable Securities requested to
be included in such registration, pro rata among the Holders of
such Registrable Securities on the basis of the number of shares
owned by each such Holder, and (iii) third, other securities
requested to be included in such registration.
2.3 Supplements and Amendments. If a Registration
--------------------------
Statement ceases to be effective for any reason at any time during
the period for which it is required to be effective under this
Agreement, the Company shall use its best efforts to obtain the
<PAGE>
-8-
prompt withdrawal of any order suspending the effectiveness thereof
and shall in connection therewith promptly supplement and amend any
such Registration Statement in a manner reasonably and in good
faith expected to obtain the withdrawal of the order suspending the
effectiveness thereof, and the Company shall use its best efforts
to cause any such Registration Statement to be declared effective
as soon as practicable after such amendment or supplement and to
keep such Registration Statement continuously effective for a
period equal to the period for which it is required to be
effective under this Agreement less the aggregate number of days
during which any predecessor Registration Statement was previously
effective.
The Company shall supplement and amend a Registration
Statement if required by the rules, regulations or instructions
applicable to the applicable registration form for such
Registration Statement, if required by the Securities Act or the
SEC, or if reasonably requested by the Holders of a majority of the
Registrable Securities covered by such Registration Statement or by
any underwriter of the Registrable Securities.
2.4 Restrictions on Public Sale by the Company and Others.
-----------------------------------------------------
The Company agrees (i) that it shall not, and that it shall not
cause or permit any of its subsidiaries to, effect any public sale
or distribution of any securities of the same class as any of the
Registrable Securities or any securities convertible into or
exchangeable or exercisable for such securities (or any option or
other right for such securities) (except for any securities that
may be issued to the holders of the Preferred Stock pursuant to the
Articles Supplementary, the holders of Class D Common Stock
pursuant to the Charter and the holders of the Company's Series A
Preferred Stock, and except for securities issued to officers,
directors and/or employees of the Company or its subsidiaries
pursuant to options or agreements entered into with such officers,
directors and/or employees in connection with their employment or
pursuant to the Company's stock option, stock bonus and other stock
plans and arrangements for officers, directors and employees)
during the 15-day period prior to, and during the 180-day period
beginning on, the commencement of any underwritten offering of
Registrable Securities which has been scheduled prior to the
Company or any of its subsidiaries publicly announcing its
intention to effect any such public sale or distribution; (ii) that
any agreement entered into after the date of this Agreement
pursuant to which the Company (or, if applicable, any subsidiary of
the Company) issues or agrees to issue any securities which have
registration rights shall contain (x) a provision under which the
holders of such securities agree, in the event of an underwritten
offering of Registrable Securities, not to effect any public sale
or distribution of any securities of the same class as any of the
Registrable Securities (or any securities convertible into or
<PAGE>
-9-
exchangeable or exercisable for any such securities), or any option
or other right for such securities, during the periods described in
clause (i) of this Section 2.4, in each case including a sale
pursuant to Rule 144 under the Securities Act (or any similar
provision then in effect) and (y) a provision that effects, upon
notice given pursuant to Section 2.1 hereof to the Company that an
underwritten offering of Registrable Securities is to be
undertaken, the lapse of any demand registration rights with
respect to any securities of the Company (or, if applicable, of any
subsidiary of the Company) until the expiration of 180 days after
the date of the completion of any such underwritten offering;
(iii) that the Company (and, if applicable, each subsidiary of the
Company) will not after the date hereof enter into any agreement or
contract wherein the holders of any securities of the Company or of
any subsidiary of the Company issued or to be issued are granted
any "piggyback" registration rights with respect to any
registration effected pursuant to Section 2.1 hereof, and (iv) that
the Company (and, if applicable, each subsidiary of the Company)
will not after the date hereof enter into any agreement or contract
wherein the exercise by any Holder of its right to an Incidental
Registration hereunder would result in a breach thereof or a
default thereunder or would otherwise conflict with any provision
thereof.
2.5 Underwritten Registrations. If any of the Registrable
--------------------------
Securities covered by a Registration Statement filed pursuant to
Section 2.1 are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers
that will manage the offering will be selected by the Holders of
not less than a majority of the Registrable Securities covered by
such Registration Statement and will be reasonably acceptable to
the Company. If the managing underwriter or underwriters advise
the Company and the Holders in writing that in the opinion of such
underwriter or underwriters the amount of Registrable Securities
proposed to be sold in such offering exceeds the amount of
securities that can be sold in such offering, there shall be
included in such underwritten offering the amount of Registrable
Securities which in the opinion of such underwriter or underwriters
can be sold, and such amount shall be allocated pro rata among the
--------
Holders of Registrable Securities on the basis of the number of
Registrable Securities requested to be included by each such Holder
and all Holders. The Holders of Registrable Securities sold in any
such offering shall pay all underwriting discounts and commissions
of the underwriter or underwriters pro rata; provided, however,
-------- -------- -------
that this Section 2.5 shall not relieve the Company of its
obligations under Section 2.7 hereof.
No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees
to sell such Holder's Registrable Securities on the basis provided
<PAGE>
-10-
in any underwriting arrangements approved by the Holders of not
less than a majority of the Registrable Securities and
(b) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
2.6 Registration Procedures. In connection with any
-----------------------
Registration Statement, the Company shall effect such registrations
to permit the offering and sale of the Registrable Securities in
accordance with the intended method or methods of disposition
thereof, and pursuant thereto the Company shall as expeditiously as
possible:
(a) Prepare and file with the SEC as soon as practicable
each such Registration Statement and cause such Registration
Statement to become effective and remain effective as provided
herein; provided, however, that before filing any such Registration
-------- -------
Statement or any Prospectus or any amendments or supplements
thereto (including documents that would be incorporated or deemed
to be incorporated therein by reference, including such documents
filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") that would be incorporated therein by reference),
the Company shall afford promptly to the Holders of the Registrable
Securities covered by such Registration Statement, their counsel
and the managing underwriter or underwriters, if any, an
opportunity to review copies of all such documents proposed to be
filed a reasonable time prior to the proposed filing thereof and
the Company shall give reasonable consideration in good faith to
any comments of such Holders, counsel and underwriters; provided
--------
that the Company may discontinue any registration of its securities
giving rise to registration rights pursuant to Section 2.2 hereof
at any time prior to the effective date of the registration
statement relating thereto. The Company shall not file any
Registration Statement or Prospectus or any amendments or
supplements thereto if the Holders of a majority of the Registrable
Securities covered by such Registration Statement, their counsel,
or the managing underwriter or underwriters, if any, shall
reasonably object in writing.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep such Registration Statement continuously
effective for the time periods prescribed hereby; cause the related
Prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) under the Securities Act;
and comply with the provisions of the Securities Act, the Exchange
Act and the rules and regulations of the SEC promulgated thereunder
applicable to it with respect to the disposition of all securities
<PAGE>
-11-
covered by such Registration Statement as so amended or in such
prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities, their
counsel and the managing underwriter or underwriters, if any,
promptly, and confirm such notice in writing, (i) when a Prospectus
or any prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any post-
effective amendment, when the same has become effective (including
in such notice a written statement that any Holder may, upon
request, obtain, without charge, one conformed copy of such
Registration Statement or post-effective amendment including
financial statements and schedules and exhibits), (ii) of the
issuance by the SEC of any stop order suspending the effectiveness
of such Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation
or threatening of any proceedings for that purpose, (iii) if at any
time when a prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Securities
the representations and warranties of the Company contained in any
agreement (including any underwriting agreement) contemplated by
Section 2.6(m) below, to the knowledge of the Company, cease to be
true and correct in any material respect, (iv) of the receipt by
the Company of any notification with respect to (A) the suspension
of the qualification or exemption from qualification of the
Registration Statement or any of the Registrable Securities covered
thereby for offer or sale in any jurisdiction, or (B) the
initiation or threatening of any proceeding for such purpose,
(v) of the happening of any event, the existence of any condition
or information becoming known to the Company that requires the
making of any changes in such Registration Statement, Prospectus or
documents so that, in the case of such Registration Statement, it
will conform in all material respects with the requirements of the
Securities Act and it will not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, not
misleading, and that in the case of the Prospectus, it will
conform in all material respects with the requirements of the
Securities Act and it will not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, and (vi) of the Company's reasonable determination that
a post-effective amendment to such Registration Statement would be
appropriate.
(d) Use every reasonable effort to prevent the issuance of
any order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of a
Prospectus or suspending the qualification (or exemption from
<PAGE>
-12-
qualification) of any of the Registrable Securities covered thereby
for sale in any jurisdiction, and, if any such order is issued, to
obtain the withdrawal of any such order at the earliest possible
moment.
(e) If requested by the managing underwriter or
underwriters, if any, or the Holders of a majority of the
Registrable Securities being sold in connection with an
underwriting offering, (i) promptly incorporate in a prospectus
supplement or post-effective amendment such information as the
managing underwriter or underwriters, if any, or such Holders
reasonably request to be included therein to comply with applicable
law and (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable
after the Company has received notification of the matters to be
incorporated in such prospectus supplement or post-effective
amendment.
(f) Furnish to each Holder of Registrable Securities who
so requests and to counsel for the Holders of Registrable
Securities and each managing underwriter, if any, without charge,
upon request, one conformed copy of the Registration Statement and
each post-effective amendment thereto, including financial
statements and schedules, and of all documents incorporated or
deemed to be incorporated therein by reference and all exhibits
(including exhibits incorporated by reference).
(g) Deliver to each Holder of Registrable Securities,
their counsel and each underwriter, if any, without charge, as many
copies of each Prospectus (including each form of prospectus) and
each amendment or supplement thereto as such persons may reasonably
request but only for so long as the Company is required to keep
such registration statement effective; and, subject to the last
paragraph of this Section 2.6, the Company hereby consents to the
use of such Prospectus and each amendment or supplement thereto by
each of the Holders of Registrable Securities and the underwriter
or underwriters or agents, if any, in connection with the offering
and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(h) Prior to any offering of Registrable Securities, to
use its best efforts to register or qualify, and cooperate with the
Holders of Registrable Securities, the underwriter or underwriters,
if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration
or qualification) of, such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions
within the United States as may be required to permit the resale
thereof by the Holders of Registrable Securities, or as the
managing underwriter or underwriters reasonably request in writing;
<PAGE>
-13-
provided, however, that where Registrable Securities are offered
- - -------- -------
other than through an underwritten offering, the Company agrees to
cause its counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to
this Section 2.6(h); keep each such registration or qualification
(or exemption therefrom) effective during the period such
Registration Statement is required to be effective hereunder and do
any and all other acts or things reasonably necessary or advisable
to enable the disposition in such jurisdictions of the securities
covered thereby; provided, however, that the Company will not be
-------- -------
required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action
that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) become subject
to taxation in any jurisdiction where it is not then so subject.
(i) Cooperate with the Holders of Registrable Securities
and the managing underwriter or underwriters, if any, to facilitate
the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall not
bear any restrictive legends whatsoever and shall be in a form
eligible for deposit with The Depository Trust Company ("DTC"); and
enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriter or
underwriters, if any, or Holders may reasonably request at least
two business days prior to any sale of Registrable Securities in a
firm commitment underwritten public offering.
(j) Use its best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered
with or approved by such other governmental agencies or authorities
as may be reasonably necessary to enable the seller or sellers
thereof or the underwriter or underwriters, if any, to consummate
the disposition of such Registrable Securities, except as may be
required solely as a consequence of the nature of such selling
Holder's business, in which case the Company will cooperate in all
reasonable respects with the filing of the Registration Statement
and the granting of such approvals.
(k) Upon the occurrence of any event contemplated by
Section 2.6(c)(v) or 2.6(c)(vi) above, as promptly as practicable
prepare a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or
any document incorporated or deemed to be incorporated therein by
reference, and, subject to Section 2.6(a) hereof, file such with
the SEC so that, as thereafter delivered to the purchasers of
Registrable Securities being sold thereunder, such Prospectus will
not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make
<PAGE>
-14-
the statements therein, in light of the circumstances under which
they were made, not misleading and will otherwise comply with law.
(l) Prior to the effective date of a Registration
Statement, (i) provide the registrar for the Preferred Stock and
the Exchange Shares or such other Registrable Securities with
printed certificates for such securities in a form eligible for
deposit with DTC and (ii) provide a CUSIP number for such
securities.
(m) Enter into an underwriting agreement in form, scope
and substance as is customary in underwritten offerings and take
all such other actions as are reasonably requested by the managing
underwriter or underwriters in order to expedite or facilitate the
registration or disposition of such Registrable Securities in any
underwritten offering to be made of the Registrable Securities in
accordance with this Agreement, and in such connection, (i) make
such representations and warranties to the underwriter or
underwriters, with respect to the business of the Company and the
subsidiaries of the Company, and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, in form, substance
and scope as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when requested;
(ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriter or
underwriters), addressed to the underwriter or underwriters
covering the matters customarily covered in opinions requested in
underwritten offerings with respect to secondary distributions and
such other matters as may be reasonably requested by underwriters;
(iii) use its best efforts to obtain "cold comfort" letters and
updates thereof (which letters and updates shall be reasonably
satisfactory in form, scope and substance to the managing
underwriter or underwriters) from the independent certified public
accountants of the Company (and, if applicable, the subsidiaries of
the Company) and, to the extent reasonably practicable, any other
independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be,
included in the Registration Statement, addressed to each of the
underwriters, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters
in connection with underwritten offerings; and (iv) if an
underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable than
those set forth in Section 3 hereof (or such other provisions and
procedures acceptable to Holders of a majority of Registrable
Securities covered by such Registration Statement and the managing
underwriter or underwriters or agents) with respect to all parties
<PAGE>
-15-
to be indemnified pursuant to said Section. The above shall be
done at each closing under such underwriting agreement, or as and
to the extent required thereunder.
(n) Make available for inspection by a representative of
the Holders of Registrable Securities being sold, any underwriter
participating in any such disposition of Registrable Securities, if
any, and any attorney or accountant retained by such representative
of the Holders or underwriter (collectively, the "Inspectors"), at
the offices where normally kept, during reasonable business hours,
all pertinent financial and other records, pertinent corporate
documents and properties of the Company and the subsidiaries of the
Company, and cause the officers, directors and employees of the
Company and the subsidiaries of the Company to supply all
information in each case reasonably requested by any such
Inspector in connection with such Registration Statement; provided,
--------
however, that any information that is designated in writing by the
- - -------
Company, in good faith, as confidential at the time of delivery of
such information, shall be kept confidential by such Inspector and
not used by such Inspector for any purpose other than in connection
with such Inspector's review of the Registration Statement for such
registration except to the extent (i) disclosure of such
information is required by court or administrative order, (ii)
disclosure of such information, in the written opinion of counsel
to such Inspector (a copy of which is furnished to the Company), is
necessary to avoid or correct a misstatement or omission of a
material fact in the Registration Statement, Prospectus or any
supplement or post-effective amendment thereto or disclosure is
otherwise required by law, (iii) disclosure of such information is
in the written opinion of counsel for any such Inspector (a copy of
which is furnished to the Company), necessary or advisable in
connection with any action, claim, suit or proceeding, directly or
indirectly, involving or potentially involving such Inspector and
arising out of, based upon, relating to or involving this Agreement
or any of the transactions contemplated hereby or arising
hereunder, or (iv) such information becomes generally available to
the public other than as a result of a disclosure or failure to
safeguard by such Inspector; without limiting the foregoing, no
such information shall be used by such Inspector as the basis for
any market transactions in securities of the Company or the
subsidiaries of the Company in violation of applicable law. Each
selling Holder of such Registrable Securities agrees that
information obtained by it as a result of such inspections shall be
deemed confidential and shall not be used by it as the basis for
any market transactions in the securities of the Company or of any
of its Affiliates unless and until such is made generally available
to the public. Each selling Holder of such Registrable Securities
further agrees that it will, upon learning that disclosure of such
information is sought in a court of competent jurisdiction, give
prompt notice to the Company and allow the Company, at the
<PAGE>
-16-
Company's expense, to undertake appropriate action to prevent
disclosure of the information deemed confidential.
(o) Comply with all applicable rules and regulations of
the SEC and make generally available to its securityholders
earnings statements satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than forty-five (45)
days after the end of any 12-month period (or ninety (90) days
after the end of any 12-month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to an underwriter or to
underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to an underwriter or to underwriters
in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of the
relevant Registration Statement, which statements shall cover said
12-month periods.
(p) Use its best efforts to cause all Registrable
Securities relating to such Registration Statement to be listed on
each securities exchange, if any, on which similar securities
issued by the Company are then listed.
Each seller of Registrable Securities as to which any
registration is being effected agrees, as a condition to the
registration obligations with respect to such Holder provided
herein, to furnish promptly to the Company such information
regarding such seller and the distribution of such Registrable
Securities as the Company may, from time to time, reasonably
request in writing to comply with the Securities Act and other
applicable law. The Company may exclude from such registration the
Registrable Securities of any seller who unreasonably fails to
furnish such information within a reasonable time after receiving
such request. If the identity of a seller of Registrable
Securities is to be disclosed in the Registration Statement, such
seller shall be permitted to include all information regarding such
seller as it shall reasonably request.
Each Holder of Registrable Securities agrees by acquisition
of such Registrable Securities that, upon receipt of any notice
from the Company of the happening of any event of the kind
described in Section 2.6(c)(ii), 2.6(c)(iv), 2.6(c)(v), or
2.6(c)(vi), such Holder will forthwith discontinue disposition of
such Registrable Securities covered by the Registration Statement
or Prospectus until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 2.6(k),
or until it is advised in writing (the "Advice") by the Company
that the use of the applicable prospectus may be resumed, and has
received copies of any amendments or supplements thereto, and, if
<PAGE>
-17-
so directed by the Company, such Holder will deliver to the Company
all copies, other than permanent file copies, then in such Holder's
possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the
Company shall give any such notice, the period of time for which a
Registration Statement is required hereunder to be effective shall
be extended by the number of days during such periods from and
including the date of the giving of such notice to and including
the date when each seller of Registrable Securities covered by such
Registration Statement shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 2.6(k)
or (y) the Advice.
2.7 Registration Expenses. All fees and expenses
---------------------
incident to the performance of or compliance with the provisions of
Section 2 of this Agreement by the Company shall be borne by the
Company whether or not any Registration Statement is filed or
becomes effective, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A)
fees with respect to filings required to be made with the National
Association of Securities Dealers Inc. (the "NASD") in connection
with an underwritten offering and (B) fees and expenses of
compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the
underwriter or underwriters in connection with Blue Sky
qualifications of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under
the laws of such jurisdictions as provided in Section 2.6(h)),
(ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities in a form eligible
for deposit with DTC and of printing prospectuses if the printing
of prospectuses is requested by the managing underwriter or
underwriters, if any, or, in respect of Registrable Securities, by
the Holders of a majority of Registrable Securities included in any
Registration Statement), (iii) reasonable fees and disbursements of
all independent certified public accountants referred to in
Section 2.6(m)(iii) (including, without limitation, the reasonable
expenses of any special audit and "cold comfort" letters required
by or incident to such performance), (iv) the fees and expenses of
any "qualified independent underwriter" or other independent
appraiser participating in an offering pursuant to Schedule E to
the By-laws of the NASD, (v) liability insurance under the
Securities Act, if the Company so desires such insurance, (vi) fees
and expenses of all attorneys, advisors, appraisers and other
persons retained by the Company or any subsidiary of the Company,
(vii) internal expenses of the Company and the subsidiaries of the
Company (including, without limitation, all salaries and expenses
of officers and employees of the Company and the subsidiaries of
the Company performing legal or accounting duties), (viii) the
expense of any annual audit, (ix) the fees and expenses incurred in
<PAGE>
-18-
connection with the listing of the securities to be registered on
any securities exchange and (x) the expenses relating to printing,
word processing and distributing all Registration Statements,
underwriting agreements, securities sales agreements, indentures
and any other documents necessary in order to comply with this
Agreement.
In connection with any Registration Statement hereunder or
any amendment thereto, the Company shall reimburse the Holders of
the Registrable Securities being registered in such registration
for the reasonable out-of-pocket expenses of such Holders incurred
in connection therewith including, without limitation, the
reasonable fees and disbursements of not more than one counsel
(together with appropriate local counsel) chosen by the Holders of
a majority of the Registrable Securities to be included in such
Registration Statement.
2.8 Rule 144. The Company covenants that it will file the
--------
reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC
thereunder in a timely manner and, if at any time the Company is
not required to file such reports, it will, upon the reasonable
request of any Holder of Registrable Securities, make publicly
available other information so long as necessary to permit sales
pursuant to Rule 144 and Rule 144A under the Securities Act. The
Company further covenants that it will take such further action as
any Holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule
144 and Rule 144A under the Securities Act, as such Rules may be
amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a
written statement as to whether it has complied with such
information requirements.
SECTION 3. INDEMNIFICATION
---------------
3.1 Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless each Holder and each Person, if any,
who controls any Holder within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities, joint
or several, to which such Holder or controlling Person may become
subject, under the Securities Act or otherwise, caused by any
untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or any Prospectus or any
amendment or supplement thereto or any preliminary prospectus, or
caused by any omission or alleged omission to state therein a
<PAGE>
-19-
material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each
Holder for any legal or other expenses reasonably incurred by such
Holder in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable insofar as
- - -------- -------
such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or
omission based upon information furnished in writing to the Company
by any Holder expressly for use therein; and provided further, that
-------- -------
the Company shall not be liable in any such case to the extent that
any such loss, claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement or
omission or alleged omission in the Prospectus, if such untrue
statement or alleged untrue statement or omission or alleged
omission is completely corrected in an amendment or supplement to
the Prospectus and the seller of Registrable Securities thereafter
fails to deliver such Prospectus as so amended or supplemented
prior to or concurrently with the sale of Registrable Securities to
the person asserting such loss, claim, damage, or liability after
the Company had furnished such seller with a sufficient number of
copies of the same or if the seller received written notice from
the Company of the existence of such untrue statement or alleged
untrue statement or omission or alleged omission and the seller
continued to dispose of Registrable Securities prior to the time of
the receipt of either (A) an amended or supplemented Prospectus
-
which completely corrected such untrue statement or omission or
(B) a notice from the Company that the use of the existing
-
Prospectus may be resumed. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on
behalf of any Holder or any Person controlling such Holder within
the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act.
