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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-8282
ALEXANDER & ALEXANDER SERVICES INC.
(Exact name of registrant as specified in its charter)
MARYLAND 52-0969822
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1185 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036 (212) 444-4500
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $1 par value New York Stock Exchange, Inc.
Preferred Share Purchase Rights
Common Stock, $1 par value London Stock Exchange, Ltd.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Common Stock, $.00001 par value None
Class C Common Stock, $1 par value London Stock Exchange, Ltd.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 1996 was $865,963,734.
The number of shares of Common Stock, $1 par value, outstanding as of March 15,
1996 was 42,306,378.
The number of shares of Class A Common Stock, $.00001 par value, outstanding as
of March 15, 1996 was 1,865,030.
The number of shares of Class C Common Stock, $1 par value, outstanding as of
March 15, 1996 was 356,491.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1995 Annual Report to Stockholders are
incorporated by reference into Parts I and II of this report.
Portions of the Registrant's Proxy Statement for the 1996 Annual Meeting of
Stockholders are incorporated by reference into Part III of this report.
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PART I
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ITEM 1. BUSINESS
GENERAL
Alexander & Alexander Services Inc. (the "Company"), is a holding company
which, through its subsidiaries, provides risk management, insurance brokerage
and human resource management consulting services on a global basis. It is one
of the few organizations capable of providing such services to clients with
multinational operations. The Company operates from offices located in more than
80 countries and territories through wholly owned subsidiaries, affiliates and
other servicing capabilities. Its international operations represent 53 percent,
48 percent and 46 percent of the Company's consolidated operating revenues for
the years ended December 31, 1995, 1994 and 1993, respectively. The Company was
incorporated under the laws of the State of Maryland in 1973 and through
predecessor entities has been in business since 1899.
During 1994, the Board of Directors effected significant changes in the
Company's management. In the last half of 1994, new management conducted a
thorough worldwide review of the Company's operations, expense structure and
business strategy. As a result of this review, management restructured, to
varying degrees, each of the Company's core businesses. During 1995, the Company
made certain strategic purchases of businesses, both domestic and international,
to complement existing operations. In addition, new offices were opened in
Bahrain, Greece, India, Indonesia, Norway, South Africa and Switzerland. The
Company will continue to explore geographical market expansion and further
industry specialization as well as consider possible niche and substantial
strategic acquisitions relating to its core business and other opportunities
within the financial services industry.
INDUSTRY SEGMENTS
Insurance Services. The Company's principal industry segment is insurance
services, which includes risk management and insurance services, specialist
broking and reinsurance broking. For each of the years ended December 31, 1995,
1994 and 1993, total revenues contributed by the Company's insurance services
segment accounted for 84 percent of its consolidated operating revenues. The
Company's extensive services permit it to handle diverse lines of coverage. In
October 1995, the Company acquired most of the U.S. retail insurance broking and
consulting business of Jardine Insurance Brokers, Inc. for a purchase price not
to exceed approximately $48.3 million. The acquisition increased the Company's
presence in the west, primarily in California, and added management strength to
certain U.S. practice groups, including health care and agribusiness.
Risk Management and Insurance Services. The Company's Risk Management and
Insurance Services operations (also referred to as "retail broking") develop
risk management programs and place coverage on behalf of its clients
directly with insurance companies or indirectly through specialist insurance
brokers. During 1995, this operation served approximately 125,000 clients,
through 260 offices in 74 countries. For the years ended December 31, 1995,
1994 and 1993, the Company's risk management and insurance services
operations accounted for approximately 60 percent, 64 percent and 64
percent, respectively, of the Company's consolidated operating revenues. The
Company's risk analysis and management capabilities include a broad range of
services such as risk surveys and analyses, loss control and cost studies,
formulation of safety procedures and insurance programs. Complementing these
services, the Company offers financial and actuarial services, risk
information and strategic risk management consulting. In 1993, the common
trading name of "Alexander & Alexander" was introduced throughout its global
insurance services
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network in the United States, the United Kingdom, Canada and Japan and in
most of its markets in continental Europe, Asia-Pacific and the Middle East.
Specialist and Reinsurance Broking. Effective January 1, 1995, the Company's
specialist broking (also referred to as "wholesale broking") and reinsurance
broking operations were combined under the operating name Alexander Howden
Group Limited, headquartered in London. This operation has 62 offices
located in 37 countries. For the years ended December 31, 1995, 1994 and
1993, the Company's combined specialist and reinsurance broking operations
accounted for approximately 24 percent, 20 percent and 20 percent,
respectively, of the Company's consolidated operating revenues. As a
specialist broker, the Company acts as an intermediary between the retail
broker and insurance companies throughout the world, including Lloyd's of
London syndicates. The Company's worldwide specialist operations place large
and complex risks that require access to the London and world insurance
markets, and offer excess, surplus and specialty lines placements,
specialist insurance broking and facultative reinsurance. As a reinsurance
broker, the Company places coverage on behalf of its insurance or
reinsurance company clients worldwide, including Lloyd's of London
syndicates, to reinsure all or a portion of the risk underwritten by that
insurance or reinsurance company.
The Company is compensated for its broking services by commissions, usually
as a percentage of insurance premiums paid by the client, or by negotiated fees.
The Company may also receive overrider and/or contingent commissions which are
based on the volume and/or profitability of business placed with an insurance
company over a given period of time. The Company is generally compensated on a
fee basis when providing consulting and advisory services with respect to
clients' risk and underwriting management programs. In addition to commissions
and fees, the Company derives revenues from investment income earned on
fiduciary funds. Premiums received from insureds but not yet remitted to the
carriers and claims payments received from carriers but not yet remitted to the
insureds are held as cash or investments in a fiduciary capacity.
The Company's insurance broking revenues are generally affected by premium
rates charged by insurance companies in the property and casualty markets and
the overall available market capacity. Commission and fee growth has been
constrained since the mid-to-late 1980's due to soft pricing and excess capacity
and the resultant intense competition among insurance carriers. The Company's
broking revenues are also affected by the timing of renewal cycles in different
parts of the world and lines of business which produce a degree of seasonality
in the Company's results. Risk management and insurance services broking
revenues in Continental Europe are the strongest during the first quarter of the
year, in contrast to the U.S. and Asia-Pacific, where such revenues are the
strongest in the fourth quarter of the year. Specialist and reinsurance broking
revenues are strongest during the first and second quarters.
Human Resource Management Consulting. The Company offers global
workforce-related consulting and benefits broking services through The Alexander
Consulting Group Inc. ("ACG"). For each of the years ended December 31, 1995,
1994 and 1993, total revenues contributed by ACG accounted for 16 percent of the
Company's consolidated operating revenues. ACG provides integrated advisory and
support services in workforce management, including retirement planning,
health/welfare and total compensation, human resource information technologies
and communications. ACG also offers brokerage services for group health and
welfare, special risk, and executive planning insurance coverages. During 1995,
ACG served over 20,000 clients, through 87 offices in 17 countries.
The Company is compensated for human resource management consulting services
on a fee basis, except in instances where it receives commissions from insurance
companies for the placement of individual and group insurance contracts.
Revenues for the human resource management consulting segment are typically
strongest in the fourth quarter and weakest in the first quarter, and therefore,
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produce a degree of seasonality in the Company's results. Revenue generated in
the Company's human resource consulting business can be significantly affected
by legislative enactments.
Financial Information about Industry Segments. For financial information
related to the Company's industry segments and geographical concentrations for
each of the three years in the period ended December 31, 1995, see Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") and Note 15 of the Notes to Financial Statements in the Company's 1995
Annual Report to Stockholders (the "1995 Annual Report").
DISCONTINUED OPERATIONS
In 1985, the Company discontinued its insurance underwriting operations. In
1987, the Company sold Sphere Drake Insurance Group. The Sphere Drake sales
agreement provides indemnities by the Company to the purchaser for various
potential liabilities including provisions covering future losses on certain
insurance pooling arrangements from 1953 to 1967 between Sphere Drake and Orion
Insurance Company, a U.K.-based insurance company, and future losses pursuant to
a stop-loss reinsurance contract between Sphere Drake and Lloyd's Syndicate 701.
In addition, the sales agreement requires the Company to assume any losses in
respect of actions or omissions by Swann & Everett Underwriting Agency, an
underwriting management company previously managed by a subsidiary of the
Company. In addition, the Company is currently running off its insurance
underwriting subsidiaries located in Atlanta and Bermuda. For further
information concerning discontinued operations see MD&A and Note 6 of Notes to
Financial Statements in the 1995 Annual Report.
COMPETITION AND CUSTOMERS
Based on 1994 revenues, the Company believes that it is the fourth largest
insurance broker worldwide and the eighth largest human resource management
consultant worldwide.
The Company's clients are primarily commercial enterprises including a broad
range of industrial, transportation, service, financial and other businesses. No
significant part of the Company or its subsidiaries' business is dependent upon
a single client or a few clients, the loss of any one of which would have a
material adverse affect on the Company.
Insurance broking and human resource management consulting are highly
competitive industries. The Company competes with other worldwide and national
companies, as well as regional and local firms and individuals. The principal
methods of competition in these businesses involve the nature, quality and cost
of the services the broker or consultant provides. As a service provider, the
Company also encounters competition with respect to attracting and retaining
qualified employees. In addition, insurance and reinsurance underwriters compete
with the Company by marketing and servicing their insurance products without the
assistance of insurance brokers. Also, certain insureds and groups of insureds
have initiated programs of self-insurance, thereby reducing or eliminating the
need for insurance brokers.
REGULATION AND LICENSING
The activities of the Company related to insurance broking and human
resource management consulting services are subject to licensing requirements
and extensive regulation under the laws of the United States and each of its
various states, territories and possessions, as well as the laws of numerous
other countries in which the Company's subsidiaries conduct business. These laws
and regulations vary by jurisdiction. The appropriate regulatory authorities
generally have wide discretionary authority in adopting, amending and
implementing such regulations. In addition, certain of the Company's insurance
activities are governed by the rules of the Lloyd's of London insurance market
and other similar organizations.
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In every state of the United States and most foreign jurisdictions, an
insurance broker or agent is required to have a license and such license may be
denied or revoked by the appropriate governmental agency for various reasons,
including the violation of its regulations and the conviction of crimes. In a
few jurisdictions, licenses are issued only to individual residents or locally
owned business entities. In certain of those jurisdictions, if the Company
itself has no subsidiary that is so licensed, the Company may from time to time
make arrangements with residents or business entities licensed to act on its
behalf in the jurisdiction.
The legality of the Company's operations depends on the continuing retention
and validity of the licenses under which it operates and on compliance with a
diverse and complex regulatory structure. The Company's licenses may not be
readily transferable in many jurisdictions. The Company expends significant
amounts of time and money to maintain its licenses and to ensure compliance with
applicable laws and regulations.
Because of its multistate and international operations, in some instances
the Company follows practices which are based upon its interpretation of laws or
regulations or upon the interpretation generally followed by the industry.
However, such interpretations may be in conflict with those of regulatory
authorities. Therefore, the possibility exists that the Company may be precluded
or temporarily suspended from continuing its business or otherwise penalized in
a given jurisdiction.
EMPLOYEES
At December 31, 1995, the Company had approximately 11,900 employees. The
Company considers relations with its employees to be satisfactory.
ITEM 2. PROPERTIES
Substantially all of the Company's worldwide facilities are leased. No
difficulty is anticipated in negotiating renewals as leases expire or in finding
other satisfactory space if the premises become unavailable. For further
information concerning the Company's obligations under capital leases and
noncancelable operating leases see Notes 8 and 13 of Notes to Financial
Statements in the 1995 Annual Report.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Notes 5 and 14 of Notes to Financial Statements in the
1995 Annual Report which is incorporated herein by reference, as to information
concerning the Company's legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders, through the solicitation of
proxies or otherwise.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Incorporated herein by reference is information concerning the market price
and dividends per share of the Company's Common Stock contained in Note 16 of
Notes to Financial Statements and information under the caption "Approximate
Number of Equity Security Holders," in the 1995 Annual Report. Also incorporated
herein by reference is information concerning restrictions on the payments of
dividends on the Company's Common Stock contained in Note 10 of Notes to
Financial Statements in the 1995 Annual Report.
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ITEM 6. SELECTED FINANCIAL DATA
Information under the caption "Selected Financial Data" in the 1995 Annual
Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information under the caption "Management's Discussion and Analysis of
Financial Condition & Results of Operations" in the 1995 Annual Report is
incorporated herein by reference. Certain sections of the information
incorporated herein by reference contain forward-looking statements. Such
statements include without limitation, discussions concerning revenue growth,
market and industry conditions, interest rates, restructuring charges,
contingencies and matters relating to the Company's discontinued operations and
income taxes. Such forward-looking statements are based on available current
market and industry materials, expert's reports and opinions, as well as
management's expectations concerning future events impacting the Company. There
can be no assurance that such forward-looking statements will occur or that the
Company's results will be as anticipated. Accordingly, the Company's actual
consolidated results for the first quarter of 1996 and beyond could differ
materially from the forward-looking statements incorporated herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are incorporated herein by reference to the 1995 Annual
Report:
Independent Auditors' Report
Consolidated Statements of Operations for each of the three years in the
period ended December 31, 1995.
