Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Alexander & Alexander Services Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Alexander & Alexander Services Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
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(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE>
[LOGO]
ALEXANDER & ALEXANDER SERVICES INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
The Annual Meeting of Stockholders of Alexander & Alexander Services Inc.
(the "Company") will be held at 9:30 a.m., local time, on Thursday, May 16,
1996. The meeting will be held at the McGraw-Hill Building Auditorium, 1221
Avenue of the Americas, New York, New York (enter on 49th Street between Avenue
of the Americas and 7th Avenue) for the following purposes:
Item 1: To elect 15 directors to the Board of Directors for the coming
year;
Item 2: To ratify the appointment of Deloitte & Touche LLP as independent
auditors for 1996;
Item 3: To approve and adopt an amendment to the Company's 1995 Long-Term
Incentive Plan; and
To transact such other matters as may properly come before the meeting and any
adjournments thereof.
Stockholders of record of the Common Stock, Class A Common Stock and Class C
Common Stock of the Company at the close of business on March 15, 1996 are
entitled to notice of and to vote at the meeting and any adjournments thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD PROMPTLY. YOUR COOPERATION IS APPRECIATED SINCE A
MAJORITY OF THE OUTSTANDING SHARES ENTITLED TO VOTE MUST BE REPRESENTED, EITHER
IN PERSON OR BY PROXY, TO CONSTITUTE A QUORUM FOR PURPOSES OF CONDUCTING
BUSINESS.
By order of the Board of Directors,
Alice L. Russell
Corporate Secretary
March 29, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Voting Securities and Principal Holders.............................................. 1
Security Ownership of Certain Beneficial Owners...................................... 2
Security Ownership of Director Nominees and Executive Officers....................... 3
Nominees for Election to the Board of Directors...................................... 4
Meetings of the Board of Directors and its Committees................................ 7
Director Compensation................................................................ 8
Report on Executive Compensation by the Compensation,
Benefits and Nominating Committee.................................................. 8
Stock Price Performance Graph........................................................ 12
Executive Compensation............................................................... 13
Certain Transactions................................................................. 19
Matters Submitted to Stockholders.................................................... 20
Item 1: Election of Directors...................................................... 20
Item 2: Ratification of Selection of Independent Auditors.......................... 20
Item 3: First Amendment to the Company's 1995 Long-Term Incentive Plan............. 21
Compliance with Section 16(a) of the Securities Exchange Act of 1934................. 25
Stockholder Proposals for 1997 Meeting............................................... 25
Other Matters........................................................................ 25
Appendix I First Amendment to the Company's 1995 Long-Term Incentive Plan........... I-1
</TABLE>
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC.
1185 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
-------------------
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Alexander & Alexander Services Inc. (the
"Company") to be voted at its Annual Meeting of Stockholders which will be held
at the McGraw-Hill Building Auditorium, 1221 Avenue of the Americas, New York,
New York at 9:30 a.m., local time, on Thursday, May 16, 1996, and at any
adjournments thereof (the "Annual Meeting").
Shares represented by each proxy properly executed and returned will be
voted unless revoked. A stockholder may revoke a proxy at any time before it is
exercised by filing with the Corporate Secretary of the Company a written
revocation or a duly executed proxy bearing a later date or by voting in person
at the Annual Meeting. Any written notice revoking the proxy should be sent to
the attention of Alice L. Russell, Corporate Secretary, Alexander & Alexander
Services Inc., 10461 Mill Run Circle, Owings Mills, Maryland 21117.
This proxy statement and the accompanying form of proxy, together with the
Company's 1995 Annual Report to Stockholders, are being mailed to stockholders
on or about March 31, 1996.
If a stockholder is the beneficial owner of the Company's Class A Common
Stock, a direction and proxy will be delivered to Montreal Trust Company, as
trustee, in connection with the shares beneficially owned by said stockholder
and held by the trustee. The trustee will vote the Class A Common Stock in
accordance with the directions received from the beneficial owners.
The cost of soliciting proxies will be borne by the Company. In addition to
the solicitation by mail, proxies may be solicited by officers, directors and
employees of the Company in person or by telephone, telegraph or facsimile. The
Company has retained D.F. King & Co., Inc. to assist in the solicitation for a
fee estimated at $13,000 plus reasonable expenses. The Company may also
reimburse brokers, custodians, nominees and other fiduciaries for their
reasonable expenses in forwarding proxy materials to principals.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Only holders of record of the Company's Common Stock, $1.00 par value
("Common Stock"), Class A Common Stock, $.00001 par value ("Class A Stock"), and
Class C Common Stock, $1.00 par value ("Class C Stock"), at the close of
business on March 15, 1996 are entitled to vote at the Annual Meeting. As of
that date, there were outstanding 42,306,378 shares of Common Stock, 1,865,030
shares of Class A Stock and 356,491 shares of Class C Stock. Such shares are
each entitled to one vote.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following sets forth information regarding persons who, to the best of
the Company's knowledge, beneficially own 5 percent or more of any class of the
common voting shares and/or shares convertible into common voting shares. The
percentage of shares outstanding is based on shares outstanding on March 15,
1996.
<TABLE><CAPTION>
PERCENT AND NUMBER PERCENT OF TOTAL
NAME AND ADDRESS OF STOCKHOLDER TYPE OF STOCK OF SHARES VOTING SHARES
<S> <C> <C> <C>
Southeastern Asset Management, Inc.(1) 19.70% 8,334,762 18.72%
Suite 900 Common Stock
6075 Poplar Avenue
Memphis, TN 38119
The Prudential Insurance Company of America(1) 9.44% 3,994,184 8.97%
Prudential Plaza Common Stock
Newark, NJ 07102-3777
13.79% 317,252 0%
Series A
Convertible
Preferred Stock
FMR Corp.(1)(2) 7.30% 3,090,462 6.94%
82 Devonshire Street Common Stock
Boston, MA 02109
40.80% 938,300 0%
Series A
Convertible
Preferred Stock
Norwest Corporation(1)(3) 6.32% 2,675,650 6.01%
Norwest Center Common Stock
Sixth and Marquette
Minneapolis, MN 55479
Ontario Municipal Employees Retirement 72.21% 1,346,823 3.02%
System(1) Class A Stock
Suite 1000
One University Avenue
Toronto, Canada M5J 2P1
Trustees of the Alexander & Alexander U.K. 70.12% 249,980 0.56%
Voluntary Equity Scheme(1) Class C Stock
145 St. Vincent Street
Glasgow, Scotland G2 5NX 0.31% 130,130 0.29%
Common Stock
American International Group, Inc.(4) 100% 4,566,713 0%
70 Pine Street Series B
New York, NY 10270 Cumulative
Convertible
Preferred
Stock
0.35% 150,000 0.34%
Common Stock
</TABLE>
- ------------
(1) As reported on the Schedule 13G most recently filed by the stockholder with
the United States Securities and Exchange Commission ("SEC").
(2) Together with subsidiaries Fidelity Management & Research Company, Fidelity
Management Trust Company and Fidelity International Limited.
(3) Together with subsidiaries Norwest Colorado, Inc. and Norwest Bank Colorado,
National Association.
(4) Shares held through subsidiaries American Home Assurance Company, Commerce
and Industry Insurance Company and The Insurance Company of the State of
Pennsylvania. Holders of the Series B Cumulative Convertible Preferred Stock
are restricted as to the amount that such shares may be ultimately converted
into Common Stock to the extent that upon such conversion, beneficial
ownership of the Company's voting shares may not exceed 9.9% of all the
shares then outstanding.
2
<PAGE>
SECURITY OWNERSHIP OF DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
As to the beneficial ownership of the Company's Common Stock, the following
table sets forth information as of February 16, 1996, regarding each director,
director nominee and named executive officer reported under the caption
"Executive Compensation," and all directors, director nominees and executive
officers as a group.
<TABLE><CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY SUBJECT TO
NAME OWNED(1)(2) OPTIONS(3)
<S> <C> <C>
Frank G. Zarb 299,087 350,000
H. Furlong Baldwin 2,506 --
Kenneth Black, Jr. * 12,350 --
Robert E. Boni 62,459 --
W. Peter Cooke 1,476 --
E. Gerald Corrigan 2,459 --
Kenneth J. Davis 29,951 33,150
Joseph L. Dionne 3,459 --
Gerald R. Ford 2,459 --
Peter C. Godsoe 1,652
Angus M. M. Grossart 3,944 --
Maurice H. Hartigan 2,459 --
James B. Hurlock 2,559 --
Ronald A. Iles 38,207 70,601
Edward F. Kosnik 7,606 50,000
Vincent R. McLean 13,411 --
Dennis L. Mahoney 20,358 5,000
James D. Robinson III 4,459 --
All director nominees, emeritus
directors and executive officers as a
group (28 persons)(4) 638,724 735,227
</TABLE>
- ------------
* Dr. Black currently serves as an emeritus director of the Company.
(1) As to non-employee directors of the Company, amounts reported include the
aggregate number of shares that are: (i) held directly or indirectly for the
benefit of the individual director listed or directly for the benefit of
members of such individual's family as to which beneficial ownership is
disclaimed and (ii) held in such director's account in the Company's trust
under the Non-Employee Director Deferred Stock Ownership Plan. (See section
captioned "Director Compensation" for further information). Of the shares
held in the Company's trust, the following shares represent deferred fees:
Mr. Baldwin 506 shares, Dr. Black 785 shares, Dr. Boni 2,459 shares, Mr.
Cooke 1,476 shares, Mr. Corrigan 2,459 shares, Mr. Dionne 2,459 shares,
President Ford 2,459 shares, Mr. Godsoe 1,152 shares, Mr. Grossart 1,476
shares, Mr. Hartigan 2,459 shares, Mr. Hurlock 2,459 shares, Mr. McLean
2,459 shares and Mr. Robinson 2,459 shares. In addition, as to Dr. Boni,
60,000 shares represent a portion of a deferred special compensation award
made to him in 1994, and as to Dr. Black and Messrs. Grossart and McLean,
11,065 shares, 2,468 shares and 10,752 shares, respectively, represent a
deferred present value distribution from the directors' retirement plan
which was terminated on January 1, 1995.