3.2 Indemnification by Holder of Registrable Securities.
---------------------------------------------------
Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Company's directors, the Company's
officers who sign the Registration Statement and any person
controlling the Company to the same extent as the foregoing
indemnity from the Company to each Holder set forth in Section 3.1,
but only with reference to, and in conformity with, information
relating to such Holder furnished in writing by such Holder
expressly for use in a Registration Statement, the Prospectus or
any preliminary prospectus, or any amendment or supplement thereto
and will reimburse any legal or other expenses reasonably incurred
by the Company in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are
incurred. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company
or any such director, officer or Person controlling the Company
<PAGE>
-20-
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act and shall survive the transfer of
such securities by such Holder.
3.3 Conduct of Indemnification Proceeding. In case any
-------------------------------------
proceeding (including any governmental investigation) shall be
instituted involving any Person in respect of which indemnity may
be sought pursuant to either Section 3.1 or Section 3.2, such
Person (the "indemnified party") shall promptly notify the Person
against whom such indemnity may be sought (the "indemnifying
party") in writing; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to
any indemnified party otherwise than as provided above. In case
any such proceeding is instituted against any indemnified party and
it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to retain counsel
satisfactory to such indemnified party to defend against such
proceeding and shall pay the reasonable fees and disbursements of
such counsel related to such proceeding. In any such proceeding,
any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of
both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them or (iii) the
indemnifying party has not retained counsel to defend such
proceeding. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified
parties. Such firm shall be designated in writing by the Holders
of a majority of the Registrable Securities included in such
Registration Statement in the case of parties indemnified pursuant
to Section 3.1 and by the Company in the case of parties
indemnified pursuant to Section 3.2. All fees and expenses which
an indemnified party is entitled to receive from an indemnifying
party under this Section 3 shall be reimbursed as they are
incurred. No indemnifying party shall, without prior written
consent of the indemnified party (which shall not be unreasonably
withheld or delayed), effect any settlement of any pending or
threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought
hereunder by such indemnified party unless such settlement includes
an unconditional release of such indemnified party from all
liability on any claims that are the subject matter of such action.
<PAGE>
-21-
3.4 Contribution. If the indemnification provided for in
------------
Section 3.1 or Section 3.2 is unavailable as a matter of law to an
indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party under
either such Section, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and of the Holders of
Registrable Securities covered by the Registration Statement in
question on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable
considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company, or by
the Holders of Registrable Securities covered by the Registration
Statement in question and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Holders agree that it would not be just
and equitable if contribution pursuant to this Section 3 were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph of this Section 3.4 shall be deemed
to include, subject to the limitations set forth above, any legal
or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 3, no Holder
shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities sold
by such Holder and distributed to the public were offered to the
public exceeds the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
3.5 Other Indemnities. The obligations of the Company and
-----------------
of each of the Holders under this Section 3 shall be in addition to
any liability which the Company or which any of the Holders may
otherwise have.
SECTION 4. MISCELLANEOUS
-------------
<PAGE>
-22-
4.1 Remedies. In the event of a breach by the Company of
--------
any of its obligations under this Agreement, each Holder of
Registrable Securities, in addition to being entitled to exercise
all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason
of a breach by it of any of the provisions of this Agreement.
4.2 No Inconsistent Agreements. The Company shall not,
--------------------------
after the date of this Agreement, enter into any agreement with
respect to any of its securities that is inconsistent with the
rights granted to the Holders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof. The
Company will not enter into any agreement with respect to any of
its securities which will grant to any Person "piggyback" rights
with respect to any Registration Statement filed pursuant to
Section 2.1 of this Agreement.
4.3 Amendments and Waivers. The provisions of this
----------------------
Agreement may not be amended, modified or supplemented, and waivers
or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the prior written consent of
Holders of at least a majority of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable
Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders of
Registrable Securities may be given by Holders of at least a
majority of the Registrable Securities being sold by such Holders
pursuant to such Registration Statement; provided, however, that
-------- -------
the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the
immediately preceding sentence. The last sentence of the
definition of Registrable Securities and this Section 4.3 may not
be amended, modified or supplemented, and waivers or consents to
departures therefrom may not be given at any time.
4.4 Notices. All notices and other communications
-------
provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, next-day air courier or
telecopier:
(i) if to a Holder of Registrable Securities, at the
most current address given by such Holder to the Company in
accordance with the provisions of this Section 4.4, which
address initially is, with respect to each Holder, the
address set forth on the signature page attached hereto; and
<PAGE>
-23-
(ii) if to the Company, 1211 Avenue of the Americas, New
York, New York 10036, Attention: Corporate Secretary,
Telecopier No. (212) 444-4696 with a copy to Debevoise &
Plimpton, 875 Third Avenue, New York, New York 10022,
Attention: Meredith M. Brown, Esq., Telecopier No. (212)
909-6836.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered;
five business days after being deposited in the mail, postage
prepaid, if mailed; one business day after being timely delivered
to a next-day air courier; and when receipt is acknowledged by the
addressee, if telecopied.
4.5 Successors and Assigns. This Agreement shall inure to
----------------------
the benefit of and be binding upon the successors and assigns of
each of the parties, including without limitation and without the
need for an express assignment, subsequent Holders of Registrable
Securities.
4.6 Counterparts. This Agreement may be executed in any
------------
number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one
and the same Agreement.
4.7 Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
4.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF
THE PARTIES HERETO AGREES TO SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
4.9 Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no
way be affected, impaired or invalidated, and the parties hereto
shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It
is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of
<PAGE>
-24-
such that may be hereafter declared invalid, illegal, void or
unenforceable.
4.10 Entire Agreement. This Agreement, together with the
----------------
Purchase Agreement, is intended by the parties as a final
expression of their agreement, and is intended to be a complete and
exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein
and therein. This Agreement and the Purchase Agreement supersede
all prior agreements and understandings between the parties with
respect to such subject matter.
4.11 Attorneys' Fees. As between the parties to this
---------------
Agreement, in any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be
entitled to recover reasonable attorneys' fees in addition to its
costs and expenses and any other available remedy.
4.12 Securities Held by the Company or Its Subsidiaries.
--------------------------------------------------
Whenever the consent or approval of Holders of a specified
percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or by any of its
Subsidiaries shall not be counted in determining whether such
consent or approval was given by the Holders of such required
percentage.
<PAGE>
S-1
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
ALEXANDER & ALEXANDER SERVICES INC.
By: /s/ R.A. Kershaw
--------------------------------
Name: R.A. Kershaw
Title: Vice President & Treasurer
Address:
1211 Avenue of the Americas
44th Floor
New York, New York 10036
Telecopy No. (212) 444-4696
Attention: Corporate Secretary
<PAGE>
S-2
AMERICAN HOME ASSURANCE COMPANY
By: /s/ Edward E. Matthews
------------------------------
Name: Edward E. Matthews
Title: Senior Vice President -
Finance
Address:
70 Pine Street
New York, New York 10270
Telephone No. (212) 770-7000
Attention: Corporate Secretary
<PAGE>
S-3
COMMERCE AND INDUSTRY INSURANCE
COMPANY
By: /s/ Edward E. Matthews
------------------------------
Name: Edward E. Matthews
Title: Senior Vice President -
Finance
Address:
70 Pine Street
New York, New York 10270
Telephone No. (212) 770-7000
Attention: Corporate Secretary
<PAGE>
S-4
THE INSURANCE COMPANY OF THE STATE OF
PENNSYLVANIA
By: /s/ Edward E. Matthews
------------------------------
Name: Edward E. Matthews
Title: Senior Vice President -
Finance
Address:
70 Pine Street
New York, New York 10270
Telephone No. (212) 770-7000
Attention: Corporate Secretary
Exhibit 10.3
-------------
July 1, 1994
Alexander Stenhouse & Partners Ltd.
10 Devonshire Square
London EC2M 4LE
England
Ladies and Gentlemen:
Attached hereto as Exhibit A is a binder of reinsurance in respect
of certain losses that you will cede and we will accept as reinsurance on the
terms set forth therein. In order to expedite the transaction, you will on
July 1, 1994 pay the Loss Transfer Amount (as defined in such binder),
subject to the premium financing arrangement described below, and we will
accept the risks ceded and arrange for the issuance to you on July 1, 1994 by
a bank acceptable to you of a letter of credit or trust agreement as provided
in such binder (the "Security").
In order further to expedite the transaction, we will on July 1,
1994 loan you $30,000,000 (the "Deferred Amount") of the Loss Transfer
Amount, which you agree to repay, together with interest thereon at the
applicable rate from July 1, 1994 hereof to the date repaid, on August 31,
1994 or as soon as practicable thereafter and in any event by not later than
December 31, 1994. The Deferred Amount shall bear interest at the following
rate:
(i) on or prior to August 31, 1994, at a rate equal to 7.45%;
-
(ii) on or after September 1, 1994 and on or prior to September 30,
--
1994 at a rate equal to 8.45%; and
(iii) on or after October 1, 1994, at a rate equal to 9.95%.
---
The above rates are annual rates payable bi-weekly in arrears commencing July
15, 1994. The Deferred Amount may not be repaid prior to August 31, 1994
without our consent.
In the event the Deferred Amount is not repaid in full on or prior to
October 31, 1994, we may elect to cancel the reinsurance ceded and accepted
hereunder by written notice to you retroactive to the date of inception as if
the transaction had never occurred, in which event we will
<PAGE>
deliver to you the Notes issued by Alexander & Alexander Services Inc. in the
aggregate principal amount of $50,000,000 in the form attached hereto as
Exhibit B (the "Notes") and terminate your obligation to repay the Deferred
Amount and any interest thereon in full satisfaction of our obligations
hereunder and under the separate letter agreement dated today with Atlanta
International Insurance Company, American Special Risk Insurance Company and
Trent Insurance Company Limited (the "Other Letter Agreement").
In the event the Deferred Amount is not repaid in full on or prior
to December 31, 1994, the reinsurance ceded and accepted hereunder shall
automatically be cancelled retroactive to the date of inception as if the
transaction had never occurred, in which event we will deliver to you the
Notes and terminate your obligation to pay the Deferred Amount and any
interest thereon in full satisfaction of our obligations hereunder and under
the Other Letter Agreement and you shall pay us a termination fee of
$2,000,000.
This letter agreement shall be governed by the law of Bermuda. If
you are in agreement with the foregoing, please so indicate by signing in the
space provided below, whereupon this shall become a binding written agreement
between you and us.
Very truly yours,
CENTRE REINSURANCE
(BERMUDA) LIMITED
By: /s/ Jay S. Ralph
-------------------
Executive Vice
President
Accepted and Agreed:
ALEXANDER STENHOUSE &
PARTNERS LTD.
By: /s/ Ian Robertson
-----------------------
Director
2
<PAGE>
Exhibit A
---------
BINDER OF REINSURANCE
REINSURED: Alexander Stenhouse & Partners Ltd.
---------
TYPE: Excess of Loss Reinsurance
----
EFFECTIVE
---------
DATE: This Agreement shall become effective 12:01 a.m., January 1,
-----
1994 and remain in force and in effect until all obligations
hereunder have been discharged.
SUBJECT
-------
BUSINESS: SECTION A:
-------- Loss and Allocated Loss Adjustment Expense sustained by The
Orion Insurance Company Limited ("Orion") from
insurance/reinsurance during Underwriting Years from and
including 1953 through and including 1967 as insured by or
reinsured to Sphere Drake Insurance Company (as defined below
and hereinafter referred to as "SDIC"), as specified in that
certain Marine Pool Agreement, dated September 7, 1953,
between Orion, Sphere Insurance Company Limited and The Drake
Insurance Company Limited attached hereto as Appendix A-1, as
amended by the Settlement Agreement, dated March 20, 1992,
attached as Appendix A-2, for which Alexander Stenhouse &
Partners Ltd. et al. may be liable to Sphere Drake
Acquisitions (U.K.) Ltd. ("Sphere Drake") under that certain
Share Purchase Agreement (the "Share Purchase Agreement"),
dated as of October 9, 1987, between Alexander Stenhouse &
Partners Ltd. and Sphere Drake, as amended to date (the "Orion
Pool"). Such Loss and Allocated Loss Adjustment Expense
covered under this Section A shall be reduced and offset
against any recoveries with respect to the Marine and Non-
Marine Excess of Loss and Special Reinsurances Account
underwritten through Howden Swann Agencies Limited and known
as the "Sphere X Account" (the "Sphere X Account"). In no
event shall the Loss and Allocated Loss Adjustment Expenses
covered
<PAGE>
under this Section A be increased by Loss or Loss Adjustment
Expense stemming from the Sphere X Account.
Under no circumstances shall this Agreement reimburse the
Reinsured for any liabilities which SDIC may have to Orion as
regards:
(1) any pools underwritten by Orion in which SDIC may ever
have participated other than the Orion Pool; or
(2) any percentages of Loss or Allocated Loss Adjustment
Expense in excess of the percentages specified in
Appendix A-2 for which it has been agreed Sphere Drake
will indemnify Orion; or
(3) any Unallocated Loss Adjustment Expenses which SDIC may
become liable to pay for the management of claims insured
under the Orion Pool.
For the purposes of this Section A all recoveries under any
other reinsurance that may inure to the benefit of the
Reinsured in respect of the Orion Pool as contemplated in
Appendix A-1, whether collectible or not, shall be deducted in
arriving at the Ultimate Net Loss to the Reinsured and shall
inure to the benefit of this Agreement.
SECTION B:
Loss and Allocated Loss Adjustment Expense sustained by Eagle
Star Insurance Company Limited for which Alexander Howden
Group Agency Management ("Alexander Howden") may have
liability for actions taken or omitted to be taken by Swann &
Everett Underwriting Agency, as described in and limited to
items numbered 4, 5 and 7 of the 29th November, 1990 letter,
attached as Appendix B, including and expressly limited to
business classified as Swann & Everett Pools 2, 3, 4, 5, 6 and
8, and 2.5% of Swann & Everett Pool 1 (Non-Marine Pool R
account) in respect of 50% of the share of Ingosstrakh. It is
expressly stated that no other liability for
2
<PAGE>
the business classified as Swann & Everett Pool 1 other than
as described above or for other items contained in Appendix B
other than for items numbered 4, 5 and 7, whether Alexander
Howden is liable to Eagle Star Insurance Company Limited or
not, shall be included in this Agreement.
SECTION C:
Loss and Allocated Loss Adjustment Expense sustained by SDIC
due to the unenforceability of the stop-loss agreement between
Posgate and Denby Syndicate 701 and SDIC protecting SDIC's
quota share of 20% for Underwriting Years 1980 and prior and
15% for Underwriting Years 1981 and 1982 with respect to
Posgate Syndicates 126/129 and predecessor syndicates as
reflected in the Cover Notes listed below and attached as
Appendix C, subject to a maximum liability under this Section
C of $31,156,000 for Underwriting Years 1980 and prior,
$17,082,000 for Underwriting Year 1981, $15,205,000 for
Underwriting Year 1982 and $300,000 additional liability which
may be applied to any such Underwriting Year. Cover Notes are
Alexander Howden Insurance Brokers Ltd. numbers: ST 80 10580
(Underwriting Year 1980 and prior), ST 81 10727 (Underwriting
Year 1981), and ST 81 10727 (Underwriting Year 1982).
For the purposes of Sections B and C, recoveries under any
other reinsurance that may inure to the benefit of the
Reinsured in respect of the Subject Business covered under
such Section and all salvage and subrogation payments actually
received by the Reinsured in respect of Losses settled after
the Effective Date, net of any additional premium payable or
commission returnable by the Reinsured under such reinsurance,
shall be deducted in arriving at the Loss and Allocated Loss
Adjustment Expense on the Subject Business covered under such
Section and shall inure to the benefit of this Agreement.
3
<PAGE>
SECTION D:
Loss and Allocated Loss Adjustment Expense sustained by the
Reinsured due to the inability of the Reinsured to collect
from its reinsurers (not including the Reinsurer hereunder)
for its share of the Orion Pool as described under Section A,
subject to a maximum liability under this Section D of
$16,000,000. For the purposes of this Agreement, reinsurance
shall be deemed to be uncollectible where amounts due under
the reinsurance are outstanding and unpaid for at least one
year.
COMMUTATIONS
------------
AND SUPERFUND
-------------
CHARGES: This Agreement shall not indemnify the Reinsured for any
------- commutation effected by or under the control of the Reinsured
of underlying liabilities in excess of $2,000,000 under any
inward or outward insurance or reinsurance contract covered
hereunder without the Reinsurer's prior written consent, which
consent shall not be unreasonably withheld. If a commutation
shall occur which is not effected by or under the control of
the Reinsured or if the amount of the commuted underlying
liabilities is $2,000,000 or less, the Reinsured shall
immediately notify the Reinsurer upon becoming aware of such
commutation. Loss and Allocated Loss Adjustment Expense on
the Subject Business shall be deemed to include any amounts
payable by the Reinsured or any of its Affiliates in respect
of any fees, taxes, charges or other levies that may be
imposed in respect of environmental clean-up, CERCLA or
Superfund exposures for which the Reinsured would be
responsible under the Subject Business ("Superfund Charges").
Any amounts agreed as payment or reported to the Reinsurer in
respect of commutations of any inward insurance or reinsurance
contract or Superfund Charges shall be treated as Covered
Losses (as defined below) by the Reinsurer at the cash value
transferred, but shall be applied to the Reinsurer's Aggregate
4
<PAGE>
Limit of Liability herein at its future value, which includes
any investment income which would reasonably have accrued on
such amounts between the commutation or settlement dates and
the date at which the commuted losses would have been expected
to be paid in full. For any Superfund Charges, such date will
be agreed by the Reinsured and the Reinsurer based on the
average projected clean-up dates for the sites involved in the
Superfund Charges.
In the event the foregoing adjustment in respect of Superfund
Charges does not operate so as to place each party in
substantially the same economic position as if such Superfund
Charges (and any benefit arising therefrom or relating
thereto) had not applied, this Agreement shall be equitably
adjusted. In the event the Reinsured and the Reinsurer are
unable to agree on such adjustment within 60 days of a demand
by either for consultation with respect to the same, either
may submit such matter for resolution pursuant to ARBITRATION
hereunder.
TERRITORY: This Agreement shall cover wherever the Reinsured's Subject
--------- Business covers.
COVERAGE: The Reinsurer shall indemnify the Reinsured up to the
--------
Aggregate Limit of Liability specified herein for Loss and
Allocated Loss Adjustment Expense on Subject Business
described in Sections A, B, C and D paid by the Reinsured on
or after January 1, 1994 (collectively, "Covered Losses") in
excess of the Reinsured's Retention.
AGGREGATE
---------
LIMIT OF
--------
LIABILITY: The Reinsurer shall be liable for Covered Losses, in excess of
--------- the Reinsured's Retention under this Agreement, subject to a
maximum Aggregate Limit of Liability for Sections A, B, C and
D combined equal to $200 million less the aggregate amount of
covered losses ceded to the Reinsurer by Atlanta International
Insurance Company, American
5
<PAGE>
Special Risk Insurance Company or Trent Insurance Company
Limited (collectively, the "Other Reinsureds") pursuant to the
separate reinsurance agreement, dated as of the date hereof,
between such Other Reinsureds and the Reinsurer (the "Other
Reinsurance Agreement").
In no event shall the Aggregate Covered Losses (as defined
below) paid by the Reinsurer exceed $200 million.
REINSURED'S
-----------
RETENTION: The Reinsured's Retention under this Agreement shall equal $73
--------- million, less the aggregate amount of covered losses paid
after January 1, 1994 by the Other Reinsureds under the Other
Reinsurance Agreement and applied to the Other Reinsureds'
retention thereunder, of Covered Losses.
LOSS SETTLE-
------------
MENTS: annually in arrears:
-----
in cash to the Reinsured or such other person as the
Reinsured may direct; or
at the option of the Reinsurer, in securities acceptable
to the Reinsured, to such Reinsured. Acceptable securi-
ties shall include, without limitation, Notes issued by
Alexander & Alexander Services Inc. to the Reinsurer in
the aggregate principal amount of $50,000,000
substantially in the form attached hereto as Appendix D,
which by their terms are due and payable at the time of
any loss settlement or which have been accelerated and
are due and payable at the time of such loss settlement
(the "A&A Notes"). The A&A Notes shall be valued at the
face value thereof, plus interest accrued thereon, to the
date of such loss settlement.
LOSS TRANSFER
-------------
AMOUNT: $78 million, payable on July 1, 1994.
------
6
<PAGE>
ADDITIONAL
----------
PREMIUMS: The Reinsured shall pay to the Reinsurer an Additional Premium
-------- equal to the amount by which the Deficit Account, as of any
December 31, exceeds $25 million. The Deficit Account as of
any December 31 shall be equal to:
(1) The sum of the Covered Losses paid by the Reinsurer
hereunder and the aggregate covered losses paid by the
Reinsurer under the Other Reinsurance Agreement
(collectively, the "Aggregate Covered Losses"), less
(2) 100% of the sum of the Loss Transfer Amount hereunder and
the loss transfer amount under the Other Reinsurance
Agreement (collectively, the "Aggregate Loss Transfer
Amount"), less
(3) 100% of Additional Premiums, if any, received by the
Reinsurer prior to that December 31, plus
(4) the sum of Deficit Charges (as defined below) from
inception to that December 31.
The Deficit Charge shall be equal to the average daily balance
of the Subject Balance, as defined below, of the Deficit
Account during each twelve (12) month period multiplied by
8.25% each December 31 and that amount shall be added to the
Deficit Account each December 31.
"Subject Balance": means an amount equal to:
---------------
(x) during any period in which the Deficit Account is greater
-
than $25,000,000, the balance in the Deficit Account
less $25,000,000;
(y) during any period in which the Deficit Account is greater
-
than or equal to zero but less than or equal to
$25,000,000, $0; or
7
<PAGE>
(z) during any period in which the Deficit Account is less
-
than $0, the balance in the Deficit Account.