Consolidated Balance Sheets, December 31, 1995 and 1994.
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1995.
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1995.
Notes to Financial Statements, including unaudited quarterly financial
data.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the fiscal years ended December 1995 and 1994 and in the subsequent
interim period, there has been no change in, or disagreements on accounting
matters with, the Company's independent auditors.
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PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item as to directors is included under the
caption "Nominees for Election to the Board of Directors" in the Company's Proxy
Statement for the 1996 Annual Meeting of Stockholders (the "1996 Proxy
Statement") and is incorporated herein by reference. Information required by
this item is included under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the 1996 Proxy Statement and is incorporated
herein by reference.
The following sets forth information with respect to current executive
officers of the Company:
FRANK G. ZARB, 61, has served as chairman of the board, chief executive
officer and president of the Company since June 1994. From November 1993 until
joining the Company, he served as vice chairman and group chief executive
officer of The Travelers Inc. He was chairman and chief executive officer of
Smith Barney Inc. and Smith Barney, Harris Upham & Co. Incorporated from
November 1988 to June 1993, and president of such corporations from June 1989 to
June 1993. From 1978 to 1988, he was a general partner at Lazard Freres & Co.
(an investment banking firm). Previously, he served in the United States
Government as: executive director of the Energy Resources Council and
administrator for the Federal Energy Administration from 1974 to 1977; Assistant
to the President of the United States for Energy Affairs from 1975 to 1977;
Associate Director of the United States Office of Management and Budget from
1973 to 1974; and United States Assistant Secretary of Labor from 1971 to 1972.
Mr. Zarb has been a director of the Company since June 1994.
LAWRENCE E. BURK, 54, has served as chairman, chief executive officer and
president of Alexander & Alexander Inc. ("A&A Inc."), the Company's U.S. retail
broking subsidiary, since November 1993. Since joining the Company in 1970, he
has held various senior management positions for the Company's retail broking
operations, including global business development director, January 1991 to
October 1993, and U.S. eastern regional director, May 1989 to January 1991.
ELLIOT S. COOPERSTONE, 34, has served as executive vice president and chief
administrative officer of the Company since October 1995 and August 1994,
respectively, and as senior vice president from August 1994 to October 1995. In
January 1995, he was appointed executive vice president and chief operating
officer of A&A Inc. From 1993 until joining the Company, he was assistant to the
vice chairman of The Travelers Inc. From 1992 to 1993 he was director of
strategic planning for The Walt Disney Company and from 1988 to 1992 he held
various positions at The Boston Consulting Group Inc., including consultant and
manager.
KENNETH J. DAVIS, 53, has served as executive vice president of the Company
since October 1995 and as chief executive officer of Alexander & Alexander
Europe, an entity formed from the merger of the Company's U.K. and European
retail broking operations since December 1992. Since joining the Company in
1985, Mr. Davis has held various executive management positions, including chief
operating officer of Alexander Stenhouse U.K. Ltd from January 1987 until
December 1992.
JAMES S. HORRICK, 55, has served as president and chief executive officer of
Alexander & Alexander/Reed Stenhouse Limited, the Company's retail broking
subsidiary in Canada, since January 1989 and January 1988, respectively. Since
August 1994, Mr. Horrick has also had management responsibility for the
Company's Latin America/Caribbean regions. He has served in various executive
management and operating positions for the Company's Canadian subsidiaries since
1985.
RONALD A. ILES, 60, has served as deputy chairman of the Board of Directors
of the Company since October 1995, as chairman of Alexander & Alexander Services
U.K. plc, the parent of the Company's European operations since 1993. In January
1995, Mr. Iles was appointed chairman of Alexander Howden Group Limited ("AHG"),
an entity formed from the merger of the Company's specialist and reinsurance
broking operations. From 1985 to October 1995, he also served as senior vice
president of
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the Company. Since 1982, Mr. Iles has held various executive management
positions, including chairman of Alexander Howden Reinsurance Brokers Ltd.
("AHRB") from 1982 to December 1994. Mr. Iles has been a director of the Company
since January 1995.
R. ALAN KERSHAW, 48, has served as vice president and treasurer of the
Company since June 1989. He joined the Company in 1986 as assistant
treasurer-international.
EDWARD F. KOSNIK, 51, has served as senior executive vice president and
chief financial officer of the Company since October 1995 and August 1994,
respectively. 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 of such
corporation from December 1992 until April 1993. From 1987 until 1992 he was
president and chief executive officer of Sprague Technologies Inc., a worldwide
manufacturer of electronic components. He has been a director of the Company
since March 1995.
DENNIS L. MAHONEY, 45, has served as executive vice president of the Company
since October 1995 and as deputy chairman and group chief executive officer of
AHG since January 1995 and February 1996, respectively. He is responsible for
management of the Company's worldwide specialist broking operations. Mr. Mahoney
joined the Company in 1984 and served as chairman of Alexander Howden Limited
until his 1995 appointment as deputy chairman of AHG.
DAN R. OSTERHOUT, 45, has served as a senior vice president of the Company
since January 1988, with responsibility for management of the Company's
underwriting exposures. Since January 1996, he has served as chairman and chief
executive officer of Alexander Capital Markets and from March 1994, as chairman
and chief executive officer of Alexander Underwriting Services. From September
1991 to December 1993, he also served in various executive positions with A&A
Inc., including president and chief operating officer. He has held various other
financial and management positions since joining the Company in 1970.
MARK J. SCHNEIDERMAN, 48, has served as senior vice president, corporate
human resources since July 1995. From 1982 until joining the Company, he was a
managing director, human resources for Chemical Banking Corporation.
DONALD L. SEELEY, 52, has served as a senior vice president of the Company
since May 1992 and as chief executive officer of the Alexander Consulting Group
Inc., the Company's human resource management subsidiary, since October 1993.
From September 1988 to September 1993 he was responsible for the management of
the Company's treasury, tax, strategic planning and corporate secretary
functions, having served as vice president from September 1988 to April 1992.
ALBERT A. SKWIERTZ, JR., 50, has served as a senior vice president and
general counsel of the Company since February 1996 and August 1994,
respectively, as assistant general counsel from April 1991 to August 1994, and
as vice president from April 1991 to February 1996. From August 1977 through
April 1986 he held various positions with the Company's legal department,
including vice president and assistant general counsel. Between April 1986 and
April 1991 he served as general counsel of Sedgwick James & Co. and The Crump
Companies.
RICHARD P. SNEEDER, JR., 46, has served as vice president and controller of
the Company since February 1996 and October 1994, respectively. He joined the
Company in 1985 as assistant controller.
ALAN E. WILLIAMS, 48, has served as chairman of the marine & aviation
division of AHG since January 1995. In January 1996, he was appointed Chairman
of Alexander Howden North America and Alexander Reinsurance Intermediaries Inc.
Since 1982, he has held various executive management positions with the marine
and reinsurance divisions of the Company, including chief executive of the
marine division and deputy chairman of AHRB.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
Information included under the caption "Executive Compensation" in the 1996
Proxy Statement is incorporated herein by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information included under the caption "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Director Nominees and Executive
Officers" in the 1996 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information included under the caption "Certain Transactions" in the 1996
Proxy Statement is incorporated herein by reference.
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PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) and (a)(2): See Item 8. Financial Statements and Supplementary Data
(a)(3) Exhibits:
3.1 --Amended and Restated Articles of Incorporation of the Company
(incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991).
3.2 --Articles of Amendment, dated July 15, 1994, to the Articles of
Incorporation of the Company (incorporated herein by reference to the
Company's Report on Form 10-Q for the quarter ended June 30, 1994).
3.3 --Articles Supplementary of the Company, dated March 18, 1993, relating
to the $3.625 Series A Convertible Preferred Stock (incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992).
3.4 --Articles Supplementary of the Company, dated July 15, 1994, relating
to the 8% Series B Cumulative Convertible Preferred Stock
(incorporated herein by reference to the Company's Report on Form
10-Q for the quarter ended June 30, 1994).
3.5 --Articles Supplementary of the Company, dated July 15, 1994, relating
to the Series A Junior Participating Preferred Stock (incorporated
herein by reference to the Company's Report on Form 10-Q for the
quarter ended June 30, 1994).
3.6 --Amended and Restated Bylaws of the Company, dated as of October 24,
1995.
4.1 --Rights Agreement between the Company and First Chicago Trust Company
of New York, formerly Morgan Shareholder Services Trust Company, as
Rights Agent dated as of June 11, 1987, amended and restated as of
March 22, 1990, and as amended April 21, 1993, June 6, 1994, July 15,
1994, and November 16, 1995 (incorporated herein by reference to the
Company's Registration Statement on Form 8-A filed with the
Commission on June 19, 1987, as amended).
4.2 --Form of Trust Agreement dated as of June 11, 1987, amended and
restated as of March 28, 1990, between the Company and Montreal Trust
Company of Canada, as successor to The Canada Trust Company
(incorporated herein by reference to Registration Statement on Form
8-A filed with the Commission on June 19, 1987, as amended).
The Company hereby agrees, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K,
to furnish to the Commission upon request a copy of each instrument with respect
to long-term debt of the Company or its subsidiaries.
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10.1* --The Company's 1995 Long-Term Incentive Plan (the "1995 LTIP").
10.2* --Form of the Company's Stock Option Award Agreement, Restricted Stock
Award Agreement and Limited Stock Appreciation Rights Agreement for
the 1995 LTIP and the Performance Bonus Plan for Executive Officers.
10.3* --The Company's 1988 Long Term Incentive Compensation Plan, as amended
(the "1988 Plan") and U.K. Executive Share Option Scheme under the
1988 Plan (incorporated herein by reference to the Company's
Registration Statement on Form S-8 Registration No. 33-60054 filed
with the Commission on March 26, 1993 and the Company's Registration
Statement on Form S-8 Registration No. 33-60054 filed with the
Commission on March 31, 1995, respectively).
10.4* --The U.K. Executive Share Option Scheme under the 1995 LTIP and 1988
Plan (incorporated herein by reference to the Company's Registration
Statement on Form S-8, Registration No. 33-60905 filed with the
Commission on July 7, 1995).
10.5* --1993 OptionPlan of Alexander & Alexander B.V. under the 1995 LTIP and
1988 Plan (incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993).
10.6* --Form of the Company's Stock Option Award Agreement, Restricted Stock
Award Agreement, Other Stock Based Award Agreement and Performance
Share/Unit Award Agreement for the 1988 Plan (incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990).
10.7* --The Company's 1982 Key Employee Stock Option Plan, as amended (the
"1982 Plan") (incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987), as
amended by resolutions of the Board of Directors of the Company,
dated September 22, 1988 (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1988); and U.K. Executive Share Option Scheme within the 1982 Plan,
as amended (incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988).
10.8* --Form of the Company's Stock Option Agreement and Limited Stock
Appreciation Rights Agreement for the 1982 Plan (incorporated herein
by reference to the Company's Annual Report on Form 10K for the year
ended December 31, 1990).
10.9* --Non-Employee Director Deferred Stock Ownership Plan, as amended and
restated August 18, 1995.
10.10* --The Company's Performance Bonus Plan for Executive Officers.
10.11* --The Company's 1995 Employee Discount Stock Purchase Plan (the
"Employee Purchase Plan"), together with subplan entitled Worldwide
Employee Savings-Related Stock Purchase Plan.
10.12* --Resolutions of the Board of Directors of the Company amending the
Employee Purchase Plan, effective as of August 17, 1995.
10.13* --Alexander & Alexander U.K. Pension Scheme and Alexander & Alexander
U.K. Voluntary Equity Scheme (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1985).
10.14* --Amendment to Alexander & Alexander U.K. Pension Scheme, effective as
of February 1, 1991 (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991).
10.15* --The Company's Senior Executive Severance Plan, effective January 1,
1989 (incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988), as amended by
resolutions of the Compensation and Benefits Committee of the
Company, dated November 16, 1989, adopting Option C to the Company's
9
<PAGE>
Senior Executive Severance Plan (incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1989).
10.16* --Alexander & Alexander Services Inc. and Subsidiaries Supplemental
Executive Retirement Plan for Senior Management, amended and restated
as of January 1, 1989 (the "SERP") (incorporated herein by reference
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.17 --Resolutions of the Compensation, Benefits and Nominating Committee of
the Company amending the SERP, effective as of March 20, 1996.
10.18* --Form of Employment Continuation Agreement effective as of February
16, 1996.
10.19* --Form of Termination Protection Agreement, effective as of July 1,
1989, (incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989).
10.20* --Employment Agreement between Frank G. Zarb and the Company, dated as
of June 16, 1994. (incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.21* --Stock Award Agreement between Frank G. Zarb and the Company, dated as
of February 15, 1995. (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10.22* --Employment Agreement between Edward F. Kosnik and the Company, dated
as of February 15, 1996, together with Amendment No. 1 dated as of
February 16, 1996.