(2) As to executive officers, including employee directors, amounts reported
include the aggregate number of shares that are: (i) held directly or
indirectly for the benefit of the individuals listed or directly for the
benefit of members of an individual's family as to which beneficial
ownership is disclaimed; (ii) held in the stock fund under the Company's
Thrift Plan or similar plans on behalf of the individual as of December 31,
1995; (iii) held in the Employee Discount Stock Purchase Plan on behalf of
the individual as of December 31, 1995; (iv) restricted stock that may vest
in the future including shares awarded, but
(Footnotes continued on following page)
3
<PAGE>
(Footnotes continued from preceding page)
not issued, in connection with 1995 annual incentive awards under the
Company's bonus equity program. Does not include 516 shares and 38 shares of
Common Stock and 990 shares and 72 shares of Class C Stock held under the
U.K. Voluntary Equity Scheme attributed to Messrs. Davis and Mahoney,
respectively, who do not have any present voting or dispositive power.
(3) Represents shares which are subject to options exercisable within 60 days
from March 15, 1996.
(4) No individual director, director nominee or executive officer beneficially
owns more than 1 percent of any class of the Company's common voting shares.
All officers and directors as a group own approximately 1.51 percent of the
Common Stock, approximately 0.26 percent of the Class A Stock, 0.01 percent
of the Class C Stock and approximately 1.45 percent of the total outstanding
voting shares.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FRANK G. ZARB, 61,
Chairman of the Board and Director since June 1994
Mr. Zarb has served as chairman of the board, chief executive officer and
president of the Company since June 1994. From November 1993 until joining the
Company, he served as vice chairman and group chief executive officer of The
Travelers Inc. He was chairman and chief executive officer of Smith Barney Inc.
and Smith Barney, Harris Upham & Co. Incorporated (subsidiaries of The Travelers
Inc.) from November 1988 until June 1993, and president of such corporations
from June 1989 until June 1993. From 1978 until 1988 he was a general partner at
Lazard Freres & Co., an investment banking firm. Previously, he served in the
United States Government as: executive director of the Energy Resources Council
and administrator for the Federal Energy Administration from 1974 until 1977;
Assistant to the President of the United States for Energy Affairs from 1975
until 1977; Associate Director of the United States Office of Management and
Budget from 1973 until 1974; and United States Assistant Secretary of Labor from
1971 until 1972. Mr. Zarb is also a director of the Securities Investor
Protection Corporation and CS First Boston, Inc. and a member of the Board of
Trustees of Hofstra University and the Gerald R. Ford Foundation. He is a member
of the New York Stock Exchange Nominating Committee and serves on the U.S.
Enrichment Corporation's Board of Directors.
H. FURLONG BALDWIN, 64
Director since February 1996
Mr. Baldwin has served as chairman of the board of directors and chief
executive officer of Mercantile Bankshares Corporation, a Baltimore-based bank
holding company for state and nationally chartered commercial banks since 1976
and 1984, respectively. Since 1956, he has held various executive and management
positions with the bank including chairman and chief executive officer of
Mercantile-Safe Deposit & Trust Company. He is also a director of Baltimore Gas
& Electric Company, Conrail, Inc., GRC International, Inc. and USF&G
Corporation.
ROBERT E. BONI, 68
Director since May 1988
Dr. Boni is a retired chairman of the board and chief executive officer of
Armco Inc., having held these positions from February 1986 until November 1990
and February 1985 until April 1990, respectively. Dr. Boni served as
non-executive chairman of the board of directors of the Company from January
1994 to June 1994. He is also a director of Maritrans Inc.
W. PETER COOKE, 64
Director since July 1994
Mr. Cooke has served as the chairman of the World Regulatory Advisory
Practice of Price Waterhouse LLP since January 1989. Prior to joining Price
Waterhouse, Mr. Cooke was the associate director of The Bank of England and held
various executive management positions with the bank since joining in 1955. He
is also the deputy chairman of the Housing Corporation, the U.K. governmental
4
<PAGE>
agency responsible for channeling government resources to the social housing
sector. He is also a director of Safra Republic Holdings.
E. GERALD CORRIGAN, 54
Director since January 1995
Mr. Corrigan has served as chairman, International Advisors of Goldman,
Sachs & Co. since January 1994. From January 1985 until July 1993 he was
president and chief executive officer of the Federal Reserve Bank of New York.
He is also a trustee of a number of non-profit, public policy-oriented
institutions.
JOSEPH L. DIONNE, 62
Director since July 1994
Mr. Dionne has served as chairman of the board of directors and chief
executive officer of McGraw-Hill, Inc. since 1988 and 1983, respectively, and
has served in various executive and management positions since joining
McGraw-Hill in 1967. He is also a director of The Equitable Life Assurance
Society of the United States, The Equitable Companies, Incorporated, The Harris
Corporation and Ryder System Inc.
GERALD R. FORD, 82
Director since October 1994
The Honorable Gerald R. Ford was President of the United States from August
1974 through January 1977, having served as Vice President of the United States
from December 1973 through August 1974. He is a lecturer and a business
consultant to several corporations. He is also a director of The Travelers Inc.
and an advisory director to Texas Commerce Bancshares, Inc. and American Express
Company.
PETER C. GODSOE, 56
Director since February 1989
Mr. Godsoe has served as chairman of the board of directors and chief
executive officer of The Bank of Nova Scotia since January 1995 and January
1993, respectively. He previously served as the deputy chairman and president
since January 1993 and January 1992, respectively. Since 1966, he has held
various executive and management positions with the bank, including vice
chairman from 1983 until 1992 and chief operating officer during 1992. Mr.
Godsoe is also a director of Reed Stenhouse Companies Limited, the Company's
retail broking subsidiary in Canada.
ANGUS M.M. GROSSART, 58
Director since August 1985
Mr. Grossart has served as the chairman and managing director of Noble
Grossart Limited, a United Kingdom merchant bank, since 1969. He is the chairman
of Scottish Investment Trust plc and deputy chairman of Edinburgh Fund Managers
plc. He is also a director of the Royal Bank of Scotland plc and several other
publicly held corporations in the United Kingdom.
MAURICE H. HARTIGAN II, 56
Director since October 1994
Mr. Hartigan has served as executive vice president of PNC Bank Corporation
since May 1995. Prior to joining PNC Bank, Mr. Hartigan was a senior managing
director of Chemical Banking Corporation in New York, where he headed the North
America Division of Chemical's Global Bank. He served in various executive and
management positions with the bank since joining in 1965.
JAMES B. HURLOCK, 62
Director since October 1994
Mr. Hurlock is a partner and has served as chairman of the management
committee for White & Case, an international law firm headquartered in New York,
since 1967 and 1980, respectively. He
5
<PAGE>
joined the firm in 1959, and has served as the resident partner of the firm's
offices in Brussels, Paris, and London.
RONALD A. ILES, 60
Deputy Chairman of the Board since October 1995 and Director since January 1995
Mr. Iles has served as chairman of Alexander & Alexander Services U.K. plc,
the parent of the Company's European operations since 1993. He served as a
senior vice president of the Company from 1985 until 1995. In January 1995, Mr.
Iles was appointed chairman of Alexander Howden Group Limited, an entity formed
from the merger of the Company's specialist and reinsurance broking operations.
Since joining the predecessor entity of Alexander Howden Reinsurance Brokers in
1957, Mr. Iles has held various executive and management positions, including
chairman from 1981 to December 1994.
EDWARD F. KOSNIK, 51
Director since March 1995
Mr. Kosnik has served as senior executive vice president since October 1995
and as chief financial officer of the Company since August 1994 and as executive
vice president from August 1994 until October 1995. Before joining the Company,
he was chairman of the board, president and chief executive officer of JWP,
Inc., a global services company, from April 1993 until February 1994, and
executive vice president and chief financial officer from December 1992 until
April 1993. From 1987 until 1992, he was president and chief executive officer
of Sprague Technologies Inc., a global manufacturer of electronic components.
From 1983 until 1987, he served as executive vice president and chief financial
officer of Penn Central Corporation. He is also a director of Buckeye Partners,
L.P.
VINCENT R. MCLEAN, 64
Director since April 1980
Mr. McLean is a retired officer of Sperry Corporation, a diversified
manufacturing concern, having served as executive vice president and chief
financial officer from 1983 until 1985. He is also a director of William Penn
Life Insurance Co. of New York, Banner Life Insurance Company and a trustee of
MAS Funds.
JAMES D. ROBINSON III, 60
Director since July 1994
Mr. Robinson has served as chairman and chief executive officer of RRE
Investors, LLC, a private venture investment firm and as president of J.D.
Robinson Inc., a strategic advisory company since September 1995 and February
1993, respectively. From 1977 until February 1993 he served as chairman of the
board and chief executive officer of American Express Company, having held
various executive and management positions since joining such corporation in
1970. He is also a director of the Coca-Cola Company, Bristol-Myers Squibb
Company, First Data Corporation, New World Communications Group, Cambridge
Technology Partners and Union Pacific Corporation.
EMERITUS DIRECTORS
Emeritus directors may be designated by the Board of Directors from time to
time on an annual basis. Dr. Kenneth Black, Jr., 71, has served as an emeritus
director of the Company since May 1995 and as a director of the Company from May
1984 until May 1995. He is the Regents' Professor Emeritus of Insurance at
Georgia State University and Executive Director of Educational Foundation Inc.
Dr. Black is also a director of Haverty Furniture Stores, Inc., Scudder Variable
Life Insurance Fund, Swiss Re Corporation and USLIFE Corporation.
6
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met eight times during 1995. All directors attended
75% or more of the aggregate number of meetings of the board and its committees
on which they served, except Messrs. Cooke and Robinson who attended 64% and 71%
of such meetings, respectively, as a result of prior commitments before joining
the board.