EXPERIENCE
----------
ACCOUNT: A notional Experience Account shall be calculated by the
------- Reinsurer at inception of this Agreement and maintained until
there is a complete and final release of all of the
Reinsurer's obligations to the Reinsured under this Agreement
and to the Other Reinsureds under the Other Reinsurance
Agreement. The balance in the Experience Account shall be as
defined below.
On or prior to December 31, 2009:
The Experience Account as of any date on or prior to December
31, 2009 shall be equal to the sum of the Reference Values of
the Notional Investments as of the date of valuation plus the
Market Value Adjustments for those Notional Investments as of
the date of valuation less the sum of Adjusted Paid Losses, as
defined herein, for all years 1994 up to and including the
valuation year.
For the purpose of calculating the value of the Experience
Account (and except as otherwise provided in an Event of
Acceleration):
"X" as used below for determining the value of each
Notional Investment, shall be equal to 12.5%, except that
for purposes of determining the balance in the Experience
Account upon commutation as provided in COMMUTATION, "X"
shall be equal to the following depending on the date of
commutation:
if commuted prior to 1/1/2000: 15.5%
if commuted on or after 1/1/2000, but
prior to 12/31/02: 14.5%
if commuted on or after 12/31/02, but
prior to 12/31/05: 13.5%, and
if commuted on or after 12/31/05:
12.5%, and
8
<PAGE>
"h" shall be equal to 150 basis points.
After December 31, 2009:
The Experience Account as of any December 31 after December
31, 2009 shall be defined as:
(1) The Experience Account as of the prior December 31, less
(2) 100% of Aggregate Covered Losses paid by the Reinsurer
during the current calendar year, plus
(3) the Investment Credit (as defined below) for the current
calendar year.
Monies paid to the Reinsurer hereunder or under the Other
Reinsurance Agreement shall be credited to the Experience
Account on the day said monies are received by the Reinsurer's
designated bank.
Monies paid to the Reinsured hereunder and to the Other
Reinsureds under the Other Reinsurance Agreement shall be
charged against the Experience Account on the day said monies
are received by the designated bank of the Reinsured or the
Other Reinsureds.
The Investment Credit shall be the average daily balance of
the Experience Account during each twelve (12) month period
multiplied by the Credit Index (as defined below) each year
beginning 2010 and that amount shall be credited to the
Experience Account each December 31.
NOTIONAL
--------
INVESTMENTS: For purposes of this Agreement, the Reinsurer shall be deemed
----------- to make a "Notional Investment" upon receipt of the Aggregate
Loss Transfer Amount and shall be deemed to have received the
Aggregate Loss Transfer Amount on July 1, 1994.
The Notional Investment corresponding to each such payment
received by the Reinsurer prior
9
<PAGE>
to January 1, 2009 shall be equal to (100% - X) of such
payments, where "X" is defined in EXPERIENCE ACCOUNT. The
"Notional Investment Payment Date" shall be the date on which
the Reinsurer receives or is deemed to receive the Aggregate
Loss Transfer Amount.
The "Reference Value" of each Notional Investment as of any
valuation date shall be equal to:
the amount of the Notional Investment times (1+i-h)R;
where
R = the number of days from the Notional Investment
Payment Date to the valuation date divided by
365, and
i = the Yield as of the Notional Investment Payment
Date on the United States coupon bearing
Treasury Bonds maturing on or nearest to
December 31, 2009.
h = is defined in EXPERIENCE ACCOUNT.
The "Market Value Adjustment" for each Notional Investment as
of any valuation date shall be equal to the Market Value of
the Notional Investment as of the valuation date less the
Amortized Value of the Investment as of the valuation date.
The "Amortized Value" of each Notional Investment as of any
valuation date shall be equal to:
the amount of the Notional Investment times (1 + i)R,
where R and i are as defined herein above.
The "Market Value" of each Notional Investment as of any
valuation date shall be equal to:
10
<PAGE>
the Face Value divided by (1 + j)Q, where
Q = the number of days from the valuation date to
December 31, 2009 divided by 365, and
j = the Yield, as of the valuation date, on the
United States coupon bearing Treasury Bonds
maturing on or nearest to December 31, 2009.
The "Face Value" of each Notional Investment shall be equal
to:
the amount of the Notional Investment times (1 + i)T,
where
T = the number of days from Notional Investment
Payment Date to December 31, 2009 divided by
365, and
i = as defined hereinabove.
The term "Yield" shall mean the "ASK YLD" supplied by the
Federal Reserve Bank of New York City as of mid-afternoon and
published the next business day in the Wall Street Journal or
-------------------
similar publication.
ADJUSTED
--------
PAID LOSS: "Adjusted Paid Loss" shall be equal to:
---------
Aggregate Covered Loss times (1 + k)W, where
W = the number of days from the date that the
particular amount of Aggregate Covered Loss was
paid by the Reinsurer to the valuation date
divided by 365, and
k = i, where i is as defined in NOTIONAL
INVESTMENTS.
11
<PAGE>
CREDIT INDEX: The Credit Index applicable to this Agreement for calendar
------------ years 2010 and subsequent shall equal the Yield on the one
year United States Treasury Bill existent on the first
business day in January of such calendar year less 150 basis
points.
COMMUTATION: The Reinsured may, at its sole option, commute this Agreement
----------- in whole at any December 31 on or after December 31, 1996,
provided that the Reinsured may commute this Agreement in
whole at any time upon the occurrence of an Event of
Acceleration or in part upon the occurrence of a Baloise Event
or an Event of Acceleration as provided below under Special
Commutation. In the event of commutation in whole, the
Reinsurer agrees to pay the Reinsured, on behalf of the
Reinsured and the Other Reinsureds, except as otherwise
provided in EVENT OF ACCELERATION, an amount equal to the
balance in the Experience Account as of the date of
commutation, which amount may be paid in cash or, at the
option of the Reinsurer, securities acceptable to the Rein-
sured (as provided in LOSS SETTLEMENTS).
All payments made by the Reinsurer related to the commutation,
as set forth herein, shall constitute a complete and final
release of the Reinsurer and the Reinsured in respect of all
of such party's obligations to the other under this Agreement
as of the effective date of the commutation.
EVENT OF
--------
ACCELERATION: "Event of Acceleration": means any of the following events
------------ ---------------------
occurring after the execution of the Agreement: (i) Orion
-
shall (x) (a) be generally not paying its debts as they become
- -
due, (b) file, or consent in writing to the filing against it
-
of, a petition for relief for reorganization or arrangement or
any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy or insolvency law of any
jurisdiction, (c) make an assignment for the benefit of its
-
creditors, (d) consent to the appointment of a custodian,
-
receiver, trustee, liquidator,
12
<PAGE>
rehabilitator, conservator or other officer with similar
powers with respect to it or with respect to any part of its
property, (e) be adjudicated insolvent or be liquidated under
-
any bankruptcy or insolvency law or (y) take any corporate
-
action for the purpose of accomplishing any of the foregoing
or (z) suffer the entry of an order by any court or
-
governmental authority of competent jurisdiction appointing a
custodian, receiver, trustee, liquidator, rehabilitator,
conservator or other officer with similar powers with respect
to Orion or with respect to any substantial part of its
property or if any order for relief shall be entered in any
case or proceeding for liquidation, rehabilitation,
conservatorship, supervision, reorganization or otherwise to
take advantage of any bankruptcy, insolvency or similar law of
any jurisdiction, ordering the dissolution, winding up,
liquidation, receivership, rehabilitation, conservatorship or
supervision of Orion, or if any petition for any such relief
shall be filed against Orion and such petition shall not be
dismissed within 60 days; (ii) a Competent Authority shall
--
issue a guideline, notice, statement, ruling or interpretation
or a proposed, temporary or final regulation that holds that
all or any substantial part of the specific transaction
described in this Agreement or the Other Reinsurance Agreement
shall not be treated as "insurance" or "reinsurance" for any
relevant statutory, regulatory, accounting or tax purpose;
(iii) a Competent Authority shall issue any guideline, notice,
---
statement, ruling or interpretation of general application or
with respect to any similar transaction or any proposed,
temporary or final regulation which is applicable to the
transaction described in this Agreement or the Other Rein-
surance Agreement and, if applied to any such transaction,
would, in the Reinsured's good faith judgment (and, if such an
opinion is requested by the Reinsurer, in the opinion of legal
counsel selected by the Reinsured and reasonably acceptable to
the Reinsurer), likely cause all or any substantial part of
13
<PAGE>
the transaction described in this Agreement or the Other
Reinsurance Agreement to be treated other than as "insurance"
or "reinsurance" for any relevant statutory, regulatory,
accounting or tax purpose; or (iv) any Competent Authority
--
shall allege in the course of any official audit or review of
any statutory statement filed for insurance regulatory
purposes by the Reinsured or any Other Reinsured, or of any
tax returns or reports filed by the Reinsured or any Other
Reinsured, that all or any substantial part of the transaction
described in this Agreement or the Other Reinsurance Agreement
will not be treated as "insurance" or "reinsurance" for the
relevant statutory, regulatory or tax purpose if, in the
Reinsured's good faith judgment (and, if such an opinion is
requested by the Reinsurer, in the opinion of legal counsel
selected by the Reinsured and reasonably acceptable to the
Reinsurer), such allegation is likely to result in an adverse
decision, determination or settlement. In the event that this
Agreement is commuted in whole upon the occurrence of an Event
of Acceleration, the Reinsurer agrees to pay the Reinsured, on
behalf of the Reinsured and the Other Reinsureds, an amount
equal to the balance in the Experience Account less a payment
equal to $2.5 million in 1994, $3.0 million in 1995 and $3.5
million in 1996 due from the Reinsured to the Reinsurer, which
amount may be paid in cash or, at the option of the Reinsurer,
securities acceptable to the Reinsured (as provided in LOSS
SETTLEMENTS). The Experience Account balance shall be calcu-
lated with the value of "X" equal to zero. In the event this
Agreement is commuted on or after December 31, 1996, the
provisions of COMMUTATION shall apply and the value of "X"
shall be as defined in EXPERIENCE ACCOUNT.
SPECIAL
-------
COMMUTATION: In the event that (x) the Reinsured's liability for that
----------- -
portion of the liability under the Orion Pool which is the
liability of The Baloise Insurance Company and/or The Baloise
14
<PAGE>
Marine Insurance Company Limited (together "Baloise") is
extinguished due to settlement or commutation (a "Baloise
Event") or (y) there is an Event of Acceleration that affects
-
a portion of the Subject Business accounting for not more than
25% of the Aggregate Loss Transfer Amount (collectively,
"Special Commutation Events"), then the Reinsured may, at its
sole option, commute the affected portion of this Agreement
(including the Deficit Account) (a "Partial Commutation"). It
is expressly understood and agreed that in the event the
Reinsured elects to commute the Baloise portion of this
Agreement upon the occurrence of a Baloise Event, such
commutation shall be effected pro rata as to Loss Transfer
--- ----
Amount, Reinsured's Retention and Reinsured's Aggregate Limit
of Liability (except that the $25 million specified in
ADDITIONAL PREMIUMS shall not be affected) and that the
Baloise portion of this Agreement represents 7.5% of the total
obligations hereunder.
In the event the Reinsured desires to effect a Partial
Commutation of this Agreement other than with respect to the
Baloise portion, the Reinsured and the Reinsurer shall consult
and agree upon an appropriate adjustment to be made upon such
Partial Commutation. In the event the Reinsurer and the
Reinsured do not reach agreement upon such adjustment within
30 days of the Reinsured's request, the Reinsured may
nevertheless elect to effect such Partial Commutation, in
which event the Reinsured and the Reinsurer shall jointly
retain an actuarial firm of recognized national standing
acceptable to the Reinsured and the Reinsurer to determine the
appropriate adjustment, which shall be intended to leave the
Reinsurer and the Reinsured economically neutral to such
Partial Commutation. Estimates of future losses rather than
initial allocations of Loss Transfer Amount among Sections A,
B, C and D of the Subject Business shall be considered by such
actuarial firm in reaching its determination. Such
determination shall
15
<PAGE>
be final and binding on the parties and shall not be subject
to ARBITRATION.
If the Reinsured does not elect to commute the affected
portion of this Agreement upon any Special Commutation Event,
it may elect, upon written notice to the Reinsurer, and
subject to the written consent of the Reinsurer, to include
additional exposures as Subject Business covered hereunder as
of the date of such election, in substitution for the affected
portion of this Agreement and subject to all the conditions
and limitations herein applicable to such affected portion.
MANDATORY
---------
COMMUTATION: In the event the Reinsured elects to effect two or more
----------- Partial Commutations prior to January 1, 2006, the Reinsurer
and the Reinsured shall renegotiate the terms of this
Agreement. If the Reinsured and the Reinsurer cannot agree
for whatever reason on these terms, then this Agreement shall
be mandatorily commuted as of the date of the second such
Partial Commutation.
For the purpose of this section only, the term "Partial
Commutation" shall also include the Reinsured's effecting the
termination, extinction or commutation of the Subject Business
covered under Sections A, B or C of the Other Reinsurance
Agreement, but shall not include a commutation in respect of a
Baloise Event.
TRUST
-----
AGREEMENT
---------
AND/OR LETTER
-------------
OF CREDIT: The Reinsurer agrees to provide the Reinsured a Trust
--------- Agreement administered by a mutually agreed trustee and/or an
irrevocable and evergreen Letter of Credit, issued by a mutu-
ally agreed bank, of which the Reinsured shall be beneficiary
which shall secure in full all the liabilities of the
Reinsurer to the Reinsured, including reserves for losses
incurred but not reported, with respect to
16
<PAGE>
this Agreement as shown on the reports required under REPORTS
AND REMITTANCES.
In no event shall the amount of such Trust Agreement or Letter
of Credit provided under this Agreement be an amount less than
the balance in the Experience Account less ceded unpaid
covered losses under the Other Reinsurance Agreement at the
end of the most recent calendar quarter.
This Trust Account or Letter of Credit may only be drawn if
the Reinsurer fails to comply with its obligations under this
Agreement.
The Reinsurer is responsible for all actual costs associated
with providing such Trust Agreement and/or Letter of Credit up
to an amount equal to the balance in the Experience Account
less ceded unpaid covered losses under the Other Reinsurance
Agreement. The Reinsured is responsible for all actual costs
associated with providing such Trust Agreement and/or Letter
of Credit for the amounts in excess of the balance in the
Experience Account less ceded unpaid covered losses under the
Other Reinsurance Agreement.
The Reinsured agrees that any securities deemed acceptable for
Loss Settlements hereunder and the Reinsured's obligation to
repay the Deferred Amount (as defined in the letter agreement,
dated July 1, 1994, between the Reinsured and the Reinsurer)
shall be considered as acceptable securities under the Trust
obligations herein. For purposes of valuation of the Trust
balances at any quarter end, any such securities shall be
valued at full face value of outstanding principal and accrued
interest, if any, thereon.
REPORTS AND
-----------
REMITTANCES: 1. The Reinsured shall furnish to the Reinsurer:
-----------
i) In the case of Subject Business under Sections A, C
and D, promptly
17
<PAGE>
upon receipt from the applicable third party
managing the applicable Subject Business, and in the
case of Subject Business under Section B, within 45
days following the end of such year, annual accounts
of paid and unpaid incurred Covered Losses.
ii) Annually, a projection of Covered Losses incurred
but not reported.
2. The Reinsurer shall furnish to the Reinsured within
forty-five (45) days after the close of each quarter:
i) a reconciliation of the Experience Account from
inception to the close of the most recent preceding
quarter.
ii) Trust Agreement and/or Letter of Credit inuring to
the benefit of the Reinsured as defined in TRUST
AGREEMENT AND/OR LETTER OF CREDIT for an amount
equal to the greater of the Experience Account
balance or the ceded unpaid Covered Losses as of the
end of the most recent calendar quarter.
3. Unless otherwise stated in this Agreement, all amounts
due under this Agreement shall be remitted within ten
(10) business days after receipt of a "final account
statement" from the Reinsured or the Reinsurer.
4. Any late payments by either party shall accrue interest
at a rate equal to the Yield on the one year United
States Treasury Bill existent on the most recent January
1 plus 250 basis points, unless otherwise agreed in
writing by the Reinsurer and the Reinsured.
5. Others to be agreed, including the definition of "final
account statement"
18
<PAGE>
(e.g., loss settlements, additional premiums).
TAXES: Any and all taxes (other than income taxes) levied on premiums
----- or other payments under this Agreement (including, without
limitation, withholding taxes, excise taxes, stamp duties or
similar taxes) shall be for the account of the Reinsured under
this Agreement, and the Reinsured hereby agrees to indemnify
the Reinsurer for any and all payments made by the Reinsurer
in respect of such taxes.
ARBITRATION: Any dispute arising out of the interpretation, performance or
----------- breach of this Agreement, including the formation or validity
thereof, shall be submitted for decision to a panel of three
arbitrators. Notice requesting arbitration must be in writing
and sent certified or registered mail, return receipt
requested.
One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator (the "Umpire") who shall preside at
the hearing. If either party fails to appoint its arbitrator
within thirty (30) days after being requested to do so by the
other party, the latter, after ten (10) days notice by
certified or registered mail of its intention to do so, may
appoint the second arbitrator.
If the two arbitrators are unable to agree upon the Umpire
within thirty (30) days of their appointment, the two
arbitrators shall request the American Arbitration Association
("AAA") to appoint the Umpire for the arbitration with the
qualifications set forth in this Article. If the AAA fails to
name an Umpire within 30 days, either party may apply to the
United States Federal Court for the Southern District of New
York to appoint an Umpire with those qualifications. The
Umpire shall promptly notify in writing all parties to the
arbitration of his selection.
19
<PAGE>
All arbitrators shall be disinterested active or former
executive officers of insurance or reinsurance companies or
Underwriters at Lloyds's, London.
Within thirty (30) days after notice of appointment of all
arbitrators, the panel shall meet and determine timely periods
for briefs, discovery procedures and schedules for hearings.
The panel shall be relieved of all judicial formality and
shall not be bound by the strict rules of procedure and
evidence. Unless the panel agrees otherwise, arbitration
shall take place in Bermuda, but the venue may be changed when
deemed by the panel to be in the best interest of the
arbitration proceeding. Insofar as the arbitration panel
looks to substantive law, it shall consider the law of
Bermuda. The decision of any two arbitrators when rendered in
writing shall be final and binding. The panel is empowered to
grant interim relief as it may deem appropriate.
To the extent, and only to the extent, that the provisions of
this Agreement are ambiguous or unclear, the panel shall make
its decision considering the custom and practice of the
applicable insurance and reinsurance business. The panel
shall render its decision within sixty (60) days following the
termination of hearings which decision shall be in writing,
stating the reasons thereof.
Judgment upon the award may be entered in any court having
jurisdiction thereof.
Each party shall bear the expense of its own arbitrator and
shall jointly and equally bear with the other party the cost
of the third arbitrator. The remaining costs of the arbi-
tration shall be allocated by the panel. The panel may, at
its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to
20
<PAGE>
attorneys fees, to the extent permitted by law.
OFFSET: The Reinsured and the Reinsurer may offset any balance due
------ from one party to the other under this Agreement or any other
contract entered into between the Reinsured and the Reinsurer.
Offset must include interest due to either party.
NO THIRD
--------
PARTY RIGHTS: This Agreement is solely between the Reinsured and the
------------ Reinsurer and in no instance shall any other party have rights
under this Agreement.
GENERAL
-------
CONDITIONS: Ultimate Net Loss shall mean Covered Losses
---------- Net Retained Lines, where applicable
Loss Settlements
Errors and Omissions*
Inspection/Access to Records
Currency (US$, B.P.1.00 = US $1.4755, Can $1.00 = US $.7497)
Insolvency (of the Insured)
Service of Suit
Choice of Law - Bermuda
Insolvency Fund Exclusion
Intermediary (Brokerage = 0%)
No Assignment Without Consent, Such Consent
Not to be Unreasonably Withheld
Mechanism for Tender of A&A Notes
Sphere Drake Insurance Company, Loss,
Allocated Loss Adjustment Expense and
Unallocated Loss Adjustment Expense
To Be Defined.
WORDING: To be agreed.
-------
--------------------
* will address prompt payment of refunds due to either
party by reason of any error or omission.
21
<PAGE>
Appendix A-1
An Agreement made the seventh day of September One
thousand nine hundred and fifty three between THE ORION
INSURANCE COMPANY LIMITED whose registered office is at
70/72 King William Street, London, E.C.4. (hereinafter
called "Orion") of the first part THE DRAKE INSURANCE
COMPANY LIMITED whose registered office is at Baltic
Exchange Chambers, 24 St. Mary Axe, London, E.C.3.
(hereinafter called "Drake) of the second part and SPHERE
INSURANCE COMPANY LIMITED whose registered office is at
70/72 King William Street aforesaid (hereinafter called
"Sphere") of the third part
W H E R E A S:-
(1) Orion carries on marine aviation and transit
insurance business through its Marine Department and it has
been agreed that acting as Sole Marine Underwriting Agent it
shall transact marine aviation and transit insurance
business for all the parties hereto who will share such
business and all expenses incurred in the conduct thereof in
the proportions and on the terms and conditions hereinafter
contained.
(2) In this agreement the following words and
expressions shall have the meanings hereby assigned to them
unless the context otherwise so requires namely:-
<PAGE>
(a) "members of the Group" means Orion Drake and
Sphere and are collectively referred to as "the Group".
(b) "The Group Underwriters" means Orion in its
capacity of Sole Marine Underwriting Agent for the Group.
(c) "Marine Aviation and Transit Insurance
business" means insurance and reinsurance business of any
kind transacted for the Group by or on behalf of Orion as
the Group Underwriters through or under the control of its
Marine Department both within the United Kingdom and abroad
whether technically Marine or Aviation or Transit business
or not and is hereinafter referred to as "Marine Insurance
business" which expression shall include in respect of any
such business which by mutual consent of the Members of the
Group is shared by the Group with the New India Assurance
Company Limited, only that part of such shared business as
shall remain for the account of the Group.