10.23* --Contingent Agreement between Ronald A. Iles and the Company, dated
January 5, 1988 (incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992).
10.24* --Employment Agreement between Dennis L. Mahoney and Alexander Howden
Limited, dated October 1990. (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10.25* --Employment Agreement between Kenneth J. Davis and Reed Stenhouse &
Partners Limited, dated June 23, 1982. (incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.26 --Agreement and related documents entered into in connection with the
settlement of Mutual Fire and related disputes: (i) Settlement
Agreement, dated March 27, 1995, between Linda S. Kaiser, Insurance
Commissioner of the Commonwealth Court of Pennsylvania in her
capacity as Rehabilitator of Mutual Fire ("Rehabilitator") and the
Company, Alexander & Alexander Inc., ("A&A Inc."), Shand Morahan &
Company, Evanston Insurance Company and Insurance Company of Evanston
(the "Settlement Agreement"), (ii) Escrow Agreement, dated March 27,
1995 between the Rehabilitator, on behalf of the estate of Mutual
Fire, Mutual Fire and its policyholders and creditors, and the
Company and A&A Inc.; (iii) Promissory Note of the Company and A&A
Inc. in the fixed principal amount of $34,655,000 payable to Mutual
Fire; (iv) Notice of Motion of the Rehabilitator for the approval of
the Settlement Agreement filed with the Commonwealth Court of
Pennsylvania on March 27, 1995; (v) Motion of the Rehabilitator for
approval of the Settlement Agreement filed with the Commonwealth
Court of Pennsylvania on March 27, 1995; and (vi) Stipulation and
Order by and among Miller, Alfano & Rasponti, counsel for the
Rehabilitator, Morgan, Lewis & Bockius, counsel for the Company and
A&A Inc. and Kittredge, Donley, Elson, Fullem & Embick, counsel for
Shand Morahan & Co. (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10.27 --Order of Approval of the Settlement Agreement referred to in exhibit
10.26, dated May 9, 1995, together with Order dated June 15, 1995
dismissing the action with prejudice, in accordance with the terms
and conditions of the Settlement Agreement.
10
<PAGE>
10.28 --Agreement relating to the Company's indemnification in connection
with the sale of Shand Morahan & Co. by the Company: (i) Stock
Purchase Agreement, dated as of October 7, 1987 by and between F-M
Acquisition Corporation and Alexander & Alexander Inc. (including
certain exhibits thereto); (ii) Amendment No. 1 to the Stock Purchase
Agreement, dated as of February 15, 1989 between F-M Acquisition
Corporation and Alexander & Alexander Inc.; (iii) Waiver and Consent,
dated December 18, 1990, by Alexander & Alexander Inc. to a merger of
F-M Acquisition Corporation with Shand/Evanston Group, Inc.; (iv)
Confirmation and Assumption Agreement, dated as of December 18, 1990,
by Shand/Evanston Group for the benefit of Alexander & Alexander
Inc.; and (v) Letter Agreement, dated December 18, 1990 among
Alexander & Alexander Inc., F-M Acquisition Corporation,
Shand/Evanston Group, Inc. and Markel Corporation (incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
10.29 --Agreement and related documents entered into in connection with the
resolution of certain indemnity obligations arising out of the
Company's sale of Shand Morahan & Co.; (i) Settlement Agreement No. 3
dated as of January 27, 1995 (the "Settlement Agreement") among
Alexander & Alexander Inc., ("A&A Inc."), the Company as guarantor
and Shand/Evanston Group, Inc. ("Shand/Evanston Group"), Evanston
Insurance Company ("EIC") and Markel Corporation ("Markel"), as
guarantor; (ii) Promissory Note of A&A Inc. guaranteed by the Company
in the fixed principal amount of $14 million payable to EIC; (iii)
Contingent Promissory Note of A&A Inc. guaranteed by the Company in
the fixed principal amount of $4 million payable to EIC; (iv)
Contingent Promissory Note of A&A Inc. guaranteed by the Company in
the fixed principal amount of $1.75 million payable to EIC; (v)
Contingent Promissory Note of Shand/Evanston Group guaranteed by
Markel in the fixed principal amount of $1.25 million payable to A&A
Inc.; (vi) Letter, dated January 27, 1995 from Shand/Evanston to A&A
Inc. relating to the indemnification provisions contained in section
8.1 of the Purchase Agreement; (vii) Letter, dated January 27, 1995
from Debevoise & Plimpton, counsel to the Company and A&A Inc. to
Greg Nevers, counsel for Markel relating to paragraph 2 of Appendix B
to the Settlement Agreement (incorporated herein by reference to the
Company's Report on Form 8-K, dated March 15, 1995).
10.30 --Agreement relating to the Company's indemnification in connection
with the sale of Sphere Drake Insurance Group plc--Share Purchase
Agreement between Sphere Drake Acquisitions (U.K.) Limited and
Alexander Stenhouse & Partners Ltd., dated as of October 9, 1987,
including all exhibits and schedules thereto (incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993).
10.31 --Agreements relating to the Company's acquisition of reinsurance
protection for Sphere Drake-Related exposures: (i) Letter Agreement,
dated July 1, 1994, between Centre Reinsurance (Bermuda) Limited
("Centre Re") and Alexander Stenhouse & Partners Limited, having
attached thereto a Binder of Reinsurance; (ii) Letter Agreement,
dated July 1, 1994, between Centre Re and Atlanta International
Insurance Company, American Special Risk Insurance Company and Trent
Insurance Company Limited, having attached thereto a Binder of
Reinsurance; (iii) Letter Agreement, dated July 1, 1994, between the
Company and Centre Re; and (iv) Letter Agreement, dated June 30,
1994, between American International Group, Inc. and the Company.
(incorporated herein by reference to the Company's Report on Form
10-Q for the quarter ended June 30, 1994).
10.32 --Supplemental Trust Deed (providing for settlement (inter alia) of
Loan Note Debt and Adjustment Debt), dated December 8, 1994 among
Sphere Drake Acquisition (U.K.) Limited, Alexander Stenhouse &
Partners Limited and S.D. Securities Limited (incorporated herein by
reference to the Company's Report on Form 8-K, dated March 15, 1995).
10.33 --Stock Purchase and Sale Agreement, dated as of June 6, 1994, between
the Company and American International Group, Inc. (the "AIG
Agreement") (incorporated herein by
11
<PAGE>
reference to the Company's Proxy Statement for the Special Meeting of
Stockholders held on July 15, 1994 filed with the Commission on June
27, 1994).
10.34 --Amendment No. 1, dated as of November 10, 1994 to the AIG Agreement
between the Company and AIG (incorporated herein by reference to the
Company's Report on Form 10-Q for the quarter ended September 30,
1994).
10.35 --Amendment No. 2, dated March 16, 1995, to the AIG Agreement between
the Company and AIG. (incorporated herein by reference to the
Company's Report on Form 10-K for the year ended December 31, 1994).
10.36 --Registration Rights Agreement, dated as of July 15, 1994, among the
Company and each of the purchasers listed on the signature page
thereto. (incorporated herein by reference to the Company's Report on
Form 10-Q for the quarter ended June 30, 1994).
10.37 --Sale and Purchase Agreement, dated as of November 30, 1993 among the
Company and certain selling stockholders listed on the signature page
thereto (incorporated herein by reference to the Company's
Registration Statement on Form S-3 filed with the Commission on
August 16, 1994).
13.0 --1995 Annual Report to Stockholders.
21.0 --Subsidiaries of the Registrant.
23.0 --Independent Auditors' Consent.
27.0 --Financial Data Schedule.
(b) Reports on Form 8-K:
- Current Report on Form 8-K dated February 14, 1996, noticing the
Company's earnings for the year and quarter ended December 31, 1995.
- ------------
* The referenced exhibit is a management contract or compensation plan or
arrangement described in Item 601(b)(10)(iii) of Regulation S-K.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
March, 1996.
ALEXANDER & ALEXANDER SERVICES INC.
By: /s/ Frank G. Zarb March 29, 1996
-------------------------------------------
FRANK G. ZARB DATE
Chairman of the Board,
Chief Executive Officer, President and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed below by the following
persons in the capacities indicated on the 29th day of March, 1996 and each of
the undersigned persons, in any capacity, hereby severally constitutes Frank G.
Zarb and Edward F. Kosnik and each of them, singularly, his true and lawful
attorney with full power to them and each of them to sign for him, and in his
name and in the capacities indicated below, this Annual Report on Form 10-K and
any and all amendments thereto.
/s/ Frank G. Zarb March 29, 1996
- --------------------------------------------
FRANK G. ZARB DATE
Chairman of the Board,
Chief Executive Officer, President and Director
/s/ Edward F. Kosnik March 29, 1996
- --------------------------------------------
EDWARD F. KOSNIK DATE
Director, Senior Executive Vice President and Chief Financial Officer
/s/ Richard P. Sneeder, Jr. March 29, 1996
- --------------------------------------------
RICHARD P. SNEEDER, JR. DATE
Vice President and Controller
/s/ H. Furlong Baldwin March 29, 1996
- --------------------------------------------
H. FURLONG BALDWIN DATE
Director
/s/ Robert E. Boni March 29, 1996
- --------------------------------------------
ROBERT E. BONI DATE
Director
/s/ W. Peter Cooke March 29, 1996
- --------------------------------------------
W. PETER COOKE DATE
Director
/s/ E. Gerald Corrigan March 29, 1996
- --------------------------------------------
E. GERALD CORRIGAN DATE
Director
/s/ Joseph L. Dionne March 29, 1996
- --------------------------------------------
JOSEPH L. DIONNE DATE
Director
/s/ Gerald R. Ford March 29, 1996
- --------------------------------------------
GERALD R. FORD DATE
Director
/s/ Peter C. Godsoe March 29, 1996
- --------------------------------------------
PETER C. GODSOE DATE
Director
/s/ Angus M.M. Grossart March 29, 1996
- --------------------------------------------
ANGUS M.M. GROSSART DATE
Director
/s/ Maurice H. Hartigan II March 29, 1996
- --------------------------------------------
MAURICE H. HARTIGAN II DATE
Director
/s/ James B. Hurlock March 29, 1996
- --------------------------------------------
JAMES B. HURLOCK DATE
Director
/s/ Ronald A. Iles March 29, 1996
- --------------------------------------------
RONALD A. ILES DATE
Director
/s/ Vincent R. McLean March 29, 1996
- --------------------------------------------
VINCENT R. MCLEAN DATE
Director
/s/ James D. Robinson, III March 29, 1996
- --------------------------------------------
JAMES D. ROBINSON, III DATE
Director
13
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FINANCIAL STATEMENTS AND RELATED INFORMATION
The following consolidated financial statements and related information of
Alexander & Alexander Services Inc. and subsidiaries, included in the Company's
1995 Annual Report to Stockholders, are incorporated by reference to Item 8 of
this report:
Independent Auditors' Report
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1995
Consolidated Balance Sheets, December 31, 1995 and 1994
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1995
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended December 31, 1995
Notes to Financial Statements, including unaudited quarterly financial data
The following supplemental schedules and related information of Alexander &
Alexander Services Inc. and its consolidated subsidiaries are included on pages
15 and 16 of this report:
Independent Auditors' Report
Schedule II--Valuation and Qualifying Accounts
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To ALEXANDER & ALEXANDER SERVICES INC.:
We have audited the consolidated financial statements of Alexander &
Alexander Services Inc. and Subsidiaries as of December 31, 1995 and 1994, and
for each of the three years in the period ended December 31, 1995, and have
issued our report thereon dated February 14, 1996; such consolidated financial
statements and report are included in your 1995 Annual Report to Stockholders
and are incorporated herein by reference. Our audits also included the
consolidated financial statement schedule of Alexander & Alexander Services Inc.
and Subsidiaries, listed in the accompanying table of contents referred to under
Item 14. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Baltimore, Maryland
February 14, 1996
15
<PAGE>
SCHEDULE II
ALEXANDER & ALEXANDER SERVICES INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------- ---------- -------------------------- -------------- --------
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS (1) DEDUCTIONS (2) OF YEAR
- ------------------------------------- ---------- ---------- ------------ -------------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable:
Year Ended December 31, 1993....... $ 22,119 $3,793 $ (2,019) $3,566 $20,327
---------- ---------- ------------ ------- --------
---------- ---------- ------------ ------- --------
Year Ended December 31, 1994....... $ 20,327 $7,880 $ (1,279) $3,203 $23,725
---------- ---------- ------------ ------- --------
---------- ---------- ------------ ------- --------
Year Ended December 31, 1995....... $ 23,725 $1,444 $ (2,096) $2,648 $20,425
---------- ---------- ------------ ------- --------
---------- ---------- ------------ ------- --------
</TABLE>
- ------------
NOTES:
(1) Recoveries and adjustments for foreign currency translation.
(2) Writeoffs of receivables which are not recoverable.
16
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
INDEX TO EXHIBITS
Certain exhibits to this Report on Form 10-K have been incorporated by
reference. For a list of these Exhibits See Item 14 hereof. The following
exhibits are being filed herewith:
EXHIBITS PAGE NO.
