[A&A Logo]
Dear Fellow Stockholders:
On behalf of Alexander & Alexander, I want to thank you for your continued
support of the Company.
In recent months, A&A has restructured its operations and taken other
actions to strengthen our financial position and to improve earnings. Fully
described in the 1994 Annual Report on Form 10-K and elsewhere, these actions
include significant expense reduction and reinvestment into information
technology, employee training and product development.
Having achieved our immediate objectives, we are now intensifying our focus
on growing revenues and profits, particularly in the United States. We are
taking aggressive, creative approaches that will permanently change the way we
win and retain our business.
In the following Proxy Statement, you are being asked to vote on several
items that can have an important effect on the momentum that we have
established. Items 3 and 4 involve equity-based compensation plans that reflect
our pay philosophy for executives and key employees. The philosophy is intended
to more closely align their financial interests with increasing stockholder
value. Your board of directors has already voted to link its compensation to
A&A's common stock price. Item 5 involves the equity-based non-employee
directors deferred stock ownership program.
The board recommends a vote in favor of these three matters as well as Item
6, which will permit a tax deduction for bonus payments to our most senior
managers. We ask that you vote against stockholder proposals described in the
Proxy Statement as Items 7 and 8.
Your board of directors and management look forward to personally meeting
those stockholders able to attend the Annual Meeting. If you have questions in
advance of the meeting, please contact our Vice President and Treasurer, Alan
Kershaw, at (410) 363-5873.
Sincerely,
Frank G. Zarb
Chairman of the Board, Chief Executive
Officer and President
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
The Annual Meeting of Stockholders of Alexander & Alexander Services Inc.
(the "Company") will be held at 9:30 a.m. (EST) on Thursday, May 18, 1995. The
meeting will be held at a new venue in the McGraw-Hill Building Auditorium, 1221
Avenue of the Americas, New York, N.Y. (enter on 49th Street between Avenue of
the Americas and 7th Avenue) for the following purposes:
Item 1: To elect 14 directors to the Board of Directors for the coming
year;
Item 2: To ratify the appointment of Deloitte & Touche LLP as independent
auditors for 1995;
Item 3: To approve and adopt the Company's 1995 Long-Term Incentive Plan;
Item 4: To approve and adopt the Company's Employee Discount Stock
Purchase Plan;
Item 5: To approve and adopt the Non-Employee Director Deferred Stock
Ownership Program;
Item 6: To approve and adopt the Company's Performance Bonus Plan for
Executive Officers;
Item 7: To consider and vote upon a stockholder proposal to permit
cumulative voting in the election of directors;
Item 8: To consider and vote upon a stockholder proposal to require
stockholder approval of severance arrangements for executives in
change of control situations; and
Item 9: To transact such other matters as may properly come before the
meeting and any adjournments thereof.
Stockholders of record of the Common Stock, Class A Common Stock and Class C
Common Stock of the Company at the close of business on March 17, 1995 are
entitled to notice of and to vote at the meeting and any adjournments thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD PROMPTLY. YOUR COOPERATION IS APPRECIATED SINCE A
MAJORITY OF THE OUTSTANDING SHARES ENTITLED TO VOTE MUST BE REPRESENTED, EITHER
IN PERSON OR BY PROXY, TO CONSTITUTE A QUORUM FOR PURPOSES OF CONDUCTING
BUSINESS.
By order of the Board of Directors,
Alice L. Russell
Corporate Secretary
April 11, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Proxy Statement...................................................................... 1
Voting Securities and Principal Holders.............................................. 1
Security Ownership of Certain Beneficial Owners...................................... 2
Security Ownership of Directors, Director Nominees and Executive Officers............ 3
Nominees for Election to the Board of Directors...................................... 4
Meetings of the Board of Directors and its Committees................................ 7
Director Compensation................................................................ 8
Report on Executive Compensation by the Compensation, Benefits and Nominating
Committee............................................................................ 10
Stock Performance Graph.............................................................. 15
Executive Compensation............................................................... 16
Certain Transactions................................................................. 24
Matters Submitted to Stockholders.................................................... 25
Item 1: Election of Directors...................................................... 25
Item 2: Ratification of Selection of Independent Auditors.......................... 25
Item 3: Directors' Proposal to Approve and Adopt 1995 Long-Term Incentive Plan..... 26
Item 4: Directors' Proposal to Approve and Adopt Employee Discount Stock Purchase
Plan....................................................................... 30
Item 5: Directors' Proposal to Approve and Adopt Non-Employee Director Deferred
Stock Ownership Program.................................................... 33
Item 6: Directors' Proposal to Approve and Adopt Performance Bonus Plan for
Executive Officers......................................................... 35
Item 7: Stockholder Proposal--Cumulative Voting.................................... 36
Item 8: Stockholder Proposal--Stockholder Approval of Change of Control
Arrangements............................................................... 38
Compliance with Section 16(a) of the Securities Exchange Act of 1934................. 39
Stockholder Proposals for 1996 Meeting............................................... 39
Other Matters........................................................................ 40
Appendix I: 1995 Long-Term Incentive Plan............................................ I-1
Appendix II: Employee Discount Stock Purchase Plan................................... II-1
Appendex III: Non-Employee Director Deferred Stock Ownership Program................. III-1
Appendix IV: Performance Bonus Plan for Executive Officers........................... IV-1
</TABLE>
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC.
1185 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
-------------------
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Alexander & Alexander Services Inc. (the
"Company") to be voted at its Annual Meeting of Stockholders which will be held
at the McGraw-Hill Building Auditorium, 1221 Avenue of the Americas, New York,
New York at 9:30 a.m., local time, on Thursday, May 18, 1995, and at any
adjournments thereof (the "Annual Meeting").
Shares represented by each proxy properly executed and returned will be
voted unless revoked. A stockholder may revoke a proxy at any time before it is
exercised by filing with the corporate secretary of the Company a written
revocation or a duly executed proxy bearing a later date or by voting in person
at the Annual Meeting. Any written notice revoking the proxy should be sent to
the attention of Alice L. Russell, Corporate Secretary, Alexander & Alexander
Services Inc., 10461 Mill Run Circle, Owings Mills, Maryland 21117.
This proxy statement and the accompanying form of proxy, together with the
Company's annual report, are being mailed to stockholders on or about April 11,
1995.
If a stockholder is the beneficial owner of the Company's Class A Common
Stock, a direction and proxy will be delivered to Montreal Trust Company, as
trustee, in connection with the shares beneficially owned by said stockholder
and held by the trustee. The trustee will vote the Class A Common Stock in
accordance with the directions received from the beneficial owners.
The cost of soliciting proxies will be borne by the Company. In addition to
the solicitation by mail, proxies may be solicited by officers, directors and
regular employees of the Company in person or by telephone, telegraph or
facsimile. The Company has retained D.F. King & Co., Inc. to assist in the
solicitation for a fee estimated at $20,000 plus reasonable expenses. The
Company may also reimburse brokers, custodians, nominees and other fiduciaries
for their reasonable expenses in forwarding proxy materials to principals.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Only holders of record of the Company's Common Stock, $1.00 par value
("Common Stock"), Class A Common Stock, $.0001 par value ("Class A Stock"), and
Class C Common Stock, $1.00 par value ("Class C Stock"), at the close of
business on March 17, 1995 are entitled to vote at the Annual Meeting. As of
that date, there were outstanding 41,752,988 shares of Common Stock, 2,115,997
shares of Class A Stock and 369,574 shares of Class C Stock. Such shares are
each entitled to one vote.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following sets forth information as of February 15, 1995, regarding
persons who, to the best of the Company's knowledge, beneficially own 5 percent
or more of the shares of the Company's Common Stock, Class A Stock, Class C
Stock together with their related holdings.
<TABLE>
<CAPTION>
PERCENTAGE PERCENT
AND CLASS NUMBER OF TOTAL
NAME AND ADDRESS OF STOCKHOLDER OF STOCK OF SHARES VOTING SHARES
<S> <C> <C> <C>
Southeastern Asset Management, Inc.(1) 12.63% 5,241,418 11.86%
Suite 900 Common Stock
6075 Poplar Avenue
Memphis, TN 38119
The Prudential Insurance Company of America(1) 10.11% 4,195,936 9.49%
Prudential Plaza Common Stock
Newark, NJ 07102-3777
8.79% 202,200 0%
Series A
Convertible
Preferred Stock
Norwest Corporation(1)(2) 7.65% 3,176,050 7.19%
Norwest Center Common Stock
Sixth and Marquette
Minneapolis, MN 55479
FMR Corp.(1)(3)(4) 6.6% 2,740,039 6.2%
82 Devonshire Street Common Stock
Boston, MA 02109
10.29% 236,600 0%
Series A
Convertible
Preferred Stock
Ontario Municipal Employees Retirement System(1) 57.93% 1,346,823 3.05%
Suite 1000 Class A Stock
One University Avenue
Toronto, Canada M5J 2P1
Trustees of the Alexander & Alexander U.K. 67.5% 249,980 .57%
Voluntary Equity Scheme(1) Class C Stock
145 Vincent Street
Glasgow, Scotland G2 5NX .31% 130,130 .29%
Common Stock
American International Group, Inc.(5) 100% 4,136,213 0%
70 Pine Street Series B
New York, NY 10270(5) Convertible
Preferred
Stock
</TABLE>
------------
(1) As reported on the Schedule 13G most recently filed by the stockholder with
the Securities and Exchange Commission ("SEC").
(2) Together with subsidiaries: Norwest Colorado, Inc. and Norwest Bank
Colorado, National Association.
(3) Together with subsidiaries Fidelity Management & Research Company and
Fidelity Management Trust Company.
(4) Also holds $2,242,000 of the Company's 11% Subordinated Convertible
Debentures, convertible at $39.00 per share into 57,487 shares of Common
Stock.
(5) As reported on Schedule 13D most recently filed by the stockholder with the
SEC, shares held through subsidiaries: American Home Assurance Company,
Commerce and Industry Insurance Company and The Insurance Company of the
State of Pennsylvania. Shares of Series B Convertible Preferred Stock are
convertible into shares of the Company's voting stock. Pursuant to the terms
of the Series B Convertible Preferred Stock, a holder may convert shares up
to a maximum 9.9% of the outstanding voting stock of the Company.
2
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, DIRECTOR NOMINEES
AND EXECUTIVE OFFICERS
As to the beneficial ownership of the Company's Common Stock and Class A
Stock, the following table sets forth information as of March 17, 1995,
regarding each director, director nominee and named executive officer reported
under the caption "Executive Compensation," and all directors, director nominees
and executive officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK CLASS A STOCK
BENEFICIALLY SUBJECT TO BENEFICIALLY
NAME OWNED(1)(2) OPTIONS(3) OWNED
<S> <C> <C> <C>
Frank G. Zarb(4) 272,141 150,000 --
John A. Bogardus, Jr 90,635 -- --
Kenneth Black, Jr. (5) 12,350 -- --
Robert E. Boni 141,785 -- --
W. Peter Cooke 472 -- --
E. Gerald Corrigan 785 -- --
Kenneth J. Davis 10,023 26,150 --
Joseph L. Dionne 1,785 -- --
Gerald R. Ford 785 -- --
Peter C. Godsoe 868 -- --
Angus M. M. Grossart 2,940 -- --
Maurice H. Hartigan 785 -- --
James S. Horrick -- 32,600 4,764
James B. Hurlock 885 -- --
Ronald A. Iles 32,195 55,601 --
Tinsley H. Irvin 39,991 205,946 --
Edward F. Kosnik -- -- --
Vincent R. McLean 11,737 -- --
Dennis L. Mahoney -- -- --
James D. Robinson III 2,785 -- --
Michael K. White 644 146,425 --
William M. Wilson 2,840 83,925 26,791
All directors, director nominees and executive
officers as a group, (30 persons)(6)(7) 678,561 820,847 31,555
</TABLE>
------------
(1) Includes the number of shares: (i) that are held directly or indirectly for
the benefit of the individuals listed or directly for the benefit of members
of an individual's family as to which beneficial ownership is disclaimed;
(ii) that are held in the Company Trust; (iii) that represent such
individuals' interests in shares vested as of December 31, 1994, in the
stock fund under the Company's Thrift Plan or similar plans; and (iv) that
represent restricted stock that may vest in the future.
(2) Beginning in 1995, annual fees for non-employee directors will generally not
be currently paid. Of the shares reported, the following shares represent
the Common Stock reference value of fees so deferred: Dr. Black--785 shares,
Mr. Bogardus--785 shares, Dr. Boni--785 shares, Mr. Cooke--472 shares,
(Footnotes continued on following page)
3
<PAGE>
(Footnotes continued from preceding page)
Mr. Corrigan--785 shares, Mr. Dionne--785 shares, President Ford--785
shares, Mr. Godsoe--368 shares, Mr. Grossart--472 shares, Mr. Hartigan--785
shares, Mr. Hurlock--785 shares, Mr. McLean--785 shares, Mr. Robinson
785--shares and Mr. Wilson--472 shares. In addition, 140,000 shares
represent the Common Stock reference value of a deferred special
compensation award to Dr. Boni, and 11,065 shares, 2,468 shares and 10,752
shares represent the Common Stock reference value of the present value of
the accrued benefit for Dr. Black, Messrs. Grossart and McLean,
respectively, under the Non-Employee Director Retirement Plan which was
terminated effective January 1, 1995. (See section captioned "Director
Compensation" for further information).
(3) Represents shares which are subject to options exercisable within 60 days
from March 17, 1995.
(4) The 150,000 shares of Common Stock subject to stock options reported by Mr.
Zarb became exercisable on March 8, 1995 as a result of acceleration due to
specified target price of the Company's Common Stock being sustained (see
section captioned "Option Grants in 1994" for further information).
(5) Dr. Black will serve as emeritus director from the date of the Annual
Meeting and until the Company's 1996 annual meeting of stockholders
(6) Mr. Wilson beneficially owns 1.3 percent of the Class A Stock. No other
individual director, director nominee or executive officer beneficially owns
more than 1 percent of any class of the Company's voting shares. All
officers and directors as a group own approximately 1.7 percent of the
Common Stock, approximately 1.5 percent of the Class A Stock, none of the
Class C Stock and approximately 1.6 percent of the total outstanding voting
shares.
(7) Does not include 520 shares, 92 shares and 28 shares of Common Stock and
1,000 shares, 176 shares and 53 shares of Class C Stock held under the U.K.
Voluntary Equity Scheme attributed to Messrs. Davis, Iles and Mahoney,
respectively, none of whom have any present voting or dispositive power.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FRANK G. ZARB, 60, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, PRESIDENT AND
DIRECTOR.
Mr. Zarb has served as chairman of the board, chief executive officer and
president of the Company since June 1994. From November 1993 until joining the
Company, he served as vice chairman and group chief executive officer of The
Travelers Inc. He was chairman and chief executive officer of Smith Barney Inc.
and Smith Barney, Harris Upham & Co. Incorporated from November 1988 to June
1993, and president of such corporations from June 1989 to June 1993. From 1978
to 1988 he was a general partner at Lazard Freres & Co. (an investment banking
firm). Previously, he served in the United States Government as Administrator
for the Federal Energy Administration from 1974 to 1977; Assistant to the
President of the United States for Energy Affairs from 1975 to 1977; Associate
Director of the United States Office of Management and Budget from 1973 to 1974;
and United States Assistant Secretary of Labor from 1971 to 1972. He has been a
director of the Company since June 1994. Mr. Zarb is also a director of the
Securities Investor Protection Corporation, and Foamex International, Inc. and a
member of the Board of Trustees of Hofstra University and the Gerald R. Ford
Foundation. He is a member of the New York Stock Exchange Nominating Committee,
and serves on the U.S. Enrichment Corporation's Board of Directors.
ROBERT E. BONI, 67, DIRECTOR
Dr. Boni is a retired chairman of the board and chief executive officer of
Armco Inc., having held these positions from February 1986 to November 1990 and
February 1985 to April 1990, respectively. He has been a director of the Company
since 1988 and served as non-executive chairman of its board of directors from
January 1994 until June 1994. He is also a director of Maritrans GP Inc.
W. PETER COOKE, 63, DIRECTOR
Mr. Cooke has served as the chairman of the World Regulatory Advisory
Practice of Price Waterhouse since January 1989. Prior to joining Price
Waterhouse, Mr. Cooke was associate director of
4
<PAGE>
The Bank of England and held various executive management positions with the
bank since joining in 1955. He has been a director of the Company since July
1994. He is the deputy chairman of the Housing Corporation, the U.K.
governmental agency responsible for channeling government resources to the
social housing sector. He is also a director of Safra Republic Holdings.
E. GERALD CORRIGAN, 53, DIRECTOR
Mr. Corrigan has served as chairman, International Advisors of Goldman,
Sachs & Co. since January 1994. From January 1985 until July 1993, he was
president and chief executive officer of the Federal Reserve Bank of New York.
Mr. Corrigan has been a director of the Company since January 1995. He is also
the non-executive chairman of the board of directors of the Russian-American
Enterprise Fund, a position to which he was appointed by President Clinton. He
is the U.S. co-chairman of the Russian American Bankers Forum, a group involved
in the development of a contemporary banking and financial system in the Russian
Federation.
JOSEPH L. DIONNE, 61, DIRECTOR
Mr. Dionne has served as chairman of the board of directors and chief
executive officer of McGraw-Hill, Inc. since 1988 and 1983, respectively. He has
served in various executive and management positions since joining McGraw-Hill,
Inc. in 1967. He has been a director of the Company since July 1994. He is also
a director of The Equitable Life Assurance Society of the United States, The
Equitable Companies, Incorporated and The Harris Corporation.
GERALD R. FORD, 81, DIRECTOR
The Honorable Gerald R. Ford was President of the United States from August
1974 through January 1977, having served as Vice President of the United States
from December 1973 through August 1974. He is a lecturer and a business
consultant to several corporations. President Ford has been a director of the
Company since October 1994. He is also a director of The Travelers Inc. and an
advisory director to Texas Commerce Bancshares, Inc. and American Express
Company.
PETER C. GODSOE, 55, DIRECTOR
Mr. Godsoe has served as chairman of the board and chief executive officer
of The Bank of Nova Scotia since January 1995 and January 1993, respectively. He
previously served as the deputy chairman and president since January 1993 and
January 1992, respectively. Since 1966, he has held various other positions with
the bank, including vice chairman from 1983 to 1992 and chief operating officer
during 1992. Mr. Godsoe has been a director of the Company and of Alexander &
Alexander/Reed Stenhouse Companies Limited ("A&A/RSC"), the Company's retail
broking subsidiary in Canada, since 1989.
ANGUS M.M. GROSSART, 57, DIRECTOR
Mr. Grossart has served as the chairman and managing director of Noble
Grossart Limited, a United Kingdom merchant bank, since 1969. Mr. Grossart has
been a director of the Company since 1985. He is the chairman of Scottish
Investment Trust plc and deputy chairman of Edinburg Fund Managers plc. He is
also a director of the Royal Bank of Scotland plc and American Trust plc.
MAURICE H. HARTIGAN II, 55, DIRECTOR
Mr. Hartigan II is a retired senior managing director of Chemical Banking
Corporation in New York, where he headed the North America Division of
Chemical's Global Bank from January 1992 until his retirement in February 1995.
He served in various executive and management positions with the bank since
joining in 1965. He has been a director of the Company since October 1994.
5
<PAGE>
JAMES B. HURLOCK, 61, DIRECTOR
Mr. Hurlock is a partner and has served as chairman of the management
committee for White & Case, an international law firm headquartered in New York
since 1967 and 1980, respectively. He joined the firm in 1959, and has served as
the resident partner of the firm's offices in Brussels, Paris, and London. He
has been a director of the Company since October 1994.
RONALD A. ILES, 59, SENIOR VICE PRESIDENT AND DIRECTOR
Mr. Iles has served as chairman of Alexander & Alexander Services U.K. plc,
the parent of the Company's European operations and as a senior vice president
of the Company since 1993 and 1985, respectively. In January 1995, Mr. Iles was
appointed chairman of the Alexander Howden Group Ltd., an entity formed from the
merger of the Company's specialist and reinsurance broking operations. Since
joining the predecessor entity of Alexander Howden Reinsurance Brokers in 1957,
Mr. Iles has held various executive management positions, including chairman
from 1981 to December 1994. He has been a director of the Company since January
1995.
EDWARD F. KOSNIK, 50, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
DIRECTOR
Mr. Kosnik has served as executive vice president and chief financial
officer of the Company since August 1994. Before joining the Company, he was
chairman of the board, president and chief executive officer of JWP, Inc., a
global services company, from April 1993 to February 1994, and executive vice
president and chief financial officer from December 1992 to April 1993. From
1987 to 1992, he was president and chief executive officer of Sprague
Technologies Inc., a global manufacturer of electronic components. From 1983 to
1987, he served as executive vice president and chief financial officer of Penn
Central Corporation. He has been a director of the Company since March 1995. He
is also a director of Buckeye Management Company.
VINCENT R. MCLEAN, 63, DIRECTOR
Mr. McLean is a retired officer of Sperry Corporation, a diversified
manufacturing concern, having served as executive vice president and chief
financial officer from 1983 to 1985. He has been a director of the Company since
1980. He is also a director of William Penn Life Insurance Co. of New York and
Banner Life Insurance Company.
JAMES D. ROBINSON III, 59, DIRECTOR
Mr. Robinson III has served as president of J.D. Robinson Inc., a strategic
advisory and private investment firm, since February 1993. From 1977 to February
1993 he served as chairman of the board and chief executive officer of American
Express Company, having held various executive management positions since
joining such corporation in 1970. He has been a director of the Company since
July 1994. He is also a director of the Coca-Cola Company, Bristol-Myers Squibb
Company, First Data Corporation, New World Communications Group and Union
Pacific Corporation.
EMERITUS DIRECTORS
Emeritus directors may be designated by the Board of Directors from time to
time on an annual basis. There were no designated emeritus directors during
1994. Effective as of the date of the Annual Meeting, Dr. Kenneth Black, Jr.
will serve as an emeritus director until the date of the Company's 1996 annual
meeting of stockholders. Dr. Black, 70, has been a director of the Company since
1984. He is the Regents' Professor Emeritus of Insurance at Georgia State
University. Dr. Black is also a director of Haverty Furniture Stores, Inc.,
Scudder Variable Life Insurance Fund and USLIFE Corporation.
6
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors and its committees met a total of 45 times during
1994. The full board met a total of 11 times. All directors attended 79% or more
of the aggregate number of meetings of the board and its committees on which
they served. Of the directors standing for re-election who served for the full
1994 calendar year, attendance at meetings of the board and committees on which
each such director served was as follows: Dr. Boni, 41 of 42 meetings; Mr.
Godsoe, 23 of 30 meetings; Mr. Grossart, 21 of 21 meetings; and Mr. McLean, 44
of 45 meetings. All directors standing for re-election who were appointed since
the last annual meeting attended all board and committee meetings held in 1994
since their appointment.
The following are the current members and functions of the standing
committees of the Board of Directors:
AUDIT COMMITTEE. This committee assists the Board of Directors in exercising
its fiduciary responsibilities for oversight of audit and related matters,
including corporate accounting, reporting and control practices. It is
responsible for recommending to the Board of Directors the independent auditors
to be employed for the following year. The Audit Committee meets periodically
with management, financial personnel, internal auditors and the independent
auditors to review internal accounting controls and auditing and financial
reporting matters. The independent auditors and the internal auditors have
unrestricted access to the Audit Committee. This committee consists of four non-
employee directors: Messrs. McLean (chair), Bogardus, Hurlock and Hartigan II.
The committee met six times during 1994.
COMPENSATION, BENEFITS AND NOMINATING COMMITTEE. Effective January 1, 1995,
the Compensation and Benefits Committee (the "CBC") was combined with the
Nominating Committee. This committee is responsible for overseeing the Company's
executive compensation programs. It administers certain compensation and benefit
plans designated by the Board of Directors and approves annual compensation and
long-term incentive compensation for executive officers and certain other senior
executives of the Company and its subsidiaries. This committee is also
responsible for recommending nominees for election to the Board of Directors and
will consider candidate recommendations from stockholders. Stockholders wishing
to recommend prospective nominees for the committee's consideration should
submit such recommendations in writing to: Alexander & Alexander Services Inc.,
1185 Avenue of the Americas, NY, NY 10036, Attn: Chairman, Compensation,
Benefits and Nominating Committee. This committee consists of five non-employee
directors: Dr. Black (chair), Dr. Boni, Messrs. Corrigan and Dionne, and
President Ford. The CBC met fourteen times during 1994, and the Nominating
Committee met twice during 1994.
EXECUTIVE COMMITTEE. This committee has the authority to act for the Board
of Directors on most matters during intervals between the board's meetings and
has additional responsibilities regarding oversight of Company policy and
management controls. This committee consists of seven directors: Messrs. Boni
(chair), Black, Corrigan, Dionne, Hartigan II, McLean and Zarb. The committee
met nine times during 1994.
FINANCE/INVESTMENT COMMITTEE. This committee monitors the Company's
financial management and advises the Board of Directors on related matters. This
committee consists of six directors: Messrs. Godsoe (chair), Cooke, Grossart,
Iles, Robinson III and Wilson. The committee met three times during 1994.
PUBLIC POLICY AND ETHICS COMMITTEE. Effective February 1995, the Board of
Directors established the Public Policy and Ethics Committee. This committee is
responsible for overseeing the Company's continuing program relating to
standards of business conduct for its employees. This committee consists of five
directors: President Ford (chair) and Messrs. Cooke, Iles, Robinson III and
Zarb.
7
<PAGE>
DIRECTOR COMPENSATION
Set forth below is a description of the compensation provided to
non-employee directors (including Dr. Boni) for services rendered during 1994,
and a discussion of the Company's new compensation program for such non-employee
directors for services rendered after 1994. Like the Company's redesigned
programs for its executive officers and other key employees, the new director
program emphasizes equity-based compensation intended to encourage the creation
of value for stockholders.