The following are the current members and functions of the standing
committees of the Board of Directors:
AUDIT COMMITTEE. This committee assists the Board of Directors in exercising
its fiduciary responsibilities for oversight of audit and related matters,
including corporate accounting, reporting and control practices. It is
responsible for recommending to the Board of Directors the independent auditors
to be employed for the following year. The Audit Committee meets periodically
with management, financial personnel, internal auditors and the independent
auditors to review internal accounting controls and auditing and financial
reporting matters. The independent auditors and the internal auditors have
unrestricted access to the Audit Committee. This committee consists of four non-
employee directors: Messrs. McLean (chair), Cooke, Grossart and Hartigan. The
committee met six times during 1995.
COMPENSATION, BENEFITS AND NOMINATING COMMITTEE. This committee is
responsible for overseeing the Company's executive compensation programs. It
administers certain compensation and benefit plans designated by the Board of
Directors and approves annual compensation and long-term incentive compensation
for executive officers and certain other senior executives of the Company and
its subsidiaries. This committee is also responsible for recommending nominees
for election to the Board of Directors and will consider candidate
recommendations from stockholders. Stockholders wishing to recommend prospective
nominees for the committee's consideration should submit such recommendations in
writing to: Alexander & Alexander Services Inc., 1185 Avenue of the Americas,
New York, NY 10036, Attn.: Chairman, Compensation, Benefits and Nominating
Committee. This committee consists of four non-employee directors: Messrs.
Dionne (Chair), Boni and Corrigan and President Ford. The committee met eight
times during 1995.
EXECUTIVE COMMITTEE. This committee has the authority to act for the Board
of Directors on most matters during intervals between the board's meetings and
has additional responsibilities regarding oversight of Company policy and
management controls. This committee consists of six directors: Messrs. Boni
(chair), Corrigan, Dionne, Hartigan, McLean and Zarb. The committee met twice
during 1995.
FINANCE/INVESTMENT COMMITTEE. This committee monitors the Company's
financial management and advises the Board of Directors on related matters. This
committee consists of four directors: Messrs. Godsoe (chair), Hurlock, Robinson
and Iles. The committee met five times during 1995.
PUBLIC POLICY AND ETHICS COMMITTEE. In February 1995, the Board of Directors
established the Public Policy and Ethics Committee. This committee is
responsible for overseeing the Company's continuing program relating to
standards of business conduct for its employees. This committee consists of five
directors: President Ford (chair) and Messrs. Cooke, Iles, Robinson and Zarb.
The committee met once in 1995.
7
<PAGE>
DIRECTOR COMPENSATION
The Company's Non-Employee Director Deferred Stock Ownership Plan (the "NEDD
Plan") was approved by stockholders at the 1995 annual meeting of stockholders
and became effective as of January 1, 1995. Like the Company's revised
compensation programs for its executive officers and other key employees, the
NEDD Plan places its emphasis on equity-based variable compensation intended to
encourage the creation of value for stockholders.
Each non-employee director receives a single annual fee of $40,000 for all
services as a director (the "Annual Fee"), regardless of the committee services
such director provides. The Annual Fee generally is not paid currently to any
director. Instead, payment of such Annual Fee is deferred pursuant to the terms
of the NEDD Plan. Under the NEDD Plan, in lieu of payment of the Annual Fees,
the Company will generally contribute shares of Common Stock equal to that
portion of the Annual Fees so deferred to a grantor trust established by the
Company (the "Company Trust"). Shares are then allocated to an account
established for each director (a "Director's Account"). In the event that a
non-employee director is subject to current income taxation on the Annual Fee
payable, the Company will pay sufficient cash to the non-employee director to
discharge the taxes due on the Annual Fee and the amount of stock to be
contributed to the Company Trust in respect of such director will be reduced by
like amount.
Shares contributed to a Director's Account may be sold by the independent
trustee of the Company Trust or by an investment manager appointed by the
Company after the shares have been held in the Company Trust for one year (or
earlier, upon the death of the director or a Change of Control of the Company)
at the direction of the director given during a window period more than six
months prior to the effective date of such sale. Any shares of Common Stock then
held in a Director's Account will be distributed six months following the
cessation of the Eligible Director's services as a member of the Board. To the
extent that a Director's Account holds assets other than Common Stock, such
assets will generally be distributed immediately following the time at which the
Eligible Director ceases to be a member of the Board (or earlier in the event of
a determination of hardship). Notwithstanding the foregoing, dividends on Common
Stock held in a Director's Account will be passed through to each director as
soon as practicable following the date received by the Company Trust.
In 1995, Mr. Godsoe also received an annual retainer of Canadian $25,000
(US$18,200) as a non-employee director of Reed Stenhouse Companies Limited, the
Company's Canadian subsidiary.
Non-employee directors are also reimbursed for reasonable expenses. Emeritus
Directors of the Company receive no fee, retainer or other compensation for such
services, but are reimbursed for reasonable expenses. Directors who are also
employees of the Company or any subsidiary receive no additional compensation
for their services as directors of the Company.
REPORT ON EXECUTIVE COMPENSATION
BY THE COMPENSATION, BENEFITS AND NOMINATING COMMITTEE
The Company's compensation program for its executive officers is
administered and reviewed by the Compensation, Benefits and Nominating Committee
(the "CBNC") of the Board of Directors. The CBNC is comprised of four outside
directors, none of whom is an employee or former employee of the Company or a
director of another corporation that requires specific disclosure of such
relationship in this proxy statement.
COMPENSATION PHILOSOPHY
In determining the compensation payable to the Company's executive officers,
the CBNC seeks to achieve the following objectives through a combination of
fixed and variable compensation:
8
<PAGE>
. Pay competitively--Provide a total compensation opportunity that is
consistent with competitive practices, enabling the Company to attract
and retain qualified executives;
. Pay for performance--Create a direct link between the compensation
payable to each executive officer and the financial performance both of
the Company generally and of the specific business unit or units for
which the executive is responsible. The amounts payable with respect to
the components of an individual's compensation will change from year to
year, depending on that financial performance; and
. Executive as Stockholders--Create a common interest between executive
officers and the Company's stockholders through the use of stock awards
that link a portion of each executive officer's compensation
opportunity directly to the value of the Company's Common Stock.
The compensation program for the key employees of the Company and its
subsidiaries (including the Company's executive officers) was revised in 1995 to
increase the emphasis on variable compensation and the rewards payable for
superior performance. To further align the interests of management with those of
stockholders, new equity based programs were approved by stockholders at the
1995 annual meeting of stockholders.
The programs which implement the CBNC's compensation philosophy have been
developed with the assistance of outside consultants and counsel. The CBNC will
continue to annually review the Company's compensation policies and programs in
light of this philosophy and of competitive practices in the United States and
in those foreign countries in which executive officers of the Company reside
and/or geographically operate.
COMPONENTS OF EXECUTIVE COMPENSATION PROGRAM
Base Salary
The CBNC establishes each officer's base salary by comparison to competitive
market levels for the executive's job function determined by reference to
compensation paid in the industry or by a peer group, in the country where such
executive permanently resides and/or geographically operates. The "Peer Group"
used in the Stock Price Performance Graph on page 12 of this proxy statement
reflects the Company's direct competitors in its principal business. The "Peer
Group" is included in the group of corporations used for executive compensation
analysis. However, in determining executive compensation, the focus is on
recruiting and retaining executive talent. Accordingly, a larger group of
corporations than the Company's direct competitors is used for compensation
comparisons.
Base salaries generally approximate the median level of such competitive
rates and are adjusted based on individual performance. Salaries are reviewed at
regular intervals of between 12 to 24 months depending on job classification and
competitive market levels. Base salaries for executive officers were generally
increased in 1995 in accordance with the foregoing practices. Notwithstanding
this policy, certain executive officers (including Messrs. Zarb, Davis, Kosnik,
and Mahoney) have employment agreements which assure such officers a minimum
level of base salary that was determined through a process of bilateral
negotiations.
Annual Incentive
For fiscal year 1995, annual bonuses were established by the CBNC based
primarily on specified corporate and business unit performance objectives. For
certain U.S. executive officers, annual bonuses were primarily determined based
on performance against a pre-established earnings per share objective.
Individual performance compared to pre-established strategic, financial and
operational objectives determined the remaining portion of the annual incentive
of certain executive officers. For other
9
<PAGE>
executive officers, the performance of the executive's business unit, primarily
measured by reference to the unit's attainment of pre-tax operating income
objectives, also made up a substantial portion of the executive's annual bonus
opportunity.
Payment of annual bonuses for 1995 was partially made in the form of
restricted shares (the "BEP Shares"), in lieu of cash, under the "bonus equity
plan" which the Company recently adopted under the 1995 Long-Term Incentive Plan
(the "1995 LTIP"). Under this program, the CBNC awarded BEP Shares, which vest
on the second anniversary of the award date, to each executive officer in lieu
of a specified portion of such officer's earned cash bonus. The number of shares
awarded was determined by dividing the dollar amount designated by the CBNC in
its discretion by 75% of the fair market value based on the average of the
closing prices of the Common Stock on the Composite Tape of the New York Stock
Exchange for the five days prior to the date the shares were awarded. This
"discount" is intended to compensate the officer for the fact that BEP Shares
may be forfeited if the officer does not remain in the Company's employ
throughout the relevant vesting period.
Equity Based Incentives
The Company's equity based incentives have historically taken the form of
both stock options and restricted stock awards. The Company adopted the 1995
LTIP to provide its executive officers and other key employees equity
opportunities that are intended to further align the interests of such officers
and employees with those of the Company's stockholders. As noted above, the 1995
LTIP also authorizes the award of BEP Shares in lieu of an earned portion of
cash bonuses. Under this program, the CBNC effectively uses a portion of an
executive officer's cash bonus to "purchase" stock from the Company.