- -------- --------
3.6 --Amended and Restated Bylaws of the Company, dated as of
October 24, 1995.........................................
10.1 --The Company's 1995 Long-Term Incentive Plan..............
10.2 --Form of the Company's Stock Option Award Agreement,
Restricted Stock Award Agreement and Limited Stock
Appreciation Rights Agreement for the 1995 LTIP and the
Performance Bonus Plan for Executive Officers............
10.9 --Non-Employee Director Deferred Stock Ownership Plan, as
amended and restated August 18, 1995.....................
10.10 --The Company's Performance Bonus Plan for Executive
Officers.................................................
10.11 --The Company's 1995 Employee Discount Stock Purchase Plan
(the "Employee Purchase Plan"), together with subplan
entitled Worldwide Employee Savings-Related Stock
Purchase Plan............................................
10.12 --Resolutions of the Board of Directors of the Company
amending the Employee Purchase Plan, effective as of
August 17, 1995..........................................
10.17 --Resolutions of the Compensation, Benefits and Nominating
Committee of the Company amending the SERP, effective as
of March 20, 1996........................................
10.18 --Form of Employment Continuation Agreement effective as of
February 16, 1996........................................
10.22 --Employment Agreement between Edward F. Kosnik and the
Company, dated as of February 15, 1996 together with
Amendment No. 1 dated as of February 16, 1996............
10.27 --Order of Approval of the Settlement Agreement referred to
in exhibit 10.26, dated May 9, 1995, together with Order
dated June 15, 1995 dismissing the action with prejudice,
in accordance with the terms and conditions of the
Settlement Agreement.....................................
13.0 --1995 Annual Report to Stockholders.......................
21.0 --Subsidiaries of the Registrant...........................
23.0 --Independent Auditors' Consent............................
27.0 --Financial Data Schedule..................................
EXHIBIT 3.6
ALEXANDER & ALEXANDER SERVICES INC.
BY-LAWS
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I. STOCKHOLDERS
Section 1. Annual Meetings.....................................1
Section 2. Special Meetings Called by the
President or the Board of Directors............1
Section 3. Special Meetings Called by
Stockholders...................................1
Section 4. Removal of Directors................................2
Section 5. Voting, Proxies, Record Date........................2
Section 6. Quorum..............................................3
Section 7. Filing Proxies......................................3
Section 8. Place of Meetings...................................3
Section 9. Order of Business...................................4
Section 10. Informal Action by Stockholders.....................5
Section 11. Director Nominations................................5
Section 12. New Business........................................7
ARTICLE II. BOARD OF DIRECTORS
Section 1. Powers..............................................10
Section 2. Number, Term of Office, Removal.....................10
Section 3. Organization Meetings, Regular Meetings.............10
Section 4. Special Meetings....................................11
Section 5. Quorum..............................................11
Section 6. Notice of Meetings..................................12
Section 7. Election............................................12
Section 8. Vacancies...........................................12
Section 9. Executive and Other Committees......................13
Section 10. Rules and Regulations...............................13
Section 11. Compensation of Directors...........................13
Section 12. Informal Action by the Directors....................14
Section 13. Emeritus Directors..................................14
ARTICLE III. OFFICERS
Section 1. Officers of the Corporation.........................15
Section 2. Officers of the Board of Directors..................15
Section 3. Chief Executive Officer.............................16
i
<PAGE>
PAGE
----
ARTICLE III. OFFICERS (continued)
Section 4. Chairman, Deputy Chairman or Deputy Chairmen
and Vice Chairman or Vice Chairmen of the Board..16
Section 5. Chairman of the Executive Committee................17
Section 6. President..........................................17
Section 7. Chief Operating Officer............................18
Section 8. Senior Executive Vice President and
Executive Vice President.........................18
Section 9. Senior Vice President..............................18
Section 10. Vice Presidents and Assistant Vice Presidents.......18
Section 11. Chief Financial Officer.............................19
Section 12. Treasurer...........................................19
Section 13. Secretary...........................................19
Section 14. Controller..........................................20
Section 15. Assistant Treasurer, Assistant Secretary and
Assistant Controller.............................20
Section 16. Removal and Term of Contracts.......................20
Section 17. Vacancies...........................................20
Section 18. Substitutes.........................................21
ARTICLE IV. RESIGNATION................................................22
ARTICLE V. COMMERCIAL PAPER, ETC.......................................23
ARTICLE VI. STOCK
Section 1. Issue...............................................24
Section 2. Transfers...........................................24
Section 3. Form of Certificates, Procedures....................24
Section 4. Record Dates for Dividends and
Stockholders Meetings.............................24
Section 5. Lost Certificate....................................25
ARTICLE VII. NOTICE
Section 1. Notice to Stockholders..............................26
Section 2. Notice to Directors and Officers....................26
Section 3. Waiver of Notice............................................26
ARTICLE VIII. VOTING OF STOCK IN OTHER CORPORATIONS....................28
ii
<PAGE>
PAGE
----
ARTICLE IX. MISCELLANEOUS PROVISIONS
Section 1. Distributions.......................................29
Section 2. Fiscal Year.........................................29
Section 3. Seal................................................29
Section 4. Non-Applicability of Maryland Control Share Act.....29
ARTICLE X. INDEMNIFICATION.............................................30
ARTICLE XI. AMENDMENTS.................................................31
iii
<PAGE>
ARTICLE I. STOCKHOLDERS
-----------------------
SECTION 1. ANNUAL MEETINGS.
---------------
The Annual Meeting of the Stockholders of the Corporation shall be held
on the third Thursday of May of every year at 9:30 A.M., or on such other date
or at such other time within the period beginning on the Fifteenth (15th) day
preceding, and ending on the Fifteenth (15th) day following, such third
Thursday in May, as may be fixed from time to time by the Board of Directors.
Not less than ten (10) nor more than ninety (90) days written or printed notice
stating the place, day and hour of each annual meeting shall be given in the
manner provided in Section 1 of Article VII hereof. The business to be
transacted at the annual meeting shall include the election of directors, and
any other business within the power of the Corporation. All annual meetings
shall be general meetings.
SECTION 2. SPECIAL MEETINGS CALLED BY THE PRESIDENT OR THE BOARD OF DIRECTORS.
------------------------------------------------------------------
At any time in the interval between annual meetings, special meetings
of stockholders may be called by the President, or by a majority of the Board
of Directors. Not less than ten (10) nor more than ninety (90) days written or
printed notice stating the place, day and hour of such meeting and the business
proposed to be transacted thereat shall be given in the manner provided in
Section 1 of Article VII hereof. No business shall be transacted at any special
meeting except that named in the notice.
SECTION 3. SPECIAL MEETING CALLED BY STOCKHOLDERS.
--------------------------------------
Upon the request in writing delivered to the President or Secretary by
the holders of twenty-five (25%) percent or more of all shares outstanding and
entitled to
1
<PAGE>
vote, it shall be the duty of such President or Secretary to call forthwith a
special meeting of the stockholders. Such request shall state the purpose or
purposes of such meeting and the matters proposed to be acted on thereat.
The Secretary shall inform such stockholders of the reasonably estimated
costs of preparing and mailing the notice of the meeting. If upon payment
of such costs to the Corporation, the person to whom such request in writing
shall have been delivered shall fail to issue a call for such meeting within
ten (10) days after the receipt of such request and payment of costs, then
the stockholders owning twenty-five (25%) percent or more of the voting shares,
may do so upon giving not more than thirty (30) days and not less than fifteen
(15) days notice of the time, place and object of the meeting in the manner
provided in Section 1 of Article VII hereof.
SECTION 4. REMOVAL OF DIRECTORS.
--------------------
At any special meeting of the stockholders called in the manner
provided for by this Article, the stockholders, by the vote of a majority of
all shares of stock outstanding and entitled to vote, may remove any director
or directors from office and may elect a successor or successors to fill any
resulting vacancies for the remainder of his or their term.
SECTION 5. VOTING, PROXIES, RECORD DATE.
----------------------------
At all meetings of stockholders any stockholder shall be entitled to
vote by proxy. Such proxy shall be in writing and signed by the stockholder or
by his duly authorized attorney in fact. The proxy shall be dated but need not
be sealed, witnessed or acknowledged. The Board of Directors may fix the record
date for the
2
<PAGE>
determination of stockholders entitled to vote in the manner provided in
Article VI of Section 4 of these By-Laws.
SECTION 6. QUORUM.
------
A quorum at any annual or special meeting of the stockholders shall
consist of a majority of the shares outstanding and entitled to vote whether
represented in person or by proxy. If at any annual or special meeting of
stockholders a quorum shall fail to attend in person or by proxy, a majority in
interest attending in person or by proxy may, without further notice, adjourn
the meeting from time to time, not exceeding sixty (60) days in all, until a
quorum shall attend, and thereupon any business may be transacted which might
have been transacted at the meeting as originally called had the same been held
at the time so called.
SECTION 7. FILING PROXIES.
--------------
At all meetings of stockholders, the proxies shall be filed with and
be verified by the Secretary of the Corporation, or if the meeting shall so
decide, by the Secretary of the meeting.
SECTION 8. PLACE OF MEETINGS.
-----------------
All meetings of stockholders shall be held in the state of
incorporation, or at such other place within the United States as may be fixed
from time to time by the Board of Directors or Executive Committee of the
Corporation and designated in the notice.
3
<PAGE>
SECTION 9. ORDER OF BUSINESS.
-----------------
At all meetings of stockholders, any stockholder, present and entitled
to vote in person or by proxy shall be entitled to require, by written request
to the Chairman of the meeting, that the order of business shall be as follows:
1. Organization of the meeting.
2. Submission by Secretary or by Inspectors, if any shall have been
elected or appointed, of a list of the stockholders entitled to vote, present
in person or by proxy.
3. Proof of notice of meeting or of waivers thereof. (The certificate
of the Secretary of the Corporation, or the affidavit of any other person who
mailed or published the notice or caused the same to be mailed or published,
being proof of service of notice).
4. If an annual meeting, or a meeting called for that purpose, reading
of unapproved minutes of preceding meetings, and action thereon.
5. Reports.
6. Appointment of tellers, or if stockholders so desire, the election
of inspectors.
7. If an annual meeting, or a meeting called for that purpose, the
election of directors.
8. Unfinished business.
9. New business.
10. Adjournment.
4
<PAGE>
SECTION 10. INFORMAL ACTION BY STOCKHOLDERS.
-------------------------------
Any action required or permitted to be taken at any meeting of
stockholders may be taken without a meeting if a consent in writing setting
forth such action is signed by all the stockholders entitled to vote thereon,
and any of the stockholders entitled to notice of a meeting but not to vote
thereat have waived in writing any rights which they may have to dissent from
such action, and such consent and waiver are filed with the records of the
Corporation.
SECTION 11. DIRECTOR NOMINATIONS.
--------------------
Nominations of candidates for election as directors at any meeting of
stockholders may be made (a) by or at the recommendation of a majority of the
directors then in office or (b) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Section, who shall be entitled to vote for the election of directors at the
meeting, and who complies with the notice procedures set forth in this Section.
Only persons nominated in accordance with the procedures set forth in this
Section shall be eligible for election as directors by the stockholders.
Nominations, other than those made by or at the recommendation of the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section. To be timely, a
stockholder's notice shall be delivered to, or mailed to and received at, the
principal executive offices of the Corporation, not less than sixty (60) days
nor more than ninety (90) days prior to the date of the meeting, as established
pursuant to Section 1 or Section 2 of Article I hereof (depending on whether
the meeting is an annual meeting or special meeting),
5
<PAGE>
regardless of any postponement, deferral, or adjournment of that meeting to a
later date (provided, however, that if less than seventy (70) days' notice or
prior public disclosure of the date of the scheduled meeting is given or made,
notice by the stockholder to be timely must be so delivered or received not
later than the close of business on the tenth (10th) day following the earlier
of the day on which such notice of the date of the scheduled meeting was given
or the day on which such public disclosure was made). Such stockholder's notice
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or reelection as a director (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment
of such person, (iii) the class and number of shares of the Corporation's stock
which are beneficially owned (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "1934 Act")) by such person on the date
of such stockholder's notice, (iv) such person's written consent to being
nominated and, if elected, to serving as a director, and (v) any other
information relating to such person that is required to be disclosed in
solicitations of proxies with respect to nominees for election as directors, or
is otherwise required, in each case pursuant to Regulation 14A under the 1934
Act, and (b) as to the stockholder giving the notice (i) the name and address,
as they appear on the Corporation's books, of such stockholder and (ii) the
class and number of shares of the Corporation's stock which are beneficially
owned (as defined in Rule 13d-3 under the 1934 Act) by such stockholder. At the
request of the Board of Directors, any person nominated by or at the
recommendation of the Board for election as a director
6
<PAGE>
shall promptly furnish to the Secretary of the Corporation the information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
The presiding officer of the meeting shall determine and declare at the
meeting whether the nomination was made in accordance with the terms of this
Section. If the presiding officer determines that a nomination was not made in
accordance with the terms of this Section, the defective nomination shall be
disregarded.