During 1994, each director who was not also an employee of the Company or
any of its subsidiaries received an annual retainer of $25,000, $5,000 for each
committee for which such director served as the chair, and a fee of $1,000 for
each board and committee meeting attended. A director whose work exceeded
certain specified time levels received additional compensation. In this
connection, Dr. Black received an additional $1,000 in fees for work relating to
the Nominating Committee and Mr. McLean received an additional $24,000 in fees
for work relating to the Audit Committee.
Mr. Wilson, who will serve as a director until the Annual Meeting, also
received B.P.40,000 under a consulting agreement with the Company, which will
continue through at least December 1995. Mr. Godsoe received an annual retainer
of Canadian $25,000 in 1994 as a non-employee director of A&A/RSC, the Company's
Canadian subsidiary. In addition to reimbursement of his out-of-pocket expenses
Mr. Grossart also received a weekly stipend of B.P.50 for other expenses during
the first eleven months of 1994.
During 1994, Dr. Boni served as the non-executive chairman of the board. In
this capacity, he was assigned the task of identifying and hiring a new chief
executive officer for the Company and taking any and all actions necessary or
appropriate to accomplish that task. Because the scope of such services could
not be predetermined, the Board of Directors initially approved compensation for
these services of $100,000, but expressly reserved the right to award Dr. Boni
additional compensation. In November 1994, in recognition of (i) the fact that
the task presented to Dr. Boni vastly exceeded expectations, including requiring
the attainment of a substantial equity investment in the Company, (ii) his
outstanding achievements, and (iii) his continued services as a consultant to
the Company through December 31, 1994 to help complete the tasks he had begun,
the board approved a special compensation award for Dr. Boni. Pursuant to the
terms of this award, Dr. Boni is entitled to receive the proceeds from an
account (the "Special Account") established to record his interest in a grantor
trust created by the Company which is subject to the claims of the Company's
creditors (the "Company Trust"). To fund the Special Account, the Company
contributed 140,000 shares of the Company's Common Stock to the Special Account.
The independent trustee of the Company Trust (the "Trustee") or an investment
manager appointed by the Company (a "Manager") may sell the Common Stock
credited to the Special Account, except that (i) 46,667 of such shares may not
be sold until October 1, 1995 or until the Company's Common Stock reaches a
target price of $25.00 per share, and (ii) 46,666 of such shares may not be sold
until October 1, 1996 or a target price of $30.00 is reached. (These
restrictions will also earlier lapse upon Dr. Boni's death or a change of
control of the Company.) Dr. Boni will receive a distribution from the Company
Trust of any shares of Common Stock held in the Separate Account six months
following his cessation of services as a member of the board. To the extent that
the Special Account holds assets other than Common Stock, such assets will
generally be distributed immediately following the date Dr. Boni ceases to be a
member of the board (or earlier at the discretion of the Company's chief
executive officer).
Beginning in 1995, each non-employee director will receive a single fee of
$40,000 for all services as a director (the "Annual Fee"), regardless of the
committee services such director provides. The Annual Fee will generally not be
paid currently to any director. Instead, payment of such Annual Fee will be
deferred pursuant to the terms of the Non-Employee Directors Deferred Stock
Ownership Program (the "NEDD Plan"), which is being presented to stockholders
for approval at the Annual Meeting and which is described in greater detail
under the caption, "Directors' Proposal to Approve the Non-Employee Director
Deferred Stock Ownership Plan." Such deferrals will initially be valued by
8
<PAGE>
reference to shares of the Company's Common Stock. Under the NEDD Plan, the
Company will semi-annually contribute to the Company Trust shares having a then
fair market value of approximately one-half of the director's annual fee, which
will be allocated to an account established for each director (a "Director's
Account"), provided that to the extent a director has an immediate tax liability
due to a contribution to the Company Trust, such director will receive a cash
payment equal to the amount of such liability and the value of the shares
contributed will be reduced by a like amount.
Shares contributed to a Director's Account may be sold by the Trustee after
they have been held in the Company Trust for one year (or earlier upon a change
of control of the Company) at the direction of an Eligible Director given during
a window period and more than six months prior to the effective date of such
sale. Any shares of Common Stock or other assets held in a Director's Account
will be distributed following the cessation of the Eligible Director's services
as a member of the board. To the extent that a Director's Account holds assets
other than Common Stock, such assets may be distributed prior to the time the
Eligible Director ceases to be a member of the board if such Eligible Director
incurs a financial hardship. Notwithstanding the foregoing, dividends on Common
Stock held in a Director's Account will be passed through to each director as
soon as practicable following the date received by the Company Trust.
During 1994, the Company maintained the Non-Employee Directors Retirement
Plan (the "Retirement Plan") for the benefit of non-employee directors. Under
the Retirement Plan, a non-employee director who completed at least ten years of
service would receive an annual retirement benefit equal to the annual benefit
in effect at the time of such director's retirement. This benefit would be paid
for the longer of 10 years or the lifetime of the director.
In connection with the adoption of the NEDD Plan, the Board of Directors
terminated the Retirement Plan and the Company made special contributions to the
Company Trust in respect of those non-employee directors who, at December 31,
1994, had completed at least seven and one-half years of service (the "Minimum
Service"). (The termination of the Retirement Plan had no effect on the benefits
of directors who had already retired with vested rights.) For each director who
had completed ten years of service, the Company made a contribution equal to the
full present value of the director's accrued retirement benefits. For each
director who had completed at least the Minimum Service but not ten years of
service, the Company made a contribution equal to two-thirds of such present
value. The Company made no special contribution for any director with less than
the Minimum Service. Based on the length of their service as directors, the
Company made the following contributions, subject to the approval of the NEDD
Plan by stockholders at the Annual Meeting, to the Company Trust for the
following directors: Dr. Black, 11,065 shares; Mr. McLean, 10,752 shares and Mr.
Grossart, 2,468 shares, plus a cash payment of $31,757 to satisfy Mr. Grossart's
U.K. tax liability on the shares contributed to the Company Trust. Such shares
(or the value derived therefrom) will be distributed to each such director
following the cessation of his membership on the board.
Each director is entitled to direct the Trustee as to how to vote the shares
of Company Stock held in an account for his or her benefit.
Directors who are also employees of the Company or any subsidiary receive no
additional compensation for their services as directors.
9
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
BY THE COMPENSATION, BENEFITS AND NOMINATING COMMITTEE
The Company's compensation program for its executive officers is
administered and reviewed by the Compensation, Benefits and Nominating Committee
(the "CBNC") of the Board of Directors. The CBNC is comprised of five outside
directors, none of whom is an employee or former employee of the Company or a
director of another corporation that requires specific disclosure of such
relationship in this proxy statement.
COMPENSATION PHILOSOPHY
During 1994, the Board of Directors of the Company effected significant
changes in the Company's management. The board's goals were to address the
Company's financial underperformance and to reposition the Company to deal with
a rapidly changing business environment. By reason of these actions, the CBNC
recognized that the 1994 compensation structure had to be responsive to the
Company's immediate need to attract highly qualified personnel capable of
achieving the board's mandate and to effectuate a smooth transition in
management and, where necessary and appropriate, to make certain adjustments to
the usual compensation philosophy.
In determining the compensation payable to the Company's executive officers,
the CBNC seeks to achieve the following objectives through a combination of base
and variable compensation:
. Pay competitively--Provide a total compensation opportunity that is
consistent with competitive practices, enabling the Company to attract and
retain qualified executives;
. Pay for performance--Create a direct link between the compensation payable
to each executive officer and the financial performance both of the
Company generally and of the specific business unit or units for which the
executive is responsible. The amounts payable with respect to the
components of an individual's compensation will change from year to year,
depending on that financial performance; and
. Executives as Stockholders--Create a common interest between executive
officers and the Company's stockholders through the use of stock options
and other stock awards that link a portion of each executive officer's
compensation opportunity directly to the value of the Company's common
stock.
As part of the 1994 review of the Company's overall operating strategy, the
compensation program for the key employees of the Company and its subsidiaries
(including the Company's executive officers) was redesigned. This program, which
is being implemented in 1995, reinforces the tenets of the CBNC's compensation
philosophy but increases the emphasis on variable compensation and the rewards
payable for superior performance. In addition, to further align the interests of
management with those of stockholders, new equity based programs are being
submitted to stockholders for approval at the Annual Meeting, and a stock
ownership policy was adopted by the Company that strongly encourages senior
management to own a specific amount of the Company's Common Stock.
The programs which implement the CBNC's compensation philosophy have been
developed with the assistance of outside consultants and counsel. The CBNC will
continue to annually review the Company's compensation policies and programs in
light of its philosophy and of competitive practices in the United States and in
those foreign countries in which executive officers of the Company reside and/or
geographically operate.
10
<PAGE>
COMPONENTS OF EXECUTIVE COMPENSATION PROGRAM
Base Salary
The CBNC establishes each officer's base salary by comparison to competitive
market levels for the executive's job function determined by reference to
compensation paid in the industry or by a peer group, in the country where such
executive permanently resides. The "Peer Group" used in the Stock Price
Performance Graph on page 15 of this proxy statement reflects the Company's
direct competitors in its principal business. The "Peer Group" is included in
the group of corporations used for executive compensation analysis. In
determining executive compensation, the focus is on recruiting and retaining
executive talent and, therefore, a larger group of corporations than the
Company's direct competitors is used for compensation comparisons.
Base salaries generally approximate the median level of such competitive
rates and are adjusted based on individual performance. Salaries are reviewed at
regular intervals of between 12 to 24 months depending on job classification and
competitive market levels. Base salaries for executive officers were generally
increased in 1994 in accordance with the foregoing practices. Notwithstanding
this policy, certain executive officers (including Messrs. Zarb, Horrick, and
Mahoney) have employment agreements which assure such officers a minimum level
of base salary that was determined through a process of bilateral negotiations.
Annual Incentive
For fiscal year 1994, annual bonuses were established by the CBNC based
primarily on corporate restructuring initiatives and business unit performance.
For all executive officers, 1994 corporate restructuring initiatives constituted
at least 25 percent of such executive's total bonus opportunity. For certain
executive officers, this component comprised the basis for most of the officer's
bonus opportunity. For other executive officers, the performance of the
executive's business unit, primarily measured by reference to the unit's
attainment of operating income objectives, also made up a substantial portion of
the executive's annual bonus opportunity. Individual performance compared to
pre-established strategic, financial and operational objectives determined the
remaining portion of the annual incentive of certain executives.
A portion of all executive officers' 1994 bonuses were based on the success
of the Company's restructuring initiatives, and accordingly, all bonus targets
under this objective were achieved. In addition, due to the profitability in
1994 of certain of the Company's business units, the executive officers
responsible for those units were awarded a significant portion of their annual
incentive based on this criterion.
Notwithstanding the foregoing, certain executive officers, including Mr.
Zarb, who were hired in 1994 were guaranteed minimum bonuses for 1994 as part of
the compensation provided to induce them to join the Company's employ. Such
minimum bonuses are commonly awarded to newly hired executives for their first
year of employment since newly hired executives will generally forego a bonus
opportunity from their prior employer to accept new employment.
Equity Based Incentives
The Company's equity based incentives have historically taken the form
primarily of both stock options and awards of Common Stock. Stock awards have
either been in the form of restricted stock or shares of Common Stock earned by
the attainment of specified performance objectives. Equity-based incentive
awards have been granted under the Company's 1988 Long Term Incentive
Compensation Plan (the "1988 Plan"). In addition, certain outstanding stock
options were granted under the 1982 Key Employee Stock Option Plan (the "1982
Plan").
The Company has adopted the 1995 Long-Term Incentive Compensation Plan (the
"1995 Plan"), subject to stockholder approval, to provide its executive officers
and other key employees equity opportunities, beginning in fiscal year 1995,
that are intended to further align the interests of such
11
<PAGE>
officers and employees with those of the Company's stockholders. Besides
continuing the CBNC's authority to grant restricted stock, stock options and
performance share/unit awards, the 1995 Plan will allow the Company to issue
restricted stock in complete or partial payment of incentive compensation
otherwise payable to eligible officers and employees. Such bonus equity awards
will create an additional economic incentive for eligible employees to remain in
the Company's employ and increase the amount of each such employee's
compensation that is directly dependent on the value of the Company's Common
Stock. Such awards will be restricted for a period of not less than three years.
Stock Options. Stock options have been the Company's primary form of
long-term incentive compensation. In awarding stock options to executive
officers in 1994, the CBNC's intent was that such options would represent a
significant portion of each such officer's total compensation opportunity, thus
aligning the officer's economic interests with those of the Company's
stockholders. Consistent with this goal, all option awards in 1994 were made at
the fair market value of the Common Stock as of the date of grant. The number of
options granted was based on the CBNC's subjective evaluation of a number of
factors, including competitive market practice, past grants, management level
and other matters relating to an individual's performance and ability to
influence corporate results. The CBNC believes these awards were within the
competitive range of similar awards made by the Company's competitors for
executive talent.
Certain executive officers, including Mr. Zarb, who were hired in 1994 were
also awarded stock option grants as part of the inducement for such officers to
accept employment with the Company. The size of these awards was determined by
the CBNC based on its determination of the award required to induce each such
officer to enter the Company's employ. The CBNC's evaluation of the appropriate
size of such awards was based on several factors, as subjectively evaluated by
the CBNC with respect to each particular officer, including: (i) the ability of
the officer to affect the value of the Common Stock, (ii) the long-term
compensation opportunities available to the officer at his prior employer and
(iii) the extent to which such officer had to forfeit any such opportunities by
accepting employment with the Company. With respect to stock options awarded to
Mr. Zarb and two other executive officers, the exercisability of these awards
may be accelerated upon sustaining a target price of the Company's Common Stock
for a specified period.
Restricted Stock. The CBNC has used awards of restricted stock in special
circumstances as an inducement for an executive officer to remain in the
Company's employ over a period of years or as a reward for extraordinary
performance or as a means to adjust compensation packages. It has been the
Company's practice not to use restricted stock awards as a standard form of
long-term incentive compensation. The circumstances, rather than past awards,
constituted the primary factors for determining the size of any past restricted
stock award.
Commencing with fiscal year 1995, the CBNC intends to grant restricted stock
with greater regularity under the "bonus equity" portion of the 1995 Plan. As
noted above, the restricted stock awards to be made pursuant to this program
will be in complete or partial satisfaction of the amount otherwise payable to
an eligible officer or employee under the terms of an incentive compensation
plan of the Company or one of its subsidiaries. The awards to be made under this
program, if the 1995 Plan is approved by stockholders, are intended to induce
employees to remain in the Company's employ, while simultaneously subjecting at
least a portion of their earned incentive compensation to the same market risks
and rewards as a stockholder. Such awards will be restricted for a period of not
less than three years.
Other Long-Term Incentive Compensation. In special circumstances, the CBNC
uses other long-term performance based awards, payable in cash, as incentive to
senior executives of the Company and its subsidiaries to achieve specific
performance objectives and criteria. For example, one executive officer received
such an award in respect of profit improvement for certain operations.
12
<PAGE>
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
During 1994, three individuals served as the Company's principal executive
officer. Mr. Tinsley H. Irvin served as the Company's chief executive officer
from January 1 to March 31, when he retired from the Company's employ. Mr. Frank
G. Zarb became chairman of the board of directors, chief executive officer and
president on June 16, 1994 and continues to serve in those capacities. Mr.
Michael K. White, who served as the Company's president and chief operating
officer, was the Company's principal executive officer during the period between
Mr. Irvin's retirement and the commencement of Mr. Zarb's employment. Mr. White
retired from the Company effective September 30, 1994.
In January, 1994, Mr. Irvin and the Company mutually agreed that it would be
in their respective best interests for Mr. Irvin to retire. Pursuant to a
Transition Employment, Retirement and Consulting Agreement, dated January 14,
1994, Mr. Irvin resigned his duties as chairman of the board of directors and
retired from the Company's employ on March 31, 1994. Pursuant to the terms of
that agreement as of that date, the Company paid Mr. Irvin a lump sum amount
equal to the amount of severance benefits that would have been paid to Mr.
Irvin, based on his 40 years of service with the Company, had he terminated his
employment under the Company's Senior Executive Severance Plan due to a
reduction in his duties and responsibilities (a "Good Reason Termination"). In
addition, during the second quarter of 1994, pursuant to the agreement Mr. Irvin
was paid $100,000 in consulting fees to assist in the management transition.
To assure that Mr. White would remain in the Company's employ until Mr.
Irvin's successor was appointed, the Company amended Mr. White's 1990 employment
agreement to extend its term until 90 days following the appointment of the new
chief executive officer. The Company also paid the severance benefits that would
have been payable to Mr. White under the Senior Executive Severance Plan, based
on his service with the Company, had he terminated his employment due to a Good
Reason Termination.
As part of the negotiations regarding Mr. Zarb's employment with the
Company, the Company agreed to provide him a minimum annual base salary of
$900,000 and a guaranteed minimum bonus for 1994 of $1,000,000. Under the terms
of Mr. Zarb's employment agreement, the Company also agreed to provide Mr. Zarb
a bonus opportunity for fiscal years after 1994 of at least $1,200,000 to be
payable upon the attainment of one or more performance goals to be established
pursuant to the Performance Bonus Plan for Executive Officers to be presented to
stockholders for their approval at the Annual Meeting.
In connection with his acceptance of employment with the Company, the CBNC
also awarded Mr. Zarb options to purchase 600,000 shares of the Company's Common
Stock at an exercise price equal to the closing price of the stock on the New
York Stock Exchange on June 16, 1994 (the "Employment Commencement Date"). These
options generally become exercisable in installments over a period of five years
(as described in the option table contained on page 21 of this proxy statement),
subject to acceleration as to exercisability if certain share appreciation
targets are earlier attained. Additionally, the CBNC granted Mr. Zarb 271,307
shares of restricted stock to compensate for the loss of certain benefits that
he had accrued or would otherwise have received had he remained in the employ of
The Travelers Inc. through the end of 1994. The number of shares subject to this
award were determined pursuant to a formula based on the value of the benefits
expected to be lost or foregone and the value of the Company's Common Stock on
the Employment Commencement Date, and were subject to a downward adjustment in
the event that Mr. Zarb received payment of compensation from The Travelers Inc.
that was expected to be forfeited. Because Mr. Zarb received a partial bonus
from The Travelers Inc. for his 1994 services, a 20,290 share adjustment was
required under the terms of the award. However, based upon the CBNC's 1995
subjective evaluation of Mr. Zarb's performance, the CBNC awarded Mr. Zarb
20,290 shares of restricted stock, equal to the number of shares forfeited, as
an additional award in recognition of Mr. Zarb's outstanding performance on
behalf of the Company during 1994.
13
<PAGE>
Policy as to Section 162(m) of the Code
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
denies a publicly traded company a Federal income tax deduction for compensation
in excess of $1 million paid to certain of its executive officers unless the
amount of such excess is payable based solely upon the attainment of objective
performance criteria. The Company has undertaken to qualify substantial
components of the incentive compensation it makes available to its executive
officers for this performance exception. Stock option grants and performance
share/unit awards under the Company's 1988 Plan currently meet the requirements
of the performance exception to nondeductibility and the 1995 Plan is being
presented to stockholders for approval so that similar awards to be made to
executive officers under the 1995 Plan should also satisfy this exception. The
Company has adopted a new Performance Bonus Plan for Executive Officers designed
to qualify the amounts payable thereunder to executive officers for the
performance exception under Section 162(m), which plan is being submitted to
stockholders for approval as is required under Section 162(m). However, in
appropriate circumstances, such as in connection with the hiring of a new
executive officer (such as Mr. Zarb), it may be necessary or appropriate to pay
compensation or make incentive or retentive awards that do not meet the
performance based exception and therefore, may not be deductible by reason of
Section 162(m).
COMPENSATION, BENEFITS AND NOMINATING
COMMITTEE
Dr. Kenneth Black, Jr., Chairman
Dr. Robert E. Boni
E. Gerald Corrigan
Joseph L. Dionne
The Honorable Gerald R. Ford
14
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The graph below provides an indicator of cumulative total shareholder
returns for the Company for the period December 31, 1989 to December 31, 1994
compared with the S&P 500 Stock Index and a Peer Group(1). Total return is
measured by the increase/decrease in value of $100 invested at the beginning of
the period, including both reinvestment of dividends and capital appreciation or
depreciation.
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
Alexander & Alexander $100 $78.8 $ 73.5 $ 96.3 $ 76.7 $ 74.5
S&P 500 $100 $96.9 $124.9 $133.7 $145.9 $147.6
Peer Group(1) $100 $94.6 $ 92.5 $ 94.2 $104.3 $ 93.3
</TABLE>
------------
(1) The Peer Group comprises the largest publicly traded companies worldwide
which compete against the Company in its principal industry segment. The
members of the Peer Group are as follows: Marsh & McLennan Cos Inc., Arthur
J. Gallagher & Co., Sedgwick Group plc and Willis Corroon Group plc.
15
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer (or performed the duties of
such office) and each of the Company's other four most highly compensated
executive officers in 1994 (referred to collectively with the Chief Executive
Officer as the "named executives") for years ended December 31, 1994, 1993 and
1992.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------
--------------------------------------- RESTRICTED SECURITIES PAYOUTS
OTHER ANNUAL STOCK UNDERLYING -------------
COMPENSATION AWARD(S) OPTIONS LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(4) ($)(5) (#)(6) PAYOUTS($)(6)
--------------------------- ---- --------- ---------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANK G. ZARB(1) 1994 $ 487,500 $1,000,000 * $4,773,887 600,000 --
Chairman, CEO and
President of the Company
KENNETH J. DAVIS(2) 1994 $ 327,674 $ 299,591 $ 53,450 $ 210,625 50,000 --
Chairman of A&A 1993 * * * * * *
International Inc. 1992 * * * * * *
CEO of A&A Europe
JAMES S. HORRICK(3) 1994 $ 269,326 $ 230,554 * $ 210,625 50,000 --
CEO and President of 1993 * * * * * *
A&A/Reed Stenhouse Ltd. 1992 * * * * * *
RONALD A. ILES(2) 1994 $ 440,640 $ 526,868 $ 52,536 $ 421,250 50,000 --
SVP of the Company, 1993 $ 430,357 $ 292,012 * -- 20,000 $ 235,966
Chairman of A&A Services 1992 $ 472,448 $ 409,845 $ 51,660 -- 20,000 --
U.K. plc and Chairman of
Alexander Howden Group
Ltd.
TINSLEY H. IRVIN+ 1994 $ 137,500 -- * -- -- --
CEO of the Company through 1993 $ 550,000 -- * -- 40,000 --
March 31, 1994 1992 $ 554,167 -- * -- 40,000 --
DENNIS L. MAHONEY(2) 1994 $ 475,830 $ 477,360 $100,563 -- 50,000 --
Deputy Chairman of 1993 * * * * * *
Alexander Howden Group 1992 * * * * * *
Ltd.
MICHAEL K. WHITE++ 1994 $ 429,000 -- * -- -- --
President and COO of the 1993 $ 567,666 -- * -- 30,000 --
Company through June 6, 1992 $ 520,000 $ 202,363 * -- 30,000 --
1994
<CAPTION>
ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)(7)(8)
--------------------------- ------------
<S> <C>
FRANK G. ZARB(1) $ 25,163
Chairman, CEO and
President of the Company
KENNETH J. DAVIS(2) $ 367
Chairman of A&A *
International Inc. *
CEO of A&A Europe
JAMES S. HORRICK(3) $ 15,919
CEO and President of *
A&A/Reed Stenhouse Ltd. *
RONALD A. ILES(2) $ 14,744
SVP of the Company, $ 15,657
Chairman of A&A Services $ 15,613
U.K. plc and Chairman of
Alexander Howden Group
Ltd.
TINSLEY H. IRVIN+ $1,516,489
CEO of the Company through $ 50,350
March 31, 1994 $ 51,881
DENNIS L. MAHONEY(2) $ 367
Deputy Chairman of *
Alexander Howden Group *
Ltd.
MICHAEL K. WHITE++ $1,416,693
President and COO of the $ 34,546
Company through June 6, $ 33,627
1994
</TABLE>
------------
* Amounts were not required to be reported.
+ Mr. Irvin retired from the Company effective April 1, 1994. He served as
chief executive officer of the Company from May 1987 until his retirement. He
also served as chairman of the board from May 1988 to January 1994, and as
president from March 1982 to May 1993.
++ Mr. White retired from the Company effective September 30, 1994. He served
as president and chief operating officer of the Company from May 1993 until
his retirement, and as a director from 1983 to May 1994. He also served as
deputy chairman from September 1990 to May 1993 and executive vice president
from May 1987 to May 1993.
(1) Mr. Zarb joined the Company as chairman of the board, chief executive
officer and president as of June 16, 1994. Accordingly, no compensation is
reported for prior periods.
(2) Cash compensation was paid in U.K. pounds sterling. Amounts paid in pounds
sterling have been restated in U.S. dollars based on the average exchange
rate expressed in dollars per B.P.1.00 of 1.53 in 1994.
(Footnotes continued on following page)
16
<PAGE>
(Footnotes continued from preceding page)
(3) Cash compensation was paid in Canadian dollars. Amounts paid in Canadian
dollars have been restated in U.S. dollars based on the average exchange
rate expressed in dollars per C$1.00 of .732 in 1994.
(4) These awards sometimes take the form of non-cash compensation or other
personal benefits because of tax regulations or competitive business
practices in a particular country or region. In this category, Mr. Davis
received a $25,176 car allowance and $28,274 for housing expenses. Mr. Iles
received a $23,729 car allowance, $14,284 for transportation expenses and
$14,523 for housing expenses. Mr. Mahoney received a $40,210 car allowance
and $58,605 for housing expenses.
(5) Value of restricted stock awards reported reflect the fair market value of
the shares awarded on the date of grant. Dividends are paid on the shares of
restricted stock at the same rate as on Common Stock. Shares of restricted
stock vest immediately upon the death or disability of the holder of
restricted stock or, in certain circumstances, upon change in control of the
Company. The number of shares of restricted stock held by each named
executive as of December 31, 1994, together with the value of those shares
based on the closing market price on that date, is as follows: Mr. Zarb--
251,017 shares/$4,643,815; Mr. Davis--10,000 shares/$185,000 and Mr.