Stock Options. Stock options have historically been the Company's primary
form of long-term incentive compensation. In awarding stock options to the named
executive officers in 1995, the CBNC's intent was that such options represent a
significant portion of each such officer's total compensation opportunity, thus
aligning the officer's economic interests with those of the Company's
stockholders. Consistent with this goal, all option awards in 1995 were made at
the fair market value of the Common Stock as of the date of grant. The number of
options granted was based on the CBNC's subjective evaluation of a number of
factors, including competitive market practice, past grants, management level
and other matters relating to an individual's performance and ability to
influence corporate results. The CBNC believes these awards were within the
competitive range of similar awards made by the Company's competitors for
executive talent.
Restricted Stock. The CBNC has used traditional awards of restricted stock
only in special circumstances as an inducement for an executive officer to
remain in the Company's employ over a period of years or as a reward for
extraordinary performance or as a means to adjust compensation packages. It is
not the Company's practice to use traditional restricted stock awards as a
standard form of long-term incentive compensation. When used, the circumstances,
rather than past awards, constitute the primary factor for determining the size
of any restricted stock award. In addition to BEP Awards, certain select
executive officers received awards of traditional restricted stock for a number
of shares that the CBNC subjectively determined to be necessary to induce such
officers to remain in the employ of the Company or one of its affiliates and/or
reward such officer's superior performance during 1995.
Bonus Equity Awards. As is more fully described above, under the bonus
equity program, the CBNC awarded to each executive officer "discounted"
restricted stock in lieu of a portion of such officer's earned cash bonus for
1995. The "purchase price" is discounted (up to a maximum of 25% of the value of
the stock) to reflect that the shares-- including the portion related to the
earned bonus used to pay the "purchase price"--is subject to forfeiture if the
officer leaves the Company's employ prior to satisfying an additional service
requirement. These awards have at least the same retentive and incentive effect
as traditional restricted stock awards. However, as opposed to such traditional
awards, each officer effectively pays at least 75% of the cost of such shares
through foregone cash bonus
10
<PAGE>
payments and forfeits the shares and the "purchase price" if the officer does
not remain in the Company's employ during the relevant vesting period.
Other Long-Term Incentive Compensation. In addition, the CBNC uses other
long-term performance based awards, payable in cash, as incentive to certain
senior executives of the Company and its subsidiaries to achieve specific
performance objectives and criteria.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Frank G. Zarb has served as chairman of the board, chief executive
officer and president of the Company since June 1994. The compensation payable
to Mr. Zarb with respect to his 1995 services was generally determined according
to the philosophy described above. Based on a performance criteria established
by the CBNC, Mr. Zarb was awarded an annual bonus of $1,304,000 for services
rendered in 1995 because the Company achieved and exceeded the earnings per
share objectives applicable to Mr. Zarb. Of this amount, $978,005 was paid in
cash. The balance of Mr. Zarb's 1995 annual bonus was designated by the CBNC as
a "bonus equity plan" award. Accordingly, Mr. Zarb received 21,733 BEP Shares as
part of his 1995 annual bonus in lieu of $325,995 cash. These shares generally
will not vest until early 1998.
In August 1995, pursuant to the terms of the 1995 LTIP, the CBNC awarded Mr.
Zarb 100,000 stock options based on an assessment of competitive practices for
comparable positions. With respect to Mr. Zarb's annual base salary of $900,000
set in June 1994, he received no increase in 1995 and requested no increase
during 1996. The CBNC acquiesced to Mr. Zarb's request concerning his 1996
annual base salary.
Policy as to Section 162(m) of the Code
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
denies a publicly traded company a Federal income tax deduction for compensation
in excess of $1 million paid to certain of its executive officers unless the
amount of such excess is payable based solely upon the attainment of objective
performance criteria. The Company has undertaken to qualify substantial
components of the incentive compensation it makes available to its executive
officers for the performance exception to nondeductibility. Most equity based
awards available for grant under the Company's equity compensation plans, and
all of the equity based awards actually granted to executive officers will so
qualify. Amounts payable under the Company's Performance Bonus Plan for
Executive Officers, including amounts payable under the bonus equity program,
should also be exempt from the application of such Section 162(m) as performance
based compensation. However, in appropriate circumstances, it may be necessary
or appropriate to pay compensation or make incentive or retentive awards that do
not meet the performance based exception and therefore may not be deductible by
reason of Section 162(m).
COMPENSATION, BENEFITS AND NOMINATING
COMMITTEE
Joseph L. Dionne, Chairman
Dr. Robert E. Boni
E. Gerald Corrigan
The Honorable Gerald R. Ford
11
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The graph below provides an indicator of cumulative total stockholder
returns for the Company for the period December 31, 1990 to December 31, 1995
compared with the S&P 500 Stock Index and a peer group. The peer group is
comprised of the largest publicly traded companies worldwide which compete
against the Company in its principal industry segment. The members of the peer
group are as follows: Marsh & McLennan Cos. Inc., Arthur J. Gallagher & Co.,
Sedgewick Group plc and Willis Corroon Group plc. Total return is measured by
the increase or decrease in value of $100 invested at the beginning of the
period, including both reinvestment of dividends and capital appreciation or
depreciation.
250
200
[LEGEND]
150
100 [GRAPH]
50
0
1990 1991 1992 1993 1994 1995
<TABLE><CAPTION>
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Alexander & Alexander $100 $ 92.97 $124.71 $ 96.47 $ 93.13 $ 96.14
S&P 500 $100 $130.13 $139.86 $153.93 $155.69 $213.73
Peer Group $100 $102.04 $111.80 $108.41 $105.06 $120.98
</TABLE>
12
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer and each of the Company's other
four most highly compensated executive officers (referred to collectively with
the Chief Executive Officer as the "named executives") for the years ended
December 31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE (1)
<TABLE><CAPTION>
LONG TERM COMPENSATION
--------------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------
---------------------------------------- RESTRICTED SECURITIES PAYOUTS
OTHER ANNUAL STOCK UNDERLYING ----------
COMPENSATION AWARD(S) OPTIONS LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(3) ($)(4) ($)(5) (#)(6) PAYOUTS($)
- ----------------------------- ---- --------- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANK G. ZARB(1) 1995 $ 900,000 $ 978,005 -- $ 325,995 100,000 --
Chairman, CEO, President and 1994 $ 487,500 $ 1,000,000 -- $4,773,887 600,000 --
Director of the Company
KENNETH J. DAVIS (2) 1995 $ 427,984 $ 295,680 $ 90,923 $ 397,358 25,000 --
Chairman of A&A Int'l Inc., 1994 $ 327,674 $ 299,591 $ 53,450 $ 210,625 50,000 --
EVP of the Company and
CEO of A&A Europe, Ltd.
RONALD A. ILES (2) 1995 $ 528,430 $ 360,726 $105,473 $ 90,180 -- --
Deputy Chairman of the 1994 $ 440,640 $ 526,868 $ 52,536 $ 421,250 50,000 --
Company, 1993 $ 430,357 $ 292,012 -- -- 20,000 $235,966
Chairman of A&A Services UK
plc and Chairman of
Alexander Howden Group Ltd.
EDWARD F. KOSNIK(1) 1995 $ 325,096 $ 379,920 -- $ 94,980 100,000 --
Senior EVP, CFO and Director 1994 $ 109,231 $ 125,000 -- -- 150,000 --
of the Company
DENNIS L. MAHONEY (2) 1995 $ 492,885 $ 321,554 $ 62,369 $ 448,808 -- --
EVP of the Company and 1994 $ 475,830 $ 477,360 $100,563 -- 50,000 --
Deputy Chairman and Group
Chief Executive Officer of
Alexander Howden Group, Ltd.
<CAPTION>
ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)(7)(8)
- ----------------------------- ------------
<S> <C>
FRANK G. ZARB(1) $ 40,242
Chairman, CEO, President and $ 25,163
Director of the Company
KENNETH J. DAVIS (2) $ 379
Chairman of A&A Int'l Inc., $ 367
EVP of the Company and
CEO of A&A Europe, Ltd.
RONALD A. ILES (2) $ 20,244
Deputy Chairman of the $ 14,744
Company, $ 15,657
Chairman of A&A Services UK
plc and Chairman of
Alexander Howden Group Ltd.
EDWARD F. KOSNIK(1) $ 13,724
Senior EVP, CFO and Director $ 4,665
of the Company
DENNIS L. MAHONEY (2) $ 379
EVP of the Company and $ 367
Deputy Chairman and Group
Chief Executive Officer of
Alexander Howden Group, Ltd.
</TABLE>
- ------------
(1) Certain amounts were not required to be reported in 1993 because the named
executive was either not an employee of the Company or not an "executive
officer" of the Company as defined under the Securities Exchange Act of
1934.
(2) All cash compensation was paid in U.K. pounds sterling. Any amounts paid in
pounds sterling have been restated in U.S. dollars based on the average
exchange rate expressed in dollars per B.P.1.00 of 1.58 in 1995, 1.53 in
1994, and 1.50 in 1993.
(3) That portion of each executive officer's 1995 bonus paid in the form of BEP
Shares is reported in this table under "Restricted Stock Awards" (also
footnote 5 below).
(4) These awards sometimes take the form of non-cash compensation or other
personal benefits because of tax regulations or competitive business
practices in a particular country or region. In this category, Mr. Davis
received a $26,082 car allowance and $63,756 for housing expenses. Mr. Iles
received $26,316 car allowance and $42,127 for other transportation
expenses. Mr. Mahoney received $44,450 for housing expenses.
(5) Awards reported in 1995 reflect the dollar value of restricted shares
awarded under the "bonus equity plan" as well as the dollar value of
traditional restricted stock awarded. (See "Report on Executive Compensation
by the Compensation, Benefits and Nominating Committee" for a description of
annual incentive compensation).
(Footnotes continued on following page)
13
<PAGE>
(Footnotes continued from preceding page)
The number of BEP Shares awarded as a portion of the 1995 annual bonus to
each named executive officer, together with the dollar value of the 1995
cash bonus award foregone is as follows: Mr. Zarb 21,733 shares/$325,995;
Mr. Davis 4,928 shares/$73,920; Mr. Iles 6,012 shares/$90,180;
Mr. Kosnik 6,332 shares/$94,980 and Mr. Mahoney 5,358 shares/$80,370. The
restrictions on the BEP Shares will lapse on the second anniversary of the
grant date.