(d) "Net Premium Income" means all premiums
receivable in respect of the Marine Insurance Business
transacted hereunder after deduction of all brokerages
discounts rebates commissions allowances stamp duties taxes
net returns of premium net reinsurance premiums (less not
reinsurance returns) and other customary deductions.
(e) "Stated Proportions" means the proportions
specific in Clause 2 hereof.
2
<PAGE>
N O W THIS DEED W I T N E S S E T H as follows:-
1. DRAKE and Sphere each hereby appoint the Group
Underwriters as is Sole Marine Underwriting Agent and the
Group Underwriters hereby accept such appointment and each
of them [Drake and Sphere hereby authorises the Group
Underwriters to underwriter Marine Insurance business for
its account in accordance with the terms of this Agreement].
2. EVERY risk of Marine Insurance business
underwritten or accepted by the Group Underwriters during
the currency of this Agreement shall be so underwritten or
accepted for and on behalf of the Group in the following
proportions namely:-
Orion . . . . . . . . 50% (Fifty per centum)
Drake . . . . . . . . 25% (Twenty five per centum)
Sphere . . . . . . . 25% (Twenty five per centum)
PROVIDED ALWAYS that the Group Underwriters shall
continue to be entitled to underwrite or accept Aviation
Insurance business for account of the Victoria Insurance
Company Limited of Melbourne, Australia and in addition
shall be entitled to underwrite or accept any Marine
Insurance business risk for account of any company which is
not a Member of the Group. PROVIDED that the Group
Underwriters shall give to Drake and Sphere written notice
of their intention to transact such marine Insurance
3
<PAGE>
business AND PROVIDED that the transaction of such Marine
Insurance business by the Group Underwriters is not
detrimental to the Group as a whole.
3. THE Group Underwriters shall underwrite or
accept all Marine Insurance business for account of the
Group in the respective names and the Stated Proportions
except on any occasions when this may not in the opinion of
the Group Underwriters be feasible or desirable in which
cases the Group Underwriters may underwrite or accept risks
in its own name or in the name of Drake or Sphere or in the
name of any two of them for immediate and automatic
reinsurance on original terms and conditions with the
remaining Members or Member of the Group in their respective
Stated Proportions and a simple entry in the books or
records of the Group Underwriters shall be sufficient to put
the Group on risk and to the extent of its Stated Proportion
each Member of the Group shall be as fully responsible and
liable to the original Assured on any risk for its Stated
Proportion of such risk or any claims arising therefrom as
if a policy had been issued in its own name for its Stated
Proportion thereof.
4. DURING the currency of this Agreement the
Group Underwriters shall conduct the entire underwriting of
the Marine Insurance business of the Group and shall
4
<PAGE>
(subject to the provisions of Clause 12 hereof) have full
and exclusive control of the Underwriting and power to act
for and on behalf of the Group in all respects both as to
acceptance and reinsurance of risks settlement of claims and
otherwise in as ample a manner as it would have if such
Marine Insurance business had been its own business and may
pay settle or compromise claims as it sees fit whether or
not legal liability exists. Each member of the Group agrees
to accept to the extent of its Stated Proportion each and
every risk underwritten or accepted by the Group
Underwriters for the Group in accordance with the provisions
of Clause 3 hereof and to the extent aforesaid all liability
arising out of or in relation to such acceptance. Each
Member of the Group hereby authorises the Group Underwriters
to make out and sign any necessary policies contracts
endorsements or other agreements or documents for and on
behalf of the Group or any Member of the Group as the
circumstances may require.
5. (a) AT the request of the Group Underwriters
and subject as hereinafter mentioned Drake or Sphere shall
appoint Sub-Underwriting Agents to underwrite Marine
Insurance business for the Group in any part of the world
and in furtherance of this object shall take all necessary
steps whether by way of making deposits or otherwise to
5
<PAGE>
enable such business to be underwritten and Policies to be
legally issued.
No such Sub-Underwriting Agent shall be appointed
until the parties hereto shall each have approved of the
proposed Sub-Underwriting Agent and of the amount of any
proposed deposit and shall have agreed (i) as to whether
such Sub-Underwriting Agency (hereinafter in this Clause
referred to as "the Agency") shall be designated a "Member
Agency" or a "Group Agency" and (ii) as to how any deposit
shall be provided in the first place and how it shall be
dealt with on any Member ceasing to be a Member of the Group
whether by withdrawal or as a result of the termination of
this Agreement and (iii) in the case of member Agencies, to
which member of the Group the Agency shall be allocated.
The appointment by any Member of the Group of a Member
Agency and the consequent registration of the Agency in that
Member's name shall not necessarily entail the allocation of
such Agency to that Member. Any change in the designation
of an Agency shall be effected only with the prior consent
of all the parties hereto.
(b) All Marine Insurance business transacted by
such Sub-Underwriting Agents shall be under the sole control
of the Group Underwriters in all respects and such Sub-
6
<PAGE>
Underwriting Agents shall be appointed on such terms and
conditions as the Group Underwriters shall think fit.
(c) All Marine Insurance business emanating from
the Agencies of the Members of the Group existing at the
date of commencement of this Agreement the details and
designation of which are set out in the First Schedule
hereto shall be regarded as being within the scope hereof
and any deposit already made in respect of such Agencies
shall not be affected in any way by any of the provisions
herein contained.
(d) Should any Member cease to be a Member of the
Group whether by withdrawal or as a result of the
termination of this Agreement (the "retiring Member") it
shall be entitled to retain for its absolute benefit each of
the Member Agencies which shall have been allocated to it
under the provisions of (a) above or which appear under its
name in the First Schedule hereto and the Member of the
Group which appointed such Agencies (if it is not the same
Member) and in whose name the Agencies are registered shall
take all necessary and possible steps to have such Agencies
transferred into the name of the retiring Member or as the
latter may direct and if any such transfer is impossible
will continue to hold and operate the Agency concerned for
7
<PAGE>
the benefit of and in trust for and at the cost of the
retiring Member.
(e) In the event of the withdrawal of a Member
from the Group then all Group Agencies which shall have been
appointed by it or which are registered in its name shall be
transferred by it as the other Members of the Group may
direct and if any such transfer is impossible will continue
to hold and operate the Agency concerned for the benefit of
and in trust for and at the cost of the party or parties to
which it should have been transferred.
(f) On the termination of this Agreement as it
all Members of the Group All Group Agencies then existing
shall be dealt with as the parties hereto may at the time of
termination so decide.
6. THE Group Underwriters will maintain all
necessary books accounts records and registers appertaining
to the Marine Insurance business transacted by it under the
terms hereof. All such books accounts records and registers
shall be the property of the Group Underwriters and the
representatives of any Member of the Group including its
Accountants shall be entitled to inspect the same at all
reasonable times and to make extracts and copies of any
entries therein relating to the underwriting for such
Member.
8
<PAGE>
7. (a) ALL expenses properly incurred by the
Group Underwriters and by any other Member of the Group in
connection with the conduct underwriting and administration
of the Marine Insurance business transacted hereunder the
maintenance of underwriting records and statistics the
keeping of books and accounts the collection and payment of
all monies due and the provision and maintenance of office
accommodation furniture and equipment and ancillary services
incidental thereto shall be borne by the Members of the
Group in the Stated Proportions.
As soon as practicable after the Thirty first
December in each year the Group Underwriters will cause to
be prepared in reasonable detail and will submit to the
other Members of the Group a statement showing the total of
expenses incurred by all Members in connection with the
business hereunder for the calendar year under closure.
(b) Other expenses including those incidental to
putting each member of the Group into a position to accept
its share of the Marine Insurance business hereunder and
those relating wholly and exclusively to implementing
matters of its independent Head office policy administration
and control and any United Kingdom Taxation payable by it
shall be borne solely by the particular Member concerned.
9
<PAGE>
The respective Auditors of all the Members of the
Group shall together agree as to what amount of any overseas
taxation incurred by each member of the Group should be
attributed to the Marine Insurance Business transacted
hereunder and the total of such taxation so attributable
shall be apportioned by the said Aviation on a fair and
equitable basis between the Members of the Group each of
whom shall thereupon be liable for the amount so apportioned
to it.
8. DURING the currency of this agreement and
thereafter until the Marine Insurance business transacted
hereunder shall be finally liquidated in accordance with the
provisions of Clause 16 hereof Drake and Sphere shall each
pay to the Group Underwriters an over-riding commission and
a profit commission on the Marine Insurance business
transacted hereunder for its account in accordance with the
following provisions:-
(a) The Over-Ridding Commission shall be
calculated at the rate of One per centum on the Net Premium
Income accruing hereunder to each of Drake and Sphere
respectively. As soon as practicable after the end of each
calendar quarter, the Group Underwriters shall render
statements showing in Sterling United States dollars and
Canadian dollars the Over-Ridding Commission due hereunder
10
<PAGE>
and the amount of the Net Premium Income in the relevant
currencies on which such commission is calculated. Unless
Drake or Sphere shall dispute any of such statements in
writing within thirty days from the date of its delivery the
amount of Over-Ridding Commission shown therein as due to
the Group Underwriters shall be payable immediately
collected or paid by the Group Underwriters in Sterling
United States Dollars and Canadian Dollars shall be paid to
or collected from the members of the Group in such
currencies and all such monies so collected or paid by the
Group Underwriters in any other foreign currency shall be
paid to or collected from the members of the Group in
Sterling at the same rates of exchange at which the original
monies were sold or purchased by the Group Underwriters.
(b) The Group Underwriters shall provisionally
debit each of the Members of the Group in the monthly
statements of account to be delivered hereunder with an
amount equal to its Stated Proportion of one-twelfth of an
estimate of the total amount of expenses to be borne by the
Group hereunder for the current calendar year. Such
estimate shall be prepared by the Group Underwriters and
shall be agreed by Drake and Sphere. Any difference between
the aggregate of the provisional amount so debited as
aforesaid and the total amount of the expenses actually
11
<PAGE>
incurred as shown on the statement rendered under
Clause 7(a) hereof shall be adjusted between the members of
the Group within thirty days of the delivery of such
statement.
(c) All monies receivable in respect of the
Marine Insurance business transacted hereunder shall be
collected by the Group Underwriters on behalf of the Group
and the Stated Proportions thereof belonging to "Drake" and
"Sphere" shall be paid into Current Accounts to be opened
with Guinness, Mahon & Co., in the respective names of Drake
and Sphere and the Stated Proportions of all monies payable
by Drake and Sphere in respect of the Marine Insurance
business transacted hereunder shall be paid out of such
Current Accounts.
(d) In the case of each of such Members such
Current Accounts shall be operated under two joint
signatures one of which shall be any one of certain persons
to be nominated in writing by the Board of Directors of the
Company in whose name the Accounts stand and the other which
shall be any one of certain persons to be nominated in
writing by the Group Underwriters provided that [illegible]
Cheques paid into such Current Accounts may be endorsed by
any one of the Group Underwriters own authorised Signa-
tories.
12
<PAGE>
(e) If at any time there are standing to the
credit of the Current Accounts any larger sums than the
Group Underwriters consider to be needed for current
underwriting requirements they will so advise the Board of
Drake and Sphere and any such sums shall at the request of
such Boards be placed on Deposit Account with Guinness Mahon
& Co. (which shall be operated in a manner similar to the
Current Accounts) or invested in the joint names of the
Group Underwriters and Guinness, Mahon Executor and Trusts
Company Limited and of Drake or Sphere (as the case may be)
in trust for Drake or Sphere as the case may be and as
security for any and all of its liability hereunder as shall
be agreed between the parties concerned.
(f) All interest and/or dividends receivable on
such temporary investments shall be paid direct to Drake and
Sphere respectively.
(g) In the event of the Cash balances on any of
such Current Accounts being deemed insufficient for current
underwriting requirements by the Group Underwriters any
amount as they may decide shall be transferred from such
Deposit Accounts to such Current Accounts and the whole or
such part as they see fit of any such temporary investments
shall be realised and the proceeds credited to the Current
Accounts.
13
<PAGE>
(h) In the event of the Cash balance on any of
such Current Accounts being at any time in the opinion of
the Group Underwriters insufficient for the proper
transaction of the Marine Insurance business hereunder then
each of the Members of the Group undertake on demand of the
Group Underwriters to pay into such Current Accounts such an
amount as the Group Underwriters may consider necessary.
(i) If and when the Group Underwriters consider
that there is any amount of Cash or temporary investments
which are available for release to Brake or Sphere to be
held or invested by such Companies respectively direct such
cash or investments shall forthwith be placed at the
disposal of such Companies and the Group Underwriters shall
inform Guineas, Mahon Executor and Trustee Company Limited
accordingly.
(j) It being the expressed and agreed intention
of the parties hereto that all Members of the Group shall as
nearly as is practicable be on an identical basis with
regard to the incidence of the collection or payment of
their respective Stated Proportions of the Group
Underwriting monies it is agreed that the actual method of
settlement of monthly accounts between the parties hereto
shall be on such basis and in such manner as shall be
14
<PAGE>
mutually agreed from time to time in writing as fair and
equitable to all parties concerned.
12. The Group Underwriters will comply in all
respects with the undertaking given to the Institute of
London Underwriters by or on behalf of each Member of the
Group and will in all matters serve the Group in good faith
and to the best of its ability and each Member of the Group
shall take full responsibility for everything done by the
Group Underwriters on its behalf. The Group Underwriters
will notwithstanding the generality of Clause 4 hereof as
far as it is possible comply with any requests which may
from time to time be conveyed to it by any Member of the
Group if it is satisfied that compliance would not be to the
detriment of the Group as a whole or if it is not so
satisfied if the compliance is agreed to by the other
Members of the Group. The Group Underwriters shall not be
held liable in case it fails through inadvertence to comply
with any such request or for any errors or omissions which
may unwittingly occur.
13. All underwriting liabilities or losses
arising hereunder and any other losses arising hereunder
whether from the insolvency or default or failure of
brokers, bankers, agents, reinsurers or others or from any
act default or neglect of any of the agents or servants of
15
<PAGE>
the Group Underwriters (other than in the case of servants
of the Group Underwriters any loss arising from any wilful
act default or neglect of such servants which is a criminal
offence) or the Sub-underwriting Agents of any other Member
of the Group or of any Bank holding funds or any loss on
exchange or any loss or depreciation on any investments or
deposits forming part of the Underwriting funds not
collected by the Group Underwriters and distributed to the
Members of the Group shall be borne by the Members of the
Group in the Stated Proportions it being the expressed and
agreed intention that the fortunes of the Marine Insurance
business transacted hereunder shall (subject to the
provisions of Clause 17 hereof) be shared in all respects by
the Members of the Group in the Stated Proportions. The
Group Underwriters shall not be under any liability for such
losses to any Member of the Group except in so far as it may
be liable to the extent of the Stated Proportion applicable
to it in its capacity as a Member of the Group.
14. IT IS HEREBY AGREED that if and so far as may
be necessary to provide for the payment of all claims and
other outgoings arising out of the Marine Insurance business
transacted hereunder in the event of liquidation either
voluntary or compulsory of Drake or Sphere or in the event
of any default by Drake or Sphere under any of its
16
<PAGE>
liabilities or obligations hereunder, the Group Underwriters
on behalf of the Group shall for the purpose of providing
for the payment of such claims and other outgoings have a
prior lien and charge on the balances of the Current and
Deposit Accounts and of the temporary investments of Drake
or Sphere as the case may be and also upon any further
monies which may be credited to Drake or Sphere under this
Agreement and the Group Underwriters on behalf of the Group
and for the purpose aforesaid shall be a Secured Creditor to
that extent.
15. (a) The effective date of the commencement
of this agreement shall be the beginning of the 1953
Underwriting Account and the Agreement shall include all
those risks allocated in the books of the Group Underwriters
to the 195 Underwriting Account and to any subsequent
Underwriting Accounts irrespective of whether such risks
were written before or after the date of commencement
hereof.
(b) Any party may withdraw form the Group and
terminate its interest hereunder by giving to the other
parties hereto six months' previous notice in writing
expiring on the Thirty-first day of December One thousand
nine hundred and fifty five on the Thirty-first day of
December One thousand nine hundred and fifty eight and
17
<PAGE>
thereafter on the Thirty-first day of December of every
third year after One thousand nine hundred and fifty eight
of its intention to withdraw from the Group and terminate
its interest hereunder in respect of the Underwriting
Accounts for all years subsequent to the year in which such
notice is given.
(c) If at any time during the currency hereof any
party hereto shall:-
(i) Suffer such a substantial loss of its paid up
capital as shall in the opinion of the other
parties hereto react to the detriment of the Group
as a whole, or
(ii) Go into liquidation whether voluntary or
compulsory or suffer the appointment of a receiver
or otherwise be deemed unable to pay its debts, or
(iii) Amalgamate with any other corporation, or
(iv) Default in any of its obligations hereunder, then
provided that the Boards of Directors of the two
other Members of the Group shall so decide and
that notice of such decision by given in writing
to the party concerned by those two other Members
of the Group that party shall withdraw from the
group and its interest shall be terminated as from
the date of delivery of such notice.
18
<PAGE>
(d) In the event of the withdrawal of any Member
from the Group (other than the Group Underwriters) under the
provisions of sub-clauses (b) and (c) hereof the remaining
Members of the Group shall unless they otherwise so agree
continue to transact Marine Insurance business as a Group in
accordance with the terms of this Agreement (save and except
the terms of this Clause) which shall be read in all
respects as if the name of the Member so withdrawing had
been deleted therefrom and subject to such adjustment in the
amount of the Stated Proportions as the continuing Members
may agree in writing.
(e) The termination of this Agreement or the
withdrawal by any Member from the Group under the provisions
of sub-clauses (b) and (c) hereof shall in no way affect the
respective liabilities and obligations of the parties hereto
in regard to every risk which may at the sole discretion of
the Group Underwriters be allocated in their books to the
underwriting account for the year in which such notice of
termination is given or such withdrawal becomes effective or
to any previous underwriting accounts or to any part of any
such underwriting accounts antecedent to the time of
termination hereof or withdrawal herefrom and covered hereby
which shall continue in every way as if this Agreement had
not been terminated.
19
<PAGE>
16. In the event of the termination of this
Agreement from whatever cause the Group Underwriters shall
be sureties and shall be bound to undertake all necessary
work in connection with the final liquidation of all Marine
Insurance business which has at the date of such termination
been effected by the Group Underwriters in accordance with
the terms hereof and each Member of the Group shall until
such liquidation shall have been completed be bound by all
its covenants herein contained which may be necessary
properly to effect such liquidation.
17. Save with the consent of the other Members of
the Group expressed in writing and excepting the quota share
the insurance agreements existing at the date hereof between
Sphere and the Baloise Marine Insurance Company and Sphere
and Orion no Member shall effect any separate reinsurance of
any part of the ultimate net business accruing to it under
this Agreement it being the intention that should any member
of the Group decide that the share of business accruing to
it hereunder is larger than it wishes to retain on its own
account the surplus shall in the first place be offered to
the other Members of the Group either for their retention in
agreed proportions effected by way of an adjustment of the
Stated Proportions or for their disposal or reinsurance in
any other way which they may agree shall be in the joint
20
<PAGE>
interests and for the benefit of all Members of the Group
and in default of such offer being accepted such surplus may
be dealt with as the Member offering it may decide.
18. None of the parties hereto shall assign to
any other person firm or corporation its interest in this
Agreement or any of its rights or liabilities hereunder.
19. Nothing herein contained shall be deemed to
constitute a partnership between any one of the parties
hereto with any others of the parties hereto nor shall it
preclude any Member of the Group form underwriting Non-
Marine Insurance business for its own account.
IN WITNESS whereof these presents have been
entered into the day and year first above written.
21
<PAGE>
THE FIRST SCHEDULE referred to in Clause 5(c)
hereof
---------------------------------------------
A. AGENCIES OF "ORION"
------------------
Name Country Designation
---- ------- -----------
Blackwood Scott & Co. Ltd., United Kingdom Orion Member Agency
21, Bernard Street
Leith, Edinburgh, 6
Dundee, Perth & London United Kingdom Orion Member Agency
Shipping Co. Ltd,
26, East Dock Street,
Dundee
Messrs. Patrick Henderson & United Kingdom Orion Member Agency
Co.,
95, Bothwell Street,
Glasgow, C.2.
Reliance Marine Insurance United Kingdom Orion Member Agency
Co. Ltd.,
1, Rumford Street,
Liverpool, 2.
British Underwriters (Ins.) Australia Orion Member Agency
Pty. Ltd.,
Scottish House
19, Bridge, Street,
Sydney, N.S.W.
British Underwriters (Ins.) Australia Orion Member Agency
Pty. Ltd.,
145, Queen Street,
Melbourne, Victoria
Hunter, Bowring & Co. Ltd. Belgium Orion Member Agency
S/A.,
18, Rue des Douze Moise,
Antwerp
Coast Underwriters, Limited Canada Orion Member Agency
410, Seymour Street,
Vancouver, British Columbia
British East Africa Corpn. British East Orion Member Agency
Ltd., Africa
("Guardian/Orion" Pool)
P.O. Box 5151,
Exchange Buildings,
Delamere Avenue,
Nairobi, Kenya
(and throughout British East
Africa)
<PAGE>
A. AGENCIES OF "ORION"
------------------
Name Country Designation
---- ------- -----------
The Orion Insurance Co. British East Orion Member Agency
Ltd., Africa
("Maritime/Reliance/Orion"
Pool)
Ralli House,
P.O. Box 1412
Mombasa, Kenya
Dale & Co. Ltd., Canada Orion Member Agency
Dale House,
710, Victoria Square,
Montreal
(and branches throughout
Canada)
M. Rene Misrachi, France Orion Member Agency
26, Rue Notre-Dame-des-
Victoires, Paris
The Orion Insurance Co. Germany Orion Member Agency
Ltd.,
Der Hauptbevollmachtigte fur
Deutschland,
Basle Haus, Goetheplataz 1-3
Frankfurt Main.
Messrs. Boot, Gipon & Co. Holland Orion Member Agency
Heerengracht 519/525,
Amsterdam, C.
Messrs. A. C. Fraser & Co., Holland Orion Member Agency
Insurance Department,
Eendrachtsweg, 60.