Ballots bearing the names of all the persons who have been nominated
for election as directors at a meeting in accordance with the procedures set
forth in this Section shall be provided for use at the meeting.
Notwithstanding the foregoing provisions of this Section, a stockholder
shall also comply with all applicable requirements of the 1934 Act and the
rules and regulations thereunder with respect to the matters set forth in this
Section.
SECTION 12. NEW BUSINESS.
------------
At an annual meeting of stockholders, only such new business shall be
conducted, and only such proposals shall be acted upon, as shall have been
brought before the annual meeting (a) by or at the recommendation of a majority
of the directors then in office or (b) by any stockholder of record at the time
of giving of notice provided for in this Section who complies with the notice
procedures set forth in this Section. For a proposal to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to, or mailed and received at,
the principal executive offices of the Corporation, not less than sixty (60)
days nor more than ninety (90) days prior to the date of the
7
<PAGE>
meeting, as established pursuant to Section 1 of Article I hereof regardless of
any postponement, deferral, or adjournment of that meeting to a later date
(provided, however, that if less than seventy (70) days' notice or prior public
disclosure of the date of the scheduled meeting is given or made, notice by the
stockholder to be timely must be so delivered or received not later than the
close of business on the tenth (10th) day following the earlier of the day on
which such notice of the date of the scheduled meeting was given or the day on
which such public disclosure was made). Such stockholder's notice shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the proposal desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
'meeting; (b) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business; (c) the class and number of shares
of the Corporation's stock which are beneficially owned (as defined in Rule
13d-3 under the 1934 Act) by the stockholder; and (d) any material interest of
the stockholder in such proposal.
The presiding officer of the annual meeting shall determine and declare
at the annual meeting whether the stockholder proposal was made in accordance
with the terms of this Section. If the presiding officer determines that a
stockholder proposal was made in accordance with the terms of this Section,
ballots shall be provided for use at the meeting with respect to any such
proposal. If the presiding officer determines that a stockholder proposal was
not made in accordance with the terms of this Section, such proposal shall not
be acted upon at the annual meeting.
8
<PAGE>
Notwithstanding the foregoing provisions of this Section, a stockholder
shall also comply with all applicable requirements of the 1934 Act and the
rules and regulations thereunder with respect to the matters set forth in this
Section. This Section shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed
and received as herein provided.
9
<PAGE>
ARTICLE II. BOARD OF DIRECTORS
-------------------------------
SECTION 1. POWERS.
------
The Board of Directors shall have the control and management of the
affairs, business and properties of the Corporation. They shall have and
exercise in the name of the Corporation and on behalf of the Corporation all
the rights and privileges legally exercisable by the Corporation, except as
otherwise provided by law, by the Charter or by these By-Laws. A director need
not be a stockholder.
SECTION 2. NUMBER, TERM OF OFFICE, REMOVAL.
-------------------------------
The number of directors of the Corporation shall be the number named in
the Charter; provided, however, that such number may be increased or decreased
from time to time by vote of a majority of the whole Board of Directors to a
number not exceeding twenty (20) and not less than three (3), but the tenure of
office of directors shall not be affected by any decrease in the number of
directors so made by the Board. The first directors of the Corporation shall
hold their office until the first annual meeting of the Corporation or until
their successors are elected and qualify, and thereafter the directors shall
hold office for the term of one (1) year, or until their successors are elected
and qualify. The Board of Directors shall keep minutes of its meetings and a
full account of its transactions. A director may be removed from office as
provided in Article I. Section 4, hereof.
SECTION 3. ORGANIZATION MEETINGS, REGULAR MEETINGS.
---------------------------------------
After each meeting of stockholders at which a Board of Directors shall
have been elected, the Board of Directors so elected shall meet for the purpose
of organization and the transaction of other business, at such time and place
as may be
10
<PAGE>
designated by the stockholders at such meeting; or, in the absence of
such designation, shall meet as soon as practicable. No notice of the
organization meeting shall be required if it is held at the same place and
immediately following the annual meeting of stockholders. The Board of
Directors may provide by resolution the time and place, either within or
without the state of incorporation, for the holding of regular meetings of the
Board of Directors without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS.
----------------
Special meetings of the Board may be called by the President or by any
two (2) of the directors. At least forty-eight (48) hours notice shall be given
of all special meetings; with the consent of the majority of the directors, a
shorter notice may be given. Special meetings may be held at such time and
place, without or within the State of Maryland, as may be fixed by the party
making the call.
SECTION 5. QUORUM.
------
A majority of the Board of Directors shall constitute a quorum for the
transaction of business at every meeting of the Board of Directors; but if at
any meeting there be less than a quorum present, a majority of those present
may adjourn the meeting from time to time, but not for a period exceeding sixty
(60) days in all, without notice other than by announcement at the meeting
until a quorum shall attend. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified.
11
<PAGE>
SECTION 6. NOTICE OF MEETINGS.
-----------------
Notice of the place, day, hour, and agenda of every regular and special
meeting of the Board of Directors shall be given to each Director, in the
manner provided in Section 2 of Article VII hereof. Subsequent to each Board
meeting, and as soon as possible thereafter, each Director shall be furnished
with a copy of the minutes of said meeting and a list of those actions to be
undertaken by the individual Directors before the next meeting of the Board of
Directors. Said Director shall then send his comments on the minutes to the
Secretary.
SECTION 7. ELECTION.
--------
At each meeting of the stockholders for the election of directors at
which a quorum is present, the directors shall be elected by a plurality of the
votes validly cast in such election. There shall be no cumulative voting for
directors.
SECTION 8. VACANCIES.
---------
If the office of a director becomes vacant, including the removal of a
director by the stockholders, pursuant to Article I, Section 4 hereof, if the
stockholders then fail to appoint another in his place, or if the number of
directors is increased, such vacancy may be filled by the Board by a vote of
the majority of the directors then in office, (although such majority is less
than a quorum). The stockholders may, however, at any time during the term of
such director, elect some other person to fill said vacancy, and thereupon the
election by the Board shall be superseded, and such election by the
stockholders shall be deemed a filling of the vacancy and not a removal, and
may be made at any meeting called for that purpose. If the entire Board of
Directors shall become vacant, any stockholder may call a special meeting in
the
12
<PAGE>
same manner that the President may call such meeting, and directors for the
unexpired term may be elected at such special meeting, in the manner provided
for their election at annual meetings.
SECTION 9. EXECUTIVE AND OTHER COMMITTEES.
------------------------------
The Board of Directors may appoint from among its members an Executive
Committee and other committees, composed of two or more directors, to serve at
the pleasure of the Board of Directors.
The Board of Directors may delegate to committees appointed under this
Section 9 of Article II any of the powers of the Board of Directors, except the
power to declare dividends or distributions on stock, to issue stock except
pursuant to a general formula or method specified by the Board of Directors by
resolution or by adoption of a stock option or other plan, to recommend to the
stockholders any action which requires stockholder approval, to amend the
By-Laws, or to approve any merger or share exchange which does not require
stockholder approval.
SECTION 10. RULES AND REGULATIONS.
---------------------
The Board of Directors may adopt such rules and regulations for the
conduct of their meetings and the management of the affairs of the Corporation
as they may deem proper and not inconsistent with the laws of the State of
Maryland or these By-Laws or the Charter.
SECTION 11. COMPENSATION OF DIRECTORS.
-------------------------
The Board of Directors shall have power from time to time to authorize
the payment of compensation to the Board of Directors for past or future
services to the
13
<PAGE>
Corporation, including fees for attendance at meetings of the Board of
Directors and of committees.
SECTION 12. INFORMAL ACTION BY THE DIRECTORS.
--------------------------------
Any action required or permitted to be taken at any meeting of the
Board may be taken without a meeting if a written consent to such action is
signed by all members of the Board and such consent is filed with the minutes
of the Board.
SECTION 13. EMERITUS DIRECTORS.
------------------
A member of the Board of Directors who ceases to serve on the Board for any
reason other than removal under Article I, Section 4 hereof is eligible for
appointment by the Board as an Emeritus Director on an annual basis at each
annual organizational meeting of the Board commencing immediately upon the end
of his or her service on the Board.
An Emeritus Director may, but is not required to, attend meetings of
the Board of Directors and it's Committees and may participate in discussions
thereat, but may not vote on any issue nor shall his or her attendance count
toward a quorum. An Emeritus Director shall serve as a goodwill ambassador of
the Company and be available for consultation but such individual shall not
have any responsibility or be subject to any liability imposed upon a member of
the Board of Directors or in any manner otherwise be deemed to be a member of
the Board of Directors.
Each Emeritus Director shall be entitled to reimbursement for all
reasonable expenses incurred in attending any meeting or attending any function
on behalf and at the request of the Company, and will be covered under any
existing business travel accident plan applicable to members of the Board of
Directors.
14
<PAGE>
ARTICLE III. OFFICERS
---------------------
SECTION 1. OFFICERS OF THE CORPORATION.
---------------------------
The officers of the Corporation (hereinafter in this Article III being
referred to as "officers") may consist of a Chief Executive Officer, a
President, a Chief Financial Officer, one or more Senior Executive Vice
Presidents, one or more Executive Vice Presidents, one or more Senior Vice
Presidents, one or more Vice Presidents, one or more Assistant Vice Presidents,
a Controller, one or more Assistant Controllers, a Treasurer, one or more
Assistant Treasurers, a Secretary, and one or more Assistant Secretaries. All
of said officers shall be elected by the Board of Directors and, except
officers holding contracts for fixed terms, shall hold office only during the
pleasure of the Board or until their successors are chosen and qualify. Any two
or more of the above offices, except those of President and Vice President, may
be held by the same person, but no officer shall execute, acknowledge or verify
any instrument in more than one capacity, when such instrument is required to
be executed, acknowledged or verified by any two or more officers. The Chief
Executive Officer and the President may be chosen from among the directors. The
Board of Directors may from time to time appoint such other agents and
employees, with such powers and duties as they may deem proper. In its
discretion, the Board of Directors may leave unfilled any offices except those
of President, Treasurer and Secretary.
SECTION 2. OFFICERS OF THE BOARD OF DIRECTORS.
----------------------------------
The officers of the Board of Directors (hereinafter in this Article III
being referred to as "Board officers") may consist of a Chairman of the Board,
one or more Deputy Chairmen of the Board, one or more Vice Chairmen of the
Board and a
15
<PAGE>
Chairman of the Executive Committee. All of said Board officers
shall be elected by the Board of Directors and shall hold office only during
the pleasure of the Board or until their successors are chosen and qualify. The
Chairman of the Executive Committee may also be the Chairman or a Deputy
Chairman or a Vice Chairman of the Board. The Board officers shall be chosen
from among the directors. In its discretion, the Board of Directors may leave
unfilled any Board office except those of Chairman of the Board and Chairman of
the Executive Committee.
SECTION 3. CHIEF EXECUTIVE OFFICER.
-----------------------
The Board of Directors may designate the Chief Executive Officer from
among the elected officers who are directors. Said officer shall have
responsibility for the implementation of the policies of the Corporation, which
are to be determined by the Board of Directors, and for the administration of
the business affairs of the Corporation. He shall submit a report of the
operations of the Corporation for the year and the state of its affairs as of
the 31st day of December of the preceding year to the stockholders and
directors and shall from time to time report to the directors on all matters
within his knowledge which the interests of the Corporation may require to be
brought to their notice.
SECTION 4. CHAIRMAN, DEPUTY CHAIRMAN OR DEPUTY CHAIRMEN AND VICE CHAIRMAN OR
-----------------------------------------------------------------
VICE CHAIRMEN OF THE BOARD.
- --------------------------
The Chairman of the Board shall preside over the meetings of the Board
and of the stockholders at which he shall be present. In the absence of the
Chairman of the Board, any Deputy Chairman or Vice Chairman, as designated by
or on behalf of the Chairman, shall preside at such meetings at which he shall
be present. The Chairman
16
<PAGE>
of the Board, the Deputy Chairman or Deputy Chairmen, and the Vice Chairman
or Vice Chairmen of the Board shall, respectively, perform such other duties
as may be assigned to him or them by the Board of Directors, the Executive
Committee, or with respect to the Deputy Chairman or Deputy Chairmen and
Vice Chairman or Vice Chairmen, by the Chairman.
SECTION 5. CHAIRMAN OF THE EXECUTIVE COMMITTEE.
-----------------------------------
The Chairman of the Executive Committee shall preside over the meetings
of the Executive Committee at which he shall be present and perform such other
duties as assigned to him by the Board of Directors or Executive Committee.
SECTION 6. PRESIDENT.
---------
The President shall have responsibility for the active management of
the business and general supervision and direction of all of the affairs of the
Corporation. In the absence of the Chairman, all Deputy Chairmen and Vice
Chairmen of the Board, the President shall preside at all meetings of the Board
of Directors and of the stockholders at which he shall be present. Unless the
President is also a Director, the President shall not have a vote at any
meeting at which he shall preside under this section. The President shall
report to the Chief Executive Officer and in the absence of the Chief Executive
Officer to the Board of Directors, the Executive Committee or the Chairman, as
appropriate. In the absence of a designation of a Chief Executive Officer by
the Board of Directors, the President shall be the principal executive officer
of the Corporation. The President's duties shall be construed to cover the
authority to sign or endorse stock certificates and to sign other documents (a)
representing investments of the Corporation and (b) necessary to sell or
otherwise
17
<PAGE>
dispose of the same. The President shall perform such other duties as
the Board of Directors, the Executive Committee, the Chairman or the Chief
Executive Officer may direct.
