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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE
NUMBER 1-8282
ALEXANDER & ALEXANDER SERVICES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 52-0969822
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
1185 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036 (212) 840-8500
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
--------------------------------------------- ---------------------------------------------
<S> <C>
Common Stock, $1 par value New York Stock Exchange, Inc.
Preferred Share Purchase Rights
Common Stock, $1 par value International Stock Exchange of the United
Kingdom and Republic of Ireland, Ltd.
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
--------------------------------------------- ---------------------------------------------
<S> <C>
Class A Common Stock, $.00001 par value None
Class C Common Stock, $1 par value International Stock Exchange of the United
11% Convertible Subordinated Debentures Kingdom and Republic of Ireland, Ltd.
due 2007
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 17, 1995 was $848,952,634.
The number of shares of Common Stock, $1 par value, outstanding as of March 17,
1995 was 41,752,988.
The number of shares of Class A Common Stock, $.00001 par value, outstanding as
of March 17, 1995 was 2,115,997.
The number of shares of Class C Common Stock, $1 par value, outstanding as of
March 17, 1995 was 369,574.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1995 Annual Meeting of
Stockholders are incorporated by reference into Part III of this report.
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<PAGE>
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PART I
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ITEM 1. BUSINESS
GENERAL
Alexander & Alexander Services Inc. (the "Company"), is a holding company
which, through its subsidiaries, provides risk management, insurance brokerage
and human resource management consulting services on a global basis. It is one
of the few organizations capable of providing such services to clients with
multinational operations. The Company operates from offices located in more than
80 countries and territories through wholly owned subsidiaries, affiliates and
other servicing capabilities. The Company's extensive international operations
represent 48 percent, 46 percent and 47 percent of the Company's consolidated
operating revenues for the years ended December 31, 1994, 1993 and 1992,
respectively. The Company's clients are primarily commercial enterprises,
including a broad range of industrial, transportation, service, financial and
other businesses. Clients also include government and governmental agencies,
not-for-profit organizations and individuals. The Company was incorporated under
the laws of the State of Maryland in 1973. Through predecessor entities, it has
been in business since 1899.
During 1994, the Board of Directors effected significant changes in the
Company's management. The board's goal was to address the Company's financial
underperformance and to reposition the Company to deal with a changing business
environment. In the last half of 1994, new management conducted a thorough
worldwide review of the Company's operations, expense structure and business
strategy. As a result of this review, new management restructured, to varying
degrees, each of the Company's core businesses while also addressing
longstanding litigation and other contingencies. In addition, the Company
identified approximately $120 million in annualized expense savings, a
substantial portion of which will be reinvested in technology, employment
training and product development.
In the fourth quarter of 1994, management of the Company committed to a
formal plan of restructuring. This plan included the consolidation of real
estate space requirements at 48 offices worldwide and early retirement programs
and workforce reductions involving approximately 1,100 positions. In addition to
the charge for restructuring, the Company recorded during the third and fourth
quarters, certain special charges relating to the settlement of longstanding
contingencies and certain increases to the Company's pre-existing reserves.
INDUSTRY SEGMENTS
Insurance Services. The Company's principal industry segment is insurance
services. For the years ended December 31, 1994, 1993 and 1992, total revenues
contributed by the Company's insurance services segment accounted for 84
percent, 84 percent and 82 percent, respectively, of its consolidated operating
revenues. The Company's operations in this segment include risk management and
insurance services, specialist and reinsurance broking. The Company's extensive
services permit it to handle diverse lines of coverage.
Risk Management and Insurance Services. The Company's Risk Management and
Insurance Services operations (also known as "retail broking") develop risk
management programs and places coverage on behalf of its clients directly
with insurance companies, or indirectly through specialist insurance
brokers. During 1994, this operation served approximately 200,000 clients,
through 280 offices in 74 countries. For the years ended December 31, 1994,
1993 and 1992, the Company's risk management and insurance services
operations accounted for approximately 64 percent, 64 percent and 63
percent, respectively, of the Company's consolidated operating
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revenues. In 1993, the Company introduced the common trading name of
"Alexander & Alexander" throughout its global insurance services network in
the United States, the United Kingdom, Canada and Japan and in most of its
markets in continental Europe, Asia-Pacific and the Middle East. The
Company's risk analysis and management capabilities include a broad range of
services such as risk surveys and analyses, loss control and cost studies,
formulation of safety procedures and insurance programs. Complementing these
services, the Company offers financial and actuarial, risk information and
strategic risk management consulting and administration of captive insurance
companies and of runoff insurance and reinsurance companies and
intermediaries.
Specialist and Reinsurance Broking. Effective January 1, 1995, the Company's
specialist broking (also referred to as "wholesale broking") and reinsurance
broking operations were combined under the operating name Alexander Howden
Group Ltd., headquartered in London. This operation has 46 offices located
in 21 countries. For the years ended December 31, 1994, 1993 and 1992, the
Company's combined specialist and reinsurance broking operations accounted
for approximately 20 percent, 20 percent and 19 percent, respectively, of
the Company's consolidated operating revenues. As a specialist broker, the
Company acts as an intermediary between the retail broker and insurance
companies and Lloyd's of London syndicates. The Company's worldwide
specialist operations place large and complex risks that require access to
the London and world markets, offers excess, surplus and specialty lines
placements, specialist insurance broking and facultative reinsurance. As a
reinsurance broker, the Company places coverage on behalf of its insurance
or reinsurance company clients to reinsure all or a portion of the risk
underwritten by that insurance or reinsurance company. The Company's
worldwide reinsurance brokerage services, arrange reinsurance programs for
Lloyd's of London syndicates and other insurance and reinsurance companies
worldwide.
The Company is compensated for its broking services by commissions, usually
as a percentage of insurance premiums paid by the client, or by negotiated fees.
The Company may also receive contingent commissions which are based on the
volume and/or profitability of business placed with an insurance company over a
given period of time. The Company is generally compensated on a fee basis when
providing consulting and advisory services with respect to its clients' risk and
underwriting management programs. Premiums received from insureds but not yet
remitted to the carriers and claims payments received from carriers but not yet
remitted to the insureds are held as cash or investments in a fiduciary
capacity.
Human Resource Management Consulting. The Company offers global human
resource management consulting services and benefits broking through the
Alexander Consulting Group Inc. ("ACG"). For the years ended December 31, 1994,
1993 and 1992, total revenues contributed by the Company's human resource
management consulting services segment accounted for 16 percent, 16 percent and
18 percent, respectively, of the Company's consolidated operating revenues. ACG
provides integrated advisory and support services in human resource management,
including retirement planning, health care management, organizational
effectiveness, compensation, human resource-related communications, and
information technologies. ACG also offers brokerage services for group health
and welfare, special risk, and executive planning insurance coverages. During
1994, this operation served over 20,000 clients, through 85 offices in 18
countries.
The Company is compensated for human resource management consulting services
on a fee basis, except in instances where it receives commissions from insurance
companies for the placement of individual and group insurance contracts.
Financial Information about Industry Segments. For financial information
related to the Company's industry segments and geographical concentrations for
each of the three years in the period ended December 31, 1994, see Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") and Note 15 of the Notes to Financial Statements.
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DISCONTINUED OPERATIONS
In 1985, the Company discontinued its insurance underwriting operations. In
1987, the Company sold Sphere Drake Insurance Group (Sphere Drake). The Sphere
Drake sales agreement provides indemnities by the Company to the purchaser for
various potential liabilities including provisions covering future losses on
certain insurance pooling arrangements from 1953 to 1967 between Sphere Drake
and Orion Insurance Company (Orion), a U.K.-based insurance company, and future
losses pursuant to a stop-loss reinsurance contract between Sphere Drake and
Lloyd's Syndicate 701. In addition, the sales agreement requires the Company to
assume any losses in respect of actions or omissions by Swann & Everett
Underwriting Agency (Swann & Everett), an underwriting management company
previously managed by a subsidiary of the Company. In addition, the Company is
currently running off its insurance underwriting subsidiaries located in Atlanta
and Bermuda.
For further information concerning discontinued operations see MD&A and Note
6 of Notes to Financial Statements.
COMPETITION AND CUSTOMERS
Insurance broking and human resource management consulting are highly
competitive industries. The Company competes with other worldwide and national
companies, as well as regional and local firms. The principal methods of
competition in these businesses involve the nature, quality and cost of the
services the broker or consultant provides. As a service provider, the Company
also encounters competition with respect to attracting and retaining qualified
employees. In addition, insurance and reinsurance underwriters compete with the
Company by marketing and servicing their insurance products without the
assistance of insurance brokers. Also, certain insureds and groups of insureds
have initiated programs of self-insurance, thereby reducing or eliminating the
need for insurance brokers.
EMPLOYEES
At December 31, 1994, the Company had approximately 13,300 employees. As
part of the Company's fourth quarter 1994 restructuring plan, the Company
implemented workforce reductions and early retirement programs involving
approximately 1,100 positions, of which 650 are in the U.S. The workforce
reduction involved the elimination of 898 positions worldwide and early
retirement was accepted by 208 employees. A net reduction of an additional 380
positions took place during the first nine months of 1994. In addition, the
February 1995 sale of Alexsis Inc. will eliminate approximately 1,300 positions.
A small number of employees in foreign countries are represented by labor
unions. In addition, support personnel in Australia are represented by an
industrywide union. The Company considers relations with its employees to be
satisfactory.
REGULATIONS AND LICENSING
The activities of the Company related to insurance broking and human
resource management consulting services are subject to licensing requirements
and extensive regulation under the laws of the United States and each of its
various states, territories and possessions, as well as the laws of numerous
other countries in which the Company's subsidiaries conduct business. These laws
and regulations vary by jurisdiction. The appropriate regulatory authorities
generally have wide discretionary authority in adopting, amending and
implementing such regulations. In addition, certain of the Company's insurance
activities are governed by the rules of the Lloyd's of London insurance market
and other similar organizations.
In every state of the United States and most foreign jurisdictions, an
insurance broker or agent is required to have a license and such license may be
denied or revoked by the appropriate governmental agency for various reasons,
including the violation of its regulations and the conviction of crimes. In a
4
<PAGE>
few jurisdictions, licenses are issued only to individual residents or locally
owned business entities. In certain of those jurisdictions, if the Company
itself has no subsidiary that is so licensed, the Company may from time to time
make arrangements with residents or business entities licensed to act on its
behalf in the jurisdiction.
The legality of the Company's operations depends on the continuing retention
and validity of the licenses under which it operates and on compliance with a
diverse and complex regulatory structure. The Company's licenses may not be
readily transferable in many jurisdictions. The Company expends significant
amounts of time and money to maintain its licenses and to ensure compliance with
applicable laws and regulations.
Because of its multistate and international operations, in some instances
the Company follows practices which are based upon its interpretation of laws or
regulations or upon the interpretation generally followed by the industry.
However, such interpretations may be in conflict with those of regulatory
authorities. Therefore, the possibility exists that the Company may be precluded
or temporarily suspended from continuing its business or otherwise penalized in
a given jurisdiction.
ITEM 2. PROPERTIES
Substantially all of the Company's worldwide facilities are leased. No
difficulty is anticipated in negotiating renewals as leases expire or in finding
other satisfactory space if the premises become unavailable.
As part of the fourth quarter restructuring plan, the Company consolidated
real estate requirements at 48 offices worldwide. The real estate activities
represented the closure, abandonment and downsizing of office space globally,
including 34 locations in the U.S.
For further information concerning the Company's obligations under capital
leases and noncancelable operating leases see Notes 8 and 13 of Notes to
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various claims and lawsuits
from both private and governmental parties, which include claims and lawsuits in
the ordinary course of business, consisting principally of alleged errors and
omissions in connection with the placement of insurance and in rendering
consulting services. In some of these cases, the remedies that may be sought or
damages claimed are substantial. Additionally, the Company and its subsidiaries
are subject to the risk of losses resulting from the potential uncollectibility
of insurance and reinsurance balances and claims advances made on behalf of
clients.
Reference is made to Note 14 of Notes to Financial Statements and MD&A,
which is incorporated herein by reference, as to information concerning the
Company's contingent liabilities.
In addition to the afore-referenced legal proceedings, one of the Company's
subsidiaries, Thomas A. Greene & Company Inc., now operating as Alexander
Reinsurance Intermediaries, Inc., is one of 31 defendants named in a series of
antitrust actions which were filed beginning in March 1988 by the attorneys
general of 18 states and by 20 private parties. All actions have been
consolidated in the United States District Court for the Northern District of
California (In Re Insurance Antitrust Litigation, C-88-1688-WWS (N.D. Cal.)).
The defendants, which include various insurance and reinsurance companies,
reinsurance brokers and trade associations, are alleged to have manipulated the
market for commercial insurance by, among other things, conspiring to restrict
the terms of, and hence the availability of, general liability insurance.
Plaintiffs seek to enjoin further violations and to order a restructuring of the
insurance industry, in addition to recovering damages for injuries to both
public entities and the private party plaintiffs. During the fourth quarter of
1994, the plaintiffs and the 31 named defendants entered into an agreement in
principle, subject to certain conditions, to settle all
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allegations and potential liabilities relating to this litigation. Of the agreed
to aggregate settlement amount of $36 million, of which the amount of each
defendant's contribution is subject to a confidentiality agreement, the
Company's contribution will be the smallest amount to be paid by any of the
defendants and such amount is fully reserved by the Company.
The Company's contingent liabilities involve significant amounts, and while
it is not possible to predict with certainty the outcome of such contingent
liabilities, the applicability of coverage for such matters under the Company's
professional liability programs, or their financial impact on the Company,
management presently believes that such impact will not be material to the
Company's financial condition. However, it is possible that future developments
with respect to these matters could have a material effect on future interim or
annual results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders, through the solicitation of
proxies or otherwise.
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The table below shows the high and low sales prices per share of the
Company's Common Stock, $1.00 par value (Common Stock) as reported on the New
York Stock Exchange Composite Tape for each quarter of 1994 and 1993.
<TABLE>
<CAPTION>
PER SHARE COMMON STOCK
------------------------------------
1994 1993
---------------- ----------------
HIGH LOW HIGH LOW
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
First Quarter $ 22 3/4 $ 17 1/4 $ 28 7/8 $ 24
Second Quarter $ 18 1/8 $ 14 $ 28 $ 24 3/8
Third Quarter $ 20 7/8 $ 16 $ 27 3/4 $ 21 3/8
Fourth Quarter $ 21 1/2 $ 18 1/2 $ 21 3/4 $ 17 5/8
</TABLE>
In 1994, the Company paid a quarterly dividend of 25 cents for the first
quarter and 2.5 cents for the second, third and fourth quarters, for a total
cash payment of 32.5 cents per share of Common Stock. In 1993, the Company paid
a quarterly dividend of 25 cents for each of the four quarters, for a total cash
payment of $1.00 per share of Common Stock.
As of March 17, 1995, there were approximately 2,102 record holders of the
Company's Common Stock, $1.00 par value, 529 beneficial holders of the Class A
Common Stock, $.00001 par value (Class A Shares), and 1,211 record holders of
the Company Class C Common Stock, $1.00 par value (Class C Shares). The
Company's Class A Shares are associated with the dividend paying RSC Class 1
Special Shares of the Company's Canadian subsidiary, Alexander & Alexander/Reed
Stenhouse Companies Limited. The Class C Shares are associated with Dividend
Shares of the Company's Canadian subsidiary, Alexander & Alexander Services U.K.
plc.
No dividends may be declared on the Company's Common Stock unless an
equivalent amount per shares are paid on the dividend shares associated with the
Class A and Class C Shares. Holders of the Company's Series B Cumulative
Convertible Preferred Stock, $1.00 par value, have the right to require the
Company to purchase all or any part of such shares then held by such holders in
the event that the Board of Directors declares or pays dividends on the
Company's common equity in the aggregate in excess of 75 cents per share of
Common Stock during the last seven months of 1994, cumulatively 25 percent of
earnings in 1995 and 1996 and cumulatively 50 percent of earnings thereafter.
For further information concerning the market price and dividends per share
of the Company's Common Stock see Note 16 of Notes to Financial Statements. For
information concerning the Company's common and preferred stock see Note 10 of
Notes to Financial Statements.
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ITEM 6. SELECTED FINANCIAL DATA
ALEXANDER & ALEXANDER SERVICES INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data is presented in
accordance with generally accepted accounting principles. This data should be
read in conjunction with the financial statements and accompanying notes
included elsewhere herein.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS) 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Operating Revenues..................... $1,323.9 $1,341.6 $1,369.5 $1,385.1 $1,361.4
Operating Income (Loss) (1)............ (82.9) 52.3 85.5 16.4 123.8
Other Income (Expenses) (2)............ (63.9) (20.4) 17.4 (22.8) (20.5)
Income (Loss) from Continuing
Operations............................... (107.2) 23.6 57.1 (9.5) 55.9
Loss from Discontinued Operations...... (28.9) -- (145.0) -- --
Cumulative Effect of Change in
Accounting (3)........................... (2.6) 3.3 -- (2.2) --
Net Income (Loss)...................... (138.7) 26.9 (87.9) (11.7) 55.9
Earnings (Loss) Attributable to
Common Shareholders.................. (153.8) 20.7 (87.9) (11.7) 55.9
PER SHARE OF COMMON STOCK:
Income (Loss) from Continuing
Operations............................... $ (2.79) $ .40 $ 1.32 $ (.22) $ 1.30
Loss from Discontinued Operations...... (.66) -- (3.35) -- --
Cumulative Effect of Change in
Accounting............................... (.06) .08 -- (.05) --
-------- -------- -------- -------- --------
Net Income (Loss)...................... $ (3.51) $ .48 $ (2.03) $ (.27) $ 1.30
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Dividends Paid......................... $ .325 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
FINANCIAL POSITION:
Total Assets........................... $2,945.7 $2,793.8 $2,609.6 $2,737.8 $2,812.9
Working Capital........................ 237.6 186.2 191.7 172.6 173.6
Long-term Debt......................... 132.7 111.8 125.1 169.9 182.6
Stockholders' Equity................... 317.5 276.2 185.5 370.1 430.6
OTHER DATA:
Average Common Shares Outstanding
(millions)............................... 43.8 43.4 43.2 43.1 43.0
Cash Dividends Paid (4):
Common Stock......................... $ 14.3 $ 41.7 $ 40.9 $ 40.6 $ 40.7
Series A Preferred................... 8.3 6.2 -- -- --
Number of Employees (thousands)........ 13.3 14.5 14.9 15.8 16.2
</TABLE>
------------
(1) Includes restructuring charges of $69 million in 1994, $45.5 million in 1991
and $6.5 million in 1990 (see Note 3 of Notes to Financial Statements).
(2) Includes special charges primarily related to contingency settlements and
other indemnity costs of $69.7 million in 1994, $16.5 million in 1992, $13
million in 1991 and $5.5 million in 1990. Also includes gains on sales of
non-core businesses of $20.2 million in 1994, $3.9 million in 1993 and $43.8
million in 1992 (see Note 3 of Notes to Financial Statements).
(3) Includes the adoption, effective January 1, 1994, of SFAS No. 112
"Employers' Accounting for Postemployment Benefits"; effective January 1,
1993, of SFAS No. 109 "Accounting for Income Taxes" and effective January 1,
1991, of certain provisions of SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" relating to deferred
compensation plans (see Notes 5 and 9 of Notes to Financial Statements).
(4) Dividends on the Series B Cumulative Convertible Preferred Stock are payable
in kind (additional Series B preferred shares) until December 15, 1996 and
thereafter, at the Board of Directors election, until December 15, 1999.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (MD&A)
OVERVIEW
The year 1994 marked major and significant changes for the Company as a
restructuring process was undertaken by the Company's new senior management and
substantially completed. In addition, the Company reduced its financial
exposures to various longstanding litigation and other contingencies and sold
various non-core businesses. These actions included the following:
NEW MANAGEMENT
. Since mid-June 1994 a new senior management team was appointed and ten new
directors were elected.
DIVIDEND REDUCTION
. In June 1994, the quarterly common stock dividend was reduced by 90
percent resulting in an annualized cash savings of over $39 million.
AIG INVESTMENT
. In July 1994, American International Group, Inc. (AIG) invested $200
million in the Company and received 4 million shares of non-voting 8%
Series B Cumulative Convertible Preferred Stock. The net proceeds of $196
million will be used for general corporate purposes.
EXPENSE REDUCTION AND PROCESS IMPROVEMENT
. In July 1994, the Company began a major internal review of all of its
worldwide operations to identify opportunities to reduce costs and enhance
client service.
. The 1995 savings from these reviews are estimated at approximately $100
million before normal inflationary increases. A portion of the savings
will be reinvested into new technology, product development and other
areas associated with service enhancements as well as revenue generation.
. The Company has also undertaken a long-term reengineering process of its
U.S. risk management and insurance services operations to standardize and
automate work processes and increase productivity.
RESTRUCTURING AND OTHER CHARGES
. In the fourth quarter of 1994, management committed to a formal plan of
restructuring and in February 1995, announced a $69 million fourth quarter
1994 restructuring charge, including $25.2 million to consolidate real
estate space requirements at 48 offices worldwide and $43.8 million for
early retirement programs and worldwide workforce reductions of
approximately 1,100 positions. In addition, a $24.9 million provision was
made to settle certain litigation matters and strengthen reserves related
to the Company's professional indemnity programs.
CREDIT FACILITY
. On March 27, 1995, the Company entered into a new $200 million three-year
credit facility with various banks.
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MD&A (CONTINUED)
CONTINGENCY MATTERS
Shand and Mutual Fire Contingencies
. In January 1995, the Company negotiated the settlement of certain
indemnification obligations relating to the 1987 sale of Shand Morahan &
Company, Inc. (Shand). The settlement resulted in a fourth quarter 1994
pre-tax charge of $32.5 million. Under terms of the settlement, the
Company will pay $14 million in cash, issue a five-year interest bearing
note in the principal amount of $14 million and expects to pay a
contingent obligation of $4.5 million.
. On March 27, 1995, the Company, Shand and the rehabilitator of Mutual
Fire, Marine and Inland Insurance Company (Mutual Fire) entered into a
settlement agreement, which if approved by the courts, would terminate the
rehabilitator's litigation and release the Company and Shand from any
further claims by the rehabilitator. In the fourth quarter of 1994, the
Company increased its previously established reserves of $10 million based
on an estimated settlement amount, and recorded a pre-tax charge of $37.2
million ($24.2 million after-tax or $0.55 per share).
Discontinued Operations
. In July 1994, the Company entered into an insurance-based financing
contract (finite risk contract) with a reinsurance company that affords
protection for certain long-tailed exposures included in the Company's
discontinued operations. The contract provided for a payment of $80
million by the Company ($50 million of which was subsequently borrowed
from the reinsurance company) and for payment by the Company of the first
$73 million of claims. The Company recorded a $6 million charge in 1994
representing the amount of the payment that exceeded the recoverable
portion of existing reserves.
. In December 1994, the Company resolved certain indemnity obligations
related to the 1987 sale of Sphere Drake Insurance Group (Sphere Drake).
The Company provided a $20.9 million loss from discontinued operations in
the third quarter of 1994 related to this agreement.
Other Contingencies
. In February 1995, the Company settled a 1985 lawsuit by the Pine Top
Insurance Company ending litigation seeking compensatory, punitive and
other damages of over $87 million. The amount of the settlement was not
material and was previously reserved by the Company.
SALES OF NON-CORE BUSINESSES
. In November 1994, the Company completed the sale of its U.S.-based
personal lines insurance broking business. The total proceeds from the
sale were $30.2 million and a pre-tax gain of $20.2 million was reflected
in the fourth quarter of 1994 results.
. In January 1995, the Company sold its minority interest in a U.K. merchant
bank for cash proceeds of $7.2 million and a pre-tax gain of $0.3 million.
The gain will be reflected in the first quarter of 1995.
. In February 1995, the Company completed the sale of Alexsis, Inc., its
U.S.-based third-party administrator operation, for total cash proceeds of
$47.1 million. The pre-tax gain on this transaction will approximate $30
million and will be reflected in the first quarter of 1995.
These actions were implemented to lay a foundation for improved, sustainable
earnings and to substantially reduce the Company's financial exposure to
litigation and other contingencies.
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MD&A (CONTINUED)
OUTLOOK
The Company's insurance broking revenues are generally affected by premium
rates charged by insurance companies in the property and casualty markets and
the overall available market capacity. Since the mid-to-late 1980s, commission
and fee growth has been constrained due to soft pricing and excess capacity and
the resultant intense competition among insurance carriers and brokers for
market share. Lower interest rates have reduced investment income earned on
fiduciary funds.
The Company's restructuring and related initiatives in part reflect
management's view that insurance premium pricing will not improve significantly
in the foreseeable future. Revenue growth will depend increasingly on the
development of new products and services and new business generation. In
addition, interest rates are expected to increase moderately in the U.S. and
U.K.
During 1995, the Company will also explore geographical market expansion and
further industry specialization as well as consider possible niche and
substantial strategic acquisitions. As part of its evaluation of opportunities,
the Company engages with interested parties in discussions concerning possible
transactions. The Company has evaluated and is evaluating such opportunities and
prospects and will continue to do so throughout 1995. The Company cannot predict
if any transaction will be consummated, nor the terms or form of consideration
required.
Revenue growth from the Company's human resource management consulting
operations was impacted by uncertainty over health care reform in the U.S. Many
clients postponed or reduced planned employee benefit reviews while waiting to
analyze the impact of the potential governmental health care proposals. The
Company anticipates moderate revenue growth in 1995 as corporations recognize
that any such proposals are not likely to affect their efforts to redesign and
streamline employee benefit packages.
Overall comparable operating expenses are expected to decline in 1995
resulting from implementing the plan of restructuring and other expense
reduction initiatives. The Company has estimated that approximately $100 million
of expense savings will be realized from these efforts; however, approximately
one-half of such savings will be offset by investments in new technology,
products and personnel to support revenue growth as well as normal inflationary
increases.
SUMMARY
The Company reported a net loss of $138.7 million, or $3.51 per share for
1994. Included in the results were after-tax charges for restructuring,
contingency settlements and other reserves of $106.6 million, or $2.43 per
share; an after-tax gain of $12.5 million, or $0.28 per share, from the sale of
the Company's U.S.-based personal lines insurance broking business, and
after-tax charges of $28.9 million, or $0.66 per share, relating to certain
indemnity obligations and exposures of the Company's discontinued operations.
In 1993, net income was $26.9 million, or $0.48 per share, including
after-tax gains of $2.3 million, or $0.05 per share, from the sale of three
small operations and a gain relating to a cumulative effect adjustment of $3.3
million, or $0.08 per share, from a change in accounting for income taxes.
In 1992, the Company incurred a net loss of $87.9 million, or $2.03 per
share, including a loss from discontinued operations of $145 million, or $3.35
per share; after-tax gains from the sale of three non-core businesses of $28.5
million, or $0.66 per share, and after-tax special charges of $13.9 million, or
$0.32 per share, relating to the costs of indemnities provided to the purchaser
of a former Company operation.
The following discussion and analysis of significant factors affecting the
Company's operating results and liquidity and capital resources should be read
in conjunction with the accompanying financial statements and related notes.
11
<PAGE>
MD&A (CONTINUED)
CONSOLIDATED
OPERATING REVENUES
Consolidated operating revenues decreased in 1994 by $17.7 million, or 1.3
percent, compared to a decrease of $27.9 million, or 2 percent, in 1993. Revenue
comparisons were impacted by both foreign currency fluctuations and the effects
of acquisitions and dispositions. After adjusting for the effect of these items,
total revenues decreased $17.4 million in 1994 compared to 1993 levels.
Total 1993 revenues were negatively impacted by $57.7 million due to
appreciation of the U.S. dollar against most of the major currencies of the
Company's international operations and decreased another $8.2 million as a
result of operations sold in 1992. Excluding the effect of these items, total
1993 revenues increased by $38 million over 1992 levels.
Commissions and Fees
Total 1994 commissions and fees decreased from 1993 by $15.4 million, or 1.2
percent, compared to a $9.3 million, or 0.7 percent, decrease in 1993 versus
1992. The sale of non-core operations reduced revenues in the comparable periods
and foreign exchange rates had a negative effect of $54.3 million in 1993. When
adjusted for these items, total commissions and fees decreased by $8 million, or
0.6 percent, in 1994 after increasing $53.2 million, or 4.1 percent, in 1993.
Fiduciary Investment Income
Investment income earned on fiduciary funds decreased by $2.3 million, or
4.3 percent, in 1994 primarily due to lower average investment levels,
particularly in the U.S. In 1993, fiduciary investment income declined by $18.6
million, or 25.7 percent, primarily due to lower average interest rates
worldwide, especially in the U.S. and U.K.
The Company enters into interest rate swaps and forward rate agreements to
limit the earnings volatility associated with changes in short-term interest
rates on its existing and anticipated fiduciary investments with maturities of
three months or less. In addition, as part of its interest rate management
program, the Company utilizes various types of interest rate options, including
caps, collars, floors and interest rate guarantees. For additional information
relating to the Company's interest rate financial instruments, see Note 12 of
Notes to Financial Statements.
OPERATING EXPENSES
Consolidated operating expenses increased by $117.5 million, or 9.1 percent,
in 1994 compared to a $5.3 million, or 0.4 percent, increase in 1993. Excluding
the restructuring charges described below, total operating expenses increased in
1994 by $48.5 million, or 3.8 percent. Expense comparisons reflect both foreign
currency fluctuations and the effects of acquisitions and dispositions. In 1994,
total operating expenses increased by $44 million after adjusting for these
items.
In 1993 versus 1992, consolidated operating expenses were favorably impacted
by $66.3 million as a result of lower foreign exchange rates and hedging gains.
Operations sold in 1992 also reduced operating expenses in 1993 by $1.8 million.
Excluding the effect of foreign exchange variances and sold businesses, total
operating expenses increased by $73.4 million over 1992 levels.
Salaries and Benefits
Consolidated salaries and related benefits increased by $29 million, or 3.7
percent, in 1994 compared to a decrease of $19.2 million, or 2.4 percent, in
1993. The 1994 increase reflects $10.1 million of additional incentive and
benefit expenses in 1994 representing a combination of amendments
12
<PAGE>
MD&A (CONTINUED)
to existing incentive plans, payments required to certain employees in the U.K.
due to the modification of employment terms and a special compensation award to
a director.
Also contributing to the 1994 change were an additional $9.1 million of
salaries and benefits resulting from the 1993 Mexico acquisition and from the
November 1993 pooling of interests acquisition of Clay & Partners (Clay). Prior
to the acquisition, Clay operated as a partnership and its operations did not
reflect partner draws as salary expense. Excluding the effects of these items
and a decrease due to the effect of operations sold in 1993, salaries and
benefits increased $13.6 million over 1993 levels.
The 1993 decline was primarily attributable to lower foreign exchange rates,
offset by slightly higher staff costs in local currency terms.
Staff costs for the comparable periods also reflect normal salary
progressions and higher benefit costs, partially offset by declines in headcount
of 8.3 percent and 2.7 percent in 1994 and 1993, respectively. Performance-based
incentive costs declined by $4.8 million and $6.7 million in 1994 and 1993,
respectively.
Other Operating Expenses
Consolidated other operating expenses increased by $19.5 million, or 3.9
percent, in 1994 compared to an increase of $24.5 million, or 5.1 percent in
1993. Excluding the negative impact of changes in foreign exchange rates and
acquisitions and dispositions, other operating expenses increased by $15.8
million in 1994 versus 1993. The 1994 increase includes higher insurance costs
of $17.1 million.
In 1994, the Company provided $29.2 million, including $24.9 million in the
fourth quarter, of additional reserves relating to the settlement of certain
large litigation matters and reserve strengthening. In 1993, a provision of
$15.9 million was made for similar items. In addition, higher system development
costs were reflected in 1994 due to the standardization and automation efforts
underway in the U.S. The 1993 increase reflected higher insurance costs, travel
and entertainment expenses and systems development costs, offset by lower
foreign exchange rates.
Insurance costs reflect higher third-party insurance premiums and
self-insurance reserves for the Company's professional indemnity programs. The
Company believes its insurance-related reserves are sufficient to cover
potential claims and liabilities; however, there is no assurance that escalating
litigation costs and awards, as well as insurance company insolvencies, will not
have an adverse impact on the future overall costs of insurance coverages.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions" for its U.S. plans.
In 1991, the Company adopted the provisions of SFAS No. 106 relating to deferred
compensation plans. This statement requires the Company to accrue the estimated
cost of future retiree benefit payments during the years the employee provides
services. The Company previously expensed the cost of these benefits, which are
principally health care and life insurance, as premiums or claims were paid. The
Company has elected to amortize the initial postretirement benefit obligation of
$14 million over a period of twenty years. The Company's cash flows were not
affected by the implementation of this statement, and the impact to the results
of operations have not been significant.
Restructuring Charges
In the fourth quarter of 1994, management committed to a formal plan of
restructuring the Company's operations and recorded a $69 million pre-tax charge
($45.1 million after-tax, or $1.03 per share). The restructuring charge includes
$25.2 million to consolidate real estate space requirements at
13
<PAGE>
MD&A (CONTINUED)
48 offices worldwide, and $43.8 million for voluntary early retirement programs
and involuntary workforce reductions involving approximately 1,100 positions, of
which 650 are in the U.S.
The severance portion of the charge amounted to $22.9 million and reflects
the elimination of 898 positions worldwide. The voluntary early retirement
program was accepted by 208 employees prior to December 31, 1994 and amounted to
$20.9 million of the charge. Approximately $5.7 million of these liabilities
were paid in 1994 with a substantial majority of the remainder expected to be
paid in 1995.
The charge associated with real estate activities relates to the closure,
abandonment and downsizing of office space throughout the global operations,
including 34 locations in the U.S. The Company anticipates that these actions
will be essentially completed by the end of 1995. The costs include primarily
remaining lease obligations and write-offs of leasehold improvements and fixed
assets. Approximately $1.2 million of these liabilities were paid in 1994. The
cash portion of the remaining liabilities, excluding the fixed asset and
leasehold improvement write-offs of approximately $5.2 million, will be paid out
over the remaining lease periods, which range from one to ten years.
OTHER INCOME (EXPENSES)
Investment Income
Investment income earned on operating funds increased by $1.3 million, or
13.5 percent, in 1994 compared to a decrease of $2.4 million, or 20 percent, in
1993. The 1994 increase is due primarily from interest income earned on the
proceeds from the July issuance of preferred stock. The 1993 decrease reflected
significantly lower short-term interest rates throughout most of the major world
markets in comparison to 1992.
Interest Expense
Interest expense increased by $1.6 million, or 11.1 percent, in 1994
compared to a decrease of $3.6 million, or 20 percent, in 1993. The 1994
increase is due primarily to a higher debt level associated with the $50 million
borrowing in mid-1994 relating to a contract with a reinsurance company. The
1993 decrease reflected significantly lower worldwide interest rates and a
decrease in average debt compared to 1992 levels.
Other
Other non-operating income (expenses) consists of the following:
<TABLE><CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1994 1993 1992
------- ------ -----
<S> <C> <C> <C>
Gains on sales of businesses....................... $ 20.2 $ 3.9 $43.8
Litigation costs................................... (9.1) (20.2) (5.8)
Other.............................................. (0.2) 0.7 1.9
------- ------ -----
$ 10.9 $(15.6) $39.9
------- ------ -----
------- ------ -----
</TABLE>
On November 10, 1994, the Company completed the sale of its U.S.-based
personal lines insurance broking business. The total proceeds from the sale were
$30.2 million with a resulting pre-tax gain of $20.2 million ($12.5 million
after-tax or $0.28 per share).
During 1993, the Company sold three small operations for gross proceeds of
$9.6 million. Pre-tax gains of $3.9 million have been recognized on the sales
with resulting after-tax gains totaling $2.3 million or $0.05 per share.
14
<PAGE>
MD&A (CONTINUED)
During 1992, the Company sold three non-core businesses, including a
U.K.-based pension fund management operation, a Netherlands-based non-broking
operation and a U.S.-based administrator of workers' compensation funds. Total
proceeds on these sales were $77.4 million with resulting pre-tax gains of $43.8
million ($28.5 million after-tax or $0.66 per share).
Litigation costs are associated primarily with the Mutual Fire lawsuit
described in Note 14 of Notes to Financial Statements as well as a 1993
settlement of certain other litigation matters.
Special Charges
In the fourth quarter of 1994, the Company recorded pre-tax special charges
of $69.7 million ($45.3 million after-tax, or $1.03 per share). These charges,
which are reflected in non-operating results, include a $32.5 million settlement
in January 1995 which resolved certain indemnification obligations relating to
the 1987 sale of Shand and a $37.2 million increase to the Company's pre-
existing reserves, based on settlement discussions which led to a March 1995
settlement agreement, which is subject to court approval, relating to lawsuits
and other disputes brought against the Company and others by the rehabilitator
of Mutual Fire. For further information relating to these matters, see Note 14
of Notes to Financial Statements.
In 1992, the Company recorded a $16.5 million pre-tax charge ($13.9 million
after-tax, or $0.32 per share) associated with the sale of Shand. The provision
reflected the estimated cost of indemnities provided to the purchasers of Shand,
including $10 million associated with the Mutual Fire lawsuits and other
disputes.
INCOME TAXES
At December 31, 1994, the Company has a net deferred tax asset balance of
$136.7 million which is comprised of net deferred tax assets in the U.S. of
$152.7 million offset by net deferred tax liabilities of $16 million outside the
U.S. The deferred tax asset is net of a $36.7 million valuation allowance
primarily relating to foreign and U.S. state net operating loss and capital loss
carryforwards. The valuation allowance represents approximately 90 percent of
these carryforwards. At this time the Company believes that it is more likely
than not that this portion of these deferred tax assets will not be realized.
The valuation allowance increased in 1994 by a net amount of $13.6 million,
principally due to increases in U.S. state net operating losses and foreign
capital losses.
A substantial portion of the net deferred tax asset relates to various
financial statement expenses and accruals, primarily in the U.S., that will not
be tax deductible until paid. These costs, which will be paid in future years,
principally include restructuring costs, contingency settlements, deferred
compensation expenses, professional indemnity costs, and pension and other
employee benefit expenses. The net deferred tax asset also includes $26.7
million relating to a $76.2 million U.S. federal net operating loss carryforward
generated in 1994 which will expire in the year 2009, U.S. federal foreign tax
credit carryforwards totaling $8.8 million, portions of which expire in 1998 and
1999, and U.S. federal alternative minimum tax credits of $5.2 million which can
be carried forward indefinitely. The Company expects that sufficient taxable
income will be generated in future years to realize these carryforwards, and
therefore, the Company believes a valuation allowance is not necessary for these
amounts.
Although future earnings cannot be predicted with certainty, management
currently believes that realization of the net deferred tax asset is more likely
than not. The Company will report on its 1995 U.S. federal income tax return
gains totaling an estimated $50 million with respect to the sales of its
personal lines business and its Alexsis subsidiary. Based on 1994 results,
excluding nonrecurring items and sold subsidiaries and businesses, with an
estimated 8.5% reduction in U.S. operating costs as a result of the Company's
restructuring in 1994, the net U.S. deferred tax asset would be realized with
average annual growth in U.S. operating revenues and pre-tax income of less than
two percent.
15
<PAGE>
MD&A (CONTINUED)
As discussed in Note 5 of Notes to Financial Statements, the Company is
currently under examination by the IRS for years 1990 and 1991. It is not
expected that the examination will have any effect on realization of the 1994
carryforward.
The Company files a consolidated U.S. federal income tax return which
includes the losses of its U.S. discontinued operations. A reconciliation of the
book to taxable income/(loss carryforward) for the Company's U.S. operations is
as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Income (loss) before taxes........................................ $(200.9) $(74.2) $(39.2)
Amortization of goodwill........................................ 4.2 4.8 4.5
Depreciation.................................................... 6.6 5.4 5.7
Tax leases...................................................... 7.0 7.6 6.8
Dispositions of subsidiaries/businesses......................... (19.2) (8.5) (1.8)
Contingency settlements......................................... 69.7 -- 16.5
Restructuring expenses.......................................... 25.8 (2.9) (29.7)
Repatriation of foreign earnings................................ 9.3 131.0 191.9
Other, including accruals not currently deductible.............. 26.1 39.9 34.7
------- ------ ------
Taxable income/(loss carryforward) from continuing operations..... (71.4) 103.1 189.4
Taxable income/(loss) from discontinued operations................ (4.8) 4.6 (1.6)
------- ------ ------
U.S. taxable income/(loss carryforward)........................... $ (76.2) $107.7 $187.8
------- ------ ------
------- ------ ------
</TABLE>
The Company's effective tax (benefit) rates were (29) percent, 20 percent,
and 42.8 percent in 1994, 1993 and 1992, respectively. These rates compare to
the U.S. statutory rate of 35 percent in 1994 and 1993 and 34 percent in 1992.
The effective tax rates were negatively impacted by certain expenses which were
not deductible in the jurisdictions in which the Company conducts business.
These expenses include amortization of goodwill and entertainment expenses.
Offsetting these factors are state and local tax benefits on losses generated in
the U.S. operations as well as foreign tax rates lower than the U.S. statutory
rate in 1994 and 1993.
The recognition of a $3.5 million tax benefit associated with a prior year
capital loss decreased the Company's 1993 effective tax rate as a result of
capital gains generated in 1993. The effective tax rates in 1993 and 1992 were
also favorably impacted by the results of Clay & Partners, a U.K. based
actuarial consulting operation acquired in 1993 in a pooling of interests
transaction. Prior to the merger, Clay operated as a partnership and
accordingly, its results did not reflect corporate income taxes of approximately
$1.9 million and $2.1 million in 1993 and 1992, respectively.
As discussed in Note 5 of Notes to Financial Statements, the Company was
advised during 1994 that the Joint Committee on Taxation had approved the
agreement reached in 1993 by the Company and the Appeals Office of the Internal
Revenue Service (IRS) on settlement of tax issues with respect to years 1980
through 1986. Also during 1994, the Company reached an agreement with the IRS on
settlement of the examination of years 1987 through 1989. On February 28, 1995,
the Company paid the amounts due for years 1980 through 1989 and charged the tax
and net interest totaling $35.6 million against previously established reserves.
In 1994, the Company received a Notice of Proposed Adjustment from the IRS
in connection with the examination of its 1990 and 1991 U.S. federal income tax
returns, proposing an increase in taxable income for the 1991 year which, if
sustained, would result in additional tax liability estimated by the Company at
$50 million. This proposed adjustment relates to intercompany transactions
involving the stock of a U.K. subsidiary.
16
<PAGE>
MD&A (CONTINUED)
As discussed in Note 5 of Notes to Financial Statements, the Company
disagrees with the IRS position on this issue. Although the ultimate outcome of
the matter cannot be predicted with certainty, the Company and its independent
tax counsel believe there are meritorious defenses to the proposed adjustment
and substantial arguments to sustain the Company's position and that the Company
should prevail in the event this issue is litigated. A similar set of
transactions occurred in 1993 for which the IRS could propose an increase in
taxable income which would result in an additional tax liability estimated by
the Company at $25 million. The Company's 1993 tax return is not currently under
examination. The Company believes it should prevail in the event this similar
issue is raised by the IRS. Accordingly, no provision for any liability with
respect to the 1991 and 1993 transactions has been made in the consolidated
financial statements.
The Company believes that its current tax reserves are adequate to cover all
of its tax liabilities.
DISCONTINUED OPERATIONS
In 1985, the Company discontinued its insurance underwriting operations. In
1987 the Company sold Sphere Drake Insurance Group (Sphere Drake). The Sphere
Drake sales agreement provides indemnities by the Company to the purchaser for
various potential liabilities including provisions covering future losses on
certain insurance pooling arrangements from 1953 to 1967 between Sphere Drake
and Orion Insurance Company (Orion), a U.K.-based insurance company, and future
losses pursuant to a stop-loss reinsurance contract between Sphere Drake and
Lloyd's Syndicate 701 (Syndicate 701). In addition, the sales agreement requires
the Company to assume any losses in respect of actions or omissions by Swann &
Everett Underwriting Agency (Swann & Everett), an underwriting management
company previously managed by Alexander Howden Group plc (Alexander Howden).
The net liabilities of discontinued operations shown in the accompanying
Consolidated Balance Sheets include insurance liabilities associated with the
above indemnities, liabilities of insurance underwriting subsidiaries currently
in run-off and other related liabilities.
The insurance liabilities represent estimates of future claims expected to
be made under occurrence-based insurance policies and reinsurance business
written through Lloyd's and the London market covering primarily asbestosis,
environmental pollution, and latent disease risks in the United States which are
coupled with substantial litigation expenses. These claims are expected to
develop and be settled over the next twenty to thirty years.
Liabilities stemming from these claims cannot be estimated using
conventional actuarial reserving techniques because the available historical
experience is not adequate to support the use of such techniques and because
case law, as well as scientific standards for measuring the adequacy of site
cleanup (both of which have had, and will continue to have, a significant
bearing on the ultimate extent of the liabilities) is still evolving.
Accordingly, the Company's independent actuaries have combined available
exposure information with other data and have used various projection techniques
to estimate the insurance liabilities, consisting principally of incurred but
not reported losses.
On July 1, 1994, the Company entered into a finite risk contract providing
protection primarily for exposures relating to Orion, Syndicate 701 and Swann &
Everett. The contract provided for a payment by the Company of $80 million ($50
million of which was borrowed from the reinsurance company) to the reinsurance
company and for payment by the Company of the first $73 million of paid claims.
The contract entitles the Company to recover paid claims in excess of the
Company's $73 million retention. At December 31, 1994, the recoveries were
limited to $108.3 million, which includes the Company's payment of $80 million.
In addition, commencing December 31, 1996, depending on the timing and amount of
paid loss recoveries under the contract, the Company may be entitled to receive
a payment from the reinsurance company in excess of the amounts recovered for
paid losses if the contract is terminated. The contract is accounted for under
the deposit method of accounting and the accounting requirements for
discontinued operations. The Company recorded a $6 million charge in the second
17
<PAGE>
MD&A (CONTINUED)
quarter of 1994 representing the amount of the payment that exceeded the
recoverable portion of existing reserves.
Insurance liabilities in excess of recorded liabilities could develop in the
future. Based on independent actuarial estimates of the amount and timing of
claim payments, it is reasonably possible that such additional liabilities, net
of estimated amounts recoverable for paid losses under the finite risk
contracts, could amount to $74 million. However, management currently believes
that such additional insurance liabilities are not likely to develop.
The Company believes that, based on current estimates, the established total
net liabilities of discontinued operations are sufficient to cover its
exposures. However, there is no assurance that further adverse development may
not occur due to variables inherent in the estimation processes and other
matters described above. The Company currently believes that the effect of such
adverse development, if any, will not be material to the Company's financial
position and results of operations.
In December 1994, the Company entered into an agreement to resolve certain
indemnity obligations to Sphere Drake. Under terms of the Sphere Drake
agreement, the Company received a cash payment of $5 million in settlement of
the zero coupon notes receivable and related indemnities as well as certain
income tax liabilities. The Company recorded a $20.9 million loss from
discontinued operations in the third quarter in connection with this agreement.
CUMULATIVE EFFECT ADJUSTMENTS
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." This statement requires that certain
benefits provided to former or inactive employees after employment but prior to
retirement, including disability benefits and health care continuation coverage,
be accrued based upon the employees' service already rendered. The cumulative
effect of this accounting change was an after-tax charge of $2.6 million or
$0.06 per share in the first quarter of 1994. The increase to the annual cost of
providing such benefits will not be significant.
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The cumulative effect of adopting this standard increased net
income in the first quarter of 1993 by $3.3 million or $0.08 per share. Tax
benefits of $3.2 million were also allocated to paid-in capital representing the
difference in the tax bases over the book bases of the net assets of taxable
business combinations accounted for as pooling of interests. These benefits
would have been recognized at the respective dates of combination if SFAS No.
109 had been applied at that time.
SEGMENT INFORMATION
INSURANCE SERVICES
Operating results for the Insurance Services segment of the Company's
operations are summarized below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Operating Revenues:
Risk management and insurance services broking.............. $ 816.4 $ 832.7 $ 827.2
Specialist insurance and reinsurance broking................ 245.4 242.3 229.5
Fiduciary investment income................................. 51.4 53.6 72.3
-------- -------- --------
Total operating revenues................................ 1,113.2 1,128.6 1,129.0
-------- -------- --------
Operating expenses:
Operating expenses.......................................... 1,069.1 1,035.7 1,042.9
Restructuring charges....................................... 56.3 -- --
-------- -------- --------
Total operating expenses................................ 1,125.4 1,035.7 1,042.9
-------- -------- --------
Operating income (loss)....................................... $ (12.2) $ 92.9 $ 86.1
-------- -------- --------
-------- -------- --------
</TABLE>
18
<PAGE>
MD&A (CONTINUED)
RISK MANAGEMENT AND INSURANCE SERVICES BROKING REVENUES
Worldwide risk management and insurance services broking commissions and
fees decreased $16.3 million, or 2 percent, in 1994 compared to a $5.5 million,
or 0.7 percent, increase in 1993. Foreign exchange rate variances negatively
impacted such revenues by $1 million and $27.5 million in 1994 and 1993,
respectively.
Broking revenues in the U.S. decreased by $29.7 million in 1994 compared to
1993 reflecting the continued softness in certain insurance markets and lost
business. Partially offsetting the U.S. decline were revenue increases for
certain of the Company's international risk management and insurance services
operations. Particularly, there was an increase of $13.2 million in the Latin
America operations, primarily from the 1993 Mexico acquisition, and also
increases of $5.3 million and $3.7 million occurred in the Europe and Canada
operations, respectively. These increases were due primarily to new business
production. Furthermore, operations sold in 1993, primarily in the U.S., served
to reduce 1994 broking revenues by $7.9 million.
The decrease in 1993 broking revenues compared to 1992 was primarily
attributable to reduced property and casualty premium rates in North America,
coupled with the impact of unfavorable economic conditions which limited revenue
growth. These effects were partially offset by new business production and
moderate firming of premium rates in certain international markets.
SPECIALIST INSURANCE AND REINSURANCE BROKING REVENUES
To achieve operational efficiencies, in late 1994 the specialist insurance
broking and reinsurance broking operations committed to merge their operations
into one business unit, headquartered in London. Prior to the merger, they
operated as independent business units.
Total 1994 broking commissions and fees increased $3.1 million, or 1.3
percent, versus 1993 levels. This compares to an increase of $12.8 million, or
5.6 percent, in 1993. Changes in foreign exchange rates increased 1994 broking
revenues by $0.9 million and decreased 1993 broking revenues by $15.6 million.
Selected premium rate increases and new business in the Company's
international operations, particularly in Canada, France, Asia-Pacific and Latin
America were substantially offset by a decline in the U.S. The increase in 1993
broking revenues over 1992 levels was fueled by strong new business production
and premium rate increases in most non-U.S. markets, especially in the U.K. and
Asia-Pacific operations.
The Company enters into foreign exchange forward contracts and foreign
exchange option agreements primarily to provide risk management against future
exposures that arise at its London-based specialist insurance and reinsurance
broking operations. The exposures arise because a significant portion of the
revenues of these operations are denominated in U.S. dollars, while their
expenses are primarily denominated in U.K. pounds sterling.
Gains and losses on contracts which are designated as hedges of firm
commitments are deferred until the settlement dates. Contracts which are not
designated as hedges are marked to market at each balance sheet date and are
included in other current assets or liabilities, with the resulting gain or loss
recorded as a component of other operating expenses. The fair market value of
all foreign exchange contracts at December 31, 1994 was $2.6 million. For
additional information relating to the Company's foreign exchange financial
instruments, see Note 12 of Notes to Financial Statements.
These foreign exchange contracts are generally purchased from large
international banks and financial institutions with strong credit ratings.
Credit limits are established based upon the credit ratings of such institutions
and are monitored on a regular basis. Management does not anticipate incurring
any losses due to non-performance by these institutions. In addition, the
Company monitors
19
<PAGE>
MD&A (CONTINUED)
the market risk associated with foreign exchange and options contracts by using
probability analysis, external pricing systems and information from banks and
brokers.
FIDUCIARY INVESTMENT INCOME
Investment income earned on fiduciary funds decreased by $2.2 million in
1994 primarily due to lower average investment levels, particularly in the U.S.,
and decreased by $18.7 million in 1993 primarily due to lower worldwide interest
rates, particularly in the U.S. and U.K.
OPERATING EXPENSES
Worldwide risk management and insurance services operating expenses,
excluding $40.2 million of restructuring charges, increased by $18.4 million, or
2.2 percent, in 1994 compared to a decrease of $2.6 million, or 0.3 percent in
1993. Foreign exchange rate changes, including hedging contracts gains and
losses, increased expenses by $7.9 million in 1994 and reduced expenses by $37.8
million in 1993. Contributing to the 1994 increase were higher insurance costs
and increased operating expenses of $13 million in the Latin America operations,
primarily due to the 1993 Mexico acquisition, somewhat offset by a decline in
expenses of $8.9 million for operations sold in 1993. Reductions in 1993
expenses resulting from the favorable effect of foreign exchange rates were
offset by higher insurance costs, travel and entertainment expenses and systems
development costs in comparison to 1992 levels.