Iles--26,700 shares/ $493,950. With respect to restricted shares reported by
Mr. Zarb, 20,290 includes shares issued, but forfeited in February 1995
pursuant to his employment agreement, but restored to Mr. Zarb in
recognition of his outstanding performance on behalf of the Company during
1994.
During the period January 1, 1992, to December 31, 1994, none of the named
executives received restricted stock awards with vesting periods less than
three years from the date of grant. Of the 20,000 shares of restricted stock
awarded to Mr. White in August 1990, 6,667 vested on June 1, 1993 and the
remaining 13,333 shares vested upon his retirement from the Company,
effective September 30, 1994.
The amount reported for Mr. Horrick reflects a stock-based incentive award.
Subject to his continued employment, Mr. Horrick has the right to receive
10,000 shares of the Company's Common Stock of which 4,000 shares will vest
on February 17, 1997 and 6,000 shares will vest on February 17, 1999.
(6) During the period January 1, 1992, to December 31, 1994, options and limited
stock appreciation rights ("LSARs") were granted under the 1988 Plan. Under
the 1982 Plan, only LSARs were granted during this period. Effective January
1, 1991, all stock appreciation rights (SARs) granted under the 1988 Plan
and 1982 Plan were canceled and none have been issued since that date. The
LSARs are not included in this table and are described below under the
caption "Severance and Other Arrangements."
(7) Amounts reported in 1994 for Mr. Irvin include lump sum payments of:
$1,154,840 for severance benefits; $203,893 under the Excess Defined
Contribution Plan; $11,978 under the Supplemental Executive Retirement Plan
for Senior Management; $35,259 of deferred compensation under the 1985
Deferred Compensation Plan (the "Deferred Compensation Plan") and $100,000
for consulting fees pursuant to the terms of his Transition Employment,
Retirement and Consulting Agreement.
Amounts reported in 1994 for Mr. White include lump sum payments of:
$1,391,293 for severance benefits and $2,367 of deferred compensation under
the Deferred Compensation Plan.
The Company has entered into arrangements with certain of the named
executives that may result in payments to such executives upon termination of
employment following a change in control of the Company. These arrangements
are described below under the caption "Severance and Other Arrangements."
(8) Amounts reported in 1994 include: (i) matching contributions made by the
Company under the Thrift Plan and an unfunded supplemental retirement plan
of $21,938, $6,188, and $20,438 for Messrs. Zarb, Irvin, and White
respectively; (ii) matching contributions under U.K. Equity Scheme of $367
for each of Messrs. Davis, Iles, and Mahoney; (iii) a matching contribution
of $15,553 under the Canadian Assisted Share Purchase Plan for Mr. Horrick;
(iv) insurance premiums paid by the Company of $3,225, $366, $4,331 and
$2,595 for Messrs. Zarb, Horrick, Irvin, and White respectively; and (v)
interest of $14,377 on a contingent benefit agreement earned by Mr. Iles and
paid by the Company.
17
<PAGE>
COMPENSATION ARRANGEMENTS WITH NAMED EXECUTIVE OFFICERS
FRANK G. ZARB. Mr. Zarb has an employment agreement with the Company, the
principal terms of which are described in the Report of the Compensation,
Benefits and Nominating Committee (the "CBNC Report") in this proxy statement.
In addition, pursuant to such agreement, Mr. Zarb was credited with five years
of "Continuous Employment" under the Alexander & Alexander Services Inc. and
Subsidiaries Supplemental Executive Retirement Plan for Senior Management (the
"SERP"), as of his employment date. The agreement also provides that if Mr. Zarb
retires after age 62, he will receive the difference, if any, between amounts
payable under certain defined benefit plans of his prior employer, The Travelers
Inc., and the aggregate amount payable under the SERP, the Thrift Plan and
certain other plans. If Mr. Zarb's employment under the agreement is terminated
before age 65 by the Company for a reason other than for cause or by Mr. Zarb
for good reason (which, for purposes of the agreement, includes a reduction in
annual base salary or bonus opportunity, involuntary relocation or a material
breach of the agreement by the Company), Mr. Zarb is entitled to receive $12
million if he is terminated without cause (as defined in such agreement) prior
to June 16, 1995, $6 million if terminated on or after June 16, 1995 and before
June 16, 1996, and $4 million if terminated on or after June 16, 1996. The
maximum amount payable upon such termination of employment, when added to the
value of the stock options and restricted stock received under the employment
agreement, is limited to $20 million. However, if the termination occurs for any
reason at any time following a change of control of the Company, the cash
severance Mr. Zarb is entitled to receive would be $12 million, and no maximum
limit would be placed on the aggregate of cash severance and the value of the
stock option and restricted stock granted pursuant to the agreement. In addition
to the foregoing, Mr. Zarb received a limited stock appreciation right ("LSAR")
in tandem with the stock options granted pursuant to the agreement. In
connection with the shares of restricted stock awarded to Mr. Zarb in June 1994
and February 1995, the Company has also agreed to file, no later than June 7,
1995, a registration statement under the Securities Act of 1933 covering such
shares.
KENNETH J. DAVIS. Mr. Davis entered into an employment agreement, dated June
23, 1982, with a United Kingdom subsidiary of the Company. The term of
employment is through March 31, 2003. The employer may terminate the employment
of Mr. Davis before March 31, 2003, and cease payment of all remuneration except
amounts previously accrued, only under certain circumstances, including gross
negligence in the performance of duties or a criminal conviction (other than a
minor violation). The agreement provides for annual review of base salary. The
salary paid under this agreement in 1994 is disclosed in the Summary
Compensation Table. The agreement also provides for disability and retirement
benefits, and certain other perquisites.
JAMES S. HORRICK. Mr. Horrick entered into an employment agreement, dated
August 29, 1990, with A&A/RSC, the Company's Canadian subsidiary. The agreement,
which does not fix a termination date, provides for payment of an annual base
salary that may not be reduced without Mr. Horrick's consent and is subject to
periodic review and increase. The base salary paid under this agreement in 1994
is disclosed in the Summary Compensation Table. Mr. Horrick's employment under
the agreement may be terminated by the employer at any time for just cause and
without notice. If the employer terminates Mr. Horrick's employment without
cause, the employer must pay severance equal to three times the sum of his
then-current base salary plus his target annual bonus for that year. In
addition, if terminated without cause, Mr. Horrick will be credited with 36
additional months of deemed employment under the employer's pension plan and
SERP, and will receive payment in an amount equal to 34 times the aggregate
amount of the employer's monthly payments for his life, health and disability
insurance, certain club membership dues paid on his behalf, and certain other
perquisites. If a change of control of the Company occurs, Mr. Horrick may
resign within the following three years for good cause (including a reduction in
salary or benefits or involuntary relocation), and will thereupon be entitled to
receive the same severance payments as he would receive upon termination without
cause.
RONALD A. ILES. In January 1988, the Company entered into a contingent
benefit agreement with Mr. Iles, pursuant to which the Company will make
periodic payments to Mr. Iles commencing in
18
<PAGE>
December 1995 from a notional account, provided certain employment conditions
are met. The total amount in the notional account is based on assumed
investments of $30,000 made annually on March 1, 1986 through March 1, 1989,
with the notional investment earning interest calculated at a rate equal to the
average of Moody's monthly average of seasoned Triple A corporate bonds for the
year, compounded annually. Amounts credited to this account will be subject to
forfeiture if Mr. Iles is not continuously employed by the Company from March 1,
1986 through December 16, 1995. If the employment conditions are met, Mr. Iles
will be entitled to receive payment of an amount equal to the notional account.
The payment will be made in five installments, and the balance of the notional
account will continue to earn interest at the rate indicated until the final
installment is paid.
TINSLEY H. IRVIN. Mr. Irvin has an agreement with the Company, the principal
terms of which are described in the CBNC Report in this proxy statement. In
addition, the agreement confirms Mr. Irvin's rights as a retiree under the
Company's compensation plans and programs, and that all outstanding stock
options issued to Mr. Irvin became vested upon his retirement on March 31, 1994,
and will remain exercisable for up to three years from that date.
DENNIS L. MAHONEY. Mr. Mahoney entered into an employment agreement, dated
October 11, 1990, with a United Kingdom subsidiary of the Company. The term of
employment is through September 20, 2010; however, the agreement may be
terminated by either party upon 12 months prior written notice. The employer may
terminate the employment of Mr. Mahoney without notice, and cease payment of all
remuneration except amounts previously accrued, under certain circumstances,
including the failure to efficiently and diligently perform his duties or a
criminal conviction (other than a minor violation). The agreement provides for
an annual base salary that is subject to periodic review and increase. The base
salary paid under this agreement in 1994 is disclosed in the Summary
Compensation Table. If the employer terminates Mr. Mahoney without cause and
without the required notice, the employer must pay severance equal to the base
salary under the agreement, and must continue to provide medical and long-term
disability insurance and other benefits included under the agreement for a
period of 12 months. In addition, Mr. Mahoney will be credited with benefits
under the U.K. Pension Scheme calculated as if he had worked for an additional
12 months or, if earlier, until the termination date of the agreement, at a
salary equal to his annual base salary. If a change of control of the Company
occurs and the Company gives notice of termination or terminates Mr. Mahoney's
agreement without cause, the Company must pay severance equal to one year's base
salary and provide the benefits and perquisites otherwise included under the
agreement for an additional 12 months. In addition, upon expiration of the 12
months period following termination of employment, Mr. Mahoney will be entitled
to receive an additional payment equal to 1.5 times his base salary under the
agreement during his final 12 months of employment, less any taxes owed,
provided that in the employer's judgment he has complied with certain
non-competition and other provisions.
MICHAEL K. WHITE. Mr. White entered into an employment agreement with the
Company, dated June 1, 1990 and amended as of June 16, 1994, which terminated
effective September 30, 1994. The agreement provided for an annual base salary
of $572,000. As of September 30, 1994, Mr. White was deemed to have terminated
his employment with the Company for good reason and received a benefit under the
Company's Senior Executive Severance Plan equal to 27 months of salary, as well
as certain other perquisites and benefits. In addition, as of September 30,
1994, 13,333 previously unvested shares of restricted stock held by Mr. White
became 100 percent vested; incentive stock options covering 9,589 shares of
Common Stock were converted into non-qualified stock options, of which 5,089
shares remain exercisable for the period described in the agreement; and
non-qualified options covering an additional 141,336 shares became 100 percent
vested. In addition, the Company undertakes to cause its subsidiaries or
affiliates to guarantee the Company's obligations to Mr. White if the Company
transfers a substantial part of its assets or engages in certain other
reorganization transactions.
19
<PAGE>
OTHER ARRANGEMENTS
TERMINATION PROTECTION AGREEMENTS. The Company has entered into termination
protection agreements with U.S. senior executives, including Mr. Zarb, and had
entered into such arrangements with Messrs. Irvin and White. These agreements
provide that in the event that (i) the officer's employment is terminated under
certain circumstances within three years following a change of control of the
Company (as defined in the agreements) and (ii) benefits are not paid under the
terms of the Senior Executive Severance Plan or any other employee benefit or
compensation plan, program or arrangement in which the officer participates, the
Company will pay the officer such benefits as would have been paid under the
termination provisions of any applicable plan, program or arrangement. An
officer will be entitled to payment of severance benefits under his agreement if
that officer's employment is terminated (i) by the officer for good reason (as
defined in the Senior Executive Severance Plan), or (ii) by the Company for any
reason other than on account of the officer's conviction of a felony. The
agreements also provide for additional payments to compensate the officer for
any excise taxes imposed on payments under the agreements.
LIMITED STOCK APPRECIATION RIGHTS ("LSARS"). Under the 1988 Plan and 1982
Plan, as currently in effect, the CBNC may also provide for the grant of LSARs.
LSARs may be exercised for a specified period of time following a change of
control. Upon exercise of a LSAR, the holder thereof is entitled to receive the
difference between the exercise price and the greater of (i) the highest sales
price offered in connection with a transaction resulting in a change of control
or (ii) the highest average of the sales price of the Common Stock during the 30
day period preceding a change in the composition of the Company's Board of
Directors constituting a change of control. LSARs have been granted in tandem
with all outstanding nonqualified stock options awarded to the named executive
officers under the 1988 Plan and 1982 Plan. In 1994, LSARs were granted in
tandem with options granted to the named executive officers under the 1988 Plan,
which grants are included in the information reported in the Summary
Compensation Table.
20
<PAGE>
OPTION GRANTS IN 1994
The following table sets forth information concerning individual grants of
stock options made to the named executives during 1994:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZED VALUE
--------------------------------------------------- AT
% OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS EXERCISE STOCK PRICE APPRECIATION
OPTIONS GRANTED TO OR BASE FOR OPTION TERM(4)
GRANTED EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME (SHARES) FISCAL 1994 ($/SHARE) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Frank G. Zarb(2) 600,000 25.41% $ 17.125 6/17/04 $6,461,892 $16,375,704
Kenneth J. Davis(3) 50,000 2.12% $ 20.625 8/30/04 $ 648,547 $ 1,643,547
James S. Horrick(3) 50,000 2.12% $ 20.625 8/30/04 $ 648,547 $ 1,643,547
Ronald A. Iles(3) 50,000 2.12% $ 20.625 8/30/04 $ 648,547 $ 1,643,547
Tinsley H. Irvin -- -- -- -- -- --
Dennis L. Mahoney(3) 50,000 2.12% $ 20.625 8/30/04 $ 648,547 $ 1,643,547
Michael K. White -- -- -- -- -- --
</TABLE>
--------------
(1) All options are exercisable for Common Stock at an exercise price equal to
the fair market value of the Common Stock on the date of grant. Effective
January 1, 1991, all SARs granted under the 1988 Plan and 1982 Plan were
canceled and none have been issued since that date. The LSARs are not
included in this table and are described under the caption "Other
Arrangements."
(2) In connection with his acceptance of employment with the Company, Mr. Zarb
was awarded options to purchase 600,000 shares of the Company's Common
Stock. Of this amount, 150,000 shares became exercisable in March 1995, as
a result of acceleration due to specified share appreciation target of the
Company's Common Stock being sustained. Of the remaining options: 200,000
shares become exercisable as of June 16, 1995; 100,000 shares become
exercisable as of June 16, 1998, subject to acceleration if the Company's
Common Stock sustains a target price of $25.00 per share; and 150,000
shares become exercisable June 16, 1999, subject to acceleration if the
Company's Common Stock sustains a target price of $30.00 per share.
(3) Options awarded to Messrs. Davis, Horrick, Iles and Mahoney are
exercisable 50 percent beginning two years from the date of grant and the
remaining 50 percent beginning three years from the date of grant.
(4) The dollar amounts under the 5% and 10% columns in the table above are the
result of calculations required by the Securities and Exchange Commission
(the "SEC") and therefore are not intended to forecast possible future
appreciation of the stock price of the Company. Although permitted by the
SEC's rules, the Company did not use an alternate formula for grant date
valuation because the Company is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown
or volatile factors. No gain on the stock options awarded to the named
executives or other employees is possible without appreciation in the
price of the Company's Common Stock, which will benefit all stockholders.
The real value of the options in this table depends upon the actual
performance of the Company's Common Stock during the applicable period.
In order for Mr. Zarb to realize the potential values set forth in the 5%
and 10% columns in the table above, the price per share of the Company's
Common Stock would have to be approximately $27.89 and $44.42,
respectively, as of the expiration date of his options; and approximately
$33.60 and $53.50, respectively, for Messrs. Davis, Horrick, Iles and
Mahoney to realize the potential values.
21
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1994 AND 1994 FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning individual unexercised
options held by the named executives during the Company's 1994 fiscal year.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON AT FY-END (SHARES) AT FY-END ($)
EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Frank G. Zarb -- -- 0/600,000 $0/$825,000
Kenneth J. Davis -- -- 24,650/65,500 $938/$0
James S. Horrick -- -- 32,600/65,000 $0/$0
Ronald A. Iles -- -- 55,601/80,000 $0/$0
Tinsley H. Irvin(1) -- -- 205,946/0 $0/$0
Dennis L. Mahoney -- -- 0/60,000 $0/$0
Michael K. White(2) -- -- 146,425/0 $0/$0
</TABLE>
------------
(1) Upon his retirement from the Company on April 1, 1994, all of Mr. Irvin's
outstanding stock options became exercisable.
(2) Upon his retirement from the Company on September 30, 1994, all of Mr.
White's outstanding stock options became exercisable.
PENSION TABLES
The following table sets forth estimated annual benefits payable upon
retirement under a program maintained for the Company's employees in the United
States through a funded, noncontributory pension plan qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Basic Plan"), and
an unfunded supplemental executive retirement plan.
<TABLE><CAPTION>
U.S. PENSION PLAN TABLE
YEARS OF SERVICE(2)
AVERAGE
PENSIONABLE
EARNINGS(1)
<CAPTION>
5 10 15 20 25 30 35 40
------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 550,000 $38,014 $ 76,028 $114,041 $158,930 $203,819 $248,708 $293,596 $327,971
600,000 41,514 83,028 124,541 173,555 222,569 271,583 320,596 358,096
650,000 45,014 90,028 135,041 188,180 241,319 294,458 347,596 388,221
700,000 48,514 97,028 145,541 202,805 260,069 317,333 374,596 418,346
750,000 52,014 104,028 156,041 217,430 278,819 340,208 401,596 448,471
800,000 55,514 111,028 166,541 232,055 297,569 363,083 428,596 478,596
850,000 59,014 118,028 177,041 246,680 316,319 385,958 455,596 508,721
900,000 62,514 125,028 187,541 261,305 335,069 408,833 482,596 538,846
1,000,000 69,514 139,028 208,541 290,555 372,569 454,583 536,596 599,096
1,100,000 76,514 153,028 229,541 319,805 410,069 500,333 590,596 659,346
1,200,000 83,514 167,028 250,541 349,055 447,569 546,083 644,596 719,596
</TABLE>
------------
(1) The normal retirement benefit is a monthly income for life determined
pursuant to a formula based on an employee's credited years of service and
average annual pensionable credited earnings (which generally does not
include incentive compensation payments) for the 60 highest consecutive
months prior to retirement ("Final Average Earnings"). The amount of an
employee's covered compensation is based on the 35-year period ending with
the employee's Social Security retirement age. If approved by the CBNC,
earnings other than Final Average Earnings ("Pensionable Earnings")
(Footnotes continued on following page)
22
<PAGE>
(Footnotes continued from preceding page)
may be used to calculate the normal retirement benefit. For Messrs. Irvin
and White, Pensionable Earnings are used and are based on the midpoint level
of the salary range for their respective positions if those midpoints are
higher than their actual salaries. As of his retirement date, Pensionable
Earnings for Mr. Irvin equaled $758,400 (vs $550,000 base salary). As of
April 1, 1994, at age 60, Mr. Irvin's average Pensionable Earnings equaled
$683,087. As of his retirement date, Pensionable Earnings for Mr. White
equaled $572,800 (vs $572,000 base salary). As of September 30, 1994, at age
55, Mr. White's average Pensionable Earnings equaled $532,905. The amounts
shown are not subject to any deduction for Social Security or other offset
amounts and are payable in the form of a straight life annuity.
(2) Pursuant to the terms of Mr. Zarb's employment agreement, the Company agreed
that, if he should retire after attaining age 62, it would provide Mr. Zarb
with such additional supplemental retirement benefits as were necessary to
assure that he receives retirement benefits in the aggregate from the
Company and its plans and the defined benefit retirement plans at The
Travelers Inc. and its subsidiaries (the "Travelers Plans") that are at
least equal to the retirement benefits he would have received from the
Travelers Plans had he retired from The Travelers Inc. on the same date as
he retires from the Company. As of December 31, 1994, there were no accrued
benefits payable to Mr. Zarb under this provision of his agreement.
(3) The approximate credited years of service for each of the named executives
who participates in the Basic Plan and supplemental retirement plan is as
follows: Mr. Irvin at age 60--40 years; and Mr. White at age 55--24 years.
Messrs. Davis, Horrick, Iles and Mahoney are not eligible to participate in
either the Basic Plan or the supplemental executive retirement plan.
The following table sets forth estimated annual benefits payable upon
retirement under the Alexander & Alexander U.K. Pension Scheme (the "U.K.
Pension Scheme").
U.K. PENSION SCHEME TABLE(1)
YEARS OF SERVICE(3)
AVERAGE
PENSIONABLE
EARNINGS(2)
30 35 40
-------- -------- --------
$268,111 $134,055 $156,397 $178,741
306,412 153,206 178,741 204,274
383,015 191,507 223,425 255,344
459,618 229,809 268,111 306,412
536,221 268,111 312,796 357,480
612,824 306,412 357,480 408,550
689,427 344,714 402,166 459,618
------------
(1) The retirement benefit will be paid in pounds sterling. Amounts have been
stated in U.S. dollars based on the average 1994 exchange rate expressed in
dollars per B.P.1.00 of 1.53.
(2) The normal retirement benefit is a monthly income for life, with a guarantee
of 60 months payment, equal to a percentage of an employee's "final
pensionable salary" which is determined based on credited years of service.
The maximum percentage, reached after 40 years of credited service, is 66.66
percent. The "final pensionable salary" is the highest average annual salary
paid during any three consecutive years during the last 10 years prior to
retirement. All pension payments are indexed at 3 percent per year. Mr.
Davis will be entitled to a retirement benefit equal to 53 percent and
increasing to 67 percent in March 2003 of his then-current pensionable
salary; Mr. Iles will be entitled to a retirement benefit equal to 65
percent and increasing to 67 percent in December 1995 of his then-current
final pensionable salary; and Mr. Mahoney will be entitled to a retirement
benefit equal to 27 percent and increasing to 67 percent in September 2010
of his then-current pensionable salary. 1994 salaries for Messrs. Davis,
Iles and Mahoney in U.S. dollars equaled $327,674, $440,640 and $475,830,
respectively. The amounts shown are not subject to any deduction for Social
Security or other offset amounts.
(3) The approximate credited years of service for each of the named executives
who participates in the U.K. Pension Scheme are as follows: Mr. Davis at age
60--40 years; Mr. Iles at age 60--40 years and Mr. Mahoney at age 60--40
years. Messrs. Zarb and Horrick do not participate in the U.K. Pension
Scheme.
23
<PAGE>
The following table sets forth estimated annual benefits payable upon
retirement under a program maintained for the Company's executives in Canada
through a funded, noncontributory pension plan (the "Basic Plan"), and an
unfunded supplemental executive retirement plan.
CANADIAN PENSION SCHEME TABLE(1)
AVERAGE
PENSIONABLE
EARNINGS(2) YEARS OF SERVICE(3)
25 30 35
-------- -------- --------
$ 219,747 $109,874 $131,848 $153,823
256,372 128,186 153,823 179,460
292,996 146,498 175,798 205,097
329,621 164,810 197,772 230,734
366,245 183,123 219,747 256,372
------------
(1) The retirement benefit will be paid in Canadian dollars. Amounts have been
stated in U.S. dollars based on the average 1994 exchange rate expressed in
dollars per C$1.00 of .732
(2) The normal retirement benefit is a monthly income for life, with a guarantee
of 60 months payment and continuation at 60 percent to a surviving spouse,
equal to a percentage of an employee's "final average earnings", with the
result reduced by the "Social Security Pension Offset". The percentage is 2
percent for each year of credited service to a maximum of 35 years credited
service. The "final average earnings" is the highest average annual base
salary (excluding bonuses) paid during any three consecutive years prior to
retirement. The "Social Security Pension Offset" is the net Social Security
Pension received by the employee multiplied by the employee's years of
credited service divided by 35. The amounts shown in the above Pension Plan
Table are subject to reduction by this "Social Security Pension Offset".
(3) The approximate credited years of service for each of the named executives
who participates in the Canadian Basic Plan and supplemental retirement plan
is as follows: Mr Horrick's at age 65--39 years. Messrs. Zarb, Davis, Iles
and Mahoney do not participate in the Canadian Basic Plan or the Canadian
supplemental executive retirement plan.
CERTAIN TRANSACTIONS
Mr. Grossart and Mr. Wilson, who are directors of the Company, are also
directors of Noble Grossart Limited ("Noble Grossart"), a U.K. merchant bank. In
addition, they are directors and shareholders of Noble Grossart Holdings Limited
("N.G. Holdings"), which owns 100 percent of Noble Grossart. Mr. Grossart owns
25 percent of the shares of N.G. Holdings, and Mr. Wilson owns less than 2
percent of such shares. In connection with such investment banking services
rendered, the Company and certain subsidiaries paid approximately $16,000 during
1994. No fees have been paid during 1995 to date. In January 1995, a subsidiary
of the Company sold its 20 percent interest in the shares of N.G. Holdings (the
"Minority Interest"). In connection with the sale of the Company's Minority
Interest, the Company received $7.2 million in cash proceeds. Noble Grossart
provides investment banking services to the Company and certain of its
subsidiaries.
Mr. Godsoe, who is a director of the Company, is also chairman of the board
and chief executive officer of The Bank of Nova Scotia. In connection with the
bank's $20 million line of credit commitment under a syndicated revolving credit
agreement, the Company paid to The Bank of Nova Scotia facility and amendment
fees of approximately $117,667 during 1994. No fees have been paid during 1995
to date, however fees will be paid in 1995 under a new revolving credit facility
as well as any amounts accrued under the previous revolving credit agreement. In
addition, several subsidiaries of the Company have banking relationships with
The Bank of Nova Scotia which include credit facilities and letters of credit.
The amounts paid under these arrangements do not exceed the minimum reportable
amounts.
Mr. Hurlock, who is a director of the Company is also a partner in the law
firm of White & Case. In connection with services rendered by White & Case, the
Company incurred legal fees of approximately $81,432 during 1994, and
approximately $136,337 during 1995 to date.
24
<PAGE>
As of February 15, 1995, Prudential Insurance Company of America
("Prudential") owned approximately 10.11 percent of the Company's Common Stock.
U.S. subsidiaries of the Company place insurance and reinsurance with
Prudential. In connection with such placements, the Company estimates that those
subsidiaries earned approximately $2,322,320 during 1994, and approximately
$457,570 during 1995 to date. In addition, the Company paid a subsidiary of
Prudential $95,957 for advisory services during 1994.