Rotterdam, C.
Sr. A. Maggiolini Scarampi, Italy Orion Member Agency
The Orion Insurance Co.
Ltd.,
16, Via Dante,
Milan
Ivar Evensen A/S., Norway Orion Member Agency
S. Bellevuevei 2,
Bergen
Nicholas M. Metaxas & Co. Sudan Orion Member Agency
Ltd.,
P.O. Box 173,
Khartoum
2
<PAGE>
A. AGENCIES OF "ORION"
------------------
Name Country Designation
---- ------- -----------
Messrs. J. M. Tocatly & Co. Israel Orion Member Agency
P.O. Box 1025
52, Nachlat-Benjamin Street,
Tel-Aviv
(Underwriting powers
withdrawn; certain powers in
process of transfer to
Messrs. S. Horowitz & Co.,
C/o Palestine Discount Bank,
Tel-Aviv.)
Messrs. MacDonald & Co., Egypt Orion Member Agency
3, Sharia Cattawi Bey,
Kasr el Nil,
Cario, Egypt
(Underwriting powers
withdrawn in process of
transfer to New Agent)
3
<PAGE>
B. AGENCIES OF "DRAKE"
------------------
Name Country Designation:
---- ------- -----------
Groves, John & Westrup Ltd. United Kingdom Orion Member Agency
Yorkshire House,
18, Chapel Street,
Liverpool, 3
Messrs. Boot, Gipon & Co. Holland Drake Member Agency
Heerengracht 519/525,
Amsterdam, C.
Messrs. H. J. Roelofs, Holland Drake Member Agency
Postbox 925,
Minervahuis 11
Meent 94, Rotterdam
Messrs. Dorens & de Waal, Holland Drake Member Agency
Leidschegracht 25,
Amsterdam, C.
Hunter, Bowring & Co. Ltd., Belgium Drake Member Agency
S/A.,
18, Rue des Douze Mois,
Antwerp
4
<PAGE>
THE SECOND SCHEDULE
-------------------------
<PAGE>
THE SECOND SCHEDULE RE [illegible]
GROUP UNDERWRITING AGENCY
IN RESPECT OF THE -% SHARE OF THE GROUP
19-0 UNDERWRITING ACCOUNT AS
---------------------------------------
United
States Canadian
Sterling Dollars Dollars
-------- ------- --------
B.P. $ $
Claims less Savage and Net
Reinsurance Recoveries:
19-0 Underwriting Accounts in its
First Three Years . . . . . . .
Prior Closed Accounts in 19-2 . . .
[illegible] riding Commission payable
to the Group Underwriters:
Expenses of the Group . . . . . . . .
Additional allowance for Head Office
Expenses being 5% of Expenses of
the Group . . . . . . . . . . .
Profit - Balance . . . . . . . . . .
Run off Reserve as at 31st December
19-2 as estimated by group
Underwriters carried forward to next
year's Statement for Profit
Commission:
In respect of 19-0 Underwriting
Account . . . . . . . . . . . .
In respect of 19-0 Prior Closed
Underwriting Accounts . . . . . ________ _______ _______
B.P._______ $______ C$_____
[illegible] for the Purpose
of Profit Commission Calculation:
United Stated Dollars
(as above) $ @ B.P.
Canadian Dollars
(as above) $ @ B.P.
Sterling and Other
Currencies as above B.P. ________
Profit B.P.
========
<PAGE>
SPECIMEN PROFIT COMMISSION STATEMENT
BUSINESS UNDERWRITTEN BY "ORION" FOR
THE END OF ITS THIRD YEAR 19-2
-----------------------------------
United
States Canadian
Sterling Dollars Dollars
-------- ------- --------
B.P. $ $
[illegible] off Reserve in respect of
Prior Closed Underwriting Accounts
brought forward from Previous
[illegible] Statement for Profit
Commission . . . . . . . . . . . . .
[illegible] Premiums:
19-0 Underwriting Accounts in its
First Three Years . . . . . . .
Prior Closed Underwriting Accounts
in 19-2 . . . . . . . . . . . .
[illegible] Balance . . . . . . . . .
________ _______ _______
B.P. $ C$
======== ======= =======
Separate Profit Commission Statements shall be prepared by the Group
-------------------------------------
Underwriters and rendered to each of the other Members of the Group
showing the appropriate Stated Proportion of agreed share of the
Marine Insurance Business revenue and expenditure including expenses
exchange overseas taxes and other charges (but excluding interest)
applicable to the Member of the Group concerned.
The Profit Commission shall be payable in Sterling to the Group
Underwriters at the rate stated in the agreement.
After the First Year On the Profit of the 1st Group Underwriting
--------------------
Account calculated as above (averaged in the
case of "Drake" with the Profits for Profit
Commission Purpose of the 1952 and 1951
Underwriting Accounts underwritten by "Orion"
for "Drake" under the terms of the previous
Underwriting Agency Agreement).
After the Second Year On the Average of the results of the 1st and
---------------------
2nd Group Underwriting Accounts calculated
above (averaged also in the case of "Drake"
2
<PAGE>
with the Profit for Profit Commission Purpose
of the 1952 Underwriting Accounts under-
written by "Orion" for "Drake" under the
terms of the previous Underwriting Agency
Agreement).
After the Third Year On the Average of the results of the 1st, 2nd
--------------------
and 3rd Group Underwriting Accounts
calculated as above.
After the Fourth and
Subsequent Years On the Average of the results of the year
--------------------
under closure and the two preceding Group
Underwriting Accounts calculated as above.
Determining the Sterling Profit or Loss for Profit Commission Payment
---------------------------------------------------------------------
Purposes, United States and Canadian Dollars shall be converted at the
[illegible] of exchange ruling on 31st March following the year of
closure.
Closed Underwriting Accounts" in the above Specimen Statement
----------------------------
[illegible] case of "Drake" includes Prior Closed Underwriting Accounts.
(THE COMMON SEAL of THE ORION
(INSURANCE COMPANY LIMITED
(hereunto affixed in the
(presence of:
Director
Secretary
(THE COMMON SEAL of THE DRAKE
(INSURANCE COMPANY LIMITED
(hereunto affixed in the
(presence of:
Director
Secretary
(THE COMMON SEAL of SPHERE
(INSURANCE COMPANY LIMITED
(hereunto affixed in the
(presence of:
Directors
Secretary
3
<PAGE>
DATED 7th September, 1953
-------------------------
THE ORION INSURANCE COMPANY LIMITED
--and-
THE DRAKE INSURANCE COMPANY LIMITED
--and--
SPHERE INSURANCE COMPANY LIMITED
Agreement
<PAGE>
Appendix A-2
IN THE HIGH COURT OF JUSTICE 1989 Folio 2453
---------------------------- ---------------
QUEEN'S BENCH DIVISION
----------------------
COMMERCIAL COURT
----------------
THE HONOURABLE MR. JUSTICE WALLER
---------------------------------
BETWEEN:
THE ORION INSURANCE COMPANY PLC
Plaintiffs
----------
-and-
SPHERE DRAKE INSURANCE PLC
Defendants
----------
O R D E R
Upon hearing the solicitors for the parties
AND Upon hearing the parties having agreed terms of
settlement
IT IS ORDERED that all further proceedings in this action be
stayed upon the terms of settlement agreed between the
parties set out in the schedule hereto except for the
purpose of carrying the said terms into effect and that
there be liberty to apply for the said purpose.
Dated this 20 day of March 1992
2
<PAGE>
SCHEDULE
--------
1. In this schedule the following words or phrases shall
have the following meanings:
(a) The "Pool Agreement" shall mean a Marine Pool
Agreement dated 7th September 1953 and made
between The Orion Insurance Company Limited
("Orion"), Sphere Insurance Company Limited
("Sphere") and The Drake Insurance Limited;
(b) The "Pool" shall mean the parties to the "Pool
Agreement" from time to time and "Pool business"
shall be construed accordingly;
(c) "MLL Section" shall mean the Miscellaneous & Legal
Liability section of Pool business;
(d) "M&A Section" shall mean Pool business excluding
MLL Section;
(e) "1952 and prior transactions" shall mean
transactions allocated in the books of Orion to
1952 or earlier underwriting years;
(f) "Putbacks" shall mean (i) risks originally
allocated in the books of Orion to 1968 or later
underwriting years with statistical code 747;
(ii) risks originally allocated in the books of
Orion to 1967 or later underwriting years with
statistical code 647; and (iii) risks originally
3
<PAGE>
allocated in the books of Orion to 1967 or later
underwriting years with statistical code 80 (in
respect of the 8000 account);
(g) The "Putbacks Differential" shall mean the
difference between the sums that would have been
payable by Sphere Drake Insurance Plc ("Sphere
Drake") if Putbacks were attributed to the
underwriting years to which Orion have hitherto
reallocated them for the purpose of accounting to
other pool members and the sums payable by Sphere
Drake if Putbacks are attributed to the
underwriting years in which they were originally
allocated in Orion's own books of account; and
(h) "Sphere X Account" shall mean the Marine and Non-
Marine Excess of Loss and Special Reinsurances
Account underwritten through Howdens Swann
Agencies Limited.
2. Orion agree to abandon the following claims made
against Sphere Drake:
(a) 1952 and prior transactions US$ 163,547
(b) Letters of Credit ("LOCs") US$ 1,913,819
(c) Putbacks Differential US$ 583,016
---------------
Total US$ 2,660,382
===============
4
<PAGE>
and further agree that Sphere Drake shall have no liability
to Orion in respect of payments made by Orion in 1952 and
prior risk or in relation to the Putbacks Differential.
Orion agree to maintain the current procedures for
allocating transactions according to the underwriting years.
3. Sphere Drake agree to pay 30% of the costs, expenses
and loss of interest incurred by Orion on monies used
by Orion in establishing and maintaining LOCs in
respect of Pool business. The loss of interest
incurred by Orion shall be deemed to be the difference
between interest or other benefits actually received by
Orion and interest at the 3 months US dollar LIBID
rate. Sphere Drake shall not be liable to contribute
any part of the capital monies used by Orion in
establishing and maintaining such LOCs until such time
as claims are paid from the funds so established or
maintained.
4. Orion acknowledge their liability to reimburse Sphere
Drake the following sums previously paid to Orion:
(a) the sum of US$397,072 in respect of Sphere Drake's
Non-marine payments
(b) US$744,852 in respect of Sphere Drake's Marine
payments
5
<PAGE>
(c) US$72,764 in respect of Baloise Non-marine
payments.
5. Orion acknowledge their liability to Sphere Drake (a)
pursuant to a quota share reinsurance contract to
participate for a 10% share in the Sphere "X" account
for payments made by Sphere and/or Sphere Drake since
31st December 1974 and (b) pursuant to the Sphere Share
Sale Agreement to bear 34.86% of Sphere's liability in
respect of Sphere's net retained participation after
deduction of quota share reinsurances in the Sphere "X"
account.
6. Orion acknowledge their liability to Sphere Drake
pursuant to the agreement recorded in the letter from
Sphere to Baloise dated 8th January 1973 to bear 35.7%
of Sphere's liability in respect of the M&A Section.
7. Without prejudice to the parties' existing contractual
obligations under the Pool Agreement, Sphere Drake
shall pay Orion the following percentage shares of
payments made and expenses incurred by Orion in
accordance with the provisions of the Pool Agreement
relating to Pool business after 31 March 1991.
6
<PAGE>
M&A Section 1965 and prior 50.000%
1966 36.500%
1967 22.5000%
MLL Section 1965 and prior 30.000%
1966 27.825%
1967 22.5000%
Pursuant to Orion's liability set out in Clause 6 above
Orion shall allow Sphere Drake to deduct by way of set-off
from the above percentage shares in respect of Pool business
after 31 March 1991 the following percentages (part of
100%):
M&A Section 1965 and prior 8.925%
1966 4.998%
1967 NIL
Subject to Clause 8 Orion agree not to enforce any liability
of Sphere Drake (none being admitted) in respect of Pool
business which would result in Sphere Drake paying more than
the above percentage shares in respect of Pool business
after 31st March 1991.
7
<PAGE>
8. Further, Orion and Sphere Drake agree to deal with the
liability of Baloise (excluding any sum in respect of
1952 and prior transactions, putbacks and LOCs relating
thereto) in respect of the Pool business as follows:
(a) Sphere Drake agree to pay to Orion 50% of the
percentage shares set out below of the
payments made by Orion and expenses incurred
by Orion in accordance with the Pool
Agreement which Orion and Sphere Drake have
agreed are the liability of The Baloise
Insurance Company Limited and/or The Baloise
Marine Insurance Company Limited (together
"Baloise") in respect of the MLL Section:
1965 and prior 10.000%
1966 5.000%
1967 NIL
(b) Orion agree to pay to Sphere Drake 50% of the
percentage shares set out below of the payments
made by Orion and expenses incurred by Orion in
accordance with the Pool Agreement which Orion and
Sphere Drake have agreed are the liability of
Baloise in respect of 38.7% of Sphere's liability
8
<PAGE>
in respect of the M&A Section pursuant to the
agreement recorded in the letter from Sphere to
Baloise dated 8th January 1973:
1965 and prior 9.675%
1966 5.418%
1967 NIL
(c) Orion acknowledge their liability to reimburse
Sphere Drake the sum of
(i) US$45,785 for the MLL Section and
(ii) US$15,141 for the M&A Section
in respect of Baloise Marine payments previously
paid to Orion.
(d) Sphere Drake agree to pay 4% of the costs,
expenses and loss of interest incurred by Orion on
monies used by Orion in establishing and
maintaining LOCs in respect of Pool business being
a contribution to Baloise's liability in respect
thereof on the same basis as set out in Clause 3
above.
9. Sphere Drake agree to pay Orion within 7 days of the
date hereof the sum, after taking into account the
adjustments required to be made by reason of clauses 2,
4, 5, 6, 7, 8(b) and 8(c)(ii) hereof, of US$6,1121,678
9
<PAGE>
(US$6,427,506 plus US$44,172 less $350,000) in respect
of Pool business up to and including 31 March 1991,
full details of which are set out in Appendix A.
10. Sphere Drake agree to pay Orion within 7 days of the
date hereof the further sum of US$994,739 (US$914,807
plus US79,932) in respect of the liabilities of Baloise
calculated in accordance with Clauses 2, 8(a) and
8(c)(i) including a contribution to interest up to and
including 31 March 1991, full details of which are set
out in Appendix A.
11. Sphere Drake shall make payment of any sums due under
Clauses 7 and 8 above within 30 days of receiving
monthly summaries together with itemised transactions
listings unless the parties otherwise agree.
12. Orion and Sphere Drake agree
(a) To jointly pursue and to find in equal shares any
litigation which Orion and/or Sphere Drake
consider necessary or desirable from time to time
(to include litigation by/on behalf of Alexander
Howden Holdings Plc ("Howdens")) in order to
recover sums due to Orion and/or Sphere Drake in
respect of Baloise's ultimate liability in respect
of Pool business.
10
<PAGE>
(b) If either Orion or Sphere Drake disagree as to
whether such litigation should be commenced or
continued, it shall be open to either party to
withdraw from any further litigation on terms that
the party choosing to withdraw must assign to the
party wishing to continue such litigation the
whole of its rights and obligations in respect of
the claims it has, or may have, in relation to the
operation of the Pool Agreement, against Baloise
and/or such other parties as may be necessary
including but not limited to Alba Allgemeine
Versicherungs - Gesellschaft or against the
company formerly known as Manor Insurance Company
Limited now known as National Mutual Insurance
Company (Bermuda) Limited and thereafter such
litigation shall be conducted wholly at the
expense (including any costs and expenses of the
withdrawing party arising under sub-clause (e))
and wholly at the risk of the party choosing to
continue such litigation and any sums recovered
from Baloise and/or such other parties shall
belong to that party alone.
(c) If either Orion or Sphere Drake disagree as to
whether a proposed settlement offer should be
11
<PAGE>
accepted the party wishing to pursue the
litigation will pay to the party wishing to accept
the settlement 50% of the proposed settlement
offered. The party wishing to pursue the
litigation will then bear all the ongoing costs
and expenses of the party accepting the settlement
arising under sub-clause (e)) of the litigation
from that date onwards and benefit from the result
of the litigation.
(d) Save where sub-clause (b) or (c) applies Orion and
Sphere Drake to share equally any sums recovered
from Baloise in respect of Baloise's ultimate
liability in respect of Pool business including
any interest and costs related thereto.
(e) Notwithstanding sub-clause (b) or (c) Orion and
Sphere Drake agree to provide each other with all
assistance reasonably required, whether by way of
information, documents or otherwise howsoever, and
to co-operate with each other in the conduct of
the said litigation.
Subject to the provisions of sub-clause (e) the
remainder of this clause shall not apply to any sums
due or recovered from Baloise by Sphere Drake and/or
Howdens in respect of the Sphere X account nor to any
12
<PAGE>
sums due or recovered from Baloise by Orion in respect
of 1952 and prior transactions, putbacks and LOCs
relating thereto.
13. The parties agree that Orion shall be entitled to
recover from Sphere Drake Sphere Drake's proportion of
payments made by Orion pursuant to the terms of the
Agreement Concerning Asbestos-Related Claims
("Wellington Agreement"), the Insurer Agreement
Concerning Center for Claims Resolution, the Johns
Manville Agreement and the GAF/Ruberoid Agreement
subject to clause 2 above.
14. The terms of this agreement have been agreed between
the parties hereto by way of full and final settlement
of many issues involving complex factual, legal and
accounting matters and to bring to a final conclusion
the disputes as to certain claims made by Orion
pursuant to terms of the Pool Agreement.
13
<PAGE>
Appendix A
----------
ORION -v- SPHERE DRAKE
Final Settlement
Combined currencies in US dollars
Sphere Drake 50% Baloise 50% Baloise Total Sphere
share excl. M&A Share MLL Share Drake payment
Orion's M&A
contributions
and all
Baloise
liability
$ $ $ $
Original claim
less agreed
deductions 10,315,002 141,978 1,275,476 11,732,274
Marine payments (744,852) 0 0 (744,852)
Baloise marine
0 (15,141) (45,785) (60,926)
payments
9,570,150 126,655 1,229,691 10,926,496
1984 Aviation
transactions
understated 15,073 2,322 0 17,395
9,585,223 128,977 1,229,691 10,943,891
1952 & prior
transactions (141,091) (12,942) (9,514) (163,547)
Letters of
credit (1,670,016) 901 (244,704) (1,913,819)
(522,350) 0 (60,666) (583,016)
"Putbacks"
7,251,766 116,936 914,807 8,283,509
Non-marine
payments (397,072) 0 0 (397,072)
Baloise Non-
marine payments
0 (72,764) 0 (72,764)
(100%)
6,854,694 (44,764) 914,807 7,813,073)
(427,188) 0 0 (427,188)
Sphere "X"
6,427,506 44,172 914,807 7,386,485
Contribution in respect of interest due from Baloise 79,932
Settlement adjustment (350,000)
7,116,417
Exchange rate: B.P. = US$1.73 = C$2.01
<PAGE>
Appendix A
----------
ORION -v- SPHERE DRAKE
Final Settlement
B.P. Sterling only
Sphere Drake 50% Baloise 50% Baloise Total Sphere
share excl. M&A Share MLL Share Drake payment
Orion's M&A
contributions
and all
Baloise
liability
$ $ $ $
Original claim
less agreed
deductions 181,413 3,916 17,813 203,142
Marine payments (93,832) 0 0 (93,832)
Baloise marine
0 (2,943) (5,750) (8,693)
payments
87,581 973 12,063 100,617
1984 Aviation
transactions
0 0 0 0
understated
87,851 973 12,063 100,617
1952 & prior
transactions (314) (48) 0 (362)
Letters of
credit 0 0 0 0
0 0 0 0
"Putbacks"
87,267 925 12,063 100,255
Non-marine
payments (58,386) 0 0 (58,386)
Baloise Non-
marine payments
0 (10,808) 0 (10,808)
(100%)
28,881 (9,883) 12,063 31,061
(49,822) 0 0 (49,822)
Sphere "X"
(20,941) (9,883) 12,063 (18,761)
Contribution in respect of interest due from Baloise 0
Settlement adjustment 0
(18,761)
2
<PAGE>
Appendix A
----------
ORION -v- SPHERE DRAKE
Final Settlement
US dollars Only
Sphere Drake 50% Baloise 50% Baloise Total Sphere
share excl. M&A Share MLL Share Drake payment
Orion's M&A
contributions
and all
Baloise
liability
$ $ $ $
Original claim
less agreed
deductions 9,965,257 135,004 1,239,683 11,339,994
Marine payments (582,523) 0 0 (582,523)
Baloise marine
0 (10,050) (35,838) (45,888)
payments
9,382,734 124,954 1,203,845 10,711,533
1984 Aviation
transactions
understated 15,073 2,322 0 17,395
9,397,807 127,276 1,203,845 10,728,928
1952 & prior
transactions (140,547) (12,858) (9,154) (162,919)
Letters of
credit (1,670,016) 901 (244,704) (1,913,819)
(522,350) 0 (60,666) (583,016)
"Putbacks"
7,064,894 115,319 888,961 8,069,174
Non-marine
payments (296,064) 0 0 (296,064)
Baloise Non-
marine payments
0 (54,068) 0 (54,068)
(100%)
6,768,830 61,251 888,961 7,719,042
(336,719) 0 0 (336,719)
Sphere "X"
6,432,111 61,251 888,961 7,382,323
Contribution in respect of interest due from Baloise 79,932
Settlement adjustment (350,000)
7,112,255
3
<PAGE>
Appendix A
----------
ORION -v- SPHERE DRAKE
Final Settlement
Canadian Dollars only
Sphere Drake 50% Baloise 50% Baloise Total Sphere
share excl. M&A Share MLL Share Drake payment
Orion's M&A
contributions
and all
Baloise
liability
C$ C$ C$ C$
Original claim
less agreed
deductions 41,713 20 5,783 47,516
Marine payments 0 0 0 0
Baloise marine
0 0 0 0
payments
41,713 20 5,783 47,516
1984 Aviation
transactions
understated 0 0 0 0
47,713 20 5,783 47,516
1952 & prior
transactions 0 0 0 0
Letters of
credit 0 0 0 0
0 0 0 0
"Putbacks"
41,713 20 5,783 47,516
Non-marine
payments 0 0 0 0
Baloise Non-
marine payments
0 0 0 0
(100%)
41,413 20 5,783 47,516
(4,969) (4,969)
Sphere "X"
36,744 20 5,783 42,547
Contribution in respect of interest due from Baloise 0
Settlement adjustment 0
42,547
4
<PAGE>
1989 Folio 2453
---------------
IN THE HIGH COURT OF JUSTICE
----------------------------
QUEEN'S BENCH DIVISION
----------------------
COMMERCIAL COURT
----------------
THE HONOURABLE MR. JUSTICE WALLER
---------------------------------
BETWEEN:
THE ORION INSURANCE COMPANY PLC
Plaintiffs
----------
-and-
SPHERE DRAKE INSURANCE PLC
Defendants
----------
ORDER
Denton Hall Burgin & Warrens
Five Chancery Lane
Clifford's Inn
London EC4A 1BU
Ref: KHR/SMG/(5742L)
Tel: 071 242 1212
<PAGE>
Appendix B
EAGLE STAR
November 29, 1990
Davies Arnold Cooper
6-8 Bouverie Street
LONDON
EC4Y 8DD
Dear Sirs:
EAGLE STAR INSURANCE CO LTD -V- SWANN & EVERETT
(UNDERWRITING) LTD AND OTHERS
----------------------------------------------
We refer to the arrangements agreed between Eagle
Star Insurance Company Limited ("Eagle Star") and Alexander
Howden Group Agency Management Limited ("AHGAM") for (inter
alia) the payment of valid claims on non-marine risks aris-
ing on policies arranged originally by Churcher & Company
(previously known as Swann & Everett (Underwriting) Limited
("Swann & Everett")) and identified in our previous corres-
pondence as business written in Pool 1 and Pools 2 - 8 (the
"Swann & Everett Account") as set out in a letter dated 21st
March 1989 from Simmons & Simmons to Davies Arnold Cooper
(the "letter"). Words and expressions used in this letter
shall where the context so admits bear the same meaning as
in the letter. This letter does not deal with the position
in respect of claims on marine risks arising on Pool 1.