Operating expenses, excluding $16.1 million of restructuring charges, for
the specialist insurance and reinsurance broking operations increased by $15
million, or 7.1 percent, in 1994 compared to a decrease of $4.6 million, or 2.1
percent, in 1993. Foreign exchange rate variances, including hedging gains and
losses, favorably impacted expenses by $1.9 million and $19 million in 1994 and
1993, respectively. A significant portion of the 1994 operating expense increase
was due to certain additional incentive and benefit expenses in the U.K.
operations arising from amendments to existing incentive plans and payments
required to its employees as a result of modification of employment terms. The
1993 decrease was primarily the result of the aforementioned favorable effect of
foreign exchange rates partially offset by increased expenses in the U.K.
operations.
HUMAN RESOURCE MANAGEMENT CONSULTING
Operating results for the Human Resource Management Consulting segment of
the Company's operations are summarized below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Operating revenues:
Commissions and fees............................................ $210.5 $212.7 $240.3
Fiduciary investment income..................................... 0.2 0.3 0.2
------ ------ ------
Total operating revenues.................................... 210.7 213.0 240.5
------ ------ ------
Operating expenses:
Operating expenses.............................................. 221.5 220.5 209.7
Restructuring charges........................................... 8.3 -- --
------ ------ ------
Total operating expenses.................................... 229.8 220.5 209.7
------ ------ ------
Operating income (loss)........................................... $(19.1) $ (7.5) $ 30.8
------ ------ ------
------ ------ ------
</TABLE>
Human resource management consulting commissions and fees decreased by $2.2
million, or 1 percent, in 1994 compared to a decrease of $27.6 million, or 11.5
percent in 1993. The impact of changes in foreign exchange rates on such
revenues was an increase of $0.6 million and a decrease of $11.1 million for
1994 and 1993, respectively. Contributing to the 1994 decrease was a shortfall
in the
20
<PAGE>
MD&A (CONTINUED)
U.K. operations of $5.3 million, primarily due to recent legislation in the U.K.
which requires commission disclosure to clients on financial services products.
In 1993 versus 1992, revenue production was negatively influenced by the
uncertainty surrounding health care reform in the United States and 1993 levels
also decreased by $8.2 million as a result of an operation sold in 1992.
Operating expenses, excluding $8.3 million of restructuring charges,
increased by $1 million, or 0.5 percent, in 1994 compared to an increase of
$10.8 million, or 5.2 percent in 1993. The impact of changes in foreign exchange
rates on total operating expenses was an increase of $0.2 million and a decrease
of $9.5 million for 1994 and 1993, respectively. Contributing to the 1994
increase were higher salary costs in the U.K. from the Clay acquisition, which
operated as a partnership in 1993, partially offset by decreases in the total
operating expenses of the U.S. operations due primarily to one-time expenses
reflected in the 1993 results. In comparison to 1992, total operating expenses
in 1993 were also reduced by $1.8 million as a result of an operation sold in
1992.
LIQUIDITY AND CAPITAL RESOURCES
In 1994, the Company changed its presentation of cash flows to distinguish
fiduciary balances from operating balances. The Company believes that this
presentation provides more useful information regarding cash flows that are
available for general corporate purposes.
At December 31, 1994, the Company' operating cash and cash equivalents
totaled $248.7 million, a $97.2 million increase over the 1993 year-end balance.
In addition, the Company had $83.3 million of operating funds invested in short
and long-term investments at December 31, 1994.
Operating Activities
The Company's funds from operating activities consist primarily of net
income adjusted for non-cash items, including depreciation and amortization,
deferred income taxes, gains on sales of business and, in 1994, restructuring
and other special charges as well as changes in working capital balances. In
addition, the net cash flows relating to discontinued operations are included.
In 1994, the Company's operating activities used $16.6 million of operating
funds, primarily due to an $80 million payment to a reinsurance company for the
finite risk contract previously discussed. The Company subsequently borrowed $50
million relating to this payment; however, the proceeds from this borrowing are
reflected in the net cash provided from financing activities.
The 1994 charges for restructuring required $6.9 million of cash payments
during 1994. The Company anticipates that approximately $35.4 million of the
remaining balance of $62.1 million will be funded in 1995.
The $69.7 million of special charges recorded in 1994 did not require a cash
funding. The terms of the settlement relating to Shand will result in cash
requirements of approximately $14 million in 1995 and a $18.5 million increase
in long-term debt. The Company anticipates that the 1995 net cash requirements
relating to Mutual Fire will approximate $9 million with the remainder
represented by additional long-term debt.
Investing Activities
The Company's net capital expenditures for property and equipment and
acquisitions were $26.2 million and $47 million during 1994 and 1993,
respectively. Capital expenditures for property and equipment remained stable as
the Company continued with its investment in redesigning work processes and
enhancing systems technology. The 1993 expenditures included $16.4 million for
an acquisition in Mexico. As a result of the devaluation of the Mexican peso in
late 1994, the Company's accumulated translation adjustment balance for its
Mexican operation reflected an unrealized loss of $6.2 million at December 31,
1994. The Company expects to maintain its strategic investment in Mexico for the
long-
21
<PAGE>
MD&A (CONTINUED)
term and further anticipates that its Mexican operation will remain profitable.
Accordingly, the Company does not currently consider its investment in Mexico to
be permanently impaired.
Of the $30.2 million proceeds from the November 1994 sale of the U.S.-based
personal lines business, $1 million was received in 1994 and the remaining $29.2
million in January 1995. In addition, the Company received $7.2 million in
January 1995 from the sale of its minority interest in a U.K. merchant bank and
$47.1 million from the sale of Alexsis Inc. in February 1995.
Financing Activities
The decline in cash dividend payments reflects the reduction in the
Company's common stock dividend by 90 percent. The estimated annualized savings
from this action is approximately $39 million. In addition, dividends on the
Company's Series B Preferred Shares are payable in kind (additional preferred
shares) until December 15, 1996 and thereafter, at the election by the Board of
Directors, until December 15, 1999.
At December 31, 1994 the Company had a $150 million credit agreement with
various banks which would have expired in July 1995. The Company had full access
to such funds and had no borrowings outstanding at December 31, 1994. At
December 31, 1994, the Company was in technical default on two financial
covenants under this agreement and was granted a waiver with respect to
compliance with such covenants.
Supplementing the credit agreement, the Company has unsecured lines of
credit available for general corporate purposes totaling $97.7 million, of which
$97 million were unused at December 31, 1994. These lines consist of uncommitted
cancellable facilities in the U.S. and other countries. If drawn, the lines bear
interest at market rates and carry annual commitment fees of not greater than
1/2 percent of the line.
On March 27, 1995, the Company's existing credit agreement was cancelled and
replaced by a new $200 million three-year facility with various banks which
expires in March 1998. See Note 8 of Notes to Financial Statements for further
information regarding this credit agreement.
On July 15, 1994, pursuant to the terms of the AIG Agreement, AIG purchased
from the Company 4,000,000 shares of Series B Convertible Preferred Shares at a
purchase price of $50 per share for a total purchase price of $200,000,000. Such
proceeds, net of approximately $3.8 million of related expenses, are available
for general corporate purposes, of which $30 million has been used to fund the
finite risk contract relating to discontinued operations. For additional
information relating to the AIG Agreement, see Note 10 of Notes to Financial
Statements.
Under the terms of the AIG Agreement, the declaration or payment of
dividends on common stock in excess of prescribed amounts may require the
Company to purchase all or part of the then outstanding Series B Convertible
Preferred Shares. Dividends on the Series B Convertible Preferred Shares will
reduce the amount or earnings otherwise available for common stockholders by
approximately $16 million in the first year after issuance, and by approximately
$23 million in the fifth year after issuance, assuming dividends on the Series B
Convertible Preferred Shares were to be paid in kind throughout the first five
years after issuance.
On July 15, 1994, the purchasers of Shand executed their option to purchase
an office building owned and accounted for by the Company as a direct financing
lease by assuming the non-recourse mortgage notes of $19.5 million. No gain or
loss was recognized on this transaction.
On July 1, 1994, Alexander & Alexander Services Inc. borrowed $50 million
from the reinsurance company that executed the finite risk contract relating to
discontinued operations. The note is payable in five equal annual installments,
commencing July 1, 1997 and bears interest at a rate of 9.45 percent. If
Alexander & Alexander Services Inc. defaults on the borrowing, the reinsurance
company may utilize the Alexander & Alexander Services Inc. note to settle
claims under the finite risk contract.
22
<PAGE>
MD&A (CONTINUED)
Other
In 1994, the Accumulated Translation Adjustments, which represent the
cumulative effect of translating the Company's international operations to U.S.
dollars, positively impacted total Stockholders' Equity by $11.4 million. The
increase resulted from the weakening of the U.S. dollar against most of the
major currencies of the Company's overseas operations.
At December 31, 1994, the Company has an accumulated deficit of $287.1
million. The Company's current financial position satisfies Maryland law
requirements for the payment of dividends. The Board of Directors will continue
to take into consideration the Company's financial performance and projections,
as well as the provisions of the AIG Agreement pertaining to dividends described
in Note 10 of Notes to Financial Statements, in connection with future decisions
with respect to dividends. In addition, no dividends may be declared or paid on
the Company's Common Stock unless an equivalent amount per share is declared and
paid on the dividend paying shares associated with the Class A and Class C
Common stock.
As described in Notes 3, 6, and 14 of Notes to Financial Statements, the
Company believes its most significant litigation matters and other contingencies
have been settled. In addition, as described in Note 5 of Notes to Financial
Statements, during 1994, the Company was advised that the Joint Committee on
Taxation had approved the agreement reached in 1993 by the Company and the
Appeals Office of the IRS on settlement of tax issues with respect to the years
1980 through 1986. Also during 1994, the Company reached an agreement with the
IRS on settlement of the examination of years 1987 through 1989. In February
1995 the Company paid the amounts due for the years 1980 through 1989 and
charged the net tax and interest totaling $35.6 million against previously
established reserves.
The Company believes that cash flow from operations, along with current
operating cash balances, supplemented by the proceeds from the Series B
Convertible Preferred Shares and assets sales, will be sufficient to fund
working capital and other operating requirements. In the event additional funds
are required, the Company believes it will have sufficient resources, including
borrowing capacity, to meet such requirements.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALEXANDER & ALEXANDER SERVICES INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND RELATED INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Management.................................................................. 25
Independent Auditors' Report.......................................................... 26
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1994..................................................................... 27
Consolidated Balance Sheets, December 31, 1994 and 1993............................... 28
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1994..................................................................... 30
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1994...................................................... 32
Notes to Financial Statements, including unaudited quarterly financial data........... 34
Schedule II--Valuation and Qualifying Accounts........................................ 65
</TABLE>
24
<PAGE>
REPORT OF MANAGEMENT
The Company's management is responsible for the preparation and contents of
the information and representations contained in the consolidated financial
statements and other sections of this Annual Report on Form 10-K. Management
believes that the consolidated financial statements and related information have
been prepared in accordance with generally accepted accounting principles
appropriate in the circumstances, including amounts that are based on
management's judgment and best estimates.
The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded against loss from unauthorized
use or disposition and that accounting records provide a reliable basis for the
preparation of financial statements. The internal accounting control system is
augmented by an internal auditing program, written policies and guidelines and
the careful selection and training of qualified personnel.
Deloitte & Touche LLP has been engaged, with the approval of the Company's
stockholders, as the independent auditors to audit the financial statements of
the Company and to express an opinion thereon. Their opinion is based on
procedures believed by them to be sufficient to provide reasonable assurance
that the financial statements present fairly, in all material respects, the
Company's financial position, cash flows and results of operations. Their report
is set forth on Page 26. The Audit Committee of the board of directors is
composed of four directors, none of whom is an employee of the Company. It
assists the board 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 coming year. The Audit Committee
meets periodically with management, internal auditors and the independent
auditors to review internal accounting controls, auditing and financial
reporting matters. The independent auditors and the internal auditors have
unrestricted access to the Audit Committee.
Frank G. Zarb
Chairman of the Board,
Chief Executive Officer & President
Edward F. Kosnik
Executive Vice President &
Chief Financial Officer
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Stockholders of Alexander & Alexander Services Inc.:
We have audited the accompanying consolidated balance sheets of Alexander &
Alexander Services Inc. and Subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1994. Our
audits also included the financial statement schedule listed in the Index at
Item 8. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies at December 31,
1994 and 1993, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Notes 5, 7 and 11 to the consolidated financial statements,
in 1994 the Company changed its method of accounting for certain investments in
debt and equity securities and postemployment benefits, and, in 1993, income
taxes and postretirement benefits.
DELOITTE & TOUCHE LLP
Baltimore, Maryland
February 15, 1995 (February
28, March 16 and 27, 1995
with respect to certain
information in Notes 2, 5, 8
and 14)
26
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
OPERATING REVENUES:
Commissions and fees........................................ $1,272.3 $1,287.7 $1,297.0
Fiduciary investment income................................. 51.6 53.9 72.5
-------- -------- --------
1,323.9 1,341.6 1,369.5
-------- -------- --------
OPERATING EXPENSES:
Salaries and benefits....................................... 814.3 785.3 804.5
Other....................................................... 523.5 504.0 479.5
Restructuring charges....................................... 69.0 -- --
-------- -------- --------
1,406.8 1,289.3 1,284.0
-------- -------- --------
OPERATING INCOME (LOSS)....................................... (82.9) 52.3 85.5
-------- -------- --------
OTHER INCOME (EXPENSES):
Investment income........................................... 10.9 9.6 12.0
Interest expense............................................ (16.0) (14.4) (18.0)
Other....................................................... 10.9 (15.6) 39.9
Special charges............................................. (69.7) -- (16.5)
-------- -------- --------
(63.9) (20.4) 17.4
-------- -------- --------
Income (loss) before income taxes and minority interest....... (146.8) 31.9 102.9
Income taxes (benefit)........................................ (42.6) 6.4 44.0
-------- -------- --------
Income (loss) before minority interest........................ (104.2) 25.5 58.9
Minority interest............................................. (3.0) (1.9) (1.8)
-------- -------- --------
Income (loss) from continuing operations...................... (107.2) 23.6 57.1
Loss from discontinued operations............................. (28.9) -- (145.0)
-------- -------- --------
Income (loss) before cumulative effect of accounting change... (136.1) 23.6 (87.9)
Cumulative effect of change in accounting..................... (2.6) 3.3 --
-------- -------- --------
Net income (loss)............................................. (138.7) 26.9 (87.9)
-------- -------- --------
Preferred stock dividends................................... (15.1) (6.2) --
-------- -------- --------
Earnings (loss) attributable to common shareholders........... $ (153.8) $ 20.7 $ (87.9)
-------- -------- --------
-------- -------- --------
Per share of common stock:
Income (loss) from continuing operations.................... $ (2.79) $ .40 $ 1.32
Loss from discontinued operations........................... (.66) -- (3.35)
-------- -------- --------
Income (loss) before cumulative effect of accounting
change........................................................ (3.45) .40 (2.03)
Cumulative effect of change in accounting................... (.06) .08 --
-------- -------- --------
Net income (loss)........................................... $ (3.51) $ .48 $ (2.03)
-------- -------- --------
-------- -------- --------
Cash dividends.............................................. $ .325 $ 1.00 $ 1.00
-------- -------- --------
-------- -------- --------
Weighted average number of shares............................. 43.8 43.4 43.2
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents:
Operating........................................................... $ 248.7 $ 151.5
Fiduciary........................................................... 428.5 490.7
Short-term investments:
Operating........................................................... 19.2 3.2
Fiduciary........................................................... 292.2 313.4
Premiums and fees receivable (less allowance for doubtful accounts of
$23.7 in 1994 and $20.3 in 1993)........................................ 1,206.1 1,172.3
Deferred income taxes................................................. 71.5 35.4
Other current assets.................................................. 120.7 105.2
-------- --------
Total current assets.............................................. 2,386.9 2,271.7
-------- --------
PROPERTY AND EQUIPMENT:
Land and buildings.................................................... 39.7 38.2
Furniture and equipment............................................... 296.5 305.4
Leasehold improvements................................................ 95.1 101.1
-------- --------
431.3 444.7
Less accumulated depreciation and amortization........................ (293.3) (292.3)
-------- --------
Property and equipment--net....................................... 138.0 152.4
-------- --------
OTHER ASSETS:
Intangible assets (net of accumulated amortization of $117.5 in 1994
and $112.1 in 1993)................................................. 175.1 188.8
Deferred income taxes................................................. 87.1 53.3
Long-term operating investments....................................... 64.1 4.7
Other................................................................. 94.5 122.9
-------- --------
$2,945.7 $2,793.8
-------- --------
-------- --------
</TABLE>
--continued--
28
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
AS OF DECEMBER 31,
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Premiums payable to insurance companies............................... $1,738.3 $1,744.0
Short-term debt....................................................... 1.0 17.5
Current portion of long-term debt..................................... 17.1 11.7
Deferred income taxes................................................. 8.5 13.2
Accrued compensation and related benefits............................. 60.0 68.1
Income taxes payable.................................................. 66.3 82.4
Other accrued expenses................................................ 258.1 148.6
-------- --------
Total current liabilities......................................... 2,149.3 2,085.5
-------- --------
LONG-TERM LIABILITIES:
Long-term debt........................................................ 132.7 111.8
Deferred income taxes................................................. 13.4 17.9
Net liabilities of discontinued operations............................ 56.8 106.5
Other................................................................. 266.0 195.9
-------- --------
Total long-term liabilities....................................... 468.9 432.1
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTES 5, 6, 13 AND 14)
8% SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK CONTINGENCY.......... 10.0 --
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 15 shares, $1 par value:
Series A junior participating preferred stock, issued and
outstanding, none................................................. -- --
$3.625 Series A convertible preferred stock, issued and outstanding,
2.3 and 2.3 shares, respectively, liquidation preference of $115
million................................................................. 2.3 2.3
8% Series B cumulative convertible preferred stock, issued and
outstanding, 4.1 shares and none, respectively, liquidation
preference of $205 million........................................ 4.1 --
Common stock, authorized 200 shares, $1 par value; issued and
outstanding 41.5 and 40.7 shares, respectively.......................... 41.5 40.7
Class A common stock, authorized 26 shares, $.00001 par value; issued
and outstanding 2.3 and 2.4 shares, respectively........................ -- --
Class C common stock, authorized 11 shares, $1 par value; issued and
outstanding 0.4 and 0.4 shares, respectively............................ 0.4 0.4
Class D common stock, authorized 40 shares, $1 par value; issued and
outstanding, none....................................................... -- --
Paid-in capital....................................................... 615.0 423.4
Accumulated deficit................................................... (287.1) (119.0)
Net unrealized investment gains--net of deferred income taxes......... 1.5 --
Accumulated translation adjustments................................... (60.2) (71.6)
-------- --------
Total stockholders' equity........................................ 317.5 276.2
-------- --------
$2,945.7 $2,793.8
-------- --------
-------- --------
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CASH PROVIDED (USED) BY:
OPERATING ACTIVITIES:
Income (loss) from continuing operations........................ $(107.2) $ 23.6 $ 57.1
Adjustments to reconcile to net cash provided (used) by
operating activities:
Depreciation and amortization................................. 51.2 54.5 60.5
Deferred income taxes......................................... (75.5) (27.5) (2.9)
Gains on disposition of subsidiaries and other assets......... (20.2) (3.9) (43.8)
Restructuring charges, net of cash payments................... 62.1 -- 13.9
Special charges............................................... 69.7 -- 16.5
Other......................................................... 14.2 13.4 10.1
Changes in assets and liabilities (net of effects from
acquisitions and dispositions):
Net fiduciary cash and cash equivalents and short-term
investments..................................................... 105.8 (46.0) (101.5)
Premiums and fees receivable.................................. 9.0 (69.3) (160.0)
Other current assets.......................................... 16.0 (15.8) 22.2
Other assets.................................................. 9.2 (11.9) 26.4
Premiums payable to insurance companies....................... (70.8) 74.6 247.9
Other accrued expenses........................................ 3.7 8.0 (58.3)
Other long-term liabilities................................... (2.6) 12.8 (6.3)
Discontinued operations (net)................................... (78.6) (11.9) (13.1)
Cumulative effect of change in accounting....................... (2.6) 3.3 --
------- ------- -------
Net cash provided (used) by operating activities.......... (16.6) 3.9 68.7
------- ------- -------
INVESTING ACTIVITIES:
Net purchases of property and equipment....................... (21.5) (26.0) (16.7)
Purchases of businesses....................................... (4.7) (21.0) (5.7)
Proceeds from sales of subsidiaries and other assets.......... 4.1 9.6 61.1
Purchases of operating investments............................ (79.2) (61.7) (28.0)
Sales/maturities of operating investments..................... 9.0 68.3 38.2
------- ------- -------
Net cash provided (used) by investing activities.......... (92.3) (30.8) 48.9
------- ------- -------
</TABLE>
--continued--
30
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Cash dividends................................................ $ (22.6) $ (47.9) $ (40.9)
Proceeds from issuance of short-term debt..................... 9.0 18.7 81.2
Payments of short-term debt................................... (24.8) (1.5) (122.7)
Proceeds from issuance of long-term debt...................... 51.8 19.4 29.6
Repayments of long-term debt.................................. (8.3) (26.0) (31.4)
Issuance of preferred and common stock........................ 196.1 112.1 2.0
Distribution of earnings of pooled entity..................... -- (5.5) (5.2)
------- ------- -------
Net cash provided (used) by financing activities.......... 201.2 69.3 (87.4)
------- ------- -------
Effect of exchange rate changes on operating cash and cash
equivalents..................................................... 4.9 (7.9) (10.4)
Operating cash and cash equivalents at beginning of year........ 151.5 117.0 97.2
------- ------- -------
Operating cash and cash equivalents at end of year.............. $ 248.7 $ 151.5 $ 117.0
------- ------- -------
------- ------- -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................... $ 14.2 $ 14.6 $ 15.9
Income taxes................................................ 37.0 56.0 47.6
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Sale of direct financing lease and related mortgage notes..... 19.0 -- --
Common stock issued for business acquisitions and employee
benefit and stock plans......................................... 6.8 2.3 1.4
Series B cumulative convertible preferred stock
dividends-in-kind............................................... 6.8 -- --
Notes received on dispositions of subsidiaries................ 29.2 2.0 --
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
$3.625 SERIES A CONVERTIBLE PREFERRED STOCK:
Balance, beginning of year..................................... $ 2.3 $ -- $ --
Shares issued by private placement............................. -- 2.3 --
------- ------- ------
Balance, end of year........................................... $ 2.3 $ 2.3 $ --
------- ------- ------
------- ------- ------
8% SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK:
Balance, beginning of year..................................... $ -- $ -- $ --
Shares issued by private placement............................. 4.0 -- --
Dividends-in-kind.............................................. 0.1 -- --
------- ------- ------
Balance, end of year........................................... $ 4.1 $ -- $ --
------- ------- ------
------- ------- ------
COMMON STOCK:
Balance, beginning of year..................................... $ 40.7 $ 40.1 $ 39.7
Issued for acquisitions, none, none and 0.1 shares,
respectively..................................................... -- -- 0.1
Conversions of Class A and Class C shares into common stock,
0.1, 0.4 and 0.2 shares, respectively........................ 0.1 0.4 0.2
Other, principally stock option transactions................... 0.7 0.2 0.1
------- ------- ------
Balance, end of year........................................... $ 41.5 $ 40.7 $ 40.1
------- ------- ------
------- ------- ------
CLASS A COMMON STOCK:
Balance, beginning of year..................................... $ 0.0 $ 0.0 $ 0.0
Conversions into common stock, 0.1, 0.4 and 0.1 shares,
respectively..................................................... -- -- --
------- ------- ------
Balance, end of year........................................... $ 0.0 $ 0.0 $ 0.0
------- ------- ------
------- ------- ------
CLASS C COMMON STOCK:
Balance, beginning of year..................................... $ 0.4 $ 0.4 $ 0.5
Conversions into common stock, none, none and 0.1 shares,
respectively..................................................... -- -- (0.1)
------- ------- ------
Balance, end of year........................................... $ 0.4 $ 0.4 $ 0.4
------- ------- ------
------- ------- ------
PAID-IN CAPITAL:
Balance, beginning of year..................................... $ 423.4 $ 296.5 $291.4
Issued for acquisitions........................................ -- -- 1.3
Conversions into common stock.................................. (0.1) (0.4) (0.1)
Preferred stock issuance....................................... 188.9 108.6 --
Other, principally stock option transactions................... 2.8 3.1 2.9
Transactions of pooled entity prior to acquisition............. -- (2.0) 1.0
Tax benefit from acquisitions accounted for as pooling of
interests........................................................ -- 17.6 --
------- ------- ------
Balance, end of year........................................... $ 615.0 $ 423.4 $296.5
------- ------- ------
------- ------- ------
</TABLE>
--continued--
32
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
RETAINED EARNINGS (ACCUMULATED DEFICIT):
Balance, beginning of year..................................... $(119.0) $ (92.5) $ 42.5
Net income (loss).............................................. (138.7) 26.9 (87.9)
Dividends:
Common stock................................................. (14.3) (41.7) (40.9)
Preferred stock.............................................. (15.1) (6.2) --
Distribution of earnings of pooled entity...................... -- (5.5) (6.2)
------- ------- ------
Balance, end of year........................................... $(287.1) $(119.0) $(92.5)
------- ------- ------
------- ------- ------
NET UNREALIZED INVESTMENT GAINS--NET OF DEFERRED INCOME TAXES:
Balance, beginning of year..................................... $ -- $ -- $ --
Change in unrealized gains, net of tax......................... 1.5 -- --
------- ------- ------
Balance, end of year........................................... $ 1.5 $ -- $ --
------- ------- ------
------- ------- ------
ACCUMULATED TRANSLATION ADJUSTMENTS:
Balance, beginning of year..................................... $ (71.6) $ (59.0) $ (4.0)
Foreign currency translation adjustments....................... 11.4 (12.6) (55.0)
------- ------- ------
Balance, end of year........................................... $ (60.2) $ (71.6) $(59.0)
------- ------- ------
------- ------- ------
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION The accompanying consolidated financial statements of
Alexander & Alexander Services Inc. (the Company) include the accounts of all
majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
CASH EQUIVALENTS AND INVESTMENTS Cash equivalents are highly liquid
investments, including certificates of deposit, government securities and time
deposits, with maturities of three months or less at the time of purchase and
are stated at estimated fair value or cost. Short-term investments are similar
investments with maturities of more than three months but less than one year
from the date of purchase. Long-term investments consists of debt securities
with maturities greater than one year and equity securities.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." In accordance with the statement, the Company has
classified all its debt and equity securities as available for sale, which are
carried at fair value with unrealized gains and losses reported as a separate
component of Stockholders' Equity. Prior to the adoption of this statement, cash
equivalents and short-term investments were stated at cost, which approximated
market value at December 31, 1993. The cost of securities sold is determined by
the specific identification method.
FOREIGN CURRENCY TRANSLATION The financial statements of the Company's
foreign operations, where the local currency is the functional currency, are
translated into U.S. dollars at the exchange rates in effect at each year end
for assets and liabilities and average exchange rates during the year for the
results of operations. The related unrealized gains or losses resulting from
translation are reported as a separate component of Stockholders' Equity.
Net foreign currency transaction gains, included in operating income,
amounted to $4.8 million, $9 million and $5.6 million for the years ended
December 31, 1994, 1993 and 1992, respectively.
PROPERTY AND DEPRECIATION The cost of property and equipment is depreciated
generally using the straight-line method over the estimated useful lives of the
related assets which range from 3 to 40 years for buildings and 10 years for
equipment. Leasehold improvements are capitalized and amortized over the shorter
of the life of the asset or the lease term.
INTANGIBLE ASSETS Intangible assets resulting from acquisitions, principally
expiration lists and goodwill, are amortized using the straight-line method over
periods not exceeding 17 and 40 years, respectively. The costs of non-compete
agreements are amortized using the straight-line method over the terms of the
agreements. Amortization of intangible assets included in operating expenses
amounted to $11.9 million, $13 million and $14 million for the years ended
December 31, 1994, 1993 and 1992, respectively.
The Company periodically evaluates the carrying value of its intangible
assets, principally goodwill, by projecting operating results over the remaining
lives of such assets on an undiscounted basis. Such projections take into
account past financial performance as well as management's estimate of future
operating results.
INCOME TAXES Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes." The adoption of SFAS No. 109 changes the Company's method of accounting
for income taxes from the deferred method to an asset and liability method
whereby deferred income taxes reflect the net tax effects of temporary
differences between the tax bases and financial reporting bases of assets and
liabilities.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Income taxes are generally not provided on undistributed earnings of foreign
subsidiaries because they are considered to be permanently invested or will not
be repatriated unless any additional federal income taxes would be substantially
offset by foreign tax credits.
FIDUCIARY FUNDS Premiums which are due from insureds are reported as assets
of the Company and as corresponding liabilities, net of commissions, to the
insurance carriers. Premiums received from insureds but not yet remitted to the
carriers are held as cash or investments in a fiduciary capacity.
REVENUE RECOGNITION Commissions and fees for insurance services are
generally recognized on the effective date of the policies or the billing date,
whichever is later. Any subsequent commission adjustments, including policy
cancellations, are generally recognized upon notification from the insurance
carriers. Contingent commissions and commissions on policies billed and
collected directly by insurance carriers are recognized when received.
Fees and commissions for human resource management consulting services are
generally recognized when the services are provided.
PER SHARE DATA Primary earnings per share are computed by dividing earnings
(loss) attributable to common stockholders by the weighted average number of
shares of Common Stock and their equivalents (Class A and Class C Common Stock)
outstanding during the period and, if dilutive, shares issuable upon the
exercise of stock options and upon conversion of the convertible subordinate
debentures. The $3.625 Series A Convertible Preferred Stock and the 8% Series B
Convertible Preferred Stock are not common stock equivalents. Fully diluted
earnings per share for the periods presented was antidilutive; therefore, the
amounts for primary and fully diluted earnings are the same.
PRESENTATION Unless otherwise indicated, all amounts are stated in millions
of U.S. dollars. Certain prior period amounts have been reclassified to conform
with the current year presentation.
During 1994, the Company changed its presentation of cash flows to
distinguish fiduciary cash and cash equivalents and fiduciary investments from
operating cash and cash equivalents and operating investments. The Company
believes that this presentation of cash flows provides more useful information
regarding the cash flows that are available for general corporate purposes.
2. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
On November 30, 1993, the Company issued 2.3 million shares of its Common
Stock for all of the partnership interests of Clay & Partners (Clay), a
U.K.-based actuarial consulting operation. This acquisition has been accounted
for as a pooling of interests and, accordingly, the consolidated financial
statements have been restated for all periods prior to the acquisition. In
connection with the merger, the Company recorded $14.4 million as additional
paid-in capital representing deferred tax benefits associated with the taxable
business combination of Clay.
Prior to the merger, Clay operated as a partnership. Accordingly, the
Company's results for 1993 and 1992 do not include approximately $2.2 million
and $3.2 million, respectively, for partners' salaries or $0.7 million and $1
million, respectively, for corporate income taxes. Pro-forma net income (loss)
for the Company, assuming partner salaries and corporate income taxes were
charged to operations, would be $28.5 million, or $0.51 per share, in 1993 and
$(85.9) million, or $(1.99) per share, in 1992.
Effective July 1, 1993, the Company acquired an 80 percent interest in a
Mexican insurance brokerage company which was accounted for as a purchase. The
purchase price was $16.9 million, including a $7.4 million cash payment and
notes payable of $9.5 million due in three installments from 1994 to 1995. The
excess of the purchase price over the fair value of net tangible assets acquired
was
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
approximately $16 million. As a result of the devaluation of the Mexican peso in
late 1994, the Company's accumulated translation adjustment balance for its
Mexican operation reflected an unrealized loss of $6.2 million at December 31,
1994. The Company expects to maintain its strategic investment in Mexico for the
long-term and further anticipates that its Mexican operation will remain
profitable. Accordingly, the Company does not currently consider its investment
in Mexico to be permanently impaired.
DISPOSITIONS
On November 10, 1994, the Company completed the sale of its U.S.-based
personal lines insurance broking business. The total proceeds from the sale were
$30.2 million, including $1 million in cash and a note receivable of $29.2
million due in January 1995, with a resulting pre-tax gain of $20.2 million
($12.5 million after-tax or $0.28 per share).
During 1993, the Company sold three small operations for gross proceeds of
$9.6 million. Pre-tax gains of $3.9 million have been recognized on the sales
with resulting after-tax gains totaling $2.3 million or $0.05 per share.
During 1992, the Company sold three non-core businesses, including a
U.K.-based pension fund management operation, a Netherlands-based non-broking
operation and a U.S.-based administrator of workers' compensation funds. Total
proceeds on these sales were $77.4 million with resulting pre-tax gains of $43.8
million ($28.5 million after-tax or $0.66 per share).
These gains are included in Other Income (Expenses) in the Consolidated
Statements of Operations.
On February 28, 1995 the Company completed the sale of Alexsis, Inc., its
U.S.-based third party claims administrator, for total cash proceeds of $47.1
million. The pre-tax gain on this transaction will approximate $30 million and
will be reflected in the first quarter of 1995.
In January, 1995, the Company sold its minority interest in a U.K. merchant
bank for cash proceeds of $7.2 million and a pre-tax gain of $0.3 million. The
gain will be reflected in the first quarter of 1995.
Total revenues and operating income (loss) from all of these operations were
$120.9 million, $128.3 million and $127.1 million and $10.4 million, $2.5
million and $(1.5) million, respectively, for the years ended December 31, 1994,
1993 and 1992.
3. RESTRUCTURING AND SPECIAL CHARGES
In the fourth quarter of 1994, management committed to a formal plan of
restructuring the Company's operations and recorded a $69 million pre-tax charge
($45.1 million after-tax, or $1.03 per share). The restructuring charge included
$25.2 million to consolidate real estate space requirements at 48 offices
worldwide, and $43.8 million for voluntary early retirement programs and
involuntary workforce reductions involving approximately 1,100 positions, of
which 650 are in the U.S.
The involuntary severance portion of the charge amounted to $22.9 million
and reflects the elimination of 898 positions worldwide. The voluntary early
retirement program was accepted by 208 employees prior to December 31, 1994 and
amounted to $20.9 million of the charge. Approximately $5.7 million of these
liabilities were paid in 1994 with a substantial majority of the remainder
expected to be paid in 1995.
The charge associated with real estate activities relates to the closure,
abandonment and downsizing of office space globally, including 34 locations in
the U.S. The Company anticipates that these
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
actions will be completed by the end of 1995. The costs include primarily
remaining lease obligations and write-offs of leasehold improvements and fixed
assets. Approximately $1.2 million of these liabilities were paid in 1994. The
cash portion of the remaining liabilities, excluding the fixed asset and
leasehold improvement write-offs of approximately $5.2 million, will be paid out
over the remaining lease periods, which range from one to ten years.
In the fourth quarter of 1994, the Company recorded pre-tax special charges
of $69.7 million ($45.3 million after-tax, or $1.03 per share). These charges,
which are reflected in non-operating results, include a $32.5 million settlement
in January 1995 which resolved certain indemnification obligations relating to
the 1987 sale of Shand Morahan & Company (Shand) and a $37.2 million increase to
the Company's pre-existing reserves, based on settlement discussions which led
to a March 1995 settlement agreement, which is subject to court approval,
relating to lawsuits and other disputes brought against the Company and others
by the rehabilitator of Mutual Fire, Marine & Inland Insurance Company (Mutual
Fire) (See Note 14 of Notes to Financial Statements).
In 1992, the Company recorded a $16.5 million pre-tax charge ($13.9 million
after-tax, or $0.32 per share) associated with the sale of Shand. The provision
reflected the estimated cost of indemnities provided to the purchasers of Shand,
including $10 million associated with the Mutual Fire lawsuits and other
disputes.
4. OTHER NON-OPERATING INCOME (EXPENSES)
Other non-operating income (expenses) consists of the following:
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1994 1993 1992
----- ------ -----
Gains on sales of businesses (See Note 2)........... $20.2 $ 3.9 $43.8
Litigation costs.................................... (9.1) (20.2) (5.8)
Other............................................... (0.2) 0.7 1.9
----- ------ -----
$10.9 $(15.6) $39.9
----- ------ -----
----- ------ -----
Litigation costs are associated primarily with the Mutual Fire lawsuit
described in Note 14 of Notes to Financial Statements as well as a 1993
settlement of certain other litigation matters.
5. INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The cumulative effect of adopting this standard increased 1993
net income by $3.3 million or $0.08 per share. Tax benefits of $3.2 million were
also allocated to paid-in capital representing the difference in the tax bases
over the book bases of the net assets of taxable business combinations accounted
for as pooling of interests. These benefits would have been recognized at the
respective dates of combination if SFAS No. 109 had been applied at that time.
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The components of income (loss) from continuing operations before income
taxes are as follows:
<TABLE><CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
United States.................................... $(200.9) $(74.2) $(39.2)
International.................................... 54.1 106.1 142.1
------- ------ ------
$(146.8) $ 31.9 $102.9
------- ------ ------
------- ------ ------
</TABLE>
The components of the provision (benefit) for income taxes on continuing
operations are as follows:
<TABLE><CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1994 1993 1992
------ ------ -----
<S> <C> <C> <C>
Current:
Federal........................................... $ 1.7 $ (0.2) $(4.1)
State and local................................... (0.7) (0.8) (1.0)
International..................................... 33.9 34.9 54.6
------ ------ -----
34.9 33.9 49.5
------ ------ -----
Deferred:
Federal........................................... (67.3) (28.7) (3.5)
State and local................................... (3.6) (2.0) 1.2
International..................................... (6.6) 3.2 (3.2)
------ ------ -----
(77.5) (27.5) (5.5)
------ ------ -----
$(42.6) $ 6.4 $44.0
------ ------ -----
------ ------ -----
</TABLE>
Federal income taxes have not been provided on undistributed earnings of
foreign subsidiaries which aggregated approximately $309.8 million at December
31, 1994, because such earnings are permanently invested or will not be
repatriated unless any additional income taxes would be substantially offset by
foreign tax credits. It is not practicable to determine the amount of
unrecognized deferred income tax liabilities on these undistributed earnings.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes as well as loss and tax
credit carryforwards.
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following is a summary of the significant components of the Company's
gross deferred tax assets and liabilities:
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
----------------
1994 1993
------ ------
<S> <C> <C>
Deferred tax assets:
Deferred compensation.................................................... $ 10.2 $ 13.3
Restructuring charges.................................................... 19.6 3.6
Shand/Mutual Fire reserves............................................... 30.9 6.3
Capital loss carryforwards............................................... 16.7 9.1
Net operating loss and tax credit carryforwards.......................... 63.6 21.1
Business combinations.................................................... 17.1 17.1
Other accruals not currently deductible.................................. 81.5 80.9
------ ------
239.6 151.4
Less: Valuation allowance................................................ (36.7) (23.1)
------ ------
Total deferred tax assets............................................ 202.9 128.3
------ ------
Deferred tax liabilities:
Deferred commissions..................................................... 9.6 11.4
Depreciation............................................................. 3.0 8.0
Gains on settlement of pension liabilities, net of accruals.............. 19.7 18.3
Gain on sale of personal lines business.................................. 11.3 --
Tax leases............................................................... 13.9 17.6
Other accruals........................................................... 8.7 15.4
------ ------
Total deferred tax liabilities....................................... 66.2 70.7
------ ------
Net deferred tax asset..................................................... $136.7 $ 57.6
------ ------
------ ------
</TABLE>
The deferred tax balances shown in the Consolidated Balance Sheets are after
reclassification of the above amounts within the various jurisdictions in which
the Company operates.
As of December 31, 1994, the Company has a U.S. federal net operating loss
carryforward of $76.2 million which expires in the year 2009 and U.S. state net
operating loss carryforwards totaling $165.2 million which expire in various
years through 2009. The Company also has U.S. federal foreign tax credit
carryforwards of $8.8 million, $3.2 million of which expires in 1998 and $5.6
million which expires in 1999, and U.S. federal alternative minimum tax credits
of $5.2 million which can be carried forward indefinitely. In addition, the
Company has foreign net operating loss and capital loss carryforwards for tax
purposes of $10.5 million and $42.1 million, respectively, which can be carried
forward indefinitely and approximately $7.1 million of foreign net operating
losses which expire in various years through 2002.
The Company expects that sufficient taxable income will be generated in
future years to realize the U.S. federal net operating loss and tax credit
carryforwards and, therefore, the Company believes that a valuation allowance is
not necessary for these amounts. Although future earnings cannot be predicted
with certainty, management currently believes that realization of the net
deferred tax asset is more likely than not. The Company will report on its 1995
U.S. federal income tax return gains totaling an estimated $50 million with
respect to the sales of its personal lines business and its Alexsis subsidiary.
Based on 1994 results, excluding nonrecurring items and sold subsidiaries and
businesses, with an estimated 8.5% reduction in U.S. operating costs as a result
of the Company's restructuring in 1994, the
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
net U.S. deferred tax asset would be realized with average annual growth in U.S.
operating revenues and pre-tax income of less than two percent.
The $36.7 million valuation allowance at December 31, 1994 relates primarily
to foreign and U.S. state net operating loss and capital loss carryforwards. The
valuation allowance increased by a net amount of $13.6 million in 1994, of which
$7.6 million relates to increases in foreign capital loss carryforwards and $6
million to increases in U.S. state and foreign net operating losses.
Prior to the change in accounting for income taxes, the components of the
provision for deferred income taxes for the year ended December 31, 1992 were as
follows:
Depreciation....................................................... $ (2.5)
Tax leases......................................................... (3.2)
Financial accounting accruals, net................................. (17.5)
Net deferred losses on subsidiary dispositions..................... 3.6
Special charges.................................................... 14.3
Other.............................................................. (0.2)
------
$ (5.5)
------
------
A reconciliation of the tax provision and the amount computed by applying
the U.S. federal income tax rate of 35% in 1994 and 1993 and 34% in 1992 to
income (loss) from continuing operations before income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1994 1993 1992
------ ----- -----
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)............................ $(51.4) $11.2 $35.0
State and local income taxes-net of federal income tax............. (1.6) (1.9) (0.4)
Foreign statutory rates over (under) U.S. federal statutory rate... (2.8) (2.9) 1.7
Foreign partnership income not taxed............................... -- (1.9) (2.1)
Tax benefit of capital losses...................................... -- (3.5) --
Tax rate changes................................................... -- (1.2) --
Adjustment to prior year tax provisions............................ -- (2.9) --
Amortization of intangible assets.................................. 2.6 2.5 2.6
Repatriation of foreign earnings, net of tax credits............... 0.5 3.3 0.5
Other non-deductible expenses...................................... 7.5 4.1 3.9
Other, net......................................................... 2.6 (0.4) 2.8
------ ----- -----
Actual tax expense (benefit)......................................... $(42.6) $ 6.4 $44.0
------ ----- -----
------ ----- -----
</TABLE>
During 1994, the Company was advised that the Joint Committee on Taxation
had approved the agreement reached in 1993 by the Company and the Appeals Office
of the Internal Revenue Service (IRS) on settlement of tax issues with respect
to years 1980 through 1986. Also during 1994, the Company reached an agreement
with the IRS on settlement of the examination of years 1987 through 1989. On
February 28, 1995, the Company paid the amounts due for years 1980 through 1989
and charged the tax and net interest totaling $35.6 million against previously
established reserves.
The Company is currently under examination by the IRS for years 1990 and
1991. In 1994, the Company received a Notice of Proposed Adjustment from the IRS
proposing an increase in taxable income for the 1991 year which, if sustained,
would result in an additional tax liability estimated by the
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Company at $50 million. This proposed adjustment relates to intercompany
transactions involving the stock of a U.K. subsidiary.
The Company disagrees with the IRS position on this issue. Although the
ultimate outcome of the matter cannot be predicted with certainty, the Company
and its independent tax counsel believe there are meritorious defenses to the
proposed adjustment and substantial arguments to sustain the Company's position
and that the Company should prevail in the event this issue is litigated. A
similar set of transactions occurred in 1993 for which the IRS could propose an
increase in taxable income which would result in an additional tax liability
estimated by the Company at $25 million. The Company's 1993 tax return is not
currently under examination. The Company believes it should prevail in the event
this similar issue is raised by the IRS. Accordingly, no provision for any
liability with respect to the 1991 and 1993 transactions has been made in the
consolidated financial statements.
The Company believes that its current tax reserves are adequate to cover all
of its tax liabilities.
6. DISCONTINUED OPERATIONS
In 1985, the Company discontinued its insurance underwriting operations. In
1987 the Company sold Sphere Drake Insurance Group (Sphere Drake). The Sphere
Drake sales agreement provides indemnities by the Company to the purchaser for
various potential liabilities including provisions covering future losses on
certain insurance pooling arrangements from 1953 to 1967 between Sphere Drake
and Orion Insurance Company (Orion), a U.K.-based insurance company, and future
losses pursuant to a stop-loss reinsurance contract between Sphere Drake and
Lloyd's Syndicate 701 (Syndicate 701). In addition, the sales agreement requires
the Company to assume any losses in respect of actions or omissions by Swann &
Everett Underwriting Agency (Swann & Everett), an underwriting management
company previously managed by Alexander Howden Group plc (Alexander Howden).
The net liabilities of discontinued operations shown in the accompanying
Consolidated Balance Sheets include insurance liabilities associated with the
above indemnities, liabilities of insurance underwriting subsidiaries currently
in run-off and other related liabilities.
A summary of the net liabilities of discontinued operations is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
----------------
1994 1993
------ ------
<S> <C> <C>
Liabilities:
Insurance liabilities.................................................... $277.6 $252.4
Other.................................................................... 31.4 38.4
------ ------
Total liabilities.................................................... 309.0 290.8
------ ------
Assets:
Recoverable under finite risk contracts:
Insurance liabilities.................................................. 135.7 36.7
Premium adjustment..................................................... 10.8 10.4
Reinsurance recoverables................................................. 64.2 60.7
Zero coupon notes........................................................ -- 28.5
Cash and investments..................................................... 23.6 18.8
Other.................................................................... 10.9 22.2
------ ------
Total assets......................................................... 245.2 177.3
------ ------
Total net liabilities of discontinued operations........................... 63.8 113.5
Less current portion classified as other accrued expenses................ 7.0 7.0
------ ------
Remainder classified as net liabilities of discontinued operations......... $ 56.8 $106.5
------ ------
------ ------
</TABLE>
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The insurance liabilities represent estimates of future claims expected to
be made under occurrence-based insurance policies and reinsurance business
written through Lloyd's and the London market covering primarily asbestosis,
environmental pollution, and latent disease risks in the United States which are
coupled with substantial litigation expenses. These claims are expected to
develop and be settled over the next twenty to thirty years.
Liabilities stemming from these claims cannot be estimated using
conventional actuarial reserving techniques because the available historical
experience is not adequate to support the use of such techniques and because
case law, as well as scientific standards for measuring the adequacy of site
cleanup (both of which have had, and will continue to have, a significant
bearing on the ultimate extent of the liabilities) is still evolving.
Accordingly, the Company's independent actuaries have combined available
exposure information with other data and have used various projection techniques
to estimate the insurance liabilities, consisting principally of incurred but
not reported losses.
In 1994, Orion who has financial responsibility for sharing certain of the
indemnity liabilities, was placed in provisional liquidation by order of the
English Courts. Based on current facts and circumstances, the Company believes
that the provisional liquidation will not have a material adverse effect on the
net liabilities of discontinued operations.
The Company has certain protection against adverse developments of the
insurance liabilities through two finite risk contracts issued by a reinsurance
company. A contract entered into in 1989 provides the insurance underwriting
subsidiaries currently in run-off with recoveries of recorded liabilities of $76
million, and for up to $50 million of additional recoveries in excess of those
liabilities subject to a deductible for one of the run-off companies of $15
million. At December 31, 1994, based on an estimate by an independent actuarial
firm, the Company had recorded $6.6 million of the deductible.
On July 1, 1994, the Company entered into an insurance-based financing
contract (finite risk contract) providing protection primarily for exposures
relating to Orion, Syndicate 701 and Swann & Everett. The contract provided for
a payment by the Company of $80 million ($50 million of which was borrowed from
the reinsurance company) to the reinsurance company and for payment by the
Company of the first $73 million of paid claims. The contract entitles the
Company to recover paid claims in excess of the Company's $73 million retention.
At December 31, 1994, recoveries were limited to $108.3 million, which includes
the Company's payment of $80 million. In addition, commencing December 31, 1996,
depending on the timing and amount of paid loss recoveries under the contract,
the Company may be entitled to receive a payment from the reinsurance company in
excess of the amounts recovered for paid losses if the contract is terminated.
The contract is accounted for under the deposit method of accounting and the
accounting requirements for discontinued operations.
The Company's right to terminate the contract entered into in 1994 is
subject to the consent of American International Group, Inc. (AIG) as long as
AIG is the holder of certain shares of the Company's stock. In addition, the
reinsurance company also has the right, under certain circumstances, presently
considered to be remote by the Company, to terminate that contract.
The insurance liabilities set forth above represent the Company's best
estimates of the probable liabilities based on independent actuarial estimates.
The recoverable amounts under the finite risk contracts, which are considered
probable of realization based on independent actuarial estimates of losses and
pay out patterns, represent the excess of such liabilities over the Company's
retention levels. The premium adjustment represents the recoverable amount
considered probable of realization at the earliest date the Company can exercise
its right to terminate the finite risk contract covering the insurance
underwriting subsidiaries currently in run-off.
Insurance liabilities in excess of recorded liabilities could develop in the
future. Based on independent actuarial estimates of the amount and timing of
claim payments, it is reasonably possible
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
that such additional liabilities, net of estimated amounts recoverable for paid
losses under the finite risk contracts, could amount to $74 million. However,
management currently believes that such additional insurance liabilities are not
likely to develop.
Changes in the total net liabilities of discontinued operations are as
follows:
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1994 1993 1992
------ ------ ------
Beginning balance................................. $113.5 $102.4 $(36.4)
Provisions for loss............................. 28.9 -- 145.0
Litigation settlement........................... -- 22.3 --
Net cash proceeds on the zero coupon notes...... 5.0 -- --
Claims and expense payments..................... (7.0) (11.9) (13.1)
Payment for a finite risk contract.............. (80.0) -- --
Other........................................... 3.4 -- --
Translation adjustment.......................... -- 0.7 6.9
------ ------ ------
Ending balance.................................... $ 63.8 $113.5 $102.4
------ ------ ------
------ ------ ------
The 1994 provision for loss of $28.9 million includes a $6 million charge
associated with the 1994 finite risk contract, a $20.9 million charge relating
to an agreement that resolved certain indemnity obligations to Sphere Drake and
a $2 million charge recorded in the fourth quarter of 1994 related to other
liabilities. Under terms of the Sphere Drake agreement, the Company received a
cash payment of $5 million in settlement of the zero coupon notes receivable and
related indemnities as well as certain income tax liabilities. The provision for
loss in 1992 relates principally to increases in estimated liabilities
associated with the indemnities provided to the purchaser of Sphere Drake
resulting from more complete information becoming available in the fourth
quarter of 1992.
The Company believes that, based on current estimates, the established total
net liabilities of discontinued operations are sufficient to cover its
exposures. However, there is no assurance that further adverse development may
not occur due to variables inherent in the estimation processes and other
matters described above. The Company currently believes that the effect of such
adverse development, if any, will not be material to the Company's financial
position and results of operations.
7. EMPLOYEES' RETIREMENT PLANS AND BENEFITS
PENSION PLANS The Company has contributory and non-contributory defined
benefit pension plans covering substantially all employees. The plans generally
provide pension benefits that are based on the employee's years of service and
compensation prior to retirement. In general, it is the Company's policy to fund
these plans consistent with laws and regulations of the respective jurisdictions
in which the Company operates.
Total pension costs are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service cost....................................... $ 38.8 $ 29.5 $ 29.4
Interest cost...................................... 43.4 38.4 36.9
Actual return on plan assets....................... 22.7 (73.4) (68.9)
Net amortization and deferral...................... (99.7) 7.4 3.7
------ ------ ------
Net pension costs............................ $ 5.2 $ 1.9 $ 1.1
------ ------ ------
------ ------ ------
</TABLE>
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth the funded status and amounts recognized in
the Company's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1994 1993
------------------------ ------------------------
U.S. INTERNATIONAL U.S. INTERNATIONAL
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Vested benefit obligation.................. $ 199.1 $ 247.1 $ 221.5 $ 246.4
------- ------------- ------- -------------
------- ------------- ------- -------------
Accumulated benefit obligation............. $ 223.3 $ 248.7 $ 235.3 $ 252.4
------- ------------- ------- -------------
------- ------------- ------- -------------
Projected benefit obligation............... $(271.6) $(270.3) $(308.1) $(284.7)
Plan assets at fair market value........... 289.3 383.7 298.5 387.2
------- ------------- ------- -------------
Excess (shortfall) of plan assets over
projected benefit obligation............. 17.7 113.4 (9.6) 102.5
Unrecognized net (loss) gain............... (5.5) (26.8) 33.4 (39.0)
Unrecognized prior service cost............ (1.3) (6.6) (1.4) 13.4
Unrecognized net assets being amortized
over the plans' average remaining service
lives...................................... (14.0) (29.4) (16.3) (30.8)
------- ------------- ------- -------------
Prepaid (accrued) pension cost............. $ (3.1) $ 50.6 $ 6.1 $ 46.1
------- ------------- ------- -------------
------- ------------- ------- -------------
Assumptions used were as follows:
Assumed discount rate...................... 8.5% 6.5-9.5% 7.0% 5.0-8.25%
Assumed rate of compensation increase...... 5.0% 3.5-5.0% 5.0% 4.0-6.5%
Expected rate of return on plan assets..... 9.75% 7.0-10.25% 9.75% 7.0-11.0%
------- ------------- ------- -------------
</TABLE>
At December 31, 1994 and 1993, approximately 84 percent and 85 percent,
respectively, of all plan assets are invested in equity securities and 16
percent and 15 percent, respectively, in cash equivalents and/or fixed-income
securities.