Mr. Zarb served as vice chairman and group chief executive officer of The
Travelers Inc. (the "Travelers") until June 1994, when he resigned these
positions, including his directorship with the Travelers, and joined the Company
as chairman of the board, chief executive officer and president. U.S.
subsidiaries of the Company place insurance and reinsurance with the Travelers.
In connection with such placements, the Company estimates that those
subsidiaries earned approximately $10,687,512 during 1994, and approximately
$1,659,790 during 1995 to date.
MATTERS SUBMITTED TO STOCKHOLDERS
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The board of directors has designated the 14 persons listed under the
section captioned "Nominees for Election to the board of directors" of this
proxy statement for nomination to serve as directors of the Company until the
next annual meeting and until their successor are elected and qualified, or
until their earlier resignation or removal. The board of directors has
determined, pursuant to the Company's charter and by-laws, that the number of
directors constituting the full board of directors shall be 14.
Proxies are solicited in favor of the nominees and it is intended that the
proxies will be voted for the nominees unless otherwise specified. Should any
one or more of the nominees become unable to serve for any reason, unless the
board of resolution provides for a lesser number of directors, the persons named
in the enclosed proxy will vote for the election of a substitute nominee or
nominees. The board of directors has no reason to believe that any nominee will
be unable to serve.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE 14
PERSONS NOMINATED. Assuming the presence of a quorum, the affirmative vote of a
majority of the votes cast by the holders of shares outstanding, present and
entitled to vote on this item at the Annual Meeting, voting as a single class,
is required to elect the nominees. Under applicable Maryland law, in determining
whether this item has received the requisite number of affirmative votes,
abstentions and broker non-votes will be counted and will have the same effect
as a vote against this item.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(ITEM 2 ON PROXY CARD)
The Audit Committee has recommended to the Board of Directors the selection
of Deloitte and Touche LLP ("D&T") to be the independent auditors of the Company
for the year ending December 31, 1995. D&T has acted as independent auditors for
the Company and its predecessors since 1920. This selection will be submitted
for ratification at the Annual Meeting. Representatives of D&T will be present
at the Annual Meeting. They will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS RATIFY THE SELECTION OF
DELOITTE & TOUCHE LLP TO BE THE INDEPENDENT AUDITORS OF THE COMPANY FOR 1995.
Assuming the presence of a quorum, the affirmative vote of a majority of the
votes cast by the holders of shares outstanding, present and entitled to vote on
this item at the Annual Meeting, voting as a single class, is required to ratify
the selection of Deloitte & Touche LLP. Under applicable Maryland law, in
determining whether this item has received the requisite number of affirmative
votes, abstentions and broker non-votes will be counted and will have the same
effect as a vote against this item.
25
<PAGE>
DIRECTORS' PROPOSAL TO APPROVE AND ADOPT THE
ALEXANDER & ALEXANDER SERVICES INC.
1995 LONG-TERM INCENTIVE PLAN
(ITEM 3 ON PROXY CARD)
The board of directors of the Company adopted the 1995 Alexander & Alexander
Services Inc. Long Term Incentive Plan (the "1995 Plan"), subject to approval by
the Company's stockholders at the Annual Meeting. The 1995 Plan will provide to
key employees of the Company and its Subsidiaries opportunities to build equity
in the Company, thereby further aligning their interests with those of
stockholders. Stock Options, stock appreciation rights, restricted stock, and
performance share/unit awards are all available under the 1995 Plan. The 1995
Plan will provide to the Company the flexibility to reward outstanding
performance by employees in a manner which is designed to also enhance the
rewards received by stockholders.
A full copy of the 1995 Plan is attached as Appendix I to this proxy
statement. The following is only a summary and is qualified in its entirety by
reference to the complete text of the 1995 Plan. Capitalized terms not otherwise
defined herein have the meanings ascribed to them in the 1995 Plan.
On March 30, 1995, the closing price of the Company's Common Stock on the
New York Stock Exchange was $23.75.
TERM. The 1995 Plan shall be effective on the date it is approved by
affirmative vote of the holders of a majority of the shares entitled to vote at
this Annual Meeting, for a term to expire on December 31, 2005.
ADMINISTRATION. The 1995 Plan will be administered by a committee (the
"Committee") consisting of not less than two directors. A director may serve on
the Committee only if he or she has not received an Award under the 1995 Plan or
any similar plan of the Company or any of its Subsidiaries for at least one year
before his or her appointment and otherwise satisfies the definition of a
"disinterested person" for purposes of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended.
ELIGIBILITY. The Committee will have the authority to grant Awards under the
1995 Plan from time to time to any employee of the Company and any of its
Subsidiaries (including officers and directors who are employees) selected by
the Committee. Since the Company has redesigned its compensation structure,
altering the emphasis and purpose of stock option, restricted stock and
performance share/unit awards, it is not possible to predict the benefits that
may accrue to any individual or group of individuals under the 1995 Plan.
SHARES AVAILABLE FOR AWARDS. The aggregate number of shares of Common Stock
that may be delivered under the 1995 Plan shall not exceed the sum of (1)
4,700,000, (2) the number of shares remaining available for issuance on the
effective date of the 1995 Plan under the Company's 1988 Long-Term Incentive
Compensation Plan (the "Predecessor Plan"), and (3) the lesser of (i) 2,000,000
shares of Common Stock or (ii) the number of shares of Stock received by the
Company after the effective date of the Plan upon exercise of any Option,
whether issued under the Plan or the Predecessor Plan. As of March 17, 1995, the
total number of shares remaining available for issuance under the Predecessor
Plan was 5,265,583 taking into account the additional shares approved for
issuance by the board of directors in September 1994. The 1995 Plan provides
that no more than 940,000 restricted shares may be used under the 1995 Plan for
Restricted Stock Awards and Bonus Equity Plan Awards.
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<PAGE>
AWARDS. The 1995 Plan permits grants of any or all of the following types of
Awards: (i) Stock Options, including Incentive Stock Options ("ISOs"),
Non-Qualified Stock Options and Replacement Options; (ii) Stock Appreciation
Rights ("SARs") and Limited Stock Appreciation Rights ("LSARs"); (iii)
Restricted Stock and Bonus Equity Plan Awards; (iv) Performance Share/Unit
Awards and (v) Other Stock Based Awards. All Awards will be evidenced by an
Award Agreement, which sets out the details, terms, conditions and limitations
applicable to such Award.
STOCK OPTIONS. The purchase price per share of Common Stock subject to any
option will not be less than 100% of the fair market value of that stock on the
date the option is granted. The terms of each option will be fixed by the
Committee, provided that no ISO shall be exercisable more than ten years from
the date the option is granted and no non-qualified option shall be exercisable
more than ten years and one day from such date. The fair market value of the
shares subject to ISOs first exercisable in any one year by any participant may
not exceed $100,000. Options may be exercised either by (1) payment in full of
the purchase price, either in cash or, at the discretion of the Committee, in
whole or in part in Common Stock or Restricted Stock or (2) delivery of a
properly executed notice together with irrevocable instructions to a securities
broker to deliver promptly to the Company proceeds of the sale of the option
shares. If the exercise price of an Option is paid by delivery of Restricted
Stock, then the shares issued upon exercise of the Option shall also be
Restricted Stock and shall remain so until the restriction period lapses. A
Replacement Option may be awarded in conjunction with any stock option awarded
under the 1995 Plan. A Replacement Option is an option to purchase a number of
shares of Common Stock equal to the number of shares of Common Stock or
Restricted Stock tendered in payment of the exercise price of the Option. The
exercise price of the Replacement Option shall be equal to the fair market value
of the Common Stock on the date the original option is exercised. The right to
exercise an option will terminate upon the Participant's termination of
employment for reasons other than death, disability or retirement, unless
otherwise specified by the Committee.
STOCK APPRECIATION RIGHTS. A SAR may be granted alone or in tandem with an
option. Upon exercise of a SAR, the holder thereof is entitled to receive the
excess of the fair market value of the shares for which the right is exercised
over the price of the SAR. The exercise price (which shall not be less than the
fair market value of the shares on the date of grant) and other terms of the SAR
shall be determined by the Committee. Any related option shall no longer be
exercisable to the extent the SAR has been exercised and the exercise of an
option shall cancel the related SAR to the extent of such exercise. The right to
exercise a SAR shall terminate upon the participant's termination of employment
for reasons other than death, disability or retirement, unless otherwise
specified by the Committee when the SAR is awarded.
RESTRICTED STOCK. Restricted Stock award shares may not be disposed of by
the recipient until certain restrictions established by the Committee lapse. The
participant shall have, during the restricted period, all the rights of a
stockholder of the Company, including the right to vote the shares and to
receive dividends, but shall not have the right to sell or otherwise transfer
those shares until the applicable restrictions lapse. In the event of a
participant's death, disability or retirement, all restrictions on any
outstanding restricted stock award shall automatically lapse. Upon termination
of employment during the restricted period for any other reason, all restricted
stock shall be forfeited.
BONUS EQUITY PROGRAM. At the Committee's discretion, awards may be made in
the form of Restricted Stock, based on a percentage of the cash incentive
compensation otherwise payable to a Participant under any compensation program
of the Company or any Subsidiary ("BEP Awards"). The size of the BEP Award will
be determined by a formula approved by the Committee. The number of shares of
Restricted Stock subject to a BEP Award will be calculated by valuing the Common
Stock at not less than 75% of its fair market value ("BEP Value"), based on the
average of the Common Stock's closing prices on the Composite Tape of the New
York Stock Exchange for the five trading days prior to the date of the Award.
Shares subject to the BEP Award shall be restricted as to transfer
27
<PAGE>
(generally for a period of three years) and shall be subject to forfeiture
should the Participant terminate employment for reasons other than death,
disability or retirement during the restricted period. Officers and other key
employees of the Company who are entitled to receive cash incentive compensation
shall be eligible to receive BEP Awards. The Committee shall select Participants
to receive BEP Awards from among those officers and employees who are entitled
to receive cash incentive compensation and (i) who are nominated to participate
in the BEP by the Company or (ii) who voluntarily elect to participate.
PERFORMANCE SHARE/UNIT AWARDS. Performance Share/Unit Awards granted under
the Plan will be in such form and for such performance periods as the Committee
may approve. The Committee, at the time of grant will establish performance
criteria with respect to the Performance Share/Unit Award. These performance
criteria may include any measures of performance of the Company or its
Subsidiaries or such other criteria as the Committee shall select. At the end of
the performance period, the Committee shall evaluate actual performance during
such performance period compared to the performance criteria established for the
Award and shall determine the value, if any, of the Performance Share/Unit Award
and the amount payable in respect thereof. The same conditions of forfeiture of
shares awarded under BEP apply to Performance Share/Unit Awards.
TAX ASPECTS OF THE 1995 PLAN.
$1 MILLION LIMITATION ON DEDUCTIBILITY. The 1995 Plan provides for the
Committee to establish performance goals for Awards under the Plan that are
intended to qualify as "performance-based compensation" as defined in Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). This will
enable the Company to realize tax deductions with respect to any such
compensation in excess of $1 million paid to "Covered Employees", i.e., the
Company's chief executive officer and the four highest compensated executive
officers of the Company or those individuals deemed to be executive officers of
the Company (other than the chief executive officer) whose compensation is
deductible in the U.S. and who are officers on the last day of the year in
question.
The material terms of the performance goals applicable to BEP Awards are set
forth in the Performance Bonus Plan for Executive Officers described
hereinafter.
FEDERAL INCOME TAX CONSEQUENCES. The rules governing the tax treatment of
Stock Options, SARs and LSAR's, Restricted Stock and Performance Share/Unit
Awards are quite technical. Therefore, the description of the Federal income tax
consequences set forth below is necessarily general in nature and does not
purport to be complete. Moreover, statutory provisions are subject to change, as
are their interpretations, and their applications may vary in individual
circumstances. Finally, the tax consequences under applicable state and local
income tax laws may not be the same as under the Federal income tax laws.
Incentive Stock Options. With respect to ISOs, generally the participant
will recognize no taxable gain or loss when the ISO is granted or exercised, and
upon exercise, the spread between the fair market value and the exercise price
will be an item of tax preference for purposes of the participant's alternative
minimum tax.
If the shares acquired upon the exercise of an ISO are held for at least one
year after exercise and two years after grant (the "Holding Periods"), the
participant will recognize any gain or loss realized upon such sale as long-term
capital gain or loss. The Company will not be entitled to a deduction. If the
shares are not held for the Holding Periods, the participant will recognize
ordinary income in an amount equal to the difference between the exercise price
and the fair market value of Common Stock on the date the option is exercised.
The Company will be entitled to a deduction equal to the amount of any
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<PAGE>
ordinary income so recognized. If the shares are not held for the Holding Period
and the amount realized upon sale is less than the grant price, such difference
will be a capital loss to the participant.
Non-Qualified Stock Options. With respect to Non-Qualified Stock Options,
generally, the participant will recognize no taxable income at the time of
grant. Upon exercise of a Non-Qualified Stock Option, the participant will
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the shares on the date of exercise. The participant
will recognize as a capital gain or loss any profit or loss realized on the sale
or exchange of any shares disposed of or sold. The Company will be entitled to
deduct an amount equal to the difference between the exercise price and the fair
market value of the shares on the date of exercise.
Replacement Options. The participant recognizes no income on the grant of a
Replacement Stock Option. The tax consequences to the participant and the
Company are the same as that for a Non-Qualified Stock Option.
Stock Appreciation Rights. Upon the grant of an SAR, the participant
realizes no taxable income and the Company receives no deduction. The
participant realizes income at the time of exercise, if the award becomes vested
and is no longer subject to forfeiture and the participant is entitled to
receive the value of the award. The Company receives a deduction of the same
amount in the same year the participant recognizes income.
Restricted Stock. A participant granted shares of Restricted Stock is not
required to include the value of such shares in income until the first time such
participant's rights in the shares are transferable or are not subject to a
substantial risk of forfeiture, whichever occurs earlier, unless such
participant timely files an election under Code Sec.83(b) to be taxed on the
receipt of the shares. In either case, the amount of such income will be equal
to the excess of the fair market value of the stock at the time the income is
recognized over the amount (if any) paid for the stock. The Company will
generally be entitled to a deduction, in the amount of the ordinary income
recognized by the participant, for the Company's taxable year in which the
participant recognizes such income. However, the deduction with respect to
Awards of Restricted Stock to Covered Employees will be subject to the $1
million limitation under Code Section 162.
Performance Share/Unit Awards. A participant granted Performance Units
recognizes income in the amount of the award of those units when they vest and
are no longer subject to forfeiture and the participant is entitled to receive
the value of the award. The Company receives a deduction for the same amount in
the year that income is recognized by the participant.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE ALEXANDER & ALEXANDER SERVICES INC. 1995 LONG-TERM INCENTIVE
PLAN. Assuming the presence of a quorum, the affirmative vote of a majority of
the votes cast by the holders of shares outstanding, present and entitled to
vote on this item at the Annual Meeting, voting as a single class, is required
to approve and adopt the Plan. Under applicable Maryland law, in determining
whether this item has received the requisite number of affirmative votes,
abstentions and broker non-votes will be counted and will have the same effect
as a vote against this item.
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<PAGE>
DIRECTORS' PROPOSAL TO APPROVE AND ADOPT THE
ALEXANDER & ALEXANDER SERVICES INC.
EMPLOYEE DISCOUNT STOCK PURCHASE PLAN
(ITEM 4 ON PROXY CARD)
The Company is seeking stockholder approval of The Alexander & Alexander
Services Inc. Employee Discount Stock Purchase Plan (the "Purchase Plan"). The
Code requires such approval for any plan that is intended to constitute an
"employee stock purchase plan" under Section 423 of the Code. The board of
directors plans to adopt the Purchase Plan effective July 1, 1995, subject to
the approval of stockholders entitled to vote at the Annual Meeting.
The purpose of the Purchase Plan is to encourage eligible employees of the
Company and its subsidiaries to participate in the Company's growth by
permitting them to purchase shares of Common Stock from the Company at a
discount from fair market value, by means of voluntary payroll deductions of
amounts up to $1,000 per payroll period. A total of 750,000 shares of Common
Stock of the Company (subject to adjustment for stock dividends, stock splits,
recapitalization and other corporate restructurings) has been authorized for
issuance under the Plan.
The full text of the Plan is set forth in Appendix II to this proxy
statement, and the following description of the Purchase Plan is qualified in
its entirety by reference to the full text of the Purchase Plan. Capitalized
terms not otherwise defined herein have the meanings ascribed to them in the
Purchase Plan.
On March 30, 1995, the closing price of the Company's Common Stock on the
New York Stock Exchange was $23.75.
DESCRIPTION OF THE PURCHASE PLAN
GENERAL. The Purchase Plan will be administered by a Committee appointed by
the Board (the "Committee"). The Committee will periodically offer to eligible
employees who elect to participate in the Plan (the "Participants") the
opportunity to purchase shares (the "Shares") of Common Stock for a specified
period in an "Offering." Unless otherwise specified by the Committee, there will
be two Offerings each calendar year. The price per share at which Shares may be
purchased may not be less than 85 percent of fair market value at the first or
last date of the Offering. Purchases of Shares shall be made from funds
accumulated through payroll deductions beginning on the effective date of each
such Offering (the "Effective Date"). The number of Shares that each Participant
purchases under an Offering will be determined by dividing the amount in the
participant's account by the purchase price specified for each Offering. The
right of an eligible employee to purchase Shares in any Offering is referred to
as an "Option."
Not more often than once during any calendar year, a Participant may request
and receive a stock certificate representing all or a portion of his or her full
Shares, provided that such Shares have been held in such Participant's account
for at least the holding period provided for under the Purchase Plan (which
shall be determined for each Offering by the Committee in its discretion) (the
"Minimum Holding Period"). The initial Minimum Holding Period is one year.
ELIGIBILITY. The Purchase Plan is open to each employee of the Company and
its Subsidiaries, except any employee who would own after the grant of the
Option more than 5 percent of any voting class of securities of the Company. For
the purposes of the Plan, an employee is one whose customary employment is for
more than 20 hours per week or more than five months in any calendar year. Since
30
<PAGE>
participation and amounts contributed by any eligible employee is elective, it
is not possible to predict the benefits that may accrue to any individual or
group of individuals under the Purchase Plan.
ADMINISTRATION. The Purchase Plan is administered by the Committee which has
responsibility for general operation of the Purchase Plan and has the power to
interpret provisions of the Purchase Plan. The Committee may also in its
discretion increase or decrease the Minimum Holding Period from time to time. In
addition, the Committee will establish the terms of each Offering and Option
subject in each case to the terms of the Plan.
PARTICIPATION. Upon a Participant's enrollment in the Plan, the amount
specified will be deducted from a Participant's paycheck for a given pay period
and allocated to such Participant's Account under the Purchase Plan.
OFFERING TERMS. On the last business day of an Offering for which payroll
deductions will be made (the "Expiration Date"), each Participant will be deemed
automatically to have exercised the Option granted to him or her, and all of the
funds accumulated in such Participant's Account from payroll deductions will be
applied to the purchase of Shares from the Company.
The purchase price of each Share purchased under the Plan will be equal to a
discount percentage determined by the Committee (the "Discount Percentage")
multiplied by the lesser of (i) the Fair Market Value per Share on the Effective
Date, or (ii) the Fair Market Value on the Expiration Date. "Fair Market Value"
is defined as the closing price of the Common Stock on the date of
determination, as reported on the NYSE Composite Transactions Tape.
A Participant will possess all the rights and privileges of a stockholder of
the Company with respect to all of the Shares held in his or her Account under
the Plan, including the right to direct the vote with respect to such Shares,
and will receive all distributions and stockholder communications with respect
to such Shares. Options may be exercised only by Participants, and may not be
transferred otherwise than by will or the laws of descent and distribution.
Shares may be transferred after satisfaction of the Minimum Holding Period.
Withdrawals of Shares prior to the end of the applicable Minimum Holding Period
will be permitted only in cases of financial Hardship, demonstrated to the
reasonable satisfaction of the Plan Committee and in accordance with the
"Hardship" definition in the Plan. No fractional shares will be issued under the
Purchase Plan.
No interest will be payable on amounts held in Accounts, and the proceeds
received by the Company upon exercise of Options under the Plan will constitute
general funds of the Company.
Each Participant shall receive a regular statement of such Participant's
Account that will include Plan information to the extent required by the Code.
AMENDMENTS TO AND DISCONTINUANCE OF THE PLAN. The board of directors of the
Company may suspend or terminate the Plan, or amend or modify the terms of the
Plan at any time except that (i) no amendment shall cause the Purchase Plan to
fail to qualify as an employee stock purchase plan under Section 423 of the
Code; (ii) stockholder approval is required for any amendment that would
increase the total number of shares of Common Stock issuable under the Purchase
Plan (other than pursuant to provisions of the plan relating to adjustments in
the event of stock splits, stock dividends, mergers and other changes in the
capitalization of the Company), and (iii) no termination or amendment of the
Purchase Plan may adversely affect the rights of a Participant under an Option
outstanding at the time of such termination or amendment without the consent of
such Participant.
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FEDERAL INCOME TAX CONSEQUENCES
Amounts deducted from a Participant's paycheck under the Purchase Plan
continue to be taxable income to the Participant in the year such amounts are
earned. Such income would be subject to taxation to the same extent (Federal,
state, and local) as other compensation income received by the Participant.
Participants will not recognize additional taxable income either (i) at the time
an Option is granted pursuant to the Plan, or (ii) at the time an Option is
exercised under the Plan.
The tax basis of Shares purchased under the Plan will be the purchase price
specified for each offering Period. A Participant will not realize any taxable
income when he or she receives a certificate representing full Shares withdrawn
from his or her Plan Account, either upon his or her request for withdrawal of
Shares or upon complete withdrawal from or termination of the Plan.
A Participant who purchases Shares pursuant to an Option under the Plan and
disposes of such Shares more than two years after the Option is granted and more
than one year after the Option is exercised, or who dies at any time while
holding the Shares, will recognize ordinary income at the time of disposition or
death in an amount equal to the lesser of (i) the excess, if any, of the Fair
Market Value of the Shares at the time of the disposition or death over the
purchase price paid for the Shares, or (ii) the excess of the Fair Market Value
of the Shares at the time the Option was granted over the purchase price that
would have been paid had such price been calculated by multiplying the Discount
Percentage by the Fair Market Value determined on the Effective Date. The
Participant's basis in the Shares disposed of will be increased by the amount of
ordinary income recognized. Any further gain recognized on the disposition will
be taxed as long-term capital gain.
A Participant who purchases Shares pursuant to an Option under the Plan and
disposes of such Shares less than two years after the Option is granted or less
than one year after the Option is exercised will recognize ordinary income at
the time of disposition in an amount equal to the excess of the Fair Market
Value of the Shares on the date of exercise of the Option over the purchase
price paid for such Shares. Any additional gain or loss recognized by the
Participant on the disposition will be short-term or long-term capital gain or
loss, depending on the Participant's holding period for the Shares transferred.
Participants are urged to consult with their own tax advisors to determine
the particular tax consequences that may result from participation in the Plan
and the subsequent disposal of Shares purchased pursuant to the Plan. Nothing
contained herein shall be treated as tax advice.
The Plan is not subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended, and is not qualified under Section 401(a) of
the Code.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE ALEXANDER & ALEXANDER SERVICES INC. EMPLOYEE DISCOUNT STOCK
PURCHASE PLAN. Assuming the presence of a quorum, the affirmative vote of a
majority of the votes cast by the holders of shares outstanding, present and
entitled to vote on this item at the Annual Meeting, voting as a single class,
is required to approve and adopt the Plan. Under applicable Maryland law, in
determining whether this item has received the requisite number of affirmative
votes, abstentions and broker non-votes will be counted and will have the same
effect as a vote against this item.
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DIRECTOR'S PROPOSAL TO APPROVE AND ADOPT THE
ALEXANDER & ALEXANDER SERVICES INC.
NON-EMPLOYEE DIRECTOR DEFERRED STOCK OWNERSHIP PROGRAM
(ITEM 5 ON PROXY CARD)
The Company has adopted, subject to stockholder approval, the Non-Employee
Directors Deferred Stock Ownership Program (the "NEDD Plan"). The Company
believes that the NEDD Plans will enable the Company to attract and retain
knowledgeable and experienced non-employee directors and to provide such
directors with an economic interest in the Company's Common Stock that will
align their interests with those of the Company's stockholders.
The full text of the NEDD Plan is set forth in Appendix III to this proxy
statement and the following description of the NEDD Plan is qualified in its
entirety by reference to the complete text of the NEDD Plan. Capitalized terms
not otherwise defined herein have the meanings ascribed to them in the NEDD
Plan.
On March 30, 1995, the closing price of the Company's Common Stock on the
New York Stock Exchange was $23.75.
TERM. The NEDD Plan will become effective as of January 1, 1995 and continue
until the Annual Meeting of Stockholders in the year 2005.
CONTRIBUTIONS OF SHARES. Beginning in 1995, each Non-Employee Director will
receive a single fee of $40,000 for all services as a director (the "Annual
Fee"), regardless of the committee services such director provides. The Annual
Fee will generally not be paid currently to any director. Instead, payment of
such Annual Fee will be deferred pursuant to the terms of the NEDD Plan, and
such deferrals will initially be valued by reference to shares of the Company's
Common Stock. Under the NEDD Plan, the Company will semi-annually contribute to
a grantor trust subject to the claims of the Company's creditors (the "Company
Trust") shares having a then fair market value in an amount approximately equal
to one-half of the account established for each such Non-Employee Director (a
"Director's Account"), provided that to the extent a director has an immediate
tax liability due to a contribution to the Company Trust, such director will
receive a cash payment equal to the amount of such liability and the value of
the shares contributed will be reduced by a like amount.
INVESTMENT DIRECTIONS. Under the NEDD Plan, shares contributed to a
Director's Account may be sold by the Trustee after they have been held in the
Company Trust for one year (or earlier upon a Change of Control of the Company)
at the direction of a non-employee director given in writing during a window
period and at least six months in advance of the effective date of such sale;
provided that no such sale will be effected if such sale would result in the
Non-Employee Director having liability under Section 16(b) of the Securities
Exchange Act of 1934, as amended. If any shares of Common Stock are sold, the
trustee of the Company Trust or another independent investment manager appointed
by the Company shall invest the proceeds of such sale for the benefit of such
non-employee director. Such proceeds and any amounts derived therefrom shall be
held in the Company Trust until distributed in accordance with the terms of the
Plan.