SECTION 7. CHIEF OPERATING OFFICER.
-----------------------
The Board of Directors may designate a Chief Operating Officer from
among the elected officers. Said officer shall have the responsibility and
duties as set forth by the Board of Directors, Executive Committee, the
Chairman, the Chief Executive Officer or the President.
SECTION 8. SENIOR EXECUTIVE VICE PRESIDENT AND EXECUTIVE VICE PRESIDENT.
------------------------------------------------------------
The Senior Executive Vice President or Senior Executive Vice Presidents
shall be vested with all the powers and perform all the duties of the President
in his absence. He or they may sign certificates of stock, and shall perform
such other duties as may be prescribed by the Board of Directors, the Executive
Committee, the Chairman, the Chief Executive Officer or the President. The
Executive Vice President or Executive Vice Presidents shall be vested with all
the powers and perform all of the duties of the Senior Executive Vice President
in his absence, and shall perform such other duties as may be prescribed by the
Board of Directors, the Executive Committee, the Chairman, the Chief Executive
Officer, or the President.
SECTION 9. SENIOR VICE PRESIDENT.
---------------------
The Senior Vice President or Senior Vice Presidents shall be vested
with all the powers and shall perform the duties of the Executive Vice
President or Executive Vice Presidents in his or their absence, and shall
perform such other duties as may be
18
<PAGE>
prescribed by the Board of Directors, the Executive Committee, the Chairman,
the Chief Executive Officer, or the President.
SECTION 10. VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS.
---------------------------------------------
The Vice Presidents and Assistant Vice Presidents shall be vested with
all the powers and shall perform the duties of the Senior Vice President or
Senior Vice Presidents in his or their absence, and shall perform such other
duties as may be prescribed by the Board of Directors, the Executive Committee,
the Chairman, the Chief Executive Officer or the President.
SECTION 11. CHIEF FINANCIAL OFFICER.
-----------------------
The Board may designate a Chief Financial Officer. Said officer shall
be responsible for the maintenance, supervision and control of the accounting
records of the Corporation and he shall be directly responsible for all
accounting and auditing activities procedures and such other responsibilities
and duties as prescribed by the Board of Directors, Executive Committee, the
Chairman, the Chief Executive Officer, or the President.
SECTION 12. TREASURER.
---------
The Treasurer shall perform such duties as may be assigned to him by
the Chief Financial Officer, the Board of Directors, the Executive Committee,
the Chairman, the Chief Executive Officer or the President.
SECTION 13. SECRETARY.
---------
The Secretary shall keep the minutes of the meetings of the
stockholders and of the Board of Directors, and shall attend to the giving and
serving of all notices of the Corporation required by law or these By-Laws. He
shall maintain at all times in the
19
<PAGE>
principal office of the Corporation at least one copy of the By-Laws with all
amendments to date, and shall make the same, together with the minutes of the
meetings of the stockholders, the annual statement of the affairs of the
Corporation and any voting trust agreement on file at the office of the
Corporation, available for inspection by any officer, director or stockholder
during reasonable business hours. He shall perform such other duties as may be
assigned to him by the Board of Directors, the Executive Committee, the
Chairman, the Chief Executive Officer or the President.
SECTION 14. CONTROLLER.
---------
The Controller shall perform such duties as assigned to him by the
Chief Financial Officer, the Board of Directors, the Executive Committee, the
Chairman, the Chief Executive Officer or the President.
SECTION 15. ASSISTANT TREASURER, ASSISTANT SECRETARY AND ASSISTANT CONTROLLER.
-----------------------------------------------------------------
The Assistant Treasurers, Assistant Secretaries, and Assistant
Controllers shall perform such duties as may from time to time be assigned to
them by the Treasurer, the Secretary, and the Controller, respectively, the
Board of Directors, the Executive Committee, the Chairman, the Chief Executive
Officer or the President.
SECTION 16. REMOVAL AND TERM OF CONTRACTS.
-----------------------------
The Board of Directors shall have the power at any regular or special
meeting to remove any officer and Board Officer, with or without cause, except
an officer holding a contract for a fixed term, and such action shall be
conclusive on the officer and Board Officer so removed. The Board may authorize
any officer to remove subordinate officers. The Board of Directors may
authorize the Corporation's
20
<PAGE>
employment of an officer or other employee for a period in excess of the term
of the Board.
SECTION 17. VACANCIES.
---------
The Board of Directors, at any regular or special meetings, shall have
the power to fill a vacancy occurring in any office (including an office held
by a Board Officer) for the unexpired portion of the term.
SECTION 18. SUBSTITUTES FOR OFFICERS.
------------------------
The Board of Directors may from time to time in the absence of any one
of said officers, or, at any other time, designate any other person or persons,
on behalf of the Corporation, to sign any contracts, deeds, notes or other
instruments in the place or stead of any of said officers, and may designate
any person to fill any one of said offices, temporarily or for any particular
purpose; and any instruments so signed in accordance with a resolution of the
Board shall be the valid act of this Corporation as fully as if executed by any
regular officer.
21
<PAGE>
ARTICLE IV. RESIGNATION
-----------------------
Any director or officer may resign his office at any time. Such
resignation shall be made in writing and shall take effect from the time of its
receipt by the Corporation, unless some time be fixed in the resignation, and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
22
<PAGE>
ARTICLE V. COMMERCIAL PAPER, ETC.
---------------------------------
All bills, notes, checks, drafts and commercial paper of all kinds to
be executed by the Corporation as maker, acceptor, endorser or otherwise and
all assignments and transfers of stock, contracts, deeds, mortgages, bonds or
other written obligations of the Corporation, and all negotiable instruments,
shall be made in the name of the Corporation and shall be signed by two
persons, or such greater or lesser number of persons, as may be designated by
the Board of Directors or Executive Committee.
23
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ARTICLE VI. STOCK
-----------------
SECTION 1. ISSUE
-----
All certificates of stock shall be signed by the Chairman, President or
Executive Vice President, and countersigned by the Secretary or Assistant
Secretary or Treasurer or Assistant Treasurer, and sealed with the seal of the
Corporation.
SECTION 2. TRANSFERS.
---------
No transfers of stock shall be recognized or binding upon the
Corporation until recorded on the books of the Corporation upon surrender and
cancellation of certificates for a like number of shares duly endorsed.
SECTION 3. FORM OF CERTIFICATES, PROCEDURES.
--------------------------------
The Board of Directors shall have power and authority to determine the
form of stock certificates (except in so far as prescribed by law), and to make
all rules and regulations, as they may deem expedient concerning the issue,
transfer and registration of said certificates, and to appoint one or more
transfer agents and/or registrars to countersign and register the same.
SECTION 4. RECORD DATES FOR DIVIDENDS AND STOCKHOLDERS MEETINGS.
----------------------------------------------------
The Board of Directors may fix the time, not exceeding twenty (20) days
preceding the date of any meeting of stockholders, or any dividend payment date
or any date for the allotment of rights, during which the books of the
Corporation shall be closed against transfers of stock, or the Board of
Directors may fix a date not exceeding ninety (90) days preceding the date of
any meeting of stockholders, or not exceeding sixty (60) days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled
24
<PAGE>
to notice of and to vote at such meetings, or entitled to receive such dividends
or rights, as the case may be, and only stockholders of record on such dates
shall be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case might be. In the case of a meeting of
stockholders the record date shall be fixed not less than ten (10) days prior
to the date of the meeting.
SECTION 5. LOST CERTIFICATE.
----------------
In case any certificate of stock is lost, mutilated, or destroyed, the
Board of directors may issue a new certificate in place thereof, under such
terms and conditions as the Board of Directors may deem advisable.
25
<PAGE>
ARTICLE VII. NOTICE
--------------------
SECTION 1. NOTICE TO STOCKHOLDERS.
----------------------
Whenever by law or these By-Laws, notice is required to be given to any
stockholder, such notice may be given to each stockholder by leaving the same
with him or at his residence or usual place of business, or by mailing it,
postage prepaid, and addressed to him at this address as it appears on the
books of the Corporation. Such leaving or mailing of notice shall be deemed the
time of giving such notice.
SECTION 2. NOTICE TO DIRECTORS AND OFFICERS.
--------------------------------
Whenever by law or these By-Laws, notice is required to be given to any
Director or Officer, such notice may be given in any one of the following ways:
by personal notice to such Director or Officer, by telephone communication with
such Director or Officer personally, by wire, addressed to such Director or
Officer at his then address or at his address as it appears on the books of the
Corporation, or by depositing the same in writing in the post office or in a
letter box in a postpaid, sealed wrapper addressed to such Director or Officer
at his then address or at his address as it appears on the books of the
Corporation; and the time when such notice shall be mailed or consigned to a
telegraph company for delivery shall be deemed to be the time of the giving of
such notice.
SECTION 3. WAIVER OF NOTICE.
----------------
Notice to any stockholder or director of the time, place and/or purpose
of any meeting of stockholders or directors required by these By-Laws may be
dispensed with if such stockholder shall either attend in person or by proxy,
or if such director shall, attend in person, or if such absent stockholder or
director shall, in writing filed
26
<PAGE>
with the records of the meeting either before or after the holding thereof,
waive such notice.
27
<PAGE>
ARTICLE VIII. VOTING OF STOCK IN OTHER CORPORATIONS
----------------------------------------------------
Any stock in other corporations, which may from time to time be held by
the Corporation, may be represented and voted at any meeting of stockholders of
such other corporations by the President or a Vice President or by proxy or
proxies appointed by the President or a Vice President, or otherwise pursuant
to authorization thereunto given by a resolution of the Board of Directors
adopted by a vote of a majority of the Directors.
28
<PAGE>
ARTICLE IX. MISCELLANEOUS PROVISIONS
-------------------------------------
SECTION 1. DISTRIBUTIONS.
-------------
Subject to any applicable provision of law and to any restriction in
the charter of the Corporation or in these By-Laws, the Board of Directors may
in its discretion authorize and declare dividends, and authorize other
distributions, by the Corporation to the stockholders and may also fix the
record date for determination of stockholders entitled to receive any such
dividend or other distribution and the date of payment of such dividend or the
making of such other distribution.
SECTION 2. FISCAL YEAR.
-----------
The fiscal year shall be January 1st to December 31st unless otherwise
provided by the Board of Directors.
SECTION 3. SEAL.
----
The seal of the Corporation shall be circular in form, denoting the
name of the Corporation along with the year incorporated and state of
incorporation. The seal impressed on the margin hereof being hereby adopted as
the corporate seal of the Corporation.
SECTION 4. NON-APPLICABILITY OF MARYLAND CONTROL SHARE ACT.
-----------------------------------------------
Any acquisition of shares of stock of the Corporation is, pursuant to Section
3-702(b) of the Maryland General Corporation Law (the "MGCL") (or any successor
or replacement provision or statute), hereby approved for purposes of, and
exempted from the provisions of, Subtitle 7 of Title 3 of the MGCL (or any
successor or replacement provision or statute).
29
<PAGE>
ARTICLE X. INDEMNIFICATION
--------------------------
To the maximum extent permitted by the Maryland General Corporation
Law, as from time to time amended, the Corporation shall indemnify its
currently acting and its former directors and any person who serves or has
served, at the request of the Corporation, as a trustee of any employee benefit
plan, against any and all liabilities and expenses incurred in connection with
their services in such capacities. The Corporation shall indemnify its
currently acting and its former officers to the same extent that it indemnifies
its currently acting and its former directors, and may indemnify its currently
acting and its former officers to such further extent as is consistent with
law. The Corporation may indemnify its employees and agents and any person who
serves or has served as a director, officer, partner, trustee, employee or
agent of a subsidiary of the Corporation, or at the request of the Corporation,
of another corporation, partnership, joint venture, trust or other enterprise
to the extent determined by the Board of Directors. The Corporation may also
advance expenses, to the extent permitted by the Maryland General Corporation
Law, to persons referred to in this Article. As used herein, the term
"subsidiary" shall mean any corporation of which a majority of the issued and
outstanding shares of voting stock was owned or controlled by the Corporation
at the time of the service to which the proposed indemnification relates, and
shall include all tiers of such subsidiaries.
30
<PAGE>
ARTICLE XI. AMENDMENTS
-----------------------
These By-Laws may be added to, altered, amended, repealed or suspended
by a majority vote of the entire Board of Directors at any regular meeting of
the Board or at any special meeting called for that purpose. Any action of the
Board of Directors in adding to, altering, amending, repealing or suspending
these By-Laws may be changed or rescinded at the annual meeting of stockholders
next following the date on which a report including such amendment has been
filed with the Securities and Exchange Commission by majority vote of all of
the stock outstanding and entitled to vote as of the record date for
determining stockholders entitled to vote at the meeting. In no event shall the
Board of Directors have any power to amend this Article.