THRIFT PLANS The Company maintains thrift plans for most U.S. and Canadian
employees. Under the thrift plans, eligible employees may contribute amounts
through payroll deduction, supplemented by Company contributions, for
investments in various funds established by the plans. The cost of these plans
was $11.9 million in 1994, $11.3 million in 1993 and $10.8 million in 1992.
POSTRETIREMENT BENEFITS Effective January 1, 1993, the Company adopted SFAS
No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions"
for its U.S. plans. This statement requires the Company to accrue the estimated
cost of future retiree benefit payments during the years the employee provides
services. The Company previously expensed the cost of these benefits, which are
principally health care and life insurance, as premiums or claims were paid. The
statement allowed recognition of the cumulative effect of the liability in the
year of the adoption or the amortization of the obligation over a period of up
to twenty years. The Company elected to recognize the initial postretirement
benefit obligation of $14 million over a period of twenty years. The Company's
cash flows are not affected by implementation of this statement and the impact
to the results of operations for 1993 was not significant.
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Total postretirement benefit costs are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------------- --------------------------
HEALTH LIFE HEALTH LIFE
CARE INSURANCE TOTAL CARE INSURANCE TOTAL
------ --------- ----- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Service Cost......................................... $0.8 $-- $0.8 $0.8 $-- $ 0.8
Interest Cost........................................ 1.3 0.2 1.5 1.2 0.2 1.4
Actual return on plan assets......................... -- 0.2 0.2 -- (0.2) (0.2)
Net amortization and deferral........................ 1.2 (0.6) 0.6 0.8 (0.2) 0.6
------ --------- ----- ------ --------- -----
Net postretirement costs (credits)............. $3.3 $(0.2) $3.1 $2.8 $(0.2) $ 2.6
------ --------- ----- ------ --------- -----
------ --------- ----- ------ --------- -----
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Company's consolidated financial statements:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994 AS OF DECEMBER 31, 1993
--------------------------- ---------------------------
HEALTH LIFE HEALTH LIFE
CARE INSURANCE TOTAL CARE INSURANCE TOTAL
------ --------- ------ ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees....................................... $ (8.0) $(3.0) $(11.0) $ (7.0) $(3.2) $(10.2)
Fully eligible active participants............. (3.1) -- (3.1) (1.7) (0.3) (2.0)
Other active participants...................... (5.4) -- (5.4) (10.4) -- (10.4)
------ --------- ------ ------ --------- ------
(16.5) (3.0) (19.5) (19.1) (3.5) (22.6)
Plan assets at fair market value............... -- 5.4 5.4 -- 5.7 5.7
------ --------- ------ ------ --------- ------
Accumulated benefit obligation in excess
(shortfall) of plan assets................... (16.5) 2.4 (14.1) (19.1) 2.2 (16.9)
Unrecognized net obligation (asset)............ 13.9 (2.2) 11.7 15.5 (2.3) 13.2
Unrecognized net loss.......................... 1.8 0.1 1.9 3.0 0.3 3.3
------ --------- ------ ------ --------- ------
(Accrued) prepaid post-retirement benefit
liability........................................ $ (0.8) $ 0.3 $ (0.5) $ (0.6) $ 0.2 $ (0.4)
------ --------- ------ ------ --------- ------
------ --------- ------ ------ --------- ------
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 8.5 percent and the compensation rate increase was 4.5 percent.
The expected rate of return on plan assets was 5.75 percent. The assumed medical
trend rate is 10 percent in 1995 and gradually declines to 5.5 percent in 2000
and thereafter. Increasing the trend rate by 1 percent and holding all other
assumptions constant, the impact on the cost component and the accumulated
benefit obligation is an increase of $0.2 million and $1.2 million,
respectively.
Certain of the Company's international subsidiaries have similar plans for
their employees; however, most retirees are covered primarily by government
sponsored programs. As a result, the cost to the Company for retired employees
is not significant for these programs.
POSTEMPLOYMENT BENEFITS Effective January 1, 1994, the Company adopted SFAS
No. 112, "Employers Accounting for Postemployment Benefits." This statement
requires that certain benefits provided to former or inactive employees after
employment but prior to retirement, including disability benefits and health
care continuation coverage, be accrued based upon the employees' services
already rendered. The cumulative effect of this accounting change was an
after-tax charge of $2.6 million or $0.06 per share in the first quarter of
1994. The increase to the annual cost of providing such benefits will not be
significant.
DEFERRED COMPENSATION PLAN The Company has a deferred compensation plan
which permitted certain of its key officers and employees to defer a portion of
their incentive compensation during 1986 to 1989. The Company has purchased
whole life insurance policies on each participant's life to assist in the
funding of the deferred compensation liability. At December 31, 1994, the cash
surrender value of
45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
these policies was $0.6 million, which is net of $38.7 million of policy loans.
The Company's obligation under the plan, including accumulated interest, was
$16.2 million and $15.6 million at December 31, 1994 and 1993, respectively, and
is included in Other Long-Term Liabilities in the Consolidated Balance Sheets.
8. DEBT
Consolidated short-term debt outstanding is as follows:
DECEMBER 31,
--------------
1994 1993
----- -----
Lines of credit............................................... $ 0.7 $ 5.3
Notes payable to financial institutions....................... 0.3 12.2
----- -----
$ 1.0 $17.5
----- -----
----- -----
The weighted average interest rate on short-term borrowings was 7.0 percent
and 5.2 percent at December 31, 1994 and 1993, respectively.
Consolidated long-term debt outstanding is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
----------------
1994 1993
------ ------
<S> <C> <C>
11% Convertible subordinated debentures (A)................................ $ 60.2 $ 60.2
Note payable (B)........................................................... 50.0 --
Obligation under capital lease (C)......................................... 22.1 20.8
Non-recourse mortgage notes (D)............................................ -- 19.6
Term loans (E)............................................................. 10.0 10.0
Credit agreement (F)....................................................... -- --
Other, primarily for acquisitions.......................................... 7.5 12.9
------ ------
149.8 123.5
Less current portion....................................................... 17.1 11.7
------ ------
$132.7 $111.8
------ ------
------ ------
</TABLE>
The principal payments required during the next five years are $17.1 million
in 1995, $5.6 million in 1996, $14.5 million in 1997, $14.5 million in 1998, and
$14.5 million in 1999.
A. 11% CONVERTIBLE SUBORDINATED DEBENTURES The debentures are unsecured
subordinated obligations maturing April 15, 2007. The debentures were issued in
connection with the acquisition of Alexander Howden under an Indenture agreement
dated February 1, 1982, and are convertible into common stock at $39 per share,
subject to adjustment under certain conditions and to prior redemption. The
remaining debentures are redeemable any time, at 102.2 percent of par value
prior to April 15, 1995, and at declining prices thereafter until April 15, 1997
and at par thereafter. Commencing April 15, 1992, and annually thereafter, 5
percent of the aggregate principal amount outstanding as of October 15, 1991,
must be redeemed at par value through the operation of a mandatory sinking fund.
The Company may make an optional sinking fund payment in each year not exceeding
the amount of the mandatory sinking fund payment. In 1994 and 1993, the Company
satisfied the mandatory sinking fund payment through the use of previously
repurchased debentures.
B. NOTE PAYABLE In July 1994, Alexander & Alexander Services Inc. borrowed
$50 million from the reinsurance company that executed a finite risk contract
relating to the Company's discontinued operations. The note is payable in five
equal annual installments, commencing July 1, 1997 and bears
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
interest at a rate of 9.45 percent. If Alexander & Alexander Services Inc.
defaults on the borrowing, the reinsurance company may utilize the Alexander &
Alexander Services Inc. note to settle reinsurance claims under the finite risk
contract.
C. OBLIGATION UNDER CAPITAL LEASE A French subsidiary has a lease agreement
for office facilities which is classified as a capital lease. Future minimum
lease payment obligations are approximately $2.5 million for each of the next
five years and an aggregate of $24.7 million thereafter.
D. NON-RECOURSE MORTGAGE NOTES Two subsidiaries of the Company had an
investment in a direct financing lease of an office building and related
non-recourse mortgage notes. In July 1994, a contractual option to purchase the
office building was exercised by the lessee by assuming the non-recourse
mortgage notes. No gain or loss was recognized on this transaction.
E. TERM LOANS In August 1992, a U.S. subsidiary entered into an unsecured
$10 million three-year term loan agreement with a bank. The interest rate
(6.8125 percent at December 31, 1994) floats with the LIBOR rate. The agreement,
guaranteed by the Company, contains financial covenants on minimum consolidated
net worth and maximum consolidated indebtedness.
F. CREDIT AGREEMENT At December 31, 1994 the Company had a $150 million
credit agreement with various banks which would have expired in July 1995. The
agreement provided for unsecured borrowings and contained various financial
covenants, including limits on minimum net worth, maximum consolidated debt,
minimum interest coverage and minimum consolidated cash flow from operations.
The Company had full and immediate access to the $150 million credit line and
had no borrowings outstanding under this agreement at December 31, 1994. At
December 31, 1994, the Company was in technical default on two financial
covenants under this agreement and was granted a waiver with respect to
compliance with such covenants.
Supplementing the credit agreement, the Company has unsecured lines of
credit available for general corporate purposes totaling $97.7 million of which
$97 million were unused as of December 31, 1994. These lines consist of both
committed and uncommitted facilities in the U.S. and certain other countries. If
drawn, the lines bear interest at market rates and carry annual commitment fees
of not greater than 1/2 percent of the line.
On March 27, 1995, the Company's existing credit agreement was cancelled and
replaced by a new $200 million three-year facility with various banks which
expires in March 1998. The new agreement provides for unsecured borrowings and
contains various covenants, including minimum consolidated tangible capital
funds, minimum consolidated tangible net worth, maximum leverage and minimum
cash flow coverage requirements. The Company currently believes that the
covenant regarding minimum cash flow coverage is the most restrictive. This
covenant requires that the ratio of earnings before interest, taxes,
depreciation and amortization to interest expense and cash dividends exceed 4.25
to 1. In addition, the occurrence of a "Special Event" under the AIG Agreement
which is not waived would constitute an event of default under the new
agreement. (See Note 10 to Notes to Financial Statements)
9. STOCK OPTION AND INCENTIVE PLANS
Under the 1988 Long-Term Incentive Compensation Plan (1988 Plan), as amended
by action of the Board of Directors in September 1994, up to 5,499,000 shares of
the Company's Common Stock may be awarded to officers and key employees. The
1988 Plan includes grants in the form of incentive stock options and
non-qualified options, stock appreciation rights, restricted stock awards,
performance share/unit awards and other stock based awards.
47
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Stock options may be granted under the 1988 Plan at a price not less than
the fair market value of the Common Stock on the date the option is granted and,
with respect to incentive stock options, must be exercised not later than 10
years from date of grant and, with respect to non-qualified options, must be
exercised not later than 10 years and one day from date of grant.
Stock appreciation rights may be granted alone or in conjunction with a
stock option at a price not less than the fair market value of the Common Stock
at date of grant. Upon exercise of a stock appreciation right, the participant
will receive cash, Common Stock or a combination thereof equal to the excess of
the market value over the exercise price of the stock appreciation right.
Exercise of either the right or the stock option will result in the surrender of
the other.
Restricted stock awards may be granted which limit the sale or transfer of
the shares until the expiration of a specified time period. Such awards are
subject to forfeiture if the participant does not remain in the employ of the
Company throughout the restricted time period. A maximum of 1,250,000 shares may
be issued under the 1988 Plan. There were 308,500, 60,000 and 92,810 shares
issued in 1994, 1993 and 1992, respectively. Also in 1994, 271,307 shares of
restricted stock were awarded to an executive officer to offset the loss of
certain benefits from the executive's prior employer when the executive joined
the Company. In addition, 140,000 shares of Common Stock were delivered to a
Company trust to fund a special compensation award to a non-executive director.
Performance share/unit awards may be granted based upon certain performance
criteria as determined by the Company and Benefits Committee of the Board of
Directors. Upon achievement of the performance share/unit criteria, the
participant will receive cash, Common Stock or a combination thereof equal to
the award. There were 23,000 performance share/unit awards made in 1994. No
performance share/unit awards were made in 1993 and 1992.
Stock option transactions were as follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF PER SHARE
SHARES RANGE
--------- -------------
<S> <C> <C>
Outstanding, January 1, 1992..................................... 2,757,084 $17.75-$38.63
Granted........................................................ 485,000 21.63- 23.69
Exercised...................................................... (106,439) 21.56- 27.38
Canceled....................................................... (210,590)
--------- -------------
Outstanding, December 31, 1992................................... 2,925,055 $17.75-$38.63
Granted........................................................ 488,500 26.00- 27.63
Exercised...................................................... (93,948) 17.75- 25.38
Canceled....................................................... (188,307)
--------- -------------
Outstanding, December 31, 1993................................... 3,131,300 $17.75-$38.63
Granted........................................................ 2,361,500 14.19- 20.63
Exercised...................................................... (5,375) 17.75
Canceled....................................................... (503,320)
--------- -------------
Outstanding, December 31, 1994................................... 4,984,105 $17.75-$38.63
--------- -------------
--------- -------------
</TABLE>
The number of options exercisable at December 31 were as follows:
<TABLE>
<CAPTION>
<S> <C>
1994 2,197,405
1993 2,231,301
1992 1,976,017
</TABLE>
At the 1995 Annual Meeting of Stockholders, the Company intends to submit
for stockholder approval four new compensation plans. The plans to be submitted
for stockholder approval are: (1) the 1995 Long-Term Incentive Plan (1995 Plan)
to provide for compensation of executive officers and other
48
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
key employees of the Company and its subsidiaries through stock options,
restricted stock, performance units and other equity-based incentives; (2) the
Employee Discount Stock Purchase Plan (Purchase Plan) to provide for the
purchase by employees, through salary deferrals, of the Company's Common Stock
at a discount from fair market value; (3) the Performance Bonus Plan for
Executive Officers, to provide for the compensation of executive officers by
means of awards (including equity-based awards) for achievement by the Company
of certain performance goals; and (4) the Non-Employee Director Deferred Stock
Ownership Plan, to provide an equity based non-employee director deferred
compensation plan. If approved by stockholders at the annual meeting, 4,700,000
shares of Common Stock will be reserved for issuance under the 1995 Plan and
750,000 shares of Common Stock will be reserved for issuance under the Purchase
Plan.
10. COMMON AND PREFERRED STOCK
At a special meeting of the Company's stockholders held on July 15, 1994
(Special Meeting) an amendment to the Company's Charter (Charter Amendment) was
approved. The Charter Amendment authorized (i) an increase in the number of
authorized shares of stock of the Company (ii) the terms of a new class of
common stock, Class D Common Stock, par value $1.00 (Class D Stock) and (iii)
other minor amendments. At the special meeting, stockholders also approved the
transactions contemplated by the Stock Purchase and Sale Agreement entered into
by the Company and AIG on June 7, 1994, as it may be amended from time to time
(AIG Agreement), which included approval of the issuance and sale of 4,000,000
shares of the Company's 8% Series B Cumulative Convertible Preferred Stock, par
value $1.00 (Series B Convertible Preferred Shares) to three wholly owned
subsidiaries of AIG at a purchase price of $50 per share for a total purchase
price of $200 million (AIG Investment).
The Charter Amendment, which became effective on July 15, 1994, increased
the total authorized capital stock of the Company to 292,000,000 shares of five
classes consisting of 200,000,000 shares of Common Stock, par value $1.00
(Common Stock); 26,000,000 shares of Class A Common Stock, par value $.00001
(Class A Common Stock) 11,000,000 shares of Class C Common Stock, par value
$1.00 (Class C Common Stock); 40,000,000 Class D Stock; and 15,000,000 shares of
Preferred Stock, par value $1.00 (Preferred Shares). The aggregate par value of
all shares of all classes of stock which the Company will, pursuant to the
Charter Amendment, have authority to issue is $266,000,260. Prior to the
effective date of the Charter Amendment, the Company had total authorized
capital stock equal to 88,500,000 shares of four classes consisting of
60,000,000 shares of Common Stock; 13,000,000 Class A Common Stock, 5,500,000
Class C Common Stock, and 10,000,000 Preferred Shares.
In related matters, on July 15, 1994, the Board of Directors authorized an
increase in the number of authorized shares of the Series A Junior Participating
Preferred Stock, par value $1.00 (Participating Preferred Shares), from 600,000
shares to 1,000,000 shares and certain amendments were made to the Company's
Rights Agreement associated with the Participating Preferred Shares.
COMMON STOCK AND EQUIVALENTS In addition to its Common Stock, the Company
has issued two classes of voting equity securities, Class A and Class C Common
Stock, with voting rights equal to the Company's Common Stock. Associated with
each such share is a dividend paying share issued by a Canadian (RSC Class 1
share) or a United Kingdom (AASUK Dividend share) subsidiary which pays
dividends in Canadian dollars and pounds sterling respectively, equivalent to
the dividends paid on shares of Common Stock. Holders of these securities,
therefore, hold the economic equivalent of shares of Common Stock. Each Class A
share (together with an RSC Class 1 share) and Class C share (together with an
AASUK Dividend share) may be exchanged at any time for a share of Common Stock.
No dividends may be declared or paid on the Company's Common Stock unless an
equivalent amount per share is declared and paid on the RSC Class 1 and AASUK
Dividend shares. Accordingly,
49
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
the Company's ability to pay dividends is limited by the amounts available to
the Canadian and U.K. subsidiaries for such purposes. These amounts approximate
Canadian $82 million or $58.2 million, assuming certain solvency tests are met
under Canadian law, and 104.4 million pounds sterling or $162.8 million,
respectively, at December 31, 1994. In the event sufficient earnings are not
available in the Canadian or the U.K. subsidiary to declare dividends, the
Company's legal structure allows it to make earnings or capital available in
those subsidiaries to pay dividends. In addition, the Series A Convertible
Preferred Stock and the Series B Convertible Preferred Stock described below
have priority as to dividends over the Common Stock.
At December 31, 1994, the Company had 5.5 million shares of Common Stock
reserved for issuance under employee stock option plans, 1.5 million shares
reserved for issuance in the event of conversion of the 11 percent convertible
subordinated debentures and 2.7 million shares reserved for issuance upon
redemption or conversion of the Class A and Class C shares.
The Board of Directors has authorized, subject to certain business and
market conditions, the purchase of up to 5 million shares of the Company's
Common Stock. As of December 31, 1994, the total number of shares purchased was
3.7 million at an average price of $21.77 per share. No shares were repurchased
in 1994 or 1993. Shares of its own stock acquired by the Company constitute
authorized but unissued shares.
CLASS D STOCK Shares of the Company's Series B Convertible Preferred Shares
are convertible into Class D Stock, at a conversion price of $17 per share,
subject to adjustment. No shares of Class D Stock are currently outstanding.
Holders of the Class D Stock have the same rights to receive dividends and
distributions as the holders of the Common Stock. In the event of the voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of Class D Stock and Common Stock participate ratably in proportion to
the number of shares held by each such holder in any distribution of assets of
the Company to such stockholders. In addition, in the event the Company effects
a subdivision or combination or consolidation of the outstanding shares of Class
D Stock into a greater or lesser number of shares of Class D Stock, then in each
such case the Company will effect an equivalent subdivision or combination or
consolidation of the outstanding shares of Common Stock into a greater or lesser
number of shares of Common Stock. The Class D Stock are non-voting, except as
provided by law, in the event of a proposed amendment to the Company's Charter
that would adversely affect holders of shares of Class D Stock and following the
occurrence of a Specified Corporate Event. The holders of the Class D Stock have
the right to exchange Class D Stock for Common Stock, at any time or from time
to time, on a share-for-share basis, provided, however, that no person is
entitled to acquire Common Stock upon such exchange if after giving effect
thereto such person has, or will have the then contractual right to acquire
through conversion, exercise of warrants or otherwise, more than 9.9 percent of
the combined voting power of the Company's voting shares then outstanding,
absent certain events.
PREFERRED STOCK AND RELATED RIGHTS The Company's Preferred Stock, $1.00 par
value (Preferred Stock), can be issued in one or more series with full or
limited voting rights, with the rights of each series to be determined by the
Board of Directors before each issuance.
SERIES A CONVERTIBLE PREFERRED SHARES In March 1993, the Company completed a
private placement of 2.3 million shares of $3.625 Series A Convertible Preferred
Shares (Series A Convertible Preferred Shares). Gross proceeds of the offering
were $115 million with net proceeds to the Company of $110.9 million. Holders of
the Series A Convertible Preferred Shares are entitled to receive cumulative
cash dividends at an annual rate of $3.625 per share, payable quarterly in
arrears. The Series A Convertible Preferred Shares have priority as to dividends
over the Common Stock. The shares are convertible into Common Stock at a
conversion price of $31.875 per share of Common Stock, subject to adjustments.
Common Stock issued upon conversion will include Rights, as described below,
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
provided the conversion occurs prior to the distribution, redemption or
expiration of such Rights. The Series A Convertible Preferred Shares may be
redeemed by the Company on and after March 22, 1997, in whole or in part, at
$52.18 per share until March 14, 1998, and declining ratably annually to $50 per
share on or after March 15, 2003, plus accrued and unpaid dividends. The Series
A Convertible Preferred Shares are non-voting, except as provided by law and
except that, among other things, holders will be entitled to vote as a separate
class with any other series of outstanding Preferred Stock to elect a maximum of
two directors if the equivalent of six or more quarterly dividends on the Series
A Convertible Preferred Shares are in arrears. The Series A Convertible
Preferred Shares have a liquidation preference of $50 per share.
SERIES B CONVERTIBLE PREFERRED SHARES The Series B Convertible Preferred
Shares were issued on July 15, 1994. After giving effect to estimated
transaction expenses, a $10 million indemnification provision and the cost of an
option for an insurance-based financing arrangement, the sale of the Series B
Convertible Preferred Shares increased the Company's capital by approximately
$186 million. The shares are convertible into Class D Stock at a conversion
price of $17 per share of Class D Stock, subject to adjustment. The holders of
the Class D Stock have the right to exchange Class D Stock for Common Stock, at
any time or from time to time, on a share-for-share basis, subject to certain
limitations discussed below as to the amount of shares which may be converted.
Dividends on the Series B Convertible Preferred Shares will reduce the amount of
earnings otherwise available for common stockholders by approximately $16
million in the first year after issuance, and by approximately $23 million by
the fifth year after issuance, assuming dividends on the Series B Convertible
Preferred Shares were to be paid in kind throughout the first five years after
issuance.
Holders of Series B Convertible Preferred Shares are entitled to receive
cumulative dividends at a rate of 8 percent per annum payable quarterly in
arrears. Until December 15, 1996, dividends on the Series B Convertible
Preferred Shares are payable in kind and thereafter, at the election of the
board of directors, in cash or in kind until December 15, 1999, provided that if
the Company at any time pays dividends in cash on or after December 15, 1996,
the Company may not thereafter declare or pay dividends in kind. With respect to
dividend rights and rights of liquidation, dissolution and winding up, Series B
Convertible Preferred Shares rank senior to Common Stock, Class A Common Stock,
Class C Common Stock, Class D Stock and Participating Preferred Shares (when and
if issued) and pari passu with the Series A Convertible Preferred Shares.
In determining whether a distribution by the Company (other than upon
voluntary or involuntary liquidation), by dividend, redemption or other
acquisition of shares or otherwise, is permitted pursuant to the balance sheet
solvency test under the Maryland General Corporation Law, the aggregate
liquidation preference of the Series B Convertible Preferred Shares will not be
counted as a liability. The Series B Convertible Preferred Shares have a
liquidation preference of $50 per share.
Series B Convertible Preferred Shares are non-voting, except as provided by
law and except that, among other things, holders will be entitled to vote as a
separate class with any other series of outstanding Preferred Stock to elect a
maximum of two directors if the equivalent of six or more quarterly dividends on
the Series B Convertible Preferred Shares are in arrears. Following the
occurrence of a Specified Corporate Action (as defined in the Company's Charter)
holders shall also have the right to vote as a class with the holders of the
Common Stock and the Class D Stock on all matters as to which the holders of
Common Stock are entitled to vote. A Specified Corporate Action is defined
generally as an action by the Company that would permit a change in control and
certain related events. For the purposes of such vote, the holders of the Series
B Convertible Preferred Shares will be deemed holders of that number of shares
of Class D Stock into which such shares would then be convertible.
51
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The Series B Convertible Preferred Shares may be redeemed in whole or in
part by the Company after December 15,1999, so long as after that date the
Common Stock has traded 30 consecutive trading days on the New York Stock
Exchange at a price in excess of 150 percent of the then effective conversion
price. The redemption price will be $54 per share until December 14, 2000,
declining ratably annually to $50 per share on or after December 14, 2006, plus
accrued and unpaid dividends. All redemptions are to be made pro-rata.
Holders of Series B Convertible Preferred Shares have the right to require
the Company to purchase all or any part of the Series B Convertible Preferred
Shares then held by such holders upon the occurrence of a Special Event. A
Special Event consists of actions solely within the control of the Company and
includes the declaration or payment of dividends aggregating in excess of $0.075
per share of Common Stock during the last seven months of 1994, cumulatively 25
percent of earnings in 1995 and 1996, and cumulatively 50 percent of earnings
thereafter; the disposition by the Company of assets representing 35 percent or
more of the Company's book value or gross revenues; certain mergers or
consolidations of the Company or any of its principal subsidiaries with or into
any other firm or entity involving 20 percent or more of the total market value
of the Company's equity securities; and repurchases and redemptions of the
Company's stock after June 1994 (other than the Company's Series B Convertible
Preferred Shares) in excess of net proceeds to the Company from the sale of
stock after June 1994 (less amounts expended for repurchases and redemptions of
the Company's preferred shares). Other Special Events include the acquisition by
a third party, with the consent or approval of the Company, of beneficial
ownership of securities representing 35 percent or more of the Company's total
outstanding voting power. The repurchase price, in the event of a Special Event,
is at a specified premium, ranging from $66.18 per share, if the Special Event
occurs within six and twelve months after the original issue date, to $72.06 per
share, if the Special Event occurs more than twelve months after the original
issue date, plus in each case accrued and unpaid dividends. The approximately
11,765,000 shares of Common Stock issuable upon the ultimate conversion of the
Series B Convertible Preferred Shares represent approximately 21 percent of the
aggregate number of voting shares outstanding after giving effect to such
issuance. If dividends on the Series B Convertible Preferred Shares are paid in
kind for the full five year period permitted, approximately 18,069,000 shares of
Common Stock will be issuable upon such exchange, representing approximately 29
percent of the total number of voting shares outstanding after giving effect to
such issuance.
SERIES A JUNIOR PARTICIPATING PREFERRED SHARES In 1987, Participating
Preferred Shares were authorized and a dividend of one preferred share purchase
right (a Right) for each outstanding share of Common Stock, each share of Class
A and Class C Common Stock and each subsequently issued share was declared. With
respect to the Rights, the Class D Stock will be treated as if such shares are
Class C Common Stock. Each Right, as amended, entitles the holder thereof to buy
one one-hundredth of a Participating Preferred Share at a price of $85 (subject
to adjustment). The Rights become exercisable only following the announcement by
the Company that a person or a group has acquired beneficial ownership of 15
percent or more of the Company's voting shares or has commenced a tender or
exchange offer that if consummated would result in the ownership of 15 percent
or more of such voting shares. If the Rights become exercisable, each holder
will be entitled to purchase at the then-current exercise price that number of
Participating Preferred Shares having a value equal to twice the then-current
exercise price.
If the Company is subsequently acquired, each Right will entitle the holder
to purchase at the then-current exercise price, stock of the surviving company
having a market value of twice the exercise price of each Right. In addition, if
a person or group acquires more than 15 percent, but less than 50 percent, of
the Company's voting shares, the Board of Directors may exchange each Right for
one one-hundredth of a Participating Preferred Share. The Rights are redeemable
by the Board until the time of
52
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
announcement that any person or group has beneficially acquired 15 percent or
more of the Company's voting shares. All rights beneficially owned by a holder
of 15 percent or more of the voting shares become void once such holder passes
the 15 percent threshold. The Rights are redeemable by action of the Board of
Directors prior to becoming exercisable at a redemption price of $.01 per Right.
The Rights will expire on July 6, 1997.
On April 21, 1992, the Board of Directors of the Company approved an
Amendment to the Rights Agreement (the Rights Agreement), dated as of June 11,
1987, between the Company and First Chicago Trust Company of New York, as
amended and restated as of March 22, 1990. The Amendment provides for certain
technical revisions in the Rights Agreement including definition of Shares
Acquisition Date to mean the first date of public announcement by the Company
that an Acquiring Person has become such. The Amendment also provides that if
the Rights become exercisable, the Company, acting by resolution of the Board of
Directors, may (and if a sufficient number of Participating Preferred Shares is
not available for issuance upon exercise of the Right, shall), issue equity
securities, debt securities, cash and/or other property in lieu of Participating
Preferred Shares.
In connection with the AIG Investment, the Board of Directors amended the
Rights Agreement. Pursuant to Amendment No. 2 to the Rights Agreement, effective
as of June 6, 1994, the acquisition of Series B Convertible Preferred Shares
upon closing of the AIG Agreement, the acquisition of Class D Stock upon
conversion of Series B Convertible Preferred Shares, the acquisition of Common
Stock upon exchange for Class D Stock or the acquisition by AIG or its
affiliates or any transferee thereof of any securities of the Company (if such
acquisition is permitted by the Purchase Agreement) will not (i) cause any
person to become an Acquiring Person, (ii) cause the Distribution Date or the
Shares Acquisition Date to occur, or (iii) give rise to a Section 11(a)(ii)
Event (as such capitalized terms are defined in the Rights Agreement).
In addition, on July 15, 1994, the Board of Directors approved Amendment No.
3 to the Rights Agreement, which provides for, among other things, modifications
of the definitions of Acquiring Person and Distribution Date to raise from 10
percent to 15 percent the percentage of stock ownership needed to cause a person
to become an Acquiring Person or to cause a Distribution Date to occur (as such
capitalized terms are defined in the Rights Agreement).
11. INVESTMENTS
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." In accordance with the
Statement, the Company has classified all debt and equity securities as
available for sale. At December 31, 1994, net unrealized holding gains totaled
$1.5 million, net of deferred income taxes of $0.2 million, and are reported as
a separate component of Stockholders' Equity. During 1994, the net unrealized
holding gains decreased by approximately $2 million and proceeds from sales of
securities totaled $157.4 million with gross realized gains totaling $0.5
million.
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The amortized cost and estimated fair value of the Company's debt and equity
securities and financial instruments used to hedge the existing and anticipated
fiduciary portion of such investments as of December 31, 1994 are summarized
below:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government agencies/state issuances............ $ 63.5 -$- $ (0.1) $ 63.4
Other interest-bearing securities................... 146.7 -- -- 146.7
Mortgage-backed securities.......................... 83.8 -- -- 83.8
Equity securities................................... 1.9 4.6 -- 6.5
Financial instruments--used as hedges............... -- 0.3 (3.1) (2.8)
--------- --- ----- ---------
Total........................................... $ 295.9 $4.9 $ (3.2) $ 297.6
--------- --- ----- ---------
--------- --- ----- ---------
</TABLE>
The above debt and equity securities and financial instruments used as
hedges are classified in the Consolidated Balance Sheet at December 31, 1994 as
follows:
Cash and cash equivalents:
Operating....................................................... $ 63.9
Fiduciary....................................................... 51.8
Short-term investments:
Operating....................................................... 1.8
Fiduciary....................................................... 117.9
Long-term operating investments................................... 62.2
------
Total....................................................... $297.6
------
------
The amortized cost and estimated fair value of debt securities at December
31, 1994 by contractual maturity are summarized below:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less................................................. $ 152.7 $ 152.6
Due after one year through five years................................... 46.7 46.7
Due after five years through ten years.................................. 0.7 0.7
Due after ten years..................................................... 10.1 10.1
--------- ---------
210.2 210.1
Mortgage-backed securities.............................................. 83.8 83.8
--------- ---------
Total debt securities............................................. $ 294.0 $ 293.9
--------- ---------
--------- ---------
</TABLE>
Certain of the above investments with maturities greater than one year are
classified as short-term and included in current assets as they represent
fiduciary investments that will be utilized during the normal operating cycle of
the business to pay premiums payable to insurance companies that are included in
current liabilities.
12. FINANCIAL INSTRUMENTS
The Company enters into foreign exchange forward contracts and foreign
exchange option agreements primarily to provide risk management against existing
firm commitments as well as anticipated future exposures that will arise at its
London-based specialist insurance and reinsurance
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
broking operations. The exposures arise because a significant portion of the
revenues of these operations are denominated in U.S. dollars, while their
expenses are primarily denominated in U.K. pounds sterling.
The Company generally sells forward U.S. dollars and purchases U.K. pounds
sterling for periods of up to two years in the future. Such contracts provide
risk management against future anticipated transactions which are not firm
commitments. In addition, the Company enters into foreign exchange contracts to
manage market risk associated with foreign exchange volatility on intercompany
loans and expected intercompany dividends. Finally, the Company enters into
foreign exchange contracts to effectively offset existing contracts when
anticipated exchange rate movements would benefit the Company.
Gains and losses on contracts which are designated as hedges of firm
commitments are deferred until the settlement dates. Contracts which are not
designated as hedges are marked to market at each balance sheet date and are
included in other current assets or liabilities, with the resulting gain or loss
recorded as a component of other operating expenses. The fair market value of
all foreign exchange contracts at December 31, 1994 was $2.6 million.
Foreign exchange options written by the Company are marked to market at each
balance sheet date and the resulting gain or loss is recorded as a component of
other operating expenses. Future cash requirements may exist if the option is
exercised by the holder. Based on foreign exchange rates at December 31, 1994,
these options could be exercised at a nominal cost to the Company.
At December 31, 1994, the Company had approximately $108.5 million notional
principal of forward exchange contracts outstanding, primarily to exchange U.S.
dollars into U.K. pounds sterling, and approximately $47.7 million notional
principal outstanding, primarily to exchange U.K. pounds sterling into U.S.
dollars. In addition, at December 31, 1994, the Company has approximately $4.6
million notional principal of foreign exchange contracts outstanding related to
intercompany loans.
The Company has entered into interest rate swaps and forward rate
agreements, which are accounted for as hedges, as a means to limit the earnings
volatility associated with changes in short-term interest rates on its existing
and anticipated fiduciary investments with maturities of three months or less.
These instruments are contractual agreements between the Company and financial
institutions which exchange fixed and floating interest rate payments
periodically over the life of the agreements without exchanges of the underlying
principal amounts. The notional principal amounts of such agreements are used to
measure the interest to be paid or received and do not represent the amount of
exposure to credit loss. The Company records the difference between the fixed
and floating rates of such agreements as a component of its fiduciary investment
income. Interest rate swaps and forward rate agreements which relate to debt
securities are marked to market in accordance with SFAS No. 115. At December 31,
1994, an unrealized loss of $2.8 million on interest rate swaps and forward rate
agreements which hedge existing and anticipated fiduciary investments with
maturities of three months or less was reflected in fiduciary cash and
equivalents in the Consolidated Balance Sheet.
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
At December 31, 1994 and 1993 the Company has the following interest rate
swaps and forward rate agreements in effect, by year of final maturity:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------
GROSS NET WEIGHTED GROSS NET WEIGHTED
RECEIVING AVERAGE PAYING AVERAGE
YEAR FIXED INTEREST RATE FIXED INTEREST RATE
-------------------------------------------------- --------- ------------- ------ -------------
<S> <C> <C> <C> <C>
1995.............................................. $ 457.0 6.84% $257.0 6.83%
1996.............................................. 291.9 7.30 31.2 8.85
1997.............................................. 97.8 6.65 -- --
--------- --- ------ ---
Total....................................... $ 846.7 6.98% $288.2 7.05%
--------- --- ------ ---
--------- --- ------ ---
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------------
GROSS NET WEIGHTED GROSS NET WEIGHTED
RECEIVING AVERAGE PAYING AVERAGE
YEAR FIXED INTEREST RATE FIXED INTEREST RATE
-------------------------------------------------- --------- ------------- ------ -------------
<S> <C> <C> <C> <C>
1994.............................................. $ 208.0 5.81% $358.0 5.63%
1995.............................................. 129.0 6.57 -- --
1996.............................................. 105.0 5.44 -- --
--------- --- ------ ---
Total....................................... $ 442.0 5.94% $358.0 5.63%
--------- --- ------ ---
--------- --- ------ ---
</TABLE>
The Company generally enters into interest rate swap agreements with a final
maturity of three years or less. The floating rate on these agreements is
generally based upon the six-month LIBOR rate on the relevant six-month reset
dates. The Company also generally uses six-month LIBOR as the floating rate
index for its forward rate agreements. Forward rate agreements generally have a
final maturity date that is less than two years.
In addition, as part of its interest rate management program, the Company
utilizes various types of interest rate options, including caps, collars, floors
and interest rate guarantees. The Company generally writes covered interest rate
options under which the Company receives a fixed interest rate.
The options are marked to market at each balance sheet date, based on the
Company's estimated cost to settle the options. The estimated cost to settle the
options, less any premium deferred by the Company, is recognized as a reduction
to fiduciary investment income in the period when such changes in market value
occur. At December 31, 1994, the Company recognized a current liability of $1.3
million, representing the estimated cost to settle these options at that date.
The estimated cost to settle these options was nominal at December 31, 1993. The
estimated cost to settle these agreements was determined by obtaining quotes
from banks and other financial institutions which make a market in these
instruments.
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
At December 31, 1994 and 1993, the Company had the following written
interest rate option agreements outstanding, by year of final maturity:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------
GROSS NET WEIGHTED GROSS NET WEIGHTED
RECEIVING AVERAGE PAYING AVERAGE
YEAR FIXED INTEREST RATE FIXED INTEREST RATE
--------------------------------------------------- --------- ------------- ------ -------------
<S> <C> <C> <C> <C>
1995............................................... $15.6 5.27% $-- -- %
1996............................................... 43.4 5.42 10.0 4.6
--
--------- --- ------
Total........................................ $59.0 5.38% $10.0 4.6%
--
--
--------- --- ------
--------- --- ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------------
GROSS NET WEIGHTED GROSS NET WEIGHTED
RECEIVING AVERAGE PAYING AVERAGE
YEAR FIXED INTEREST RATE FIXED INTEREST RATE
--------------------------------------------------- --------- ------------- ------ -------------
<S> <C> <C> <C> <C>
1994............................................... $20.0 4.59% $15.0 4.87%
1995............................................... 22.0 5.75 -- --
1996............................................... 42.0 5.40 7.0 5.00
--------- --- ------ ---
Total........................................ $84.0 5.30% $22.0 4.91%
--------- --- ------ ---
--------- --- ------ ---
</TABLE>
The above financial instruments are purchased from large international banks
and financial institutions with strong credit ratings. Credit limits are
established based on such credit ratings and are monitored on a regular basis.
Management does not anticipate incurring any losses due to non-performance by
these institutions. In addition, the Company monitors the market risk associated
with these agreements by using probability analyses, external pricing systems
and information from banks and brokers.
The following methods and assumptions were used in estimating the fair value
of each class of financial instrument. The fair values of short-term and
long-term investments were estimated based upon quoted market prices for the
same or similar instruments. The fair value of long-term debt, including the
current portion, was estimated on the basis of market prices for similar issues
at current interest rates for the applicable period. The fair value of interest
rate swaps and forward rate agreements was estimated by discounting the future
cash flows using rates currently available for agreements of similar terms and
maturities. The fair value of foreign exchange forward contracts and foreign
exchange option agreements was estimated based upon year-end exchange rates. The
fair value of interest rate options was estimated based upon market quotes of
the cost to settle these agreements. The carrying amounts of the Company's other
financial instruments approximate fair value due to their short-term maturities.
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table presents the carrying amounts and the estimated fair
value of the Company's financial instruments that are not carried at fair value.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994 AS OF DECEMBER 31, 1993
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Long-term debt, including current portion.... $149.8 $146.4 $123.5 $125.3
Foreign exchange forward contracts........... 1.6 2.6 0.5 0.5
Interest rate swaps and forward rate
agreements................................. (2.8) (8.2) -- 2.7
</TABLE>
13. COMMITMENTS
LEASE COMMITMENTS The Company leases property and equipment under
noncancelable operating lease agreements which expire at various dates.
Future minimum annual rentals under noncancelable operating leases,
excluding $11.3 million of future sublease rental income, which have been
translated at December 31, 1994 closing foreign exchange rates, are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1995............................................................. $ 84.4
1996............................................................. 71.7
1997............................................................. 52.8
1998............................................................. 41.6
1999............................................................. 37.5
Thereafter....................................................... 206.9
---------
Total minimum lease payments............................... $ 494.9
---------
---------
</TABLE>
Rent expense for office space, which includes property taxes and certain
other costs, amounted to $93.6 million, $92 million and $99.3 million for the
years ended December 31, 1994, 1993, and 1992, respectively.
OTHER COMMITMENTS At December 31, 1994, the Company had $32.7 million of
letters of credit outstanding which are required under certain agreements in the
ordinary course of business.
14. CONTINGENCIES
The Company and its subsidiaries are subject to various claims and lawsuits
from both private and governmental parties, which include claims and lawsuits in
the ordinary course of business, consisting principally of alleged errors and
omissions in connection with the placement of insurance and in rendering
consulting services. In some of these cases, the remedies that may be sought or
damages claimed are substantial. Additionally, the Company and its subsidiaries
are subject to the risk of losses resulting from the potential uncollectibility
of insurance and reinsurance balances and claims advances made on behalf of
clients and indemnifications connected with the sales of certain businesses.
Certain claims asserted against the Company and certain of its subsidiaries
alleging, among other things, that certain Alexander Howden subsidiaries
accepted, on behalf of certain insurance companies, insurance or reinsurance at
premium levels not commensurate with the level of underwriting risks assumed and
retroceded or reinsured those risks with financially unsound reinsurance
companies.
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Claims asserting these allegations are pending in suits filed in New York and
Ohio. In a New York action brought in 1985, claims were asserted against the
Company and certain subsidiaries (Pine Top Insurance Company, Ltd. v. Alexander
& Alexander Services Inc., et al., 85 Civ. 9860 (RPP) (S.D.N.Y.)). The plaintiff
sought compensatory and punitive, as well as treble damages under RICO totalling
approximately $87 million, arising from alleged RICO violations, common law
fraud, breach of contract and negligence. Two subsidiaries counterclaimed for
breach of certain reinsurance contracts with the plaintiff. This action was
settled as of January 12, 1995 and the action was voluntarily dismissed in
February 1995. The settlement amount was $4.5 million. The Company's portion was
$2.1 million which was previously reserved under its professional indemnity
program. In a similar New York action brought in 1988 against the Company and
certain subsidiaries (Certain Underwriters at Lloyd's of London Subscribing to
Insurance Agreements ML8055801, et al. v. Alexander & Alexander Services Inc.,
et al., formerly captioned Dennis Edward Jennings v. Alexander & Alexander
Europe plc, et al., 88 CIV. 7060 (RO) (S.D.N.Y.)), plaintiffs seek compensatory
and punitive damages, as well as treble damages under RICO totaling $36 million.
The defendants have counterclaimed against some of the plaintiffs for
contribution. Discovery in this case remains to be concluded and no trial date
has been set. In the Ohio action brought in 1985 (The Highway Equipment Company,
et al. v. Alexander Howden Limited, et al. (Case No. 1-85-01667, U.S. Bankruptcy
Court, So. Dist. Ohio, Western Div.)), plaintiffs seek compensatory and punitive
damages, as well as treble damages under RICO totaling $24 million. A directed
verdict in the Company's favor was affirmed on March 14, 1994 in a decision by
the U.S. District Court for the Southern District of Ohio. The plaintiffs have
appealed this decision to the U.S. Court of Appeals for the Sixth Circuit.
Management of the Company believes there are valid defenses to all the claims
that have been made with respect to these activities and the Company is
vigorously defending the pending actions. These actions are covered under the
Company's professional indemnity program, except for possible damages under
RICO. The Company currently believes the reasonably possible loss that might
result from these actions, if any, would not be material to the Company's
financial position or results of operations.
In 1987, the Company sold Shand, its domestic underwriting management
subsidiary. Prior to the sale, Shand and its subsidiaries had provided
underwriting management services for and placed insurance and reinsurance with
and on behalf of Mutual Fire. Mutual Fire was placed in rehabilitation by the
Courts of the Commonwealth of Pennsylvania in December 1986. In February 1991,
the rehabilitator filed a complaint in the Commonwealth court against Shand and
the Company. The case was subsequently removed to the U.S. District Court for
the Eastern District of Pennsylvania and is captioned Foster v. Alexander &
Alexander Services Inc., 91 Civ. 1179. The complaint, which seeks compensatory
and punitive damages, alleges that Shand and, in certain respects, the Company
breached duties to and agreements with, Mutual Fire. The rehabilitator, through
an expert's report, indicated that the alleged damages are approximately $234
million, a conclusion with which the Company, based on substantial arguments,
strongly disagreed.
On March 27, 1995, the Company, Shand and the rehabilitator entered into a
settlement agreement which, if approved by the courts, would terminate the
rehabilitator's litigation and release the Company and Shand from any further
claims by the rehabilitator. Under the terms of the settlement, the Company
would pay $12 million in cash and an additional $35 million in the form of a
six-year zero-coupon note with a discounted value of $25.9 million. In addition,
Shand is required to return $4.6 million of trusteed assets to the rehabilitator
and the rehabilitator has eliminated any right of set-offs previously estimated
to be $4.7 million. The Mutual Fire settlement agreement includes certain
features protecting the Company from possible third-party claims and expenses
arising out of such claims. Although the Company's professional liability
underwriters have denied coverage for the Mutual Fire lawsuit, the Company has
instituted a declaratory judgment action attempting to validate
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
coverage (Alexander & Alexander Services Inc. and Alexander & Alexander Inc.
plaintiffs against those certain underwriters at Lloyd's, London, England
subscribing to insurance evidence by policy numbers 879/P. 31356 and 879/P.
35349 and Assicurazioni Generali, S.P.A., defendants No. 92 Civ. 6319
(F.D.N.Y.)). In the fourth quarter of 1994, the Company increased its previously
established reserves of $10 million based on an estimated settlement amount, and
recorded a pre-tax charge of $37.2 million ($24.2 million after-tax or $0.55 per
share).
Under the 1987 agreement with the purchaser of Shand, the Company agreed to
indemnify the purchaser against certain contingencies, including, among others,
(i) losses arising out of pre-sale transactions between Shand or Shand's
subsidiaries, on the one hand, and Mutual Fire, on the other, and (ii) losses
arising out of pre-sale errors or omissions by Shand or Shand's subsidiaries.
The Company's obligations under the indemnification provisions in the 1987 sales
agreement were not limited as to amount or duration.
Starting in late 1992, the purchaser of Shand has asserted a number of
claims under both the Mutual Fire indemnification provision and the
errors-and-omissions indemnification provision of the sales agreement. Most of
those claims have been resolved by a series of settlement agreements, involving
the settlement or release of (a) claims relating to reinsurance recoverables due
to Shand's subsidiaries from Mutual Fire, (b) claims relating to deterioration
of reserves for business written by Mutual Fire and ceded to Shand's
subsidiaries, and (c) a number of errors-and-omissions claims by third-party
reinsurers against Shand. Under the settlement agreement entered into in January
1995, covering the errors-and-omissions claims by third-party reinsurers, the
Company obtained a release and limitation of indemnification obligations
relating to certain third-party errors-and-omissions claims, and restructured
the contractual relationship with the purchaser so that the parties' future
interests as to third-party claims are more closely aligned. The Company will
pay $14 million in cash, issue a five-year interest bearing note in the
principal amount of $14 million and expects to pay a contingent obligation of
$4.5 million. In the fourth quarter of 1994, the Company recorded a pre-tax
charge of $32.5 million ($21.1 million after-tax, or $0.48 per share) associated
with this settlement. Notwithstanding these settlements, the limitation of
certain contract obligations and the restructuring of the parties' relationship,
some of the Company's indemnification provisions under the 1987 agreement are
still in effect. As a result, there remains the possibility of substantial
exposure under the indemnification provisions of the 1987 agreement, although
the Company, based on current facts and circumstances, believes the possibility
of a material loss resulting from these exposures is remote.
In November 1993, a class action suit was filed against the Company and two
of its directors and officers, Tinsley H. Irvin and Michael K. White, in the
United States District Court for the Southern District of New York under the
caption Harry Glickman v. Alexander & Alexander Services Inc., et al. (Civil
Action No. 93 Civ. 7594). On January 6, 1995, the plaintiff filed a second
amended complaint which, among other things, dropped Mr. White as a defendant.
The second amended complaint purports to assert claims on behalf of a class of
persons who purchased the Company's Common Stock during the period May 1, 1991
to November 4, 1993, alleging that during said period the Company's financial
statements contained material misrepresentations as a result of inadequate
reserves established by the Company's subsidiary, Alexander Consulting Group
Inc., for unbillable work-in-progress. The second amended complaint seeks
damages in an unspecified amount, as well as attorneys' fees and other costs,
for alleged violations of the federal securities laws. The defendants have filed
a motion to dismiss the second amended complaint. Management of the Company
believes there are valid defenses to the allegations set forth in the complaint
and the Company intends to vigorously dispute this claim. The Company currently
believes that this action is covered by the Company's insurance program and
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
that the reasonably possible loss that might result, if any, would not be
material to the Company's financial position or results of operations.
These contingent liabilities involve significant amounts. While it is not
possible to predict with certainty the outcome of such contingent liabilities,
the applicability or availability of coverage for such matters under the
Company's professional indemnity insurance program, or their financial impact on
the Company, management currently believes that such impact will not be material
to the Company's financial position. However, it is possible that future
developments with respect to these matters could have a material effect on
future interim or annual results of operations.
Under the AIG Agreement, the Company has agreed to make certain payments to
AIG pursuant to indemnifications given with respect to the Company's balance
sheet as of March 31, 1994. Pursuant to an amendment to the AIG Agreement, dated
November 10, 1994, the Company's potential exposures under the indemnification,
individually or in the aggregate, was limited to $10 million. Pursuant to a
second amendment, dated March 16, 1995, the indemnification was further limited
to cover only tax payments and reserves in excess of recorded tax reserves as of
March 31, 1994. As a result of this indemnification, the Company has classified
$10 million of the proceeds from the issuance of the Series B Convertible
Preferred Shares outside stockholders' equity until such time as the
indemnification, if any, is satisfied or terminated.
15. BUSINESS SEGMENTS
Segment information is provided for the Company's two reportable industry
segments, Insurance Services and Human Resource Management Consulting.
Insurance Services operations include risk management and insurance
services, specialist insurance and reinsurance broking.
Human Resource Management Consulting includes a variety of human resource
management consulting services, including actuarial and benefit plan consulting
services, flexible compensation consulting, communications and management
consulting services and executive planning services, as well as human resource
organizational analysis and planning.
61
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following tables present information about the Company's operations by
business segment and geographical areas for each of the three years in the
period ended December 31, 1994:
<TABLE>
<CAPTION>
OPERATING
OPERATING INCOME IDENTIFIABLE DEPRECIATION CAPITAL
REVENUES (LOSS)(A) ASSETS & AMORTIZATION EXPENDITURES
--------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
BUSINESS SEGMENTS:
1994
Insurance services.............. $ 1,113.2 $(12.2) $2,525.4 $ 44.7 $ 19.0
Human resource management
consulting...................... 210.7 (19.1) 130.3 6.0 2.9
General corporate............... -- (51.6) 290.0 0.5 (0.4)
--------- ------ ------------ ----- -----
$ 1,323.9 $(82.9) $2,945.7 $ 51.2 $ 21.5
--------- ------ ------------ ----- -----
--------- ------ ------------ ----- -----
1993
Insurance services.............. $ 1,128.6 $ 92.9 $2,544.1 $ 48.3 $ 21.0
Human resource management
consulting...................... 213.0 (7.5) 121.4 5.6 4.0
General corporate............... -- (33.1) 128.3 0.6 1.0
--------- ------ ------------ ----- -----
$ 1,341.6 $ 52.3 $2,793.8 $ 54.5 $ 26.0
--------- ------ ------------ ----- -----
--------- ------ ------------ ----- -----
1992
Insurance services.............. $ 1,129.0 $ 86.1 $2,422.5 $ 52.9 $ 16.2
Human resource management
consulting...................... 240.5 30.8 130.2 7.0 0.5
General corporate............... -- (31.4) 56.9 0.6 --
--------- ------ ------------ ----- -----
$ 1,369.5 $ 85.5 $2,609.6 $ 60.5 $ 16.7
--------- ------ ------------ ----- -----
--------- ------ ------------ ----- -----
</TABLE>
------------
(a) The restructuring charge referred to in Note 3 of Notes to Financial
Statement includes $56.3 million for insurance services, $8.3 million for
human resource management consulting and $4.4 million for general corporate.