TERMINATION OF RETIREMENT PLAN. In connection with the adoption of the NEDD
Plan, the board of directors terminated the Retirement Plan for non-employee
directors. Subject to the approval of the NEDD Plan by stockholders, the Company
made special contributions to the Company Trust in respect of those non-employee
directors who, at December 31, 1994, had completed at least seven and one-half
years of service (the "Minimum Service"). (The termination of the Retirement
Plan had no effect on the benefits of directors who had already retired with
vested rights.) For each director who had completed ten years of service, the
Company made a contribution equal to the full present value of the director's
accrued retirement benefits. For each director who had completed at least the
Minimum
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Service but not ten years of service, the Company made a contribution equal to
two-thirds of such present value. The Company made no special contribution for
any director with less than the Minimum Service. Based on their long service as
directors, the Company made the following contributions to the Company Trust for
the following directors: Dr. Black, 11,065 shares; Mr. McLean, 10,752 shares and
Mr. Grossart, 2,468 shares, plus a cash payment of $6,005 to satisfy Mr.
Grossart's U.K. tax liability on the shares contributed to the Company Trust.
DISTRIBUTIONS FROM THE COMPANY TRUST. All amounts credited to a Director's
Account, including all shares of the Company's Common Stock held thereunder,
will be distributed to the non-employee director (or his or her designated
beneficiary) as soon as practicable following the cessation of the Eligible
Director's services as a member of the board. In addition, upon a finding by the
Chief Executive Officer of the Company that a non-employee director has incurred
a financial hardship, the Chief Executive Officer may direct the Trustee to
distribute to the non-employee director up to the amount necessary to alleviate
such hardship from the assets credited to the Director's Account which are [(i)
attributable to contributions made in respect of the Annual Fee and (ii)] not
invested in Company Common Stock which are necessary to alleviate that hardship.
No hardship withdrawals will be permitted to be made from the portion of a
Director's Account invested in Company Common Stock. Notwithstanding the
foregoing, dividends on Common Stock held in a Director's Account will be passed
through to each director as soon as practicable following the date received by
the Company Trust.
VOTING OF SHARES IN COMPANY TRUST. Each non-employee director is entitled to
direct the Trustee as to how to vote the shares of Company Stock held in an
account for his or her benefit.
AMENDMENT AND TERMINATION. The Board may amend or terminate the NEDD Plan,
but may not change the eligibility qualifications or the other operational
provision of the NEDD Plan more frequently than once in any six month period. To
the extent required to continue to qualify the NEDD Plan for the exception
available under Rule 16b-3, any such amendment will be subject to stockholder
approval.
NEW PLAN GRANT TABLE
The table below shows the number of shares of Common Stock expected to be
contributed to the Company Trust in respect of all current non-employee
directors as a group during 1995 and includes 24,285 shares of Common Stock
delivered in connection with the termination of the Retirement Plan. Employees
of the Company, whether or not directors, are not eligible to receive grants
under the NEDD Plan.
<TABLE>
<CAPTION>
VALUE OF NUMBER
SHARE AWARDS* OF SHARES
------------- ---------
<S> <C> <C>
All current directors who are not executive officers as a group...... $ 1,009,156 54,549
------------- ---------
</TABLE>
------------
* The value of share awards is based on the fair market value of a share of the
Company's Common Stock at the close of business on December 31, 1994, as
determined in accordance with the terms of the NEDD Plan.
There are currently 14 non-employee directors. The number of non-employees
directors who will participate in the Directors Compensation Plan in the future
will vary from year to year.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE ALEXANDER & ALEXANDER SERVICES INC. NON-EMPLOYEE DIRECTOR
DEFERRED STOCK OWNERSHIP PLAN. Assuming the presence of a quorum, the
affirmative vote of a majority of the votes cast by the holders of shares
outstanding, present and entitled to vote on this item at the Annual Meeting,
voting as a single class, is required to approve and adopt the NEDD Plan. Under
applicable Maryland law, in determining whether this item has received the
requisite number of votes, abstentions and broker non-votes will be counted and
will have the same effect as a vote against this item.
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DIRECTORS' PROPOSAL TO APPROVE AND ADOPT THE
ALEXANDER & ALEXANDER SERVICE INC.
PERFORMANCE BONUS PLAN FOR EXECUTIVE OFFICERS
(ITEM 6 ON PROXY CARD)
The board of directors adopted the Performance Bonus Plan for Executive
Officers (the "Plan") effective January 1, 1995, subject to the approval of
stockholders entitled to vote at the Annual Meeting.
The full text of the Plan, as approved and adopted by the board of
directors, is set forth in Appendix IV to this proxy statement, and the
following description of the Plan is qualified in its entirety by reference to
the full text of the Plan. Capitalized terms not otherwise defined herein have
the meanings ascribed to them in the Plan.
The Plan establishes certain performance criteria for determining the
maximum amount of bonus compensation available under the Plan, including that
portion of bonuses payable in the form of restricted stock under the Company's
Bonus Equity Program for those executive officers who, on the last day of the
Company's taxable year, consist of the chief executive officer and the four
other most highly compensated executive officers of the Company or its
subsidiaries (named in the Summary Compensation Table in the Company's proxy
statement for its annual meeting of stockholders) and whose compensation is
deductible in the U.S. (the "Covered Employees").
The Plan is designed to comply with Section 162(m) of the Internal Revenue
Code of 1986, which limits the tax deductibility by the Company of compensation
paid to officers named in the proxy statement in excess of $1,000,000, except to
the extent such compensation is paid pursuant to a plan approved by stockholders
which complies with Section 162(m).
The Plan will be administered by a committee appointed by the board of
directors and composed of "outside directors" as that term is defined under
Section 162(m) (the "Committee").
Under the Plan for each calendar year (the "Bonus Year"), a Covered Employee
is eligible to receive a Specified Bonus Award and a Variable Bonus Award upon
the attainment of performance criteria established by the Committee. Payment in
respect of any such award shall be made either in cash or in a combination of
cash and restricted stock issued under the Bonus Equity Plan (the "BEP")
provided that no more than 50 percent of any such award may be paid in shares of
restricted stock. The award to any individual participant in the Plan for any
calendar year may not exceed $5 million, plus a portion of the value of any BEP
shares. Under the Plan, the Committee has the authority to reduce any bonus
award even if the performance goals have been attained, but may not increase the
amount of any award calculated in accordance with the Plan.
The Committee may establish one or both of the following performance goals
for a Specified Bonus Award:
(i) a specified amount of income from the Company's continuing
operations as of the end of the Bonus Year or a specified minimum increase
in such income as compared to the end of the prior Bonus Year; or
(ii) a specified amount of operating income for the Bonus Year.
For a Variable Bonus Award the Committee may establish on one or more of the
following performance measures as it relates to the Company, its consolidated
subsidiaries, or operating units:
(i) Return on Capital;
(ii) Return on Equity;
(iii) Earnings per Share;
(iv) Cash Flow; or
(v) an increase in operating income in excess of the amount
preestablished in connection with a Specified Bonus Award.
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The Committee may defer to a succeeding year payment of any portion (up to
$1 million) of a bonus award which may be payable to a Covered Employee for a
particular Bonus Year. Payment of such deferred award may be conditioned upon
such conditions established by the Committee, including the achievement of
extraordinary performance by such Covered Employee. Since specified performance
goals are set by the Committee and the Committee has negative discretionary
authority with respect to the amount and form of the Awards, it is not possible
to predict the benefits that may accrue to any individual or group of
individuals under the Plan.
If permitted by Section 162(m), the Committee may establish a measurement
period for determining the achievement of any performance goal other than the
Bonus Year if the Committee concludes that such alternative measurement period
is appropriate under the circumstances. Any such change must be made before the
new measurement period begins. In such event, all relevant criteria will be
based upon the books and records of the Company for the specified measurement
period in a manner consistent with the terms of the Plan.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE ALEXANDER & ALEXANDER SERVICES INC. PERFORMANCE BONUS PLAN FOR
EXECUTIVE OFFICERS. Assuming the presence of a quorum, the affirmative vote of a
majority of the votes cast by the holders of shares outstanding, present and
entitled to vote on this item at the Annual Meeting, voting as a single class,
is required to approve and adopt the Plan. Under applicable Maryland law, in
determining whether this item has received the requisite number of affirmative
votes, abstentions and broker non-votes will be counted and will have the same
effect as a vote against this item.
STOCKHOLDER PROPOSAL--CUMULATIVE VOTING
](ITEM 7 ON PROXY CARD)
The Board of Trustees for the Central Laborers' Pension Fund (the "Fund"),
P.O. Box 1246, Jacksonville, Illinois 62651, which represents 1,200 shares of
the Company's Common Stock, has advised the Company of its intention to have a
designated representative present the following resolution for consideration and
action by stockholders at the Annual Meeting:
RESOLVED: That the stockholders of the Company recommend that our board of
directors take the necessary steps to adopt and implement a policy of cumulative
voting for all elections of directors.
STOCKHOLDER'S SUPPORTING STATEMENT
In the American corporate governance system, the election of corporate
directors is the primary vehicle for shareholders to influence corporate affairs
and exert accountability on management. We believe that the Company's financial
performance is affected by its corporate governance policies and procedures and
the level of accountability they impose. We believe cumulative voting increases
the possibility of electing independent-minded directors that will enforce
management's accountability to shareholders.
The election of independent-minded directors can have an invigorating effect
on the Board of Directors, fostering improved financial performance and
increased shareholder wealth. Management nominees often bow to a Chairman's
desires on business strategies and executive pay without question.
Cumulative voting grants stockholders the number of votes equal to the
number of shares owned multiplied by the number of directors to be elected. The
shareholder may cast all of his or her votes for a single director or apportion
the votes among the candidates. At the Company, shareholders owning 10
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percent of the outstanding shares casting all their votes for one individual
would be required to elect one director, absent any other support.
Currently, the Company's board of directors is composed entirely of
management nominees. Cumulative voting places a check and balance on management
nominees by creating more competitive elections.
The argument that the adoption of cumulative voting will lead to the
election of dissidents to the board of directors who represent the special
interests of a minority of stockholders instead of the best interests of all
shareholders is misleading. Legally binding standards of fiduciary duty compel
all directors, no matter what combination of shareholders elected them, to act
in the best interest of all stockholders. Any director who fails to respect the
fiduciary duties of loyalty and/or care exposes himself or herself to
significant liability. Legal recourse is available to correct any breaches of
fiduciary duty.
We do not accept the claim that in the complex world our Company competes
in, an honest difference of opinion over business strategies and other policies
of the Company makes the minority view a so-called "special interest." Quite the
contrary, dissent stimulates debate which leads to thoughtful action. Cumulative
voting will increase the competitiveness of director elections. We believe
competitive elections for directors will deter complacency on the board of
directors, which in turn will improve the performance of our Company and
increase shareholder wealth.
We Urge Your Support For This Proposal.
BOARD OF DIRECTORS' RESPONSE OPPOSING STOCKHOLDER'S PROPOSAL
During 1994, the Company's board of directors took extensive actions to
implement a restructuring process and to improve the Company's financial
position and future profitability. The board's actions clearly demonstrated its
ability to act independently and to enforce management accountability. Further,
the board already encourages stockholders to recommend prospective director
candidates to the Compensation, Benefits and Nominating Committee. This
committee is responsible for recommending nominees for election to the board of
directors and is comprised of independent directors.
Pursuant to the Company's charter and applicable law, directors are elected
by a majority vote of the Company's stockholders. This method permits directors
to carry out their responsibilities for the benefit of all stockholders.
We do not believe that the interests of stockholders as a group are
furthered by cumulative voting for the election of directors. Cumulative voting
creates the risk of partisanship among board members which could impair their
ability to work together. The variety and complexity of issues facing the
Company necessitates that the board be able to act through consensus.
Legally binding standards of fiduciary duty compel all directors to act in
the best interest of all stockholders. Directors should be elected based on
their ability and commitment to represent the best interests of the Company and
its stockholders as a whole. This principle is best served when each director is
elected by a majority vote of the stockholders.
In the board's opinion, the Company's present method of electing directors
best assures that directors oversee the business and affairs of the Company for
the benefit of all stockholders.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS STOCKHOLDER
PROPOSAL. Assuming the presence of a quorum, the affirmative vote of a majority
of the votes cast by the holders of shares outstanding, present and entitled to
vote on this item at the Annual Meeting, voting as a single class, is required
to pass this proposal. Under applicable Maryland law, in determining whether
this item has
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received the requisite number of affirmative votes, abstentions and broker
non-votes will be counted and will have the same effect as a vote against this
item.
STOCKHOLDER PROPOSAL--STOCKHOLDER APPROVAL OF
CHANGE OF CONTROL ARRANGEMENTS
(ITEM 8 ON PROXY CARD)
Kenneth Steiner, who represents 300 shares of the Company's Common Stock,
has advised the Company of his intention to present the following resolution for
consideration and action by the stockholders at the Annual Meeting:
RESOLVED, that the stockholders recommend that the board of directors adopt
a policy against entering into future agreements with officers and directors of
this corporation which provide compensation contingent on a change of control of
the corporation, unless such compensation agreements are submitted to a vote of
the stockholders and approved by a majority of shares present and voting on the
issue.
STOCKHOLDER'S SUPPORTING STATEMENT
Lucrative severance contracts awarded to senior corporate executives which
provide compensation contingent on a change of control, usually through a merger
or acquisition of the corporation, are known as "golden parachutes". These
contracts are awarded without stockholder approval.
The practice of providing these large cash awards to a small group of senior
corporate managers without the stockholder approval has been a subject of public
outcry. In 1988, the U.S. Senate, in emphasizing the potential conflict of
interest between management and shareholders created by these agreements, voted
ninety-eight to one to require stockholder approval of golden parachutes which
exceed three times annual compensation.
Although final action was not taken, it is clear to me that the overwhelming
vote in favor of the measure reflects public sentiment against golden
parachutes. Stockholder vote would allow the corporation's owners to decide for
themselves whether golden parachutes are in their best interests.
I am a founding member of the Investor Rights Association of America and it
is clear to me that requiring stockholder vote is necessary to address the
conflicts of interest between management and stockholders that arise in the
awarding of golden parachutes.
I Urge Your Support. Vote For This Resolution.
BOARD OF DIRECTORS' RESPONSE OPPOSING STOCKHOLDER'S PROPOSAL
In those instances when the board of directors believes agreements with
change of control payment features would be in the best interests of the Company
and its stockholders, the board needs the flexibility to quickly and efficiently
provide such agreements to executives. It is critical that the Company have the
unencumbered ability to continue to attract, retain and motivate executives with
the expertise to deal with a large, complex organization in a rapidly changing
industry such as ours.
As the Company faces an increasingly competitive environment, the
restrictions that would result from the adoption of the proposal would not be in
the best interests of the stockholders. The Company's existing agreements (which
are described beginning on page 18 of this proxy statement) are intended to
minimize, rather than augment, a conflict of interest executives might face in
the event of a change of control. These agreements, by providing financial
security for possible job loss following a change of control, help management to
assess a takeover bid objectively and to advise the board without the fear of
personal financial loss. Furthermore, because the length of time generally
involved in a change of
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control, the Company could be at a disadvantage if it were to lose key employees
during that time period. The existing arrangements provide incentive for key
employees to stay with the Company during a contest for control.
In addition, the Company's flexibility would also be severely hampered by
the need to submit such agreements to stockholders for approval. Under the
proposal, unless the Company were to incur the significant expense of a special
meeting of stockholders, such agreements could only be entered into once a year
after approval at the annual meeting of stockholders.
In our increasingly competitive business climate, no company can afford to
subject itself to the constraints in the management of its affairs that are
recommended by this proposal.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS STOCKHOLDER
PROPOSAL. Assuming the presence of a quorum, the affirmative vote of a majority
of the votes cast by the holders of shares outstanding, present and entitled to
vote on this item at the Annual Meeting, voting as a single class, is required
to pass this proposal. Under applicable Maryland law, in determining whether
this item has received the requisite number of affirmative votes, abstentions
and broker non-votes will be counted and will have the same effect as a vote
against this item.
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10 percent of
any registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange
reports of ownership of the Common Stock, Class A Stock and Class C Stock of the
Company. Reporting persons are required by SEC regulation to furnish the Company
with copies of all such reports that they file. To the Company's knowledge,
based solely upon review of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended December 31, 1994, its officers, directors and greater than ten percent
beneficial owners timely filed all required Section 16(a) reports except for the
following: with respect to 1,000 shares of Common Stock purchased by Mr. Zarb's
spouse on August 8, 1994, such purchase was not reported until October 8, 1994.
STOCKHOLDER PROPOSALS FOR 1996 MEETING
Stockholders are advised that any proposals of stockholders intended to be
presented at the 1996 Annual Meeting of Stockholders must be received by the
Company on or before December 11, 1995 for inclusion in the Company's proxy
statement and form of proxy relating to that meeting. In addition, the Bylaws of
the Company establish an advance notice requirement for any proposal of business
to be considered at an annual meeting of stockholders that is not made by or at
the recommendation of a majority of the directors then in office. In general,
written notice must be delivered to the Secretary of the Company at its
principal executive office, 1185 Avenue of the Americas, New York, New York
10036, within certain time periods in advance of the meeting and must contain
specified information concerning the matter to be brought before the meeting and
the stockholder proposing the matter. Any stockholder desiring a copy of the
Bylaws of the Company will be furnished one without charge upon written request
to the Secretary of the Company.
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OTHER MATTERS
The Board of Directors of the Company is not aware of any other matters to
come before the Annual Meeting. If any other matter should come before the
meeting, the persons named in the enclosed proxy intend to vote the proxy
according to their best judgment.
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APPENDIX I
ALEXANDER & ALEXANDER SERVICES INC.
1995 LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the 1995 Long-Term Incentive Plan (the "Plan") is to promote
the success of Alexander & Alexander Services Inc. (the "Company") by providing
incentives for certain key employees which will link their personal interest to
both the long term financial success of the Company and the growth of
stockholder value. The Plan is intended to enhance the Company's ability to
attract, retain and motivate qualified personnel upon whom, in large measure,
the progress, growth and profitability of the Company depends. The various types
of long-term incentive awards provided under the Plan will enable the Company to
respond to changes in compensation practices, tax laws, accounting regulations,
and the size and diversity of its businesses.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall have the meanings
indicated below unless the context clearly indicates otherwise:
(a) "AWARD" shall mean any grant of Stock, or of a right to receive
either Stock or an amount of cash calculated by reference to the value of
Stock, made under the Plan.
(b) "AWARD AGREEMENT" shall mean an agreement between a Participant and
the Company covering the specific terms and conditions of an Award.
(c) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company.
(d) "BONUS EQUITY PLAN" shall mean the program described in Section 6.4
of the Plan.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
(f) "COMMITTEE" shall mean the committee appointed by the Board of
Directors to administer the Plan pursuant to Section 4.
(g) "COMPANY" shall mean Alexander & Alexander Services Inc. and its
Subsidiaries.
(h) "DISABILITY" shall mean permanent disability within the meaning of
Section 22(e)(3) of the Code.
(i) "INCENTIVE STOCK OPTION" shall mean an option to purchase Stock
granted under Section 6.1 of the Plan which is designated as an Incentive
Stock Option and is intended to meet the requirements of Section 422 of the
Code.
(j) "NONQUALIFIED STOCK OPTION" shall mean an option to purchase Stock
granted under Section 6.1 of the Plan which is not intended to be an
Incentive Stock Option.
(k) "OPTION" shall mean an Incentive Stock Option or a Nonqualified
Stock Option.
(l) "OPTION PERIOD" shall mean the period from the date of the grant of
an Option to the date when the Option expires as stated in the terms of the
Award Agreement.
(m) "OPTIONEE" shall mean a Participant who has been granted an option
to purchase shares of Stock under the provisions of the Plan.
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(n) "OTHER STOCK BASED AWARDS" shall have the meaning specified in
Section 6.6 of the Plan.
(o) "PARTICIPANT" shall mean an employee who has an outstanding Award
granted under the Plan.
(p) "PERFORMANCE SHARE/UNIT" shall mean the grant of contingent shares
of Stock or units under Section 6.5 of the Plan.
(q) "PERFORMANCE AWARD" shall mean an Award granted under the conditions
specified in Section 7 of the Plan.
(r) "PLAN" shall mean the Alexander & Alexander Services Inc. 1995
Long-Term Incentive Plan, as it may be amended from time to time.
(s) "REPLACEMENT OPTION" shall mean an Option to purchase Stock granted
under Section 6.1(f) of the Plan.
(t) "RESTRICTED PERIOD" shall mean the period of time from the date of
grant of Restricted Stock to the date when the restrictions placed on the
Stock in the Award Agreement lapse.
(u) "RESTRICTED STOCK" shall mean an Award of Stock granted under
Section 6.3 or Section 6.4 of the Plan.
(v) "RETIREMENT" shall mean termination of employment with the Company
or any of its Subsidiaries at or after age 60 (or such earlier age as the
Committee shall determine) and pursuant to a retirement plan of the Company
or the Subsidiary.
(w) "STOCK" shall mean the Company's common stock, $1.00 par value per
share.
(x) "STOCK APPRECIATION RIGHT" shall mean a right to receive an amount,
payable in cash or Stock or partly in cash and partly in Stock, equal to the
difference between the fair market value of the Stock on the date the Award
is exercised and the exercise price of the Stock Appreciation Right as
stated in the Award Agreement.
(y) "SUBSIDIARY" shall mean any corporation which at the time qualifies
as a subsidiary of the Company under the definition of "subsidiary
corporation" in Section 424(f) of the Code.
(z) "TERMINATION OF EMPLOYMENT" shall be deemed to have occurred at the
close of business on the last day on which a Participant is carried as an
active employee on the records of the Company or any of its Subsidiaries.
SECTION 3. STOCK SUBJECT TO THE PLAN
3.1 Authorized Stock
Subject to adjustment as provided in this Section 3, the aggregate number of
shares of Stock that may be delivered under the Plan shall not exceed the sum of
(a) 4,700,000 plus (b) the number of shares remaining available for issuance on
the effective date of the Plan under the Company's 1988 Long-Term Incentive
Compensation Plan (the "Predecessor Plan") plus (c) the lesser of (i) 2,000,000
shares of Stock or (ii) the number of shares of Stock received by the Company
after the effective date of the Plan upon exercise of any Option, whether issued
under the Plan or the Predecessor Plan. No more than 940,000 shares shall be
issued as Restricted Stock under Sections 6.3 and 6.4 of the Plan. The exercise
of a Stock Appreciation Right, whether paid in cash or Stock, shall be deemed to
be an issuance of Stock under the Plan. The payment of Performance Share/Unit
and Other Stock Based Awards shall not be deemed to constitute an issuance of
Stock under the Plan unless payment is made in Stock, in
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which case only the number of shares issued in payment of the Performance
Share/Unit or Other Stock Based Awards shall constitute an issuance of Stock
under the Plan.
3.2 Effect of Expirations
Except as otherwise provided in Section 3.1, in the event that (a) any Award
granted under the Plan or (b) any Award granted under the Predecessor Plan and
outstanding on the effective date of the Plan, shall expire or terminate for any
reason, including by reason of its reacquisition (through a purchase, exchange,
surrender or otherwise) and cancellation by the Company, or if the amount of
Stock subject to an Award or to be delivered upon exercise of an Award is
reduced for any reason whatsoever, the Stock no longer subject to such Award
shall be available to be reawarded under the Plan.
3.3 Adjustments in Authorized Shares
In the event of any merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split-up, share combination, or other
change in the corporate structure of the Company affecting the Stock, the number
and class of shares which may be delivered under the Plan, and the number and
class of and/or price of shares subject to outstanding Awards granted under the
Plan shall be adjusted in a manner determined to be appropriate and equitable by
the Committee, in its sole discretion, to prevent dilution or enlargement of
rights; and provided that the number of shares subject to any Award shall always
be a whole number. Any adjustment of an Incentive Stock Option under this
paragraph or paragraph 3.4 shall be made in such a manner so as not to
constitute a "modification" within the meaning of Section 424(h)(3) of the Code.
3.4 Adjustment for Purposes of Tender Offers
In the event of the offer to holders of Stock generally relating to the
acquisition of their shares, the Committee may make such adjustment as it deems
appropriate and equitable in respect of outstanding Awards so that they may be
exercisable for or payable in the consideration payable in the acquisition
transaction. Any adjustment of an Incentive Stock Option under this paragraph
shall be made in such a manner so as not to constitute a "modification" within
the meaning of Section 424(h)(3) of the Code.
SECTION 4. ADMINISTRATION
4.1 The Committee
The Plan shall be administered by a committee (the "Committee") consisting
of not less than two directors who shall be appointed from time to time by, and
shall serve at the discretion of, the Board of Directors. A director may serve
on the Committee only if he or she has not received an Award under the Plan or
any similar plan of the Company or any of its Subsidiaries for at least one year
before his or her appointment and otherwise satisfies the definition of a
"disinterested person" for purposes of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended.
4.2 Authority of the Committee
Subject to the provisions of the Plan, the Committee shall have full power
to construe and interpret the Plan; to establish, amend or waive rules and
regulations for its administration; to accelerate the exercisability of any
Award or the end of a performance period or the termination of any Restricted
Period under an Award; to correct errors, omissions or inconsistencies in the
Plan or in any Award Agreement, or any other instrument relating to an Award
under the Plan, and (subject to the provisions of Section 8) to amend the terms
and conditions of any outstanding Award to the extent such terms and conditions
are within the discretion of the Committee as provided in the Plan. The
Committee's decisions and all related orders or resolutions of the Board of
Directors with respect to the interpretation and administration of the Plan
shall be final, conclusive and binding on all persons, including the
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Company, its stockholders, employees, Participants and their estates and
beneficiaries. Notwithstanding the foregoing, no action of the Committee may,
without the consent of the person or persons entitled to exercise or receive
payment of any other outstanding Award, adversely affect the rights of such
person or persons.