Excluding BEP Awards, the number of shares of restricted stock held by each
named executive as of December 31, 1995, together with the value of those
shares based on the closing market price on that date, is as follows: Mr.
Zarb--271,307 shares/$5,154,833; Mr. Davis--25,000 shares/$475,000; Mr.
Iles--20,000 shares/$380,000 and Mr. Mahoney--15,000 shares/$285,000. The
restrictions on 20,290 shares of restricted stock granted to Mr. Zarb will
lapse less than two years after date of grant.
(6) No stock appreciation rights ("SARS") have been granted by the Company since
January 1990. For all years reported, limited stock appreciation rights
("LSARs") were granted to executive officers in tandem with stock option
awards. The LSARs are not included in this table and are described below
under the caption "Severance and Other Arrangements."
(7) Amounts reported in 1995 include: (i) matching contributions made by the
Company under the Thrift Plan and an unfunded supplemental retirement plan
of $39,912 for Mr. Zarb and $13,394 for Mr. Kosnik; (ii) matching
contributions under the U.K. Equity Scheme of $379 for each of Messrs.
Davis, Iles, and Mahoney; (iii) insurance premiums paid by the Company of
$330 for each of Messrs. Zarb and Kosnik; and (iv) interest of $19,865 on a
contingent benefit agreement earned by Mr. Iles and paid by the Company.
(8) The Company has entered into arrangements with certain of the named
executives that may result in payments to such executives upon termination
of employment or a change in control of the Company. These arrangements are
described below under the caption "Other Arrangements."
COMPENSATION ARRANGEMENTS WITH NAMED EXECUTIVE OFFICERS
FRANK G. ZARB. Mr. Zarb entered into an employment agreement dated as of
June 16, 1994 with the Company. The term of employment ends on the last day of
the month when Mr. Zarb attains the age of 65 and provides for a minimum annual
base salary of $900,000 and a bonus opportunity of at least $1.2 million. In
addition, pursuant to the agreement, Mr. Zarb was credited with five years of
"Continuous Employment" under the Alexander & Alexander Services Inc. and
Subsidiaries Supplemental Executive Retirement Plan for Management (the "SERP").
The agreement also provides that if Mr. Zarb retires after age 62, he will
receive the difference, if any, between amounts payable under certain defined
benefit plans of his prior employer, The Travelers Inc., and the aggregate
amount payable under the SERP and certain other benefit plans. If Mr. Zarb's
employment under the agreement is terminated before age 65 by the Company other
than for cause or by Mr. Zarb for good reason (which, for purposes of the
agreement, includes a reduction in annual base salary or bonus opportunity,
involuntary relocation or a material breach of the agreement by the Company),
Mr. Zarb is entitled to receive $6 million if terminated before June 16, 1996,
and $4 million if terminated on or after June 16, 1996. The maximum amount
payable upon such termination of employment, when added to the value of the
stock options and restricted stock received under the employment agreement is
limited to $20 million. However, if the termination occurs for any reason at any
time following a change of control of the Company, the cash severance Mr. Zarb
is entitled to receive would be $12 million, and no maximum limit would be
placed on the aggregate of cash severance and the value of the stock option and
restricted stock granted pursuant to the agreement. In addition to the
foregoing, Mr. Zarb received LSAR's in tandem with the stock options granted
pursuant to the agreement. In connection with the shares of restricted stock
awarded to Mr. Zarb in June 1994 and February 1995, the Company has also agreed
to file a registration statement under the Securities Act of 1933 covering such
shares.
KENNETH J. DAVIS. Mr. Davis entered into an employment agreement dated June
23, 1982 with a United Kingdom subsidiary of the Company. The term of employment
is through March 31, 2003. The
14
<PAGE>
employer may terminate the agreement before March 31, 2003, and cease payment of
all remuneration except amounts previously accrued, under certain circumstances,
including gross negligence in the performance of duties or a criminal conviction
(other than a minor violation). The agreement provides for annual review of base
salary. The salary paid under this agreement in 1995 is disclosed in the Summary
Compensation Table. The agreement also provides for disability and retirement
benefits, and certain other perquisites.
RONALD A. ILES. In January 1988, the Company entered into a contingent
benefit agreement with Mr. Iles, payment of which was conditioned on Mr. Iles'
continued employment with the Company through December 1995. The total amount
payable to Mr. Iles from a notional account is based on assumed investments of
$30,000 made annually on March 1, 1986 through March 1, 1989, with the notional
investment earning interest calculated at a rate equal to the average of Moody's
monthly average of seasoned Triple A corporate bonds for the year, compounded
annually. Mr. Iles will be entitled to receive payment during 1996 of an amount
equal to the balance in the notional account accrued through December 31, 1995.
The payment may be made in up to five installments. The balance of the notional
account will continue to earn interest at the rate indicated until the final
installment is paid.
EDWARD F. KOSNIK. Mr. Kosnik entered into an employment agreement dated as
of February 15, 1996 with the Company. The term of employment is through August
31, 2000. The agreement provides him a minimum annual base salary of $400,000
and a guaranteed minimum bonus for 1995 and 1996 of $200,000. The Company may
terminate the employment of Mr. Kosnik without notice, and cease payment of all
remuneration except amounts previously accrued, under certain circumstances,
including failure to perform his duties and responsibilities for at least ten
business days or the commission of a criminal act which the board of directors
determines will have a material adverse impact on the business or reputation of
the Company. If Mr. Kosnik's employment is terminated by the Company other than
for cause or by Mr. Kosnik for good reason (which, for purposes of the
agreement, includes a reduction in annual base salary, involuntary relocation or
a material breach of the agreement by the Company), Mr. Kosnik is entitled to
receive a single lump sum payment of an amount equal to two times his then
current annual salary and his targeted annual bonus in lieu of any benefits
under the Company's Senior Executive Severance Plan (the "Senior Severance
Plan"). In addition, the Company must continue to provide health and life
insurance and other benefits which Mr. Kosnik would be entitled to under the
Senior Severance Plan for a period of up to 24 months. The agreement was amended
as of February 16, 1996, to provide for Mr. Kosnik's severance following a
potential or actual change of control to be governed by the Company's Employment
Continuation Agreement which is described more fully below.
DENNIS L. MAHONEY. Mr. Mahoney entered into an employment agreement dated
October 11, 1990 with a United Kingdom subsidiary of the Company. The term of
employment is through September 20, 2010. However, the agreement may be
terminated by either party upon 12 months prior written notice. The employer may
terminate the employment of Mr. Mahoney without notice, and cease payment of all
remuneration except amounts previously accrued, under certain circumstances,
including the failure to efficiently and diligently perform his duties or a
criminal conviction (other than a minor violation). The agreement provides for
an annual base salary that is subject to periodic review and increase. The base
salary paid under this agreement in 1995 is disclosed in the Summary
Compensation Table. If the employer terminates Mr. Mahoney without cause and
without the required notice, the employer must pay severance equal to the base
salary under the agreement, and must continue to provide medical and long-term
disability insurance and other benefits included under the agreement for a
period of 12 months. In addition, Mr. Mahoney will be credited with benefits
under the U.K. Pension Scheme calculated as if he had worked for an additional
12 months or, if earlier, until the termination date of the agreement, at a
salary equal to his then annual base salary. If a change of control of the
Company occurs and the Company gives notice of termination or terminates Mr.
Mahoney's agreement without cause, the Company must pay severance equal to one
year's base salary and provide the benefits and perquisites otherwise included
under the agreement for an additional 12
15
<PAGE>
months. In addition, upon expiration of the 12 months period following
termination of employment, Mr. Mahoney will be entitled to receive an additional
payment equal to one and one-half times his base salary under the agreement
during his final 12 months of employment, less any taxes owed, provided that in
the employer's judgment he has complied with certain non-competition and other
provisions.
OTHER ARRANGEMENTS
EMPLOYMENT CONTINUATION AGREEMENTS. The Company has entered into employment
continuation agreements with Messrs. Iles, Kosnik and Mahoney. The agreements
provide that in the event an executive's employment is terminated under certain
circumstances within three years following a change of control (as defined in
the agreement) or during a potential change of control (as defined in the
agreement) each executive will be entitled to a specified severance benefit
equal to three times their annual compensation and also provide for the
continuation of certain employee benefits for a period of three years following
a qualifying termination, and a cash payment in respect of the value of certain
other payments. The benefits afforded under these agreements are in lieu of, and
not in addition to, other severance benefits. Under the events specified,
executives will be entitled to payment of severance benefits under the agreement
if employment is terminated by the executive for "good reason" or by the Company
for any reason other than (i) executive's conviction of a felony, (ii) any acts
of dishonesty or gross misconduct by the executive, or (iii) repeated violations
of executive's obligations under the agreement. For the purpose of the agreement
"good reason" is defined as any reduction in the executive's then annual
compensation and benefits and relocation more than 35 miles from the location at
which the executive performed his services immediately prior to the change of
control. Executives are not entitled to a severance benefit under this agreement
in the event of change of the executive's title or reduction of duties. The
agreements also contain a non-solicitation provision in connection with any
severance benefit received under this agreement. No additional payments will be
made by the Company under the agreements to compensate the executive for any
excise taxes imposed on payments.
TERMINATION PROTECTION AGREEMENTS. The Company has entered into termination
protection agreements with U.S. senior executives, including Messrs. Zarb and
Kosnik. These agreements provide that in the event that (i) the officer's
employment is terminated under certain circumstances within three years
following a change of control of the Company (as defined in the agreements) and
(ii) benefits are not paid under the terms of the Senior Severance Plan or any
other employee benefit or compensation plan, program or arrangement in which the
officer participates, the Company will pay the officer such benefits as would
have been paid under the termination provisions of any applicable plan, program
or arrangement. An officer will be entitled to payment of severance benefits
under his agreement if that officer's employment is terminated (i) by the
officer for good reason (as defined in the Senior Severance Plan), or (ii) by
the Company for any reason other than on account of the officer's conviction of
a felony. The agreements also provide for additional payments to compensate the
officer for any excise taxes imposed on payments under the agreements.