62
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OPERATING OPERATING IDENTIFIABLE
REVENUE INCOME (LOSS)(A) ASSETS
--------- ----------------- ------------
<S> <C> <C> <C>
GEOGRAPHICAL AREAS:
1994
United States........................................... $ 685.4 $ (78.8) $ 904.2
United Kingdom.......................................... 312.5 19.4 1,065.8
Canada, principally Reed Stenhouse Cos. Ltd............. 118.9 10.0 191.0
Other countries......................................... 207.1 18.1 494.7
General corporate....................................... -- (51.6) 290.0
--------- ------ ------------
$ 1,323.9 $ (82.9) $2,945.7
--------- ------ ------------
--------- ------ ------------
1993
United States........................................... $ 727.1 $ (11.8) $1,029.2
United Kingdom.......................................... 315.5 64.1 987.8
Canada, principally Reed Stenhouse Cos. Ltd............. 120.9 13.0 208.1
Other countries......................................... 178.1 20.1 440.4
General corporate....................................... -- (33.1) 128.3
--------- ------ ------------
$ 1,341.6 $ 52.3 $2,793.8
--------- ------ ------------
--------- ------ ------------
1992
United States........................................... $ 731.1 $ 17.4 $ 960.8
United Kingdom.......................................... 338.4 63.9 980.8
Canada, principally Reed Stenhouse Cos. Ltd............. 130.0 16.1 213.6
Other countries......................................... 170.0 19.5 397.5
General corporate....................................... -- (31.4) 56.9
--------- ------ ------------
$ 1,369.5 $ 85.5 $2,609.6
--------- ------ ------------
--------- ------ ------------
</TABLE>
------------
(a) The restructuring charges referred to in Note 3 of Notes to Financial
Statements have been allocated to their respective geographical areas in
1994, including $31.8 million in the U.S., $21.9 million in the U.K., $4
million in Canada, $6.9 million in Other Countries and $4.4 million in
general corporate.
63
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for 1994 and 1993 are summarized below (in
millions, except per share data).
<TABLE>
<CAPTION>
INCOME
(LOSS) FROM NET
OPERATING OPERATING CONTINUING INCOME
REVENUE INCOME (LOSS) OPERATIONS (LOSS)
--------- ------------- ----------- -------
<S> <C> <C> <C> <C>
1994
1st............................................ $ 323.0 $ 5.2 $ (1.8) $ (4.4)
2nd............................................ 335.1 14.6 3.8 (2.2)(a)
3rd............................................ 332.6 4.2 0.1 (20.8)(b)
4th............................................ 333.2 (106.9) (109.3) (111.3)(c)
--------- ------------- ----------- -------
Year..................................... $ 1,323.9 $ (82.9) $(107.2) $(138.7)
--------- ------------- ----------- -------
--------- ------------- ----------- -------
1993
1st............................................ $ 324.8 $ 18.9 $ 9.9 $ 13.2
2nd............................................ 341.9 25.6 13.1 13.1
3rd............................................ 327.1 0.2 (2.6) (2.6)
4th............................................ 347.8 7.6 3.2 3.2
--------- ------------- ----------- -------
Year..................................... $ 1,341.6 $ 52.3 $ 23.6 $ 26.9
--------- ------------- ----------- -------
--------- ------------- ----------- -------
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OF COMMON STOCK:
------------------------------------------------------------
INCOME
(LOSS) FROM NET
CONTINUING INCOME
OPERATIONS (LOSS) DIVIDENDS HIGH LOW
----------- ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1994
1st.................................... $ (.09) $ (.15) $ .25 $22 3/4 $17 1/4
2nd.................................... .04 (.10)(a) .025 18 1/8 14
3rd.................................... (.11) (.58)(b) .025 20 7/8 16
4th.................................... (2.61) (2.66)(c) .025 21 1/2 18 1/2
----------- ------ ---------
Year............................. $ (2.79)(d) $(3.51)(d) $.325
----------- ------ ---------
----------- ------ ---------
1993
1st.................................... $ .22 $ .30 $ .25 $28 7/8 $24
2nd.................................... .26 .26 .25 28 24 3/8
3rd.................................... (.11) (.11) .25 27 3/4 21 3/8
4th.................................... .03 .03 .25 21 3/4 17 5/8
----------- ------ ---------
Year............................. $ .40 $ .48 $1.00
----------- ------ ---------
----------- ------ ---------
</TABLE>
------------
(a) Includes a charge of $6 million, or $.14 per share, relating to the
Company's discontinued operations (see Note 6 of Notes to Financial
Statements).
(b) Includes a loss from discontinued operations of $20.9 million, or $.47 per
share, relating to an agreement in principle to resolve certain indemnity
obligations to Sphere Drake (see Note 6 of Notes to Financial Statements).
(c) Includes charges of $163.6 million ($106.6 million after-tax or $2.43 per
share) for restructuring, contingency settlements and other reserves.
(d) Full year earnings per share amounts do not equal the sum of the quarterly
amounts due to changes in weighted average shares during the periods.
64
<PAGE>
SCHEDULE II
ALEXANDER & ALEXANDER SERVICES INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------------------- ---------- -------------------------- -------------- --------
<S> <C> <C> <C> <C> <C>
ADDITIONS
--------------------------
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS (1) DEDUCTIONS (2) OF YEAR
------------------------------------- ---------- ---------- ------------ -------------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable:
Year Ended December 31, 1992 (3)... $ 24,408 $5,424 $ (5,081) $2,632 $22,119
---------- ---------- ------------ ------- --------
---------- ---------- ------------ ------- --------
Year Ended December 31, 1993....... $ 22,119 $3,793 $ (2,019) $3,566 $20,327
---------- ---------- ------------ ------- --------
---------- ---------- ------------ ------- --------
Year Ended December 31, 1994....... $ 20,327 $7,880 $ (1,279) $3,203 $23,725
---------- ---------- ------------ ------- --------
---------- ---------- ------------ ------- --------
</TABLE>
------------
NOTES:
(1) Recoveries and adjustments for foreign currency translation.
(2) Writeoffs of receivables which are not recoverable.
(3) Restated to reflect acquisition of Clay & Partners.
65
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the twenty-four months ended December 31, 1994 and 1993 and in the
subsequent interim period, there has been no change in, or disagreements on
accounting matters with, the Company's independent auditors.
--------------------------------------------------------------------------------
PART III
--------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item as to directors is included under the
caption "Nominees for Election" in the Company's Proxy Statement for the 1995
Annual Meeting of Stockholders (The "1995 Proxy Statement") and is incorporated
herein by reference. Information required by this item is included under the
caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934"
in the 1995 Proxy Statement and is incorporated herein by reference.
The following sets forth information with respect to current executive
officers of the Company:
FRANK G. ZARB, 60, 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. Mr. Zarb has been a director of the Company since June 1994.
LAWRENCE E. BURK, 53, has served as chairman and chief executive officer of
Alexander & Alexander Inc. ("A&A Inc."), the Company's U.S. retail broking and
consulting subsidiary since November 1993. Since joining the Company in 1970, he
has held various senior management positions for the Company's retail broking
operations, including global business development director, January 1991 to
October 1993, and U.S. eastern regional director, May 1989 to January 1991.
ELLIOT S. COOPERSTONE, 33, has served as a senior vice president and chief
administrator officer of the Company since August 1994. In January 1995, he was
appointed executive vice president and chief operating officer of A&A Inc. From
1993 until joining the Company, he was assistant to the vice chairman of The
Travelers Inc. From 1992 to 1993 he was director of strategic planning for The
Walt Disney Company and from 1988 to 1992 he held various positions at The
Boston Consulting Group Inc., including consultant and manager.
KENNETH J. DAVIS, 52, has served as chief executive officer of Alexander &
Alexander Europe, the Company's U.K. and European retail broking subsidiary
since 1993. Mr. Davis joined Alexander Stenhouse UK Ltd., a U.K. subsidiary of
Reed Stenhouse Ltd. which merged with the Company in 1985, in 1961 and held
various executive management positions, including managing director and chief
operating officer.
JAMES S. HORRICK, 54, has served as president and chief executive officer of
A&A/Reed Stenhouse Companies Limited and A&A/Reed Stenhouse Limited, the
Company's retail broking subsidiary in Canada, since January 1989 and January
1988, respectively. Since August 1994, Mr. Horrick has also had management
responsibility for the Company's Latin America/Caribbean regions. He has served
in
66
<PAGE>
various executive management and operating positions for Reed Stenhouse Limited
and its predecessor entities since 1966.
RONALD A. ILES, 59, 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 Alexander Howden Group Ltd. ("AHG"), a new 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.
R. ALAN KERSHAW, 47, has served as vice president and treasurer of the
Company since June 1989. He joined the Company in 1986 and served as assistant
treasurer-international. Prior to joining the Company, Mr. Kershaw held various
financial management positions with Kuwait Petroleum International and Gulf Oil
Corporation.
EDWARD F. KOSNIK, 50, has served as executive vice president and chief
financial officer of the Company since August 1994. He was chairman of the
board, president and chief executive officer of JWP, Inc., a global service
company, April 1993 until February 1994 and executive vice president and chief
financial officer of such corporation from December 1992 until April 1993. From
1987 until 1992 he was president and chief executive officer of Sprague
Technologies Inc., a worldwide manufacturer of electronic components. He has
been a director of the Company since March 1995.
DENNIS L. MAHONEY, 44, has served as deputy chairman of AHG since January
1995 and is responsible for management of the Company's worldwide specialist
broking operations. He has held various executive management positions,
including chairman of Alexander Howden Intermediaries, since joining the Company
in 1984 as chairman of Alexander Howden Limited.
DAN R. OSTERHOUT, 44, has served as a senior vice president of the Company
since January 1988, with responsibility for management of the Company's
underwriting exposures. In January 1995, he was appointed chief executive
officer and president of Alexander Howden North America, Inc., the Company's
U.S. wholesale broking subsidiary. In March 1994, he was appointed chairman and
chief executive officer of Alexander Underwriting Services, a new business unit
offering administration of run-off insurance and reinsurance companies and
intermediaries. From September 1991 to December 1993, he also served in various
executive positions with A&A Inc., including president and chief operating
officer. He has held various other financial and management positions since
joining the Company in 1970.
DONALD L. SEELEY, 51, has served as a senior vice president of the Company
since May 1992 and as chief executive officer of the Alexander Consulting Group
Inc., the Company's human resource management subsidiary, since October 1993.
From September 1988 to September 1993 he was responsible for the management of
the Company's treasury, tax, strategic planning and corporate secretary
functions, having served as vice president from September 1988 to April 1992.
From 1982 until joining the Company, he was the treasurer of United Airlines and
of G.D. Searle & Company.
ALBERT A. SKWIERTZ, JR., 49, has served as a vice president and general
counsel of the Company since August 1994. From April 1991 to August 1994 he
served as associate general counsel for the Company. Mr. Skwiertz originally
joined the Company in August 1977 and held various positions in the legal
department including vice president and assistant general counsel until April
1986 when he left the Company to become vice president and general counsel of
The Crump Companies, a position he held until October 1986 when he joined
Sedgwick James & Co. Mr. Skwiertz served as senior vice president and general
counsel of Sedgwick James & Co. until he returned to the Company in April 1991.
RICHARD P. SNEEDER, JR., 45, has served as controller of the Company since
October 1994. He joined the Company in 1985 as assistant controller and was
responsible for financial consolidation,
67
<PAGE>
external financial reporting and other general accounting. From 1976 until
joining the Company, he held various positions with Continental Financial
Services Corporation, including assistant vice president and assistant
controller.
ALAN E. WILLIAMS, 47, has served as chairman of the marine & aviation
division of AHG since January 1995. He has held various executive management
positions with the marine and reinsurance divisions of the Company, including
chief executive of the marine division and deputy chairman of Alexander Howden
Reinsurance Brokers Ltd. Mr. Williams joined the Company in 1970.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
Information included under the caption "Executive Compensation" in the
Company's 1995 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information included under the caption "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Directors, Director Nominees and
Executive Officers" in the 1995 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information included under the caption "Certain Transactions" in the 1995
Proxy Statement is incorporated herein by reference.
--------------------------------------------------------------------------------
PART IV
--------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (a)(2) see Item 8. Financial Statements and Supplementary Data
(a)(3) Exhibits:
<TABLE>
<S> <C>
3.1 --Amended and Restated Articles of Incorporation of the Company (incorporated herein
by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991).
3.2 --Articles of Amendment, dated July 15, 1994, to the Articles of Incorporation of
the Company (incorporated herein by reference to the Company's Report on Form 10-Q
for the quarter ended June 30, 1994).
3.3 --Articles Supplementary of the Company, dated March 18, 1993 relating to the $3.625
Series A Convertible Preferred Stock (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1992).
3.4 --Articles Supplementary of the Company, dated July 15, 1994 relating to the 8%
Series B Cumulative Convertible Preferred Stock (incorporated herein by reference
to the Company's Report on Form 10-Q for the quarter ended June 30, 1994).
3.5 --Articles Supplementary of the Company, dated July 15, 1994 relating to the Series
A Junior Participating Preferred Stock (incorporated herein by reference to the
Company's Report on Form 10-Q for the quarter ended June 30, 1994).
3.6 --Amended and Restated Bylaws of the Company, dated as of January 14, 1994
(incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
3.7 --Amendment No. 1 to By-Laws of the Company, dated March 21, 1995.
</TABLE>
68
<PAGE>
<TABLE>
<S> <C>
4.1 --Indenture, dated as of February 1, 1982, between the Company and Morgan Guaranty
Trust Company of New York, as Trustee, establishing the Company's 11% Convertible
Subordinated Debentures due 2007 (incorporated herein by reference to Amendment
No. 1 to Registration Statement on Form S-7, Registration No. 2-74794 filed with
the Commission on November 10, 1981).
4.2 --Rights Agreement dated as of June 11, 1987, amended and restated as of March 27,
1990, between the Company and First Chicago Trust Company of New York, formerly
Morgan Shareholder Services Trust Company, as Rights Agent (incorporated herein by
reference to the Company's Registration Statement on Form 8-A filed with the
Commission on June 19, 1987, as amended by Amendment No. 1 on Form 8 filed on
March 28, 1990, Amendment No. 2 on Form 8 filed on April 23, 1992, Amendment No. 3
on Form 8-A/A filed on December 1, 1993 and Amendment No. 4 on Form 8-A/A filed on
July 15, 1994.
4.3 --Form of Trust Agreement dated as of June 11, 1987, amended and restated as of
March 28, 1990, between the Company and Montreal Trust Company of Canada, as
successor to The Canada Trust Company (incorporated herein by reference to
Registration Statement on Form 8-A filed with the Commission on June 19, 1987 as
amended by Amendment No. 1 on Form 8 filed on March 28, 1990).
4.4 --Employment Agreement between Frank G. Zarb and the Company, dated as of June 16,
1994 (see Exhibit 10.17 hereof)
The Company hereby agrees, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, to
furnish to the Commission upon request a copy of each instrument with respect to
long-term debt of the Company or its subsidiaries.
10.1* --The Company's 1988 Long Term Incentive Compensation Plan, as amended (the "1988
Plan") and U.K. Executive Share Option Scheme under the 1988 Plan (incorporated
herein by reference to the Company's Registration Statement on Form S-8
Registration No. 33-60054 filed with the Commission on March 26, 1993 and the
Company's Registration Statement on Form S-8 Registration No. 33-60054 filed with
the Commission on March 31, 1995.
10.2* --1993 Option plan of Alexander & Alexander B.V. under the 1988 Plan (incorporated
herein by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.3* --Form of the Company's 1988 Plan Stock Option Award Agreement, as amended and
restated (incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1990).
10.4* --Form of the Company's 1988 Plan Restricted Stock Award Agreement (incorporated
herein by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1990).
10.5* --Form of the Company's 1988 Plan Other Stock Based Award Agreement (incorporated
herein by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1990).
10.6* --Form of the Company's 1988 Plan Performance Share/Unit Award Agreement
(incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990).
10.7* --The Company's 1982 Key Employee Stock Option Plan, as amended (the "1982 Plan")
(incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1987), as amended by resolutions of the Board of
Directors of the Company, dated September 22, 1988 (incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year ended December
31, 1988); and U.K. Executive Share Option Scheme within the 1982 Plan, as amended
(incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988).
</TABLE>
69
<PAGE>
<TABLE>
<S> <C>
10.8* --Form of the Company's 1982 Plan Stock Option Agreement (incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year ended December
31, 1990).
10.9* --Form of the Company's 1982 Plan Limited Stock Appreciation Rights Agreement
(incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990).
10.10* --Alexander & Alexander Services Inc. and Subsidiaries Supplemental Executive
Retirement Plan for Senior Management, amended and restated as of January 1, 1989
(the "SERP") (incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1989).
10.11* --Resolution of the Compensation and Benefits Committee of the Company, dated
December 8, 1988, amending the benefits of Tinsley H. Irvin under the SERP
(incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992).
10.12* --Alexander & Alexander U.K. Pension Scheme (formerly, Alexander Stenhouse Pension
Scheme) and Alexander & Alexander U.K. Voluntary Equity Scheme (formerly Alexander
Stenhouse Voluntary Equity Scheme) (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1985).
10.13* --Amendment to Alexander & Alexander U.K. Pension Scheme, effective as of February
1, 1991 (incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1991).
10.14* --The Company's Senior Executive Severance Plan, effective January 1, 1989
(incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988), as amended by resolutions of the Compensation
and Benefits Committee of the Company, dated November 16, 1989, adopting Option C
to the Company's Senior Executive Severance Plan (incorporated herein by reference
to the Company's Annual Report on Form 10-K for the year ended December 31, 1989).
10.15* --Form of Termination Protection Agreement, effective as of July 1, 1989, amending
Exhibit D to Exhibit 10.8 (incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989).
10.16* --Non-Employee Director Deferred Compensation Plan, effective as of January 1, 1995
(incorporated herein by reference to the Company's Report on Form 8-K filed with
the Commission on March 15, 1995).
10.17* --Employment Agreement between Frank G. Zarb and the Company, dated as of June 16,
1994.
10.18* --Restorative Stock Award Agreement between Frank G. Zarb and the Company, dated as
of June 16, 1994.
10.19 --Stock Award Agreement between Frank G. Zarb and the Company, dated as of February
15, 1995.
10.20* --Contingent Agreement between Ronald A. Iles and the Company, dated January 5, 1988
(incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992).
10.21* --Employment Agreement between Dennis L. Mahoney and Alexander Howden Limited, dated
October 1990.
10.22* --Employment Agreement between Kenneth J. Davis and Reed Stenhouse & Partners
Limited, dated June 23, 1982.
10.23* --Employment Agreement among James S. Horrick and Reed Stenhouse Limited and Reed
Stenhouse Companies Limited, dated August 29, 1990.
10.24* --Transition Employment, Retirement and Consulting Agreement between Tinsley H.
Irvin and the Company, dated March 16, 1994. (incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year ended December 31, 1993).
</TABLE>
70
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10.25* --Employment Agreement between Michael K. White and the Company effective as of June
1, 1990 together with amendment dated October 1, 1990 (incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year ended December
31, 1990).
10.26* --Consulting Agreement between William M. Wilson and Alexander & Alexander Services
U.K. plc, dated as of March 18, 1993 (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1992).
10.27 --Agreement and related documents entered into in connection with the settlement of
Mutual Fire and related disputes: (i) Settlement Agreement, dated March 27, 1995,
between Linda S. Kaiser, Insurance Commissioner of the Commonwealth Court of
Pennsylvania in her capacity as Rehabilitator of Mutual Fire ("Rehabilitator") and
the Company, Alexander & Alexander Inc., ("A&A Inc."), Shand Morahan & Company,
Evanston Insurance Company and Insurance Company of Evanston (the "Settlement
Agreement"), (ii) Escrow Agreement, dated March 27, 1995 between the
Rehabilitator, on behalf of the estate of Mutual Fire, Mutual Fire and its
policyholders and creditors, and the Company and A&A Inc; (iii) Promissory Note of
the Company and A&A Inc. in the fixed principal amount of $34,655,000 payable to
Mutual Fire; (iv) Promissory Note of the Company and A&A Inc. in the fixed
principal amount of $345,000 payable to Miller, Alfano & Raspanti, P.C., counsel
to the Rehabilitator; (v) Notice of Motion of the Rehabilitator for the approval
of the Settlement Agreement filed with the Commonwealth Court of Pennsylvania on
March 27, 1995; (vi) Form of Order of Approval of the Settlement Agreement; (vii)
Motion of the Rehabilitator for approval of the Settlement Agreement filed with
the Commonwealth Court of Pennsylvania on March 27, 1995; and (viii) Stipulation
and Order by and among Miller, Alfano & Rasponti, counsel for the Rehabilitator,
Morgan, Lewis & Bockius, counsel for the Company and A&A Inc. and Kittredge,
Donley, Elson, Fullem & Embick, counsel for Shand Morahan & Co.
10.28 --Agreement relating to the Company's indemnification in connection with the sale of
Shand Morahan & Co. by the Company: (i) Stock Purchase Agreement, dated as of
October 7, 1987 by and between F-M Acquisition Corporation and Alexander &
Alexander Inc. (including certain exhibits thereto); (ii) Amendment No. 1 to the
Stock Purchase Agreement, dated as of February 15, 1989 between F-M Acquisition
Corporation and Alexander & Alexander Inc.; (iii) Waiver and Consent, dated
December 18, 1990, by Alexander & Alexander Inc. to a merger of F-M Acquisition
Corporation with Shand/Evanston Group, Inc.; (iv) Confirmation and Assumption
Agreement, dated as of December 18, 1990, by Shand/Evanston Group for the benefit
of Alexander & Alexander Inc.; and (v) Letter Agreement, dated December 18, 1990
among Alexander & Alexander Inc., F-M Acquisition Corporation, Shand/Evanston
Group, Inc. and Markel Corporation (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993).
10.29 --Agreement and related documents entered into in connection with the resolution of
certain indemnity obligations arising out of the Company's sale of Shand Morahan &
Co.; (i) Settlement Agreement No. 3 dated as of January 27th, 1995 (the
"Settlement Agreement") among Alexander & Alexander Inc., ("A&A Inc."), the
Company as guarantor and Shand/Evanston Group, Inc. ("Shand/Evanston Group"),
Evanston Insurance Company ("EIC") and Markel Corporation ("Markel"), as
guarantor; (ii) Promissory Note of A&A Inc. guaranteed by the Company in the fixed
principal amount of $14 million payable to EIC; (iii) Contingent Promissory Note
of A&A Inc. guaranteed by the Company in the fixed principal amount of $4 million
payable to EIC; (iv) Contingent Promissory Note of A&A Inc. guaranteed by the
Company in the fixed principal amount of $1.75 million payable to EIC; (v)
Contingent Promissory Note of Shand/Evanston Group guaranteed by Markel in the
fixed principal amount of $1.25 million payable to A&A Inc.; (vi) Letter, dated
January 27, 1995 from Shand/Evanston to A&A Inc. relating to the indemnification
provisions contained in section 8.1 of the Purchase Agreement; (vii) Letter, dated
January 27, 1995 from Debevoise & Plimpton, counsel to the Company and A&A Inc. to
Greg Nevers, counsel for Markel relating to paragraph 2 of Appendix B to the
Settlement
</TABLE>
71
<PAGE>
<TABLE>
<S> <C>
Agreement (incorporated herein by reference to the Company's Report on Form 8-K,
dated March 15, 1995.)
10.30 --Agreement relating to the Company's indemnification in connection with the sale of
Sphere Drake Insurance Group plc: Share Purchase Agreement between Sphere Drake
Acquisitions (U.K.) Limited and Alexander Stenhouse & Partners Ltd., dated as of
October 9, 1987, including all exhibits and schedules thereto (incorporated herein
by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.31 --Agreements relating to the Company's acquisition of reinsurance protection for
Sphere Drake-Related exposures: (i) Letter Agreement, dated July 1, 1994, between
Centre Reinsurance (Bermuda) Limited ("Centre Re") and Alexander Stenhouse &
Partners Limited, having attached thereto a Binder of Reinsurance; (ii) Letter
Agreement, dated July 1, 1994, between Centre Re and Atlanta International
Insurance Company, American Special Risk Insurance Company and Trent Insurance
Company Limited, having attached thereto a Binder of Reinsurance; (iii) Letter
Agreement, dated July 1, 1994, between the Company and Centre Re; and (iv) Letter
Agreement, dated June 30, 1994, between American International Group, Inc. and the
Company. (incorporated herein by reference to the Company's Report on Form 10-Q
for the quarter ended June 30, 1994.)
10.32 --Supplemental Trust Deed (providing for settlement (inter alia) of Loan Note Debt
and Adjustment Debt), dated December 8, 1994 among Sphere Drake Acquisition (U.K.)
Limited, Alexander Stenhouse & Partners Limited and S.D. Securities Limited
(incorporated herein by reference to the Company's Report on Form 8-K, dated March
15, 1995.)
10.33 --Stock Purchase and Sale Agreement, dated as of June 6, 1994, between the Company
and American International Group, Inc. ("AIG") (incorporated herein by reference
to the Company's Proxy Statement for the Special Meeting of Stockholders held on
July 15, 1994 filed with the Commission on June 27, 1994).
10.34 --Amendment No. 1, dated as of November 10, 1994 to the Stock Purchase and Sale
Agreement between the Company and AIG (incorporated herein by reference to the
Company's Report on Form 10-Q for the quarter ended September 30, 1994.)
10.35 --Amendment No. 2, dated March 16, 1995, to the Stock Purchase and Sale Agreement
between the Company and AIG.
10.36 --Registration Rights Agreement, dated as of July 15, 1994, among the Company and
each of the purchasers listed on the signature page thereto. (incorporated herein
by reference to the Company's Report on Form 10-Q for the quarter ended June 30,
1994.)
10.37 --Sale and Purchase Agreement, dated as of November 30, 1993 among the Company and
certain selling stockholders listed on the signature page thereto (incorporated
herein by reference to the Company's Registration Statement on Form S-3 filed with
the Commission on August 16, 1994).
10.38 --Registration Rights Agreement, dated November 30, 1993, among the Company and
certain selling stockholders listed on the signature page thereto. (incorporated
herein by reference to the Company's Registration Statement on Form S-3 filed with
the Commission on August 16, 1994.)
21.0 --Subsidiaries of the Registrant.
23.0 --Independent Auditors' Consent.
27.0 --Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
In a report filed on Form 8-K, dated March 15, 1995, the Company reported
certain recent events under Item 5. "Other Events".
In a report filed on Form 8-K, dated March 28, 1995, the Company reported
certain recent events under Item 5. "Other Events".
------------
* The referenced exhibit is a management contract or compensation plan or
arrangement described in Item 601(b)(10)(iii) of Regulation S-K.
72
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 31st day of
March, 1995.
ALEXANDER & ALEXANDER SERVICES INC.
By: /s/ FRANK G. ZARB March 31, 1995
-------------------------------------------
FRANK G. ZARB DATE
Chairman of the Board,
Chief Executive Officer, President and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed below by the following
persons in the capacities indicated on the 31st day of March, 1995 and each of
the undersigned persons, in any capacity, hereby severally constitutes Frank G.
Zarb and Edward F. Kosnik and each of them, singularly, his true and lawful
attorney with full power to them and each of them to sign for him, and in his
name and in the capacities indicated below, this Annual Report on Form 10-K and
any and all amendments thereto.
<TABLE>
<S> <C>
/s/ FRANK G. ZARB March 31, 1995 /s/ GERALD R. FORD March 31, 1995
-------------------------------------------- --------------------------------------------
FRANK G. ZARB DATE GERALD R. FORD DATE
Chairman of the Board, Director
Chief Executive Officer, President and
Director
/s/ EDWARD F. KOSNIK March 31, 1995 /s/ PETER C. GODSOE March 31, 1995
-------------------------------------------- --------------------------------------------
EDWARD F. KOSNIK DATE PETER C. GODSOE DATE
Director, Executive Vice President and Director
Chief Financial Officer
/s/ RICHARD P. SNEEDER, JR. March 31, 1995 /s/ ANGUS M.M. GROSSART March 31, 1995
-------------------------------------------- --------------------------------------------
RICHARD P. SNEEDER, JR. DATE ANGUS M.M. GROSSART DATE
Controller Director
/s/ KENNETH BLACK, JR. March 31, 1995 /s/ MAURICE H. HARTIGAN March 31, 1995
-------------------------------------------- --------------------------------------------
KENNETH BLACK, JR. DATE MAURICE H. HARTIGAN DATE
Director Director
/s/ JOHN A. BOGARDUS, JR. March 31, 1995 /s/ JAMES B. HURLOCK March 31, 1995
-------------------------------------------- --------------------------------------------
JOHN A. BOGARDUS, JR. DATE JAMES B. HURLOCK DATE
Director Director
/s/ ROBERT E. BONI March 31, 1995 /s/ RONALD A. ILES March 31, 1995
-------------------------------------------- --------------------------------------------
ROBERT E. BONI DATE RONALD A. ILES DATE
Director Director
/s/ W. PETER COOKE March 31, 1995 /s/ VINCENT R. MCLEAN March 31, 1995
-------------------------------------------- --------------------------------------------
W. PETER COOKE DATE VINCENT R. MCLEAN DATE
Director Director
/s/ E. GERALD CORRIGAN March 31, 1995 /s/ JAMES D. ROBINSON, III March 31, 1995
-------------------------------------------- --------------------------------------------
E. GERALD CORRIGAN DATE JAMES D. ROBINSON, III DATE
Director Director
/s/ JOSEPH L. DIONNE March 31, 1995 /s/ WILLIAM M. WILSON March 31, 1995
-------------------------------------------- --------------------------------------------
JOSEPH L. DIONNE DATE WILLIAM M. WILSON DATE
Director Director
</TABLE>
73
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(D)
OF
THE SECURITIES EXCHANGE ACT OF 1934
-------------------
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1994
-------------------
COMMISSIONS FILE NO. 1-8282
-------------------
ALEXANDER & ALEXANDER SERVICES INC.
(Exact name of registrant as specified in its charter)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1993
INDEX TO EXHIBITS
Certain exhibits to this Report on Form 10-K have been incorporated by
reference. For a list of these Exhibits see Item 14 hereof. The following
exhibits are being filed herewith:
<TABLE>
<CAPTION>
EXHIBIT PAGE NO.
------- --------
<C> <S> <C>
3.7 Amendment No. 1 to By-Laws of the Company, dated March 21, 1995............
10.17* Employment Agreement between Frank G. Zarb and the Company, dated as of
June 16, 1994..............................................................
10.18* Restorative Stock Award Agreement between Frank G. Zarb and the Company,
dated as of June 16, 1994..................................................
10.19 Stock Award Agreement between Frank G. Zarb and the Company, dated as of
February 15, 1995..........................................................
10.21* Employment Agreement between Dennis L. Mahoney and Alexander Howden
Limited, dated October 1990................................................
10.22* Employment Agreement between Kenneth J. Davis and Reed Stenhouse & Partners
Limited, dated June 23, 1982...............................................
10.23* Employment Agreement among James S. Horrick and Reed Stenhouse Limited and
Reed Stenhouse Companies Limited, dated August 29, 1990....................
10.27 Agreement and related documents entered into in connection with the
settlement of Mutual Fire and related disputes: (i) Settlement Agreement,
dated March 27, 1995, between Linda S. Kaiser, Insurance Commissioner of
the Commonwealth Court of Pennsylvania in her capacity as Rehabilitator
of Mutual Fire ("Rehabilitator") and the Company, Alexander & Alexander
Inc., ("A&A Inc."), Shand Morahan & Company, Evanston Insurance Company
and Insurance Company of Evanston (the "Settlement Agreement"), (ii)
Escrow Agreement, dated March 27, 1995 between the Rehabilitator, on
behalf of the estate of Mutual Fire, Mutual Fire and its policyholders
and creditors, and the Company and A&A Inc; (iii) Promissory Note of the
Company and A&A Inc. in the fixed principal amount of $34,655,000 payable
to Mutual Fire; (iv) Promissory Note of the Company and A&A Inc. in the
fixed principal amount of $345,000 payable to Miller, Alfano & Raspanti,
P.C., counsel to the Rehabilitator; (v) Notice of Motion of the
Rehabilitator for the approval of the Settlement Agreement filed with the
Commonwealth Court of Pennsylvania on March 27, 1995; (vi) Form of Order
of Approval of the Settlement Agreement; (vii) Motion of the
Rehabilitator for approval of the Settlement Agreement filed with the
Commonwealth Court of Pennsylvania on March 27, 1995; and (viii)
Stipulation and order by and among Miller, Alfano & Rasponti, counsel for
the Rehabilitator, Morgan, Lewis & Bockius, counsel for the Company and
A&A Inc. and Kittredge, Donley, Elson, Fullem & Embick, counsel for Shand
Morahan & Co.............................................................
10.35 Amendment No. 2, dated March 16, 1995, to the Stock Purchase and Sale
Agreement between the Company and AIG......................................
21.0 Subsidiaries of the Registrant.............................................
23.0 Independent Auditors' Consent..............................................
</TABLE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Alexander & Alexander
Services Inc. Registration Statement Nos. 2-98915 and 33-10440 on Form S-4;
Registration Statement Nos. 33-5316 and 33-55081 on Form S-3; Registration
Statement Nos. 2-68206, 2-94427, 33-16608, 2-86820, 33-16609, 33-8152, 33-25580
and 33-60054 on Form S-8; and Registration Statement Nos. 2-97056, 2-97057 and
2-97734 on Form S-14 of our report dated February 15, 1995 (February 28, March
16 and 27, 1995 with respect to certain information in Notes 2, 5, 8 and 14)
appearing in the Form 10-K of Alexander & Alexander Services Inc. for the year
ended December 31, 1994.
DELOITTE & TOUCHE LLP
Baltimore, Maryland
March 31, 1995
Exhibit 3.7
SECRETARY'S CERTIFICATE
I, the undersigned, Secretary of Alexander & Alexander Services Inc., a
corporation organized under the laws of the State of Maryland, DO HEREBY CERTIFY
that at a meeting of the Board of Directors of said corporation duly held on the
21st day of March, 1995, a quorum being present, the following resolution was
duly adopted and has not been modified or rescinded, and is now in full force
and effect; and that the same is not in contravention of or in conflict with the
By-Laws or Charter or Articles of Incorporation and is in accord therewith and
pursuant thereto:
WHEREAS, the Board deems it appropriate to make certain amendments to
Article II of the By-Laws providing for the position of Emeritus
Directors;
NOW, THEREFORE, BE IT
RESOLVED, that a new Section 13 be added to Article II of the By-Laws
of the Corporation be, and the same hereby will read in its entirety
as set forth in Exhibit A hereto.
WITNESS my hand and the seal of said Corporation this 23rd day of March,
1995.
C O R P O R A T E S E A L
/s/ Alice L. Russell
___________________________________
Secretary
<PAGE>
EXHIBIT A
ARTICLE II. BOARD OF DIRECTORS
SECTION 13. Emeritus Directors.
A member of the Board of Directors who ceases to serve on the Board for any
reason other than removal under Article I, Section 4 hereof is eligible for
appointment by the Board as an Emeritus Director on an annual basis at each
annual organizational meeting of the Board commencing immediately upon the end
of his or her service on the Board.
An Emeritus Director may, but is not required to, attend meetings of the
Board of Directors and it's Committees and may participate in discussions
thereat, but may not vote on any issue nor shall his or her attendance count
toward a quorum. An Emeritus Director shall serve as a goodwill ambassador of
the Company and be available for consultation but such individual shall not have
any responsibility or be subject to any liability imposed upon a member of the
Board of Directors or in any manner otherwise be deemed to be a member of the
Board of Directors.
Each Emeritus Director shall be entitled to reimbursement for all
reasonable expenses incurred in attending any meeting or attending any function
on behalf and at the request of the Company, and will be covered under any
existing business travel accident plan applicable to members of the Board of
Directors.
Exhibit 10.17
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT (the "Agreement"), dated as of this 16th day of June,
1994, between Alexander & Alexander Services Inc., a Maryland corporation
(the "Company"), and Mr. Frank G. Zarb, a resident of the State of New York
("Executive").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Executive has skills that are unique, extraordinary and
special; and
WHEREAS, the Company desires to retain the services of Executive
and to benefit from his unique services; and
WHEREAS, Executive is willing to be employed by the Company upon
the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and the mutual benefits herein provided, the Company and Executive
agree as follows:
1. Term of Employment. Except as specified in Section 12, the
------------------
Company shall employ Executive for a period commencing on June 16, 1994 (the
"Commencement Date"), and ending on the last day of the month in which
Executive attains age 65 (the "Employment Period").
2. Duties. During the Employment Period, Executive shall serve
------
as the Chairman of the Company's Board of Directors (the "Board") and its
Chief Executive Officer and President, as well as a member of the Board. In
these capacities, Executive shall be required to perform only such duties and
shall have only such responsibilities as are consistent with the titles
specified and the status associated with such offices. Executive shall
devote his entire time, energy and skill during regular business hours (other
than during periods of illness, vacation and other approved absences) to the
affairs of the Company and to the promotion of its interests.
3. Base Salary. During the Employment Period, the Company shall
-----------
pay Executive a base salary in the amount of $900,000 per annum, in
approximately equal installments payable semi-monthly, subject to all
applicable deductions
<PAGE>
and reductions made pursuant to Executive's elections under the Company's
benefit plans and programs. The Board may, at its discretion, increase
Executive's base salary based upon Executive's performance and such other
factors as the Board deems relevant. During the Employment Period, the
Company shall not have the ability to decrease Executive's then existing base
salary without his written consent.
4. Incentive Compensation. The amount payable to Executive as an
----------------------
annual bonus in respect of his services to the Company for the calendar year
1994 will be $1,000,000. The Company shall establish a new annual bonus
plan, designed to comply with the requirements under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), which shall be
presented to the Company's stockholders for approval. Under such annual
bonus plan, Executive shall be entitled to receive an annual bonus for each
calendar year of the Employment Period after 1994 of not less than
$1,200,000, so long as the Company's performance for such year meets or
exceeds at least one of the several performance criteria established in
accordance with the terms of such plan by the appropriate committee of the
Board.
5. Stock Options.
-------------
(a) As of the Commencement Date, Executive has been granted an
option to purchase 600,000 shares of the Company's common stock (the
"Option") under the terms of the Company's 1988 Long Term Incentive
Compensation Plan, as in effect on the date hereof (the "1988 Plan"). The
exercise price per share of the Company's common stock (the "Common Stock")
subject to the Option is $17.125, which is the closing price of the Common
Stock on the Commencement Date. Except as provided in Sections 5(b) and 5(c)
below, the Option will be subject to the provisions of the 1988 Plan and the
1988 Long Term Incentive Compensation Plan Stock Option Award Agreement
relating to the Option (the "Award Agreement") to the extent that the 1988
Plan and the Award Agreement are not inconsistent with the terms of this
Agreement.
(b) The Option shall become exercisable as provided in Section
5(d) below, or, if earlier, on the date, if any, (i) of a Change of Control
-
(as defined in the 1988 Plan), or (ii) on which Executive's employment
--
terminates (x) due to his death, (y) due to his permanent and total
- -
disability within the meaning of Section 22(e) of the Code
2
<PAGE>
("Disability") or (z) under circumstances in which Executive is entitled to
-
receive the Cash Severance (as defined in Section 11(a) hereof). In any
event, the Option shall become exercisable in full on the fifth anniversary
of the Commencement Date.
(c) The Option will remain exercisable for one year following (i)
-
Executive's death or Disability or (ii) a Termination for Good Reason (as
--
defined in Section 12(b) hereof) by Executive that occurs (A) before he
-
attains age 62 and (B) other than in connection with a Change of Control (as
-
defined in the 1988 Plan). Upon termination of Executive's employment for
any other reason (other than a termination by the Company for Cause, as
defined in Section 12(a) hereof), Executive will be deemed to have retired
from the Company's employ under the terms of the 1988 Plan, entitling him to
exercise the Option, to the extent it was or becomes exercisable upon such
deemed retirement for three years thereafter. The right to exercise the
Option shall end immediately upon termination of Executive's employment by
the Company for Cause (as defined in Section 12(a) hereof).
(d) On the first anniversary of the Commencement Date, 200,000 of
the shares subject to the Option will become exercisable. The remainder of
the shares subject to the Option will become exercisable in accordance with
the following schedule, on the earlier of the specified anniversaries of the
Commencement Date or the first time after the Commencement Date that the
specified Target Price (as defined below) is attained:
Anniversary of
Number of Shares Commencement Date Target Price
---------------- ----------------- ------------
150,000 Third $20.00
100,000 Fourth $25.00
150,000 Fifth $30.00
The Term "Target Price" shall mean the price per share of the
Common Stock calculated by taking the average of the closing prices of a
share of such Common Stock on the New York Stock Exchange during any period
of 90 consecutive trading days.
3
<PAGE>
(e) Executive shall be eligible to receive future awards under the
1988 Plan (or any successor thereto) at a level commensurate with his
position and in accordance with the Company's compensation practices and
policies generally applicable to the Company's executive officers as in
effect from time to time.
6. Restorative Stock Award.
-----------------------
(a) Effective as of June 7, 1994 (the "Announcement Date"),
Executive was granted 271,307 shares of Common Stock (the "Restorative
Award") pursuant to a Restorative Stock Award Agreement between the Company
and Executive dated as of June 7, 1994 (the "Restorative Stock Award
Agreement"), which shares will vest on June 16, 1996 if Executive is
continuously employed by the Company through that date. The shares subject
to the Restorative Award shall become vested earlier (i) on the date of a
-
Change of Control (as defined in the 1988 Plan) or (ii) on the date on which
--
Executive's employment terminates (A) due to his death, (B) due to his
- -
Disability or (C) under circumstances in which Executive is entitled to
-
receive the Cash Severance (as defined in Section 11(a) hereof).
(b) If Executive's employment with the Company terminates under
circumstances other than those described in Section 6(a) above, and prior to
June 16, 1996, all unvested shares subject to the Restorative Award will be
forfeited on the date of such termination.
(c) The Company shall file with the Securities and Exchange
Commission a registration statement (on a form acceptable to the Company)
under the Securities Act of 1933, as amended (the "1933 Act"), covering the
shares subject to the Restorative Award by the earlier to occur of (i) June
-
7, 1995 or (ii) the 60th day following any earlier date on which the shares
--
subject to the Restorative Award become fully vested. The Company shall use
its reasonable best efforts to cause such shares to become registered as soon
as possible after the filing of such registration statement. Executive shall
cooperate with the Company in the filing of such registration statement and
shall provide to the Company any information pertaining to Executive and his
intentions with respect to the holding and/or sale of such shares that the
Company shall reasonably request to effect such registration.
4
<PAGE>
7. Special Retirement Benefits.
---------------------------
(a) On the Commencement Date, Executive shall immediately receive
five years of "Continuous Employment" under the Alexander & Alexander
Services Inc. and Subsidiaries Supplemental Executive Retirement Plan for
Senior Management (the "SERP") and shall also be deemed fully vested in all
benefits accrued by him under the SERP, whether as a result of the deemed
Continuous Employment granted hereunder or Continuous Employment actually
earned under the SERP during the Employment Period.
(b) Notwithstanding anything else in this Agreement to the
contrary, if Executive retires from the Company's employ at any time after
age 62, the Company shall pay to him an additional retirement benefit in an
amount equal to the excess, if any, of
(i) the amount of any retirement benefits (stated as a straight
-
life annuity payable in monthly installments for his lifetime)
that would have been paid to Executive under the defined
benefit retirement plans of Travelers Inc. or any subsidiary
thereof in which Executive participated (based on the terms
and conditions of such plans in effect on the date of this
Agreement) (the "Prior Employer Plans"), taking into account
in such calculation any actuarial reduction in benefits that
would have been applied to Executive's benefits under the
Prior Employer Plans assuming that Executive commenced receipt
of benefits under such Prior Employer Plans on the same date
as payment of his retirement benefits from the Company
commences, over
(ii) the sum of the amounts actually payable to Executive (stated
--
as a straight life annuity payable in monthly installments for
his lifetime) under
(A) the Prior Employer Plans, and
-
(B) the Pension Plan for Employees of Alexander & Alexander
-
Services Inc. and Subsidiaries (the "Company's Pension
Plan"), and
5
<PAGE>
(C) Article IV of the SERP, and
-
(D) that portion of the Company Contribution Account under
-
the Thrift Plan for Employees of Alexander & Alexander
Services Inc. and Subsidiaries (the "Thrift Plan") and
Executive's account balance under Article III of the SERP
which is equal to the product of
(x) the total Company Contribution Account under the
-
Thrift Plan and the account balance under Article
III of the SERP and
(y) the remainder of one minus the quotient of
-
(1) the percentage of Executive's compensation
-
contributed as employer contributions (exclu-
sive of any employee contributions treated for
tax purposes as employer contributions) under
any defined contribution plan (or corresponding
supplemental plan) maintained by Travelers Inc.
or any subsidiary thereof as in effect on June
7, 1994 divided by
(2) the percentage of Executive's compensation
-
contributed as Company contributions (exclusive
of any employee contributions treated for tax
purposes as employer contributions) under the
Thrift Plan;
provided that in no event shall the amount described in
-------------
this subsection (D) be less than zero.
(c) Any benefits payable under this Section 7 shall be payable in
the same form (e.g., straight life annuity, 50% joint and survivor annuity)
----
as, and calculated using the same actuarial assumptions used with respect to,
the benefits payable to Executive under the SERP.
6
<PAGE>
(d) In the event that Executive's employment with the Company
terminates prior to age 65, the Company shall provide to Executive such life
insurance and contributory medical insurance coverage that it then makes
available generally to its retirees who are less than 65 years of age.
8. Employee Benefits. During the Employment Period, Executive
-----------------
will be eligible to participate in all employee benefit plans and programs
generally available to the Company's senior executives (including, but not
limited to, coverage under the Company's medical, dental, life and disability
insurance plans and participation in the Company's Pension Plan, Thrift Plan
and SERP) as in effect from time to time on the same basis as the Company's
other senior executives, subject to the terms and provisions of such plans
and programs. Executive shall be eligible to participate in the Company's
Premier Life Insurance Program effective as of July 1, 1994. Executive shall
receive four weeks paid vacation per annum. Except as otherwise expressly
provided herein, Executive shall neither participate nor be eligible to
participate in any severance plan, policy or program generally available to
senior executives of the Company.
9. Executive Perquisites.
---------------------
(a) Executive shall receive those perquisites and other personal
benefits made available to the Company's senior executives from time to time.
In addition, the Company shall pay, or Executive shall be reimbursed for, the
cost of receiving personal financial planning, up to a maximum of $20,000 per
annum. The Company shall also pay to Executive an amount sufficient to pay
any income and employment taxes that he incurs by reason of the Company
providing or paying for such financial planning (and for the Company making
such additional cash payments).
(b) The Company shall pay, or shall reimburse Executive for, the
cost of his membership at both the River Club and the University Club on a
basis at least as favorable as that which he received from his immediate past
employer. The Company shall also provide to Executive, at its expense and to
assure his personal safety, a car and driver trained in security techniques
and a home security system for Executive's primary residence.
10. Expenses. The Company agrees to reimburse Executive for all
--------
reasonable expenses incurred by him in the
7
<PAGE>
performance of his duties hereunder, in accordance with policies, practices
and procedures established from time to time by the Company. Executive will
provide the Company with substantiation of such expenses in such manner as is
reasonably requested by the Company.
11. Termination of Employment.
-------------------------
(a) If Executive's employment is terminated before age 65 (i) by
the Company for any reason other than Cause (as defined in Section 12(a)
hereof) or Executive's death or Disability or (ii) by Executive as a result
of a Termination for Good Reason (as defined in Section 12(b) hereof), the
Company will pay to Executive, not later than 10 business days following the
termination of his employment, severance benefits in a lump sum amount (the
"Cash Severance") determined as follows:
Cash Severance
Date Termination Occurs Amount Payable
----------------------- --------------
Prior to June 16, 1995 $12,000,000
On or after June 16, 1995
and before June 16, 1996 $ 6,000,000
On or after June 16, 1996 $ 4,000,000
provided, however, that if Executive's employment is terminated at any time
-------- -------
during the Employment Period following a Change of Control (as defined in the
1988 Plan) whether by the Company without Cause or by Executive as a
Termination for Good Reason, the amount of the Cash Severance shall be
$12,000,000.
(b) The provisions of Section 11(a) notwithstanding, in no event
shall the aggregate of the Cash Severance and the value of any portion of the
Option and Restorative Award that becomes exercisable or vests as a result of
the termination of Executive's employment under Section 11(a) exceed $20
million (the "Maximum Amount"); provided that the Maximum Amount shall not
-------- ----
apply if the termination of Executive's employment by either the Company or
Executive occurs after a Change of Control (as defined in the 1988 Plan). In
all other circumstances, if the Maximum Amount would otherwise be exceeded,
the amount of the Cash Severance shall be reduced to equal the remainder of
(i) minus ((ii) plus (iii)), where (i), (ii) and (iii) are:
- -- --- - -- ---
8
<PAGE>
(i) the Maximum Amount;
-
(ii) the remainder of (A) minus (B), times (C), where (A), (B) and
-- - - - - -
(C) are:
-
(A) the closing price of the Common Stock on the New York
-
Stock Exchange on the date of termination of Executive's
employment (the "Termination Value");
(B) $17.125, the Option exercise price;
-
(C) the number of shares subject to the Option which vest by
-
reason of the termination of Executive's employment
under this section; and
(iii) the product of (A) and (B), where (A) and (B) are
--- - - - -
(A) the Termination Value;
-
(B) the number of shares subject to the Restorative Award
-
which vest by reason of the termination of Executive's
employment under this section.
(c) In the event of a termination of Executive's employment under
Section 11(a), the Company shall provide to Executive in addition to the Cash
Severance, those benefits and perquisites described in Sections 8 and 9
hereof for the remainder of the Employment Period; provided, however, that
-------- -------
the Company may elect instead to pay to Executive a cash amount equal to the
value of such benefits, determined based on the Company's cost of providing
such benefits at that time.
(d) In the event that Executive's employment is terminated (i) due
-
to Executive's death or Disability, (ii) by either Executive or the Company
--
after Executive has attained age 65, (iii) by the Company for Cause (as
---
defined in Section 12(a) hereof) or (iv) by Executive for any reason that
--
does not constitute a Termination for Good Reason (as defined in Section
12(b) hereof), Executive shall be entitled to receive only the amount of
compensation and those benefits which he would otherwise receive under the
Company's employee benefit plans and programs, along with the retirement
benefits specified in Section 7 of this Agree
9
<PAGE>
ment; provided, however, that unless Executive's employment is terminated by
-------- -------
the Company for Cause (as defined in Section 12(a) hereof), he shall receive
his 1994 guaranteed bonus as set forth in Section 4 of this Agreement.
However, if Executive's employment terminates at any time during the
Employment Period due to his death or Disability, the Company shall also pay
to Executive or to his designated beneficiary (or to his estate in lieu of
any designation of a beneficiary hereunder) a pro-rata portion of his then
current annual bonus as set forth in Section 4 of this Agreement the amount
of which shall be based on the date of his death or Disability.
12. In this Agreement, the following terms shall have the meanings
specified below.
(a) "Cause" means
-----
(i) a finding by the Compensation and Benefits Committee of the
-
Board that Executive in the fulfillment of the proper duties
and responsibilities of his office, after written notice
thereof, has (A) repeatedly committed acts of gross negligence
-
or (B) failed to fulfill the material obligations of his
-
office;
(ii) Executive has engaged in willful and serious acts of
--
misconduct that the Compensation and Benefits Committee of the
Board determines in good faith has had, or are reasonably
expected to have, a material adverse effect on the business or
reputation of the Company. Without limiting the generality of
the foregoing, no action taken by Executive in good faith with
the intention that such action would benefit the Company will
be treated as misconduct by him; or
(iii) commission by Executive of an act that has given rise to his
---
indictment for a felony and which the Compensation and
Benefits Committee of the Board determines in good faith will
have a material adverse impact on the business or reputation
of the Company if Executive remained in the Company's employ.
10
<PAGE>
(b) "Termination for Good Reason" means a voluntary termination by
---------------------------
Executive of his employment which occurs within 90 days following the
occurrence of any of the following events without Executive's prior written
consent; provided, however, that with respect to subsection (b)(v), such
-------- -------
termination must occur on or before January 29, 1995:
(i) the assignment to Executive of any duties which are
-
significantly different from, and result in a diminution of,
his duties as Chairman of the Board, Chief Executive Officer
and President of the Company;
(ii) removal of Executive or any failure to reelect or redesignate
--
Executive to the position of Chairman of the Board, Chief
Executive Officer and President of the Company, except in
connection with a termination of his employment by the
Company for Cause;
(iii) a reduction in Executive's base salary or his annual bonus
---
opportunity;
(iv) the relocation of Executive's principal place of employment
--
outside of New York City;
(v) the failure to close the investment in the Company
-
contemplated by the Stock Purchase and Sale Agreement, dated
June 6, 1994, between the Company and American International
Group, Inc. or another substantially comparable equity
investment by one or more other third party investors on or
before October 31, 1994; or
(vi) any material breach by the Company of this Agreement (other
--
than any of those listed in subclauses (i), (ii), (iii) or
- -- ---
(iv) above) after Executive has provided written notice to
--
the Company of such breach and the Company has failed to cure
such breach within 15 days of receipt of such notice.