No member of the Committee shall be liable, in the absence of bad faith, for
any act or omission with respect to his or her services on the Committee.
Service on the Committee shall constitute service as a director of the Company
so that members of the Committee shall be entitled to indemnification, any
limitation of liability and reimbursement as directors with respect to their
services as members of the Committee.
4.3 Selection of Participants
The Committee shall have the authority to grant Awards under the Plan from
time to time to any employee of the Company and any of its Subsidiaries
(including officers and directors who are employees) selected by the Committee.
Except as otherwise provided in Section 6.4(b), the Committee shall select
Participants from among employees identified by the Company as eligible to
participate in the Plan.
4.4 Delegation of Certain Responsibilities
The Committee may, in its sole discretion, delegate to appropriate officers
of the Company the administration of the Plan under this Section 4; provided,
however, that no such delegation by the Committee shall be made (i) if such
delegation would not be permitted under applicable law or (ii) with respect to
the administration of the Plan as it affects executive officers or directors of
the Company, and provided further that the Committee may not delegate its
authority to correct errors, omissions or inconsistencies in the Plan. Subject
to the above limitations, the Committee may delegate to the Chief Executive
Officer of the Company its authority under this Section 4 to grant Awards to
employees who are not executive officers or directors of the Company. All
authority delegated by the Committee under this Section 4.4 shall be exercised
in accordance with the provisions of the Plan and any guidelines for, conditions
on, or limitations to the exercise of such authority that may from time to time
be established by the Committee.
4.5 Award Agreements
Each Award under the Plan shall be evidenced by an Award Agreement which
shall be signed by an officer of the Company and by the Participant, and shall
contain such terms and conditions as may be approved by the Committee, which
need not be the same in all cases. Any Award Agreement may be supplemented or
amended in writing from time to time as approved by the Committee, provided that
the terms of such agreements as amended or supplemented, as well as the terms of
the original Award Agreement, are not inconsistent with the provisions of the
Plan.
Nothing contained in the Plan or any resolutions adopted or to be adopted by
the Board of Directors or by the stockholders of the Company shall constitute
the granting of an Award under the Plan. An employee who receives an Award under
the Plan shall not, with respect to such Award, be deemed to have become a
Participant and/or an Optionee, or to have any rights with respect to such
Award, unless and until such employee has executed an Award Agreement or other
instrument evidencing the Award and shall have delivered an executed copy
thereof to the Company, and has otherwise complied with the applicable terms and
conditions of the Award.
SECTION 5. ELIGIBILITY
Except with respect to Awards under Section 6.4 (the Bonus Equity Plan), all
officers of the Company and each other employee of the Company and its
Subsidiaries who are expected to contribute substantially to the growth and
profitability of the Company and its Subsidiaries are eligible to receive
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Awards under the Plan. Eligibility criteria for participation in the Bonus
Equity Plan are specified in Section 6.4(b).
SECTION 6. AWARDS UNDER THE PLAN
Any Award granted under the Plan may be made either alone or in conjunction
with any other type of Award which may be granted under the Plan; provided that
an Optionee shall not be granted Options for more than 1,000,000 shares of Stock
in any twelve month period.
6.1 Stock Option Awards
(a) Option Price--The purchase price per share of Stock covered by an Option
shall be determined by the Committee but shall not be less than 100% of the fair
market value of such Stock on the date the Option is granted. Such fair market
value shall be determined by the Committee, which may use any reasonable
valuation method. An Incentive Stock Option granted to any person who, at the
time the Option is granted, owns (within the meaning of Section 424(d) of the
Code) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of its parent or any Subsidiary, shall have
an exercise price which is at least 110% of the fair market value of the Stock
subject to the Option.
(b) Option Period--The Option Period shall be determined by the Committee,
but no Incentive Stock Option shall be exercisable later than ten years from the
date of grant and no Nonqualified Stock Option shall be exercisable later than
ten years and one day from the date of grant. Notwithstanding the foregoing, in
the case of an Optionee owning (within the meaning of Section 424(d) of the
Code), at the time an Incentive Stock Option is granted, more than 10% of the
total combined voting power of all classes of stock of the Company or any
Subsidiary, such Incentive Stock Option shall not be exercisable later than five
years from the date of grant.
(c) Limitation on Amount of Incentive Stock Options--Subject to the overall
limitations of Section 3 (relating to the aggregate amount of Stock subject to
the Plan), the aggregate fair market value (determined as of the time the Option
is granted) of Stock with respect to which Incentive Stock Options are
exercisable for the first time by a Participant during any calendar year under
the Plan (and all other incentive stock option plans of the Company, any
Subsidiary or any parent corporation) shall not exceed $100,000. In no event,
however, shall an acceleration of exercisability pursuant to the terms of the
Plan operate to reduce or limit the number of shares which may be exercised
pursuant to such Incentive Stock Options. Shares in excess of the $100,000 limit
described herein which become exercisable as a result of acceleration shall be
treated as shares subject to a Nonqualified Stock Option.
(d) Exercisability--An Option shall become exercisable at such time or times
as determined by the Committee at or subsequent to grant.
(e) Method of Exercise
(i) In order to exercise an Option under the Plan, the Optionee or other
person(s) entitled to exercise the Option shall give written notice of
exercise to the Company specifying the number of full shares to be
purchased. Such notice shall be accompanied either by (A) payment in full
(in such form as provided in this Section 6.1(e)) for the Stock being
purchased plus, in the case of Nonqualified Stock Options, any required
withholding tax as provided in Section 9 or (B) delivery of a properly
executed notice together with irrevocable instructions to a securities
broker to deliver promptly to the Company the amount of sale or loan
proceeds.
(ii) Unless the Committee shall in its sole discretion determine
otherwise, payment in full or in part may be made by tendering to the
Company Stock owned by the Optionee (or by the Optionee and his or her
spouse, jointly) and acquired more than six months prior to such tender. The
amount of Stock tendered in payment shall have a fair market value equal to
the aggregate
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purchase price of the number of full shares covered by the Option to be
purchased, such fair market value to be determined in any reasonable manner
as may be provided for from time to time by the Committee or as may be
required to order to comply with or to conform to the requirements of any
applicable or relevant laws or regulations.
(iii) [The Committee in its sole discretion may also permit payment in
full or in part to be made by tendering Restricted Stock awarded under
Section 6.4 of the Plan at least six months prior to such tender.] The value
of such Restricted Stock shall be specified by the Committee at the time it
agrees to accept it in payment; provided that, if no value is specified by
the Committee, the value of the Restricted Stock tendered shall be
calculated in accordance with subparagraph 6.1(e)(ii).
(iv) If the exercise price of an Option is paid by delivery of
Restricted Stock awarded under Section 6.4, then the shares issued upon
exercise of the Option shall also be Restricted Stock and shall remain so
for the remainder of the restricted period applicable to the shares of
Restricted Stock tendered in payment.
(f) Replacement Options--At the time an Option is granted or upon the
exercise of an Option granted under the Plan, the Committee may, at its sole
discretion, authorize the issuance of or grant to the Optionee a Replacement
Option. A Replacement Option shall be authorized or granted only if Stock [or
Restricted Stock] is tendered in payment of the exercise price of the Option.
The Replacement Option shall permit the Optionee to purchase a number of shares
of Stock equal to the number of shares of Stock tendered in payment of the
exercise price of the Option, and, if applicable, in satisfaction of any
withholding taxes due upon exercise of the Option. The exercise price of the
Replacement Option shall be equal to the fair market value of the Stock on the
date the original Option is exercised, and, subject to the other provisions
contained herein, may contain such terms as the Committee shall determine
(including the date or dates on which the Option shall become exercisable and
the length of the Option Period).
(g) Termination of Employment--Unless otherwise specified by the Committee
at or subsequent to the grant, an Option may be exercised after an Optionee's
Termination of Employment only with respect to the number of shares of Stock
(subject to adjustment as provided in Section 3.3 or 3.4) which the Optionee
could have acquired by an exercise of the Option immediately prior to the
Termination of Employment, but in no event after the expiration date of the
Option as specified in the applicable Award Agreement. Except to the extent
otherwise provided by the Committee, an Optionee's right to exercise any Option
following Termination of Employment shall terminate:
(i) At the expiration of three months (Incentive Stock Options) or three
years (Nonqualified Stock Options) after the Optionee's Retirement;
provided, however, if an Incentive Stock Option is not exercised within
three months of the Optionee's Termination of Employment, it will be treated
as a Nonqualified Stock Option for purposes of the Plan when it is
exercised; or
(ii) At the expiration of one year (Incentive Stock Options) or three
years (Nonqualified Stock Options) following a finding that the Optionee has
a Disability; the determination of the Committee on any question involving
disability to be conclusive and binding; or; or At the expiration of one
year in the event of the Disability of the Optionee, the determination of
the Committee on any question involving disability shall be conclusive and
binding; or
(iii) At the expiration of one year after the Optionee's death if the
Optionee's Termination of Employment occurs by reason of death or if the
Optionee had the right to exercise an Option on the date of death pursuant
to subparagraph (i) of this Section 6.1(g). Any Option exercised under this
subparagraph (iii) may be exercised in full by the legal representative of
the estate of the Optionee or by the person or persons who acquire the right
to exercise such Option by bequest or inheritance; or
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(iv) Thirty days following the Optionee's Termination of Employment for
any other reason, except that, if such Termination of Employment would
constitute "discharge", as defined in the Company's Severance Benefit Plan
(as in effect on the effective date of the Plan), the Optionee's right to
exercise any Option shall end immediately upon such Termination of
Employment.
(h) The person or persons entitled to exercise, or who have exercised, an
Option shall not be entitled to any rights as a stockholder of the Company with
respect to any shares subject to the Option until such person or persons shall
have become the holder of record of such shares.
6.2 Stock Appreciation Right Awards
(a) Grants--Stock Appreciation Rights may be awarded alone or in conjunction
with all or part of any Option granted under the Plan. The Committee, in its
sole discretion, shall establish all terms of a stand-alone Stock Appreciation
Right, including its exercise price and expiration date and any other terms the
Committee believes appropriate at the time of grant.
Awards of Stock Appreciation Rights in conjunction with Options shall be
made as follows:
(i) In the case of a Nonqualified Stock Option, such rights may be
granted either at the time the Option is granted or at any subsequent time
during the term of the Option; and
(ii) In the case of an Incentive Stock Option, such rights may be
granted only at the time the Option is granted.
(b) Terms and Conditions--Stock Appreciation Rights awarded in conjunction
with an Option shall be subject to all terms and conditions of the Option. In
addition, all Stock Appreciation Rights shall be subject to the following terms
and conditions, and may contain additional terms and conditions, not
inconsistent with the Plan, as the Committee shall determine:
(i) Price and Fair Market Value--The purchase price per share of Stock
subject to a Stock Appreciation Right shall be determined by the Committee
at the time of grant. Both the purchase price and the fair market value of
Stock on the date of exercise of a Stock Appreciation Right shall be
determined by the Committee in the manner specified in Section 6.1(a) with
respect to Options.
(ii) Exercisability--Stock Appreciation Rights awarded in conjunction
with an Option shall be exercisable only to the extent that the Option is
exercisable and shall terminate and shall no longer be exercisable upon the
expiration or exercise of the related Option. Stock Appreciation Rights not
granted in conjunction with an Option shall be exercisable as specified by
the Committee at or subsequent to the date of grant. However, no Stock
Appreciation Right or any related Option may be exercised until at least 6
months after the date of grant, except that this limitation shall not apply
in the event of the death or Disability of the Participant prior to the
expiration of the 6-month period.
(iii) Termination of Employment--Except as otherwise provided by the
Committee at the time a Stock Appreciation Right is awarded, the right to
exercise a Stock Appreciation Right shall terminate as specified in Section
6.1(g) of the Plan as if the Stock Appreciation Right were a Non-Qualified
Stock Option.
(c) Method of Exercise--A Stock Appreciation Right awarded in conjunction
with an Option may be exercised by the Optionee surrendering the applicable
portion of the related Option. Options which have been so surrendered, in whole
or in part, shall no longer be exercisable to the extent the related Stock
Appreciation Right has been exercised. Upon the exercise of any Stock
Appreciation Right, a Participant shall be entitled to receive an amount, in
cash or whole shares of Stock or partly in cash and partly in Stock (as
determined by the Committee in its sole discretion), equal to the amount by
which the fair market value of one share of Stock (determined by the Committee
as if the Stock Appreciation
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Right were a Non-Qualified Option) exceeds the exercise price per share
specified in the Award, multiplied by the number of shares in respect of which
the Stock Appreciation Right has been exercised. Shares of Stock delivered to
the Participant upon exercise of a Stock Appreciation Right, if any, shall be
valued at their fair market value (determined as specified in Section 6.1(a)
above) on the date of exercise.
(d) Limited Stock Appreciation Rights--Notwithstanding anything else in this
Section 6.2 to the contrary, the Committee may grant Stock Appreciation Rights
which (i) become exercisable solely upon the occurrence of a Change of Control
as defined in Section 9.12 hereof and which remain exercisable for a specified
period of time (not exceeding 90 days) following such Change of Control, and
(ii) provide that upon exercise, the amount payable to the holder thereof may be
based upon either (A) the fair market value of a share of Stock (determined as
specified in Section 6.1(a) above) or (B) the highest price per share paid in
any transaction reported on the New York Stock Exchange Composite Index, or paid
or offered in any bona fide transaction related to a Change of Control, at any
time during the 60 day period immediately preceding the occurrence of the Change
of Control, in each case as determined by the Committee except that, in the case
of any such Stock Appreciation Right relating to an Incentive Stock Option, the
amount payable shall be based solely on the fair market value of a share of
Stock.
6.3 Restricted Stock Awards
(a) Restricted Period--Except as otherwise specified by the Committee, the
Restricted Period shall commence on the date of grant of the Award and shall
expire 3 years thereafter. During the Restricted Period, the Participant shall
not sell, transfer, pledge, assign or otherwise dispose of shares of Stock
subject to a Restricted Stock Award. Any attempt by the Participant to sell,
transfer, pledge, assign or otherwise dispose of such Stock shall constitute
immediate forfeiture of such Award.
(b) Rights of Participant--Except as provided in paragraph (a) of this
Section 6.3, the Participant shall have, with respect to the shares subject to
the Restricted Stock Award, all the rights of a stockholder of the Company,
including the right to vote the shares and the right to receive all dividends
and other distributions with respect to such shares, provided that the
Participant has become the holder of record of such shares. In the event of any
adjustment as provided in Section 3.3 or 3.4 or any securities received as a
dividend on the Award shares, such new or additional shares or securities shall
be subject to the same terms and conditions as relate to the original Restricted
Stock Award.
(c) Lapse of Restrictions--At the conclusion of the Restricted Period, the
restrictions on the Restricted Stock Award shall lapse, whereupon the Company
shall, subject to the provisions of Section 9.3 or 9.5, promptly deliver to the
Participant a stock certificate evidencing those shares.
(d) Termination of Employment--Except as otherwise provided by the Committee
either at the time the Restricted Stock Award is granted or thereafter, the
Restricted Period shall end and any other restrictions specified in the Award
Agreement shall automatically be removed upon the Participant's Termination of
Employment by reason of death, Disability or Retirement during the Restricted
Period. In the event of the Participant's Termination of Employment during the
Restricted Period for any other reason, the Participant's rights to the shares
subject to the Restricted Stock Award shall be forfeited and all such shares
shall immediately be surrendered to the Company.
6.4 Bonus Equity Plan
(a) Grants--Awards will be made in the form of Restricted Stock, based on a
percentage of the cash incentive compensation otherwise payable to a Participant
under any incentive compensation plans, programs or arrangements of the Company
or any Subsidiary, and will be granted at such time as the Committee may in its
sole discretion determine ("BEP Awards"). The percentage of incentive
compensation used to determine the size of BEP Awards will be determined by a
formula or formulas approved by the Committee.
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(b) Eligibility--Officers and other key employees of the Company or any of
its Subsidiaries who are entitled to receive cash incentive compensation shall
be eligible to receive Awards under this Section 6.4. The Committee shall, in
its sole discretion, select Participants to receive BEP Awards from among those
officers and employees who are entitled to receive cash incentive compensation
and who (i) are nominated to participate in the Bonus Equity Plan by the Company
or (ii) voluntarily elect to participate. Participation in the Bonus Equity Plan
by Participants nominated by the Company shall be mandatory upon approval by the
Committee.
(c) Amount--The number of shares of Restricted Stock subject to a BEP Award
will be calculated by valuing the Stock at not less than 75% of its fair market
value ("BEP Value"). For purposes of this Section 6.4, the BEP Value shall be
determined by the Committee based on the average of the Stock's closing prices
on the Composite Tape of the New York Stock Exchange for the five trading days
prior to the date of the Award. The dollar value of each Participant's specified
percent of cash incentive compensation to be subject to a BEP Award (determined
by formulas approved by the Committee) will be divided by the BEP Value to
determine the number of whole shares of Restricted Stock subject to each BEP
Award. The value of any fractional shares will be paid in cash.
(d) Form--Each Participant who receives a BEP Award may, but need not, be
issued a stock certificate in respect of such shares of Restricted Stock. A
"book entry" (i.e., a computerized or manual entry) may instead be made in the
records of the Company to evidence a Participant's BEP Award. Such Company
records shall, absent manifest error, be binding on all Participants.
(e) Restrictions--The shares of Restricted Stock subject to a BEP Award
shall be subject to the following restrictions and conditions:
(i) Except as otherwise specified by the Committee either at the time of
grant or thereafter, the Restricted Period shall be three years from the
date a BEP Award is granted. During the Restricted Period, except as
provided in Section 6.1(e) of the Plan, the Participant shall not sell,
transfer, pledge, assign or otherwise dispose of such shares and any attempt
by a Participant to do so shall constitute immediate forfeiture of the BEP
Award.
(ii) Unless the Committee in its sole discretion shall determine
otherwise at or prior to the time a BEP Award is granted, during the
Restricted Period the Participant shall have all such rights with respect to
shares of Restricted Stock granted under this Section 6.4 as are specified
in Section 6.3(b) with respect to other shares of Restricted Stock.
(f) Lapse of Restrictions--At the conclusion of the Restricted Period, the
restrictions on the BEP Award shall lapse and the Participant shall thereafter
have the right to sell or otherwise transfer the BEP Award Shares.
(g) Termination of Employment--Except as otherwise provided by the Committee
either at the time of grant or thereafter, the Restricted Period shall end and
any other restrictions specified in the BEP Award Agreement shall automatically
be removed upon the Participant's Termination of Employment by reason of death,
Disability or Retirement during the Restricted Period. In the event of the
Participant's Termination of Employment during the Restricted Period for any
other reason, unless the Committee shall otherwise determine, the Participant's
rights to the shares subject to the BEP Award shall be forfeited and all such
shares shall immediately be surrendered to the Company.
6.5 Performance Share/Unit Awards
(a) Grants--Performance Share/Unit Awards granted under the Plan shall be in
such form as the Committee may from time to time approve, subject to the terms
and conditions of this Section 6.5 and may contain any terms and conditions
(which terms and conditions need not be the same in each case), not inconsistent
with the Plan, as the Committee shall deem desirable.
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(b) Performance Period--The Committee shall, at the time of grant, establish
a performance period for the Award. Such period shall commence and end on the
dates specified by the Committee. Notwithstanding the above, the Committee may,
in its sole discretion, accelerate the end of a performance period.
(c) Performance Criteria and Valuation--The Committee shall, at the time of
grant, establish performance criteria with respect to the Performance Share/Unit
Award. These performance criteria may include any measures of performance of the
Company or its Subsidiaries or such other criteria as the Committee shall
select. At the end of the performance period established by the Committee
pursuant to Section 6.5(b), the Committee shall evaluate actual performance
during such performance period compared to the performance criteria established
for the Award, and shall determine the value, if any, of the Performance
Share/Unit Award and the amount payable in respect thereof.
(d) Dividends and Interest--Subject to the provisions of the Plan and the
Award Agreement, a Participant who receives a Performance Share Award under this
Section 6.5 shall be entitled to receive, currently or on a deferred basis,
interest or dividends, or interest or dividend equivalents, with respect to the
number of shares of Stock covered by the Award, as determined at the time of the
Award by the Committee in its sole discretion, and the Committee may provide
that such amounts (if any) shall be deemed to have been reinvested in additional
Stock or otherwise been reinvested.
(e) Payment--Payment shall be made in cash or in Stock having a fair market
value on the date of payment (determined by the Committee using any reasonable
valuation method) equal to the amount payable, or partly in cash and partly in
Stock, as determined by the Committee. No fractional shares of Stock will be
issued.
(f) Termination of Employment
(i) If a Participant's employment terminates during the performance
period specified in the Award Agreement by reason of death, Disability or
Retirement, any payment to the Participant, or to the Participant's estate
or to those person(s) who acquire the right to receive such payment by
bequest or inheritance, shall be determined by the Committee at the end of
that performance period based on the criteria established under Section
6.5(c). Any such payment shall be prorated to reflect the period of time the
Participant was employed during the performance period. Notwithstanding the
above, the Committee, in its sole discretion, may accelerate such payment by
taking into consideration the extent to which the performance criteria were
achieved at the time of the Termination of Employment.
(ii) In the event the Participant's Termination of Employment occurs
prior to the end of the specified performance period for any reason other
than those specified in Section 6.5(f)(i), the Participant's right to the
Performance Share/Unit Award shall be forfeited as of the date of his or her
Termination of Employment, except that the Committee may, in its sole
discretion, make provisions for payment, if any, as it deems appropriate.
6.6 Other Stock Based Awards
(a) Grants--Awards of Stock and Awards that are valued in whole or in part
by reference to, or are otherwise based on, Stock ("Other Stock Based Awards")
may be granted under the Plan. The provisions of Other Stock Based Awards need
not be the same in each case. The Committee, in its sole discretion, may grant
Other Stock Based Awards as it deems appropriate (i) to take advantage of the
compensation practices or tax and accounting regulations applicable at the time
of the grant, even if such practices or regulations are different from those in
effect on the effective date of the Plan and (ii) to conform to and comply with
tax, securities or other law or regulations in jurisdictions outside the United
States.
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(b) Terms and Conditions--Other Stock Based Awards made pursuant to this
Section 6.6 shall be subject to the following terms and conditions:
(i) Subject to the provisions of the Plan and the Award Agreement, a
Participant who receives an Award under this Section 6.6 shall be entitled
to receive, currently or on a deferred basis, interest or dividends, or
interest or dividend equivalents, with respect to the number of shares of
Stock covered by the Award, as determined at the time of the Award by the
Committee in its sole discretion, and the Committee may provide that such
amounts (if any) shall be deemed to have been reinvested in additional Stock
or otherwise been reinvested.
(ii) Any Award under this Section 6.6 and any Stock covered by any such
Award may be forfeited to the extent so provided in the Award Agreement as
determined by the Committee in its sole discretion.
(c) Termination of Employment--Unless otherwise specified by the Committee,
all Other Stock Based Awards granted under this Section 6.6 will be forfeited
upon the Participant's Termination of Employment, except that, in the event the
Participant's Termination of Employment occurs by reason of death, Retirement or
Disability, the Committee may, in its sole discretion, waive any or all of the
remaining limitations, restrictions or requirements, if any, imposed pursuant to
the Plan or in the applicable Award Agreement.
SECTION 7. PERFORMANCE RELATED AWARDS
7.1 Performance Objectives.
(a) Notwithstanding anything else in the Plan to the contrary, unless the
Committee otherwise determines at the time of grant, any Award (other than an
Option or a Stock Appreciation Right) intended to qualify as "other performance
based compensation" within the meaning of Section 162(m)(4)(C) of the Code,
including of Restricted Stock, Performance Shares, Performance Units or Other
Stock Based Awards, (other than an award which will vest solely on the basis of
the passage of time) granted to an officer who is (i) subject to the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934, as
amended, and (ii) whose compensation is deductible under the Code in the United
States, shall become vested, if at all, only upon the determination by the
Committee that performance objectives established by the Committee have been
attained, in whole or in part. An Award subject to such a determination by the
Committee shall be known as a Performance Award.
(b) Performance objectives for Performance Awards shall be determined over a
measurement period or periods established by the Committee and shall relate to
at least one of the following criteria: (i) operating margin (operating income
divided by operating revenues); (ii) operating income; (iii) income before
income taxes and minority interest, (iv) return on equity; and (v) earnings per
share, (the as such criteria may relate to the performance of (A) the Company,
(B) a Subsidiary, (C) a division or unit of any of the foregoing or (D) any of
the foregoing compared to that of other companies or of each other (the
"Performance Criteria").
(c) The maximum number of shares of Stock that may be subject to any such
Performance Award in any 12 month period shall not exceed 500,000 shares, as
such number may be adjusted pursuant to Section 3.
7.2 Annual Incentive Compensation.
The Committee may, in addition to the Performance Awards described above,
pay cash amounts under the Plan to any officer of the Company or of any
Subsidiary described in Section 7.1(a) above
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who is subject to the reporting requirements of Section 16(a) of the Exchange
Act upon the achievement, in whole or in part, of performance goals or
objectives established in writing by the Committee with respect to such
performance periods as the Committee shall determine. Any such goals or
objectives shall be based on one or more of the Performance Criteria.
Notwithstanding anything else contained herein to the contrary, the maximum
amount of such cash payment to any single officer with respect to any 12 month
period shall not exceed the lesserlesser of (A) $3,000,000 or (B) three times
the officer's annual base salary as in effect on the last day of the fiscal year
preceding the calendar year in which such cash payment is made.
7.3 Interpretation.
Notwithstanding anything else in the Plan to the contrary, to the extent
required to qualify any Performance Award as "other performance based
compensation" within the meaning of Section 162(m) (4) (C) of the Code, the
Committee shall not be entitled to exercise any discretion otherwise authorized
under the Plan (such as the right to accelerate vesting without regard to the
achievement of the relevant performance objectives) with respect to such
Performance Award if the ability to exercise such discretion (as opposed to the
exercise of such discretion) would cause such award to fail to qualify as other
performance based compensation.