LIMITED STOCK APPRECIATION RIGHTS ("LSARS"). Under the 1995 LTIP and
predecessor long-term incentive plans (the "Predecessor Plans") as currently in
effect, the CBNC may also provide for the grant of LSARs. LSARs may be exercised
for a specified period of time following a change of control. Upon exercise of a
LSAR, the holder thereof is entitled to receive the difference between the
exercise price and the greater of (i) the highest sales price offered in
connection with a transaction resulting in a change of control or (ii) the
highest average of the sales price of the Common Stock during the 30 day period
preceding a change in the composition of the Company's Board of Directors
constituting a change of control. LSARs have been granted in tandem with all
outstanding nonqualified stock options awarded to the named executive officers
under the 1995 LTIP and Predecessor Plans. In 1995, LSARs were granted in tandem
with options granted to the named executive officers under the 1995 LTIP, which
grants are included in the information reported in the Summary Compensation
Table above.
16
<PAGE>
OPTION GRANTS IN 1995
The following table sets forth information concerning individual grants of
stock options made to the named executives during 1995:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZED VALUE
------------------------------------------------------ AT
% OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS EXERCISE STOCK PRICE APPRECIATION
OPTIONS GRANTED TO OR BASE FOR OPTION TERM(3)
GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME (SHARES)(2) FISCAL 1995 ($/SHARE) DATE 5%(3) 10%(3)
<S> <C> <C> <C> <C> <C> <C>
Frank G. Zarb 100,000 3.3% $ 24.50 8/17/05 $1,541,000 $3,905,000
Kenneth J. Davis 25,000 0.8% $ 24.50 7/18/05 $ 385,250 $ 976,250
Ronald A. Iles -- -- -- -- -- --
Edward F. Kosnik 100,000 3.3% $ 24.50 7/18/05 $1,541,000 $3,905,000
Dennis L. Mahoney -- -- -- -- -- --
</TABLE>
--------------
(1) All options are exercisable for Common Stock at an exercise price equal to
the fair market value of the Common Stock at the date of grant. During
1995, no SARs were issued under the 1995 LTIP. LSARs are not included in
this table and are described under the caption "Other Arrangements."
(2) Options awarded to Messrs. Zarb, Davis and Kosnik are exercisable 50
percent beginning two years from the date of grant and the remaining 50
percent beginning three years from the date of grant.
(3) The dollar amounts under the 5% and 10% columns in the table above are the
result of calculations required by the SEC and therefore are not intended
to forecast possible future appreciation of the stock price of the
Company. Although permitted by the SEC's rules, the Company did not use an
alternate formula for grant date valuation because the Company is not
aware of any formula which will determine with reasonable accuracy a
present value based on future unknown or volatile factors. No gain on the
stock options awarded to the named executives or other employees is
possible without appreciation in the price of the Company's Common Stock,
which will benefit all stockholders. The real value of the options in this
table depends upon the actual performance of the Company's Common Stock
during the applicable period. In order for the named executive officers to
realize the potential values set forth in the 5% and 10% columns in the
table above, the price per share of the Company's Common Stock would have
to be approximately $39.91 and $63.55, respectively, as of the expiration
date of their options.
17
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND 1995 FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning individual unexercised
options held by the named executives during the Company's 1995 fiscal year.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON AT FY-END (SHARES) AT FY-END ($)
EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Frank G. Zarb -- -- 350,000/350,000 $656,250/$468,750
Kenneth J. Davis -- -- 33,150/82,000 $1,563/$0
Ronald A. Iles -- -- 70,601/65,000 $0/$0
Edward F. Kosnik -- -- 50,000/200,000 $0/$0
Dennis L. Mahoney -- -- 5,000/55,000 $0/$0
</TABLE>
PENSION TABLES
The following table sets forth estimated annual benefits payable upon
retirement under a program maintained for the Company's employees in the United
States through a funded, noncontributory pension plan qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Basic Plan"), and
an unfunded supplemental executive retirement plan.
<TABLE><CAPTION>
U.S. PENSION PLAN TABLE
AVERAGE
PENSIONABLE
EARNINGS(1) YEARS OF SERVICE(2)
5 10 15 20 25 30 35
- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
$ 350,000 $23,982 $ 47,963 $ 71,945 $100,301 $128,658 $157,015 $185,371
400,000 27,482 54,963 82,445 114,926 147,408 179,890 212,371
450,000 30,982 61,963 92,945 129,551 166,158 202,765 239,371
500,000 34,482 68,963 103,445 144,176 184,908 225,640 266,371
600,000 41,482 82,963 124,445 173,426 222,408 271,390 320,371
700,000 48,482 96,963 145,445 202,676 259,908 317,140 374,371
800,000 55,482 110,963 166,445 231,926 297,408 362,890 428,371
900,000 62,482 124,963 187,445 261,176 334,908 408,640 482,371
1,000,000 69,482 138,963 208,445 290,426 372,408 454,390 536,371
</TABLE>
- ------------
(1) The normal retirement benefit is a monthly income for life determined
pursuant to a formula based on an employee's credited years of service and
average annual pensionable credited earnings (which generally does not
include incentive compensation payments) for the 60 highest consecutive
months prior to retirement ("Final Average Earnings"). The amount of an
employee's covered compensation is based on the 35-year period ending with
the employee's Social Security retirement age. If approved by the CBNC,
earnings other than Final Average Earnings ("Pensionable Earnings") may be
used to calculate the normal retirement benefit. The amounts shown are not
subject to any deduction for Social Security or other offset amounts and are
payable in the form of a straight life annuity.
(2) Pursuant to the terms of Mr. Zarb's employment agreement, the Company agreed
that, if he should retire after attaining age 62, it would provide Mr. Zarb
with such additional supplemental retirement benefits as were necessary to
assure that he receives retirement benefits in the aggregate from the
Company and its plans and the defined benefit retirement plans at The
Travelers Inc. and its subsidiaries (the "Travelers Plans") that are at
least equal to the retirement benefits he would have received from the
Travelers Plans had he retired from The Travelers Inc. on the same date as
(Footnotes continued on following page)
18
<PAGE>
(Footnotes continued from preceding page)
he retires from the Company. As of December 31, 1995, there were no accrued
benefits payable to Mr. Zarb under this provision of his agreement.
(3) The approximate credited years of service for each of the named executives
who participates in the Basic Plan and supplemental retirement plan is as
follows: Mr. Zarb at age 61--18 months; and Mr. Kosnik at age 51--16 months.
Messrs. Davis, Iles and Mahoney are not eligible to participate in either
the Basic Plan or the supplemental executive retirement plan.
The following table sets forth estimated annual benefits payable upon
retirement under the Alexander & Alexander U.K. Pension Scheme (the "U.K.
Pension Scheme").
U.K. PENSION SCHEME TABLE(1)
AVERAGE
PENSIONABLE
EARNINGS(2) YEARS OF SERVICE(3)
30 35 40
-- -- --
$ 276,458 $138,229 $161,267 $184,306
315,952 157,976 184,306 210,634
394,940 197,470 230,381 263,294
473,928 236,964 276,458 315,952
552,916 276,458 322,535 368,610
631,904 315,952 368,610 421,270
710,892 355,446 414,687 473,928
- ------------
(1) The retirement benefit will be paid in pounds sterling. Amounts have been
stated in U.S. dollars based on the average 1995 exchange rate expressed in
dollars per B.P.1.00 of 1.58.
(2) The normal retirement benefit is a monthly income for life, with a guarantee
of 60 months payment, equal to a percentage of an employee's "final
pensionable salary" which is determined based on credited years of service.
The maximum percentage, reached after 40 years of credited service, is 66.67
percent. The "final pensionable salary" is the highest average annual salary
paid during any three consecutive years during the last 10 years prior to
retirement. All pension payments are indexed at 3 percent per year. Mr. Iles
reached normal retirement age in December 1995 when he elected to take a
lump sum benefit of $118,134 from the plan and to defer pension payment of
$313,677 per year until his retirement. Mr. Mahoney will be entitled to a
retirement benefit equal to 29.2 percent and increasing to 66.67 percent in
September 2010 of his then current pensionable salary; and Mr. Davis will be
entitled to a retirement benefit equal to 54.6 percent and increasing to
66.67 percent in March 2003 of his then current pensionable salary. 1995
salaries for Messrs. Iles, Mahoney and Davis in U.S. dollars equaled
$528,430, $492,885 and $427,984, respectively. The amounts shown are not
subject to any deduction for Social Security or other offset amounts.
(3) The approximate credited years of service for each of the named executives
who participates in the U.K. Pension Scheme are as follows: Mr. Davis at age
53--32 years and 9 months; Mr. Iles 40 years and Mr. Mahoney at age 45--17
years and 6 months. Messrs. Zarb and Kosnik do not participate in the U.K.
Pension Scheme.
CERTAIN TRANSACTIONS
Mr. Grossart, who is a director of the Company, is also a director of Noble
Grossart Limited ("Noble Grossart"), a U.K. merchant bank. In addition, he is a
director and shareholder of Noble Grossart Holdings Limited ("N.G. Holdings"),
which owns 100 percent of Noble Grossart. Mr. Grossart owns 34 percent of the
shares of N.G. Holdings. In January 1995, a subsidiary of the Company sold its
20 percent interest in the shares of N.G. Holdings (the "Minority Interest"). In
connection with the sale of the Company's Minority Interest, the Company
received $7.2 million in cash proceeds.
Mr. Godsoe, who is a director of the Company, is also chairman of the board
and chief executive officer of The Bank of Nova Scotia. During 1995, the Company
paid $196,600 and $89,000 to the Bank
19
<PAGE>
of Nova Scotia in connection with a letter of credit issued by the bank for the
settlement of certain contingencies and commitment fees in connection with the
Company's $200 million revolving credit facility (the "Credit Facility"),
respectively. In addition, several subsidiaries of the Company have banking
relationships with The Bank of Nova Scotia which include credit facilities,
letters of credit and interest rate and foreign exchange hedging facilities. The
amounts paid under these arrangements amounted to $8,440.