Following discussions between Eagle Star and AHGAM
(together hereinafter the "parties") terms have been agreed
for:
(i) the discontinuance and withdrawal by Eagle
Star of the action commenced under Action Number 1986 -
E - No. 2592 (the "Action"); and
(ii) the administration of the run-off of the
Swann & Everett Account including (without limit) the
payment of claims thereon, and the collection of com-
missions, insurance premiums and available reinsurance
recoveries.
This letter records the said terms which are as
follows:
1. AHGAM will be responsible for (a) admin-
istering the run-off of the Swann & Everett Account,
<PAGE>
2
(b) establishing the validity of all claims made in
respect of the insurances the subject of the Swann &
Everett Account, (c) investigating any such claims as
appropriate, (d) arranging for payment of such claims
as appropriate, (e) pursuing and collecting all quota
share reinsurances and excess of loss reinsurances
which have been effected in respect of the Swann &
Everett Account and (f) otherwise dealing in all
respects with the run-off and the management and
administration of the insurances and reinsurances the
subject of the Swann & Everett Account. In performing
its duties and carrying out the obligations under this
paragraph AHGAM shall at all times comply with such
procedures, arrangements and guidelines as shall be
agreed between the parties pursuant to paragraph 10 or
as may reasonably be required of AHGAM by Eagle Star in
the light of its interest in the Swann & Everett
Account and its run-off and its obligations in respect
thereof pursuant to this letter.
Without prejudice to the generality of the
foregoing AHGAM will procure and maintain all necessary
computer systems required to ensure the efficient and
prompt administration of the said run-off and will
retain and ensure retention of competent professional
advisors and agents as required in relation thereto and
arrange for employment of appropriately qualified staff
to enable it to perform its obligations hereunder.
AHGAM will be responsible for all costs and expenses
incurred in such connection as well as all other costs
and expenses incurred by it or its agents in connection
with the said run-off or otherwise in the performance
of its obligations hereunder. AHGAM undertakes that in
performing its duties hereunder and protecting Eagle
Star's interests in connection with the run-off of the
Swann & Everett Account it will at all times act with
the due care and skill which an experienced under-
writing agent performing the task it has agreed to
perform would be expected to show in performing the
same. However, nothing in this Agreement shall be
construed as to require AHGAM to initiate or pursue at
its own expense proceedings against reinsurers by way
of litigation of arbitration in respect of the
reinsurance of Pool 1.
2. In consideration of AHGAM's undertakings under
paragraph 1 above, Eagle Star undertakes to pay to
AHGAM the sum of B.P.500,000 (inclusive of VAT or other
similar tax) as a contribution towards AHGAM's costs in
performing its obligations hereunder and such sum shall
<PAGE>
3
be paid by 17 equal half-yearly installments of B.P.27,750
each (the first such installment being paid by Eagle
Star to AHGAM on 31st December 1990 with 16 subsequent
installments being payable on each following 30th June
and 31st December in each calendar year) and by final
installment of B.P.28,250 being paid by Eagle Star to
AHGAM on 30th June 1999.
3. Eagle Star will be responsible for paying all
outstanding and future valid claims arising from Pool 1
of the Swann & Everett Account. AHGAM will use its
best endeavours to collect all sums due from reinsurers
in respect of the reinsurances of Pool 1 liabilities so
that wherever possible payments made by Eagle Star
will be on a "net basis". Eagle Star will give all
reasonable assistance to AHGAM to enable it to recover
and collect sums from such reinsurers.
4. AHGAM will be responsible for paying from its
own funds all outstanding and future valid claims aris-
ing from Pools 2 - 8 of the Swann & Everett Account and
will pay the same promptly and without delay as and
when settlement and payment thereof is due.
5. AHGAM undertakes to pay to Eagle Star 50% of
the amount which Eagle Star would have been entitled to
receive from The Insurance Company of the USSR
(Ingosstrakh) Limited ("Ingosstrakh") had Eagle Star
been able to recover from Ingosstrakh the amount which
Ingosstrakh was originally liable to pay pursuant to
the 5% quota share reinsurance protection in respect of
liabilities under Pool 1 originally provided by
Ingosstrakh prior to the commutation of the said
reinsurance protection provided by Ingosstrakh. AHGAM
will on the signing hereof pay the sums of B.P.1,242.65
and US$37,607.74 to Eagle Star being the amount which
Ingosstrakh would have paid to Eagle Star prior to 31st
March 1990 had the said reinsurance protection not been
commuted and Eagle Star will pay to AHGAM the sum of
Can$387.88. Thereafter AHGAM will make the payments
due by it pursuant to this paragraph to Eagle Star at
the same time as Ingosstrakh would have been liable to
make payments pursuant to the said reinsurance
protection had the same not been commuted.
6. AHGAM will promptly make and pursue with all
due diligence any claims for reinsurance recoveries
which are properly due from, the common account excess
of loss reinsurers protecting business written in
Pool 1. AHGAM shall promptly account for all such
<PAGE>
4
recoveries to Eagle Star. The parties confirm that
each has satisfied itself having made due enquiries
that there is no excess of loss reinsurance protection
in respect of Pools 2 - 8.
7. Where it is not possible due to deficient
records or for other reasons to establish the
respective proportionate liability of Pool 1 and/or
Pools 2 - 8 in respect of any claim then 50% of the
liability in respect of the claim in question shall be
discharged by Eagle Star and 50% by AHGAM but any money
received from the quota share and/or excess of loss
reinsurers in respect of the relevant claim shall be
for the benefit of Eagle Star and AHGAM shall account
to Eagle Star accordingly.
8. AHGAM hereby undertakes to provide to Eagle
Star in respect of any claims to be paid by Eagle Star
arising from Pool 1 (prior to such payment) bordereaux
recording details of claims and reinsurance recoveries
with sufficient information and documentation (includ-
ing, if necessary, relevant brokers files) so as to
enable Eagle Star to satisfy itself that the claims are
valid and required to be paid and AHGAM shall at such
time also provide Eagle Star with details of any ap-
plicable reinsurance protection. Eagle Star shall be
further entitled to require AHGAM, prior to Eagle Star
paying any particular claim, to provide Eagle Star with
evidence that, at the relevant time, AHGAM has dis-
charged all its obligations pursuant to this agreement
in relation to claims arising from Pools 2 - 8.
(i) In addition to the bordereaux and the
information referred to in paragraph 8 (which
bordereaux shall be supplied in respect of each
quarter within 30 days of the end of such quar-
ter), in order to enable Eagle Star to conduct
such further detailed review of claims as it may
in its discretion decide after it has paid the
same, to satisfy itself the claims were valid and
required to be paid in the amount paid, AHGAM will
provide Eagle Star with such further information
and documentation as it has or it can obtain from
brokers or third parties in respect of the said
claims.
(ii) AHGAM will supply Eagle Star with such
further information and documentation in relation
to Pool 1 and Pools 2 - 8 and the related insur-
ances and reinsurances as shall be in accordance
<PAGE>
5
with normal market practice and all such other
information in its possession, in relation to Pool
1 and Pools 2 - 8 and their operation, as Eagle
Star shall request (save that AHGAM shall have the
right to make a reasonable charge for copying and
supplying such additional information). Eagle
Star and its duly authorised agents shall also
have full access to all documents and information
from time to time in the possession or within the
control of AHGAM relating to Pool 1 and Pools 2 -
8.
9. AHGAM has made available to Eagle Star such
books and records as are available relating to the
Swann & Everett Account and Eagle Star have by them-
selves and/or by their agents, Chiltington Intermedi-
aries Limited, had the opportunity of inspection of
those books and records. However, should it be estab-
lished in the future that Eagle Star has paid any
amount in or towards satisfaction of any claims or
purported claims arising from Pool 1 which Eagle Star
is not liable to pay due to
(a) any act, omission, negligence or default
on the part of any of the Defendants in the
Action, of which Eagle Star was not and could not
reasonably have been aware; or
(b) any act, omission, negligence or default
on the part of AHGAM, its agents or advisers,
then AHGAM will re-pay such sum to Eagle Star.
10. Eagle Star and AHGAM will co-operate fully in
ensuring that the arrangements provided for by this
letter are implemented without delay and in a manner
which ensures that Eagle Star's position is fully
safeguarded and otherwise protected in an efficient
manner. To this end and without prejudice to the
generality of the foregoing, representatives of AHGAM
and Eagle Star will meet regularly (as and when re-
quested by Eagle Star or AHGAM) to discuss and agree
the procedures, arrangements and guidelines to be
adopted from time to time for
(a) the efficient and prompt determining of
claims; and
(b) subsequent prompt settlement of valid
claims arising on Pool 1 and Pools 2 - 8; and
<PAGE>
6
(c) the collection of relevant reinsurance
recoveries; and
(d) such other procedures, arrangements and
guidelines as may be appropriate to enable the
obligations of Eagle Star and AHGAM as recorded
herein to be promptly discharged.
11. Eagle Star will discontinue and withdraw the
Action namely Action Number 1986 - E - No. 2592 against
the following Defendants:
1) CHURCHER & COMPANY LIMITED (formerly
SWANN & EVERETT (UNDERWRITING) LIMITED);
2) SPHERE DRAKE UNDERWRITING MANAGEMENT
LIMITED;
3) SPHERE DRAKE UNDERWRITING LIMITED;
4) SPHERE DRAKE INSURANCE PLC;
5) ALEXANDER HOWDEN HOLDINGS PLC.
Eagle Star's agreement to discontinue and withdraw the
Action is upon condition
(a) that all parties thereto bear their own
costs (which in the case of each of the Defendants
AHGAM undertakes to procure); and
(b) that AHGAM and each of the Defendants
confirm that it has no claim or counterclaim
against Eagle Star in respect of the matters the
subject of the Action or the insurances the
subject of Pool 1 or Pools 2 - 8 or the admin-
istration or operation thereof down to today's
date; and
(c) that AHGAM procure that each of the
Defendants or their authorised agents do and make
all such acts documents and things and provide
such written consents and agreements as are re-
quired to enable the Action to be withdrawn and
discontinued and this Agreement to be implemented
and performed.
12. This Agreement shall in all respects be
governed and construed in accordance with the laws of
England. Any dispute between the parties arising under
<PAGE>
7
in connection with or pursuant to this Agreement shall
be referred to Arbitration in London in accordance with
the provisions of the Arbitration Acts 1950 - 1979 (or
any statutory modification or re-enactment thereof from
time to time in force). On requesting Arbitration the
party so requesting it shall nominate to the other in
writing its chosen Arbitrator and the other party shall
thereupon be entitled to appoint a Second Arbitrator
within fourteen days failing which the dispute shall be
dealt with by the single Arbitrator appointed. If two
Arbitrators properly appointed shall fail to agree in
their findings then the matter in question shall be
referred to the decision of an Umpire appointed by the
two Arbitrators whose decision shall be final and
binding on the parties hereto for all purposes.
Please confirm that the arrangements set out in this letter
accurately describe the arrangements which have been agreed
by AHGAM and Eagle Star by signing and returning the
enclosed copy of this letter and please confirm at the same
time that you have been authorised by AHGAM to agree to the
arrangements set out inn this letter on their behalf and
that you have been authorised by each of the Defendants
referred to in paragraph 11 above to agree the said
arrangements on their behalf.
Yours faithfully,
[signature illegible]
Duly authorised for and on behalf of
EAGLE STAR INSURANCE COMPANY LIMITED
------------------------------------
[signature illegible]
<PAGE>
APPENDIX C
-------------------------------------------
ALEXANDER HOWDEN INSURANCE BROKERS
LTD TREATY
____________________________________________
NO: ST8010380 16.8
--------------------------------------------
PHOTOGRAPHED
--------------------------------------------
NOTED
--------------------------------------------
WORDING COMPLETED
--------------------------------------------
20%
I.R. Posgate Esq.
--------------------------------------------
FOR LPSO USE
--------------------------------------------
FOR ILU USE
<PAGE>
QUOTA SHARE REINSURANCE FOR ACCOUNT LLOYD'S SYNDICATES
UNDERWRITTEN BY I.R. POSGATE ESQ.
------------------------------------------------------
This Reinsurance is in respect of a Quota Share of the 1980
Whole Account of Syndicate No. 126.
Subject to the same terms, clauses and conditions as the
original acceptances of the Syndicate and to follow the
settlements and agreement of the Reinsured in every respect.
It is agreed that Reinsurers hereunder shall be debited with
pro rata of the Reinsurance amount to close the 1980 Account
at 31st December, 1982, it being understood that Reinsurers
shall receive credit for the reinsurance amount transferred
to the 1980 Account to cover outstanding liability as at
31st December, 1981 of the Reassured's 1979 and previous
Underwriting Accounts.
Reinsurers agree to issue Letters of Credit, if requested,
to comply with the Committee of Lloyd's requirements.
Monthly adjustment of premium and claims.
35% Profit Commission calculated on the nett premium paid
hereunder, as per wording.
Original Nett Premium of the Reinsured less 1.5% brokerage
on nett.
WGD/CT/10580
HEREON
WRITTEN LINES PERCENTAGES OF
-----------
PART
SIGNED LINES PERCENTAGES OF
-----------
PART
-------------------------------
<PAGE>
[Form illegible]
2
<PAGE>
-------------------------------------------
ALEXANDER HOWDEN INSURANCE BROKERS
LTD TREATY
____________________________________________
NO: ST8110727 16.8.82
--------------------------------------------
PHOTOGRAPHED
--------------------------------------------
NOTED
--------------------------------------------
WORDING COMPLETED
--------------------------------------------
15%
I.R. Posgate Esq.
--------------------------------------------
FOR LPSO USE
--------------------------------------------
FOR ICU USE
<PAGE>
QUOTA SHARE REINSURANCE FOR ACCOUNT LLOYD'S SYNDICATES
UNDERWRITTEN BY I.R. POSGATE ESQ.
------------------------------------------------------
This Reinsurance is in respect of a Quota Share of the 1981
Account of Syndicate Nos. 126 and 129.
Subject to the same terms, clauses and conditions as the
original acceptances of the Syndicates and to follow the
settlements and agreement of the Reinsured in every respect.
It is agreed that Reinsurers hereunder shall be debited with
pro rata of the Reinsurance amount to close the 1981 Account
at 31st December, 1983, it being understood that Reinsurers
shall receive credit for the Reinsurance amount transferred
to the 1981 Account to cover outstanding liability as at
31st December, 1982 of the Reassured's 1980 and previous
Underwriting Accounts.
Quarterly adjustment of premium and claims.
35% Profit Commission calculated on the nett premium paid
hereunder, as per wording.
Original Nett Premium of the Reinsured less 2.5% brokerage
on O.N.P.
WGD/CT/10727
HEREON
WRITTEN LINES PERCENTAGES OF
-----------
PART
SIGNED LINES PERCENTAGES OF
-----------
PART
-------------------------------
[illegible]
1
<PAGE>
[Form illegible]
2
<PAGE>
-------------------------------------------
ALEXANDER HOWDEN INSURANCE BROKERS
LTD TREATY
____________________________________________
NO: ST8110727 16.8.02
--------------------------------------------
PHOTOGRAPHED
--------------------------------------------
NOTED
--------------------------------------------
WORDING COMPLETED
--------------------------------------------
15%
I.R. Posgate Esq.
--------------------------------------------
FOR LPSO USE
--------------------------------------------
FOR ICU USE
1
<PAGE>
QUOTA SHARE REINSURANCE FOR ACCOUNT LLOYD'S SYNDICATES
UNDERWRITTEN BY I.R. POSGATE ESQ.
------------------------------------------------------
This Reinsurance is in respect of a Quota Share of the 1982
Account of Syndicate NoS. 126 and 129.
Subject to the same terms, clauses and conditions as the
original acceptanceS of the SyndicateS and to follow the
settlements and agreement of the Reinsured in every respect.
It is agreed that Reinsurers hereunder shall be debited with
pro rata of the Reinsurance amount to close the 1982 Account
at 31st December, 1984, it being understood that Reinsurers
shall receive credit for the Reinsurance amount transferred
to the 1982 Account to cover outstanding liability as at
31st December, 1983 of the Reassured's 1981 and previous
Underwriting Accounts.
Quarterly adjustment of premium and claims.
35% Profit Commission calculated on the nett premium paid
hereunder, as per wording.
Original Nett Premium of the Reinsured less 2.5% brokerage
on O.N.P.
WGD/CT/10727
HEREON
WRITTEN LINES PERCENTAGES OF
-----------
PART
SIGNED LINES PERCENTAGES OF
-----------
PART
1
<PAGE>
[Form illegible]
2
<PAGE>
Appendix D
ALEXANDER & ALEXANDER SERVICES INC.
Promissory Note
$50,000,000 July 1, 1994
ALEXANDER & ALEXANDER SERVICES INC. (the
"Company"), a Maryland corporation, for value received,
hereby promises to pay to CENTRE REINSURANCE (BERMUDA)
LIMITED, or registered assigns, the principal amount of
FIFTY MILLION DOLLARS ($50,000,000) in five annual
installments of TEN MILLION DOLLARS ($10,000,000) each,
payable each July 1, commencing July 1, 1997 and ending July
1, 2001, together with interest on the unpaid principal
amount hereof, until paid in full, at the rate per annum
equal to the sum of the Base Yield (as defined below) plus
250 basis points, payable semi-annually on each January 1
and July 1, commencing January 1, 1995. This Note is
subject to prepayment, in whole or in part, at the option of
the Company as provided below.
1. Default. If any of the following events (an
-------
"Event of Default") shall occur and be continuing:
(a) if the Company shall default in the payment
of principal of or any interest on this Note for more
than 15 days after the same becomes due and payable; or
(b) if, within 60 days after the commencement of
legal proceedings against the Company seeking its
liquidation, rehabilitation, receivership, dissolution
or similar relief under any present or future statute,
law or regulation, such legal proceedings shall not
have been dismissed or all orders or proceedings there-
under affecting the operations or the business of the
Company stayed, or if the stay of any other order or
proceeding shall thereafter be set aside, or if, within
60 days after the appointment of any trustee, receiver,
rehabilitator or liquidator of it or all or any sub-
<PAGE>
stantial part of its properties, such appointment shall
not have been vacated,
then the holder of this Note may at its option, by written
notice to the Company, declare the unpaid balance of the
principal amount of this Note to be due and payable, where-
upon the same shall forthwith become due and payable, to-
gether with interest accrued thereon, without presentment,
demand, protest or notice, all of which are hereby waived.
2. Optional Prepayment with Yield Maintenance
------------------------------------------
Premium. The Notes shall be subject to prepayment, in whole
-------
at any time or from time to time in part in multiples of
$1,000,000 at the option of the Company, at 100% of the
principal amount so prepaid plus interest accrued thereon to
the prepayment date and the Yield Maintenance Premium, if
any, with respect to the amount so prepaid. The Company
shall give the holder of the Notes written notice of any
such optional prepayment not less than five business days
prior to the prepayment date, specifying such prepayment
date and the principal amount of the Notes to be prepaid on
such date. The Company shall deliver with each prepayment
an officer's certificate stating whether a Yield Maintenance
Premium is payable in connection with such prepayment and
setting forth the calculations made in making such determi-
nation.
No Yield Maintenance Premium shall be due in re-
spect of any prepayment of the Note that is made following
any cancellation of the reinsurance binders, dated July 1,
1994, each between Centre Reinsurance (Bermuda) Limited, as
reinsurer, and Alexander Stenhouse & Partners Ltd., as rein-
sured under one such binder, and Atlanta International
Insurance Company, American Special Risk Insurance Company
and Trent Insurance Company Limited, as reinsureds under the
other such binder, or any commutation thereof, in whole or
in part (in an amount not less than the amount of such pre-
payment), pursuant to the terms of such binder or any agree-
ment or policy giving effect thereto.
For the purpose of determining the applicable
Yield Maintenance Premium, the following terms have the
respective meanings specified below:
"Base Yield" shall mean the five year U.S.
Treasury Note rate as at July 1, 1994.