11
<PAGE>
13. Special Change of Control Provisions.
------------------------------------
(a) If a Change of Control (as defined in the 1988 Plan) occurs
within 90 days after the Commencement Date, Executive shall not be relieved
of his duties or obligations to the Company. However, Executive may treat
such a Change of Control as the assignment to him of duties which are
significantly different from, and result in a diminution of, his duties as
Chairman of the Board, Chief Executive Officer and President of the Company
and terminate his employment pursuant to a Termination for Good Reason (as
defined in Section 12(b) hereof) and receive the Cash Severance and all of
the other benefits applicable to a Termination for Good Reason under Section
11 hereof.
(b) If the Company makes any payment to Executive under Section 11
hereof and such amount is treated as subject to the additional tax imposed
under Section 4999 of the Code (the "Parachute Tax"), it shall also pay to
Executive within 10 business days following the termination of his employment
under the conditions specified in Section 11 whatever additional amount is
required so that the net amount he receives in accordance with Section 11
(the "Special Payments"), after giving effect to all applicable income and
employment taxes and the Parachute Tax imposed on the Special Payments, shall
be equal to the net amount Executive would have received, taking into account
all applicable income and employment taxes, had such Special Payments not
been subject to the Parachute Tax.
14. Attorney's Fees. The Company shall pay or shall reimburse to
---------------
Executive the legal fees and expenses incurred by Executive in conjunction
with the negotiation of this Agreement and any predecessor documents, up to a
maximum of $20,000. In the event that a claim for payment or benefits under
this Agreement is disputed, the Company shall pay all reasonable attorney
fees and expenses incurred by Executive in pursuing such claims, provided
that Executive is successful as to at least part of the disputed claim by
reason of litigation or settlement.
15. Indemnification. The Company agrees to indemnify Executive to
---------------
the fullest extent permitted under its Bylaws as in effect from time to time.
The Company hereby confirms that Executive will be covered under the
12
<PAGE>
Company's current directors' and officers' liability insurance policy as of
the Commencement Date.
16. Assignment. This Agreement shall not be assigned by either
----------
Executive or the Company except that the Company shall have the right to
assign its rights hereunder to any successor in interest of the Company
whether by merger, consolidation, purchase of assets or otherwise. The
Company represents and warrants that it currently has no intention to enter
into any transactions which could result in this Agreement being assigned.
If assigned to any such successor of the Company, all references to Company
in this Agreement shall be read to embrace such successor.
17. Survival. The provisions of Section 7 shall survive the term
--------
of this Agreement and shall continue in full force and effect in accordance
with their terms.
18. Notices. All notices, requests, demands and other
-------
communications hereunder must be in writing and shall be deemed to have been
given if delivered by hand or mailed within the continental United States by
first-class, registered or certified mail, return receipt requested, postage
and registry fees prepaid and addressed as follows:
(a) if to the Company:
Alexander & Alexander Services Inc.
1211 Avenue of the Americas
New York, New York 10036
Attn: General Counsel
(b) if to the Executive:
Frank G. Zarb
910 Fifth Avenue
Apartment 10A
New York, New York 10021
Addresses may be changed by giving notice to the other party in writing,
signed by the party giving such notice.
19. Disputes. The parties hereby agree that any action or
--------
proceeding relating to this Agreement or its subject matter shall be brought
in a state or federal court
13
<PAGE>
situated in the County of New York, State of New York, and such court shall
have exclusive jurisdiction thereof. The parties each hereby specifically
submit to the jurisdiction of such court. Each party further agrees to waive
and hereby waives any objection it or he may have in any such action, based
on lack of personal jurisdiction or venue, or inconvenient forum.
20. Miscellaneous.
-------------
(a) Entire Agreement. Except as otherwise expressly provided,
----------------
this Agreement, the Award Agreement, the Restorative Stock Award Agreement,
and the Confidentiality/ Non-Solicitation Agreement, dated as of the date
hereof, between the Company and Executive, embody the entire understanding
between Executive and the Company with respect to the matters covered herein
and therein.
(b) Amendments. No amendment, change, alteration or other
----------
modification of this Agreement shall be made except in writing signed by both
parties hereto.
(c) Headings. The headings in this Agreement are for convenience
--------
of reference only and shall not be considered as part of this Agreement nor
limit or otherwise affect the meaning hereof.
(d) Severability. In case any one or more of the provisions
------------
contained in this Agreement should be invalid, illegal and unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
(e) Governing Law. This Agreement shall in all respects be
-------------
governed and construed in accordance with the laws of the State of New York.
(f) Withholding. Any payments provided for herein shall be
-----------
reduced by any amounts required to be withheld by the Company from time to
time under applicable United States Federal, State or local income tax laws
or similar statutes then in effect.
14
<PAGE>
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
ALEXANDER & ALEXANDER SERVICES INC.
/s/ Robert E. Boni
-----------------------------------
Robert E. Boni
Chairman of the Executive Committee
/s/ Frank G. Zarb
------------------------------------
Frank G. Zarb
15
Exhibit 10.18
RESTORATIVE STOCK AWARD AGREEMENT
---------------------------------
(the "Agreement")
Between
Alexander & Alexander Services Inc.
and
Frank G. Zarb
(the "Executive")
Effective June 7, 1994 the Compensation & Benefits Committee (the
"Committee") of the Board of Directors of Alexander & Alexander Services Inc.
(the "Company") awarded to the Executive 271,307 shares (the "Shares") of the
Company's Common Stock subject to the terms and conditions described below (the
"Restorative Stock Award"). This Restorative Stock Award is made pursuant to
and in accordance with the terms of an employment agreement between Executive
and the Company dated as of June 16, 1994, and approved by the Board of
Directors on June 7, 1994 (the "Employment Agreement").
1. Restrictions on Disposition of Shares
-------------------------------------
(a) Transfer Restrictions. The Executive agrees not to sell, exchange,
---------------------
transfer, pledge, hypothecate or otherwise dispose of any Shares until the end
of the Restricted Period, as defined below. These restrictions shall be in
addition to any restriction on the Executive's ability to sell, exchange,
transfer, pledge, hypothecate or otherwise dispose of any Shares under the
United States Federal or any state securities laws.
(b) Restricted Period. The Executive shall have the right to receive the
-----------------
Shares free and clear of the restrictions specified herein on the earliest of
(i) June 16, 1996; (ii) the date of a Change of Control of the Company (as de-
- --
fined in the Company's 1988 Long Term Incentive Compensation Plan (the "1988
Plan")); (iii) the date of the Executive's death or Disability (as defined in
---
the Employment Agreement); or (iv) the date of a termination of Executive's
--
employment under circumstances giving rise to a right to receive the Cash
Severance (as defined in the Employment Agreement). The period of time during
which the restrictions specified in this Agreement apply to the Shares shall be
referred to as the "Restricted Period". At the end of
<PAGE>
the Restricted Period, ownership of the Shares shall be fully vested in the
Executive.
(c) Attempt to Avoid Restrictions. Each transfer agent for the Common
-----------------------------
Stock of the Company has been instructed that the Shares may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of except in
accordance with the terms of this Agreement. Any attempt by the Executive to
sell, transfer, pledge, assign or otherwise dispose of the Shares shall
constitute immediate forfeiture of the Shares then subject to this Restorative
Stock Award.
2. Issuance of Shares. During the Restricted Period, the Executive
------------------
shall have the right to vote the Shares and to receive all dividends and
distributions paid with respect to such Shares, but the right to sell or other-
wise dispose of them shall be subject to the restriction specified in Paragraph
1 of this Agreement. The certificate for the Shares issued in the Executive's
name shall be deposited with the Secretary of the Company.
3. Adjustment in the Number of and Kind of Restricted Shares. The
---------------------------------------------------------
Shares subject to this Restorative Stock Award shall be adjusted and/or
converted in the same manner and subject to the same terms and conditions as are
applicable to grants of restricted stock under Section 3 of the 1988 Plan, and
the Agreement shall apply to any new, additional or different Shares received in
exchange for or in respect of those shares as if they were the Shares.
4. Reduced Restorative Stock Award. Notwithstanding any other
-------------------------------
provision of this Agreement to the contrary, the number of Shares subject to the
Restorative Stock Award shall be reduced, but not below 115,942 shares of the
Company's Common Stock, in accordance with Exhibit A of the letter agreement,
dated June 7, 1994, between the Executive and the Company (the "Letter
Agreement"), in the event that, after the date hereof, the Executive receives
additional compensation from his prior employer that would increase the amount
of variable E used in calculating the Forfeited Amount, as defined in Exhibit A
-
of the Letter Agreement.
5. Termination of Employment. The Executive's right to the Shares
-------------------------
shall be forfeited if the Executive's employment with the Company or any of its
majority-owned subsidiaries (each, a "Subsidiary") terminates for any reason
other than those described in Paragraph 1(b) hereof prior to the end of the
Restricted Period, as defined in Paragraph 1(b) hereof. For purposes of this
Agreement, the
2
<PAGE>
Executive's employment shall be deemed to terminate at the close of business on
the last day on which the Executive is carried as an active employee on the
records of the Company or any of its Subsidiaries.
6. Lapse of Restrictions. The restrictions imposed on the Shares in
---------------------
Paragraph 1 of this Agreement shall lapse upon the expiration of the Restricted
Period (including, without limitation, the shares, if any, issued in accordance
with Section 3 hereof). Following the expiration of the Restricted Period, the
Company shall cause a stock certificate for the Shares to be issued in the
Executive's name and delivered to the Executive free and clear of the
restrictions imposed in Paragraph 1 of this Agreement.
7. Change of Control. Notwithstanding any other provision of this
-----------------
Agreement to the contrary, the Restricted Period shall lapse upon the occurrence
of a "Change of Control" of the Company within the meaning of Section 8.11 of
the 1988 Plan.
8. Investment Representations. The Executive consents and agrees
--------------------------
that he will make no distribution of the Shares in violation of the Securities
Act of 1933, as amended, or any other United States Federal or state securities
statutes, rules or regulations.
9. Stock Power. The Executive shall execute a stock power, endorsed
-----------
in blank, which shall be deposited with the Secretary of the Company and shall
be retained by the Secretary of the Company until the earlier of (i) the end of
-
the Restricted Period or (ii) until the Shares are forfeited pursuant to the
--
terms of this Agreement. The Company declares and agrees that said stock power
will be used solely for the purpose of cancelling the Shares pursuant to and in
accordance with this Agreement. Upon the lapse of the Restricted Period, the
stock power will be returned to the Executive.
10. Income Tax Withholding. The Executive hereby authorizes the
----------------------
Company to withhold from his salary any tax required to be withheld by reason of
the vesting of the Shares subject to this Restorative Stock Award. At the
Executive's request, such withholding tax shall be satisfied using the Company's
Common Stock as payment.
11. Miscellaneous. This Agreement and the Employ-ment Agreement
-------------
embody the entire agreement and understanding between the Company and the
Executive with respect to the
3
<PAGE>
Restorative Stock Award. This Agreement shall be construed and enforced in
accordance with, and governed by, the laws of the State of Maryland. The
provisions of this Agreement are intended to be separate and divisible and if,
for any reason, any one or more of such provisions should be held to be invalid
and unenforceable in whole or in part, the parties agree that the same shall not
be held to affect the validity or enforceability of any other provision of this
Agreement.
ALEXANDER & ALEXANDER SERVICES INC.
By: /s/ Robert E. Boni
--------------------------------
Robert E. Boni
Chairman of the Executive Committee
September 26, 1994
--------------------------------
Dated:
To indicate your acceptance of the Restorative Stock Award granted by
this Agreement upon the terms and conditions set forth above, please execute and
return, within 30 days of receipt of this Agreement:
. one original copy of this Agreement
. one original stock power
. Personal Data Form
to:
Jane C. Farley
Alexander & Alexander Services Inc.
Executive Compensation Department
220 East 42nd Street, Suite #500
New York, New York 10017
The signature below indicates that the Executive agrees to the terms of
this Agreement.
/s/ Frank G. Zarb
--------------------------
Frank G. Zarb
September 26, 1994
--------------------------
Date
4
Exhibit 10.19
STOCK AWARD AGREEMENT
---------------------
(the "Agreement")
Between
Alexander & Alexander Services Inc.
and
Frank G. Zarb
(the "Executive")
Effective February 15, 1995 the Compensation, Benefits and
Nominating Committee (the "Committee") of the Board of Directors of Alexander
& Alexander Services Inc. (the "Company") awarded to the Executive 20,290
shares (the "Shares") of the Company's Common Stock subject to the terms and
conditions described below (the "Stock Award"). Certain terms in this
Agreement shall have the meanings specified in the employment agreement
between Executive and the Company dated as of June 16, 1994, and approved by
the Board of Directors on June 7, 1994 (the "Employment Agreement").
1. Restrictions on Disposition of Shares
-------------------------------------
(a) Transfer Restrictions. The Executive agrees not to sell, exchange,
---------------------
transfer, pledge, hypothecate or otherwise dispose of any Shares until the
end of the Restricted Period, as defined below. These restrictions shall be
in addition to any restriction on the Executive's ability to sell, exchange,
transfer, pledge, hypothecate or otherwise dispose of any Shares under the
United States Federal or any state securities laws.
(b) Restricted Period. The Executive shall have the right to receive
-----------------
the Shares free and clear of the restrictions specified herein on the
earliest of (i) June 16, 1996; (ii) the date of a Change of Control of the
- --
Company (as defined in the Company's 1988 Long Term Incentive Compensation
Plan (the "1988 Plan")); (iii) the date of the Executive's death or
---
Disability (as defined in the Employment Agreement); or (iv) the date of a
--
termination of Executive's employment under circumstances giving rise to a
right to receive the Cash Severance (as definedin the Employment Agreement).
The period of time during which the restrictions specified in this Agreement
apply to the Shares shall be referred to as the "Restricted Period". At the
end of the Restricted Period, ownership of the Shares shall be fully vested
in the Executive.
(c) Attempt to Avoid Restrictions. Each transfer agent for the Common
-----------------------------
Stock of the Company has been instructed that the Shares may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of except
in accordance with the terms of this Agreement. Any attempt by the Executive
to sell, transfer, pledge, assign or otherwise dispose of the Shares shall
constitute immediate forfeiture of the Shares then subject to this Stock
Award.
<PAGE>
2. Issuance of Shares. During the Restricted Period, the
------------------
Executive shall have the right to vote the Shares and to receive all
dividends and distributions paid with respect to such Shares, but the right
to sell or otherwise dispose of them shall be subject to the restriction
specified in Paragraph 1 of this Agreement. The certificate for the Shares
issued in the Executive's name shall be deposited with the Secretary of the
Company.
3. Adjustment in the Number of and Kind of Restricted Shares.
---------------------------------------------------------
The Shares subject to this Stock Award shall be adjusted and/or converted in
the same manner and subject to the same terms and conditions as are
applicable to grants of restricted stock under Section 3 of the 1988 Plan,
and the Agreement shall apply to any new, additional or different Shares
received in exchange for or in respect of those shares as if they were the
Shares.
4. Termination of Employment. The Executive's right to the
-------------------------
Shares shall be forfeited if the Executive's employment with the Company or
any of its majority-owned subsidiaries (each, a "Subsidiary") terminates for
any reason other than those described in Paragraph 1(b) hereof prior to the
end of the Restricted Period, as defined in Paragraph 1(b) hereof. For
purposes of this Agreement, the Executive's employment shall be deemed to
terminate at the close of business on the last day on which the Executive is
carried as an active employee on the records of the Company or any of its
Subsidiaries.
5. Lapse of Restrictions. The restrictions imposed on the Shares
---------------------
in Paragraph 1 of this Agreement shall lapse upon the expiration of the
Restricted Period (including, without limitation, the shares, if any, issued
in accordance with Section 3 hereof). Following the expiration of the
Restricted Period, the Company shall cause a stock certificate for the Shares
to be issued in the Executive's name and delivered to the Executive free and
clear of the restrictions imposed in Paragraph 1 of this Agreement.
6. Change of Control. Notwithstanding any other provision of
-----------------
this Agreement to the contrary, the Restricted Period shall lapse upon the
occurrence of a "Change of Control" of the Company within the meaning of
Section 8.11 of the 1988 Plan.
7. Investment Representations. The Executive consents and agrees
--------------------------
that he will make no distribution of the Shares in violation of the
Securities Act of 1933, as amended, or any other United States Federal or
state securities statutes, rules or regulations.
8. Stock Power. The Executive shall execute a stock power,
-----------
endorsed in blank, which shall be deposited with the Secretary of the Company
and shall be retained by the Secretary of the Company until the earlier of
(i) the end of the Restricted Period or (ii) until the Shares are forfeited
- --
pursuant to the terms of this Agreement. The Company declares and agrees
that said stock power will be used solely for the purpose of cancelling the
Shares pursuant to and in accordance with this Agreement. Upon the lapse of
the Restricted Period, the stock power will be returned to the Executive.
9. Income Tax Withholding. The Executive hereby authorizes the
----------------------
Company to withhold from his salary any tax required to be withheld by reason
of the vesting of the Shares subject to this Stock Award. At the Executive's
request, such withholding tax shall be satisfied using the Company's Common
Stock as payment.
2
<PAGE>
10. Miscellaneous. This Agreement and the Employment Agreement
-------------
embody the entire agreement and understanding between the Company and the
Executive with respect to the Stock Award. This Agreement shall be construed
and enforced in accordance with, and governed by, the laws of the State of
Maryland. The provisions of this Agreement are intended to be separate and
divisible and if, for any reason, any one or more of such provisions should
be held to be invalid and unenforceable in whole or in part, the parties
agree that the same shall not be held to affect the validity or
enforceability of any other provision of this Agreement.
ALEXANDER & ALEXANDER SERVICES INC.
___________________________________________
Robert E. Boni
Chairman of the Executive Committee
___________________________________________
Dated
To indicate your acceptance of the Restorative Stock Award granted
by this Agreement upon the terms and conditions set forth above, please
execute and return, within 30 days of receipt of this Agreement:
- one original copy of this Agreement
- one original stock power
- Personal Data Form
to:
Jane C. Farley
Alexander & Alexander Services Inc.
Executive Compensation Department
1185 Avenue of the Americas, 21st Floor
New York, New York 10036
The signature below indicates that the Executive agrees to the terms of
this Agreement.
___________________________________________
Frank G. Zarb
___________________________________________
Date
3
Exhibit 10.21
THIS AGREEMENT is made the ______ day of October, 1990 between
ALEXANDER HOWDEN LIMITED whose registered office is situated at 8 Devonshire
Square, London, EC2M 4PL (the "Company") of the one part and DENNIS LEONARD
MAHONEY of 51 Harvey Road London SE3 (the "Executive") of the other part.
IT IS HEREBY AGREED AS FOLLOWS:
------------------------------
1. (a) The Executive shall be employed by the Company in the
capacity set out in paragraph 2 of the Schedule and shall perform such duties
and exercise such powers as the Company may from time to time decide, in a
competent and expeditious manner.
(b) The Executive shall when reasonably required by the Company
perform services not only for the Company but also for any other Group Company.
(c) The Executive shall comply with the reasonable directions from
time to time of the Executive Committee of the Board of Directors of the Company
(the "Board").
2. (a) The Executive shall, unless prevented by physical or mental
incapacity, devote his whole time and attention to the business of the Company
and shall use his best endeavours to promote their interests and financial
success, giving to the Company at all times the full benefit of his knowledge,
expertise and skill. He shall not knowingly do and shall exercise his best
endeavours to prevent there being done, any act or thing which may in any way be
prejudicial or detrimental to the Company.
(b) The Executive's hours of work shall be such hours as may be
reasonably necessary for the proper discharge of his duties, but shall not be
less than 35 hours during normal office hours.
3. (a) This Agreement shall commence on October 1990 and shall
supersede all or any existing agreements which may exist between the Executive
and any Group Company, and subject to the provisions for early termination con-
tained herein, the Executive's employment shall continue unless this Agreement
shall be terminated by either party giving to the other 12 (twelve) months
written notice expiring at any time.
<PAGE>
(b) The Company shall be entitled to pay basic salary in lieu of
notice. If such payment is made the Company will subject to sub-clause 3(c)
below make provision for:
(i) the continuation of additional benefits as set out in paragraph 9
of the Schedule hereto from the date of the said termination for a period
equivalent to the notice period referred to in clause 3(a) above;
(ii) the continued provision of one motor car in accordance with the
rules and regulations of the Group car scheme from the date of the said
termination for a period equivalent to the notice period referred to in
clause 3(a) above);
(iii) subject as mentioned in sub-paragraph (iv) of this para-
graph 3(b) the Executive will be granted pension benefits calculated as if
the Executive had worked until the expiry of the notice period referred to
in Clause 3(a) above or until the Executive's Normal Retirement Date as
specified in paragraph 6 of the Schedule hereto (if earlier) at a salary
equivalent to his basic salary at the date of the said termination. The
benefits shall be provided at the Company's discretion from either:
(A) the exempt approved pension scheme specified in paragraph 7
of the Schedule hereto (subject to the consent of the trustees for the
time being of the said scheme), or
(B) any other exempt approved scheme, or
(C) a combination of (A) and (B) above.
(iv) This paragraph shall be subject to the consent of the Inland
Revenue (if necessary) and to any limits from time to time imposed by the
Inland Revenue upon exempt approved schemes and sub-paragraph 3(b)(iii)
above shall operate only to the extent (if at all) as permitted by the
Inland Revenue. The expression "exempt approved scheme, shall have the
meaning attributed to it by Section 592(l) of the Income and Corporation
Taxes Act 1988.
(c) The provision of the additional benefits referred to in clauses
3(b)(i) and (ii) above will cease
2
<PAGE>
immediately should the Executive secure new employment at any time prior to the
expiry of a period equivalent to the notice period referred to in clause 3(a)
above.
(d) This Agreement will terminate automatically on the Executive's
Normal Retirement Date as set out in paragraph 6 of the Schedule hereto. The
Executive shall be entitled to participate in any bonus scheme as described in
clause 4(c) below on a pro rata basis in his final year of service under this
Agreement should his Normal Retirement Date fall other than on the date on which
the bonus is calculated.
4. (a) The Executive shall be paid an annual salary of not less than
that specified in paragraph 4 of the Schedule, and such salary will accrue from
day to day and will be paid monthly in arrears.
(b) During the period of his employment the Company shall annually on
the date specified in paragraph 5 of the Schedule, review the Executive's salary
and any subsequent increase will have regard to his performance and other
circumstances which the Company considers relevant.
(c) The Executive shall be entitled to participate in such incentive
or bonus scheme or schemes which the Company may offer to him, subject to the
terms and conditions of such schemes from time to time.
(d) The Company shall be entitled to deduct from the Executive's
salary and benefits, all sums owing from the Executive to the Company or any
Group Company.
5. The Company or a Group Company, as appropriate, shall pay or
reimburse the Executive for all expenses properly and reasonably incurred by him
in the performance of his duties upon production of all relevant receipts and
vouchers where available.
6. The Executive shall be entitled to:
(a) membership of the non-contributory pension scheme as referred to
in paragraph 7 of the Schedule or such scheme or schemes as the Company may
from time to time operate for its employees in accordance with his offer of
membership and the rules of such scheme or schemes from time to time;
3
<PAGE>
(b) those benefits as set out in paragraph 8 of the Schedule hereto;
(c) other benefits including but not limited to, those benefits as
set out in paragraph 9 of the Schedule hereto, subject to the rules of each
of such schemes from time to time.
7. (a) The rules governing absence from work due to sickness or
injury are met out in the Staff Handbook.
(b) Subject to those rules the Executive will be entitled to his full
salary and benefits for up to an aggregate of 6 (six) months in any 12 (twelve)
month period for absence due to sickness or injury, and thereafter at the
discretion of the Company.
8. The Executive's principal of work at the date hereof is in central
London. The Executive shall visit and work in such locations and countries as
the Company shall from time to time reasonably require.
9. The Executive shall not, without the prior consent in writing of
the Chairman of Alexander & Alexander Europe plc, be directly or indirectly
engaged, concerned or interested in the conduct or management of any other busi-
ness of any kind whatsoever, whether or not in competition with the Company or
any Group Company. Nothing in this clause shall, however, prevent the Executive
from holding or being beneficially interested in shares or securities quoted on
any recognised Stock Exchange or dealt in on the Unlisted Securities Market or
on any recognised Over The Counter Market, provided that the Executive shall, if
reasonably required by the Company, make a full disclosure to the Company of
such interest.
10. The Executive shall:
(a) at all times during the period of his employment, keep secret and
use only for the Company and Group's use and benefit any Confidential
Information;
(b) at all times after his employment has ended, for whatever reason,
keep secret and not use for his benefit or for the benefit of others any
Confidential Information obtained or which otherwise came into his
possession during his employment;
4
<PAGE>
(c) on the termination of his employment, for whatever reason,
immediately return all records, documents, computer disks, papers, notes
(including copies) and everything else which is in his possession or under
his control and which contains or records (in whatever form or media)
Confidential Information and shall not retain copies in any form or manner
or media whatever.
11. (a) It shall be part of the duties of the Executive at all times
to consider in what manner and by what new methods or devices the services,
processes, equipment or systems of the Company or of any other Group Company
with which he is concerned or for which he is responsible, might be improved
and, subject to the provisions of S.39 of the Patents Act 1977, any Industrial
Property created or developed by the Executive at any time during the continu-
ance of his employment or in any way connected with that employment must be
disclosed to the Company immediately and the Industrial Property and all
patents, designs, trademarks, trade names, goodwill, copyrights and all other
forms of industrial property associated therewith, shall to the fullest extent
permitted by law belong to, vest in and be the absolute, sole and unencumbered
property of the Company.
(b) The Executive warrants that he is not aware of any Industrial
Property made or written at any time by him during the course of his employment
by the Company or any other Group Company which is not now wholly, legally and
beneficially owned by the Company.
(c) The Executive undertaken to notify and disclose to the Company in
writing full details of all Industrial Property immediately upon becoming aware
of its production, and promptly whenever requested by the Company to hold upon
trust for the benefit of the Company any Industrial Property to the extent that
the same may not be and until the same is vested absolutely in the Company.
(d) The Executive undertakes at the expense of the Company to execute
all such documents, make such applications, give such assistance and do such
acts and things as may, in the opinion of the Board, be necessary or desirable
to vest in and register or obtain letters patent in the name of the Company and
maintain the Industrial Property.
12. If the Executive is dissatisfied with any disciplinary decision
relating to him or if he has any grievance arising from his employment, he may
refer any such
5
<PAGE>
matter to the Chairman of Alexander & Alexander Europe plc and if the grievance
is not resolved by discussion with him it will then be referred to the Chairman
of Alexander & Alexander Services Inc., whose decision will be conclusive.
13. If either the Executive or the Company gives notice to terminate
this Agreement there shall be no obligation on the Company to require the
Executive to work or perform any duties nor to provide the Executive with access
to any premises of the Company or any Group Company during such period. The
Executive shall continue to receive his full remuneration and other benefits
hereunder during such period.
14. (a) Notwithstanding the provisions of Clause 3 the Company shall
be entitled to terminate the Executive's employment immediately without notice
at any time during its continuance, without payment in lieu of notice and
without prejudice to any other rights of the Company if:
(i) the Executive shall have acted in a manner which is prejudicial
to the Company, the Group or its or their businesses; or
(ii) the Executive shall be guilty of any misconduct or shall fail or
neglect efficiently and diligently to perform his duties or shall refuse or
fail to observe any of his obligations (other than minor failures which,
being capable of being remedied, are remedied forthwith by the Executive
upon being notified thereof by the Board, a director, or any nominee of the
Board); or
(iii) the Executive is legally disqualified from being director for
any reason whatsoever; or
(iv) the Executive becomes bankrupt or makes any arrangement or
composition with his creditors; or
(v) the Executive is convicted of any criminal offence or is the
subject of an adverse finding of a disciplinary tribunal other than an
offence which, in the opinion of the Company does not affect his position
as an employee of the Company (bearing in mind the nature of the duties in
which he is engaged and the capacity in which he is employed); or
6
<PAGE>
(vi) the Executive is guilty of any conduct tending to bring himself,
the Company or any Group Company into disrepute.
In the case of activities subject to review in (i) (ii) (v) and (vi) above the
board for the time being of Alexander & Alexander Europe plc shall determine, by
a majority decision, whether in their opinion those activities are such as to
entitle the Company to terminate the Executive's employment.
(b) In the event of the termination of the Executive's employment by
the Company under this Clause, the Company shall not be obliged to make any
further payment to the Executive beyond the amount of any remuneration actually
accrued to the date of such termination and the Company shall be entitled to
deduct from much remuneration any sums owing to it by the Executive.
15. (a) Upon the termination of the Executive's employment with the
Company for whatever reason, the Executive shall, upon the request of the
Company, resign without claim for compensation from his office as a director of
the Company and/or any Group Company or any other company in which the Company
required him to hold office in connection with his appointment and from all
other offices and trusteeships hold by him in or in connection with such
companies.
(b) Should the Executive fail to resign from his office as a director
or from any other office or trusteeship as is referred to in sub-clause (a)
above, either during his employment when requested by the Company so to do, or
on termination, the Company is irrevocably authorised by the Executive to
appoint some person in his place and on his behalf to execute any documents and
to do all things requisite to give effect thereto and the Executive agrees
forthwith on the request of the Company to ratify and confirm all such things
done in pursuance of this power.
16. (a) After the termination of his employment, however arising,
the Executive shall not, without the prior written consent of the Company,
either alone or jointly with or on behalf of any other person, directly or
indirectly, as principal, partner, agent, shareholder, director, employee,
consultant, or in any other capacity:
(i) at any time during a period of 12 (twelve) months immediately
following the said termination:
7
<PAGE>
(1) canvass, or solicit the custom of (or procure or assist the
canvassing or soliciting the custom of);
or
(2) supply (or procure or assist the supply of) any services to
or for the benefit of;
or
(3) interfere with or attempt to interfere with or assist in the
interference with the business relationship of the Company or any
Group Company with;
any person, firm or company who was:
(a) a Client with whom the Executive was involved, either
directly or indirectly, or had knowledge of their dealings with
the Company or any Group Company by reason of his employment, at
any time during the said period of 2 (two) years immediately
prior to the said termination; or
(b) a Prospective Client at the date of the said
termination with whom the Executive was involved, either directly
or indirectly,
if such canvassing, solicitation, supply or interference is in respect
of services of a kind arranged or provided by the Company or any Group
Company during the period of 2 (two) years immediately prior to the
said termination and with which the Executive was concerned at any
time during his employment hereunder; or
(ii) at any time during the period of 12 (twelve) months
immediately following the said termination:
(1) employ, offer employment to or engage in any capacity
or solicit the employment or engagement of or otherwise entice
away from the employment of or from any consultancy, office or
agency relationship with the Company or any Group Company; or
8
<PAGE>
(2) procure or assist any third party so to employ, offer,
solicit or otherwise entice away:
any person who is employed by or is an agent, officer or consultant of
the Company or any Group Company and was so employed or held such a
relationship with the Company or any Group Company during the period
of 6 (six) months immediately prior to the said termination whether or
not such person would commit any breach by reason of his leaving the
Company or any Group Company.
(b) The 12 (twelve) month period mentioned in sub-clause 16(a)(i) and
16(a)(ii) above shall be reduced by any period during which the Company under
the provisions of clause 13 above does not require the Executive to work or
perform any duties and does not provide the Executive with access to the
premises of the Company or of any Group Company.
(c) Each of the obligations on the Executive contained in sub-clause
(a) of this Clause constitutes an entirely separate and independent restriction
on the Executive notwithstanding that they may be contained in the same
paragraph, sentence or phrase.
(d) If at the and of the 12 (twelve) month period mentioned in sub-
clauses 16(a)(i) and 16(a)(ii) above (reduced in accordance with sub-clause (b)
of this Clause) the Executive shall have in the joint opinion of the Board and
the board of directors of Alexander & Alexander Europe plc complied fully with
all and/or each of his obligations contained either in sub-clause (a) of this
Clause or elsewhere in this Agreement the Company shall as soon as reasonably
practicable thereafter make a payment to him, less tax as appropriate, of 1 1/2
(one and one half) times the basic salary to which he was entitled during the
last twelve months of his employment.
17. (a) For the purpose of this Clause 17, a Change of Control of
the Company will be deemed to have occurred if:
(i) any individual, firm, corporation or other entity, or any group
(as defined in Section 13(d)(3) of the United States Securities Exchange
Act of 1934) (the "Act")) becomes, directly or indirectly, the beneficial
9
<PAGE>
owner (as defined in the General Rules and Regulations of the United States
Securities and Exchange Commission with respect to Sections 13(d) and
(13)(g) of the Act) of more than 35% of then outstanding shares of the
capital stock entitled to vote generally in the election of directors of
the Company's parent company, Alexander & Alexander Services Inc. ("A &
A"); or
(ii) the stockholders of A & A approve a definitive agreement for (a)
-
the merger or other business combination of A & A with or into another
corporation pursuant to which the stockholders of A & A 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 A & A; or
(iii) during any period of 2 years or less, Individuals who at the
beginning of such period constituted the Board of Directors of A & A cease
for any reason to constitute at least a majority thereof unless the elec-
tion, or the nomination for election by the stockholders A & A 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; or
(iv) a person or corporate entity other than a Group Company acquires
more than 50% of the voting securities or assets of the Company,
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 by any Group Company, any profit-sharing, employee ownership or other
employee benefit plan of any Group Company 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) If within 24 months of a Change of Control as defined in sub-
clause (a) of this Clause the Company gives notice to terminate or terminates
the Executive's employment hereunder (other than pursuant to Clause 14 hereof)
the Company shall be deemed to have abandoned its rights under Clause 13 of this
Agreement and the Executive shall be entitled to be paid less tax as
appropriate:
10
<PAGE>
(i) 1 (one) year's basic salary in lieu of notice immediately
following such termination together with the provision of benefits pursuant
to sub-clauses 3(b) and (c) hereof, and
(ii) as soon as reasonably practicable following the end of the 12
(twelve) month period mentioned in sub-clauses 16(a)(i) and 16(a)(ii) above
the sum of 1.5 (one and one half) times the basic salary to which he was
entitled during the last twelve months of his employment provided that he
shall in the joint opinion of the Board and the board of directors of
Alexander & Alexander Europe plc have complied fully with all and/or each
of his obligations contained in sub-clause 1.6(a) hereof or elsewhere in
this Agreement.
For the avoidance of doubt the payments made pursuant to (i) and (ii) above
shall be instead of payments due under clauses 3 and 16(d) above.
18. If the Executive shall, whilst this Agreement is in force (or at
any time during a period of 12 (twelve) months immediately following the
termination of his employment) receive from any person, firm or company an offer
to provide services in any capacity whatsoever, or to enter into employment
where acceptance of such offer, or the taking of such employment, might render
him in breach of the provisions of this Agreement, he shall promptly provide a
copy of this Agreement to the offeror.
19. No amendment to this Agreement shall be effective unless made in
writing and signed by or on behalf of each of the parties hereto.
20. The provisions of the Schedule hereto and any special terms
endorsed upon this Agreement or otherwise agreed in writing by or on behalf of
the parties hereto shall be read and construed as part of this Agreement and
shall be enforceable accordingly.
21. Compliance with the provisions of the Staff Handbook are a term
of this Agreement. Where the terms and conditions differ the terms and
conditions of this Agreement override those in the Staff Handbook.
22. The Schedule to this Agreement sets out the particulars of the
Executive's employment with the Company
11
<PAGE>
in accordance with the requirements of the Employment Protection (Consolidation)
Act 1978.
23. In this Agreement the following expressions shall have the
meanings assigned to them respectively:
"Associated Company" means any company at least 20% of the equity share
capital of which is beneficially owned by the Company,
its parent companies or any of the subsidiaries of any
of them.
"Chairman" means the duly appointed Chairman of the Company.
"Client" means an insured party on insurance or reinsurance
coverage arranged by the Company, or any Group Company,
whether such coverage is arranged either directly or
through the intermediary of any other insurance or
reinsurance broker or consultant.
"Company Secretary" means the duly appointed company secretary of the
Company.
"Confidential
Information" means all information which is of a confidential nature
to the Company and the Group including without
limitation business methods and systems and contractual
relations whether with Clients, intermediaries,
insurers or underwriters, lists of Clients, Prospective
Clients, and any other clients, insurers or
underwriters, and all confidential information relating
to Clients or Prospective Clients or any other clients,
including policy terms, conditions and rates, expiry
dates, customer risk characteristics and information
concerning the insurance arrangements for large and
complex risks and whether or not any papers or docu-
ments are marked confidential.
12
<PAGE>
"Group" means the Company and the subsidiaries and all
Associated Companies of its and its ultimate holding
company.
"Group Company" means any company within the Group of which the Company
is a member.
"Industrial Property" means any design, literary or artistic work, invention,
discovery or improvement in relation to methods and
devices used by the Company or any Group Company.
"Prospective Client" means a party for whom the Company or any Group Company
is undertaking advisory, consultative or other work
with a view to arranging insurance or reinsurance
coverage for that party, whether such coverage is to be
arranged either directly or through the intermediary of
any other insurance or reinsurance broker or
consultant.
"Staff Handbook" means the Group's Staff Handbook, as amended from time
to time.
"Subsidiary" shall have the meaning ascribed thereto by Companies
Act 1985.
24. (a) Any notice under this Agreement may be served by the Company
or any Group Company on the Executive either personally, or by leaving it at or
sending it by registered post to his last known residential address, or by telex
to the Executive's telex number.
(b) Any notice under this Agreement may be served by the Executive on
the Company or any Group Company by delivery to the Company Secretary of the
Company or Group Company, or by sending it by registered post to the registered
office of the Company or Group Company, or by telex to the Company or Group
Company's telex number, or to such other address, or telex number as may be
notified to the Executive from time to time for this purpose.
(c) Any notice sent by registered post, by either party, shall be
deemed to have been served on the second day
13
<PAGE>
following that on which it was posted (excluding a Saturday, Sunday, Bank
Holiday or Public Holiday) and in proving such service it shall be sufficient to
show that the notice was properly addressed and posted.
(d) Any notice given by telex, by either party, shall be deemed to
have been served at the time of transmission.
25. This Agreement shall be governed by and interpreted according to
the Laws of England.
IN WITNESS whereof this Agreement has been executed the day and year
first above written.
SIGNED by )
)
for and on behalf of ) /s/ William M. Wilson
ALEXANDER HOWDEN LIMITED )
in the presence of: )
SIGNED as his deed by the )
said DENNIS LEONARD MAHONEY ) /s/ Dennis L. Mahoney
in the presence of: )
14
<PAGE>
THE SCHEDULE above referred to:
------------------------------
1. The Executive
Name: Dennis Leonard Mahoney
Address: 51 Harvey Road
London SE3
2. Capacity of employment of the Executive: Chairman
3. (i) The terms of this Agreement will take effect from the date of this
Agreement
(ii) The continuous period of employment of the Executive with the
Company for statutory purposes began on 7th June 1984
with Alexander Howden Limited
4. Salary: B.P.200,000
5. Annual Review Date: 1st February
6. Normal Retirement Date: 20th September 2010
7. Pension Scheme: ALEXANDER & ALEXANDER UK PENSION SCHEME
8. Benefits
(a) a minimum of 25 days paid annual holiday at such time or times as
shall be agreed with the Company in addition to public holidays;
(b) reimbursement of 75% of the Executive's home telephone bill;
(c) provision of up to 2 (two) motor cars in accordance with the rules and
regulations from time to time of the Group car scheme;
(d) private petrol;
(e) club membership as agreed by the Chairman of Alexander & Alexander
Europe plc.
15
<PAGE>
9. Long term disability and private medical care insurance schemes.
10. Interest Paid on Loan Facility In House purchase Agreed Level Maximum
(B.P.700,000) on which interest is paid October 1990. This figure reduces
annually on payment of an agreed B.P.80,000 bonus (minimum) 1990-1994.
16
Exhibit 10.22
REED STENHOUSE & PARTNERS LIMITED
and
K.J. DAVIS
-----------------------
AGREEMENT
-----------------------
Dated: June 23, 1982
<PAGE>
THIS AGREEMENT is made the ____ day of _________________ BETWEEN REED
STENHOUSE & PARTNERS LIMITED whose registered office is situate at 145 St.
Vincent Street, Glasgow (the "Company") of the one part and KENNETH JOHN DAVIS
of 88 Moffats Lane, Brookmans Park, Hertfordshire (the "Executive") of the other
part
WHEREAS it has been agreed that the Executive is to be employed by the
Company and that such employment shall be on the terms and conditions
hereinafter written
NOW IT IS HEREBY AGREED as follows:
1. (a) The Executive shall be employed by the Company at such place
as the Board of Directors of the Company may from time to time reasonably
determine and shall perform (in the capacity specified in paragraph 2 of the
Schedule hereto) in a competent and expeditious manner to the satisfaction of
the Company such duties and exercise such powers as the Board of Directors of
the Company may from time to time decide.
(b) The Executive shall in the performance of such duties and
exercise of such powers comply with the directions from time to time of the
Board of Directors of any Group Company in whose services he may at any time be
engaged (the "Board").
2. During his employment under this Agreement the Executive shall
devote his whole time and attention to the business of the Company and the Group
and shall use his best endeavours to promote their interests and financial
success and he shall not knowingly do and shall exercise his best endeavours to
prevent there being done, any act or thing which may in any way be prejudicial
to the Company or the Group.
3. The Executive's employment by the Company shall be deemed to
commence on the date specified in subparagraph 6(i) of the Schedule hereto (the
"Commencement Date") and from the date of signing hereof this Agreement shall
supersede all or any existing agreements which may subsist between the Company,
the Holding Company or any Group Company on the one hand and the Executive on
the other hand, and subject to the provisions contained herein the Executive's
employment hereunder shall continue until his Normal Retirement Date as defined
in paragraph 8 of the
<PAGE>
Schedule hereto at which date the Executive shall retire on a pension of the
Relevant Amount (as set out in clause 12).
4. (a) The Executive shall be paid monthly in arrear, a salary of
not less than that specified in paragraph 9 of the Schedule hereto from the
Commencement Date.
(b) During the period of employment the Board of Directors of the
Company shall from time to time review the Executives salary having regard to
his performance and any other circumstances which they consider relevant.
5. The Company or a Group Company, as appropriate, shall pay, or if
the Executive shall have paid, reimburse him for, all expenses properly,
actually and reasonably incurred by him in the performance of his duties.
6. Unless with the prior consent in writing of the Company the
Executive shall not during the period of his employment under this Agreement be
directly or indirectly engaged, concerned or interested in the conduct or
management of any other business of any kind whatsoever whether or not in
competition with the Company or any Group Company nor shall he own or in any
other manner or way be interested in (a) more than 5% of any class of the issued
-
share or loan capital of any Company carrying on business as insurance brokers
or (b) more than 10% of any class of issued share or loan capital of any company
-
carrying on any other type of business provided that in the latter case the
consent of the Company shall not unreasonably be withheld.
7. (a) The Executive shall not during the period of his employment
hereunder except in the proper course of his duties and shall not at any time
and in any circumstances after the termination thereof divulge or make known to
any person firm or corporation any matters of a confidential nature pertaining
to the business of the Company the Group or their clients without the Company's
express prior written consent. Furthermore the Executive shall use his best
endeavours to prevent the publication or disclosure of any matter of a
confidential nature pertaining to the business of the Company the Group or their
clients.
(b) In the event of the Executive's appointment hereunder ceasing for
any reason he will forthwith hand over to the Company all documents (and copies
thereof) in his possession belonging to the Company the Group or any of their
clients.
2
<PAGE>
8. Unless with the prior written consent of the Company the Executive
shall not whether as principal, servant or agent for a period of two years from
the date of termination of his employment hereunder directly or indirectly
solicit or seek to obtain for himself or for any person, firm or corporation by
whom he is employed or with whom he is associated the insurance broking custom
of, or act as an insurance broker for or directly or indirectly accept any
benefit whether in money or money's worth from any insurance business placed
for, any person, firm or corporation who either at the date of termination of
his employment or at any time during the two years immediately preceding such
termination is or was either (a) a client of the Company or of any Group Company
-
or (b) a client of the Holding Company or any of its subsidiary insurance
-
broking companies other than the Company, for whose business the Executive was
at any time in the course of his employment hereunder Responsible or with whom
in the course of his said employment he had any dealings whatsoever. For the
purpose of this clause the expression "client" shall be deemed to include a
prospective client whose business was the subject of negotiation with the
Company, any Group company, the Holding Company or any of such subsidiary
insurance broking companies, other than the Company at any time within a period
of twelve months prior to the termination of the Executives employment
hereunder.
9. In the event of the Executive's employment hereunder being
terminated for any reason, the Executive shall not for a period of two years
from the date of such termination, directly or indirectly urge or attempt to
urge, request, advise, entice or seek to attract any person who is an employee
of the Company or any Group Company as at the date of such termination to
terminate his employment with the Company or any Group Company for any reason or
purpose whatever.
10. The Executive shall be entitled to a minimum of four weeks'
holiday in each calendar year during his employment hereunder and such holiday
shall be taken at such time or times as shall be approved by the Board.
11. (a) Should the Executive become incapacitated through illness or
otherwise (as defined by the Rules of the Reed Stenhouse Group Disability
Scheme) prior to the termination of his employment hereunder, and thus become
unable to perform his duties to the satisfaction of the Company the Company
shall procure that he shall, for a peri
3
<PAGE>
od of one year after that event or until the date on which he would have retired
on pension pursuant to the provisions of Clause whichever be the sooner, receive
an income equal to the salary of which he was in receipt at the date of his
incapacity.
(b) On expiry of the above period the Executive shall receive an
income accrual to two thirds of the pensionable salary (as defined in the
Pension Scheme referred to in Clause 12 hereof) payable at the date the
incapacity commenced. The income payable to the Executive shall be increased in
course of payment on the same basis and in the same proportion as the Relevant
Amount as defined in Clause 12, is increased. Notwithstanding the terms of
Clause 12 hereof the pension becoming payable at Normal-Retirement Date shall
commence at a rate which is not less than the disability payment in force
immediately preceding the Executives Normal Retirement Date.
(c) Subject to the foregoing the obligations of the Executive to the
Company under this Agreement shall remain in full force notwithstanding the
Executive's incapacity. Should the incapacity of the Executive disappear or
diminish before the date on which the Executive shall otherwise retire on
pension, the Executive shall resume his full duties hereunder on the same terms
and conditions as those pertaining at the date the incapacity arose.
Alternatively the Executive may resume employment with such restricted duties as
the Board of Directors of the Company in their discretion may see fit to decide
upon with payment of not less than his Pension Expectation under sub-paragraph
(b) of this Clause.
(d) On the Executive's death a pension will be payable to his widow
or his children of the Relevant Amount as set out in Clause 12 and in accordance
with the Rules of the Pension Scheme (as defined in Clause 12(a)) provided that
in the event of the Executive's widow being more than ten years younger than the
Executive, the Relevant Amount shall be reduced by whichever is the lesser of
2.5% for each complete year by which the said widow is more than ten years
younger as aforesaid and 25%.
(e) On the Executive's death in the service of the Company a lump sum
will be payable in accordance with the rules of the said Pension scheme, as
provided in Clause 12(f), provided that such payment will be subject to the
Executive having supplied on admission to the said
4
<PAGE>
Scheme such evidence of good health as may be required by the trustees of the
said Pension Scheme.
12. (a) The Company shall maintain the membership of the Executive
of such pension scheme or schemes as may from time to time be in operation for
the Company's employees (the "Pension Scheme") during his employment hereunder.
(b) In this Clause
"P" is the highest annual average pensionable salary (as defined in
the Pension Scheme) received by the Executive in Any three consecutive
years of his employment hereunder in the period commencing on the date
referred to in sub-paragraph 6(ii) of the Schedule hereto or, if
later, the date which is thirteen years prior to his retirement on
pension
"R" is the amount by which the pension payable to the Executive shall
have been reduced on account of his having exercised the right to
commute for cash in accordance with the Rules of the Pension Scheme, a
proportion of his entitlement to pension.
"S" is the pensionable salary of the Executive at the date of his
death
(c) The Relevant Amount shall be
(i) On termination of the Executive's employment hereunder on
account of his retirement on pension (pursuant to clause 3),
(2 x P) - R
--
3
(ii) On the death of the Executive prior to termination of his
employment hereunder as mentioned in (i) above, 4/9 x s.
(iii) On the death of the Executive after termination of his
employment as mentioned in (i) above, one half of (2 x P)
--
(3 )
5
<PAGE>
Provided that the Relevant Amount in any year shall be increased
beyond the Relevant Amount in the preceding year by two and one half per cent of
the Relevant Amount (increased by R) or such greater amount as the Board of
Directors of the Company may from time to time decide.
(d) The Relevant Amount receivable by the Executive (or his widow or
his children) shall be reduced (as required by the Commissioners of Inland
Revenue) to reflect the amount of any benefit preserved for the Executive or
refunds of contribution taken in respect of his previous membership of any other
retirement benefits scheme.
(e) If in any year after termination of the Executives employment
hereunder on his retirement on pension or after his death the amount of the
annual pension or pensions receivable by the Executive (or after his death by
his widow) or on the death of his widow (or of the Executive if she shall not
have survived him) his children or such of them as are under 18 years of age
("his children") from the Pension shall be less than the appropriate Relevant
Amount the Company shall pay or procure to be paid to the Executive or his widow
or his children an annual sum (payable by equal monthly installments in advance)
equal to the difference between the amount of such pension or pensions and the
appropriate Relevant Amount.
(f) In the event of the lump sum payable in accordance with the Rules
of the Pension Scheme on the Executive's death prior to termination of his
employment hereunder being less than 4 X S, the Company shall subject to sub-
clauses (d) and (g) hereof pay or procure to be paid to the person or persons so
entitled to receive such death-in-service benefit the difference between such
lump sum and 4 X S.
(g) Notwithstanding the foregoing provisions of this clause all sums
payable whether in respect of pension or lump sum death-in-service benefit shall
be subject to any limitation required by the Rules of the Pension Scheme or the
Commissioners of Inland Revenue.
(h) A contracting out Certificate exists in relation to the Pension
Scheme for the purposes of the social Security Pensions Act 1975.
13. Any notice hereunder may be served by the Company or any Group
Company on the Executive either person
6
<PAGE>
ally or by leaving it at or sending it by post to his last known residential
address. Any notice sent by post shall be deemed to have been served on the
second day following that on which it was posted (excluding a Saturday, Sunday,
Bank Holiday or Public Holiday) and in proving such service it shall be
sufficient to show that the notice was properly addressed and posted.
14. (a) Notwithstanding the provisions of Clause 3, the Company
shall be entitled to terminate the Executive's employment hereunder at any time
during its continuance without notice and without payment in lieu of notice if:
(i) In the opinion of not less than two thirds in number of the Board
of Directors of the Company
(1) The Executive shall have acted to the prejudice of the
Company the Group or its business by reason of misconduct or dishon-
esty, or
(2) The Executive shall have been grossly negligent in the
performance of his duties or shall have failed to observe any of his
obligations hereunder other than minor failures which (being capable
of being remedied) are remedied forthwith by the Executive upon being
notified thereof by the Board, or the Board of Directors of the Com-
pany, or
(ii) The Executive becomes bankrupt or makes any arrangement or
composition with his creditors; or
(iii) The Executive is convicted of any criminal offence other than an
offence which in the reasonable opinion of the Board of Directors of the
Company does not affect his position as an employee of the Company
hereunder (bearing in mind the nature of the duties he is engaged in
hereunder and the capacity in which he is employed).
(b) In the event of the termination of the Executive's employment
hereunder by the Company under this clause, the Company shall not be obliged to
make any further payment to the Executive beyond the amount of any remuneration
actually accrued due to the date of such termination and the Company shall be
entitled to deduct from such remuneration any sums owing to it by the Executive.
7
<PAGE>
(c) At the termination of his employment hereunder by effluxion of
time on Normal Retirement Date, the Executive shall not be entitled to any
redundancy payment or compensation for unfair dismissal under the Employment
Protection (Consolidation) Act 1978 or any statutory modification or re-
enactment of such Act for the time being in force.
15. (a) The Company shall procure the provision of a motor car
initially of the type specified in paragraph 3 of the Schedule hereto for the
use of the Executive when carrying out his duties hereunder and the Company or a
Group Company as appropriate shall pay all expenses in connection with such use
properly attributable to the Business and such car shall from time to time be
changed in accordance with the Company's policy regarding vehicle replacement
and may be replaced with such make and type of motor car (whether equivalent to
the type specified in paragraph 3 of the Schedule or not) as the Board may in
its discretion decide.
(b) The Executive shall be permitted to use the said motor car for
his own personal purposes.
(c) The Executive shall at all times conform to all regulations which
may from time to time be made or imposed by the Company or any Group Company in
regard to motor cars provided for the use of executives including those set
forth in the Group's Employee Handbook.
16. (a) The Executive shall accept appointment as a Director of any
such Group Company as the Company may require in connection with his appointment
hereunder and also as a Director of any other company as the Company may
reasonably so require and shall also resign without claim for compensation from
office as a director of any such company at any time on request by the Company
which resignation shall not affect the continuance in any way of this Agreement
and the Executive shall forthwith account to the Company for any director's fees
or other emoluments remuneration or payments received by him by virtue of his
holding office as such director as aforesaid (or waive any right to the same if
so required by the Company).
(b) Upon the termination of the Executive's employment with the
Company for whatsoever reason the Executive shall upon the request of the Board
resign without claim for compensation from office as a director of the
8
<PAGE>
company or any Group Company or other company as referred to in sub-clause (a)
of this clause of which he is a director and from all offices and trusteeships
held by him in any such companies.