Mr. Hartigan, who is a director of the Company, is also executive vice
president of PNC Bank Corporation ("PNC"). During 1995, the Company paid $89,000
to PNC in connection with its role as the confirming bank for a letter of credit
issued by The Bank of Nova Scotia for the settlement of certain contingencies.
The Company also paid PNC commitment and upfront fees of $44,925 in connection
with its Credit Facility.
Mr. Hurlock, who is a director of the Company, is also a partner in the law
firm of White & Case. In connection with services rendered by White & Case, the
Company paid legal fees of approximately $354,358 during 1995, and approximately
$58,388 during 1996 to date.
As reported under the heading "Security Ownership of Certain Beneficial
Owners," Prudential Insurance Company of America ("Prudential") holds
approximately 9.44 percent of the Company's Common Stock. U.S. subsidiaries of
the Company place insurance and reinsurance with Prudential. In connection with
such placements, the Company estimates that those subsidiaries earned $2,694,000
during 1995, and $251,133 during 1996 to date. In addition, the Company paid
Prudential $2,354 for advisory services during 1995.
MATTERS SUBMITTED TO STOCKHOLDERS
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The Board of Directors has designated the persons listed under the section
captioned "Nominees for Election to the Board of Directors" of this proxy
statement for nomination to serve as directors of the Company until the next
annual meeting and until their respective successors are elected and qualified,
or until their earlier resignation or removal. The Board of Directors has
determined, pursuant to the Company's charter and by-laws, that the number of
directors constituting the full Board of Directors shall be 15.
Proxies are solicited in favor of the nominees and it is intended that the
proxies will be voted for the nominees unless otherwise specified. Should any
one or more of the nominees become unable to serve for any reason, unless the
Board of Directors by resolution provides for a lesser number of directors, the
persons named in the enclosed proxy will vote for the election of a substitute
nominee or nominees. The Board of Directors has no reason to believe that any
nominee will be unable to serve.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE 15
NOMINEES. Assuming the presence of a quorum, the affirmative vote of a plurality
of the votes cast by the holders of shares outstanding present and entitled to
vote on this item at the Annual Meeting, voting as a single class, is required
to elect the nominees. Under applicable Maryland law, in determining whether
this item has received the requisite number of affirmative votes, abstentions
will not be counted and will have no effect on the result of the vote, although
they will count toward the presence of a quorum.
20
<PAGE>
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(ITEM 2 ON PROXY CARD)
The Audit Committee has recommended to the Board of Directors the selection
of Deloitte and Touche LLP ("D&T") to be the independent auditors of the Company
for the year ending December 31, 1996. D&T has acted as independent auditors for
the Company and its predecessors since 1920. This selection will be submitted
for ratification at the Annual Meeting. Representatives of D&T will be present
at the Annual Meeting. They will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS RATIFY THE SELECTION OF
DELOITTE & TOUCHE LLP TO BE THE INDEPENDENT AUDITORS OF THE COMPANY FOR 1996.
Assuming the presence of a quorum, the affirmative vote of a majority of the
votes cast by the holders of shares present and entitled to vote on this item at
the Annual Meeting, voting as a single class, is required to ratify the
selection. Under applicable Maryland law, in determining whether this item has
received the requisite number of affirmative votes, abstentions and broker
non-votes will not be counted and will have no effect on the result of the vote,
although they will count toward the presence of a quorum.
DIRECTORS PROPOSAL TO APPROVE AND ADOPT
THE FIRST AMENDMENT TO THE ALEXANDER & ALEXANDER SERVICES INC.
1995 LONG-TERM INCENTIVE PLAN
(ITEM 3 ON PROXY CARD)
Upon the recommendation of the Compensation, Benefits and Nominating
Committee, the Board of Directors has unanimously approved and is submitting to
stockholders for their consideration an amendment to the 1995 Long-Term
Incentive Plan (the "1995 LTIP").
During 1995, the Company redesigned its compensation structure, altering the
emphasis and purpose of its incentive programs to more closely align employees
financial interests with increasing stockholder value. The 1995 LTIP was
approved by stockholders at the Company's 1995 annual meeting of stockholders as
part of a group of programs to implement this strategy.
As approved by stockholders, the 1995 LTIP permits grants of any or all of
the following types of Awards: (i) Stock Options, including Incentive Stock
Options ("ISO's"), Non-Qualified Stock Options ("NSOs") and Replacement Options;
(ii) Stock Appreciation Rights ("SARs") and Limited Stock Appreciation Rights
("LSARs"); (iii) Restricted Stock Awards, (iv) Bonus Equity Plan Awards ("BEP
Awards"); (v) Performance Share/Unit Awards; and (vi) Other Stock Based Awards.
As of March 20, 1996, a total of 2,384,345 shares of Common Stock were
available for issuance under the 1995 LTIP.
The 1995 LTIP also provides that no more than 940,000 restricted shares may
be used under the 1995 LTIP for Restricted Stock Awards and BEP Awards.
Stockholder approval is sought to amend the 1995 LTIP to exclude BEP Awards from
the 940,000 restricted share limitation. As proposed, the amendment would not
increase the number of shares authorized under the 1995 LTIP, but would merely
give the Company greater flexibility in the amount of BEP Awards that can be
granted under the plan. BEP Awards, when granted, have and will continue to be
counted against shares available for issuance under the 1995 LTIP. A full copy
of the proposed First Amendment to the 1995 Long-Term Incentive Plan is attached
as Appendix I to this proxy statement.
Traditional Restricted Stock Awards have been used by the Company only in
special circumstances for (i) retention purposes, (ii) as a reward for
extraordinary performance, and (iii) as a means to
21
<PAGE>
adjust compensation packages. It is not the Company's practice to use
traditional Restricted Stock Awards as a standard form of long-term incentive.
In contrast, the Company has and intends to use BEP Awards as a key form of
long-term incentive compensation for employees of the Company and its
subsidiaries. BEP Awards were designed to reach the broadest group of employees
as a portion of annual bonus compensation. Payment of annual bonuses for 1995
was partially made in the form of BEP Awards. Approximately 278,705 BEP Award
shares were awarded to 942 employees in lieu of an otherwise earned portion of
1995 annual bonuses. Effectively, a portion of an employee's cash bonus is used
to "purchase" stock from the Company. The "purchase price" of the BEP Award
shares is discounted (up to a maximum of 25% of the then current market value of
the stock). Like traditional Restricted Stock Awards, BEP Awards have the same
retentive and incentive effect and are subject to forfeiture if the employee
leaves the Company's employ prior to satisfying an additional service
requirement. However, as opposed to traditional Restricted Stock Awards, the
employee pays at least 75% of the cost of such shares through foregone cash
bonus payments and forfeits the shares, as well as the "purchase price", if he
or she does not stay in the Company's employ for the relevant vesting period.
Description of the 1995 LTIP
The following is only a summary of the 1995 LTIP and is qualified in its
entirety by reference to the complete text of the 1995 LTIP. In addition, the
tax discussion concerning various awards is general in nature and does not
purport to be complete. Capitalized terms not otherwise defined herein have the
meanings ascribed to them in the 1995 LTIP.
The 1995 LTIP was approved by stockholders and became effective as of May
18, 1995 for a term to expire on December 31, 2005. The aggregate number of
shares of Common Stock as authorized by stockholders under the 1995 LTIP may not
exceed the sum of (1) 4,700,000, (2) the number of shares remaining available
for issuance under the Company's 1988 Long-Term Incentive Compensation Plan (the
"1988 Plan") as of the effective date of the 1995 LTIP, and (3) the lessor of
(i) 2,000,000 shares of Common Stock or (ii) the number of shares of Common
Stock received by the Company after the effective date of the 1995 LTIP upon
exercise of any Option, whether issued under the 1995 LTIP or the 1988 Plan.
The 1995 LTIP is administered by a committee (the "Committee") consisting of
not less than two non-employee directors. The Committee has the authority to
grant awards under the 1995 LTIP from time to time to any employee of the
Company and any of its subsidiaries (including officers and directors who are
employees) selected by the Committee. The 1995 LTIP provides for the Committee
to establish performance goals for awards under the 1995 LTIP that are intended
to qualify as "performance-based compensation" as defined in Section 162(m) of
the Internal Revenue Code of 1986, as amended.
As originally approved by stockholders, the 1995 LTIP provides that no more
than 940,000 restricted shares may be used under the 1995 LTIP for Restricted
Stock Awards and Bonus Equity Program Awards. Under the proposed amendment,
Bonus Equity Program Awards would no longer count towards the 940,000 restricted
share limitation. Only traditional Restricted Stock Awards would count towards
this limit.
The 1995 LTIP permits grants of any or all of the following types of awards:
Stock Options. The purchase price per share of Common Stock subject to any
option may not be less than 100% of the fair market value of that stock on the
date the option is granted. The terms of each option are fixed by the Committee,
provided that no ISO may be exercisable more than ten years from the date the
option is granted and no NSO may be exercisable more than ten years and one day
from such date. Options may be exercised either by (1) payment in full of the
purchase price, either in cash or, at the discretion of the Committee, in whole
or in part, in Common Stock or Restricted Stock or (2) delivery of a properly
executed notice together with irrevocable instructions to a securities broker to
22
<PAGE>
deliver promptly to the Company proceeds of the sale of the option shares. A
Replacement Option may be awarded in conjunction with any Stock Option awarded
under the 1995 LTIP. A Replacement Option is an option to purchase a number of
shares of Common Stock equal to the number of shares of Common Stock or
Restricted Stock tendered in payment of the exercise price of the Option. The
right to exercise an Option will terminate upon the participant's termination of
employment for reasons other than death, disability or retirement, unless
otherwise specified by the Committee.