2
<PAGE>
"Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which commercial banks in
Hamilton, Bermuda or New York City are required or author-
ized to be closed.
"Called Principal" shall mean, with respect to any
Note, the principal of such Note that is to be prepaid (any
partial prepayment being applied in satisfaction of any
required payments of principal in order of their scheduled
due dates).
"Discounted Value" shall mean, with respect to the
Called Principal of any Note, the amount obtained by dis-
counting all Remaining Scheduled Payments with respect to
such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice
and at a discount factor (applied on a semiannual basis)
equal to the Reinvestment Yield with respect to such Called
Principal.
"Reinvestment Yield" shall mean, with respect to
the Called Principal of any Note, the yield to maturity
implied by (i) the yields reported, as of 10:00 A.M. (New
-
York City time) on the Business Day next preceding the Set-
tlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Telerate Service (or
such other display as may replace Page 678 on the Telerate
Service) for actively traded U.S. Treasury securities having
a maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date, or if such
yields shall not be reported as of such time or the yields
reported as of such time shall not be ascertainable,
(ii) the Treasury Constant Maturity Series yields reported,
--
for the latest day for which such yields shall have been so
reported as of the Business Day next preceding the
Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield shall be determined, if
necessary, by (a) converting U.S. Treasury bill quotations
-
to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between
-
reported yields.
3
<PAGE>
"Remaining Average Life" shall mean, with respect
to the Called Principal of any Note, the number of years
(calculated to the nearest one-twelfth year) obtained by
dividing (i) such Called Principal into (ii) the sum of the
- --
products obtained by multiplying (a) each Remaining Sched-
-
uled Payment of such Called Principal (but not of interest
thereon) by (b) the number of years (calculated to the near-
-
est one-twelfth year) which will elapse between the Settle-
ment Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with
respect to the Called Principal of any Note, all payments of
such Called Principal and interest thereon at the Base Yield
that would be due on or after the Settlement Date with
respect to such Called Principal if no payment of such
Called Principal were made prior to its scheduled due date.
"Settlement Date" shall mean, with respect to the
Called Principal of any Note, the date on which such Called
Principal is to be prepaid.
"Yield-Maintenance Premium" shall mean, with re-
spect to any Note, a premium equal to the excess, if any, of
the Discounted Value of the Called Principal of such Note
over the sum of (i) such Called Principal plus (ii) interest
- --
accrued thereon at the Base Yield as of (including interest
due on) the Settlement Date with respect to such Called
Principal. The Yield-Maintenance Premium shall in no event
be less than zero.
3. Note Register; Ownership of Notes. The Com-
---------------------------------
pany will keep in the City of New York a register in which
the Company will provide for the registration of Notes and
the registration of transfers of Notes. The Company may
treat the Person in whose name any Note is registered on
such register as the owner thereof for the purpose of re-
ceiving payment of the principal of and interest on such
Note and for all other purposes, whether or not such Note
shall be overdue, and the Company shall not be affected by
any notice to the contrary. Any other purported transfer
shall not be valid. All references in this Note to a "hold-
er" of any Note shall mean the Person in whose name such
Note is at the time registered on such register.
4. Transfer and Exchange of Notes. Upon surren-
------------------------------
der of any Note for registration of transfer or for exchange
to the Company at such office, the Company at its expense
4
<PAGE>
will execute and deliver in exchange therefor a new Note or
Notes as requested by the holder or transferee, which aggre-
gate the unpaid principal amount of such surrendered Note,
registered as such holder or transferee may request, of like
tenor.
5. Miscellaneous. No course of dealing and no
-------------
delay on the part of the holder of this Note in exercising
any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers and
remedies. No right, power or remedy conferred hereby upon
any holder hereof shall be exclusive of any other right,
power or remedy referred to herein or now or hereafter
available at law, in equity, by statute or otherwise. This
Note shall be governed by and construed and enforced in
accordance with the laws of the State of New York.
ALEXANDER & ALEXANDER SERVICES INC.
By
--------------------------------
5
<PAGE>
Exhibit B
---------
ALEXANDER & ALEXANDER SERVICES INC.
Promissory Note
$50,000,000 July 1, 1994
ALEXANDER & ALEXANDER SERVICES INC. (the
"Company"), a Maryland corporation, for value received,
hereby promises to pay to CENTRE REINSURANCE (BERMUDA)
LIMITED, or registered assigns, the principal amount of
FIFTY MILLION DOLLARS ($50,000,000) in five annual
installments of TEN MILLION DOLLARS ($10,000,000) each,
payable each July 1, commencing July 1, 1997 and ending July
1, 2001, together with interest on the unpaid principal
amount hereof, until paid in full, at the rate per annum
equal to the sum of the Base Yield (as defined below) plus
250 basis points, payable semi-annually on each January 1
and July 1, commencing January 1, 1995. This Note is
subject to prepayment, in whole or in part, at the option of
the Company as provided below.
1. Default. If any of the following events (an
"Event of Default") shall occur and be continuing:
(a) if the Company shall default in the payment
of principal of or any interest on this Note for more
than 15 days after the same becomes due and payable; or
(b) if, within 60 days after the commencement of
legal proceedings against the Company seeking its
liquidation, rehabilitation, receivership, dissolution
or similar relief under any present or future statute,
law or regulation, such legal proceedings shall not
have been dismissed or all orders or proceedings there-
under affecting the operations or the business of the
Company stayed, or if the stay of any other order or
proceeding shall thereafter be set aside, or if, within
60 days after the appointment of any trustee, receiver,
<PAGE>
rehabilitator or liquidator of it or all or any sub-
stantial part of its properties, such appointment shall
not have been vacated,
then the holder of this Note may at its option, by written
notice to the Company, declare the unpaid balance of the
principal amount of this Note to be due and payable, where-
upon the same shall forthwith become due and payable, to-
gether with interest accrued thereon, without presentment,
demand, protest or notice, all of which are hereby waived.
2. Optional Prepayment with Yield Maintenance
Premium. The Notes shall be subject to prepayment, in whole
at any time or from time to time in part in multiples of
$1,000,000 at the option of the Company, at 100% of the
principal amount so prepaid plus interest accrued thereon to
the prepayment date and the Yield Maintenance Premium, if
any, with respect to the amount so prepaid. The Company
shall give the holder of the Notes written notice of any
such optional prepayment not less than five business days
prior to the prepayment date, specifying such prepayment
date and the principal amount of the Notes to be prepaid on
such date. The Company shall deliver with each prepayment
an officer's certificate stating whether a Yield Maintenance
Premium is payable in connection with such prepayment and
setting forth the calculations made in making such determi-
nation.
No Yield Maintenance Premium shall be due in re-
spect of any prepayment of the Note that is made following
any cancellation of the reinsurance binders, dated July 1,
1994, each between Centre Reinsurance (Bermuda) Limited, as
reinsurer, and Alexander Stenhouse & Partners Ltd., as rein-
sured under one such binder, and Atlanta International
Insurance Company, American Special Risk Insurance Company
and Trent Insurance Company Limited, as reinsureds under the
other such binder, or any commutation thereof, in whole or
in part (in an amount not less than the amount of such pre-
payment), pursuant to the terms of such binder or any agree-
ment or policy giving effect thereto.
For the purpose of determining the applicable
Yield Maintenance Premium, the following terms have the
respective meanings specified below:
"Base Yield" shall mean the five year U.S.
Treasury Note rate as at July 1, 1994.
2
<PAGE>
"Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which commercial banks in
Hamilton, Bermuda or New York City are required or author-
ized to be closed.
"Called Principal" shall mean, with respect to any
Note, the principal of such Note that is to be prepaid (any
partial prepayment being applied in satisfaction of any
required payments of principal in order of their scheduled
due dates).
"Discounted Value" shall mean, with respect to the
Called Principal of any Note, the amount obtained by dis-
counting all Remaining Scheduled Payments with respect to
such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice
and at a discount factor (applied on a semiannual basis)
equal to the Reinvestment Yield with respect to such Called
Principal.
"Reinvestment Yield" shall mean, with respect to
the Called Principal of any Note, the yield to maturity
implied by (i) the yields reported, as of 10:00 A.M. (New
York City time) on the Business Day next preceding the Set-
tlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Telerate Service (or
such other display as may replace Page 678 on the Telerate
Service) for actively traded U.S. Treasury securities having
a maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date, or if such
yields shall not be reported as of such time or the yields
reported as of such time shall not be ascertainable,
(ii) the Treasury Constant Maturity Series yields reported,
for the latest day for which such yields shall have been so
reported as of the Business Day next preceding the
Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield shall be determined, if
necessary, by (a) converting U.S. Treasury bill quotations
to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between
reported yields.
3
<PAGE>
"Remaining Average Life" shall mean, with respect
to the Called Principal of any Note, the number of years
(calculated to the nearest one-twelfth year) obtained by
dividing (i) such Called Principal into (ii) the sum of the
products obtained by multiplying (a) each Remaining Sched-
uled Payment of such Called Principal (but not of interest
thereon) by (b) the number of years (calculated to the near-
est one-twelfth year) which will elapse between the Settle-
ment Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with
respect to the Called Principal of any Note, all payments of
such Called Principal and interest thereon at the Base Yield
that would be due on or after the Settlement Date with
respect to such Called Principal if no payment of such
Called Principal were made prior to its scheduled due date.
"Settlement Date" shall mean, with respect to the
Called Principal of any Note, the date on which such Called
Principal is to be prepaid.
"Yield-Maintenance Premium" shall mean, with re-
spect to any Note, a premium equal to the excess, if any, of
the Discounted Value of the Called Principal of such Note
over the sum of (i) such Called Principal plus (ii) interest
accrued thereon at the Base Yield as of (including interest
due on) the Settlement Date with respect to such Called
Principal. The Yield-Maintenance Premium shall in no event
be less than zero.
3. Note Reqister; Ownership of Notes. The Com-
pany will keep in the City of New York a register in which
the Company will provide for the registration of Notes and
the registration of transfers of Notes. The Company may
treat the Person in whose name any Note is registered on
such register as the owner thereof for the purpose of re-
ceiving payment of the principal of and interest on such
Note and for all other purposes, whether or not such Note
shall be overdue, and the Company shall not be affected by
any notice to the contrary. Any other purported transfer
shall not be valid. All references in this Note to a "hold-
er'' of any Note shall mean the Person in whose name such
Note is at the time registered on such register.
4. Transfer and Exchanqe of Notes. Upon surren-
der of any Note for registration of transfer or for exchange
to the Company at such office, the Company at its expense
4
<PAGE>
will execute and deliver in exchange therefor a new Note or
Notes as requested by the holder or transferee, which aggre-
gate the unpaid principal amount of such surrendered Note,
registered as such holder or transferee may request, of like
tenor.
5. Miscellaneous. No course of dealing and no
delay on the part of the holder of this Note in exercising
any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers and
remedies. No right, power or remedy conferred hereby upon
any holder hereof shall be exclusive of any other right,
power or remedy referred to herein or now or hereafter
available at law, in equity, by statute or otherwise. This
Note shall be governed by and construed and enforced in
accordance with the laws of the State of New York.
ALEXANDER & ALEXANDER SERVICES INC.
By
-------------------------------
5
<PAGE>
July 1, 1994
Atlanta International Insurance Company
700 Commercial Drive N.W. - Suite 100
Atlanta, Georgia 30325
American Special Risk Insurance Company
1700 Commerce Drive Northwest
Atlanta, Georgia 30318
Trent Insurance Company Limited
Dorchester House
Church Street
Hamilton, Bermuda
Ladies and Gentlemen:
Attached hereto as Exhibit A is a binder of reinsurance in respect
of certain losses that you will cede and we will accept as reinsurance on the
terms set forth therein. In order to expedite the transaction, you will on
July 1, 1994 pay the Loss Transfer Amount (as defined in such binder) and we
will accept the risks ceded and arrange for the issuance to you on July 1,
1994 by a bank acceptable to you of a letter of credit or trust agreement as
provided in such binder (the "Security").
In the event the reinsurance provided under the separate letter
agreement dated today between Alexander Stenhouse & Partners Ltd. and us
(the "AS&P Letter Agreement") is cancelled pursuant to the provisions of the
third or fourth paragraph thereof, we shall also cancel the reinsurance ceded
and accepted hereunder by written notice to you retroactive to the date of
inception as if the transaction had never occurred, in which event we will
deliver to Alexander Stenhouse & Partners Ltd. on its and your behalf the
Notes issued by Alexander & Alexander Services Inc. in the aggregate
principal amount of $50,000,000 in the form attached hereto as Exhibit B (the
"Notes") and terminate Alexander Stenhouse & Partners Ltd.'s obligations to
pay the Deferred Amount and any interest thereon under the AS&P Letter
Agreement in full satisfaction of our obligations hereunder and under the
AS&P Letter Agreement.
<PAGE>
This letter agreement shall be governed by the law of Bermuda. If
you are in agreement with the foregoing, please so indicate by signing in the
space provided below, whereupon this shall become a binding written agreement
between you and us.
Very truly yours,
CENTRE REINSURANCE
(BERMUDA) LIMITED
By: /s/ Jay S. Ralph
---------------------
Executive Vice
President
Accepted and Agreed:
ATLANTA INTERNATIONAL INSURANCE
COMPANY
By: /s/ Albert A. Skwiertz, Jr.
------------------------------
AMERICAN SPECIAL RISK INSURANCE
COMPANY
By: /s/ Daniel Osterhout
------------------------------
TRENT INSURANCE COMPANY LIMITED
By: /s/ Daniel Osterhout
------------------------------
2
<PAGE>
Exhibit A
---------
BINDER OF REINSURANCE
REINSUREDS: Atlanta International Insurance Company (as to Section A)
American Special Risk Insurance Company (as to Section B)
Trent Insurance Company Limited (as to Section C)
TYPE: Excess of Loss Reinsurance
----
EFFECTIVE
---------
DATE: This Agreement shall become effective 12:01 a.m., January 1,
---- 1994 and remain in force and in effect until all obligations
hereunder have been discharged.
SUBJECT
-------
BUSINESS: SECTION A:
-------- Settled Losses (within the meaning of the Reinsurance
Agreement hereinafter referenced) sustained by a Reinsured in
respect of the business covered under that certain Reinsurance
Agreement, dated as of January 1, 1989, by and between Atlanta
International Insurance Company and Centre Reinsurance (Bar-
bados) Limited, after exhaustion of the limits under such
Reinsurance Agreement, while such Agreement remains in force.
SECTION B:
Settled Losses (within the meaning of the Reinsurance
Agreement hereinafter referenced) sustained by a Reinsured in
respect of the business covered under that certain Reinsurance
Agreement dated as of January 1, 1989 by and between American
Special Risk Insurance Company and Centre Reinsurance
(Barbados) Limited, after exhaustion of the limits under such
Reinsurance Agreement, while such Agreement remains in force.
<PAGE>
SECTION C:
Settled Losses (within the meaning of the Reinsurance
Agreement hereinafter referenced) sustained by a Reinsured in
respect of the business covered under that certain Reinsurance
Agreement dated as of January 1, 1989, by and between Trent
Insurance Company Limited and Centre Reinsurance (Barbados)
Limited, after exhaustion of the limits under such Reinsurance
Agreement (collectively with the Reinsurance Agreements
referred to in Sections A and B, the "Existing Reinsurance
Agreements"), while such Agreement remains in force.
COMMUTATION
-----------
AND SUPERFUND
-------------
CHARGES: This Agreement shall not indemnify the Reinsured for any
------- commutation effected by or under the control of the Reinsured
of underlying liabilities in excess of $250,000 under any
inward or outward insurance or reinsurance contract covered
hereunder without the Reinsurer's prior written consent, which
consent shall not be unreasonably withheld. If a commutation
shall occur which is not effected by or under the control of
the Reinsured or if the amount of the commuted underlying
liabilities is $250,000 or less, the Reinsured shall
immediately notify the Reinsurer upon becoming aware of such
commutation. Settled Losses on the Subject Business shall be
deemed to include any amounts payable by a Reinsured or any of
its Affiliates in respect of any fees, taxes, charges or other
levies that may be imposed in respect of environmental
clean-up, CERCLA or Superfund exposures for which any
Reinsured would be responsible under the Subject Business
("Superfund Charges").
Any amounts agreed as payment or reported to the Reinsurer in
respect of commutations of inward insurance or reinsurance
contracts or payable as Superfund Charges shall be treated as
Covered Losses (as defined below) by the Reinsurer at the cash
value transferred, but shall be applied to the Reinsurer's
Aggregate
2
<PAGE>
Limit of Liability herein at its future value, which includes
any investment income which would reasonably have accrued on
such amounts between the commutation or settlement dates and
the date at which the commuted losses would have been expected
to be paid in full. For any Superfund Charges, such date will
be agreed by the Reinsured and the Reinsurer based on the
average projected clean-up dates for the sites involved in the
Superfund Charges.
In the event the foregoing adjustment in respect of Superfund
Charges does not operate so as to place each party in
substantially the same economic position as if such Superfund
Charges (and any benefit arising therefrom or relating
thereto) had not applied, this Agreement shall be equitably
adjusted. In the event the Reinsured and the Reinsurer are
unable to agree on such adjustment within 60 days of a demand
by either for consultation with respect to the same, either
may submit such matter for resolution pursuant to ARBITRATION
hereunder.
TERRITORY: This Agreement shall cover wherever the Reinsured's Subject
--------- Business covers.
COVERAGE: The Reinsurer shall indemnify the Reinsured up to the
-------- Aggregate Limit of Liability specified herein for Settled
Losses on Subject Business described in Section A, B and C
paid by the Reinsured on or after January 1, 1994 (col-
lectively "Covered Losses") in excess of the Reinsured's
Retention.
AGGREGATE
---------
LIMIT OF
--------
LIABILITY: The Reinsurer shall be liable for Covered Losses, in excess of
--------- the Reinsured's Retention under this Agreement, subject to a
maximum Aggregate Limit of Liability equal to $10 million for
the sum of all Covered Losses under Sections A, B and C.
3
<PAGE>
Notwithstanding the foregoing, the Reinsurer's liability under
this Agreement is further limited to $200 million less the
aggregate covered losses paid by the Reinsurer to Alexander
Stenhouse & Partners Ltd. ("AS&P") pursuant to the separate
reinsurance agreement, dated as of the date hereof, between
AS&P and the Reinsurer (the "AS&P Reinsurance Agreement").
In no event shall the sum of the Covered Losses paid by the
Reinsurer hereunder and the aggregate covered losses paid by
the Reinsurer under the AS&P Reinsurance Agreement exceed $200
million.
REINSUREDS'
-----------
RETENTION: The Reinsureds' Retention under this Agreement shall equal $73
--------- million, less the aggregate amount of the covered losses paid
after January 1, 1994 by AS&P under the AS&P Reinsurance
Agreement and applied to AS&P's retention thereunder, of
Covered Losses.
LOSS SETTLE-
------------
MENTS: in cash to the Reinsured or such other person as the Reinsured
----- may direct; or
in respect of Covered Losses under Section C only, at the
option of the Reinsurer, in securities acceptable to the Rein-
sured, to such Reinsured. Acceptable securities shall in-
clude, without limitation, Notes issued by Alexander &
Alexander Services Inc. to the Reinsurer in the aggregate
principal amount of $50,000,000 substantially in the form at-
tached hereto as Exhibit A, which by their terms are due and
payable at the time of such loss settlement or which have been
accelerated and are due and payable at the time of such loss
settlement (the "A&A Notes"). The A&A Notes shall be valued
at the face value thereof, plus interest accrued thereon, to
the date of such loss settlement.
LOSS TRANSFER
-------------
AMOUNT: $2 million, payable on July 1, 1994.
------
4
<PAGE>
COMMUTATION: This Agreement shall be commuted in whole whenever the AS&P
----------- Reinsurance Agreement shall be commuted in whole. In the
event of commutation in whole, the Reinsurer agrees to pay
AS&P on behalf of the Reinsureds and AS&P the amount provided
under the AS&P Reinsurance Agreement.
All payments made by the Reinsurer related to the commutation,
as set forth herein, shall constitute a complete and final
release of the Reinsurer and the Reinsureds in respect of all
of such party's obligations to the other under this Agreement
as of the effective date of the commutation.
TRUST
-----
AGREEMENT
---------
AND/OR LETTER
-------------
OF CREDIT: The Reinsurer agrees to provide the Reinsureds a Trust
--------- Agreement administered by a mutually agreed trustee and/or a
clean irrevocable and evergreen Letter of Credit, issued by a
mutually agreed bank, of which the Reinsureds shall be
beneficiary which shall secure in full all the liabilities of
the Reinsurer to the Reinsured, including reserves for losses
incurred but not reported, with respect to this Agreement as
shown on the reports required under REPORTS AND REMITTANCES.
Such Trust Agreement or Letter of Credit shall be established
under the laws of the State of New York.
The Reinsurer is responsible for all actual costs associated
with providing such Trust Agreement and/or Letter of Credit.
REPORTS AND
-----------
REMITTANCES: 1. The Reinsureds shall furnish to the Reinsurer:
-----------
i) within 45 days following the end of each quarter,
the reports required under the applicable Existing
Reinsurance Agreements.
5
<PAGE>
ii) Annually, a projection of Covered Losses incurred
but not reported.
2. The Reinsurer shall furnish to the Reinsureds within
forty-five (45) days after the close of each quarter:
i) a reconciliation of the Experience Account under the
AS&P Reinsurance Agreement from inception to the
close of the most recent preceding quarter,
including the portion thereof allocable to the
Reinsured.
ii) Trust Agreement and/or Letter of Credit inuring to
the benefit of the Reinsured as defined in TRUST
AGREEMENT AND/OR LETTER OF CREDIT for an amount
equal to the ceded unpaid Covered Losses as of the
end of the most recent calendar quarter.
3. Unless otherwise stated in this Agreement, all amounts
due under this Agreement shall be remitted within ten
(10) business days after receipt of a "final account
statement" from the Reinsured or the Reinsurer.
4. Any late payments by either party shall accrue interest
at a rate equal to the Yield on the one year United
States Treasury Bill existent on the most recent January
1 plus 250 basis points, unless otherwise agreed in
writing by the Reinsurer and the Reinsured.