31
EXHIBIT 10.1
ALEXANDER & ALEXANDER SERVICES INC.
1995 LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the 1995 Long-Term Incentive Plan (the "Plan") is to promote the
success of Alexander & Alexander Services Inc. (the "Company") by providing
incentives for certain key employees which will link their personal interest to
both the long term financial success of the Company and the growth of
stockholder value. The Plan is intended to enhance the Company's ability to
attract, retain and motivate qualified personnel upon whom, in large measure,
the progress, growth and profitability of the Company depends. The various
types of long-term incentive awards provided under the Plan will enable the
Company to respond to changes in compensation practices, tax laws, accounting
regulations, and the size and diversity of its businesses.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall have the meanings indicated
below unless the context clearly indicates otherwise:
(a)"AWARD" shall mean any grant of Stock, or of a right to receive
either Stock or an amount of cash calculated by reference to the
value of Stock, made under the Plan.
(b)"AWARD AGREEMENT" shall mean an agreement between a Participant and
the Company covering the specific terms and conditions of an Award.
(c) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company.
(d) "BONUS EQUITY PLAN" shall mean the program described in Section
6.4 of the Plan.
(e)"CODE" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
(f)"COMMITTEE" shall mean the committee appointed by the Board of
Directors to administer the Plan pursuant to Section 4.
(g) "COMPANY" shall mean Alexander & Alexander Services Inc.
(h)"DISABILITY" shall mean permanent disability within the meaning of
Section 22(e)(3) of the Code.
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(i)"INCENTIVE STOCK OPTION" shall mean an option to purchase Stock
granted under Section 6.1 of the Plan which is designated as an
Incentive Stock Option and is intended to meet the requirements of
Section 422 of the Code.
(j)"NONQUALIFIED STOCK OPTION" shall mean an option to purchase Stock
granted under Section 6.1 of the Plan which is not intended to be an
Incentive Stock Option.
(k)"OPTION" shall mean an Incentive Stock Option or a Nonqualified
Stock Option.
(l)"OPTION PERIOD" shall mean the period from the date of the grant of
an Option to the date when the Option expires as stated in the terms
of the Award Agreement.
(m)"OPTIONEE" shall mean a Participant who has been granted an option
to purchase shares of Stock under the provisions of the Plan.
(n)"OTHER STOCK BASED AWARDS" shall have the meaning specified in
Section 6.6 of the Plan.
(o) "PARTICIPANT" shall mean an employee who has an outstanding Award
granted under the Plan.
(p)"PERFORMANCE SHARE/UNIT" shall mean the grant of contingent shares
of Stock or units under Section 6.5 of the Plan.
(q)"PERFORMANCE AWARD" shall mean an Award granted under the
conditions specified in Section 7 of the Plan.
(r) "PLAN" shall mean the Alexander & Alexander Services Inc. 1995
Long-Term Incentive Plan, as it may be amended from time to time.
(s)"REPLACEMENT OPTION" shall mean an Option to purchase Stock granted
under Section 6.1(f) of the Plan.
(t)"RESTRICTED PERIOD" shall mean the period of time from the date of
grant of Restricted Stock to the date when the restrictions placed
on the Stock in the Award Agreement lapse.
(u)"RESTRICTED STOCK" shall mean an Award of Stock granted under
Section 6.3 or Section 6.4 of the Plan.
(v)"RETIREMENT" shall mean termination of employment with the Company
or any of its Subsidiaries at or after age 60 (or such earlier age
as the Committee shall determine) and pursuant to a retirement plan
of the Company or the Subsidiary.
(w) "STOCK" shall mean the Company's common stock, $1.00 par value per
share.
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(x)"STOCK APPRECIATION RIGHT" shall mean a right to receive an amount,
payable in cash or Stock or partly in cash and partly in Stock,
equal to the difference between the fair market value of the Stock
on the date the Award is exercised and the exercise price of the
Stock Appreciation Right as stated in the Award Agreement.
(y)"SUBSIDIARY" shall mean any corporation which at the time qualifies
as a subsidiary of the Company under the definition of "subsidiary
corporation" in Section 424(f) of the Code.
(z)"TERMINATION OF EMPLOYMENT" shall be deemed to have occurred at the
close of business on the last day on which a Participant is carried
as an active employee on the records of the Company or any of its
Subsidiaries.
SECTION 3. STOCK SUBJECT TO THE PLAN
3.1 Authorized Stock
Subject to adjustment as provided in this Section 3, the aggregate
number of shares of Stock that may be delivered under the Plan shall
not exceed the sum of (a) 4,700,000 plus (b) the number of shares
remaining available for issuance on the effective date of the Plan
under the Company's 1988 Long-Term Incentive Compensation Plan (the
"Predecessor Plan") plus (c) the lesser of (i) 2,000,000 shares of
Stock or (ii) the number of shares of Stock received by the Company
after the effective date of the Plan upon exercise of any Option,
whether issued under the Plan or the Predecessor Plan. No more than
940,000 shares shall be issued as Restricted Stock under Sections 6.3
and 6.4 of the Plan. The exercise of a Stock Appreciation Right,
whether paid in cash or Stock, shall be deemed to be an issuance of
Stock under the Plan. The payment of Performance Share/Unit and Other
Stock Based Awards shall not be deemed to constitute an issuance of
Stock under the Plan unless payment is made in Stock, in which case
only the number of shares issued in payment of the Performance
Share/Unit or Other Stock Based Awards shall constitute an issuance of
Stock under the Plan.
3.2 Effect of Expirations
Except as otherwise provided in Section 3.1, in the event that (a) any
Award granted under the Plan or (b) any Award granted under the
Predecessor Plan and outstanding on the effective date of the Plan,
shall expire or terminate for any reason, including by reason of its
reacquisition (through a purchase, exchange, surrender or otherwise)
and cancellation by the Company, or if the amount of Stock subject to
an Award or to be delivered upon exercise of an Award is reduced for
any reason whatsoever, the Stock no longer subject to such Award shall
be available to be reawarded under the Plan.
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3.3 Adjustments in Authorized Shares
In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up,
share combination, or other change in the corporate structure of the
Company affecting the Stock, the number and class of shares which may
be delivered under the Plan, and the number and class of and/or price
of shares subject to outstanding Awards granted under the Plan shall be
adjusted in a manner determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement
of rights; and provided that the number of shares subject to any Award
shall always be a whole number. Any adjustment of an Incentive Stock
Option under this paragraph or paragraph 3.4 shall be made in such a
manner so as not to constitute a "modification" within the meaning of
Section 424(h)(3) of the Code.
3.4 Adjustment for Purposes of Tender Offers
In the event of the offer to holders of Stock generally relating to the
acquisition of their shares, the Committee may make such adjustment as
it deems appropriate and equitable in respect of outstanding Awards so
that they may be exercisable for or payable in the consideration
payable in the acquisition transaction. Any adjustment of an Incentive
Stock Option under this paragraph shall be made in such a manner so as
not to constitute a "modification" within the meaning of Section
424(h)(3) of the Code.
SECTION 4. ADMINISTRATION
4.1 The Committee
The Plan shall be administered by a committee (the "Committee")
consisting of not less than two directors who shall be appointed from
time to time by, and shall serve at the discretion of, the Board of
Directors. A director may serve on the Committee only if he or she has
not received an Award under the Plan or any similar plan of the Company
or any of its Subsidiaries for at least one year before his or her
appointment and otherwise satisfies the definition of a "disinterested
person" for purposes of Rule 16b-3 under the Securities Exchange Act of
1934, as amended.
4.2 Authority of the Committee
Subject to the provisions of the Plan, the Committee shall have full
power to construe and interpret the Plan; to establish, amend or waive
rules and regulations for its administration; to accelerate the
exercisability of any Award or the end of a performance period or the
termination of any Restricted Period under an Award; to correct errors,
omissions or inconsistencies in the Plan or in any Award Agreement, or
any other instrument relating to an Award under the Plan, and (subject
to the provisions of Section 8) to amend the terms and conditions of
any outstanding Award to the extent such terms and conditions are
within the discretion of the Committee as provided in the Plan. The
Committee's decisions and all related orders or resolutions of the
Board of Directors with respect to the interpretation and
administration of the Plan shall be final, conclusive and binding on
all persons, including the Company, its stockholders, employees,
Participants and their estates and beneficiaries. Notwithstanding the
foregoing, no action of the Committee may, without the consent of the
person or persons entitled to exercise or receive payment of any other
outstanding Award, adversely affect the rights of such person or
persons.
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No member of the Committee shall be liable, in the absence of bad
faith, for any act or omission with respect to his or her services on
the Committee. Service on the Committee shall constitute service as a
director of the Company so that members of the Committee shall be
entitled to indemnification, any limitation of liability and
reimbursement as directors with respect to their services as members of
the Committee.
4.3 Selection of Participants
The Committee shall have the authority to grant Awards under the Plan
from time to time to any employee of the Company and any of its
Subsidiaries (including officers and directors who are employees)
selected by the Committee. Except as otherwise provided in Section
6.4(b), the Committee shall select Participants from among employees
identified by the Company as eligible to participate in the Plan.
4.4 Delegation of Certain Responsibilities
The Committee may, in its sole discretion, delegate to appropriate
officers of the Company the administration of the Plan under this
Section 4; provided, however, that no such delegation by the Committee
shall be made (i) if such delegation would not be permitted under
applicable law or (ii) with respect to the administration of the Plan
as it affects executive officers or directors of the Company, and
provided further that the Committee may not delegate its authority to
correct errors, omissions or inconsistencies in the Plan. Subject to
the above limitations, the Committee may delegate to the Chief
Executive Officer of the Company its authority under this Section 4 to
grant Awards to employees who are not executive officers or directors
of the Company. All authority delegated by the Committee under this
Section 4.4 shall be exercised in accordance with the provisions of the
Plan and any guidelines for, conditions on, or limitations to the
exercise of such authority that may from time to time be established by
the Committee.
4.5 Award Agreements
Each Award under the Plan shall be evidenced by an Award Agreement
which shall be signed by an officer of the Company and by the
Participant, and shall contain such terms and conditions as may be
approved by the Committee, which need not be the same in all cases. Any
Award Agreement may be supplemented or amended in writing from time to
time as approved by the Committee, provided that the terms of such
agreements as amended or supplemented, as well as the terms of the
original Award Agreement, are not inconsistent with the provisions of
the Plan.
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Nothing contained in the Plan or any resolutions adopted or to be
adopted by the Board of Directors or by the stockholders of the Company
shall constitute the granting of an Award under the Plan. An employee
who receives an Award under the Plan shall not, with respect to such
Award, be deemed to have become a Participant and/or an Optionee, or to
have any rights with respect to such Award, unless and until such
employee has executed an Award Agreement or other instrument evidencing
the Award and shall have delivered an executed copy thereof to the
Company, and has otherwise complied with the applicable terms and
conditions of the Award.
SECTION 5. ELIGIBILITY
Except with respect to Awards under Section 6.4 (the Bonus Equity Plan), all
officers of the Company and each other employee of the Company and its
Subsidiaries who are expected to contribute substantially to the growth and
profitability of the Company and its Subsidiaries are eligible to receive
Awards under the Plan. Eligibility criteria for participation in the Bonus
Equity Plan are specified in Section 6.4(b).
SECTION 6. AWARDS UNDER THE PLAN
Any Award granted under the Plan may be made either alone or in conjunction
with any other type of Award which may be granted under the Plan; provided that
an Optionee shall not be granted Options for more than 1,000,000 shares of
Stock in any twelve month period.
6.1 Stock Option Awards
(a)Option Price - The purchase price per share of Stock covered by an
Option shall be determined by the Committee but shall not be less
than 100% of the fair market value of such Stock on the date the
Option is granted. Such fair market value shall be determined by the
Committee, which may use any reasonable valuation method. An
Incentive Stock Option granted to any person who, at the time the
Option is granted, owns (within the meaning of Section 424(d) of the
Code) stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or any
Subsidiary, shall have an exercise price which is at least 110% of
the fair market value of the Stock subject to the Option.
(b)Option Period - The Option Period shall be determined by the
Committee, but no Incentive Stock Option shall be exercisable later
than ten years from the date of grant and no Nonqualified Stock
Option shall be exercisable later than ten years and one day from
the date of grant. Notwithstanding the foregoing, in the case of an
Optionee owning (within the meaning of Section 424(d) of the Code),
at the time an Incentive Stock Option is granted, more than 10% of
the total combined voting power of all classes of stock of the
Company or any Subsidiary, such Incentive Stock Option shall not be
exercisable later than five years from the date of grant.
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(c)Limitation on Amount of Incentive Stock Options - Subject to the
overall limitations of Section 3 (relating to the aggregate amount
of Stock subject to the Plan), the aggregate fair market value
(determined as of the time the Option is granted) of Stock with
respect to which Incentive Stock Options are exercisable for the
first time by a Participant during any calendar year under the Plan
(and all other incentive stock option plans of the Company, any
Subsidiary or any parent corporation) shall not exceed $100,000. In
no event, however, shall an acceleration of exercisability pursuant
to the terms of the Plan operate to reduce or limit the number of
shares which may be exercised pursuant to such Incentive Stock
Options. Shares in excess of the $100,000 limit described herein
which become exercisable as a result of acceleration shall be
treated as shares subject to a Nonqualified Stock Option.