With respect to an ISO award, generally, the participant will recognize no
taxable gain or loss when the ISO is granted or exercised, and upon exercise,
the spread between the fair market value and the exercise price will be an item
of tax preference for purposes of the participant's alternative minimum tax. If
the shares acquired upon the exercise of an ISO are held for at least one year
after exercise and two years after grant (the "Holding Periods"), the
participant will recognize any gain or loss realized upon such sale as long-term
capital gain or loss. The Company will not be entitled to a deduction. If the
shares are not held for the Holding Periods, the participant will recognize
ordinary income in an amount equal to the difference between the exercise price
and the fair market value of Common Stock on the date the option is exercised.
The Company will be entitled to a deduction equal to the amount of any ordinary
income so recognized. If the shares are not held for the Holding Periods and the
amount realized upon sale is less than the grant price, such difference will be
a capital loss to the participant.
With respect to a NSO award, generally, the participant will recognize no
taxable income at the time of grant. Upon exercise of a NSO, the participant
will recognize ordinary income equal to the difference between the exercise
price and the fair market value of the shares on the date of exercise. The
participant will recognize as capital gain or loss any profit or loss realized
on the sale or exchange of any shares disposed of or sold. The Company will be
entitled to deduct an amount equal to the difference between the exercise price
and the fair market value of the shares on the date of exercise.
Stock Appreciation Rights. SARs or LSARs may be granted alone or in tandem
with an option. Upon exercise of a SAR, the holder thereof is entitled to
receive the excess of the fair market value of the shares for which the right is
exercised over the price of the SAR. The exercise price (which may not be less
than the fair market value of the shares on the date of grant) and other terms
of the SAR or LSAR will be determined by the Committee. Any related Option will
no longer be exercisable to the extent the SAR or LSAR has been exercised and
the exercise of an Option shall cancel the related SAR or LSAR to the extent of
such exercise. The right to exercise a SAR or LSAR terminates upon the
participant's termination of employment for reasons other than death, disability
or retirement, unless otherwise specified by the Committee when the SAR or LSAR
is awarded.
Upon the grant of an SAR or LSAR, the participant realizes no taxable income
and the Company receives no deduction. The participant realizes income at the
time of exercise, if the award becomes vested and is no longer subject to
forfeiture and the participant is entitled to receive the value of the award.
The Company receives a deduction of the same amount in the same year the
participant recognizes income.
Restricted Stock. Restricted Stock Award shares may not be disposed of by
the recipient until certain restrictions established by the Committee lapse. The
participant will have, during the restricted period, all the rights of a
stockholder of the Company, including the right to vote the shares and to
receive dividends, but will not have the right to sell or otherwise transfer
those shares until the applicable restrictions lapse. In the event of a
participant's death, disability or retirement, all restrictions on any
outstanding restricted stock award automatically lapse. Upon termination of
employment during the restricted period for any other reason, all Restricted
Stock will be forfeited. A participant granted shares of Restricted Stock is not
required to include the value of such shares in income until the first time such
participant's rights in the shares are transferable or are not subject to a
substantial risk of forfeiture, whichever occurs earlier unless such participant
timely files an election under Code 83(b) to be taxed on the receipt of the
shares. In either case the amount of such income will be equal to the excess of
the fair market value of the stock at the time the income is recognized over the
amount (if any) paid for the stock. The Company will generally be entitled to a
deduction, in the amount of the ordinary
23
<PAGE>
income recognized by the participant, for the Company's taxable year in which
the participant recognizes such income.
Bonus Equity Plan. At the Committee's discretion, BEP Awards may be made in
the form of Restricted Stock, based on a percentage of the cash incentive
compensation otherwise payable to a Participant under any compensation program
of the Company or any subsidiary. The size of the BEP Award is determined by a
formula approved by the Committee. The number of shares of Restricted Stock
subject to a BEP Award will be calculated by valuing the Common Stock at not
less than 75% of its fair market value ("BEP Value"), based on the average of
the Common Stock's closing prices on the Composite Tape of the New York Stock
Exchange for the five trading days prior to the date of the Award. Shares
subject to the BEP Award are restricted as to transfer (generally for a period
of three years) and are subject to forfeiture should the participant terminate
employment for reasons other than death, disability or retirement during the
restricted period. Officers and other key employees of the Company who are
entitled to receive cash incentive compensation shall be eligible to receive BEP
Awards. The Committee selects participants to receive BEP Awards from among
those officers and employees who are entitled to receive cash incentive
compensation and (i) who are nominated to participate in the BEP by the Company
or (ii) who voluntarily elect to participate. As to BEP Awards, the tax
consequences to the participant and the Company are the same as that for
Restricted Stock Awards.
Performance Share/Unit Awards. Performance Share/Unit Awards granted under
the 1995 LTIP will be in such form and for such performance periods as the
Committee may approve. The Committee, at the time of grant will establish
performance criteria with respect to the Performance Share/Unit Award. At the
end of the performance period, the Committee will evaluate actual performance
during such performance period compared to the performance criteria established
for the award and shall determine the value, if any, of the Performance
Share/Unit Award and the amount payable in respect thereof. The same conditions
of forfeiture of shares awarded under BEP Awards apply to Performance Share/Unit
Awards. A participant granted such awards recognizes income in the amount of the
award of those units when they vest and are no longer subject to forfeiture and
the participant is entitled to receive the value of the award. The Company
receives a deduction for the same amount in the year that income is recognized
by the participant.
Other Stock Based Awards. Other Stock Based Awards, that are valued in whole
or in part by reference to, or otherwise based on, the Company's Common Stock
may be awarded pursuant to terms as the Committee may approve. The same
conditions of forfeiture of shares awarded under BEP Awards apply to Performance
Share/Other Stock Based Awards. A participant granted Other Stock Based Awards
recognizes income in the amount of the award of those units when they vest and
are no longer subject to forfeiture and the participant is entitled to receive
the value of the award. The Company receives a deduction for the same amount in
the year that income is recognized by the participant.
It is not possible to predict the benefits that may accrue to any individual
or group of individuals under the 1995 LTIP, since awards will be based on
future events and financial results that cannot be ascertained at this time. The
table below sets forth the Restricted Stock Awards and BEP Awards that have been
granted under the 1995 LTIP as of March 20, 1996 to the individuals and groups
specified.
<TABLE>
<CAPTION>
RESTRICTED
GROUP STOCK AWARDS BEP AWARDS
<S> <C> <C>
All current executive officers as a group 124,000 72,333
All current directors, excluding executive officers, as a group 0 0
All employees, excluding executive officers, as a group 228,550 206,372
</TABLE>
- ------------
On March 20, 1996, the closing price of the Company's Common Stock on the New
York Stock Exchange was $19.875.
24
<PAGE>
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE FIRST AMENDMENT TO THE ALEXANDER & ALEXANDER SERVICES INC. 1995
LONG-TERM INCENTIVE PLAN. Assuming the presence of a quorum, the affirmative
vote of a majority of the votes cast by the holders of shares present and
entitled to vote on this item at the Annual Meeting, voting as a single class,
is required to approve the amendment. Under applicable Maryland law, in
determining whether this item has received the requisite number of affirmative
votes, abstentions and broker non-votes will not be counted as shares entitled
to vote on the matter and will have no effect on the result of the vote. Both
abstentions and broker non-votes will count toward the presence of a quorum.
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10 percent of
any registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange
reports of ownership of the Common Stock, Class A Stock and Class C Stock of the
Company. Reporting persons are required by SEC regulation to furnish the Company
with copies of all such reports that they file. To the best of the Company's
knowledge, based solely upon review of such reports furnished to the Company and
written representations that no other reports were required, during the fiscal
year ended December 31, 1995, its officers, directors and greater than ten
percent beneficial owners timely filed all required Section 16(a) reports.
STOCKHOLDER PROPOSALS FOR 1997 MEETING
Stockholders are advised that any proposals of stockholders intended to be
presented at the 1997 Annual Meeting of Stockholders must be received by the
Company on or before December 2, 1996 for inclusion in the Company's proxy
statement and form of proxy relating to that meeting. In addition, the Bylaws of
the Company establish an advance notice requirement for any proposal of business
to be considered at an annual meeting of stockholders that is not made by or at
the recommendation of a majority of the directors then in office. In general,
written notice must be delivered to the Corporate Secretary of the Company at
its principal executive office, 1185 Avenue of the Americas, New York, New York
10036, within certain time periods in advance of the meeting and must contain
specified information concerning the matter to be brought before the meeting and
the stockholder proposing the matter. The fact that the Company may not insist
upon compliance with these requirements should not be construed as a waiver by
the Company of its right to do so any time in the future. Any stockholder
desiring a copy of the Bylaws of the Company will be furnished one without
charge upon written request to the Secretary of the Company.
OTHER MATTERS
The Board of Directors of the Company is not aware of any other matters to
come before the Annual Meeting. If any other matter should come before the
meeting, the persons named in the enclosed proxy intend to vote the proxy
according to their best judgment.
25
<PAGE>
APPENDIX I
FIRST AMENDMENT TO THE
ALEXANDER & ALEXANDER SERVICES INC.
1995 LONG-TERM INCENTIVE PLAN
WHEREAS, the Alexander & Alexander Services Inc. (the "Company") 1995
Long-Term Incentive Plan (the "Plan") was approved by stockholders at the 1995
annual meeting of stockholders and became effective on May 18, 1995; and
WHEREAS, pursuant to Section 8.1 of the Plan, the Board of Directors
retained the right to amend the Plan;
NOW, THEREFORE, subject to the approval of this First Amendment by
stockholders of the Company at the 1996 Annual Meeting of Stockholders, the Plan
is amended as follows:
1. Section 3.1 of the Plan is amended to delete the second sentence thereof and
to insert in lieu thereof a new second sentence, to read as follows:
No more than 940,000 shares shall be issued as Restricted Stock under
Section 6.3.
2. This First Amendment to the Plan shall be effective, if at all, upon its
approval by stockholders at the Company's 1996 Annual Meeting of
Stockholders.
I-1