5. Others to be agreed, including the definition of "final
account statement" (e.g., loss settlements, additional
premiums).
TAXES: Any and all taxes (other than income taxes) levied on premiums
----- or other payments under this Agreement (including, without
limitation, withholding taxes, excise taxes, stamp duties or
similar taxes) shall be for the
6
<PAGE>
account of the Reinsured under this Agreement, and the
Reinsured hereby agrees to indemnify the Reinsurer for any and
all payments made by the Reinsurer in respect of such taxes.
ARBITRATION: Any dispute arising out of the interpretation, performance or
----------- breach of this Agreement, including the formation or validity
thereof, shall be submitted for decision to a panel of three
arbitrators. Notice requesting arbitration must be in writing
and sent certified or registered mail, return receipt
requested.
One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator (the "Umpire") who shall preside at
the hearing. If either party fails to appoint its arbitrator
within thirty (30) days after being requested to do so by the
other party, the latter, after ten (10) days notice by
certified or registered mail of its intention to do so, may
appoint the second arbitrator.
If the two arbitrators are unable to agree upon the Umpire
within thirty (30) days of their appointment, the two
arbitrators shall request the American Arbitration Association
("AAA") to appoint the Umpire for the arbitration with the
qualifications set forth in this Article. If the AAA fails to
name an Umpire within 30 days, either party may apply to the
United States Federal Court for the Southern District of New
York to appoint an Umpire with those qualifications. The
Umpire shall promptly notify in writing all parties to the
arbitration of his selection.
All arbitrators shall be disinterested active or former
executive officers of insurance or reinsurance companies or
Underwriters at Lloyds's, London.
Within thirty (30) days after notice of appointment of all
arbitrators, the panel
7
<PAGE>
shall meet and determine timely periods for briefs, discovery
procedures and schedules for hearings.
The panel shall be relieved of all judicial formality and
shall not be bound by the strict rules of procedure and
evidence. Unless the panel agrees otherwise, arbitration
shall take place in Bermuda, but the venue may be changed when
deemed by the panel to be in the best interest of the arbi-
tration proceeding. Insofar as the arbitration panel looks to
substantive law, it shall consider the law of Bermuda. The
decision of any two arbitrators when rendered in writing shall
be final and binding. The panel is empowered to grant interim
relief as it may deem appropriate.
To the extent, and only to the extent, that the provisions of
this Agreement are ambiguous or unclear, the panel shall make
its decision considering the custom and practice of the
applicable insurance and reinsurance business. The panel
shall render its decision within sixty (60) days following the
termination of hearings which decision shall be in writing,
stating the reasons thereof.
Judgment upon the award may be entered in any court having
jurisdiction thereof.
Each party shall bear the expense of its own arbitrator and
shall jointly and equally bear with the other party the cost
of the third arbitrator. The remaining costs of the arbi-
tration shall be allocated by the panel. The panel may, at
its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to attorneys
fees, to the extent permitted by law.
OFFSET: The Reinsured and Reinsurer may offset any balance due from
------ one party to the other under this Agreement or any other
contract entered into between the Reinsured and the Reinsurer.
8
<PAGE>
Offset must include interest due to either party.
NO THIRD
--------
PARTY RIGHTS: This Agreement is solely between the Reinsureds and the
------------ Reinsurer and in no instance shall any other party have rights
under this Agreement.
GENERAL
-------
CONDITIONS: Ultimate Net Loss shall mean Covered Losses
---------- Net Retained Lines, where applicable
Loss Settlements
Errors and Omissions*
Inspection/Access to Records
Currency (US$, B.P.1.00 = US $1.4755, Can $1.00 = US $.7497)
Insolvency (of the Insured)
Service of Suit
Choice of Law - Bermuda
Insolvency Fund Exclusion
Intermediary (Brokerage = 0%)
No Assignment Without Consent, Such Consent
Not To Be Unreasonably Withheld
Mechanism for Tender of A&A Notes
Loss, Allocated Loss Adjustment
Expense and Unallocated Loss Adjustment
Expense to be defined.
WORDING: To be agreed.
-------
--------------------
* will address prompt payment of refunds due to either
party by reason of any error or omission.
9
<PAGE>
Exhibit B
---------
ALEXANDER & ALEXANDER SERVICES INC.
Promissory Note
$50,000,000 July 1, 1994
ALEXANDER & ALEXANDER SERVICES INC. (the
"Company"), a Maryland corporation, for value received,
hereby promises to pay to CENTRE REINSURANCE (BERMUDA)
LIMITED, or registered assigns, the principal amount of
FIFTY MILLION DOLLARS ($50,000,000) in five annual
installments of TEN MILLION DOLLARS ($10,000,000) each,
payable each July 1, commencing July 1, 1997 and ending July
1, 2001, together with interest on the unpaid principal
amount hereof, until paid in full, at the rate per annum
equal to the sum of the Base Yield (as defined below) plus
250 basis points, payable semi-annually on each January 1
and July 1, commencing January 1, 1995. This Note is
subject to prepayment, in whole or in part, at the option of
the Company as provided below.
1. Default. If any of the following events (an
"Event of Default") shall occur and be continuing:
(a) if the Company shall default in the payment
of principal of or any interest on this Note for more
than 15 days after the same becomes due and payable; or
(b) if, within 60 days after the commencement of
legal proceedings against the Company seeking its
liquidation, rehabilitation, receivership, dissolution
or similar relief under any present or future statute,
law or regulation, such legal proceedings shall not
have been dismissed or all orders or proceedings there-
under affecting the operations or the business of the
Company stayed, or if the stay of any other order or
proceeding shall thereafter be set aside, or if, within
60 days after the appointment of any trustee, receiver,
<PAGE>
rehabilitator or liquidator of it or all or any sub-
stantial part of its properties, such appointment shall
not have been vacated,
then the holder of this Note may at its option, by written
notice to the Company, declare the unpaid balance of the
principal amount of this Note to be due and payable, where-
upon the same shall forthwith become due and payable, to-
gether with interest accrued thereon, without presentment,
demand, protest or notice, all of which are hereby waived.
2. Optional Prepayment with Yield Maintenance
Premium. The Notes shall be subject to prepayment, in whole
at any time or from time to time in part in multiples of
$1,000,000 at the option of the Company, at 100% of the
principal amount so prepaid plus interest accrued thereon to
the prepayment date and the Yield Maintenance Premium, if
any, with respect to the amount so prepaid. The Company
shall give the holder of the Notes written notice of any
such optional prepayment not less than five business days
prior to the prepayment date, specifying such prepayment
date and the principal amount of the Notes to be prepaid on
such date. The Company shall deliver with each prepayment
an officer's certificate stating whether a Yield Maintenance
Premium is payable in connection with such prepayment and
setting forth the calculations made in making such determi-
nation.
No Yield Maintenance Premium shall be due in re-
spect of any prepayment of the Note that is made following
any cancellation of the reinsurance binders, dated July 1,
1994, each between Centre Reinsurance (Bermuda) Limited, as
reinsurer, and Alexander Stenhouse & Partners Ltd., as rein-
sured under one such binder, and Atlanta International
Insurance Company, American Special Risk Insurance Company
and Trent Insurance Company Limited, as reinsureds under the
other such binder, or any commutation thereof, in whole or
in part (in an amount not less than the amount of such pre-
payment), pursuant to the terms of such binder or any agree-
ment or policy giving effect thereto.
For the purpose of determining the applicable
Yield Maintenance Premium, the following terms have the
respective meanings specified below:
"Base Yield" shall mean the five year U.S.
Treasury Note rate as at July 1, 1994.
2
<PAGE>
"Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which commercial banks in
Hamilton, Bermuda or New York City are required or author-
ized to be closed.
"Called Principal" shall mean, with respect to any
Note, the principal of such Note that is to be prepaid (any
partial prepayment being applied in satisfaction of any
required payments of principal in order of their scheduled
due dates).
"Discounted Value" shall mean, with respect to the
Called Principal of any Note, the amount obtained by dis-
counting all Remaining Scheduled Payments with respect to
such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice
and at a discount factor (applied on a semiannual basis)
equal to the Reinvestment Yield with respect to such Called
Principal.
"Reinvestment Yield" shall mean, with respect to
the Called Principal of any Note, the yield to maturity
implied by (i) the yields reported, as of 10:00 A.M. (New
York City time) on the Business Day next preceding the Set-
tlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Telerate Service (or
such other display as may replace Page 678 on the Telerate
Service) for actively traded U.S. Treasury securities having
a maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date, or if such
yields shall not be reported as of such time or the yields
reported as of such time shall not be ascertainable,
(ii) the Treasury Constant Maturity Series yields reported,
for the latest day for which such yields shall have been so
reported as of the Business Day next preceding the
Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield shall be determined, if
necessary, by (a) converting U.S. Treasury bill quotations
to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between
reported yields.
3
<PAGE>
"Remaining Average Life" shall mean, with respect
to the Called Principal of any Note, the number of years
(calculated to the nearest one-twelfth year) obtained by
dividing (i) such Called Principal into (ii) the sum of the
products obtained by multiplying (a) each Remaining Sched-
uled Payment of such Called Principal (but not of interest
thereon) by (b) the number of years (calculated to the near-
est one-twelfth year) which will elapse between the Settle-
ment Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with
respect to the Called Principal of any Note, all payments of
such Called Principal and interest thereon at the Base Yield
that would be due on or after the Settlement Date with
respect to such Called Principal if no payment of such
Called Principal were made prior to its scheduled due date.
"Settlement Date" shall mean, with respect to the
Called Principal of any Note, the date on which such Called
Principal is to be prepaid.
"Yield-Maintenance Premium" shall mean, with re-
spect to any Note, a premium equal to the excess, if any, of
the Discounted Value of the Called Principal of such Note
over the sum of (i) such Called Principal plus (ii) interest
accrued thereon at the Base Yield as of (including interest
due on) the Settlement Date with respect to such Called
Principal. The Yield-Maintenance Premium shall in no event
be less than zero.
3. Note Reqister; Ownership of Notes. The Com-
pany will keep in the City of New York a register in which
the Company will provide for the registration of Notes and
the registration of transfers of Notes. The Company may
treat the Person in whose name any Note is registered on
such register as the owner thereof for the purpose of re-
ceiving payment of the principal of and interest on such
Note and for all other purposes, whether or not such Note
shall be overdue, and the Company shall not be affected by
any notice to the contrary. Any other purported transfer
shall not be valid. All references in this Note to a "hold-
er'' of any Note shall mean the Person in whose name such
Note is at the time registered on such register.
4. Transfer and Exchanqe of Notes. Upon surren-
der of any Note for registration of transfer or for exchange
to the Company at such office, the Company at its expense
4
<PAGE>
will execute and deliver in exchange therefor a new Note or
Notes as requested by the holder or transferee, which aggre-
gate the unpaid principal amount of such surrendered Note,
registered as such holder or transferee may request, of like
tenor.
5. Miscellaneous. No course of dealing and no
delay on the part of the holder of this Note in exercising
any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers and
remedies. No right, power or remedy conferred hereby upon
any holder hereof shall be exclusive of any other right,
power or remedy referred to herein or now or hereafter
available at law, in equity, by statute or otherwise. This
Note shall be governed by and construed and enforced in
accordance with the laws of the State of New York.
ALEXANDER & ALEXANDER SERVICES INC.
By
-------------------------------
5
<PAGE>
July 1, 1994
Centre Reinsurance (Bermuda) Limited
Cumberland House
One Victoria Street
Hamilton HM, HX, Bermuda
Ladies and Gentlemen:
We refer to our note, dated July 1, 1994, in the principal amount
of $50,000,000 in substantially the form attached hereto as Exhibit A (the
"Notes") purchased by you. This letter will serve to confirm our agreement
as follows:
1. You will not tender all or any portion of the Notes to
Alexander Stenhouse & Partners Ltd., its successors or assigns, in respect of
your obligations under the Reinsurance Agreement, effective as of January 1,
1994, between you and Alexander Stenhouse & Partners Ltd. or to Trent Insur-
ance Company Limited, its successors and assigns, in respect of your
obligations under the Reinsurance Agreement, effective as of January 1, 1994,
between you and Trent Insurance Company Limited and the other reinsureds
noted therein unless and until an Event of Default under the Notes shall have
occurred and be continuing.
If you are in agreement with the foregoing, please execute and
return a copy of this letter, whereupon this letter shall become a binding
agreement between you and us.
ALEXANDER & ALEXANDER
SERVICES INC.
By: /s/ Daniel Osterhout
------------------------
Name: Daniel Osterhout
Title: Senior Vice
President
Accepted and Agreed:
CENTRE REINSURANCE
(BERMUDA) LIMITED
By: /s/ Jay S. Ralph
------------------------
Name: Jay S. Ralph
Title: Executive Vice
President
<PAGE>
Exhibit A
---------
ALEXANDER & ALEXANDER SERVICES INC.
Promissory Note
$50,000,000 July 1, 1994
ALEXANDER & ALEXANDER SERVICES INC. (the
"Company"), a Maryland corporation, for value received,
hereby promises to pay to CENTRE REINSURANCE (BERMUDA)
LIMITED, or registered assigns, the principal amount of
FIFTY MILLION DOLLARS ($50,000,000) in five annual
installments of TEN MILLION DOLLARS ($10,000,000) each,
payable each July 1, commencing July 1, 1997 and ending July
1, 2001, together with interest on the unpaid principal
amount hereof, until paid in full, at the rate per annum
equal to the sum of the Base Yield (as defined below) plus
250 basis points, payable semi-annually on each January 1
and July 1, commencing January 1, 1995. This Note is
subject to prepayment, in whole or in part, at the option of
the Company as provided below.
1. Default. If any of the following events (an
"Event of Default") shall occur and be continuing:
(a) if the Company shall default in the payment
of principal of or any interest on this Note for more
than 15 days after the same becomes due and payable; or
(b) if, within 60 days after the commencement of
legal proceedings against the Company seeking its
liquidation, rehabilitation, receivership, dissolution
or similar relief under any present or future statute,
law or regulation, such legal proceedings shall not
have been dismissed or all orders or proceedings there-
under affecting the operations or the business of the
Company stayed, or if the stay of any other order or
proceeding shall thereafter be set aside, or if, within
60 days after the appointment of any trustee, receiver,
<PAGE>
rehabilitator or liquidator of it or all or any sub-
stantial part of its properties, such appointment shall
not have been vacated,
then the holder of this Note may at its option, by written
notice to the Company, declare the unpaid balance of the
principal amount of this Note to be due and payable, where-
upon the same shall forthwith become due and payable, to-
gether with interest accrued thereon, without presentment,
demand, protest or notice, all of which are hereby waived.
2. Optional Prepayment with Yield Maintenance
Premium. The Notes shall be subject to prepayment, in whole
at any time or from time to time in part in multiples of
$1,000,000 at the option of the Company, at 100% of the
principal amount so prepaid plus interest accrued thereon to
the prepayment date and the Yield Maintenance Premium, if
any, with respect to the amount so prepaid. The Company
shall give the holder of the Notes written notice of any
such optional prepayment not less than five business days
prior to the prepayment date, specifying such prepayment
date and the principal amount of the Notes to be prepaid on
such date. The Company shall deliver with each prepayment
an officer's certificate stating whether a Yield Maintenance
Premium is payable in connection with such prepayment and
setting forth the calculations made in making such determi-
nation.
No Yield Maintenance Premium shall be due in re-
spect of any prepayment of the Note that is made following
any cancellation of the reinsurance binders, dated July 1,
1994, each between Centre Reinsurance (Bermuda) Limited, as
reinsurer, and Alexander Stenhouse & Partners Ltd., as rein-
sured under one such binder, and Atlanta International
Insurance Company, American Special Risk Insurance Company
and Trent Insurance Company Limited, as reinsureds under the
other such binder, or any commutation thereof, in whole or
in part (in an amount not less than the amount of such pre-
payment), pursuant to the terms of such binder or any agree-
ment or policy giving effect thereto.
For the purpose of determining the applicable
Yield Maintenance Premium, the following terms have the
respective meanings specified below:
"Base Yield" shall mean the five year U.S.
Treasury Note rate as at July 1, 1994.
2
<PAGE>
"Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which commercial banks in
Hamilton, Bermuda or New York City are required or author-
ized to be closed.
"Called Principal" shall mean, with respect to any
Note, the principal of such Note that is to be prepaid (any
partial prepayment being applied in satisfaction of any
required payments of principal in order of their scheduled
due dates).
"Discounted Value" shall mean, with respect to the
Called Principal of any Note, the amount obtained by dis-
counting all Remaining Scheduled Payments with respect to
such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice
and at a discount factor (applied on a semiannual basis)
equal to the Reinvestment Yield with respect to such Called
Principal.
"Reinvestment Yield" shall mean, with respect to
the Called Principal of any Note, the yield to maturity
implied by (i) the yields reported, as of 10:00 A.M. (New
York City time) on the Business Day next preceding the Set-
tlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Telerate Service (or
such other display as may replace Page 678 on the Telerate
Service) for actively traded U.S. Treasury securities having
a maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date, or if such
yields shall not be reported as of such time or the yields
reported as of such time shall not be ascertainable,
(ii) the Treasury Constant Maturity Series yields reported,
for the latest day for which such yields shall have been so
reported as of the Business Day next preceding the
Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield shall be determined, if
necessary, by (a) converting U.S. Treasury bill quotations
to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between
reported yields.
3
<PAGE>
"Remaining Average Life" shall mean, with respect
to the Called Principal of any Note, the number of years
(calculated to the nearest one-twelfth year) obtained by
dividing (i) such Called Principal into (ii) the sum of the
products obtained by multiplying (a) each Remaining Sched-
uled Payment of such Called Principal (but not of interest
thereon) by (b) the number of years (calculated to the near-
est one-twelfth year) which will elapse between the Settle-
ment Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with
respect to the Called Principal of any Note, all payments of
such Called Principal and interest thereon at the Base Yield
that would be due on or after the Settlement Date with
respect to such Called Principal if no payment of such
Called Principal were made prior to its scheduled due date.
"Settlement Date" shall mean, with respect to the
Called Principal of any Note, the date on which such Called
Principal is to be prepaid.
"Yield-Maintenance Premium" shall mean, with re-
spect to any Note, a premium equal to the excess, if any, of
the Discounted Value of the Called Principal of such Note
over the sum of (i) such Called Principal plus (ii) interest
accrued thereon at the Base Yield as of (including interest
due on) the Settlement Date with respect to such Called
Principal. The Yield-Maintenance Premium shall in no event
be less than zero.
3. Note Reqister; Ownership of Notes. The Com-
pany will keep in the City of New York a register in which
the Company will provide for the registration of Notes and
the registration of transfers of Notes. The Company may
treat the Person in whose name any Note is registered on
such register as the owner thereof for the purpose of re-
ceiving payment of the principal of and interest on such
Note and for all other purposes, whether or not such Note
shall be overdue, and the Company shall not be affected by
any notice to the contrary. Any other purported transfer
shall not be valid. All references in this Note to a "hold-
er'' of any Note shall mean the Person in whose name such
Note is at the time registered on such register.
4. Transfer and Exchanqe of Notes. Upon surren-
der of any Note for registration of transfer or for exchange
to the Company at such office, the Company at its expense
4
<PAGE>
will execute and deliver in exchange therefor a new Note or
Notes as requested by the holder or transferee, which aggre-
gate the unpaid principal amount of such surrendered Note,
registered as such holder or transferee may request, of like
tenor.
5. Miscellaneous. No course of dealing and no
delay on the part of the holder of this Note in exercising
any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers and
remedies. No right, power or remedy conferred hereby upon
any holder hereof shall be exclusive of any other right,
power or remedy referred to herein or now or hereafter
available at law, in equity, by statute or otherwise. This
Note shall be governed by and construed and enforced in
accordance with the laws of the State of New York.
ALEXANDER & ALEXANDER SERVICES INC.
By
-------------------------------
5
<PAGE>
American International Group, Inc.
70 Pine Street
New York, New York 10270
June 30, 1994
Alexander & Alexander Services Inc.
1211 Avenue of the Americas
New York, New York 10036
Gentlemen:
We refer to Section 3.a.8 of the Stock Purchase
and Sale Agreement dated as of June 6, 1994 (the
"Agreement"). You have informed us that you propose to
enter into insurance and/or reinsurance transactions (the
"Policies") with Centre Reinsurance (Bermuda) Ltd. on the
terms and conditions set forth in the letter agreements
annexed hereto. We hereby confirm our previous advice to
you that Centre Reinsurance (Bermuda) Ltd. is a satisfactory
insurer within the meaning of Section 3.a.8. With respect
to the terms of the Policies themselves, we advise you that
they are satisfactory to us subject to your agreements that:
(1) So long as we hold any of the Series B Stock,
the Conversion Shares, or the Exchange Shares (as those
terms are defined in the Agreement), you will not without
our consent (which will not be unreasonably withheld or
delayed) cancel, terminate, commute (whether in whole or in
part, and whether by effecting a Partial Commutation under
the Policies, by otherwise acting in accordance with the
terms of the Policies, or otherwise), elect to include
additional exposures, or in any material respect modify the
Policies.
<PAGE>
-2-
(2) You will cause to be paid the Deferred Amount
(as defined in the attached letter agreements) on or before
October 31, 1994 and will, if we so request and if the
Deferred Amount has not been prior to the closing of the
transactions contemplated by the Agreement (the "Closing"),
cause such Deferred Amount to be paid in connection with
such Closing and Directly with proceeds therefrom.
Our acknowledgement that the Policies are
"satisfactory" within the meaning of Section 3.a.8 is
conditioned on your agreement to the terms set forth above.
Please confirm that agreement by signing in the space
provided below.
Very truly yours,
/s/ Edward E. Matthews
-----------------------------
Edward E. Matthews
Vice Chairman - Finance
ACCEPTED AND AGREED
AS OF JUNE 30, 1994:
--------------------
ALEXANDER & ALEXANDER SERVICES INC.
By: /s/Daniel Osterhout
-------------------------------
Name: Daniel Osterhout
Title: Senior Vice President