(c) Should the Executive fail to resign from office as a director or
from any other office or trusteeship as is referred to in sub-clause (a) or (b)
of this Clause either during his employment when requested by the Company so to
do or on termination hereof the Company is hereby irrevocably authorised to
appoint some person in his place and on his behalf to execute any documents and
to do all things requisite to give effect thereto.
17. If the employment of the Executive with the Company shall be
terminated by reason of the liquidation of the Company for the purpose of
reconstruction or amalgamation and he shall be offered employment with any
concern or undertaking resulting from such reconstruction or amalgamation on
terms and conditions which taken as a whole are not less favourable than the
terms of this Agreement then the Executive shall have no claim against the
Company in respect of the termination of his employment with it.
18. Subject to the provisions of S.39 of the Patents Act 1977, any
design (including any copyright therein) invention, discovery or improvement
made by the Executive at any time during the continuance of his employment
hereunder and in any way connected with that employment shall be the property of
the Company.
19. The following particulars are set forth in compliance with the
requirements of the Employment Protection (Consolidation) Act 1978:
(a) the employment of the Executive by the Company and his continuous
period of employment with the Company began on the respective dates
specified in paragraph 6 of the Schedule hereto;
(b) save as otherwise provided in the Group's Employee Handbook or
elsewhere or referred to herein there are no terms or conditions of
employment relating to hours of work or to normal working hours or to over-
time or to holidays or to holiday pay or to incapacity for work due to
sickness or injury or to sick pay or to pensions or pension schemes;
9
<PAGE>
(c) the rules governing absence from work through sickness or injury
and the rights of the Executive to remuneration during such absence are set
forth in Clause 11 of this Agreement.
(d) save as referred to herein the disciplinary rules to which the
Executive is subject are set forth in the Group's said Employee Handbook
and any amendment thereto will be notified to the Executive;
(e) if the Executive is dissatisfied with any disciplinary decision
relating to him or if he has any grievance arising from his employment
hereunder he may refer any such matter to the Managing Director of the
Group Company in whose service he is engaged who will deal with the matter
and if the matter cannot be resolved with the Managing Director it will be
referred to the Managing Director of such other Group Company as the
Managing Director of the Group Company in whose service he is engaged may
decide and the Managing Director of the Group Company so designated will
refer the matter to his Board, who will then deal with the matter by
discussion and by a majority decision of those present at the relevant
Board Meeting at which the matter is discussed;
(f) the Executive's hours of work shall be those specified in para-
graph 7 of the Schedule hereto and such additional hours as may be
requisite for the proper discharge of his duties hereunder.
20. The provisions of the Schedule hereto and any special terms
endorsed upon this Agreement or otherwise agreed in writing by or on behalf of
the parties hereto shall be read and construed as part of this Agreement and
shall be enforceable accordingly.
21. In this Agreement the following expressions shall have the
meanings assigned to them respectively:
"Subsidiary" and "equity share capital" shall have the meanings
respectively ascribed thereto by Section 154 of the Companies Act 1948.
"Associated Company" means any company at least 20% of the equity
------------------
share capital of which is beneficially owned by the Company or any of its
subsidiaries.
10
<PAGE>
"Group" means the Company, the subsidiaries and any Associated
-----
Company.
"Group Company" means either the company or a subsidiary or any
-------------
Associated Company.
"the Business" means the business of the Company and the business of
------------
any other Group Company with which the Executive is required by the Board
under Clause 1 of this Agreement to be concerned.
"the Holding Company" means Reed Stenhouse Companies Limited.
-------------------
"the Managing Director" means in relation to any company the duly
---------------------
appointed Managing Director or other person holding an equivalent position.
22. This Agreement shall be governed by and interpreted according to
the Law of England.
23. This Agreement is in substitution for and shall supersede all
former and existing agreements or arrangements for the employment of the
Executive by any Group Company all of which shall be deemed to have been
terminated.
11
<PAGE>
by mutual consent with effect from the date of commencement of this Agreement.
IN WITNESS whereof this Agreement has been entered into the day and
year first above written.
SEALED with the Common Seal of the
said REED STENHOUSE & PARTNERS LIMITED
at on the day of
Nineteen hundred and
in the presence of:
/s/ Ian Robertson
__________________________
Director
__________________________
Secretary
SIGNED by the EXECUTIVE at
on the day of Nineteen hundred and
before these witnesses:
__________________________
Witness
Address___________________
__________________________
Occupation________________
__________________________
Witness
Address___________________
__________________________
Occupation________________
12
<PAGE>
THE SCHEDULE above referred to
1. The Executive; KENNETH JOHN DAVIS
2. Capacity and employment of the Executive; (Clause 1) Regional Director Reed
Stenhouse U.K. Limited (London North Region)
3. Type of motor car: Rover 2600 S Automatic
(Clause 15)
4. Annual holiday: 4 weeks
(Clause 10)
5. Pension Scheme: The Reed Stenhouse Pension scheme (Clause 12)
6. (i) The employment of the Executive by the Company began on 1st August,
1981 (Clause 3)
(ii) The continuous period of employment of the Executive with the Company
for statutory purposes began on 25th September, 1961 (the Executive's
employment with A.R. Stenhouse & Partners (London) Limited from 25th
September, 1961 to 1967 and with Stenhouse Reed Shaw London Limited
from 1967 to 1st January, 1980 and with Reed Stenhouse U.K. Limited
from 1st January 1980 to 1st August 1981 counting as part of his
continuous period of employment with the Company)
7. Normal hours of work: 9.00 a.m. to 5.00 p.m. Monday to Friday (inclusive)
8. Normal Retirement Date: 31st March 2003
9. Salary: B.P.19,812 per annum (Clause 4(a))
13
Exhibit 10.23
------------------
AGREEMENT
------------------
Between:
REED STENHOUSE LIMITED
AND REED STENHOUSE COMPANIES LIMITED
- and -
JAMES S. HORRICK
<PAGE>
THIS AGREEMENT is made the 29th day of August, 1990, between REED
STENHOUSE LIMITED and REED STENHOUSE COMPANIES LIMITED (hereinafter collectively
referred to as "the Company") OF THE FIRST PART and JAMES S. HORRICK (here-
inafter referred to as "the Executive") OF THE SECOND PART.
WHEREAS, the Executive has been in the employ of the Company since
August, 1966; and
WHEREAS, the parties wish to continue the Executive's employment with
the Company under the terms and conditions hereinafter set out.
NOW IT IS HEREBY AGREED AS FOLLOWS:
Section 1. Employment. 1.1. The Executive shall be employed by the
----------
Company and shall, to the satisfaction of the Company, faithfully, honestly and
diligently perform such duties and responsibilities and exercise such powers as
the Company may from time to time decide.
1.2. The Executive shall in the performance of such duties and
exercise of such powers comply with the lawful directions of the Company and its
Board of Directors.
1.3. The Executive shall, if requested by the Company, perform
services for any other company or companies from time to time within the group
of companies of which the Company is a member ("the Group"), such services to be
reasonably consistent with the Executive's skill, position, training and
ability.
1.4. Unless prevented by ill health, accident or other reasonable
cause, the Executive shall, during his employment hereunder, devote his full
time and attention to the business of the Company and the Group and shall use
his best efforts to promote their interests and financial success. The
Executive's hours of work shall be such as may be reasonably necessary to
discharge his duties hereunder. The Executive shall not, during the currency of
this agreement, engage in any other employment or active business undertaking
without the express written consent of the Company.
Section 2. Compensation.
------------
2.1. The Executive shall be paid bi-weekly in arrears a salary not
less than that being paid by the Company to the Executive as at the date of this
Agreement.
<PAGE>
2.2. During the period of employment hereunder the Company shall from
time to time review and, if deemed appropriate by the Company in its sole
discretion, increase the Executive's salary having regard to his performance and
any other circumstances which it considers relevant. In no event shall the
Executive's salary be reduced without his consent.
2.3. The Executive shall be entitled to participate in and receive
benefits under such incentive or bonus plan or plans as the Company may in its
sole discretion offer to him in writing. Subject to the terms and conditions
hereinafter set out, the Company reserves the right to terminate such plan or
plans or to amend them at any time without compensation, but no such termination
or amendment shall have retroactive effect.
2.4. The Executive shall be entitled to receive all benefits for
which he qualifies and, if required, in which he enrols in the prescribed form,
and all perquisites commonly accorded by the Company, from time to time, to the
position occupied by the Executive.
2.5. The Company shall, upon receipt of proper documentation, pay or
reimburse the Executive for all expenses properly incurred by him in the
performance of his duties.
Section 3. Place of Work.
-------------
3.1. The Executive's principal place of employment is the
Municipality of Metropolitan Toronto. The principal place of employment may be
changed with the mutual consent of the Company and the Executive.
Section 4. Termination of Employment.
-------------------------
4.1. The employment of the Executive hereunder may be summarily
terminated by the Company at any time without compensation and without prior
notice for just cause.
4.2. The employment of the Executive hereunder may be terminated by
the Company at any time without prior notice and without cause. In such event,
the Company shall pay the Executive a Severance Entitlement as defined in Sec-
tion 5 hereof. The date on which the Executive is notified in writing of the
termination of his employment shall be the Date of Termination hereunder.
2
<PAGE>
4.3. The Executive may at any time resign his employment hereunder by
providing 60 days prior written notice to the Company ("the Notice Period"),
which the Company, in its discretion, may waive in whole or in part. Subject to
the provisions of Section 7 hereof, no compensation shall be payable by the
Company to the Executive during the Notice Period save normal compensation for
the Notice Period.
4.4. The Executive acknowledges that his resignation in accordance
with Section 4.3 hereof may be disruptive to the ongoing business affairs of the
Company. Accordingly, the Executive hereby agrees that, without the prior
written consent of the Company, he shall during the Notice Period refrain from
making public, directly or indirectly, in any manner whatsoever, information
concerning any employment commencing subsequent to the Notice Period which he
may have obtained or the fact that he has obtained such subsequent employment.
4.5. The employment of the Executive hereunder shall automatically
terminate on the death of the Executive.
4.6. The employment of the Executive hereunder shall automatically
terminate on the retirement of the Executive, which retirement shall occur on a
date fixed in accordance with the general retirement policy from time to time of
the Company, provided, however, that thereafter the Company, in its sole
discretion, shall have the right to renew this Agreement from year to year with
the consent of the Executive.
4.7. The termination of employment of the Executive by reason of
death or retirement shall not entitle the Executive to any benefits under this
Agreement.
Section 5. Severance Entitlement on Termination Without Cause.
--------------------------------------------------
5.1. In the event that the Company terminates the employment of the
Executive hereunder without cause, the Company shall pay to the Executive a
Severance Entitlement equivalent to three (3) times the Executive's Compensation
Package. For the purpose of calculating the Executive's Severance Entitlement
hereunder, "Compensation Package" shall mean the sum of the Executive's base
salary plus the Executive's target annual bonus, if any, under the then
3
<PAGE>
prevailing annual incentive plan for the fiscal year in which termination
occurs.
The Company shall also pay to the Executive a sum equivalent to thirty
four (34) times the Company's monthly cost, as at the Date of Termination of
such benefits and perquisites as are listed in Schedule A hereto and enjoyed by
the Executive as at the Date of Termination (other than the Company's Pension
Plan and Excess Benefit Plan). Save as hereinafter set out, each such benefit
and perquisite shall terminate eight (8) weeks after the Date of Termination,
unless the Executive advises the Company that he wishes to have a benefit or
benefits continued, where possible, and pays to the Company the sum of money
required to maintain such benefit. In no event shall a benefit be continued for
a period in excess of thirty six (36) months from the Date of Termination. In
the event that the Executive elects to terminate a benefit after having prepaid
to the Company the cost of continuance of such benefit, any excess prepayment
shall be refunded to the Executive in accordance with the applicable benefit
plan.
5.2. Solely with respect to the Company's Executive Pension Plan
("Pension Plan") and its Excess Benefit Plan ("Excess Plan"), the Executive's
employment shall be deemed to continue for a period of thirty six (36) months
following the Date of Termination. However, the Executive shall not be entitled
to receive any benefits under such plans until the date on which his employment
under those plans is deemed terminated as provided in the preceding sentence.
5.3. Payment of the sums calculated in accordance with Section 5.1
hereof shall be made within 30 days of the Date of Termination and shall
constitute complete and final satisfaction of any claim which the Executive may
have in respect of the Executive's hiring, employment or termination of
employment with the Company including severance pay, pay in lieu of notice or
termination pay, whether such claim arises under statute, contract or common
law, but not including salary, benefits or incentives earned to the Date of
Termination or reimbursement of expenses incurred but not repaid to the Date of
Termination. More specifically, but not so as to limit the generality of the
foregoing, the payment of the sums calculated in accordance with Section 5.1
shall satisfy any and all obligations of the Company under the employment
standards legislation of the various Provinces of Canada and of Canada itself.
The amounts
4
<PAGE>
referred to in Section 5.1 shall be paid without reduction for any moneys earned
by the Executive through new employment after the Date of Termination.
5.4. Payments made by the Company to the Executive pursuant to this
Section 5 shall be made in the most tax effective manner for the Executive, so
long as such manner of payment is consistent with the other provisions of this
agreement, entails no additional cost to the Company, and is in accordance with
all applicable legislation.
Section 6. Change of Control.
-----------------
6.1. For the purpose of this Agreement, a Change of Control of the
Company will be deemed to have occurred if:
(i) any individual, firm, corporation or other entity, or any group
(as defined in Section 13(d)(3) of the United States Securities Exchange
Act of 1934) (the "Act")) becomes, directly or indirectly, the beneficial
owner (as defined in the General Rules and Regulations of the United States
Securities and Exchange Commission with respect to Sections 13(d) and 13(g)
of the Act) of more than 35% of the then outstanding shares of the capital
stock entitled to vote generally in the election of directors of the
Company's parent company, Alexander & Alexander Services Inc. ("A&A"); or
(ii) the stockholders of A&A approve a definitive agreement for
(a) the merger or other business combination of A&A with or into another
-
corporation pursuant to which the stockholders of A&A 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 A&A; or
(iii) during any period of 2 years or less, individuals who at the
beginning of such period constituted the Board of Directors of A&A cease
for any reason to constitute at least a majority thereof unless the elec-
tion, or the nomination for election by the stockholders of A&A, 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; or
5
<PAGE>
(iv) a person or corporate entity other than A&A acquires more than
50% of the voting securities or assets of either Reed Stenhouse Limited or
Reed Stenhouse Companies Limited.
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 by A&A or any of its subsidiaries, any profit-sharing, employee
ownership or other employee benefit plan of A&A 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.
6.2. For a period of 3 years following a Change of Control, as
defined in Section 6.1(i), 6.1(ii) or 6.1(iii), the Company shall not, save as
may be required by law, amend or terminate or allow the amendment or termination
of (a) the Pension Plan or (b) the Excess Plan without the express written
- -
consent of members of such plans as at the proposed date of termination or
amendment.
6.3. In the event that the Company causes the Excess Plan to be
terminated or amended at any time after 3 years following a Change of Control,
as defined in Section 6.1(i), 6.1(ii) or 6.1(iii), the Company shall pay to an
arm's length corporation ("the Insurer") a lump sum premium amount sufficient to
purchase the irrevocable undertaking of the Insurer to pay to the Executive or
his spouse the accrued pension benefits to which the Executive or his spouse
would have been entitled under the Excess Plan immediately prior to such
termination or amendment. In such event, the Company shall also pay to Revenue
Canada, as a refundable tax, such amount as may be required to ensure that the
aforementioned payment to the Insurer does not at the time of such payment
constitute a taxable benefit to the Executive or his spouse. The payment by the
Company to the Insurer as provided in this Section 6.3 shall fully satisfy the
Company's obligation to the Executive under the Excess Plan and neither the
Executive nor his spouse shall thereafter have a right to any benefit under the
Excess Plan. For the purposes of this provision, the Insurer shall be a
chartered Canadian insurance or trust company.
6.4. Immediately upon a Change of Control, as defined in
Section 6.1(i), 6.1(ii) or 6.1(iii), all stock options and other awards
previously granted to the Executive under any compensation plan of A&A,
including A&A's 1988
6
<PAGE>
Long Term Incentive Compensation Plan, shall fully vest in the Executive
pursuant to the agreements governing such awards and the plan terms under which
such awards were made.
6.5. In the event of a Change of Control, as defined in
Section 6.1(iv), the Company shall pay to the Executive, upon his retirement, a
retirement benefit equal to the aggregate amount accrued by the Executive under
the Pension Plan and the Excess Plan to the date of such Change of Control. In
addition, as a condition of a Change of Control of the type contemplated by
Section 6.1(iv), the Company shall require that, for a period of at least 3
years following such Change of Control the Executive is provided with a
retirement program which, in the aggregate, provides a benefit at least
substantially comparable to the benefit to which the Executive is entitled under
the Pension and Excess Plans as in effect at the date of such Change of Control.
Section 7. Resignation After a Change of Control.
-------------------------------------
7.1. The Executive may, for a period of 3 years following a Change of
Control, as defined in Section 6.1(i) through (iv) hereof, "resign for good
reason" his employment with the Company upon written notice delivered to the
Company within 60 days of the Company taking any action described in Section 7.2
hereof. In such event, the Executive shall be entitled to receive from the
Company a Severance Entitlement in accordance with Section 5.1 hereof. Failure
to provide written notice within the period specified above shall be deemed an
acceptance by the Executive of the Company's action.
7.2. For purposes of Section 7.1, the Executive shall be entitled to
"resign for good reason" in the following circumstances:
(i) the assignment by the Company to the Executive of duties which
are not consistent with the Executive's title and salary level prior to the
Change of Control or the failure to assign to the Executive duties which
are consistent with such title and salary level; or
(ii) a reduction by the Company of the Executive's salary level or
salary or the failure to grant to the Executive salary increases, in
accordance with Section 2.2 hereof, on a basis substantially comparable
7
<PAGE>
to those granted to other Executives of the Company holding comparable
titles and salary levels, unless the failure to grant such salary increase
is based on a performance evaluation of the Executive made in good faith;
or
(iii) the requirement by the Company that the Executive be employed
anywhere other than the Executive's office location as of the Change of
Control, except for required travel on the Company's business to an extent
substantially equivalent to the Executive's travel obligations prior to the
Change of Control; or
(iv) the failure by the Company to continue to provide to the
Executive benefits and perquisites substantially equivalent to the benefits
and perquisites enjoyed by the Executive prior to the Change of Control as
provided under Sections 2.3 and 2.4 hereof.
Section 8. Confidentiality.
---------------
8.1. The Executive acknowledges that in the course of his employment
with the Company he has been and shall be privy to information confidential and
proprietary to the Company and to its clients ("Confidential Information").
Such Confidential Information includes but is not limited to: secret business
methods and systems of the Company; the terms of contractual relations with
clients, insurers, intermediaries and underwriters; client lists; client
information including policy terms, conditions, rates, expiry dates and risk
characteristics; confidential information of clients; insurance markets and
marketing for clients; policies and procedures regarding loss control, loss
forecasting and risk analysis; policies and procedures regarding captive
insurance company management services; and business strategic development plans,
financial information and internal practices and procedures in respect of the
Company and the Group.
8.2. For purposes of Sections 8.1, 8.4 and 9.01, "Clients" shall mean
those actual clients and customers of the Company or Group, and those active
prospective clients or customers of the Company or Group which the Executive
alone, or in combination with others, in any capacity, handled, serviced or
solicited at any time during the two year period immediately preceding the
termination of the Executive's employment with the Company.
8
<PAGE>
8.3. The Executive hereby acknowledges that the disclosure of the
Confidential Information referred to in Section 8.1 hereof to any third party
would be harmful to the business interests of the Company and the Group. The
Executive therefore agrees and undertakes that he shall not at any time, either
during his employment hereunder or thereafter, directly or indirectly, reveal to
any third party any such Confidential Information (unless he is required to do
so by law), or directly or indirectly utilize, in any way, either on his own
behalf or on behalf of any third party, any such Confidential Information.
8.4. Upon termination of his employment with the Company, the
Executive shall promptly return to the Company originals or copies of any and
all materials, documents, notes, manuals or lists containing or embodying any
Confidential Information of the Company and its Clients, or relating directly or
indirectly to the business of the Company or its Clients.
Section 9. Non-Solicitation.
----------------
9.1. The Executive acknowledges that as a member of the senior
management of the Company, he may, in representing the Company, develop business
contacts and relationships with management of the Company's Clients, and with
employees of the Company or the Group, all of which contacts and relationships
are part of the goodwill of the Company. The Executive further acknowledges
that the Company is entitled to reasonable protection against active
interference with or appropriation of such goodwill for any purpose competitive
with the interests of the Company. The Executive therefore agrees and
undertakes that he shall not, for a period of 18 months following the
termination of his employment with the Company, irrespective of the manner or
reason for such termination, either on his own behalf or on behalf of any third
party, directly or indirectly contact, solicit, or in any way approach or have
dealings with, for any purpose competitive with the interests of the Company or
the Group, (a) any party which is a Client of the Company or of a member of the
-
Group, or (b) any employee of the Company or of the Group.
-
9.2. Notwithstanding the foregoing, nothing herein shall prevent the
Executive, after the termination of his employment, from owning not more than 5%
of the issued shares of a corporation, the shares of which are listed on a
recognized stock exchange or traded in the over the counter
9
<PAGE>
market in Canada, which carries on a business which is the same as or
substantially similar to or which competes with or would compete with the
business of the Company or any member of the Group.
Section 10. Enforcement.
-----------
10.1. The Executive hereby acknowledges and agrees that the
provisions of Sections 4.4, 8 and 9 hereof are reasonable and necessary for the
protection of the Company's legitimate interests and proprietary rights.
10.2. The Executive acknowledges that a breach or threatened breach
by the Executive of any of the provisions of Sections 4.4, 8 or 9 hereof will
result in the Company suffering irreparable harm which cannot be calculated or
fully or adequately compensated by recovery of damages alone. Accordingly, the
Executive agrees that the Company shall be entitled to interim and permanent
injunctive relief, specific performance and other equitable remedies, in addi-
tion to any other relief to which the Company may become entitled.
Section 11. Survival of Agreement.
---------------------
11.1. The provisions of Sections 4.4, 8, 9 and 10 hereof shall
survive and remain in effect notwithstanding the termination of the Executive's
employment or any finding that the Executive's employment with the Company has
been improperly terminated.
11.2. The provisions of Sections 4.4, 8, 9 and 10 hereof shall
survive and remain in effect notwithstanding any breach or repudiation, or
alleged breach of repudiation, by the Company of this Agreement or any one or
more of its terms.
Section 12. General Provisions.
------------------
12.1. This Agreement shall enure to the benefit of and be binding
upon the successors and assigns of the Company.
12.2. Nothing in this Agreement shall be construed to render the
Executive an employee of any member of the Group except the Company or to impose
upon any member of the Group, except the Company, any obligation for severance
10
<PAGE>
pay, termination pay, pay in lieu of notice or any like compensation.
12.3. The provisions of this Agreement shall be governed by and
interpreted in accordance with the laws of the Province of Ontario and the laws
of Canada applicable therein.
12.4. Each of the provisions contained in this Agreement is distinct
and severable and a declaration of invalidity or unenforceability of any such
provision or part thereof by a court of competent jurisdiction shall not affect
the validity or enforceability of any other provision hereof.
12.5. This Agreement constitutes the entire agreement between the
parties hereto pertaining to the subject matter hereof. There are no
warranties, representations or agreements between the parties in connection with
such subject matter except as specifically set forth or referred to in this
Agreement. Except as expressly provided in this Agreement, no amendment, waiver
or termination of this Agreement shall be binding unless executed in writing by
the party to be bound thereby. No waiver of any provision of this Agreement
shall constitute a waiver of any other provision nor shall any waiver of any
provision of this Agreement constitute a continuing waiver unless otherwise
expressly provided.
12.6. The Executive acknowledges that he has had adequate opportunity
to review and consider this Agreement thoroughly and to obtain such advice in
connection with it as he deems advisable. The Executive has read and under-
stands the terms of this Agreement and the Executive's obligation hereunder.
The Executive further acknowledges that:
(a) he is receiving valuable consideration for entering into this
Agreement, including improved compensation agreements as specified herein;
(b) the Agreement is entered into voluntarily and without any
pressure; and
(c) his continued employment has not been made conditional upon
entering into this Agreement.
11
<PAGE>
This Agreement supersedes all prior agreements with respect to the
employment of the Executive, whether written or otherwise.
SIGNED, SEALED AND DELIVERED ) REED STENHOUSE LIMITED
in the presence of ) Per:
) /s/ C.G.E. Gyles
) ________________________
) C.G.E. Gyles, Chairman
)
) REED STENHOUSE COMPANIES
) LIMITED
)Per:
) /s/ M.K. White
) _______________________
) M.K. White, Director
)
) /s/ James S. Horrick
) _______________________
James S. Horrick
12
<PAGE>
SCHEDULE A
The following is a list of the benefits and perquisites referred to in
Section 5.1 of this agreement.
I. Benefits
--------
(a) Group Plans
- basic group life
- accidental death and dismemberment
- long term disability
- medical-dental
(b) Retirement Plans
- executive pension plan
- excess benefit plan
(c) Company Assisted Share Purchase Plan
II. Perquisites
-----------
(a) annual club dues and professional membership fees
(b) automobile lease and operating expenses, or automobile allowance, as
applicable
(c) company loans as existing at the date of termination
III. Other
-----
Any other benefits or perquisites granted after the date of this
agreement and existing as at the date of termination shall be
continued, or their value commuted, in accordance with Section 5.1.
13
Exhibit 10.27
3-24-95
SETTLEMENT AGREEMENT
MILLER, ALFANO & RASPANTI, P.C. Attorneys for Plaintiff,
BY: Gregory P. Miller, Esquire Linda S. Kaiser,
Gaetan J. Alfano, Esquire Insurance Commissioner of
Gregg W. Mackuse, Esquire the Commonwealth of Penn-
Identification Nos. 24891, 32971 sylvania as Rehabilitator
and 54366 of The Mutual Fire Marine
Miller, Alfano & Raspanti, P.C. and Inland Insurance
1818 Market Street, Suite 3402 Company (In Rehabilitation)
Philadelphia, PA 19103
(215) 972-6400
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
____________________________________X
GEORGE F. GRODE, Insurance : NO. 3483, C.D. 1986
Commissioner of the Commonwealth
of Pennsylvania, :
Plaintiff,
:
v.
:
THE MUTUAL FIRE, MARINE AND
INLAND INSURANCE COMPANY, :
Defendant.
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (BT)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator
of The Mutual Fire, Marine And :
Inland Insurance Company,
Plaintiff, :
v.
:
EVANSTON INSURANCE COMPANY
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (HB)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator
of The Mutual Fire, Marine And :
Inland Insurance Company,
Plaintiff, :
v.
:
INSURANCE COMPANY OF EVANSTON
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (HC)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator
of The Mutual Fire, Marine and :
<PAGE>
Inland Insurance Company,
Plaintiff, :
v.
:
EVANSTON INSURANCE COMPANY
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (ET)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator
of The Mutual Fire, Marine And :
Inland Insurance Company,
Plaintiff, :
v.
:
EVANSTON INSURANCE COMPANY
Defendant. :
____________________________________X
CYNTHIA M. MALESKI, Insurance : NO. 91-1179 (E.D. Pa.)
Commissioner of the Commonwealth
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And
Inland Insurance Company, :
Plaintiff,
v. :
ALEXANDER & ALEXANDER SERVICES :
INC., ALEXANDER & ALEXANDER INC.
and SHAND, MORAHAN & COMPANY, INC., :
Defendants.
____________________________________X
SETTLEMENT AGREEMENT
--------------------
This Settlement Agreement ("Agreement") is between Linda S.
Kaiser, Insurance Commissioner of the Commonwealth of
Pennsylvania in her capacity as Rehabilitator (together with her
Special Deputy) of The Mutual Fire, Marine & Inland Insurance
Company (In Rehabilitation)("Mutual Fire") for and on behalf of
herself as Rehabilitator of the estate of Mutual Fire, Mutual
Fire itself, their respective successors and assigns, including
any successor by operation of law or assignment, including
2
<PAGE>
without limitation any such liquidator, rehabilitator, receiver
or conservator of Mutual Fire (hereinafter collectively the
"Rehabilitator") and her counsel, Miller, Alfano & Raspanti
("MAR") on the one part, and Alexander & Alexander Services Inc.;
Alexander & Alexander Inc. (collectively, "Alexander &
Alexander"); Shand, Morahan & Company, Inc. ("Shand"); Evanston
Insurance Company ("EIC"); and Insurance Company of Evanston
("ICE"), (collectively, the "Settling Defendants") on the other
part.
RECITALS
--------
WHEREAS, the Rehabilitator of Mutual Fire, by and through
her attorneys, has commenced actions against (i) Alexander &
Alexander and Shand, Civil Action No. 91-1179 (E.D. Pa.); (ii)
EIC, No. 3483 C.D. 1986 (BT) (Pa. Commw. Ct.); (iii) ICE, No.
3483 C.D. 1986 (HB) (Pa. Commw. Ct.); (iv) EIC, No. 3483 C.D.
1986 (HC) (Pa. Commw. Ct.); and, (v) EIC, No. 3483 C.D. 1986 (ET)
(Pa. Commw. Ct.) (the "declaratory judgment action on coverage
issues"); (subsections (i) through (v) above, are collectively
referred to as "the Litigation");
WHEREAS, the claims against Alexander & Alexander were
primarily based upon theories of vicarious and/or derivative
liability based on Alexander & Alexander's former ownership of
Shand;
WHEREAS, for a period commencing sometime in 1970, Shand
served as one of Mutual Fire's Managing General Agents pursuant
3
<PAGE>
to various contractual arrangements;
WHEREAS, EIC and ICE are affiliates of Shand;
WHEREAS, EIC and ICE were parties to contracts with Mutual
Fire pursuant to which EIC, ICE and Mutual Fire participated in
reinsurance treaties; all present claims between the
Rehabilitator, on the one hand, and EIC and ICE, on the other
hand, are claims arising solely out of contracts;
WHEREAS, Mutual Fire was a named insured on, or beneficiary
of, policies of insurance issued by EIC ("the Policies"), and the
Rehabilitator has made claims under the Policies and, in her
declaratory judgment action has raised certain issues relating to
coverage under the Policies;
WHEREAS, the Settling Defendants deny any wrongdoing and/or
all liability to the Rehabilitator in connection with the
Litigation;
WHEREAS, this Settlement Agreement is being entered into by
the parties, inter alia, to resolve or prevent other threatened
----- ----
or contemplated actions that might lessen the value of Mutual
Fire's assets or prejudice the collective interests of Mutual
Fire's policyholders, creditors and/or shareholders or the
administration of the Rehabilitation proceeding of Mutual Fire;
WHEREAS, the parties have agreed that the Rehabilitator may
amend the original Complaint in the federal court action,
docketed at Civil Action No. 91-1179 (E.D. Pa.) (hereafter, the
"Federal Action"), as part of this Settlement Agreement, in the
form attached hereto as Exhibit "C"; and
4
<PAGE>
WHEREAS, the Rehabilitator and the Settling Defendants
desire to resolve amicably and settle all claims that the
Rehabilitator has or could ever have against Settling Defendants,
together with all claims under the Policies so that all claims
between the Rehabilitator and the Settling Defendants are fully
and finally resolved.
NOW, THEREFORE, on this 27th day of March, 1995, in
consideration of the promises, covenants, and agreements set
forth below, and for such other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound, the parties hereby agree as
follows:
TERMS AND CONDITIONS
--------------------
A. Payment
-------
Alexander & Alexander agrees to make payment as
follows:
1. Within five (5) business days of the Effective
Date of this Agreement ("Effective Date" - which shall be the
date upon which the final signatory executes this Settlement
Agreement), Alexander & Alexander will deliver the amount of
$12,000,000 (the "Initial Payment") to PNC Bank, as Escrow Agent
(the "Escrow Agent") to be held in accordance with the terms of
an Escrow Agreement substantially in the form of Exhibit "A"
hereto (the "Escrow Agreement") to be entered into by Alexander &
5
<PAGE>
Alexander, the Rehabilitator, MAR and the Escrow Agent. Within
five (5) business days after the date on which the Order (as
defined in Section J.2 of this Agreement) has been entered and
has become final, binding and not subject to any appellate review
(i.e. either thirty-one (31) days after the entry of the Order of
the Commonwealth Court no appeal having been taken, or affirmed
on appeal with no right to any further appellate review, such
date hereinafter being referred to as the "Final Order Date"), an
aggregate initial payment of $12,000,000 shall be paid by release
of the Initial Payment from escrow, of which $11,000,000 shall be
paid to the Rehabilitator and $1,000,000 will be paid to MAR for
legal fees and expenses with regard to the litigation as more
fully set forth in Section A.8 below. All accrued interest in
the escrow shall be disbursed in accordance with the terms of the
Escrow Agreement.
2. Within five (5) business days after the Final
Order Date EIC shall direct the payment and/or transfer to the
Rehabilitator of the amount of $4,600,000 from trusteed funds
held by First Fidelity Bank N.A. (the "Trust Payment") as more
fully set forth in Section A.7 below.
3. The balance of the settlement payment shall be
made by delivery of two (2) promissory notes (the "Promissory
Notes") to be made by Alexander & Alexander (i) one of which
shall be in the original principal amount of $34,655,000 payable
to the order of the Rehabilitator in the form of Exhibit B-1
hereto (the "Mutual Fire Note") and (ii) the other in the
6
<PAGE>
original principal amount of $345,000 payable to the order of MAR
and in the form of Exhibit B-2 hereto (the "MAR Note") for legal
fees and certain expenses with regard to the litigation as more
fully set forth in Section A.8 below. The Promissory Notes shall
be payable in six (6) annual installment payments (without
interest) in the aggregate amount of $5,833,333.33 on or before
the 1st day of April, 1996 and on or before the 1st day of April
of each year thereafter from 1997 to 2001, of which $5,775,833.33
shall be paid pursuant to the Mutual Fire Note and $57,500.00
pursuant to the MAR Note (the "Installment Payments"). Within
five (5) business days of the Effective Date of this Agreement,
Alexander & Alexander will execute and deliver the Promissory
Notes to the Escrow Agent to be held in accordance with the terms
of the Escrow Agreement. The Promissory Notes will be released
from escrow and delivered to the payees thereof within five (5)
business days after the Final Order Date. If any Installment
Payment shall become due prior to the date on which the
Promissory Notes are released from escrow, then Alexander &
Alexander shall deliver the amount of such payment to the Escrow
Agent to be held and disbursed in accordance with the Escrow
Agreement.
4. The obligations to make the Installment Payments
pursuant to the Promissory Notes shall be secured by two (2)
evergreen letters of credit (in the forms of Exhibits D-1 and D-2
attached hereto), one in the amount of $34,655,000 naming the
Rehabilitator as beneficiary and the other in the amount of
7
<PAGE>
$345,000 naming MAR as beneficiary. Alexander & Alexander shall
cause such letters of credit to be issued within thirty (30) days
following the Effective Date and immediately delivered to the
Escrow Agent to be held in accordance with the terms of the
Escrow Agreement. Each letter of credit shall (i) be issued or
confirmed by PNC Bank or such other national bank with its
principal place of business in Pennsylvania as may be acceptable
to the Rehabilitator in her sole discretion provided, however,
that the Rehabilitator is satisfied that a letter of credit so
confirmed constitutes a direct and independent obligation of the
confirming bank to the beneficiary; (ii) provide for drawing upon
presentation of a sight draft accompanied by a certificate of the
beneficiary to the effect that (A) a default in payment has
occurred and is continuing under the Promissory Note, and (B)
either (x) the Final Order Date has not yet occurred, the amount
being drawn represents an overdue scheduled Installment Payment
and directing that payment together with any interest due thereon
be made to the Escrow Agent, or (y) the Final Order Date has
occurred and specifying that the entire amount of the letter of
credit shall be drawn and paid to the Rehabilitator pursuant to
her instructions; (iii) have an initial expiry date no earlier
than one year from the date of issuance and provide for automatic
renewal for additional successive periods of at least one year
each unless the issuer shall have given notice of its intention
not to renew at least sixty (60) days prior to its stated
expiration date; (iv) provide that such letter of credit may be
8
<PAGE>
transferred to any subsequent holder of the related Promissory
Note; (v) provide that such letter of credit will be cancelled if
it is returned to the issuing bank by the Escrow Agent upon any
termination of this Settlement Agreement; and (vi) shall
otherwise be in form and substance satisfactory to the
Rehabilitator.
5. Upon payment of each Installment Payment, the
letter of credit securing the Installment Payment(s) shall be
promptly reduced by an amount equal to the distributed
Installment Payment or replaced by a letter of credit
("Replacement LOC") in the amount of the initial letter of credit
less any Installment Payment(s) made to date, in which case the
Replacement LOC shall be in the same form as the initial
evergreen letter of credit.
6. In the event that a default in payment has
occurred after the Final Order Date and is continuing under the
Mutual Fire Note or the MAR Note, then the holder of the Note
which is in default shall have the right to declare the entire
unpaid amount of principal due thereunder (and any other amounts
due thereunder) to be immediately due and payable, and shall be
permitted to liquidate and draw down the related letter of credit
in its entirety. In the event that a default in payment has
occurred prior to the Final Order Date, the remedy for such
default shall be treated in accordance with Section 2.C of the
Escrow Agreement.
7. Within five (5) business days after the Final
9
<PAGE>
Order Date, the Trust Payment shall be directed by EIC to be paid
or transferred in its entirety to the Rehabilitator. The balance
of the Trust shall simultaneously be released to the Settling
Defendants. Upon receipt of the Trust Payment, the Rehabilitator
hereby releases any and all claims against the balance of the
Trust. Until these payments are made, the Rehabilitator shall
continue to receive all scheduled interest payments, and upon
payment of the Trust Payment, the Rehabilitator shall receive all
interest accrued but unpaid on the date of the Trust Payment.
The Settling Defendants and the Rehabilitator specifically
consent to these respective transfers and agree to deliver all
necessary documents to effectuate them.
8. It is understood by Settling Defendants that the
payment to MAR and the issuance of the MAR Note are being made
pursuant to a fee agreement between the Rehabilitator and MAR in
MAR's capacity as attorneys for the Rehabilitator and shall be
satisfaction in full of all fees owed by the Rehabilitator to MAR
on account of the prosecution and settlement of the Federal
Action against Alexander & Alexander and Shand, and in
satisfaction of all fees owed by the Rehabilitator to MAR, after
February 1, 1995, on account of the prosecution and settlement of
the actions against EIC and ICE.
9. The rights and obligations of any party to this
Agreement may not be assigned and/or negotiated without the prior
written approval of all parties to this Agreement except that (a)
the Rehabilitator, in her discretion, may assign, transfer, sell
10
<PAGE>
and/or negotiate the Mutual Fire Note (in whole but not in part),
and/or the right to receive the payments contemplated to be made
to the Rehabilitator by Sections A.1 and A.2 hereof, in the
exercise of her lawful duties, including for purposes of
liquidating assets of Mutual Fire's Estate in anticipation of
obtaining an Order terminating Mutual Fire's Rehabilitation
pursuant to 40 P.S. Sec. 221.18, or otherwise permitted by law, and
(b) MAR, in its discretion, may assign, transfer, sell and/or
negotiate the MAR Note (in whole but not in part) and/or the
right to receive the payment contemplated to be made to MAR
pursuant to Section A.1 hereof.
10. The Settling Defendants expressly consent to the
assignment, transfer, sale, and/or negotiation of the Promissory
Notes and rights to receive payments hereunder as contemplated by
Section A.9 above.
B. Limitation as to Parties and Claims.
-----------------------------------
This Settlement Agreement is made for the benefit of
the parties hereto and is limited to the specific claims
identified herein, and is not intended to include, nor shall it
be deemed to be a release or discharge of, any claims, demands,
lawsuits, or causes of action that the Rehabilitator may have
against any other person, firm or entity, except as specifically
set forth herein.
C. Complete Agreement.
------------------
This Agreement, including the recitals set forth above,
the Escrow Agreement and Promissory Notes, attached respectively
11
<PAGE>
as Exhibits A, B-1 and B-2, and any Stipulations required by this
Settlement Agreement, set forth all of the promises, covenants,
agreements, conditions and undertakings between the Rehabilitator
and MAR on the one hand and the Settling Defendants on the other
with respect to the subject matter hereof, and supersede all
prior and contemporaneous agreements, undertakings, inducements
or conditions. Each party acknowledges and represents that it
has not relied on any statements, agreements, representations,
promises, warranties, or other assurances, oral or written, other
than those contained in this Agreement, and that each party has
relied exclusively on its own respective understanding, reviews,
and investigations and analyses of all legal matters and factual
information and documentation that each party has deemed
material.
D. Compromise of Claims.
--------------------
Without admitting any liability to the Rehabilitator in
any of the actions encompassed by this Settlement Agreement, the
Settling Defendants and the Rehabilitator agree that the payments
by the Settling Defendants hereunder are being made to
compromise, resolve and settle all claims that the Rehabilitator
has or could ever have against the Settling Defendants, together
with all claims under the Policies so that all claims between the
Rehabilitator and the Settling Defendants are fully and finally
resolved.
12
<PAGE>
E. Amendment of the Complaint in Federal Action
--------------------------------------------
The parties agree that the Rehabilitator may amend the
Complaint in the Federal Action in the form attached hereto as
Exhibit "C".
F. Release
-------
1. In consideration of good and valuable
consideration paid on behalf of Settling Defendants, and other
good and valuable consideration, receipt of which is hereby
acknowledged, the Rehabilitator, in order to settle all claims
which she has or could ever have against Settling Defendants, by
these presents, for and on behalf of herself as Rehabilitator of
the Estate of Mutual Fire, Mutual Fire, itself, and Mutual Fire's
policyholders and creditors, their respective successors and
assigns, releases, acquits and forever discharges Settling
Defendants, their past and present parents, subsidiaries and
affiliates and each of their past and present officers,
directors, agents, attorneys, successors and assigns (except for
acts performed by individuals in their capacity as officers
and/or directors of another company) ("Releasees") from any and
all actions, causes of action, claims, demands, damages, costs,
expenses, compensation and all consequential damage, known or
unknown, and also to the extent of their liability for indemnity
or contribution or otherwise to any other persons on account of,
or in any manner relating to, or resulting from the
Rehabilitator's alleged injuries, losses or damages.
2. This Release is limited to and shall inure solely
13
<PAGE>
to the benefit of Releasees and shall not release or discharge,
or be construed to limit, impair or infringe upon the
Rehabilitator's claims against any other persons, firms or
entities. Nothing in this paragraph shall limit the
Rehabilitator's obligations to the Settling Defendants as
provided in this Section "F".
3. It is understood and agreed that this Release, and
this Settlement Agreement, represent a compromise of disputed
claims, and that the payments and/or undertakings made in the
Settlement Agreement are not to be construed as an admission of
liability on the part of any party.
4. The Rehabilitator does not concede that the
Settling Defendants are, individually or collectively, joint
tortfeasors, obligors, indemnitors, or otherwise liable along
with, or to, any other persons, firms or entities, and is
executing this Release only in favor of the Settling Defendants,
reserving the right to pursue any claim she may have against any
other persons, firms, or entities. If the Rehabilitator obtains
a judgment against any other persons, firms, or entities, this
Release shall not bar or reduce the Rehabilitator's recovery on
such judgment in any way, unless Settling Defendants are
individually or collectively judicially determined in any
proceeding relating to the Rehabilitator's injuries, losses or
damages to be joint tortfeasors, obligors, indemnitors or
otherwise liable along with, or to, such other persons, firms or
entities for all or part of the judgment resulting from the
14
<PAGE>
Rehabilitator's injuries, losses or damages and the pro rata (or
--- ----
such other judicially determined) share of liability of Settling
Defendants has been judicially established. In that event, and
only in that event, the Rehabilitator's recovery on the judgment
shall be reduced, but only by Settling Defendants' pro rata (or
--- ----
such other judicially determined) share of liability for the
judgment, or as required by applicable law, it being the intent
of the parties that this Release shall not operate as a discharge
of other persons, firms or entities. It is the intention of the
parties that this Release is not a general release that would
result in the release of any persons, firms or entities other
than Releasees, and that should any provision of this Release be
so construed, then to that extent this Release shall be construed
and enforced as if such provision was not included.
5. In the event that any other persons, firms or
entities are judicially determined to be liable to the
Rehabilitator for damages, and the Settling Defendants are
judicially determined in any proceeding relating to the
Rehabilitator's injuries, losses or damages, to be joint
tortfeasors, obligors, indemnitors or otherwise liable along
with, or to, such other persons, firm or entities for all or any
part of the Rehabilitator's injuries, losses or damages, then the
execution of this Release shall operate as the satisfaction of
the Rehabilitator's judgment against such persons, firms or
entities, but only to the extent of the judicially determined
pro rata (or such other judicially determined) share of liability
--- ----
15
<PAGE>
of Settling Defendants. The Rehabilitator agrees that the intent
of this Release is to relieve Settling Defendants from any
liability to any persons, firms or entities not party to this
Release, that in any manner relates to the Rehabilitator's
injuries, losses or damages should Settling Defendants be
judicially determined in any proceeding relating to the
Rehabilitator's injuries, losses or damages to be joint
tortfeasors, obligors, indemnitors or otherwise liable along
with, or to, such other persons, firms, orentities for all or any
part of the Rehabilitator's injuries, losses or damages and, in
such circumstances, this Release shall operate as a satisfaction
of the Rehabilitator's judgment against any such persons, firms
or entities, but only to the extent of the pro rata (or such
--- -----
other judicially determined) share of liability of Settling
Defendants.
6. In order to avoid inconvenience and expense to
Settling Defendants in any action in which Settling Defendants
are or may be Defendants or third-party Defendants together with
other alleged tortfeasors, obligors, or indemnitors, it is
further agreed by the Rehabilitator that any verdict or judgment
rendered on such verdict against any persons, firms or entities,
shall be reduced by the pro rata (or such other judicially
--- ----
determined) share of liability attributable to Settling
Defendants, assuming Settling Defendants have been judicially
determined to be joint tortfeasors, obligors or indemnitors or
otherwise liable along with, or to, such other persons, firms, or
16
<PAGE>
entities for all or part of the Rehabilitator's injuries, losses
or damages and the pro rata (or such other judicially determined)
--- ----
share of their liability has been judicially determined in any
proceeding relating to the Rehabilitator's injuries, losses or
damages.
7. By the Rehabilitator's execution of this Release,
it is expressly understood that Settling Defendants shall not be
required to make any further payment to the Rehabilitator or to
any other person, by reason of the Rehabilitator's alleged
injuries, losses and/or damages.
8. In the event that the Rehabilitator settles any
action or suit now pending or which may be brought in the future,
then she shall obtain from all such settling parties the release
of any claims that such parties may have against any or all of
Settling Defendants, including but not limited to claims for
contribution, indemnity or common liability.
9. In the event that the Rehabilitator obtains a
judgment against any person, firm or entity ("the original
judgment") and that person, firm or entity in a subsequent
proceeding obtains a judgment against Settling Defendants for
contribution, indemnity or otherwise resulting from the original
judgment, the Rehabilitator agrees that she will satisfy the
judgment against Settling Defendants by reducing the original
judgment by the amount of the judgment against Settling
Defendants. In the event that the Rehabilitator has already
received payment for the original judgment or has received the
17
<PAGE>
economic benefit of the original judgment by way of sale, transfer,
assignment and/or pledge of some or all of her rights in the original
judgment ("payment of the original judgment"), she agrees to satisfy
any such judgment against Settling Defendants by refunding, returning or
paying the amount of the judgment entered against Settling Defendants to that
person, firm or entity that obtained the judgment against Settling
Defendants.
10. The Rehabilitator shall give notice as provided by the terms
of this Settlement Agreement to Settling Defendants within five (5) business
days of the date of (i) the entry and (ii) payment of the original judgment.
11. In the event that the Rehabilitator obtains payment of the
original judgment, the Rehabilitator shall establish a reserve ("Reserve"),
as security to satisfy her obligations under Sections F.9 and F.12. The
Rehabilitator and Settling Defendants shall promptly undertake to negotiate
in good faith and shall agree upon a reserve amount sufficient to satisfy the
Rehabilitator's obligations under Sections F.9 and F.12 and the Rehabilitator
shall thereupon establish such Reserve. Within thirty (30) days of the date
of payment of the original judgment in the event the parties are unable to
agree upon the amount of the Reserve to be established, the issue shall be
submitted to binding arbitration. If the parties are unable to agree upon an
arbitrator within ten (10) business days after any party demands arbitration,
the issue shall be submitted to Judicate, or some other similar private
alternative dispute resolution firm upon
18
<PAGE>
which the parties may agree (the "arbitrator"), for resolution. The
arbitrator shall render a decision within ninety (90) days after any party
demands arbitration. Pending the establishment of the Reserve, the
Rehabilitator agrees not to make any disbursement from the proceeds obtained
upon payment of the original judgment. The Rehabilitator shall not be
obligated under this subsection if:
(a) The Rehabilitator has not received payment of the
original judgment;
(b) The Rehabilitator has obtained a release for the benefit
of Settling Defendants for the claim of such person, firm or entity against
Settling Defendants to recover all or part of the original judgment;
(c) All parties agree that the limitations period for the
claim of such person, firm or entity against Settling Defendants to recover
all or part of the original judgment has expired; or
(d) Such person, firm or entity that may have a claim against
Settling Defendants to recover all or part of the original judgment has
reached an agreement with Settling Defendants releasing and/or discharging
all such claims without liability to the Settling Defendants.
12. In the event that any person, firm or entity brings an action
against Settling Defendants to recover all or part of an original judgment or
relating to the Rehabilitator's injuries, losses or damages, the
Rehabilitator reserves the right
19
<PAGE>
to undertake jointly with Settling Defendants the defense of Settling
Defendants at her own cost. Settling Defendants agree that upon receipt of
any form of notice of such an action or claim, whether filed or not, Settling
Defendants shall, within three (3) business days, give notice to the
Rehabilitator, pursuant to Section K.5 of this Agreement. The Rehabilitator
shall have a period of five (5) business days to exercise her option under
this Section. Whether or not the Rehabilitator exercises her option under
this Section, Settling Defendants shall be free to undertake their own
defense as they deem necessary and to incur all necessary and reasonable fees
and costs. Settling Defendants shall be permitted to make a claim in Mutual
Fire's Estate for such necessary and reasonable fees and costs (which claim
shall be subject to the Rehabilitator's obligation to review and adjust all
claims pursuant to Section VII of the Plan) and following approval of the
Commonwealth Court, such claim shall be an obligation of Mutual Fire and
shall be paid from the Reserve established in Section F.11 hereof. In the
event that the Reserve is insufficient, then the claim shall be paid in
accordance with the Court Order and the Plan.
13. In the event that the Rehabilitator undertakes jointly the
defense of Settling Defendants, the Rehabilitator shall not advance any
position or take any action to prejudice the interests of Settling
Defendants.
14. Any dispute arising under this Release shall be
20
<PAGE>
resolved through Application or other appropriate pleading filed in the
Commonwealth Court.
G. Release of the Policies.
-----------------------
The Rehabilitator hereby releases and forever discharges any and
all claims and/or right to coverage for defense costs and/or indemnification,
which the Rehabilitator has, may have or could assert under the Policies.
H. Release of Class I, Class IV and VI Claims.
------------------------------------------
Except as otherwise provided by the terms of this Agreement,
including but not limited to Sections F, G, I and J of this Agreement, the
Settling Defendants release all claims and rights that they may have as
creditors under Mutual Fire's Plan of Rehabilitation dated January 31, 1989
as modified by Order dated January 23, 1990, including all rights as Class I,
Class IV and Class VI claimants. In addition, the Rehabilitator hereby
assigns to Alexander & Alexander all of Mutual Fire's right, title and
interest in and to any claims for recovery of reinsurance balances due from
EIC and ICE.
I. Confidentiality.
---------------
The Rehabilitator and MAR hereby acknowledge and agree that the
terms and conditions of this Settlement Agreement are confidential; that
confidentiality is essential to the business interests of Settling Defendants
and is part of the consideration for this Settlement Agreement; and that this
paragraph survives all terms and conditions of this Settlement Agreement.
The parties further agree as follows:
21
<PAGE>
1. The Rehabilitator agrees that neither she nor any
representative of the Rehabilitator, or any representative of the Insurance
Department of Pennsylvania, shall comment directly or by characterization, on
this Settlement Agreement or any of its terms or conditions to anyone else,
except the fact that there has been a confidential Settlement Agreement and
to the extent necessary to obtain the approval of this Settlement Agreement
by the Commonwealth Court.
2. Within thirty (30) days of the Final Order Date, the
Rehabilitator will deliver to counsel for Settling Defendants all copies of
all documents (in whatever form) which were produced to the Rehabilitator by
Settling Defendants or return to any third parties those documents which such
parties produced in the Litigation, at the option of the third parties, and
all copies of all transcripts of depositions which the Rehabilitator took in
the Litigation and the Rehabilitator's expert reports. Settling Defendants
agree to keep and maintain one set of such documents returned by the
Rehabilitator pending the completion of the arbitration contemplated under
Section F.11 hereof.
3. The Confidentiality Stipulation which was entered by the Court
in the Federal Action on November 25, 1991 shall remain in effect. The
parties specifically agree that their experts and consultants will abide by
the Confidentiality Stipulation.