SECTION 8. AMENDMENTS AND TERMINATION
8.1 The Board of Directors may terminate, suspend, amend or alter the Plan,
but no such action may impair or adversely affect the rights of a Participant
under an Option or other Award theretofore granted, without the Participant's
consent, other than as provided in Section 9.12. In addition, no amendment shall
become effective without the approval of stockholders if such amendment would
(i) Increase the amount of Stock which may be issued under the Plan
(except as authorized in accordance with Section 3 of the Plan) in a manner
that would require stockholder approval for the Plan to continue to qualify
for the exemption available under Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "1934 Act");
(ii) Permit the grant of Options with an exercise price which is less
than the fair market value of the Stock on the date of grant;
(iii) Expand the class of eligible participants in the Plan to include
any member of the Company's Board of Directors who is not also an employee
of the Company or one of its Subsidiaries;
(iv) Extend the duration of Awards to a period greater than that
permitted under Section 9.13;
(v) Modify any provision of the Plan in a manner that would cause
compensation payable pursuant to any Award to fail to be deductible for U.S.
federal income tax purposes if such compensation is (x) intended to pay
compensation qualifying as other performance based compensation under
Section 162(m) of the Code and (y) granted to an executive officer who is
subject to the reporting requirements under Section 16(a) of the 1934 Act
and whose compensation is deductible by the Company or a Subsidiary under
U.S. tax law; or
(vi) Extend the period during which Awards under the Plan may be granted
past the date specified in Section 12.
8.2 In granting an Award, the Committee may establish any conditions that it
determines are consistent with the purposes and provisions of the Plan,
including, without limitation, a condition that
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the granting of an Award is subject to the surrender for cancellation of any or
all outstanding Awards held by the Participant. Any new Award made under this
section may contain such terms and conditions as the Committee may determine,
including an exercise price that is lower than that of any surrendered Option or
Stock Appreciation Right.
8.3 Any amendment or alteration of the Plan may be limited to, or may
exclude from its effect, particular Participants or particular groups of
Participants.
SECTION 9. GENERAL PROVISIONS
9.1 Unfunded Status of Plan--The Plan is intended to constitute an
"unfunded" plan for incentive compensation, and is not intended to be subject to
the provisions of the Employee Retirement Income Security Act of 1974, as
amended. With respect to any payments not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company. In its sole
discretion, the Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Stock or
payments with respect to Options, Stock Appreciation Rights and/or other Awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
9.2 Transfers, Leaves of Absence and Other Changes in Employment Status--For
purposes of the Plan:
(a) A transfer of an employee from the Company to a Subsidiary, or vice
versa, or from one Subsidiary to another; or
(b) A leave of absence, duly authorized in writing by the Company, for
military service or sickness, or for any other purpose approved by the
Company if the period of such leave does not exceed ninety days; or
(c) Any leave of absence in excess of ninety days approved by the
Company, provided the employee's right to reemployment is guaranteed either
by a statute or by contract;
shall not be deemed a Termination of Employment. The Committee, in its sole
discretion, shall determine the disposition of all Awards made under the
Plan in all cases involving any substantial change in employment status
other than as specified herein.
9.3 Distribution of Stock--The Committee may require Participants receiving
Stock in connection with any Award under the Plan to represent to and agree with
the Company in writing that the Participant is acquiring the shares for
investment without a view to distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to reflect
any restrictions on transfer.
9.4 Limits on Transfer--Subject to the provisions of the Plan and the Award
Agreement, and except as provided in Section 6.1(e) with respect to BEP Awards,
no Award may be sold, transferred, pledged, assigned, encumbered or otherwise
alienated or hypothecated, other than by will, by the laws of descent and
distribution or to a member of the Participant's family or to a trust or similar
vehicle for the benefit of such family members to whom or to which the Committee
shall permit an Award to be transferred upon such terms and conditions as the
Committee shall establish.
9.5 Stop Transfer Orders/Restrictions--All certificates for shares of Stock
delivered under the Plan pursuant to any Restricted Stock Award, BEP Award or
Other Stock Based Award shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under
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the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed, and any
applicable Federal, state or foreign securities law, and the Committee may cause
a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
9.6 Payment for Restricted Stock, BEP, Performance Share/Unit, or Other
Stock Based Awards--Except as otherwise required in the applicable Award
Agreement, recipients of Awards under the Plan (other than Options) shall not be
required to make any payment or provide consideration for the receipt of such
Awards, other than the rendering of services.
9.7 Other Compensation Plans--Nothing contained in the Plan shall prevent
the Board of Directors from adopting other compensation arrangements, subject to
stockholder approval if such approval is required.
9.8 Grants Under Predecessor Plan--Subject to the approval of the Plan by
stockholders at the Company's 1995 Annual Stockholders' Meeting, the provisions
of the Plan shall apply to, and govern, existing and subsequent awards under the
Predecessor Plan (as defined in Section 3.1) and, unless otherwise determined by
the Committee, existing and subsequent awards under the Predecessor Plan shall
be deemed to be amended to provide any additional rights applicable to Awards
hereunder, subject to the right of any affected participant in the Predecessor
Plan to refuse to consent to such amendment.
9.9 Subsidiary Plans--The Committee may approve or adopt incentive
compensation plans under the Plan for employees of Subsidiaries as required to
meet the provisions of the tax or securities laws or other applicable laws,
rules or regulations in the jurisdictions in which any Subsidiary operates. Any
shares of Stock issued under any such Subsidiary plans shall be deemed to have
been issued under the Plan. The Committee, in its sole discretion, may delegate
its authority under this Section 9.9 to the Chief Executive Officer or any other
appropriate officer of the Company, provided that no such delegation shall be
made with respect to any plan of a Subsidiary that would provide Awards to an
executive officer or a director of the Company.
9.10 Authority Limited to Committee--No person shall at any time have any
right to receive an Award hereunder and no person shall have authority to enter
into an agreement on behalf of the Company for the granting of an Award or to
make any representation or warranty with respect thereto, except as granted by
the Committee pursuant to the Plan or as provided in Section 4.4. Participants
shall have no rights with respect to any Award except as set forth in the Plan
and the applicable Award Agreement.
9.11 No Right to Employment--Neither the action of the Company in
establishing the Plan, nor any action taken by it or by the Board of Directors
or by the Committee under the Plan or any Award Agreement, nor any provision of
the Plan, shall be construed as giving to any person the right to be retained in
the employ of the Company or any Subsidiary.
9.12 Change of Control
(a) For the purposes of the Plan, a "change of control" shall be deemed to
have taken place if:
(i) Any individual, firm, corporation or other entity, or any group (as
defined in Section 13(d)(3) of the 1934 Act) becomes, directly or
indirectly, the beneficial owner (as defined in the General Rules and
Regulations of the Securities and Exchange Commission with respect to
Sections 13(d) and 13(g) of the 1934 Act) of more than 35% of the then
outstanding shares of the Company's capital stock entitled to vote generally
in the election of directors of the Company; or
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(ii) Any individual, firm, corporation or other entity or any group (as
defined in Section 13(d)(3) of the 1934 Act) commences a tender or exchange
offer subject to Section 14(d)(1) of the 1934 Act for any class of the
Company's capital stock; or
(iii) The stockholders of the Company approve a definitive agreement for
(A) the merger or other business combination of the Company with or into
another corporation pursuant to which the stockholders of the Company do not
own, immediately after the transaction, more than 50% of the voting power of
the corporation that survives and is a publicly owned corporation and not a
subsidiary of another corporation, or (B) the sale, exchange or other
disposition of all or substantially all of the assets of the Company; or
(iv) During any period of two years or less, individuals who at the
beginning of such period constituted the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof unless the
election, or the nomination for the election by the stockholders of the
Company, of each new director was approved by a vote of at least 75% of the
directors then still in office who were directors at the beginning of the
period;
provided, however, that a "change of control" shall not be deemed to have
taken place if beneficial ownership is acquired by, or a tender or exchange
offer is commenced or announced by, the Company or any of its Subsidiaries,
any profit-sharing, employee ownership or other employee benefit plan of the
Company or any Subsidiary or any trustee of or fiduciary with respect to any
such plan when acting in such capacity, or any group comprised solely of
such entities
(b) In the event of a "change of control" as defined in subsection (a)
above, Awards granted under the Plan will be subject to the following
provisions:
(i) All outstanding Options and Stock Appreciation Rights granted under
the Plan shall become exercisable in full whether or not otherwise
exercisable at such time, and any such Option or Stock Appreciation Right
shall remain exercisable in full thereafter until it expires pursuant to its
terms;
(ii) All restrictions contained in Restricted Stock Awards and BEP
Awards granted under Sections 6.3 and 6.4, respectively, of the Plan shall
lapse, and the Participant shall thereupon own the stock free and clear of
such restrictions;
(iii) With respect to Performance Share/Unit Awards granted under the
Plan, the performance period established for such Awards shall be deemed to
have been completed, and such Awards shall become payable in an amount equal
to the greater of the amount payable upon achievement of the performance
criteria established for the Award at the time of grant or the actual
performance achieved to the date of the "change of control"; and
(iv) With respect to Other Stock Based Awards, such Awards shall become
fully exercisable or payable in accordance with the terms and conditions
specified in the Award Agreement.
9.13 Award Period--No Award granted under the Plan shall be exercisable or
payable more than 10 years from the date of grant except for Nonqualified Stock
Options, which shall not be exercisable for more than 10 years and one day from
the date of grant.
SECTION 10. TAXES
10.1 Pursuant to Section 83(b) of the Code, if any Participant properly
elects (within thirty days of the date on which property subject to a
substantial risk of forfeiture and non-transferable is transferred to such
Participant pursuant to an Award) to include in gross income for U.S. Federal
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income tax purposes an amount equal to the fair market value (on the date of
such transfer) of the Stock subject to the Award (or the difference between the
fair market value and the option price on the date of exercise of an Option),
such Participant shall make arrangements satisfactory to the Committee to pay to
the Company, at the time of such transfer (or at the time of exercise in the
case of an Option), any U.S. Federal, state or local taxes required to be
withheld with respect to such shares. If such Participant shall fail to make
such tax payments as are required, the Company and its Subsidiaries shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
10.2 Any Participant who does not or cannot make the election described in
Section 10.1 with respect to an Award, shall, no later than the date as of which
the value of the Award first becomes includable in the gross income of the
Participant for income tax purposes, pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any taxes of any kind required
by law to be withheld with respect to the Stock or other property subject to
such Award, and the Company and its Subsidiaries shall, to the extent permitted
by law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Participant.
10.3 Unless the Committee shall in its sole discretion determine otherwise
(and subject to any limitations imposed by Section 16 of the 1934 Act, payment
of any taxes required to be withheld may be made, in whole or in part, by an
election by a Participant (in accordance with rules adopted by the Committee
from time to time): (i) to have the Company withhold shares of Stock otherwise
issuable pursuant to the Plan having a fair market value equal to such tax
liability and/or (ii) to tender to the Company shares of Stock owned by the
Participant (or by the Participant and his or her spouse, jointly) and acquired
more than six months prior to such tender (excluding any shares of Restricted
Stock awarded under Section 6.3 or Section 6.4 of the Plan) and having a fair
market value equal to such tax liability. The fair market value of any Stock so
tendered shall be determined in such reasonable manner as may be required in
order to comply with or to conform to the requirements of any applicable or
relevant laws or regulations.
SECTION 11. EFFECTIVE DATE OF PLAN
The Plan shall be effective on the date it is approved by an affirmative
vote of the holders of a majority of the shares of voting stock of the Company
represented at the meeting at which the Plan is adopted and entitled to vote.
SECTION 12. TERM OF PLAN
Unless terminated earlier by the Board of Directors, no Award shall be made
under the Plan after December 31, 2005, except that the foregoing shall not
apply to or prevent any amendment, modification or suspension at any time of any
Award or the waiver at any time of any terms or conditions thereof by the
Committee under the provisions of the Plan or the amendment or modification by
the Board of Directors of the Plan under Section 8.1.
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APPENDIX II
THE ALEXANDER & ALEXANDER SERVICES INC.
EMPLOYEE DISCOUNT STOCK PURCHASE PLAN
ARTICLE I
PURPOSE
This Employee Discount Stock Purchase Plan is intended to encourage
employees of Alexander & Alexander Services Inc. ("A&A") and its subsidiaries
(collectively, together with A&A, the "Company") to remain in the employ of the
Company and to participate in its growth by permitting them to purchase shares
of A&A's common stock at a price that is less than fair market value on the date
of purchase. Such purchases shall be made from funds accumulated through payroll
deductions within a period of not more than 27 months from the Commencement Date
of any Offering under this Plan. This Plan is intended to qualify as a "Employee
Stock Purchase Plan" within the meaning of Section 423 of the Code.
ARTICLE II
DEFINITIONS
SECTION 2.1 The following words and phrases shall have the meanings
indicated for purposes of the Plan, unless the context clearly indicates
otherwise:
(a) ACCOUNT. The account established for each Participant.
(b) BOARD. The Board of Directors of A&A. (c) Code. The Internal Revenue
Code of 1986, as amended, and as it may be amended from time to time.
(d) COMMITTEE. The Committee appointed from time to time to administer
the Plan. Unless otherwise specified by the Board or any relevant
subcommittee thereof, the Committee shall be the Company's U.S. Employee
Benefits Committee.
(e) COMMENCEMENT DATE. The date as of which an Offering shall commence,
as determined pursuant to the Plan and specified in each Offering.
(f) EMPLOYEE. Any salaried employee of the Company whose customary
employment is (i) 20 hours per week or more, or (ii) at least five months in
any calendar year.
(g) EXPIRATION DATE. The last day of any Offering period, as determined
pursuant to the Plan and as specified in each Offering, which date shall
occur not later than 27 months from the Commencement Date of any Offering.
The Expiration Date shall be the last day on which payroll deductions made
during the Offering period may be withdrawn; if not withdrawn on or prior to
the Expiration Date, all such payroll deductions shall be applied to the
purchase of Stock pursuant to the terms of the Offering.
(h) HARDSHIP. For purposes of this Plan, each of the following
circumstances shall be deemed to be a hardship: (1) medical expenses
previously incurred by the Participant or any dependents of the Participant
or any other member of the Participant's family, or necessary for the
Participant or such dependent or family member, (ii) the purchase (including
mortgage payments) of a principal residence for the Participant, (iii)
payment of tuition and related educational fees for the next 12 months'
education for the Participant or the Participant's spouse, children or
dependents, (iv) the
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need to prevent the eviction of the Participant from his or her principal
residence or foreclosure on the mortgage of the Participant's principal
residence, (v) payment of funeral and other expenses incurred in connection
with the death of any member of the Participant's family, or (vi) any other
circumstance of immediate and heavy financial need identified as such in
revenue rulings, notices or other documents of the Internal Revenue Service
of general applicability. The Committee's determination of the existence of
an Participant's Hardship shall be final and binding on the Participant.
(i) MINIMUM HOLDING PERIOD. The period of time Shares purchased under
the Plan will be held in custody in a Participant's Account, as specified in
the terms and conditions of each Offering.
(j) OFFERING. Any offering made in accordance with the terms and
conditions of the Plan permitting Participants to purchase Stock under the
Plan.
(k) OPTION. The right of an eligible Employee to purchase Stock by
participating in an Offering.
(l) OPTIONEE OR PARTICIPANT. An Employee who exercises his or her Option
by authorizing payroll deductions pursuant to Section 6.3 hereof.
(m) PLAN. The A&A Services Inc. Employee Discount Stock Purchase Plan,
as herein set forth, and as amended from time to time.
(n) PURCHASE PRICE. The price per Share at which Stock may be purchased
under the Plan, which shall not be less than 85% of the fair market value of
a Share on either the Commencement Date or the Expiration Date.
(o) SHARES OR STOCK. Shares of the common stock, par value $1.00 per
share, of A&A.
(p) SUBSIDIARIES. Any entity described in Section 424(f) of the Code.
SECTION 2.2 The masculine gender shall include the feminine, and the
singular shall include the plural, where appropriate.
ARTICLE III
ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee, which shall have full power
and authority to: (a) interpret and administer the Plan and any instrument or
agreement entered into under the Plan; (b) establish such rules and regulations
and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; (c) determine the terms of each Offering and Options
granted pursuant thereto, including establishing the Purchase Price for each
Offering; and (d) make any other determination and take any other action that
the Committee deems necessary or desirable for administration of the Plan.
Decisions of the Committee shall be final, conclusive and binding upon all
persons, including the Company, any Participant or Optionee and any other
employee of the Company. A majority of the members of the Committee may
determine its actions and fix the time and place of its meetings.
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ARTICLE IV
EMPLOYEES ELIGIBLE TO PURCHASE STOCK
All Employees shall be eligible to purchase Stock under the Plan except for
any Employee who, immediately after the granting of an Option, would own (or be
deemed to own under the rules of Section 423(b)(3) of the Code) any class of
Company stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or any of its
Subsidiaries. If the effect of the granting of an Option to an Employee is such
that his total stock ownership (as determined under Section 423(b)(3) of the
Code) equals or exceeds such five percent (5%) limitation, such Option shall be
entirely void as if it had never been granted.
ARTICLE V
STOCK
The maximum number of Shares which may be purchased under the Plan is
750,000 Shares, subject, however, to adjustment as hereinafter provided. At any
time after the effective date of the Plan, if there is a change in the number of
Shares outstanding, whether as a result of a stock dividend, a split-up of
Shares, merger, consolidation, recapitalization or similar corporate
transaction, then, effective with the record date for such change, the Board
shall appropriately adjust the maximum number of Shares which thereafter may be
purchased under the Plan.
ARTICLE VI
OFFERINGS; GRANTING OF OPTIONS; AUTHORIZATION OF PAYROLL
DEDUCTIONS BY PARTICIPANTS
SECTION 6.1 Offerings may be made from time to time to all Employees. Every
eligible Employee on the Commencement Date of any Offering shall be deemed to
have been granted an Option pursuant to the terms of that Offering.
SECTION 6.2 Unless otherwise specified by the Committee, there shall be two
Offerings under the Plan during each calendar year. Unless otherwise specified
by the Committee prior to the Commencement Date for any Offering, the
Commencement Dates and Expiration Dates, respectively, of each Offering shall
(a) January 1 and June 30 and (b) July 1 and December 31.
SECTION 6.3 Each Employee shall become a Participant pursuant to the terms
of an Offering by filing an election to participate in that Offering in the form
of a payroll deduction authorization (in the manner prescribed by the Committee)
within such time as may be specified in such Offering. The election shall
specify the amount of each payroll deduction which the Employee wishes to apply
to the purchase of Stock in the Offering, which shall not be less than $10 per
payroll period nor greater than $1,000 per payroll period (subject to the
limitations contained in Section 7(b) of the Plan). Payroll deductions shall (a)
commence with the first regular payroll period coinciding with or ending on the
Commencement Date of the Offering, or at such other time as may be specified in
such Offering, and (b) shall end on the earlier of the last regular payroll
period coinciding with or ending before the Expiration Date or, if earlier, upon
the termination of a Participant's employment with the Company.
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ARTICLE VII
TERMS AND CONDITIONS OF OFFERINGS AND OPTIONS
Section 7 Except as provided in subparagraph (b) of this Section 7, all
Participants shall have the same rights and privileges, as specified below:
(a) PURCHASE PRICE: Each Offering shall state the Purchase Price per
share at which Stock may be purchased thereunder. In determining the
Purchase Price, the fair market value per share of Stock shall be the
closing price reported on the New York Stock Exchange Composite Tape for the
date on which such value is being determined, provided, however, that if any
such date is not a stock trading date, then the closing price on the next
trade date shall be used. In no event, however, shall the Purchase Price per
share for any Offering be less than the par value per share of Stock.
(b) ACCRUAL LIMITATION: Notwithstanding any other provision of the Plan,
no Option shall be granted to any Employee which would permit such Employee
to purchase Stock pursuant to all unexpired offerings under all existing
employee stock purchase plans, as defined in Section 423 of the Code,
accruing at a rate which exceeds at any time twenty-five thousand dollars
($25,000) of the fair market value of the Stock (determined at the time such
Option is granted) during any calendar year in which such Option is
outstanding. For purposes of this subparagraph (b):
(i) an Option accrues when the Option (or any portion thereof) first
becomes exercisable during any calendar year;
(ii) an Option accrues at the rate provided in the applicable
Offering, but in no case may such rate for any Employee exceed
twenty-five thousand dollars ($25,000) of the fair market value of the
Stock determined at the time the Option is granted for any one calendar
year;
(iii) an Option that has accrued under any one Offering may not be
carried over by a Participant to any other Offering; and
(iv) only rights to purchase Stock that have been granted under an
employee stock purchase plan which complies with Section 423 of the Code
shall be taken into account for purposes of this subparagraph (b).
(c) NONTRANSFERABILITY OF OPTIONS: An Option shall not be transferable
by the Employee or Participant to whom it has been granted otherwise than by
will or the laws of descent and distribution and shall be exercisable,
during his lifetime, only by him. However, in the discretion of the
Committee, the terms of any Offering may prohibit transfer under any
circumstances and provide for cancellation of the unexercised portion of any
Option upon the death of a Participant.
(d) PURCHASES: Purchases of Shares by any Participant pursuant to an
Offering shall be made with funds accumulated in his Account through payroll
deductions from such Participant's salary or as otherwise permitted by the
Committee, under rules of uniform application over the time period specified
in such Offering.
(e) OTHER PROVISIONS: Each Offering shall contain such other provisions
as the Committee shall deem advisable, including restrictions on resale of
Stock purchased through an Offering, provided that no such provisions may in
any way conflict, or be inconsistent, with the terms of the Plan as amended
from time to time.
(f) REQUIREMENTS OF LAW: The issuance of any Stock hereunder is
conditioned upon registration of the Stock to be issued under applicable
federal and state securities laws and its listing on any applicable stock
exchange. In no event shall any Stock be issued hereunder prior to the
effective date of any such registration or listing application.
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(g) ISSUANCE OF SHARES: The shares of Stock purchased by each
Participant shall be considered to be issued and outstanding to his credit
as of the close of business on the Expiration Date for any Offering. Shares
purchased by each Participant during an Offering shall be credited to that
individual's Account no later than the day after the Expiration Date of that
Offering.
(h) ACCOUNT BALANCES: No interest shall accrue at any time for any
amount credited to the Account of a Participant. After the close of each
Offering, a report will be sent to each Participant stating the entries made
to his Account, the number of Shares purchased and the applicable Purchase
Price.
(i) MINIMUM HOLDING PERIOD: A Participant will possess all the rights
and privileges of a stockholder with respect to all of the Shares held in
his or her Account under the Plan, including the right to vote such Shares,
and will receive all dividends, distributions and stockholder communications
with respect to such Shares. However, Shares shall remain in the Account
until the expiration of the Minimum Holding Period with respect to such
Shares, as determined by the Committee at or prior to the Commencement Date
of the Offering.
ARTICLE VIII
WITHDRAWALS FROM PARTICIPANT ACCOUNTS
SECTION 8.1 Except for any officer of the Company who is subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended (an "Executive Officer"), Participants may cease participation in an
Offering at any time prior to the Expiration Date and withdraw all cash amounts
in their Account. Such withdrawal shall serve to cancel the Participant's Option
and the Participant shall thereupon cease his or her participation in such
Offering. Partial cash withdrawals shall not be permitted. Cash withdrawal
requests shall be made in such form and under such conditions as may be
specified from time to time by the Committee. Executive Officers may not make
cash withdrawals for so long as they remain Executive Officers.
SECTION 8.2 A Participant may request, once in each calendar year, delivery
of a stock certificate representing all or any portion of the Shares (in a whole
number of Shares) held in his or her Account for at least the Minimum Holding
Period. Unless otherwise specified by the Committee at or prior to the
Commencement Date of any Offering, the Minimum Holding Period with respect to
Shares purchased under such Offering shall be one year from the Expiration Date
of that Offering,. A Participant shall not be permitted to pledge, transfer or
sell Shares held in his or her Account until they are issued in certificate form
after expiration of the Minimum Holding Period. Withdrawals of Shares prior to
the end of the Minimum Holding Period will be permitted only for the purpose of
Hardship, demonstrated to the reasonable satisfaction of the Committee.
SECTION 8.3 Upon termination of a Participant's employment with the Company
for any reason, whether voluntary or involuntary, his or her participation in
the Plan shall immediately terminate. As soon thereafter as practicable, the
Participant shall receive the following: (a) cash in an amount equal to the
balance in his or her Account as of the date of the termination of employment,
(b) a stock certificate for all whole Shares held in the Account for at least
the Minimum Holding Period and (c) the cash equivalent of any fractional Share
in the Account. Any Shares held for less than the Minimum Holding Period shall
remain in the Account for the remainder of any such holding period(s) and
certificates for such Shares shall be issued to the former Participant only at
the conclusion of the Minimum Holding Period applicable to such Shares.
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ARTICLE IX
RECAPITALIZATION OR REORGANIZATION AND STOCK DIVIDENDS
SECTION 9.1 If the Company shall be the surviving corporation in any merger,
consolidation, or reorganization, each outstanding Option shall pertain to and
apply to the securities to which a holder of a number of shares subject to the
Option would have been entitled. In the event of a dissolution or liquidation of
the Company, or any merger, consolidation or reorganization in which the Company
is not the surviving corporation, the Committee, at its election, may cause each
outstanding Option to terminate, provided, however, that each Optionee shall, in
such event, subject to such rules and limitations of uniform application as the
Committee may prescribe, be entitled to the rights of terminating Participants
provided in Section 8.
SECTION 9.2 The aggregate number of Shares which may be purchased by the
exercise of outstanding Options and the Purchase Price per share covered by each
such outstanding Option and the number of Shares held in a Participant's
Account, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a subdivision or consolidation of Shares
or other capital adjustment, or the payment of a stock dividend or other
increase or decrease in such Shares effected without the receipt of
consideration by the Company.
SECTION 9.3 The grant of an Option under the Plan shall not affect in any
way the Company's right or power to make adjustments, reclassifications,
reorganizations, or changes of its capital or business or to merge, consolidate,
dissolve, liquidate, sell or transfer all or any part of its business or assets.