4. If the Rehabilitator or MAR receive a subpoena or any other
legal process seeking access to this Settlement
22
<PAGE>
Agreement or any documentation pertaining to it, each agrees to notify
immediately in writing counsel for the Settling Defendants of the service of
any such subpoena or process and to use their best efforts to resist any such
process until ten (10) business days have elapsed after such notice is given.
5. Nothing in this Section I shall prevent Settling Defendants
from making whatever disclosures are required by law or from issuing any
press releases or public statement they deem necessary or to enforce this
Agreement. Settling Defendants agree to provide copies of any such press
releases to the Rehabilitator within five (5) business days following their
release by Settling Defendants.
6. Nothing in this Section I shall prevent the parties from
making the disclosures necessary to effectuate the obligation set forth in
Sections F above and J.2 below.
7. Any breach of this Section I shall give to non- breaching
parties the right to pursue a claim against the breaching party for damages
and/or injunctive relief.
J. Dismissal and Bar of Lawsuits.
-----------------------------
1. In each of the actions identified as comprising the Litigation
in the recitals of this Settlement Agreement the Rehabilitator shall seek
dismissal with prejudice, pursuant to Rule 23(b) of the Local Rules of the
United States District Court for the Eastern District of Pennsylvania or Rule
229 of the Pennsylvania Rules of Civil Procedure, as appropriate, within five
(5) business days after the Final Order Date, or some other
23
<PAGE>
means of dismissal with prejudice of the actions which may be agreeable to
the parties and acceptable to the Court(s).
2. Within five (5) business days after the Effective Date, the
Rehabilitator, by her counsel, shall move the Commonwealth Court ("Motion")
for an order ("Order"): (a) approving this Agreement in its entirety; (b)
authorizing and directing the Rehabilitator, Mutual Fire and Settling
Defendants to render performance in accordance with the terms and conditions
of this Agreement; and (c) providing that:
(i) Mutual Fire's present and past shareholders, policyholders,
creditors, employees and agents shall be forever barred from commencing,
asserting or continuing any and all claims, demands, suits or causes of
action of any kind against any or all of the Releasees; and
(ii) all other parties, persons, firms and entities subject to the
jurisdiction of the Commonwealth Court shall be forever barred from
commencing, asserting or continuing any and all claims, demands, suits or
causes of action of any kind against any or all past and present officers,
directors or employees of Mutual Fire;
based on or arising out of any matter whatsoever that is related to the
subject matter of any of the Litigation, this Settlement Agreement and/or in
any manner relating to or resulting from the Rehabilitator's alleged
injuries, losses or damages.
3. The Rehabilitator hereby agrees that she shall give the Notice
of this Agreement to all parties, persons, firms and
24
<PAGE>
entities subject to the jurisdiction of the Commonwealth Court as specified
by Section J.2(c) hereof as reflected on the Short and Master Service Lists,
approved by the Commonwealth Court.
4. It is a condition of this Settlement Agreement that any Order
of the Commonwealth Court approving this Settlement Agreement shall contain
the provisions set forth in Section J.2 hereof.
K. Miscellaneous.
-------------
1. Jurisdiction and Controlling Law. This Agreement shall be
--------------------------------
interpreted in accordance with the laws of the Commonwealth of Pennsylvania.
The Settling Defendants hereby consent to the jurisdiction of the
Commonwealth Court of Pennsylvania, or, at the Rehabilitator's option to the
jurisdiction of the United States District Court for the Eastern District of
Pennsylvania, in the event that any disputes should arise under this
Agreement.
2. Authority. The Rehabilitator states that she is obligated to
---------
seek and obtain the Order approving this Agreement to make this Agreement
valid and binding upon the parties. Each party to this Agreement represents
and warrants that it has all requisite power and authority to enter into this
Agreement and to implement the transactions contemplated herein and that the
signatories to this Agreement are duly authorized to execute this Agreement
on behalf of the respective parties thereto. Each party to this Agreement
represents and warrants that this Agreement has not been fraudulently induced
either through active
25
<PAGE>
concealment of material facts or non-disclosure of material facts, and,
accordingly, this Agreement is not subject to rescission on any such grounds.
3. Counterparts. This Agreement may be executed in counterparts,
------------
including by facsimile, which together shall be considered an original
document.
4. Amendments. This Agreement may only be amended by an
----------
agreement in writing signed by all the parties.
5. Notices. Any notices or communications sent in connection
-------
with the Agreement shall be delivered by facsimile and first-class mail and
addressed to counsel for the parties as follows:
For Plaintiff, Linda S. Kaiser, Insurance Commissioner of the
Commonwealth of Pennsylvania, as Rehabilitator of the Mutual Fire,
Marine and Inland Insurance Company
James S. Gkonos, Esquire
The Mutual Fire, Marine &
Inland Insurance Company
(In Rehabilitation)
1500 Market Street
Centre Square
East Tower - 17th Floor
Philadelphia, PA 19102
Telephone: (215) 567-9600
Telefax: (215) 567-9300
with a copy to:
Gregory P. Miller, Esquire
Gaetan J. Alfano, Esquire
Gregg W. Mackuse, Esquire
MILLER, ALFANO & RASPANTI, P.C.
1818 Market Street, Suite 3402
Philadelphia, PA 19103
Telephone: (215) 972-6400
Telefax: (215) 981-0082
26
<PAGE>
For Settling Defendants, Shand Morahan & Company, Inc., Evanston
Insurance Company and Insurance Company of Evanston Insurance
Edgar W. Phoebus, Jr., Esquire
Sr. Vice Pres., Secretary & General Counsel
Shand Morahan & Company, Inc.
Shand Morahan Plaza
Evanston, IL 60201
Telephone: (708) 866-2800
Telefax: (708) 866-0778
With a copy to:
Joseph M. Donley, Esquire
Kittredge, Donley, Elson, Fullem & Embick
The Bank Building, 5th Floor
421 Chestnut Street
Philadelphia, PA 19106
Telephone: (215) 829-9900
Telefax: (215) 829-9888
For Settling Defendants, Alexander & Alexander Services Inc.,
Alexander & Alexander Inc.
Albert A. Skwiertz, Jr., Esquire
Vice President & General Counsel
Alexander & Alexander Services, Inc.
1185 Avenue of the Americas
New York, NY 10036
Telephone: (212) 444-4530
Telefax: (212) 444-4696
With a copy to:
John D. Gordan, III, Esquire
Morgan, Lewis & Bockius
101 Park Avenue
New York, NY 10178-0060
Telephone: (212) 309-6000
Telefax: (212) 309-6273
6. Termination of the Agreement.
----------------------------
(a) Unless otherwise agreed by the parties in writing, this
Agreement shall terminate thirty (30) days after the occurrence of any of the
following events:
27
<PAGE>
(i) the Commonwealth Court renders (1) an order
disapproving this Agreement or any Term or Condition hereof, or (2) an order
failing to approve or include any Term or Condition of this Agreement, or (3)
an order otherwise declaring this Agreement null and void and such order
becomes final, binding and not subject to any appeal; or
--
(ii) an order or ruling is issued on appeal which vacates
or reverses the Order below and such order or ruling becomes final, binding
and not subject to any appeal.
(b) This agreement may be terminated by Alexander & Alexander
at its option by giving written notice to the other parties hereto if the
Order shall not have been entered by the Commonwealth Court within ninety
(90) days after the date this Agreement has been fully executed and filed.
The optional termination right under the preceding sentence shall expire five
(5) business days after the expiration of the ninety (90) day period.
(c) Except as otherwise provided in Section I, upon any
termination, this Agreement shall become null and void and have no further
force or effect, and all amounts held by the Escrow Agent shall be
distributed in accordance with the Escrow Agreement.
7. Cooperation. The parties agree to provide and to execute such
-----------
additional documents and to take such additional actions as may reasonably be
requested by any of the parties in order to effectuate the terms and intent
of this Settlement
28
<PAGE>
Agreement, including the quarterly accounting reports routinely provided by
Mutual Fire, Shand, EIC and/or ICE.
IN WITNESS WHEREOF, the parties have caused this Settlement Agreement to
be executed on the date set forth above.
ATTEST: LINDA S. KAISER, Insurance Commissioner of the
Commonwealth of Pennsylvania, in her capacity
as Rehabilitator of the Mutual Fire, Marine and
Inland Insurance Company (in Rehabilitation)
By: /s/ Alexander Bratic
-------------------------- ------------------------------
Alexander Bratic
Special Deputy Rehabilitator
DATE: March 27, 1995
------------------------------
ATTEST: ALEXANDER & ALEXANDER
SERVICES INC.
By: /s/ Albert A. Skwiertz, Jr.
------------------------- ------------------------------
Name: Albert A. Skwiertz, Jr.
Title: Vice President and
General Counsel
DATE: March 27, 1995
------------------------------
ATTEST: ALEXANDER & ALEXANDER INC.
By: /s/ Albert A. Skwiertz, Jr.
------------------------- ------------------------------
Name: Albert A. Skwiertz, Jr.
Title: Vice President and
General Counsel
DATE: March 27, 1995
------------------------------
29
<PAGE>
ATTEST: SHAND, MORAHAN & COMPANY, INC.
_________________________ By: /s/ Edgar W. Phoebus
------------------------------
Name: Edgar W. Phoebus
Title: Senior Vice President
DATE: March 27, 1995
------------------------------
ATTEST: EVANSTON INSURANCE COMPANY
________________________ By: /s/ Edgar W. Phoebus
------------------------------
Name: Edgar W. Phoebus
Title: Senior Vice President
DATE: March 27, 1995
------------------------------
ATTEST: INSURANCE COMPANY OF EVANSTON
________________________ By: /s/ Edgar W. Phoebus
------------------------------
Name: Edgar W. Phoebus
Title: Secretary
DATE: March 27, 1995
------------------------------
WITNESS: MILLER, ALFANO & RASPANTI, P.C.
________________________ By: /s/ Gaetan J. Alfano
-----------------------------
Gregory P. Miller, Esquire or
Gaetan J. Alfano, Esquire
A Member of the Firm
DATE: March 27, 1995
------------------------------
30
<PAGE>
March 24, 1995
MILLER, ALFANO & RASPANTI, P.C. Attorneys for Plaintiff,
BY: Gregory P. Miller, Esquire Linda S. Kaiser,
Gaetan J. Alfano, Esquire Insurance Commissioner of
Gregg W. Mackuse, Esquire the Commonwealth of Penn-
Identification Nos. 24891, 32971 sylvania as Rehabilitator
and 54366 of The Mutual Fire Marine
Miller, Alfano & Raspanti, P.C. and Inland Insurance
1818 Market Street, Suite 3402 Company (In Rehabilitation)
Philadelphia, PA 19103
(215) 972-6400
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
____________________________________X
GEORGE F. GRODE, Insurance : NO. 3483, C.D. 1986
Commissioner of the Commonwealth :
of Pennsylvania, :
Plaintiff, :
:
v. :
:
THE MUTUAL FIRE, MARINE AND :
INLAND INSURANCE COMPANY, :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (BT)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (HB)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
INSURANCE COMPANY OF EVANSTON :
Defendant. :
____________________________________X
<PAGE>
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (HC)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine and :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (ET)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY :
Defendant. :
____________________________________X
ESCROW AGREEMENT
----------------
This Escrow Agreement ("Escrow Agreement") is made as of
this 27th day of March, 1995, by and among Linda S. Kaiser,
Insurance Commissioner of the Commonwealth of Pennsylvania, in
her capacity as Rehabilitator, together with her Special Deputy
of The Mutual Fire, Marine and Inland Insurance Company (In
Rehabilitation) ("Mutual Fire") for and on behalf of herself as
Rehabilitator of the estate of Mutual Fire, Mutual Fire itself,
and Mutual Fire's policyholders and creditors, their respective
successors and assigns, including any successor by operation of
law or assignment, including without limitation any such
liquidator, rehabilitator, receiver or conservator of the estate
of Mutual Fire (hereinafter collectively the "Rehabilitator");
-2-
<PAGE>
Miller, Alfano & Raspanti, P.C. of Philadelphia, Pennsylvania
("MAR"); Alexander & Alexander Services Inc. and Alexander &
Alexander Inc. (collectively, "Alexander & Alexander").
WITNESSETH
----------
WHEREAS, the Rehabilitator, MAR, Alexander & Alexander and
certain others have entered into a Settlement Agreement, dated
March 27, 1995; and
WHEREAS, pursuant to the Settlement Agreement, Alexander &
Alexander have agreed to pay certain amounts (the "Settlement
Amount") upon certain terms and conditions as set forth in the
Settlement Agreement and this Escrow Agreement; and
WHEREAS, the obligation to pay the Settlement Amount is
evidenced in part by two Promissory Notes substantially in the
form of Exhibits B-1 and B-2 attached to the Settlement Agreement
(the "Promissory Notes", each of which is to be secured by a
letter of credit (the "Letters of Credit") as specified in the
Settlement Agreement); and
WHEREAS, pending Court approval of the Settlement
Agreement, the Rehabilitator has demanded that the Promissory
Notes be delivered to an Escrow Agent to be held in accordance
with the terms and conditions of this Escrow Agreement; and
WHEREAS, in order to secure Alexander & Alexander's
agreement to pay the initial $12,000,000.00 (the "Initial
Payment") of the Settlement Amount to the Rehabilitator and MAR
respectively, pursuant to the terms and conditions of the
-3-
<PAGE>
Settlement Agreement, the Rehabilitator has demanded that
Alexander & Alexander deposit the Initial Payment with an Escrow
Agent in the Escrow Account (as hereinafter defined) pursuant to
the terms and conditions of this Escrow Agreement;
COVENANTS:
----------
NOW, THEREFORE, in consideration of the mutual promises
and covenants contained herein, the parties, intending to be
legally bound hereby, mutually agree as follows:
1. Appointment of Escrow Agent. The Rehabilitator
---------------------------
and Alexander & Alexander designate PNC Bank, N.A. ("Bank" or
"Escrow Agent") to act as the Escrow Agent for the period
commencing on the date hereof and expiring upon the termination
of this Escrow Agreement pursuant to Section 4 hereof. The
Rehabilitator and Alexander & Alexander irrevocably authorize the
Bank to exercise the powers and to perform the duties as are
specifically delegated to or required of the Escrow Agent by the
terms and conditions hereof, and to exercise such other
reasonably incidental powers as may be necessary or desirable in
the sole discretion of the Escrow Agent to fulfill its duties and
obligations.
2. Deposit of Initial Payment of Settlement Amount.
-----------------------------------------------
A. Within five (5) business days of the Effective
Date of the Settlement Agreement (as defined by the terms of the
Settlement Agreement), simultaneously executed with this Escrow
Agreement, Alexander & Alexander shall (i) execute the Promissory
-4-
<PAGE>
Notes and deliver them to the Bank to be held in accordance with
the terms hereof; and (ii) deposit the Initial Payment,
$12,000,000.00, into an account with the Bank, which was selected
and designated by the parties (the "Escrow Account"). The
parties acknowledge that they previously have executed a Cash
Advisory Agreement or other appropriate letter agreement with the
Bank to govern the handling of the Escrow Account. Within thirty
(30) days of the Effective Date of the Settlement Agreement,
Alexander & Alexander will cause the Letters of Credit to be
issued and delivered to the Bank to be held in escrow in
accordance with the terms hereof.
B. All monies paid or other property delivered
to the Escrow Agent together with any interest earned or accrued
thereon and any capital gains or losses and less any necessary
fees, costs, commissions and/or expenses shall be referred to as
the "Escrowed Funds". The Bank shall invest any cash portion of
the Initial Escrow Funds as outlined in the Cash Advisory
Agreement or other appropriate letter agreement, as executed with
the Bank, in United States Treasury Bills or Notes having a
maturity of approximately 90 days, or any other form of
instrument or investment with any other maturity period, as
agreed to in writing by the parties hereto.
C. If any of the Installment Payments shall
become due under the Promissory Notes while the Promissory Notes
are still being held by the Bank, then Alexander & Alexander
shall deliver the amount of such payment to the Bank to be held
-5-
<PAGE>
as part of the Escrowed Funds and ultimately to be distributed
(together with any earnings thereon) simultaneously with and to
the same person as, the Promissory Notes. If any Installment
Payment is not paid when due in accordance with the preceding
sentence, then the overdue amount and any interest due thereon
shall be drawn under the Letters of Credit, whereupon such
payment default shall be deemed to have been cured. Any
provision of the Promissory Notes or any other document to the
contrary notwithstanding, the late payment of any Installment
Payment prior to the Final Order Date (as defined in the
Settlement Agreement) shall not result in the acceleration of
either Promissory Note.
3. Obligations Covered. The Escrowed Funds, whether
-------------------
held in the Escrow Account or otherwise held by the Escrow Agent,
shall secure the payment, in full, of the obligations of
Alexander & Alexander to make the Initial Payment under the
Settlement Agreement (and make Installment Payments, if any,
which become due under the Promissory Notes while the Promissory
Notes are still being held by the Bank pursuant hereto), and this
Escrow Agreement shall remain in full force and effect until all
such obligations have been paid in full or terminated.
4. Release of Escrowed Funds and Termination.
-----------------------------------------
A. Within five (5) business days of the Final
Order Date, the Escrow Agent shall (i) deliver the Promissory
Notes (together with the related Letters of Credit) in accordance
with the instructions of the Rehabilitator; and (ii) pay or
-6-
<PAGE>
transfer from the Escrowed Funds in accordance with the
instructions of the Rehabilitator an amount in cash equal to any
Installment Payments (together with any earnings thereon) which
shall have become due under the Promissory Notes prior to the
date of such distribution; and (iii) pay or transfer to the
Rehabilitator, from the Escrowed Funds, cash totalling in value
$11,000,000.00 and the first 30 days of accrued interest on the
Initial Payment and any interest which accrued after the date on
which the Order (as defined in the Settlement Agreement) was
entered and $1,000,000.00 to MAR; the remainder of the accrued
interest on the Initial Payment shall be transferred to Alexander
& Alexander. The Rehabilitator and MAR shall deliver to the
Escrow Agent, prior to the time that the transfers are to be
made, written instructions for payment or transfer in accordance
with this subsection. Alexander & Alexander shall give written
instructions for payment or transfer of interest due to Alexander
& Alexander.
B. In the event of notice of the termination of
the Settlement Agreement and this Escrow Agreement as permitted
pursuant to the Settlement Agreement, the Escrow Agent shall,
within five (5) business days of the receipt of such notice (i)
mark the Promissory Notes "Cancelled" and return them to
Alexander & Alexander; (ii) return the Letters of Credit to the
issuer thereof for cancellation; and (iii) cause the Escrowed
Funds, or, at the option of Alexander & Alexander, the
instruments and/or investments held in the Escrow Account, to be
-7-
<PAGE>
transferred to Alexander & Alexander in accordance with the
written instructions to be received by the Escrow Agent from
Alexander & Alexander and confirmed by the Rehabilitator.
C. Upon final release or transfer of all
Escrowed Funds, the Promissory Notes, and the Letters of Credit,
this Escrow Agreement shall be deemed to be terminated and the
Escrow Agent shall be released and discharged from any and all of
their duties, responsibilities and liabilities hereunder.
5. Limitation on Escrow Agent's Responsibilities. The
---------------------------------------------
acceptance by the Escrow Agent of its duties pursuant to this
Escrow Agreement is expressly made subject to the following terms
and conditions:
A. The Escrow Agent shall act solely as a
stakeholder and not as a party to, and is not bound by, any
agreement between the Rehabilitator and the Settling Defendants
(as defined in the Settlement Agreement) or their respective
heirs, administrators, successors or assigns. The Escrow Agent
shall not be deemed to be an agent, other than as set forth
herein, of either or both of the Rehabilitator or Alexander &
Alexander.
B. The Escrow Agent shall be entitled to rely
and shall be fully protected in relying upon any note, writing,
resolution, notice, statement, certificate, telex, teletype,
message, cablegram, radiogram, order or other document or
telephone message reasonably believed by them to be genuine and
correct and to have been signed, sent or made by the proper
-8-
<PAGE>
person or entity. The Escrow Agent also shall be entitled to
rely, and shall be fully protected in relying, with respect to
any legal matter pertaining to this Escrow Agreement and its
duties and obligations, upon advice of its counsel.
C. In the event of any dispute as to the nature
of its rights or obligations hereunder, the Escrow Agent may at
any time or from time to time interplead, deposit and/or pay all
or any part of the Escrowed Funds with or to the Commonwealth
Court of Pennsylvania in accordance with such Court's procedural
rules. The Escrow Agent shall give notice of such action to the
parties hereto. Upon such interpleader, deposit or payment, the
Escrow Agent shall immediately and automatically be relieved and
discharged from all further duties, responsibilities and
liabilities hereunder.
6. General.
-------
A. Each party to this Escrow Agreement
represents and warrants that it has all the requisite power and
authority to enter into this Escrow Agreement and to implement
the transactions contemplated herein and that the signatories to
this Escrow Agreement are duly authorized to execute this Escrow
Agreement on behalf of the respective parties hereto.
B. Each party to this Escrow Agreement
represents and warrants that apart from the Final Order, no
action, consent or approval of any person, entity, court or
governmental authority is required by it for the lawful execution
-9-
<PAGE>
of this Escrow Agreement or the lawful performance and
consummation of the transactions contemplated herein.
C. Each party to this Escrow Agreement
represents and warrants that its execution of this Escrow
Agreement and its performance and consummation of the
transactions contemplated herein will not violate any provision
of any law or any order, writ, injunction or decree of any court
or other governmental authority.
D. Each party to this Escrow Agreement
represents and warrants that this Escrow Agreement has not been
fraudulently induced either through active concealment of
material facts or non-disclosure of material facts, and,
accordingly, this Escrow Agreement is not subject to rescission
on any such grounds.
E. This Escrow Agreement shall be interpreted in
accordance with the laws of the Commonwealth of Pennsylvania.
Any dispute arising under this Escrow Agreement shall be subject
to the jurisdiction of the Commonwealth Court of Pennsylvania and
the parties hereto hereby consent to the jurisdiction of this
Court in the event of any dispute under this Escrow Agreement.
F. This Escrow Agreement may be executed in
counterparts, including by facsimile, which together shall be
considered an original document.
G. This Escrow Agreement, the Settlement
Agreement, Promissory Notes, and any stipulations required by the
Settlement Agreement, all as defined in the Settlement Agreement,
-10-
<PAGE>
set forth all of the promises, covenants, agreements, conditions
and undertakings among the parties hereto with respect to the
subject matter hereof, and supersede all prior and
contemporaneous agreements, undertakings, inducements or
conditions.
H. This Escrow Agreement may not be amended,
modified, waived, discharged or terminated (except pursuant to
the provisions of Section 4 herein) or except by written
instrument duly executed by the Rehabilitator, MAR, Alexander &
Alexander and the Escrow Agent.
I. The Escrowed Funds or any part thereof shall
not be released except by written instructions issued and signed
by or on behalf of the Rehabilitator, MAR, Alexander & Alexander
and the Escrow Agent, except as provided in this Agreement.
J. No party to this Escrow Agreement shall
assign or delegate, in whole or in part, any or all of its rights
or obligations hereunder to any person or entity without the
written approval of all parties hereto, except as otherwise
provided in this Agreement or the Settlement Agreement.
K. This Escrow Agreement shall be binding upon
and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators and personal
representatives.
L. The Escrow Agent shall not be liable for any
error of judgment or for any action taken or omitted by it in
good faith, or for any mistake or fact or law, or for anything
-11-
<PAGE>
which it may do or refrain from doing in connection herewith
except its own gross negligence or willful misconduct.
M. Alexander & Alexander agrees to indemnify the
Escrow Agent and hold it harmless from and against any loss,
liability, expenses (including reasonable attorneys' fees and
expenses), claim or demand arising out of or in connection with the
performance of its obligations in accordance with the provisions of this
Escrow Agreement, except for the gross negligence or willful misconduct of
the Escrow Agent. This indemnity shall survive the resignation of the Escrow
Agent or the termination of this Escrow Agreement.
N. The fee of the Escrow Agent for its services shall be
paid by Alexander & Alexander in accordance with the standard schedule of
charges in effect when services are rendered. Such schedule will be
furnished upon request.
O. In addition to the fee described in paragraph 6(N), the
Escrow Agent shall be entitled to reimbursement from Alexander & Alexander
for all reasonable expenses, disbursement or advances made by it in the
performance of its duties hereunder, including counsel and court cost.
P. All interest accrued in the Escrow Account shall be for
the account of the Rehabilitator and/or Alexander & Alexander, as set forth
more specifically above, and shall be reported under applicable federal
regulations using the tax identification numbers, as appropriate, of the
Rehabilitator,
-12-
<PAGE>
which is 230902460 and of Alexander & Alexander, which is 520969822.
7. Notices. Any notice or communication required or permitted
-------
pursuant to this Escrow Agreement shall be given in writing (a) by facsimile
and first class mail, postage prepaid; or (b) by certified mail, return
---
receipt requested; or (c) by hand delivery, addressed as follows:
If to the Rehabilitator:
Alexander Bratic
Special Deputy Rehabilitator
The Mutual Fire, Marine and
Inland Insurance Company
(In Rehabilitation)
1500 Market Street, 17th Floor
Centre Square, East Tower
Philadelphia, PA 19102
Telephone: (215) 567-9600
Telefax: (215) 567-9300
with a copy to:
Gregory P. Miller, Esquire
Gaetan J. Alfano, Esquire
Gregg W. Mackuse, Esquire
MILLER, ALFANO & RASPANTI, P.C.
1818 Market Street, Suite 3402
Philadelphia, PA 19103
Telephone: (215) 972-6400
Telefax: (215) 981-0082
James S. Gkonos, Esquire
The Mutual Fire, Marine and
Inland Insurance Company
(In Rehabilitation)
1500 Market Street, 17th Floor
Centre Square, East Tower
Philadelphia, PA 19102
Telephone: (215) 567-9600
Telefax: (215) 567-9300
-13-
<PAGE>
If to Alexander & Alexander:
Albert A. Skwiertz, Esquire
Vice President & General Counsel
Alexander & Alexander Services Inc.
1185 Avenue of the Americas
New York, NY 10036
Telephone: (212) 444-4530
Telefax: (212) 869-7535
with a copy to:
John D. Gordan, III, Esquire
Laurie Foster, Esquire
Morgan, Lewis & Bockius
101 Park Avenue
New York, NY 10178-0060
Telephone: (212) 309-6000
Telefax: (212) 309-6273
If to the Escrow Agent to:
PNC Bank, N.A.
Corporate Trust Division
1700 Market Street; Suite 1412
Philadelphia, PA 19103
Telephone: (215) 585-8738
Telefax : (215) 585-8872
or to such other address or in care of such other person as shall be
designated in a notice by any party to all other parties, and shall be deemed
to have been given as of the date of receipt.
8. Authorized Signatory. The authorized signatories for the
--------------------
Escrow Agent are Constantine Hromych and Alfred J. Perazzelli and Arlene M.
Yocum, Esq.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be duly executed as of the day and year first above written.
ATTEST: LINDA S. KAISER, Insurance Commissioner of the
Commonwealth of Pennsylvania as Rehabilitator
of the Mutual Fire, Marine and Inland Insurance
Company (in Rehabilitation)
By: /s/ Alexander Bratic
-------------------------- ------------------------------
Alexander Bratic
Special Deputy Rehabilitator
DATE: March 27, 1995
------------------------------
ATTEST: ALEXANDER & ALEXANDER
SERVICES INC.
By: /s/ Albert A. Skwiertz, Jr.
------------------------- ------------------------------
Name: Albert A. Skwiertz, Jr.
Title: Vice President
DATE: March 27, 1995
------------------------------
ATTEST: ALEXANDER & ALEXANDER INC.
By: /s/ Albert A. Skwiertz, Jr.
------------------------- ------------------------------
Name: Albert A. Skwiertz, Jr.
Title: Vice President
DATE: March 27, 1995
------------------------------
-15-
<PAGE>
WITNESS: MILLER, ALFANO & RASPANTI, P.C.
________________________ By: /s/ Gaetan J. Alfano
-----------------------------
Gregory P. Miller, Esquire or
Gaetan J. Alfano, Esquire
A Member of the Firm
DATE: March 27, 1995
------------------------------
WITNESS: ESCROW AGENT:
By: /s/ Con Hromych
------------------------- --------------------------------
-16-
<PAGE>
PROMISSORY NOTE (Miller, Alfano & Raspanti, P.C.)
-------------------------------------------------
$345,000.00 Dated: March 27, 1995
Philadelphia, Pennsylvania
FOR VALUE RECEIVED, Alexander & Alexander Services Inc. and
Alexander & Alexander Inc. (hereinafter individually and collectively called
"Maker"), jointly and severally promise to pay to the order of Miller, Alfano
& Raspanti, P.C. (hereinafter called "Payee"), without set-off or defalcation
at 1818 Market Street, Philadelphia, Pennsylvania, or such place as Payee may
designate in writing, the principal sum of THREE HUNDRED FORTY-FIVE THOUSAND
DOLLARS ($345,000.00) lawful currency of the United States of America, as
provided herein.
No interest shall accrue on the principal amount hereunder, except
as otherwise expressly provided herein. The principal sum shall be payable
in six (6) equal, consecutive annual installments of Fifty Seven Thousand,
Five Hundred Dollars ($57,500.00) on or before the 1st day of April, 1996 and
on or before the 1st day of April for each year from 1997 to 2001.
This Note is being delivered as evidence of the outstanding amounts
owed by Maker to Payee. If Maker fails to pay any installment of principal
hereunder within seven calendar (7) days following the receipt by Maker at
its office located at 1185 Avenue of the Americas, New York, NY 10036,
addressed to the attention of Albert A. Skwiertz, Jr., Esquire, of written
notice thereof, interest shall immediately begin to accrue on the overdue
principal amount at a default rate of interest equal to ten percent (10%) per
annum until such delinquent installment (and accrued interest hereunder) is
paid in full or until all amounts owing hereunder (including, without
limitation, accrued interest hereunder) are paid in full, if Payee has
elected to accelerate the amounts due hereunder.
Upon occurrence of any of the following events, an event of default
shall arise hereunder, and the entire unpaid amount of principal hereunder
(and any other amounts due hereunder) shall, at the option of Payee or any
other holder hereof, become immediately due and payable without notice or
demand: (a) the failure to pay any installment of principal or other amounts
provided hereunder when due, and such failure continues for seven (7)
calendar days after receipt by Maker at its address set forth above of
written notice of such failure or (b) a petition in bankruptcy is filed by,
or an order for relief under the Bankruptcy Code shall be entered against,
any Maker or (c) if Maker gives notice of its intent either to cancel or not
to renew the letter of credit securing this
<PAGE>
Note, or the issuer of the letter of credit securing this Note shall have
given notice of its intent not to renew such letter of credit and a
replacement letter of credit in substantially the same form shall not have
been issued within thirty (30) days of receipt of any such notice or (d) any
Maker makes an assignment for the benefit of its creditors. In addition, upon
the occurrence of any such event of default, Payee shall have the right to
pursue any other remedies as may be provided by law or in equity and shall be
entitled to recover all collection costs and expenses, including without
limitation, the reasonable attorneys' fees for collection of the total amount
then due by Maker to Payee.
The remedies of Payee as provided herein and all warrants of
attorney herein shall be cumulative and concurrent, and may be pursued
singly, successively, and/or together with any other remedies that may be
available against Maker at the sole discretion of the Payee, and such
warrants shall not be exhausted by an exercise thereof but may be exercised
as often as occasion therefore shall occur, and the failure to exercise any
such right or remedy shall in no event be construed as a waiver or release of
the same.
Maker hereby waives presentment for payment, notice of dishonor and
nonpayment, notice of protest, and protest of this Note, and all other
notices in connection with the delivery of this acceptance, performance,
default or enforcement of the payment of this Note, and each agrees that the
liability of each of them shall be unconditional without regard to the
liability of any other party and shall not be in any manner affected by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by Payee; and Maker hereby consents to any and all extensions of
time, renewals, waivers or modifications that may be granted by Payee with
respect to the payment or other provisions of this Note, and to the release
of any collateral, or any party thereof, with or without substitution, and
agrees that additional makers, endorsers, guarantors, or sureties may become
parties hereto without giving notice to Maker or reducing its liability
hereunder.
Payee shall not by any act of omission or commission be deemed to
waive any of its rights or remedies hereunder unless such waiver be in
writing and signed by Payee, and then only to the extent specifically set
forth therein. Any such waiver by Payee of any breach of, or failure to
comply with, any provisions of this Note shall not be construed as or
constitute a continuing waiver of such provisions or a waiver of any other
breach of or failure to comply with any other provision of this Note.
The words "Payee" and "Maker" whenever occurring herein shall be
deemed and construed to include their respective representatives, successors
and assigns. This instrument shall be governed, construed and enforced by
and in accordance with the laws
-2-
<PAGE>
of the Commonwealth of Pennsylvania, without giving effect to conflicts of
laws principles. If any provision of this Note hereof is determined by a
court of competent jurisdiction to be invalid or unenforceable, such
invalidity or unenforceability shall not affect the remaining provisions
hereof, other than those to which it is held invalid or unenforceable, and
this Note will be construed and enforced as if such invalid or unenforceable
provisions had never been inserted.
The Maker expressly consents to the transfer, sale, assignment
and/or negotiation of this Note (in whole but not in part). Maker cannot
assign or delegate its rights or obligations without the prior written
consent of the Payee.
IN WITNESS WHEREOF, the undersigned have executed this Note on the
date and year first written above.
ATTEST: ALEXANDER & ALEXANDER
SERVICES INC.
By: /s/ Albert A. Skwiertz, Jr.
----------------------------- ---------------------------
Name: Albert A. Skwiertz, Jr.
Title: Vice President
ATTEST: ALEXANDER & ALEXANDER INC.
By: /s/ Albert A. Skwiertz, Jr.
----------------------------- ---------------------------
Name: Albert A. Skwiertz, Jr.
Title: Vice President
-3-
<PAGE>
PROMISSORY NOTE (MUTUAL FIRE)
-----------------------------
$34,655,000.00 Dated: March 27, 1995
Philadelphia, Pennsylvania
FOR VALUE RECEIVED, Alexander & Alexander Services Inc. and
Alexander & Alexander Inc. (hereinafter individually and collectively called
"Maker"), jointly and severally promise to pay to the order of The Mutual
Fire, Marine and Inland Insurance Company (In Rehabilitation) (hereinafter
called "Payee"), without set-off or defalcation at 1500 Market Street,
Philadelphia, Pennsylvania, or such place as Payee may designate in writing,
the principal sum of THIRTY FOUR MILLION SIX HUNDRED FIFTY-FIVE THOUSAND
DOLLARS ($34,655,000.00) lawful currency of the United States of America, as
provided herein.
No interest shall accrue on the principal amount hereunder, except
as otherwise expressly provided herein. The principal sum shall be payable
in six (6) equal, consecutive annual installments of Five Million, Seven
Hundred and Seventy Five Thousand, Eight Hundred and Thirty-Three Dollars and
Thirty-Three Cents ($5,775,833.33) on or before the 1st day of April, 1996
and on or before the 1st day of April for each year from 1997 to 2001.
This Note is being delivered as evidence of the outstanding amounts
owed by Maker to Payee. If Maker fails to pay any installment of principal
hereunder within seven calendar (7) days following the receipt by Maker at
its office located at 1185 Avenue of the Americas, New York, NY 10036,
addressed to the attention of Albert A. Skwiertz, Jr., Esquire, of written
notice thereof, interest shall immediately begin to accrue on the overdue
principal amount at a default rate of interest equal to ten percent (10%) per
annum until such delinquent installment (and accrued interest hereunder) is
paid in full or until all amounts owing hereunder (including, without
limitation, accrued interest hereunder) are paid in full, if Payee has
elected to accelerate the amounts due hereunder.
Upon occurrence of any of the following events, an event of default
shall arise hereunder, and the entire unpaid amount of principal hereunder
(and any other amounts due hereunder) shall, at the option of Payee or any
other holder hereof, become immediately due and payable without notice or
demand: (a) the failure to pay any installment of principal or other amounts
provided hereunder when due, and such failure continues for seven (7)
calendar days after receipt by Maker at its address set forth above of
written notice of such failure or (b) a petition in bankruptcy is filed by,
or an order for relief under the Bankruptcy Code shall be entered
<PAGE>
against, any Maker or (c) if Maker gives notice of its intent either to
cancel or not to renew the letter of credit securing this Note, or the issuer
of the letter of credit securing this Note shall have given notice of its
intent not to renew such letter of credit and a replacement letter of credit
in substantially the same form shall not have been issued within thirty (30)
days of receipt of any such notice or (d) any Maker makes an assignment for
the benefit of its creditors. In addition, upon the occurrence of any such
event of default, Payee shall have the right to pursue any other remedies as
may be provided by law or in equity and shall be entitled to recover all
collection costs and expenses, including without limitation, the reasonable
attorneys' fees for collection of the total amount then due by Maker to
Payee.
The remedies of Payee as provided herein and all warrants of
attorney herein shall be cumulative and concurrent, and may be pursued
singly, successively, and/or together with any other remedies that may be
available against Maker at the sole discretion of the Payee, and such
warrants shall not be exhausted by an exercise thereof but may be exercised
as often as occasion therefore shall occur, and the failure to exercise any
such right or remedy shall in no event be construed as a waiver or release of
the same.
Maker hereby waives presentment for payment, notice of dishonor and
nonpayment, notice of protest, and protest of this Note, and all other
notices in connection with the delivery of this acceptance, performance,
default or enforcement of the payment of this Note, and each agrees that the
liability of each of them shall be unconditional without regard to the
liability of any other party and shall not be in any manner affected by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by Payee; and Maker hereby consents to any and all extensions of
time, renewals, waivers or modifications that may be granted by Payee with
respect to the payment or other provisions of this Note, and to the release
of any collateral, or any party thereof, with or without substitution, and
agrees that additional makers, endorsers, guarantors, or sureties may become
parties hereto without giving notice to Maker or reducing its liability
hereunder.
Payee shall not by any act of omission or commission be deemed to
waive any of its rights or remedies hereunder unless such waiver be in
writing and signed by Payee, and then only to the extent specifically set
forth therein. Any such waiver by Payee of any breach of, or failure to
comply with, any provisions of this Note shall not be construed as or
constitute a continuing waiver of such provisions or a waiver of any other
breach of or failure to comply with any other provision of this Note.
The words "Payee" and "Maker" whenever occurring herein shall be
deemed and construed to include their respective
-2-
<PAGE>
representatives, successors and assigns. This instrument shall be governed,
construed and enforced by and in accordance with the laws of the Commonwealth
of Pennsylvania, without giving effect to conflicts of laws principles. If
any provision of this Note hereof is determined by a court of competent
jurisdiction to be invalid or unenforceable, such invalidity or
unenforceability shall not affect the remaining provisions hereof, other than
those to which it is held invalid or unenforceable, and this Note will be
construed and enforced as if such invalid or unenforceable provisions had
never been inserted.
The Maker expressly consents to the transfer, sale, assignment
and/or negotiation of this Note (in whole, but not in part). Maker cannot
assign or delegate its rights or obligations without the prior written
consent of the Payee.
IN WITNESS WHEREOF, the undersigned have executed this Note on the
date and year first written above.
ATTEST: ALEXANDER & ALEXANDER
SERVICES INC.
By: /s/ Albert A. Skwiertz, Jr.
----------------------------- ---------------------------
Name: Albert A. Skwiertz, Jr.
Title: Vice President
ATTEST: ALEXANDER & ALEXANDER INC.
By: /s/ Albert A. Skwiertz, Jr.
----------------------------- ---------------------------
Name: Albert A. Skwiertz, Jr.
Title: Vice President
-3-
<PAGE>
MILLER, ALFANO & RASPANTI, P.C. Attorneys for Plaintiff,
BY: Gregory P. Miller, Esquire Linda S. Kaiser,
Gaetan J. Alfano, Esquire Insurance Commissioner of
Gregg W. Mackuse, Esquire the Commonwealth of Penn-
Identification Nos. 24891, 32971 sylvania as Rehabilitator
and 54366 of The Mutual Fire Marine
Miller, Alfano & Raspanti, P.C. and Inland Insurance
1818 Market Street, Suite 3402 Company (In Rehabilitation)
Philadelphia, PA 19103
(215) 972-6400
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
____________________________________X
GEORGE F. GRODE, Insurance : NO. 3483, C.D. 1986
Commissioner of the Commonwealth :
of Pennsylvania, :
Plaintiff, :
:
v. :
:
THE MUTUAL FIRE, MARINE AND :
INLAND INSURANCE COMPANY, :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (BT)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (HB)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
INSURANCE COMPANY OF EVANSTON :
Defendant. :
____________________________________X
<PAGE>
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (HC)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine and :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (ET)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY :
Defendant. :
____________________________________X
NOTICE OF
MOTION OF THE REHABILITATOR FOR APPROVAL OF A
SETTLEMENT AGREEMENT BETWEEN THE REHABILITATOR OF
THE MUTUAL FIRE, MARINE AND INLAND INSURANCE COMPANY
(IN REHABILITATION) AND ALEXANDER & ALEXANDER SERVICES INC.,
ALEXANDER & ALEXANDER INC., SHAND MORAHAN & COMPANY, INC.
EVANSTON INSURANCE COMPANY AND INSURANCE COMPANY OF EVANSTON
------------------------------------------------------------
TO THE PARTIES ON THE SHORT AND MASTER SERVICE LISTS:
1. The Insurance Commissioner of Pennsylvania, as
Rehabilitator of The Mutual Fire, Marine and Inland Insurance
Company (In Rehabilitation) (" the Rehabilitator") has filed a
Motion for Approval Of a Settlement Agreement between the
Rehabilitator and Miller, Alfano & Raspanti, P.C. ("MAR") on the
one part and Alexander & Alexander Services Inc.; Alexander &
Alexander Inc.; Shand, Morahan & Company, Inc.; Evanston
Insurance Company; and Insurance Company of Evanston
(collectively "the Settling Defendants"), on the other part.
2
<PAGE>
2. The Settlement Agreement provides, inter alia, for the
----- ----
resolution of claims by the Rehabilitator against the Settling
Defendants and by the Settling Defendants against The Mutual Fire,
Marine and Inland Insurance Company (In Rehabilitation) ("Mutual
Fire").
3. The Rehabilitator seeks approval of this Court of the
Settlement Agreement with the Settling Defendants dated March 27,
1995 that will, inter alia, provide for a payment by the Settling
----- ----
Defendants and will compromise, resolve and settle the following
claims, actions and proceedings:
(a) Constance B. Foster, Insurance Commissioner of the
--------------------------------------------------
Commonwealth of Pennsylvania, as Rehabilitator of The Mutual
------------------------------------------------------------
Fire, Marine and Inland Insurance Company v. Evanston Insurance
---------------------------------------------------------------
Company, Civil Action No. 3483, C.D. 1986 (BT) (Pa. Commw. Ct.);
-------
(b) Constance B. Foster, Insurance Commissioner of the
--------------------------------------------------
Commonwealth of Pennsylvania, As Rehabilitator of The Mutual
------------------------------------------------------------
Fire, Marine and Inland Insurance Company v. Insurance Company of
-----------------------------------------------------------------
Evanston, Civil Action No. 3483, C.D. 1986 (HB) (Pa. Commw. Ct.);
--------
(c) Constance B. Foster, Insurance Commissioner of the
--------------------------------------------------
Commonwealth of Pennsylvania, as Rehabilitator of The Mutual
------------------------------------------------------------
Fire, Marine and Inland Insurance Company v. Evanston Insurance
---------------------------------------------------------------
Company, Civil Action No. 3483, C.D. 1986 (HC) (Pa. Commw. Ct.);
-------
(d) Constance B. Foster, Insurance Commissioner of the
--------------------------------------------------
Commonwealth of Pennsylvania, as Rehabilitator of The Mutual
------------------------------------------------------------
Fire, Marine and Inland Insurance Company v. Evanston Insurance
---------------------------------------------------------------
Company, Civil Action No. 3483, C.D. 1986 (ET) (Pa. Commw. Ct.);
-------
and
3
<PAGE>
(e) Cynthia M. Maleski, Insurance Commissioner of the
-------------------------------------------------
Commonwealth of Pennsylvania, as Rehabilitator of the Mutual
------------------------------------------------------------
Fire, Marine and Inland Insurance Company v. Alexander &
--------------------------------------------------------
Alexander Services, Inc., Alexander & Alexander, Inc. and Shand,
----------------------------------------------------------------
Morahan & Company, Inc., Civil Action No. 91-1179 (E.D. Pa.), as
-----------------------
may be amended.
4. As part of the Settlement Agreement with the Settling
Defendants, the parties have agreed to the releases specified
therein.
5. As part of the Settlement Agreement, the parties have
requested that the Court enter an order that:
(i) Mutual Fire's present and past shareholders,
policyholders, creditors, employees and agents shall be forever
barred from commencing, asserting or continuing any and all
claims, demands, suits or causes of action of any kind against
any or all of the Releasees (as defined in the Settlement
Agreement); and
(ii) all other parties, persons, firms and entities
subject to the jurisdiction of the Commonwealth Court shall be
forever barred from commencing, asserting or continuing any and
all claims, demands, suits or causes of action of any kind
against any or all past and present officers, directors or
employees of Mutual Fire;
based on or arising out of any matter whatsoever that is
related to the subject matter of any Litigation (as defined in
the Settlement Agreement), the Settlement Agreement and/or in any
manner relating to or resulting from the Rehabilitator's alleged
4
<PAGE>
injuries, losses or damages.
6. As part of the Settlement Agreement, the Settling
Defendants will release all claims and rights that they may have
as creditors under Mutual Fire's Plan of Rehabilitation dated
January 31, 1989 as modified by Order dated January 23, 1990,
including all rights as Class I, Class IV and Class VI claimants.
7. A copy of this motion, along with a copy of the
Settlement Agreement, are available for public inspection in the
Clerk's office of the Commonwealth Court at the address set forth
in the next sentence. Any party in interest may file an answer,
objection or other responsive pleading with the Clerk,
Commonwealth Court of Pennsylvania, The Widener Building, 1339
Chestnut Street, Suite 990, Philadelphia, Pennsylvania 19107, a
copy of which must be served on the following counsel, on or
before twenty (20) days after the date of mailing of this Notice:
Gregory P. Miller, Esquire
Gaetan J. Alfano, Esquire
Gregg W. Mackuse, Esquire
MILLER, ALFANO & RASPANTI, P.C.
1818 Market Street, Suite 3402
Philadelphia, PA 19103
Telephone: (215) 972-6400
Telefax: (215) 981-0082
Counsel for Plaintiff, Linda S. Kaiser, Insurance
Commissioner of the Commonwealth of Pennsylvania as
Rehabilitator of The Mutual Fire, Marine and Inland
Insurance Company (In Rehabilitation)
Joseph M. Donley, Esquire
Kittredge, Donley, Elson, Fullem & Embick
The Bank Building, 5th Floor
421 Chestnut Street
Philadelphia, PA 19106
Telephone: (215) 829-9900
Telefax: (215) 829-9888
5
<PAGE>
Counsel for Settling Defendants, Shand, Morahan & Company,
Inc.; Evanston Insurance Company; and Insurance Company of
Evanston
John D. Gordan, III, Esquire
Laurie Foster, Esquire
Morgan, Lewis & Bockius
101 Park Avenue
New York, NY 10178-0060
Telephone: (212) 309-6000
Telefax: (212) 309-6273
Counsel for Settling Defendants, Alexander & Alexander
Services, Inc.; Alexander & Alexander Inc.
8. Any party in interest may request a hearing in writing
stating the reasons why a hearing is necessary; such a request
must be filed and served as provided in the preceding paragraph.
9. In the absence of any answer, objection, responsive
pleading or request for a hearing, counsel for the Rehabilitator
shall promptly certify to the Court the absence of such filing
and shall submit a proposed form of Order that, inter alia,
----- ----
approves the Settlement Agreement and directs the Rehabilitator,
Mutual Fire and Settling Defendants to render performance in
accordance with the terms and conditions of the Settlement
Agreement, releases certain claims as set forth in paragraphs 4
and 6 hereof, and bars certain claims as set forth in paragraph 5
hereof.
10. In the absence of any answer, objection, other
responsive pleading or request for hearing, the Court may, upon
consideration of the record, grant this Motion.
Respectfully submitted,
6
<PAGE>
MILLER, ALFANO & RASPANTI, P.C.
By: /s/ Gaetan J. Alfano
-------------------------------
GREGORY P. MILLER, ESQUIRE
GAETAN J. ALFANO, ESQUIRE
Of Counsel: GREGG W. MACKUSE, ESQUIRE
James S. Gkonos, Esquire 1818 Market Street, Suite 3402
The Mutual Fire, Marine and Philadelphia, PA 19103
Inland Insurance Company (215) 972-6400
(In Rehabilitation)
1500 Market Street Attorneys for Plaintiff,
Centre Square Linda S. Kaiser,
East Tower - 17th Floor Insurance Commissioner of the
Philadelphia, PA 19102 Commonwealth of Pennsylvania
as Rehabilitator of The Mutual
(215) 567-9600 Fire, Marine and Inland
Insurance Company
(In Rehabilitation)
Dated: March 27, 1995
7
<PAGE>
CERTIFICATE OF SERVICE
----------------------
I, GAETAN J. ALFANO, hereby certify that true and correct
copies of the foregoing Notice of Motion of the Rehabilitator For
Approval of Settlement Agreement were served upon the following
persons and in the manner indicated below:
VIA TELECOPY AND FEDERAL EXPRESS
--------------------------------
John D. Gordan, III, Esquire Joseph M. Donley, Esquire
Morgan, Lewis & Bockius Kittredge, Donley, Elson
101 Park Avenue Fullem & Embick
New York NY 10178 The Bank Building, 5th Flr.
421 Chestnut Street
Philadelphia, PA 19106
VIA FIRST CLASS MAIL
--------------------
To All Parties on the Short and Master Service List
/s/ Gaetan J. Alfano
------------------------------------
Gaetan J. Alfano, Esquire
(Attorney Identification No. 32971)
MILLER, ALFANO & RASPANTI, P.C.
1818 Market Street, Suite 3402
Philadelphia, PA 19103
(215) 972-6400
Dated: March 27, 1995
--------------------------
<PAGE>
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
____________________________________X
GEORGE F. GRODE, Insurance : NO. 3483, C.D. 1986
Commissioner of the Commonwealth :
of Pennsylvania, :
Plaintiff, :
:
v. :
:
THE MUTUAL FIRE, MARINE AND :
INLAND INSURANCE COMPANY, :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (BT)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (HB)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
INSURANCE COMPANY OF EVANSTON :
Defendant. :
____________________________________X
<PAGE>
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (HC)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine and :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (ET)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY :
Defendant. :
____________________________________X
ORDER
-----
AND NOW, this _____________ day of ____________________, 1995, upon
consideration of the Motion of Linda S. Kaiser, Insurance Commissioner of the
Commonwealth of Pennsylvania, as Rehabilitator of The Mutual Fire, Marine and
Inland Insurance Company (In Rehabilitation) ("the Rehabilitator") for
approval of a certain Settlement Agreement dated March 27, 1995 ("Settlement
Agreement") between the Rehabilitator and Miller, Alfano & Raspanti P.C.
("MAR") on the one part and Alexander & Alexander Services, Inc.; Alexander &
Alexander Inc.; Shand, Morahan & Company, Inc.; Evanston Insurance Company;
and Insurance Company of Evanston (collectively "the Settling Defendants") on
the other part, and it
-2-
<PAGE>
appearing to the Court that notice of said Motion has been duly and validly
given to all parties in interest by virtue of the service of a copy of the
Notice of Motion by first class United States mail on all persons, firms and
entities on the Short and Master Service Lists with respect to matters
arising out of the Rehabilitation of the Mutual Fire, Marine and Inland
Insurance Company (In Rehabilitation) ("Mutual Fire"), and that there is no
opposition to the Motion, it is hereby:
ORDERED that the Motion is GRANTED; and it is further
ORDERED that the Settlement Agreement, a true and correct copy of which
is attached to the Motion as Exhibit "1," is approved; and it is further
ORDERED that the Rehabilitator, Mutual Fire, and the Settling Defendants
are authorized and directed to render performance in accordance with the
terms and conditions of the Settlement Agreement; and it is further
ORDERED that:
(i) Mutual Fire's present and past shareholders,
policyholders, creditors, employees and agents shall be forever barred from
commencing, asserting or continuing any and all claims, demands, suits or
causes of action of any kind against any or all of the Releasees (as defined
in the Settlement Agreement); and
(ii) all other parties, persons, firms and entities subject to
the jurisdiction of the Commonwealth Court shall be forever barred from
commencing, asserting or continuing any and all claims, demands, suits or
causes of action of any kind against any
-3-
<PAGE>
or all past and present officers, directors or employees of Mutual Fire;
based on or arising out of any matter whatsoever that is related to the
subject matter of any of the Litigation (as defined in the Settlement
Agreement), the Settlement Agreement and/or in any manner relating to or
resulting from the Rehabilitator's alleged injuries, losses or damages.
BY THE COURT:
_____________________________
Charles A. Lord, Senior Judge
-4-
<PAGE>
MILLER, ALFANO & RASPANTI, P.C. Attorneys for Plaintiff,
BY: Gregory P. Miller, Esquire Linda S. Kaiser,
Gaetan J. Alfano, Esquire Insurance Commissioner of
Gregg W. Mackuse, Esquire the Commonwealth of Penn-
Identification Nos. 24891, 32971 sylvania as Rehabilitator
and 54366 of The Mutual Fire Marine
Miller, Alfano & Raspanti, P.C. and Inland Insurance
1818 Market Street, Suite 3402 Company (In Rehabilitation)
Philadelphia, PA 19103
(215) 972-6400
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
____________________________________X
GEORGE F. GRODE, Insurance : NO. 3483, C.D. 1986
Commissioner of the Commonwealth :
of Pennsylvania, :
Plaintiff, :
:
v. :
:
THE MUTUAL FIRE, MARINE AND :
INLAND INSURANCE COMPANY, :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (BT)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (HB)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
INSURANCE COMPANY OF EVANSTON :
Defendant. :
____________________________________X
<PAGE>
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (HC)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine and :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY, :
Defendant. :
____________________________________X
CONSTANCE B. FOSTER, Insurance : NO. 3483, C.D. 1986 (ET)
Commissioner of the Commonwealth :
of Pennsylvania, as Rehabilitator :
of The Mutual Fire, Marine And :
Inland Insurance Company, :
Plaintiff, :
v. :
:
EVANSTON INSURANCE COMPANY, :
Defendant. :
____________________________________X
MOTION OF THE REHABILITATOR FOR APPROVAL
OF A SETTLEMENT AGREEMENT BETWEEN THE REHABILITATOR
OF THE MUTUAL FIRE, MARINE AND INLAND INSURANCE COMPANY
(IN REHABILITATION) AND ALEXANDER & ALEXANDER SERVICES INC.,
ALEXANDER & ALEXANDER INC., SHAND, MORAHAN & COMPANY, INC.,
EVANSTON INSURANCE COMPANY AND INSURANCE COMPANY OF EVANSTON
------------------------------------------------------------
TO THE HONORABLE CHARLES A. LORD, SENIOR JUDGE:
1. Movant is Linda S. Kaiser, Insurance Commissioner of the
Commonwealth of Pennsylvania, as Rehabilitator of The Mutual Fire, Marine and
Inland Insurance Company (In Rehabilitation) ("the Rehabilitator"), by and
through her counsel, Miller Alfano & Raspanti, P.C. ("MAR").
2. The Mutual Fire, Marine and Inland Insurance Company (In
Rehabilitation) ("Mutual Fire") is a mutual insurance company created under
the laws of the Commonwealth of Pennsylvania and is in rehabilitation
pursuant to an Order of Rehabilitation entered on December 8, 1986.
2
<PAGE>
3. Alexander & Alexander Services Inc. is the parent company of
Alexander & Alexander Inc. (collectively, "Alexander & Alexander").
4. Alexander & Alexander was the former parent company of Shand,
Morahan & Company, Inc. ("Shand").
5. For a period commencing sometime in 1970, Shand served as Mutual
Fire's Managing General Agent.
6. Evanston Insurance Company ("EIC") and Insurance Company of
Evanston ("ICE") are affiliates of Shand.
7. EIC and ICE were parties to contracts with Mutual Fire pursuant to
which EIC, ICE and Mutual Fire participated in reinsurance treaties; all
present claims between the Rehabilitator, on the one hand, and EIC and ICE,
on the other hand, are claims arising solely out of contracts.
8. The Rehabilitator seeks approval of this Court of a Settlement
Agreement with Alexander & Alexander, Shand, EIC and ICE (collectively, the
"Settling Defendants") dated March 27, 1995 that will, inter alia, provide
----- ----
for the payment by the Settling Defendants of an initial payment of
$12,000,000, the delivery of Promissory Notes in the aggregate original
principal amount of $35,000,000 payable in six annual installment payments
(without interest) which payments are secured by an evergreen letter of
credit, and the transfer to the Rehabilitator of the amount of $4,600,000
from trusteed funds and will compromise, resolve and settle the following
claims, actions and proceedings:
(a) Constance B. Foster, Insurance Commissioner of the
---------------------------------------------------
3
<PAGE>
Commonwealth of Pennsylvania, as Rehabilitator of The Mutual Fire, Marine and
-----------------------------------------------------------------------------
Inland Insurance Company v. Evanston Insurance Company, Civil Action No.
------------------------------------------------------
3483, C.D. 1986 (BT) (Pa. Commw. Ct.);
(b) Constance B. Foster, Insurance Commissioner of the Commonwealth of
------------------------------------------------------------------
Pennsylvania, As Rehabilitator of The Mutual Fire, Marine and Inland
--------------------------------------------------------------------
Insurance Company v. Insurance Company of Evanston, Civil Action No. 3483,
--------------------------------------------------
C.D. 1986 (HB) (Pa. Commw. Ct.);
(c) Constance B. Foster, Insurance Commissioner of the Commonwealth of
------------------------------------------------------------------
Pennsylvania, as Rehabilitator of The Mutual Fire, Marine and Inland
--------------------------------------------------------------------
Insurance Company v. Evanston Insurance Company, Civil Action No. 3483, C.D.
-----------------------------------------------
1986 (HC) (Pa. Commw. Ct.);
(d) Constance B. Foster, Insurance Commissioner of the Commonwealth of
------------------------------------------------------------------
Pennsylvania, as Rehabilitator of The Mutual Fire, Marine and Inland
--------------------------------------------------------------------
Insurance Company v. Evanston Insurance Company, Civil Action No. 3483, C.D.
-----------------------------------------------
1986 (ET) (Pa. Commw. Ct.); and
(e) Cynthia M. Maleski, Insurance Commissioner of the Commonwealth of
-----------------------------------------------------------------
Pennsylvania, as Rehabilitator of the Mutual Fire, Marine and Inland
--------------------------------------------------------------------
Insurance Company v. Alexander & Alexander Services, Inc., Alexander &
----------------------------------------------------------------------
Alexander, Inc. and Shand, Morahan & Company, Inc., Civil Action No. 91-1179
--------------------------------------------------
(E.D. Pa.) as may be amended.
9. As part of the Settlement Agreement with the Settling Defendants,
the parties have agreed to the releases specified therein.
10. As part of the Settlement Agreement, the parties request that this
Court enter an order that:
4
<PAGE>
(i) Mutual Fire's present and past shareholders, policyholders,
creditors, employees and agents shall be forever barred from commencing,
asserting or continuing any and all claims, demands, suits or causes of
action of any kind against any or all of the Releasees (as defined in the
Settlement Agreement); and
(ii) all other parties, persons, firms and entities subject to the
jurisdiction of the Commonwealth Court shall be forever barred from
commencing, asserting or continuing any and all claims, demands, suits or
causes of action of any kind against any or all past and present officers,
directors or employees of Mutual Fire;
based on or arising out of any matter whatsoever that is related to the
subject matter of any Litigation (as defined in the Settlement Agreement),
the Settlement Agreement and/or in any manner relating to or resulting from
the Rehabilitator's alleged injuries, losses or damages.
11. As part of the Settlement Agreement, the Settling Defendants will
release all claims and rights that they may have as creditors under Mutual
Fire's Plan of Rehabilitation dated January 31, 1989 as modified by Order
dated January 23, 1990, including all rights as Class I, Class IV and Class
VI claimants. "Class I, Class IV, and Class VI Claims" are all claims or
rights that the Settling Defendants may have as a Class I, Class IV, or Class
VI claimant under Mutual Fire's Plan of Rehabilitation dated January 31,
1989, as modified by Order dated January 23, 1990. In addition, the
Rehabilitator has agreed to assign to Alexander &
5
<PAGE>
Alexander all of Mutual Fire's right, title and interest in and to any claims
for recovery of reinsurance balances due to Mutual Fire from EIC and ICE.
12. A true and correct copy of the Settlement Agreement dated March 27,
1995 is attached hereto as Exhibit "1."
13. The Rehabilitator has served a separate Notice, attached hereto as
Exhibit "2," of the filing of this Motion to all persons, firms and entities
on the Short and Master Service Lists with respect to matters arising out of
the Rehabilitation of Mutual Fire via First Class United States mail and
requests that the Court find that such notice has been given and that it,
along with the time fixed for response, constitutes adequate, fair and
reasonable notice to all parties in interest of this Motion.
14. The Rehabilitator believes and therefore avers that approval of the
Settlement Agreement and issuance of the annexed proposed Order is in the
best interest of Mutual Fire, its policyholders and creditors, as it enables
the Rehabilitator to compromise, resolve and settle certain claims against,
and by, the Settling Defendants so that the agreed amount of funds due Mutual
Fire may be collected promptly.
WHEREFORE, for the reasons set forth herein, the Rehabilitator hereby
respectfully requests that this Honorable Court enter an
6
<PAGE>
Order, in the form annexed hereto, which, inter alia, approves the
----- -----
Settlement Agreement attached hereto as Exhibit "1."
Respectfully submitted,
MILLER, ALFANO & RASPANTI, P.C.
By: /s/ Gaetan J. Alfano
-------------------------------
GREGORY P. MILLER, ESQUIRE
GAETAN J. ALFANO, ESQUIRE
Of Counsel: GREGG W. MACKUSE, ESQUIRE
James S. Gkonos, Esquire 1818 Market Street, Suite 3402
The Mutual Fire, Marine and Philadelphia, PA 19103
Inland Insurance Company (215) 972-6400
(In Rehabilitation)
1500 Market Street Attorneys for Plaintiff,
Centre Square Linda S. Kaiser,
East Tower - 17th Floor Insurance Commissioner of the
Philadelphia, PA 19102 Commonwealth of Pennsylvania as
(215) 567-9600 Rehabilitator of The Mutual
Fire, Marine and Inland Insurance
Company (In Rehabilitation)
Dated:
March 27, 1995
7
<PAGE>
CERTIFICATE OF SERVICE
----------------------
I, GAETAN J. ALFANO, hereby certify that true and correct copies of the
foregoing Motion of the Rehabilitator For Approval of Settlement Agreement
were served upon the following persons and in the manner indicated below:
VIA TELECOPY AND FEDERAL EXPRESS
--------------------------------
John D. Gordan, III, Esquire Joseph M. Donley, Esquire
Morgan, Lewis & Bockius Kittredge, Donley, Elson
101 Park Avenue Fullem & Embick
New York, NY 10178 The Bank Building, 5th Flr.
421 Chestnut Street
Philadelphia, PA 19106
/s/ Gaetan J. Alfano
------------------------------------
Gaetan J. Alfano, Esquire
(Attorney Identification No. 32971)
MILLER, ALFANO & RASPANTI, P.C.
1818 Market Street, Suite 3402
Philadelphia, PA 19103
(215) 972-6400
Dated: March 27, 1995
--------------------------
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
---------------------------------------x
: CIVIL ACTION
CONSTANCE B. FOSTER, :
Insurance Commissioner of the :
Commonwealth of Pennsylvania, :
as Rehabilitator of The Mutual :
Fire, Marine & Inland :
Insurance Company, :
:
:
Plaintiff, :
:
v. :
:
ALEXANDER & ALEXANDER :
SERVICES INC., :
ALEXANDER & ALEXANDER INC. and :
SHAND, MORAHAN & COMPANY :
:
:
Defendants. :
: NO. 91-1179
---------------------------------------x
STIPULATION AND ORDER
---------------------
IT IS HEREBY STIPULATED AND AGREED by and among the
undersigned, pursuant to Fed.R.C.P. 15(a), that Plaintiff may serve and file
an Amended Complaint in the form annexed hereto; and
IT IS FURTHER STIPULATED AND AGREED that Defendants'
time to move or answer with respect to the annexed Amended Complaint is
stayed pending further order of this Court; and
IT IS FURTHER STIPULATED AND AGREED that this Court's
Order, entered February 8, 1995, staying this action for a period of ninety
(90) days from February 8, 1995, and any
<PAGE>
subsequent amendments or extensions of that Order, otherwise remain in full
force and effect.
Respectfully submitted,
/s/ Gaetan J. Alfano
-------------------------
Gaetan J. Alfano, Esquire Counsel for Plaintiff,
Gregory P. Miller, Esquire Constance B. Foster,
Insurance Commissioner of
Miller, Alfano & Raspanti the Commonwealth of
Suite 3402 Pennsylvania, as
1818 Market Street Rehabilitator of the Mutual
Philadelphia, PA 19103 Fire, Marine & Inland
(215) 972-6400 Insurance Company
/s/ Laurie E. Foster
-------------------------
John D. Gordan, III, Esquire Counsel for Defendants
Laurie E. Foster, Esquire Alexander & Alexander
Services Inc. and Alexander
Morgan, Lewis & Bockius & Alexander Inc.
101 Park Avenue
New York, NY 10178
(212) 309-6000
/s/ Joseph M. Donley
--------------------------
Joseph M. Donley, Esquire Counsel for Defendant
Shand Morahan & Company,
Kittredge, Donley, Elson, Inc.
Fullem & Embick
The Bank Building, 5th Floor
421 Chestnut Street
Philadelphia, PA 19106
(215) 829-9900
Dated: March __, 1995
SO ORDERED:
____________________________
HERBERT J. HUTTON, U.S.D.J.
Exhibit 10.35
Amendment No. 2 dated as of March 16, 1995 ("Amendment No. 2") to the Stock
Purchase and Sale Agreement dated as of June 6, 1994, as amended by Amendment
No. 1, dated November 10, 1994 , as amended, (the "Agreement") between Alexander
& Alexander Services Inc., a Maryland corporation ("A&A"), and American
International Group, Inc., a Delaware corporation ("AIG") on behalf of itself
and each of its subsidiaries (the "Purchasers") which purchased and continues to
hold 8% Series B Cumulative Preferred Stock, par value $1.00 per share, of A&A
("Series B Stock").
WHEREAS, A&A and AIG, on behalf of itself and each of the Purchasers,
desires to amend the Agreement as and to the extent set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration receipt of which is hereby acknowledged, each of A&A and
AIG, on behalf of itself and each of the Purchasers, hereby agree as follows:
1. Section 6.o of the Agreement is hereby amended to delete clause (ii)
thereto in its entirety, such that immediately following clause (i) shall be
clause (iii).
2. A&A agrees to pay all reasonable expenses (including attorneys fees
and expenses) incurred by AIG and each of the Purchasers in connection with this
Amendment No. 2 and the subject matter hereto.
3. The execution and delivery of this Amendment No. 2 by A&A is deemed a
certification by A&A that the representations and warranties of A&A set forth in
Section 4 of the Agreement, as amended by this Amendment No. 2, are true and
correct in all material respects on and as of the date hereof as if made on and
as of the date hereof (except as otherwise disclosed to AIG in writing).
4. This Amendment No. 2 shall not constitute a consent or waiver to or
modification of any other provision, term or condition of the Agreement. All
terms, provisions, covenants, representations, warranties, agreements and
conditions contained in the Agreement, as amended hereby, shall remain in full
force and effect.
5. This Amendment No. 2 may be executed in any number of counterparts and
by different parties hereby in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
<PAGE>
6. THIS AMENDMENT NO. 2 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND
PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE STATE AND FEDERAL COURTS IN THE STATE OF NEW YORK IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT NO. 2.
IN WITNESS WHEREOF, the parties hereby have executed this Amendment No. 2.
ALEXANDER & ALEXANDER SERVICES INC.
By: /s/ Edward F. Kosnik
-----------------------------------
Name: Edward F. Kosnik
Title: Executive Vice President
& Chief Financial Officer
AMERICAN INTERNATIONAL GROUP, INC.,
on behalf of itself and each of the Purchasers
By: /s/ Edward E. Matthews
----------------------------------
Name: Edward E. Matthews
Title: Vice Chairman - Finance
<TABLE><CAPTION>
Exhibit 21.0
ALEXANDER & ALEXANDER SERVICES INC. and SUBSIDIARIES
State or Percent of
Other Voting
Jurisdiction Securities
Incorporation Owned
------------- -----
=======================================================================================================================
<S> <C> <C>
Alexander & Alexander Services Inc............................................................ Maryland
Alexander & Alexander U.S. Inc............................................................ Maryland 88%
Alexander & Alexander Inc.(Maryland Corp.).......................................... Maryland 100%
Alexander & Alexander, Inc.(Florida Corp.)..................................... Florida 100%
Alexander & Alexander, Inc.(Louisiana Corp.)................................... Louisiana 100%
Alexander & Alexander, Inc.(Massachusetts Corp.)............................... Massachuset 100%
Alexander & Alexander, Inc.(Oklahoma Corp.).................................... Oklahoma 100%
Alexander & Alexander, Inc.(Tennessee Corp.)................................... Tennessee 100%
Alexander & Alexander, Inc.(West Virginia Corp.)............................... West Virginia 100%
Alexander & Alexander of Arizona Inc........................................... Arizona 100%
Alexander & Alexander of the Carolinas, Inc.................................... North Carolina 100%
Alexander & Alexander of Connecticut Inc....................................... Connecticut 100%
Alexander & Alexander of Kentucky Inc.......................................... Kentucky 100%
Alexander & Alexander of Mississippi Inc....................................... Mississippi 100%
Alexander & Alexander of New York, Inc......................................... New York 100%
AARE Corporation...................................................... New York 100%
A & A Real Estate Services Inc........................................ New York 100%
Alexander & Alexander Securities Corp.......................................... Delaware 100%
Alexander & Alexander of Virginia, Inc......................................... Virginia 100%
Alexander & Alexander of Wyoming, Inc.......................................... Wyoming 100%
Alexander & Associates Inc..................................................... Texas 100%
Alexander Risk Management & Consulting Services, Inc.................. Texas 100%
Alexander Managing General Agency..................................... Texas 100%
Ecco General Agency Inc............................................... Texas 100%
Ecco Services, Inc............................................. Texas 100%
Ecco Insurance Services Inc. (Calif.).......................... California 100%
Gilliland & McReynolds, Inc........................................... Texas 100%
Insurance Administrators Inc.......................................... Texas 100%
SRA, Inc.............................................................. Texas 100%
Alexander Howden Reinsurance Intermediaries Inc................................ New York 100%
Alexsis Inc.................................................................... Maryland 100%
Alexsis Risk Management Services Inc........................................... New York 100%
Claimaco Corporation........................................................... New York 100%
Corporate Group Systems, Inc................................................... Michigan 100%
Employers Underwriters, Inc.................................................... Michigan 100%
Insurance Planning Inc......................................................... Nevada 80%
R. B. Jones Corporation........................................................ Delaware 100%
Alexander & Alexander of Kansas Inc................................... Kansas 100%
Alexander & Alexander of Missouri Inc................................. Missouri 100%
SHL Pacific Regional Holdings Inc. (California Corp)........................... California 100%
Alexander & Alexander of California Inc............................... California 100%
AGR Disposition Company ....................................... California 100%
AGR (New York) Disposition Company Inc. ............... New York 100%
BIS Disposition Company ............................... California 100%
Ruben Entertainment Insurance Services................. United Kingdom 50%
Alexander & Alexander of Japan, Inc............................ Nevada 100%
Alexander & Alexander of Idaho Inc.................................... Idaho 100%
</TABLE>
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. and SUBSIDIARIES
<TABLE><CAPTION>
State or Percent of
Other Voting
Jurisdiction Securities
Incorporation Owned
------------- -----
=======================================================================================================================
<S> <C> <C>
Campbell & Co., Inc............................................ Idaho 100%
Alexander & Alexander of Indiana, Inc................................. Indiana 100%
Alexander & Alexander of Michigan, Inc................................ Michigan 100%
Alexander & Alexander of Ohio, Inc.................................... Ohio 100%
Ohio Cap Insurance Company, Inc................................ Bermuda 7%
Alexander & Alexander of Washington, Inc.............................. Washington 100%
Alexander of Hawaii Inc............................................... Hawaii 100%
S. Hammond Story Agency Inc.................................................... Georgia 100%
Alexander Reinsurance Intermediaries Inc....................................... New York 100%
Tifco Properties, Inc.......................................................... Illinois 100%
A&A Realty Finance Inc......................................................... Minnesota 100%
United Commercial Agencies, Ltd................................................ Cayman Islands 50%
Alexander International Insurance Services Ltd ................................ Bermuda 100%
Alexander & Alexander & Paul Mayer GMBH........................................ Austria 75%
Futuro 3000 S.R.L.............................................................. Italy 5%
Alexander Hellas Ltd........................................................... Greece 100%
Alexander Underwriting Agencies Limited........................................ Bermuda 50%
Barros & Carrion, Inc.......................................................... Puerto Rico 100%
Asesores y Corredores De Seguros S.A.................................. Puerto Rico 100%
Inter-American Underwriters, Inc...................................... Puerto Rico 100%
Hemisphere Marine & General Assurance Ltd...................................... Bermuda 100%
Alexander & Alexander Middle East Ltd................................. Bermuda 100%
Security Offshore Insurance Ltd....................................... Bermuda 3%
Inter-American Group Inc. .......................................................... Delaware 100%
Alexander Insurance Managers Ltd.................................................... Bermuda 85%
Alexander Insurance Managers (Dublin) Ltd...................................... Ireland 100%
Alexander Insurance Managers (Isle of Man) Ltd................................. Isle of Man 100%
Alexander Insurance Managers (Barbados) Ltd.................................... Barbados 100%
Alexander Insurance Managers(Cayman) Ltd....................................... Cayman Islands 100%
Alexander Insurance Managers (Holdings) Ltd.................................... Guernsey 90%
Alexander Insurance Managers (Jersey) Ltd............................. Jersey 100%
Alexander Insurance Managers (Guernsey) Ltd........................... Guernsey 100%
Bailiwick Consultancy & Management Co. Ltd..................... Guernsey 100%
Alexander & Alexander Mexico S.A. de C.V............................................ Mexico 100%
Asesores Kennedy Agente de Seguros y de Fianzas, S.A. de C.V................... Mexico 80%
Promotora Zircon S.A. de C.V................................................... Mexico 80%
Seguridad y Prevencion S.A. de C.V............................................. Mexico 80%
Servicios Administrativos Kennedy S.A. de C.V.................................. Mexico 80%
Inmuebles Niagara S.A. de C.V.................................................. Mexico 80%
Minet S.A. de C.V.............................................................. Mexico 80%
Grupo Ken S.A. de C.V.......................................................... Mexico 80%
Asesores de Reaseguros Internacionales Mexicanos S.A. de C.V.......... Mexico 99%
Consejuros Actuariales y Administrativos, S.C.................................. Mexico 80%
Servisios Immobilarios Guadalajara, S.C........................................ Mexico 80%
Wilken Asesores, S.C........................................................... Mexico 80%
The Alexander Consulting Group Inc........................................................ Maryland 100%
Alexander & Alexander Benefits Services Inc......................................... New Jersey 100%
</TABLE>
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. and SUBSIDIARIES
<TABLE><CAPTION>
State or Percent of
Other Voting
Jurisdiction Securities
Incorporation Owned
------------- -----
=======================================================================================================================
<S> <C> <C>
Alexander & Alexander Benefits Services (Arizona) Inc.......................... Arizona 100%
Alexander & Alexander Benefits Services of Louisiana........................... Louisiana 100%
Alexander & Alexander Benefits Services Inc.................................... Ohio 100%
Alexander & Alexander Insurance Benefits Services Inc.......................... Massachusetts 100%
Alexander & Alexander Life Agency of Ohio...................................... Ohio 100%
A&A Managing General Agency, Inc............................................... Texas 100%
PBA, Inc ...................................................................... Minnesota 100%
Pilots International Association............................................... North Dakota 100%
Alexander & Alexander Consulting Group Inc.......................................... New Jersey 100%
Alexander & Alexander Consulting Group Inc..................................... Texas 100%
Alexander & Alexander Benefits Services Inc.................................... Virginia 100%
Alexander Consulting Investment Services Inc........................................ Maryland 100%
Alexander Underwriting Services Inc....................................................... Maryland 100%
A&A Underwriting Services Inc. ........................................................... Delaware 100%
Alexander Howden North America Inc. (Georgia)....................................... Georgia 100%
AAMET Inc...................................................................... Maryland 100%
Alexander Howden North America Inc. (Ohio)..................................... Ohio 100%
Alexander Howden North America Inc. (Massachusetts)............................ Massachusetts 100%
Alexander Howden North America Inc. (N.Y.)..................................... New York 100%
Alexander Howden North America Inc. (Texas).................................... Texas 100%
Alexander Howden Insurance Services, Inc. (Texas)..................... Texas 100%
Illinois R.B. Jones Inc. ...................................................... Illinois 100%
American Special Risk Insurance Company............................................. Delaware 100%
Atlanta International Insurance Company............................................. New York 100%
Alexander & Alexander Government & Industry Affairs Inc................................... Dist. of Columbia 100%
PTS Liquidation, Co....................................................................... Pennsylvania 100%
Trust Property & Casualty Insurance Co.................................................... Vermont 100%
Alexander & Alexander Services UK Plc..................................................... United Kingdom 100%
Alexander & Alexander Finance Limited............................................... United Kingdom 100%
Alexander & Alexander Corretores e Consultores de Seguros Lda....................... Portugal 73%
Alexander Howden Underwriting Limited............................................... United Kingdom 100%
Couparey Nominees Limited........................................................... United Kingdom 100%
Alexander Howden Holdings Ltd....................................................... United Kingdom 100%
Alexander Howden Group Agency Management Ltd................................... United Kingdom 100%
Alexander Howden Group (Bermuda) Limited....................................... Bermuda 100%
A.H.G. Far East Ltd................................................... Hong Kong 100%
Asian Reinsurance Underwriters Ltd............................. Hong Kong 100%
Howden Sterling Asia Limited................................... Hong Kong 100%
Sphere Drake Far East Limited.................................. Hong Kong 100%
Sterling Offices Far East...................................... Hong Kong 100%
Alexander Underwriting Agencies Limited............................... Bermuda 50%
Howden Cover Hispanoamericana (Bermuda) Ltd........................... Bermuda 100%
Howden Chile Consultores Ltda.................................. Chile 51%
Alexander Howden de Espana..................................... Spain 50%
Trent Insurance Company Ltd........................................... Bermuda 100%
Alexander Howden Group Ltd. ................................................... United Kingdom 100%
Alexander y Alexander Chile Ltda...................................... Chile 26%
</TABLE>
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. and SUBSIDIARIES
<TABLE><CAPTION>
State or Percent of
Other Voting
Jurisdiction Securities
Incorporation Owned
------------- -----
=======================================================================================================================
<S> <C> <C>
Alexander Underwriting Services Limited............................... United Kingdom 100%
Howden Chile Reaseguros Ltda.......................................... Chile 26%
Alexander Howden Group Management Services Ltd........................ United Kingdom 100%
Alexander Howden Limited.............................................. United Kingdom 100%
Alexander Howden Reinsurance Brokers Ltd.............................. United Kingdom 100%
Alexander Howden Brasil Ltda................................... Brazil 33%
Keith Rayment & Associates Ltd................................. United Kingdom 51%
Alexander Howden Ossa de Colombia S.A.......................... Colombia 51%
Anistics Ltd.......................................................... United Kingdom 100%
Energy Insurance Brokers and Risk Management Consultants Ltd.......... United Kingdom 100%
Independent Engineering Services Ltd.................................. United Kingdom 100%
Alexander Howden Asia Pacific Ltd..................................... United Kingdom 100%
Keyaction Ltd......................................................... United Kingdom 100%
Rydata Limited........................................................ United Kingdom 100%
Alexander Howden Y Associados S.A. de C.V............................. Mexico 50%
Howden Dastur Reinsurance Brokers (Private) Ltd....................... India 40%
Mansfeld, Hubener & Partner........................................... Germany 34%
Alexander Howden (Kazakhstan) Ltd..................................... Kazakhstan 100%
Alexander Howden Financial Services Limited.................................... United Kingdom 100%
Alexander Howden International Limited......................................... United Kingdom 100%
A.H.O.H. (Bermuda) Limited............................................ Bermuda 100%
SPICAFAB Limited............................................... United Kingdom 100%
Alexander Howden Group (Australia) Ltd................. Australia 100%
Alexander Howden Reinsurance Brokers (Australia) Ltd. Australia 100%
Sterling Universal Holdings Ltd........................ Canada 30%
Sterling Universal Ltd........................... Canada 100%
Alexander Howden Canada Ltd...................... Canada 100%
IRM France SA.................................................. France 45%
Dormante Holdings Limited...................................................... United Kingdom 100%
Solar Underwriting Agencies Ltd....................................... United Kingdom 100%
Howden Management & Data Services Limited...................................... United Kingdom 100%
Alexander Howden Leasing Limited...................................... United Kingdom 100%
Alexander Howden de Espana S.A................................................. Spain 100%
Alexander Stenhouse and Partners Ltd................................................ United Kingdom 100%
Alexander Howden Y Associados S.A. de C.V...................................... Mexico 6%
Scottish & Commonwealth Insurance Co. Ltd.(Bermuda)............................ Bermuda 100%
Alexander Stenhouse Europe Ltd................................................. United Kingdom 100%
Alexander & Alexander Sigorta Musavirlk Anomim Sirketi................ Turkey 51%
Cagdas Sigorta A.S............................................. Turkey 94%
Ralph S. Harris (Insurance) Pty. Ltd.................................. Zimbabwe 100%
Reed Stenhouse Europe Holdings B.V.................................... Holland 100%
Alexander Stenhouse A.G........................................ Switzerland 100%
Reinsurance Underwriting Agency Ltd............................ Switzerland 100%
Reed Stenhouse GMBH................................................... Germany 100%
Societe Generale de Courtage d'Assurances............................. France 14%
A.M.P.R.E...................................................... France 90%
Alexander & Alexander Consultants S.A.......................... France 100%
France Cote D'Afrique.......................................... France 99%
Groupement Europeen d'Assurances Generales..................... France 100%
SASE France.................................................... France 100%
Societe de Courtage d'Assurance et de Reassurance Lange........ France 100%
Alexander & Alexander France S.A............................ ......... France 100%
Societe Generale de Courtage d'Assurances...................... France 37%
A.M.P.R.E.............................................. France 90%
Alexander & Alexander Consultants S.A.................. France 100%
</TABLE>
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. and SUBSIDIARIES
<TABLE><CAPTION>
State or Percent of
Other Voting
Jurisdiction Securities
Incorporation Owned
------------- -----
=======================================================================================================================
<S> <C> <C>
France Cote D'Afrique.................................. France 99%
Groupement Europeen d'Assurances Generales............. France 100%
SASE France............................................ France 100%
Societe de Courtage d'Assurance et de Reassurance Lange France 100%
Alexander & Alexander France S.A. ............................ France 100%
Societe Generale de Courtage d'Assurances.............. France 37%
A.M.P.R.E...................................... France 90%
Alexander & Alexander Consultants S.A. ........ France 100%
France Cote D'Afrique.......................... France 99%
Groupement Europeen d'Assurances Generales..... France 100%
SASE France.................................... France 100%
Societe de Courtage d'Assurance et de Reassurance Lange France 100%
Stenhouse Reed Shaw Africa (Pty) Ltd.................................. South Africa 100%
Alexander & Alexander Ltd...................................................... United Kingdom 100%
Alexander Stenhouse Management Services Limited....................... United Kingdom 100%
Alexander & Alexander U.K. Ltd........................................ United Kingdom 100%
Alexander Stenhouse Limited .......................................... United Kingdom 100%
Alexander & Alexander (Isle of Man) Limited........................... Isle of Man 100%
Alexander Stenhouse Magee Limited..................................... Ireland 100%
Alexander & Alexander (C.I.) Limited ................................. Guernsey 100%
Alexander & Alexander (Ireland) Limited .............................. Ireland 100%
Alexander & Alexander U.K. Pension Trustees Ltd................................ United Kingdom 100%
Noble Grossart Holdings Ltd.................................................... United Kingdom 20%
Noble Grossart Ltd.................................................... Scotland 100%
Noble Grossart Investments Ltd................................. Scotland 60%
NGI SOQ Ltd............................................ Scotland 100%
NGI Securities Ltd..................................... Scotland 100%
NGI Inc................................................ Delaware 100%
Howe Securities Ltd............................................ Scotland 100%
Noble Grossart Investments Ltd........................................ Scotland 40%
NGI SOQ Ltd.................................................... Scotland 100%
NGI Securities Ltd............................................. Scotland 100%
NGI Inc........................................................ Delaware 100%
Stenhouse Marketing Services London Ltd........................................ United Kingdom 100%
Stenhouse Marketing Services Inc...................................... Delaware 100%
Halford, Shead & Co. Limited .................................................. United Kingdom 100%
IRM France SA......................................................... France 55%
Reed Stenhouse Underwriting Mgmt Ltd.................................. United Kingdom 100%
The Alexander Consulting Group Ltd............................................. United Kingdom 100%
Alexander Financial Services Ltd. .................................... United Kingdom 100%
Reed Stenhouse Companies Ltd.............................................................. Canada 100%
Duggan Insurances Ltd............................................................... Ireland 100%
National Computer Services Ltd...................................................... Canada 100%
Y & D Properties Ltd................................................................ Canada 50%
Reed Stenhouse Ltd.................................................................. Canada 100%
Reinsurance Managers Ltd............................................................ Canada 100%
Risk Management Consultants of Canada Ltd........................................... Canada 100%
</TABLE>
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. and SUBSIDIARIES
<TABLE><CAPTION>
State or Percent of
Other Voting
Jurisdiction Securities
Incorporation Owned
------------- -----
=======================================================================================================================
<S> <C> <C>
2337151 Canada Ltd.................................................................. Canada 100%
Societe de Courtage Meloche Alexander Ltd........................................... Canada 100%
Sterling Universal Holdings Ltd..................................................... Canada 70%
Sterling Universal Ltd......................................................... Canada 100%
Alexander Howden Canada Ltd.................................................... Canada 100%
The Alexander Consulting Group Ltd.................................................. Canada 100%
Alexander & Alexander Canada Inc.................................................... Canada 100%
514239 Ontario Ltd.................................................................. Canada 100%
164113 Canada Inc................................................................... Canada 100%
164226 Canada Inc.............................................................. Canada 50%
164226 Canada Inc................................................................... Canada 50%
Alexander & Alexander Australia Holdings Ltd.............................................. Australia 100%
Alexander & Alexander Ltd........................................................... Australia 100%
Anistics Pty Ltd.................................................................... Australia 100%
John C. Lloyd Reinsurance Brokers Ltd............................................... Australia 88%
Alexander Stenhouse Financial Services Ltd.......................................... Australia 100%
Alexander Stenhouse Nominees Ltd.................................................... Australia 100%
Burnie Enterprises P/L.............................................................. New Guinea 100%
Alexander & Alexander (PNG) Pty. Ltd........................................... New Guinea 63%
The Alexander Consulting Group Ltd.................................................. Australia 100%
Southern Cross Underwriting Pty. Limited............................................ Australia 56%
Reed Stenhouse Asia Pacific Ltd (U.K.).............................................. Scotland 100%
Alexander Stenhouse Accumulation Fund Nominees Ltd.................................. Australia 100%
Alexander & Alexander (Hong Kong) Holdings Ltd............................................ Hong Kong 100%
Alexander Lippo (Hong Kong) Ltd..................................................... Hong Kong 50%
Stenhouse (S.E. Asia) Pte. Ltd............................................................ Singapore 100%
Alexander & Alexander (Asia) Holdings Pte. Ltd. .................................... Singapore 3%
Alexander Howden Far East Pte. Ltd............................................. Singapore 100%
Alexander & Alexander Risk Management Services Inc............................. Taiwan 50%
Alexander & Alexander Insurance Agency Ltd..................................... Taiwan 50%
Alexander & Alexander (Malaysia) Sdn Bhd ...................................... Malaysia 49%
Alexander & Alexander Pte. Ltd................................................. Singapore 100%
Alexander & Alexander (Taiwan) Ltd............................................. Taiwan 50%
Alexander Howden Reinsurance Brokers (Asia) Pte. Ltd........................... Singapore 100%
Alexander & Alexander Holdings (N.Z.) Ltd.(Formerly Alexander Stenhouse Holdings (N.Z.) Ltd New Zealand 100%
The Alexander Consulting Group Ltd.................................................. New Zealand 100%
Alexander & Alexander Ltd. ......................................................... New Zealand 100%
Southern Insurance Brokers Limited............................................. New Zealand 100%
Southern Insurance Brokers (Miles) Limited..................................... New Zealand 100%
Alexander Benefits Services Ltd................................................ New Zealand 100%
B.A. Nelson Ltd................................................................ New Zealand 100%
Alexander & Alexander Services NZ Ltd.......................................... New Zealand 100%
Alexander & Alexander (NZ) Ltd........................................ New Zealand 100%
Alexander Anistics Services Ltd....................................... New Zealand 100%
Alexander Portfolio Management Ltd.................................... New Zealand 100%
Adam and Adam Limited.......................................................... New Zealand 100%
Superannuation Management Ltd......................................... New Zealand 100%
</TABLE>
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. and SUBSIDIARIES
<TABLE><CAPTION>
State or Percent of
Other Voting
Jurisdiction Securities
Incorporation Owned
------------- -----
=======================================================================================================================
<S> <C> <C>
British Underwriting Agencies Ltd.............................. New Zealand 100%
Alexander & Alexander Ltd. (Fiji) ............................................. Fiji 100%
Alexander Howden Reinsurance Brokers Ltd....................................... New Zealand 100%
Knight Alexander Stenhouse Ltd................................................. New Zealand 100%
Marsden & Associates(Fire & General) Ltd....................................... New Zealand 100%
Russell Brown & Co. Ltd........................................................ New Zealand 100%
Alexander & Alexander International Inc................................................... Maryland 100%
Alexander & Alexander (Thailand) Ltd................................................ Thailand 25%
Alexander & Alexander Ltd - Thailand................................................ Thailand 25%
Alexander & Alexander Europe B.V.................................................... Netherlands 100%
Alexander & Alexander Belgium NV............................................... Belgium 100%
NV Alexander Stenhouse Belgium International SA....................... Belgium 25%
Alexander & Alexander Italia S.P.A............................................. Italy 25%
Reed Stenhouse Netherlands B.V................................................. Holland 100%
Alexander & Alexander Italia S.P.A.................................... Italy 50%
Brokeraggio Assicurativo SRL................................... Italy 30%
Alexander & Alexander Insurance Brokers - Hungary.............................. Hungary 100%
Alexander & Alexander Insurance Brokers - Czech. Republic...................... Czech. Republic 100%
Alexander & Alexander Insurance Brokers - Poland............................... Poland 100%
Alexander & Alexander of Spain Correduria De Seguros, S.A...................... Spain 100%
Prevencion y Control.................................................. Spain 100%
Alexander Stenhouse SRL............................................... Spain 100%
Reed Stenhouse (Espana) S.A.................................... Spain 95%
Alexander Stenhouse Risk Management S.A............................... Spain 100%
Alexander & Alexander Holdings B.V............................................. Netherlands 100%
Brons Orobio Groep B.V................................................ Netherlands 100%
Bekouw Mendes C.V.............................................. Netherlands 26%
Brons Van Lennep B.V........................................... Netherlands 100%
Orobio Mees Herman B.V......................................... Netherlands 100%
Brons Orobio Groep (Partnership)....................... Netherlands 100%
Alexander & Alexander B.V.(formerly Bekouw Mendes B.V)................ Netherlands 100%
Bekouw Mendes Reinsurance B.V......................................... Netherlands 100%
Brons Van Lennep Den Haug B.V......................................... Netherlands 100%
Bekouw Mendes Risk Management B.V..................................... Netherlands 100%
Alexander Insurance Managers N.V............................... Nether/Antilles 100%
N.V. Verzekering Maatschappi Van 1890................................. Netherlands 100%
Bekouw Mendes C.V..................................................... Netherlands 74%
Firma A.J. Driessen C.V........................................ Netherlands 100%
Firma H.J. Reens C.V........................................... Netherlands 100%
Alexander & Alexander Scandinavia A.B.......................................... Sweden 100%
Futuro 3000 S.R.L.............................................................. Italy 95%
Alexander Coyle Hamilton Ltd................................................... Ireland 75%
Alexander Insurance Managers Ltd S.A.R.L....................................... Luxembourg 100%
NV Alexander Stenhouse Belgium International S.A............................... Belgium 75%
Fides Alexander A.G. (Switzerland)............................................. Switzerland 45%
Alexander & Alexander Europe Gmbh.............................................. Austria 51%
Alexander & Alexander of Colombia Ltda ............................................. Colombia 51%
</TABLE>
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. and SUBSIDIARIES
<TABLE><CAPTION>
State or Percent of
Other Voting
Jurisdiction Securities
Incorporation Owned
------------- -----
=======================================================================================================================
<S> <C> <C>
Alexander & Alexander LTDA.......................................................... Brazil 100%
MacFarlane Participacoes e Corretora de Seguros Ltda........................... Brazil 50%
Alexander MacFarlane Corretora de Seguros Ltda................................. Brazil 50%
Alexander & Davidson de Colombia LTDA............................................... Colombia 49%
Alexander, Ayling, Barrios & Cia, S.A............................................... Argentina 98%
Alexander Insurance Managers (Singapore) Pte. Ltd................................... Singapore 100%
Pensions Berattings Gmbh............................................................ Germany 70%
Jaspers Industrie Assekuranz Gmbh & Co. KG.......................................... Germany 20%
Pensions Berattings Gmbh....................................................... Germany 20%
Alexander & Alexander Europe Gmbh.............................................. Austria 49%
Industrie Assekuranz Gmbh........................................................... Germany 20%
Servicios A.B.S., S.A............................................................... Mexico 75%
Alexander & Alexander (Asia) Holdings Pte. Ltd............................................ Singapore 97%
Alexander Howden Far East Pte. Ltd.................................................. Singapore 100%
Alexander & Alexander Risk Management Services Inc.................................. Taiwan 50%
Alexander & Alexander Insurance Agency Ltd.......................................... Taiwan 50%
Alexander & Alexander (Malaysia) Sdn Bhd ........................................... Malaysia 49%
Alexander & Alexander Pte. Ltd. .................................................... Singapore 100%
Alexander & Alexander (Taiwan) Ltd. ................................................ Taiwan 50%
Alexander Howden Reinsurance Brokers (Asia) Pte. Ltd................................ Singapore 100%
Alexander Clay & Partners Unlimited....................................................... United Kingdom 99%
Jufcrest Limited.......................................................................... United Kingdom 50%
Manzitti Howden Beck s.p.a................................................................ Italy 41%
L.& F. Longobardi SRL............................................................... Italy 24%
Pandi Italia s.p.a.................................................................. Italy 5%
CSA................................................................................. Italy 13%
</TABLE>
<PAGE>
[cover]: Alexander & Alexander 1994 Annual Report on Form 10-K
[inside front cover]:
Alexander & Alexander Services Inc. provides professional risk
management consulting, insurance brokerage and human resource
management consulting services from offices in 80 countries, with
approximately 12,000 employees and revenues of $1.3 billion.
Risk Management Consulting & Insurance Services. Alexander &
Alexander designs and implements integrated insurance and risk
management programs globally. We have the expertise to help
businesses of all sizes, as well as associations and governmental
agencies, address their risk assessment, risk control and risk financing
requirements.
Specialist & Reinsurance Broking. The Alexander Howden Group places
large and complex risks that require access to wholesale and specialist
insurance markets globally. We also provide a range of broking and
associated services to insurance and reinsurance companies and LloydAEs
syndicates.
Human Resource Management Consulting. The Alexander Consulting
Group provides advisory and support services in human resource
management, including retirement planning, health care management,
organizational effectiveness, compensation, HR-related communications
and information technologies.
ACG also offers brokerage services for group health and welfare, special
risk, and executive planning insurance coverages.
1
<PAGE>
To My Fellow Stockholders:
During the past nine months, Alexander & Alexander has undertaken many important
changes that are described in this report. While I encourage you to read the
details, I also want to give you my overall assessment of our progress and plans
for the future.
In June 1994, during my first days as A&A's new Chairman & CEO, I told
employees that A&A had a great franchise but that we had some hard work ahead of
us. I asked them to see beyond the immediate challenges and envision a Company
that could set new standards for the way we served our clients and shareholders.
We had to reshape our organization to lead an industry that has not changed as
rapidly as its customers.
Clients expect brokers and consultants to bring them added value.
They want better, more innovative and lower-cost solutions that support their
business and financial strategies. It is our job to provide these solutions and
to produce a fair return for our shareholders.
To do this, we set out to strengthen A&A's balance sheet and earnings
capacity while enhancing sales and service. Some of the more significant
actions included:
* Appointing ten new directors, each having an international reputation
in business, law or public policy.
* Eliminating more than $100 million in non-essential expenses and
reinvesting part of the savings to enhance A&A's information
technology, product development and employee training.
* Divesting non-core businesses so we can further concentrate on our
clients' central need -- cost-effective, high-quality risk and human
resource services.
* Addressing a number of longstanding litigation and other
contingencies.
Some of these actions were evident in 1994's net operating loss of
$82.9 million. The loss included a $69 million restructuring charge for the
consolidation of real estate affecting 48 offices worldwide as well as early
retirement programs and workforce reductions involving more than 1,100
positions. It also included $24.9 million in charges to settle litigation and
to strengthen reserves related to A&A's professional indemnity program.
Non-operating results included $69.7 million for a previously
announced settlement with Shand/Evanston Group, Inc., and for increased reserves
relating to lawsuits and other disputes brought against A&A and Shand/Evanston
affiliates by the rehabilitator of Mutual Fire, Marine & Inland Insurance Co.
In keeping with plans to divest certain non-core assets, we sold our
U.S. personal lines business for $30 million, resulting in a $20 million pre-tax
fourth quarter gain, or $0.28 per share after taxes.
We subsequently sold A&A's third party claims administration unit for
$47 million in cash, resulting in a first quarter 1995 pre-tax gain of
approximately $30 million. In January 1995, we completed the sale of our
minority interest in a
<PAGE>
privately held U.K. merchant bank for $7.2 million. Proceeds from the sales were
set aside to pay for litigation, contingency and other settlements.
Our actions have improved A&AAEs earnings capacity and liquidity. At
year-end, the Company had more than $300 million in operating funds that
included proceeds from the $200 million investment by American International
Group, Inc. In March 1995, we established a new $200 million, three-year
revolving credit facility that will be available for general corporate purposes.
As we achieved our initial objectives, we have now shifted emphasis to
growing the Company. In the U.S., for example, we began by reshaping sales and
marketing to respond with greater focus and depth to complex client needs. We
are pursuing a proven market segmentation strategy, organizing resources around
our risk management and insurance service businesses, as well as other important
segments.
We began a new approach for product development to better coordinate
with the R&D departments of capital market providers, including insurance
companies. Investments in technology have been accelerated to enhance our
ability to provide cost-effective, quality service. We are putting fresh
resources into training employees and recruiting the best possible talent. And
we are open to growing A&A through strategic acquisitions.
The Company is making important cultural changes that are signified by
an innovative pay-for-performance philosophy that will reward employees who are
best at meeting the needs of our clients and shareholders. Through equity
compensation programs, we expect to more closely align the interests of our
employees with the interests of our shareholders. The change has begun at the
top: The Board of Directors recently voted to link its compensation to the
value of our common stock.
We have a great deal more to do but the fact that we have been able to
achieve so much in such a short time bears testimony to thousands of our
employees whose hard work has put A&A on solid footing for renewed growth.
In addition, I appreciate the support of Dr. Robert E. Boni, Chairman
of the Board's Executive Committee, whose leadership and vision early last year
set the stage for our subsequent progress. I look forward to his continued
involvement in the new A&A.
Sincerely,
[signed]
Frank G. Zarb
Chairman of the Board
President & CEO
March 31, 1995
[text includes black & white photograph of Frank Zarb]
<PAGE>
BOARD OF DIRECTORS & EXECUTIVE OFFICERS
BOARD OF DIRECTORS
Frank G. Zarb (1)(5)
Chairman of the Board, President & Chief Executive Officer
Dr. Kenneth Black, Jr. (1)(3)
Regents' Professor Emeritus of Insurance
Georgia State University
John A. Bogardus, Jr. (2)
Former Chairman of the Board
Dr. Robert E. Boni (1)(3)
Retired Chairman of the Board & Chief Executive Officer,
Armco Inc.
W. Peter Cooke (4)(5)
Chairman, World Regulatory Advisory Practice
Price Waterhouse
E. Gerald Corrigan (1)(3)
Chairman, International Advisors
Goldman Sachs & Co.
Joseph L. Dionne(1)(3)
Chairman & Chief Executive Officer
McGraw-Hill, Inc.
The Hon. Gerald R. Ford (3)(5)
Former President of the United States
Peter C. Godsoe (4)
President & Chief Executive Officer
The Bank of Nova Scotia
Angus M.M. Grossart (4)
Managing Director
Noble Grossart Limited
Maurice H. Hartigan II (1)(2)
Retired Senior Managing Director
Chemical Banking Corp.
James B. Hurlock, Esq. (2)
Partner & Chairman of the Management Committee
White & Case
Ronald A. Iles (4)(5)
Senior Vice President
Alexander & Alexander Services Inc.
Chairman
Alexander Howden Group Limited
Edward F. Kosnik
Executive Vice President & Chief Financial Officer
<PAGE>
Vincent R. McLean (1)(2)
Retired Executive Vice President & Chief Financial Officer
Sperry Corporation
James D. Robinson III (4)(5)
President
J.D. Robinson Inc.
William M. Wilson (4)
Former Deputy Chairman
& Executive Vice President
(1) Member, Executive Committee
(2) Member, Audit Committee
(3) Member, Compensation, Benefits and Nominating Committee
(4) Member, Finance/Investment Committee
(5) Member, Public Policy and Ethics Committee
EXECUTIVE OFFICERS
Frank G. Zarb
Chairman of the Board, President & Chief Executive Officer
Lawrence E. Burk
Chairman & Chief Executive Officer
Alexander & Alexander Inc.
Elliot S. Cooperstone
Senior Vice President & Chief Administrative Officer
Alexander & Alexander Services Inc.
Executive Vice President & Chief Operating Officer
Alexander & Alexander Inc.
Kenneth J. Davis
Chairman
Alexander & Alexander International Inc.
Chief Executive Officer
Alexander & Alexander Europe
Timothy P.S. Gibson
Chief Executive Officer
Alexander & Alexander Limited
Asia Pacific Region
James S. Horrick
President & Chief Executive Officer
Alexander & Alexander/Reed Stenhouse Companies Limited
Ronald A. Iles
Senior Vice President
Alexander & Alexander Services Inc.
Chairman
Alexander Howden Group Limited
<PAGE>
R. Alan Kershaw
Vice President & Treasurer
Edward F. Kosnik
Executive Vice President & Chief Financial Officer
Dennis L. Mahoney
Deputy Chairman
Alexander Howden Group Limited
Dan R. Osterhout
Senior Vice President
Alexander & Alexander Services Inc.
Chairman & Chief Executive Officer
Alexander Underwriting Services Inc.
Albert A. Skwiertz, Jr.
Vice President & General Counsel
Donald L. Seeley
Senior Vice President
Alexander & Alexander Services Inc.
President & Chief Executive Officer
The Alexander Consulting Group Inc.
Richard P. Sneeder, Jr.
Controller
Alan E. Williams
Chairman, Marine & Aviation
Alexander Howden Group Limited
<PAGE>
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
Alexander & Alexander Services Inc., 1185 Avenue of the Americas, New York, N.Y.
10036
PRINCIPAL WORLDWIDE OPERATIONS
Risk Management & Insurance Services
Alexander & Alexander
Alexander Insurance Managers Limited
Alexander Underwriting Services Inc.
Anistics
Specialist & Reinsurance Broking
Alexander Howden Group Limited
Alexander Reinsurance Intermediaries, inc.
Human Resource Management Consulting Services
The Alexander Consulting Group Inc.
ANNUAL MEETING OF STOCKHOLDERS
The 1995 Annual Meeting of Stockholders will be held 9:30 a.m. on Thursday, May
18, at the McGraw-Hill Building Auditorium, 1221 Avenue of the Americas, 2nd
floor, New York City.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of March 17, 1995, there were approximately 2,102 record holders of the
Company's Common Stock, 529 beneficial holders of Class A Common Stock and
1,211 record holders of Class C Common Stock.
EXCHANGE LISTINGS
Alexander & Alexander's Common Stock is listed on the New York Stock Exchange
(symbol: AAL) and the International Stock Exchange of the United Kingdom and
the Republic of Ireland. Its Class C Common Stock is listed on the
International Stock Exchange of the United Kingdom and the Republic of Ireland.
Reed Stenhouse's RSC Class 1 Special Shares, associated with the shares of
Alexander & Alexander's Class A Common Stock, are listed on the Toronto Stock
Exchange and Montreal Stock Exchange.
TRANSFER AGENTS AND REGISTRARS
Stockholders inquiring about security transfer matters, dividend payments,
address corrections and other issues related to their account should contact:
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, N.J. 07303-2500
The R-M Trust Company
Balfour House
390 High Road
Ilford, Essex IG1 1NQ
England
Montreal Trust Company of Canada
151 Front Street West
Toronto, Ontario M5J 2N1
Canada
FINANCIAL INFORMATION
<PAGE>
Securities analysts and other persons seeking financial information about the
Company should contact Alan Kershaw, Treasurer, at (410) 363-5873; facsimile
(410) 363-5300. In Europe, contact Peter R.J. Tritton, director, Public &
Client Relations, Alexander & Alexander Services UK plc, at 44 (171) 623 5500;
facsimile 44 (171) 626 1178.
GENERAL INFORMATION
For general information about the Company, its products or services contact
Corporate Communications in New York at (212) 444-4583; facsimile (212)
444-4697, or Public & Client Relations in London at 44 (171) 623 5500; facsimile
44 (171) 626 1178. Our internet address is [email protected].
AUDITORS
Deloitte & Touche
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> ALEXANDER & ALEXANDER SERVICES INC.
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