ARTICLE X
AMENDMENT OF THE PLAN
The Board may suspend or terminate the Plan, reconstitute the Plan in whole
or in part, or amend or revise the Plan in any respect whatsoever except that
(a) no amendment shall cause any Option to fail to qualify as an option under an
"employee stock purchase plan" as defined in Section 423 of the Code, (b)
without approval of the stockholders, no amendment shall increase the number of
Shares which may be sold under the Plan or make any change in the Employees or
class of Employees eligible to participate in the Plan, and (c) without the
approval of an Optionee, no change shall be made in the terms of any outstanding
Option adverse to the interest of the Optionee.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 The Board may approve or adopt discount stock purchase plans
under the Plan for employees of Subsidiaries as required to meet the provisions
of the tax or securities laws or other applicable laws, rules or regulations in
the jurisdictions in which any Subsidiary operates. Any shares of Stock issued
under any such Subsidiary plans shall be deemed to have been issued under the
Plan. The Board, in its sole discretion, may delegate its authority under this
Section 11.1 to (a) its Compensation, Benefits and Nominating Committee or (b)
to the extent permitted under applicable law, to the Chief Executive Officer or
any other appropriate officer of the Company.
SECTION 11.2 Neither the Plan nor any document generated in connection
herewith shall be construed to give any Employee the right to be retained in the
employ of the Company. The Company retain the unqualified right to terminate the
employment of any Employee at any time.
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APPENDIX III
ALEXANDER & ALEXANDER SERVICES INC.
NON-EMPLOYEE DIRECTOR
DEFERRED STOCK OWNERSHIP PROGRAM
1. PURPOSE.
This Non-Employee Director Deferred Stock Ownership Program (the "Plan") is
intended to attract and retain the services of experienced and knowledgeable
directors of Alexander & Alexander Services Inc. (the "Company") for the benefit
of the Company and its stockholders and to provide such directors an economic
interest in the Company's Common Stock on a tax deferred basis, thereby creating
a long term mutuality of interest between such directors and stockholders.
2. ELIGIBILITY.
Each director of the Company who is not otherwise an employee of the Company
or a subsidiary (each, an "Eligible Director") shall be a beneficiary under a
grantor trust established by the Company, the assets of which shall be subject
to the claims of the Company's creditors in the event of its bankruptcy or
insolvency (the "Company Trust"). The interest of an Eligible Director as a
beneficiary of the Company Trust shall be subject to the terms and conditions
set forth in this Plan, as incorporated into the trust agreement governing the
Company Trust (the "Trust Agreement").
3. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the Company (the
"Board"); provided that the Plan is intended to qualify for the exemption
available under Rule 16b-3 ("Rule 16b-3"), as promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), with respect to awards made pursuant to a formula set forth in the
plan and shall be administered so as to comply with the requirements of Rule
16b-3. Subject to the express provisions of the Plan, the Board shall have
plenary authority to interpret the Plan, to prescribe, amend and rescind rules
and regulations relating to it, to determine the terms and provisions of the
independent directors' fees made pursuant to the Plan and to make all other
determinations necessary or advisable for the administration of the Plan. The
Board's determinations of the matters referred to in this Paragraph 3 shall be
conclusive. No member of the Board shall be held liable for any action taken in
the administration of the Plan, unless such action involves willful misconduct
by such member, and each member of the Board shall be indemnified and held
harmless by the Company for all actions taken in the proper administration of
the Plan.
4. AMOUNT OF ANNUAL FEE AND EXPENSES.
Each Eligible Director who serves as a director for an entire calendar year
shall have credited to his or her account under the Company Trust an amount
equal to the annual fee payable for services as an Eligible Director (the
"Annual Fee"), which fee shall be $40,000 or such greater or lesser amount as
the Board shall determine from time to time by resolution. To the extent that an
Eligible Director does not serve as a director for the entire period between two
Annual Meetings of Stockholders, the amount credited to his or her account in
the Company Trust shall be adjusted to reflect only the period for which such
Eligible Director was a director. The Annual Fee is intended to compensate an
Eligible Director for attendance at meetings of and other services to the Board
and any committees of the Board. In addition to the Annual Fee, Eligible
Directors will be reimbursed for reasonable out-of-pocket expenses
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incurred in the performance of their service in that capacity, in accordance
with the Company's policy on expense reimbursements.
5. CONTRIBUTIONS IN RESPECT OF THE ANNUAL FEE.
Except as expressly provided below, no portion of the Annual Fee shall be
paid directly to an Eligible Director. Instead, the Company shall contribute
shares of Common Stock, $1.00 par value per share, to the Company Trust to be
credited to the account of the Eligible Director. Such contributions shall
generally be made in two semi-annual installments, one determined as of the date
of an Annual Meeting of Stockholders and based on the portion of the Annual Fee
payable for services as a director since the last contribution pursuant to this
Section 5 and the second to be made as of the date which is six months after the
date of such Annual Meeting of Stockholders and based on the portion of the
Annual Fee payable for services as a director since the date of such Annual
Meeting of Stockholders; provided that the contribution to be made as of the
Annual Meeting of Stockholders in 1995 shall be determined by multiplying the
Annual Fee by a fraction, the numerator of which is the number of days in 1995
occurring on or prior to such Annual Meeting and the denominator of which is
365. Any such contribution to the Company Trust shall be made as soon as
practicable following the date as of which the contribution amount is
determined. Notwithstanding anything else contained herein to the contrary, in
the event an Eligible Director has an immediate personal tax liability under the
Plan with respect to contributions made hereunder, the Eligible Director will
receive a cash payment in an amount equal to the tax liability, and the amount
of Common Stock to be contributed to the Company Trust in respect of such
Eligible Director shall be reduced by a like amount.
6. CONVERSION OF NON-EMPLOYEE DIRECTOR RETIREMENT PLAN.
In connection with the termination of the Non-Employee Director Retirement
Plan (the "Retirement Plan"), the Company shall make an additional contribution
to the Company Trust in respect of certain Eligible Directors, as determined
pursuant to this Section 6. For each Eligible Director in office on December 31,
1994, who, as of such date, (i) had completed sufficient service to be entitled
to receive the maximum benefit under such Retirement Plan, the Company shall
contribute Company Common Stock having a value as of such date equal to the
present value of such accrued maximum retirement benefit (the "Present Value")
or (ii) had completed at least 75% of the service required to be fully vested in
such Present Value but had not become fully vested, the Company shall contribute
Company Common Stock having a value as of such date equal to two-thirds of the
Present Value. No contribution shall be made hereunder for any other Eligible
Director by reason of the termination of the Retirement Plan. Notwithstanding
the foregoing, in the event an Eligible Director has an immediate personal tax
liability by reason of the contribution to the Company Trust to be made
hereunder, the Eligible Director will receive a cash payment in an amount equal
to the tax liability and the amount of Common Stock to be contributed to the
Company Trust in respect of an Eligible Director shall be reduced by a like
amount.
7. TRANSFERS FROM STOCK ACCOUNTS.
Each Eligible Director may, by not less than six months' advance written
notice given during any of the four quarterly ten business day periods
commencing on the third business day following the release of quarterly or
annual financial earnings, direct the Trustee of the Company Trust to sell any
shares of Company Stock credited to his or her account that were contributed to
the Company Trust more than one year prior to the effective date of any such
sale direction. Notwithstanding anything contained herein to the contrary, no
direction to sell any shares of Common Stock held in the Company Trust shall be
effected if such sale would subject the Eligible Director to liability under
Section 16 of the 1934 Act.
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8. INVESTMENT OF ACCOUNTS.
In the event that an Eligible Director directs the Trustee to sell all
Common Stock pursuant to Section 7 hereof, the proceeds of such sale and all
amounts attributable thereto shall be invested under the Company Trust by the
Trustee or a professional investment manager appointed by the Company and held
for the benefit of such Eligible Director until distributed in accordance with
the Plan.
9. DISTRIBUTIONS FOLLOWING CESSATION OF BOARD MEMBERSHIP.
Any shares of Company Stock or other Assets credited to an Eligible
Director's account under the Company Trust shall be distributed to such Eligible
Director (or, in the event of an Eligible Director's death, his or her
designated beneficiary) as soon as practicable following the cessation of his or
her services as a director.
10. HARDSHIP WITHDRAWALS.
Upon a finding by the Company's Chief Executive Officer that an Eligible
Director who has requested a withdrawal of all or a portion of the amount
credited his or her account under the Company Trust needs such withdrawal to
satisfy an immediate financial need, the Chief Executive Officer may permit the
distribution to the Eligible Director of up to that amount credited to the
Eligible Director's account under the Company Trust in assets other than Company
Stock which is required to satisfy such financial needs.
11. RIGHTS AS STOCKHOLDERS.
The rights of Eligible Directors with respect to shares of Common Stock
contributed by the Company to the Trust, including without limitations the right
to vote, dispose of, pledge, assign, transfer, bequeath by will or receive
dividends or other distributions upon such shares, shall be determined in
accordance with the Plan. Nothing in the Plan shall confer on any individual any
right to continue as a director of the Company or interfere in any way with the
right of the Company to terminate the Plan participant's service as a director
at any time.
12. VALUATION OF COMMON STOCK.
The number of shares of the Common Stock to be credited to an Eligible
Director's account in the Company Trust as of each installment contribution
under Section 5 and with respect to any contribution required to be made under
Section 6, shall be determined by dividing (i) in the case of contributions made
pursuant to Section 5, the portion of the Annual Fee being satisfied by such
installment by the mean of the high and low sales prices of the Common Stock on
the New York Stock Exchange on the date on which an installment payment is
required to be made (or the next preceding date on which trading occurred if
there was no trading on such date), or (ii) in the case of a contribution made
pursuant to Section 6, the portion of the Present Value being contributed by the
means of the high and low sales prices of the Common Stock on the New York Stock
Exchange on December 31, 1994. In the event that the Common Stock is no longer
traded on the New York Stock Exchange at the date of any installment payment,
then the Board shall establish the price of the Common Stock at the fair market
value determined under Treasury Regulation Section 20.2031-2.
13. STOCK SUBJECT TO THE PLAN.
There are reserved for issuance under the Plan 160,000 shares of the
authorized and unissued shares of the Common Stock.
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14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Notwithstanding any other provision of the Plan, the number and class of
shares held pursuant to the Trust Agreement shall be proportionately adjusted in
the event of changes in the outstanding Common Stock by reason of stock
dividends, stock splits, recapitalizations, mergers, consolidations,
combinations or exchanges of shares, split-ups, split-offs, spin-offs,
liquidations or other similar changes in capitalization, or any distribution to
common stockholders other than cash dividends and, in the event of any such
change in the outstanding Common Stock, the aggregate number and class of shares
available under the Plan shall be appropriately adjusted by the Board. The
Board's determination of any adjustment shall be conclusive.
15. AMENDMENT AND TERMINATION.
Unless the Plan shall theretofore have been terminated as hereinafter
provided, the Plan shall terminate on the date of the Annual Meeting of
Stockholders in 2005. The Plan may be terminated, modified or amended by the
Board of Directors, provided that (i) in no event shall the provisions of the
Plan relating to the determination of the number of shares to be credited to an
Eligible Director hereunder, the eligibility of Eligible Directors, the
distribution of amounts from the Company Trust or the investment of assets held
under the Company Trust be amended more frequently than once every six months
and (ii) no amendment shall become effective without the approval of the
Company's shareholders, if such approval is required to continue to qualify the
Plan for the exemption provided under Rule 16b-3.
16. WITHHOLDING.
Unless other arrangements satisfactory to the Board are made to satisfy any
such obligation, upon the distribution from the Company Trust to an Eligible
Director the Company shall have the right to retain without notice sufficient
amounts to cover the amount of any tax required by any government to be withheld
or otherwise deducted and paid with respect to such distribution from the
Company Trust.
17. LIMITATIONS ON LIABILITY.
Neither the establishment of the Plan nor any modification thereof, nor the
creation of any account under the Trust Agreement, nor the payment of any
benefits, shall be construed as giving to any participant or other person any
legal or equitable right against the Company (or any person connected
therewith), except as provided by law or by any Plan provision. Nothing
contained in the Plan, and no action taken pursuant to its provisions, shall
create or be construed to create a fiduciary relationship between the Company
(or any person connected therewith) and any participant or other person. In no
event shall the Company (or any person connected therewith) be liable to any
person for the failure of any participant or other person to be entitled to any
particular tax consequences with respect to the Plan or any contribution thereto
or distribution therefrom.
18. CONSTRUCTION.
The Plan is intended to be exempt from ERISA and, if any provision of the
Plan is subject to more than one interpretation or construction, such ambiguity
shall be resolved in favor of that interpretation or construction which is
consistent with the Plan being so exempted. In case any provision of the Plan
shall be held to be illegal or void, such illegality or invalidity shall not
affect the remaining provisions of the Plan, but shall be fully severable, and
the Plan shall be construed and enforced as if said illegal or invalid
provisions had never been inserted herein. For all purposes of the Plan, where
the context admits, words in the masculine gender shall include the feminine and
neuter genders, the singular shall include the plural, and the plural shall
include the singular. Headings of Paragraphs are inserted only for convenience
of reference and are not to be considered in the construction of the Plan.
Except to the
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extent preempted by the laws of the United States of America, the laws of the
State of Maryland shall govern, control and determine all questions arising with
respect to the Plan and the interpretation and validity of its respective
provisions.
19. SPENDTHRIFT PROVISION.
No amount payable under the Plan will, except as otherwise specifically
provided by law, be subject in any manner to anticipation, alienation,
attachment, garnishment, sale, transfer, assignment (either at law or in
equity), levy, execution, pledge, encumbrance, charge or any other legal or
equitable process, and any attempt to do so will be void; nor will any benefit
be in any manner liable for or subject to the debts, contracts, liabilities,
engagements or torts of the person entitled thereto. The foregoing shall not
preclude any arrangement for: (i) the withholding of taxes from Plan benefit
payments, (ii) the recovery by the Plan of overpayments of benefits previously
made to a participant, or (iii) the direct deposit of benefit payments to an
account in a banking institution (if not part of an arrangement constituting an
assignment or alienation).
In the event that any participant's benefits are garnished or attached by
order of any court, the Company may bring an action for a declaratory judgment
in a court of competent jurisdiction to determine the proper recipient of the
benefits to be paid by the Plan. During the pendency of said action, any
benefits that become payable shall be paid into the court as they become
payable, to be distributed by the court to the recipient it deems proper at the
close of said action.
20. EFFECTIVENESS OF THE PLAN.
The Plan is effective as of January 1, 1995, subject to the approval of the
Plan at the next Annual Meeting of Shareholders.
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APPENDIX IV
ALEXANDER & ALEXANDER SERVICES INC.
PERFORMANCE BONUS PLAN FOR EXECUTIVE OFFICERS
ARTICLE I
PURPOSE
The purpose of the Alexander & Alexander Services Inc. Performance Bonus
Plan for Executive Officers (the "Plan") is to enable the Company to recruit and
retain qualified executive officers by paying them, upon the attainment of
performance criteria established in accordance with the Plan, incentive
compensation up to the maximum amount that may be paid under the Plan, including
that portion of the bonus paid in the form of restricted stock under the
Company's Bonus Equity Plan.
The Plan is intended, among other things, to address the limitations under
Section 162(m) of the Internal Revenue Code of 1986, as amended, on the
deductibility of certain compensation in excess of $1 million per year paid by
the Company to those executive officers of the Company who, on the last day of
the Company's fiscal year, are (a) the Chief Executive Officer and (b) other
executive officers covered by Section 162(m).
ARTICLE II
DEFINITIONS
The following words and phrases shall have the meanings indicated for
purposes of the Plan, unless the context clearly indicates otherwise:
(a) AVERAGE TOTAL CAPITAL shall mean the sum of (A) short-term debt and
the current portion of long-term debt, (B) long-term debt, and (C) total
stockholders' equity, such sum to be averaged over the period beginning with
the end of the previous Bonus Year and including each of the first three
financial quarters of the current Bonus Year and the end of the current
Bonus Year, respectively, each amount as disclosed in the Consolidated
Balance Sheets in the Company's Annual and Quarterly Reports for the
relevant periods.
(b) AVERAGE TOTAL STOCKHOLDERS' EQUITY shall mean the total
stockholders' equity of the Company averaged over the period beginning with
the end of the previous Bonus Year and including each of the first three
financial quarters of the current Bonus Year and the end of the current
Bonus Year, respectively, all as disclosed in the Consolidated Balance
Sheets in the Company's Annual and Quarterly Reports for the relevant
periods.
(c) BEP shall mean the Company's Bonus Equity Plan, as the same shall be
in effect from time to time.
(d) BEP STOCK VALUE shall mean the discounted value, determined in
accordance with the terms of the BEP, of the shares of the Company's common
stock awarded to any Covered Employee in respect of a Bonus Award.
(e) BOARD shall mean the Board of Directors of the Company.
(f) BONUS AWARD shall mean the amount of bonus compensation payable to
any Covered Employee for each Bonus Year, whether payable in cash or in
restricted stock under the BEP.
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(g) BONUS YEAR shall mean a calendar year.
(h) CASH FLOW shall mean the sum of (a) net cash provided (used) by
operating activities (excluding amounts, if any, attributable to
discontinued operations and changes in accounting), and (b) net purchases of
property and equipment, all amounts as disclosed in the Consolidated
Statement of Cash Flows in the Company's Annual Report for the Bonus Year.
(i) CHIEF EXECUTIVE OFFICER shall mean the Chief Executive Officer of
the Company or the individual acting in such capacity.
(j) COMMITTEE shall mean the Compensation, Benefits and Nominating
Committee of the Board, or any similar committee thereof comprised of at
least two Outside Directors.
(k) COMPANY shall mean Alexander & Alexander Services Inc.
(l) COVERED EMPLOYEE shall mean the Chief Executive Officer and each of
those other executive officers of the Company who, on the last day of the
Bonus Year, are "covered employees" within the meaning of Section 162(m).
(m) EARNINGS PER SHARE shall mean net income per share available for
Common Shareholders of the Company's common stock, as disclosed in the
Consolidated Statement of Operations in the Company's Annual Report for the
Bonus Year.
(n) INCOME FROM CONTINUING OPERATIONS shall mean the consolidated income
from continuing operations of the Company, as disclosed in the Consolidated
Statement of Operations in the Company's Annual Report for the Bonus Year.
(o) OPERATING INCOME shall mean the operating income of the Company, as
disclosed in the Consolidated Statement of Operations in the Company's
Annual Report for the Bonus Year.
(p) SPECIFIED BONUS AWARD shall mean the target Bonus Award payable to
each Covered Employee in the event that certain specified Performance Goals
are met.
(q) VARIABLE BONUS AWARD shall mean incentive compensation over and
above the Specified Bonus Award payable to a Covered Employee in the event
that the Performance Goals related thereto are met.
(r) OUTSIDE DIRECTOR shall mean a member of the Board who is an "outside
director" as that term is defined under Section 162(m).
(s) PERFORMANCE GOALS shall mean the financial measurements of
performance that must be met in order for a Covered Employee to receive a
Bonus Award.
(t) RETURN ON CAPITAL shall mean the earnings (loss) available for
common shareholders (as disclosed in the Consolidated Statement of
Operations in the Company's Annual Report for the Bonus Year) divided by the
Average Total Capital.
(u) RETURN ON EQUITY shall mean the earnings (loss) available for common
shareholders (as disclosed in the Consolidated Statement of Operations in
the Company's Annual Report for the Bonus Year) divided by the Average Total
Stockholders' Equity.
(v) SECTION 162(M) shall mean Section 162(m) of the Internal Revenue
Code of 1986, as amended, and the regulations and rules issued thereunder.
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ARTICLE III
ADMINISTRATION OF THE PLAN
SECTION 3.1 The Plan shall be administered by the Committee. If, however,
the Committee shall fail to be composed solely of Outside Directors, then those
members of the Committee that are Outside Directors shall act as the Committee.
SECTION 3.2 The Plan shall be interpreted and construed in accordance with
Section 162(m). Any specific action by the Committee that would cause any Bonus
Award to fail to be deductible under Section 162(m) shall be void. Otherwise,
the Committee shall have full and exclusive authority, power and discretion to
construe and interpret the Plan (subject to the advice of appropriate legal
counsel with respect to any question of law), and generally to determine any and
all questions arising under the Plan, including the sole authority to establish
Performance Goals and to determine whether any Bonus Award is payable solely in
cash or partly in cash and partly in BEP stock. The Committee shall have the
authority to reduce the Bonus Award of any Covered Employee earned under this
Plan, or any portion thereof, even if the Performance Goals that would provide
the maximum amount of such Bonus Award have been met. The Committee shall not,
however, have any authority hereunder to increase the amount of any Bonus Award
calculated in accordance with the Plan.
SECTION 3.3 The Committee shall certify to the Company in writing that any
applicable Performance Goals have been met before any amounts are paid in
respect of Bonus Awards under the Plan. If permitted under Section 162(m), such
certification may be based upon reasonably estimated financial information
available prior to the end of the Bonus Year.
ARTICLE IV
CALCULATION OF BONUS AMOUNTS FOR COVERED EMPLOYEES
SECTION 4.1 Each Covered Employee shall be eligible to receive a Specified
Bonus Award under the Plan, as more fully described in Section 4.2. In addition,
each Covered Employee who receives a Specified Bonus Award for a given Bonus
Year shall also be eligible to receive a Variable Bonus Award, as more fully
described in Section 4.3. Payment in respect of any Bonus Award shall be made
either in cash or in a combination of cash and restricted shares of the
Company's common stock issued under the BEP, provided that in no event shall
more than 50% of any Bonus Award be paid in shares of BEP stock. The total Bonus
Award paid to any Covered Employee in respect of a Specified Bonus Award and a
Variable Bonus Award for any Bonus Year shall not exceed the sum of $5 million
plus the excess, if any, of (a) the fair market value of any shares of BEP stock
on the date the Committee certifies that the applicable Performance Goals have
been met, over (b) the BEP Stock Value of such shares of BEP stock. The amount
payable in respect of a Bonus Award shall be paid as soon as practicable
following the certification described in Section 3.3 above, subject to the
Committee's discretion in Section 3.2 to reduce the amount of any Bonus Award.
SECTION 4.2 A Specified Bonus Award shall be paid to a Covered Employee if
one or both of the following Performance Goals, established by the Committee in
accordance with Section 162(m), is achieved: (a) a specified amount of Income
from Continuing Operations as of the end of the Bonus Year or a specified
minimum increase in such income as compared to the end of the prior Bonus Year;
or (b) a specified amount of Operating Income for the Bonus Year. Subject to the
limitations contained in Section 4.1, the maximum Specified Bonus Award that
each Covered Employee shall be entitled to receive and the actual Performance
Goals for each Bonus Year shall be determined by the Committee in writing at the
beginning of the Bonus Year within the time required under Section 162(m).
SECTION 4.3 The amount of any Variable Bonus Award that may be payable to
any Covered Employee for a particular Bonus Year shall be based on such Covered
Employee's achievement of one or more additional Performance Goals established
by the Committee for such Covered Employee. These
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additional Performance Goals shall relate to any one or more of the following
financial measurements as each relates to the Company and its consolidated
subsidiaries or, with respect to 4.3(a) or (b), as such measurement relates to
any one or more of the Company's operating units: (a) Return on Capital; (b)
Return on Equity; (c) Earnings per Share; (d) Cash Flow and (e) an increase in
Operating Income above the amount specified under Section 4.2(b). Different
Variable Bonus Award Performance Goals may be established for each Covered
Employee. The amount of each Covered Employee's Variable Bonus Award may be
expressed as a formula pursuant to which additional amounts may be paid for
incremental increases in actual performance against a stated Performance Goal.
SECTION 4.4 In the event that any person who was a Covered Employee at the
end of the prior Bonus Year, is not a Covered Employee at the conclusion of the
current Bonus Year, the Specified and Variable Bonus Award Performance Goals and
maximum Bonus Award applicable to such person shall be applicable to the
executive officer who replaces him or her as a Covered Employee for such Bonus
Year. In any year in which there is a change in more than one Covered Employee,
the determination as to which executive officer replaces which prior Covered
Employee shall be made on the basis of the salary payable for such Bonus Year,
so that the new Covered Employee with the greatest amount of salary replaces the
prior Covered Employee having the greatest amount of salary for the prior Bonus
Year and so on, except that any new Chief Executive Officer (who was not also a
Covered Employee as of the end of the last Bonus Year) shall replace the person
who was the Chief Executive Officer at the end of the prior Bonus Year. Nothing
in this Section 4.4 shall be construed to change the Performance Goals and
maximum Bonus Award for any Bonus Year with respect to any person who was a
Covered Employee for both the prior and the current Bonus Years.
SECTION 4.5 The Committee may defer to a succeeding year payment of any
portion (up to $1 million) of a Bonus Award which may be payable to a Covered
Employee for a particular Bonus Year. Payment of such deferred award may be
conditioned upon such terms as the Committee shall determine, including the
achievement of extraordinary performance by such Covered Employee.
ARTICLE V
CHANGE OF MEASUREMENT PERIOD
If permitted by Section 162(m), the Committee may establish a measurement
period for determining the achievement of any Performance Goal other than the
Bonus Year if the Committee concludes that such alternative measurement period
is appropriate under the circumstances. Any such change must be made before the
new measurement period begins. In such event, all relevant criteria will be
based upon the books and records of the Company for the specified measurement
period in a manner consistent with the terms of the Plan.
ARTICLE VI
STOCKHOLDER APPROVAL AND AMENDMENT
SECTION 6.1 This Plan shall become effective as of January 1, 1995, subject,
however, to the approval of the Company's stockholders at the 1995 Annual
Meeting of the Stockholders of the Company.
SECTION 6.2 The Plan may be amended at any time by the Committee, which
shall act in accordance with Section 3.1 of the Plan. In the event that Section
162(m) is modified or interpreted in a manner which causes the Plan to fail to
provide for the deductibility of compensation payable hereunder, the Committee
shall retain the right to modify the Plan for Covered Employees to the extent
necessary to bring any provisions hereof into compliance, including but not
limited to deletion of any non-conforming provisions, or to discontinue the Plan
altogether. No amendment shall be made without approval of the stockholders of
the Company if such approval is required in order for the Plan to continue to
meet the requirements of Section 162(m).
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