(d)Exercisability - An Option shall become exercisable at such time or
times as determined by the Committee at or subsequent to grant.
(e) Method of Exercise
(i) In order to exercise an Option under the Plan, the Optionee or
other person(s) entitled to exercise the Option shall give
written notice of exercise to the Company specifying the number
of full shares to be purchased. Such notice shall be accompanied
either by (A) payment in full (in such form as provided in this
Section 6.1(e)) for the Stock being purchased plus, in the case
of Nonqualified Stock Options, any required withholding tax as
provided in Section 9 or (B) delivery of a properly executed
notice together with irrevocable instructions to a securities
broker to deliver promptly to the Company the amount of sale or
loan proceeds.
(ii) Unless the Committee shall in its sole discretion determine
otherwise, payment in full or in part may be made by tendering
to the Company Stock owned by the Optionee (or by the Optionee
and his or her spouse, jointly) and acquired more than six
months prior to such tender. The amount of Stock tendered in
payment shall have a fair market value equal to the aggregate
purchase price of the number of full shares covered by the
Option to be purchased, such fair market value to be determined
in any reasonable manner as may be provided for from time to
time by the Committee or as may be required to order to comply
with or to conform to the requirements of any applicable or
relevant laws or regulations.
(iii)The Committee in its sole discretion may permit payment in full
or in part to be made by tendering Restricted Stock awarded under
Section 6.4 of the Plan at least six months prior to such
tender. The value of such Restricted Stock shall be specified by
the Committee at the time it agrees to accept it in payment;
provided that, if no value is specified by the Committee, the
value of the Restricted Stock tendered shall be calculated in
accordance with subparagraph 6.1(e)(ii).
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(iv)If the exercise price of an Option is paid by delivery of
Restricted Stock awarded under Section 6.4, then the shares
issued upon exercise of the Option shall also be Restricted
Stock and shall remain so for the remainder of the restricted
period applicable to the shares of Restricted Stock tendered in
payment.
(f)Replacement Options -- At the time an Option is granted or upon the
exercise of an Option granted under the Plan, the Committee may, at
its sole discretion, authorize the issuance of or grant to the
Optionee a Replacement Option. A Replacement Option shall be
authorized or granted only if Stock or Restricted Stock is tendered
in payment of the exercise price of the Option. The Replacement
Option shall permit the Optionee to purchase a number of shares of
Stock equal to the number of shares of Stock tendered in payment of
the exercise price of the Option, and, if applicable, in
satisfaction of any withholding taxes due upon exercise of the
Option. The exercise price of the Replacement Option shall be equal
to the fair market value of the Stock on the date the original
Option is exercised, and, subject to the other provisions contained
herein, may contain such terms as the Committee shall determine
(including the date or dates on which the Option shall become
exercisable and the length of the Option Period).
(g)Termination of Employment - Unless otherwise specified by the
Committee at or subsequent to the grant, an Option may be exercised
after an Optionee's Termination of Employment only with respect to
the number of shares of Stock (subject to adjustment as provided in
Section 3.3 or 3.4) which the Optionee could have acquired by an
exercise of the Option immediately prior to the Termination of
Employment, but in no event after the expiration date of the Option
as specified in the applicable Award Agreement. Except to the extent
otherwise provided by the Committee, an Optionee's right to exercise
any Option following Termination of Employment shall terminate:
(i) At the expiration of three months (Incentive Stock Options) or
three years (Nonqualified Stock Options) after the Optionee's
Retirement; provided, however, if an Incentive Stock Option is
not exercised within three months of the Optionee's Termination
of Employment, it will be treated as a Nonqualified Stock Option
for purposes of the Plan when it is exercised; or
(ii) At the expiration of one year (Incentive Stock Options) or
three years (Nonqualified Stock Options) following a finding
that the Optionee has a Disability; the determination of the
Committee on any question involving disability to be conclusive
and binding; or
(iii)At the expiration of one year after the Optionee's death if the
Optionee's Termination of Employment occurs by reason of death
or if the Optionee had the right to exercise an Option on the
date of death pursuant to subparagraph (i) of this Section
6.1(g). Any Option exercised under this subparagraph (iii) may
be exercised in full by the legal representative of the estate
of the Optionee or by the person or persons who acquire the
right to exercise such Option by bequest or inheritance; or
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(iv)Thirty days following the Optionee's Termination of Employment
for any other reason, except that, if such Termination of
Employment would constitute "discharge", as defined in the
Company's Severance Benefit Plan (as in effect on the effective
date of the Plan), the Optionee's right to exercise any Option
shall end immediately upon such Termination of Employment.
(h) The person or persons entitled to exercise, or who have
exercised, an Option shall not be entitled to any rights as a
stockholder of the Company with respect to any shares subject
to the Option until such person or persons shall have become
the holder of record of such shares.
6.2 Stock Appreciation Right Awards
(a)Grants - Stock Appreciation Rights may be awarded alone or in
conjunction with all or part of any Option granted under the Plan.
The Committee, in its sole discretion, shall establish all terms of
a stand-alone Stock Appreciation Right, including its exercise price
and expiration date and any other terms the Committee believes
appropriate at the time of grant.
Awards of Stock Appreciation Rights in conjunction with Options
shall be made as follows:
(i) In the case of a Nonqualified Stock Option, such rights may be
granted either at the time the Option is granted or at any
subsequent time during the term of the Option; and
(ii)In the case of an Incentive Stock Option, such rights may be
granted only at the time the Option is granted.
(b)Terms and Conditions - Stock Appreciation Rights awarded in
conjunction with an Option shall be subject to all terms and
conditions of the Option. In addition, all Stock Appreciation Rights
shall be subject to the following terms and conditions, and may
contain additional terms and conditions, not inconsistent with the
Plan, as the Committee shall determine:
(i) Price and Fair Market Value - The purchase price per share of
Stock subject to a Stock Appreciation Right shall be determined
by the Committee at the time of grant. Both the purchase price
and the fair market value of Stock on the date of exercise of a
Stock Appreciation Right shall be determined by the Committee in
the manner specified in Section 6.1(a) with respect to Options.
(ii)Exercisability - Stock Appreciation Rights awarded in
conjunction with an Option shall be exercisable only to the
extent that the Option is exercisable and shall terminate and
shall no longer be exercisable upon the expiration or exercise
of the related Option. Stock Appreciation Rights not granted in
conjunction with an Option shall be exercisable as specified by
the Committee at or subsequent to the date of grant. However, no
Stock
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Appreciation Right or any related Option may be exercised
until at least 6 months after the date of grant, except that
this limitation shall not apply in the event of the death or
Disability of the Participant prior to the expiration of the
6-month period.
(iii) Termination of Employment - Except as otherwise provided by
the Committee at the time a Stock Appreciation Right is awarded,
the right to exercise a Stock Appreciation Right shall terminate
as specified in Section 6.1(g) of the Plan as if the Stock
Appreciation Right were a Non-Qualified Stock Option.
(c)Method of Exercise - A Stock Appreciation Right awarded in
conjunction with an Option may be exercised by the Optionee
surrendering the applicable portion of the related Option. Options
which have been so surrendered, in whole or in part, shall no longer
be exercisable to the extent the related Stock Appreciation Right
has been exercised. Upon the exercise of any Stock Appreciation
Right, a Participant shall be entitled to receive an amount, in cash
or whole shares of Stock or partly in cash and partly in Stock (as
determined by the Committee in its sole discretion), equal to the
amount by which the fair market value of one share of Stock
(determined by the Committee as if the Stock Appreciation Right were
a Non-Qualified Option) exceeds the exercise price per share
specified in the Award, multiplied by the number of shares in
respect of which the Stock Appreciation Right has been exercised.
Shares of Stock delivered to the Participant upon exercise of a
Stock Appreciation Right, if any, shall be valued at their fair
market value (determined as specified in Section 6.1(a) above) on
the date of exercise.
(d)Limited Stock Appreciation Rights - Notwithstanding anything else
in this Section 6.2 to the contrary, the Committee may grant Stock
Appreciation Rights which (i) become exercisable solely upon the
occurrence of a Change of Control as defined in Section 9.12 hereof
and which remain exercisable for a specified period of time (not
exceeding 90 days) following such Change of Control, and (ii)
provide that upon exercise, the amount payable to the holder thereof
may be based upon either (A) the fair market value of a share of
Stock (determined as specified in Section 6.1(a) above) or (B) the
highest price per share paid in any transaction reported on the New
York Stock Exchange Composite Index, or paid or offered in any bona
fide transaction related to a Change of Control, at any time during
the 60 day period immediately preceding the occurrence of the Change
of Control, in each case as determined by the Committee except that,
in the case of any such Stock Appreciation Right relating to an
Incentive Stock Option, the amount payable shall be based solely on
the fair market value of a share of Stock.
6.3 Restricted Stock Awards
(a)Restricted Period - Except as otherwise specified by the Committee,
the Restricted Period shall commence on the date of grant of the
Award and shall expire 3 years thereafter. During the Restricted
Period, the Participant shall not sell, transfer, pledge, assign or
otherwise dispose of shares of Stock subject to
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a Restricted Stock Award. Any attempt by the Participant to sell,
transfer, pledge, assign or otherwise dispose of such Stock shall
constitute immediate forfeiture of such Award.
(b)Rights of Participant - Except as provided in paragraph (a) of this
Section 6.3, the Participant shall have, with respect to the shares
subject to the Restricted Stock Award, all the rights of a
stockholder of the Company, including the right to vote the shares
and the right to receive all dividends and other distributions with
respect to such shares, provided that the Participant has become the
holder of record of such shares. In the event of any adjustment as
provided in Section 3.3 or 3.4 or any securities received as a
dividend on the Award shares, such new or additional shares or
securities shall be subject to the same terms and conditions as
relate to the original Restricted Stock Award.
(c)Lapse of Restrictions - At the conclusion of the Restricted Period,
the restrictions on the Restricted Stock Award shall lapse,
whereupon the Company shall, subject to the provisions of Section
9.3 or 9.5, promptly deliver to the Participant a stock certificate
evidencing those shares.
(d)Termination of Employment - Except as otherwise provided by the
Committee either at the time the Restricted Stock Award is granted
or thereafter, the Restricted Period shall end and any other
restrictions specified in the Award Agreement shall automatically be
removed upon the Participant's Termination of Employment by reason
of death, Disability or Retirement during the Restricted Period. In
the event of the Participant's Termination of Employment during the
Restricted Period for any other reason, the Participant's rights to
the shares subject to the Restricted Stock Award shall be forfeited
and all such shares shall immediately be surrendered to the Company.
6.4 Bonus Equity Plan
(a)Grants - Awards will be made in the form of Restricted Stock, based
on a percentage of the cash incentive compensation otherwise payable
to a Participant under any incentive compensation plans, programs or
arrangements of the Company or any Subsidiary, and will be granted
at such time as the Committee may in its sole discretion determine
("BEP Awards"). The percentage of incentive compensation used to
determine the size of BEP Awards will be determined by a formula or
formulas approved by the Committee.
(b)Eligibility - Officers and other key employees of the Company or
any of its Subsidiaries who are entitled to receive cash incentive
compensation shall be eligible to receive Awards under this Section
6.4. The Committee shall, in its sole discretion, select
Participants to receive BEP Awards from among those officers and
employees who are entitled to receive cash incentive compensation
and who (i) are nominated to participate in the Bonus Equity Plan by
the Company or (ii) voluntarily elect to participate. Participation
in the Bonus Equity Plan by Participants nominated by the Company
shall be mandatory upon approval by the Committee.
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(c)Amount - The number of shares of Restricted Stock subject to a BEP
Award will be calculated by valuing the Stock at not less than 75%
of its fair market value ("BEP Value"). For purposes of this Section
6.4, the BEP Value shall be determined by the Committee based on the
average of the Stock's closing prices on the Composite Tape of the
New York Stock Exchange for the five trading days prior to the date
of the Award. The dollar value of each Participant's specified
percent of cash incentive compensation to be subject to a BEP Award
(determined by formulas approved by the Committee) will be divided
by the BEP Value to determine the number of whole shares of
Restricted Stock subject to each BEP Award. The value of any
fractional shares will be paid in cash.
(d)Form - Each Participant who receives a BEP Award may, but need not,
be issued a stock certificate in respect of such shares of
Restricted Stock. A "book entry" (i.e., a computerized or manual
entry) may instead be made in the records of the Company to evidence
a Participant's BEP Award. Such Company records shall, absent
manifest error, be binding on all Participants.
(e)Restrictions - The shares of Restricted Stock subject to a BEP
Award shall be subject to the following restrictions and conditions:
(i) Except as otherwise specified by the Committee either at the
time of grant or thereafter, the Restricted Period shall be
three years from the date a BEP Award is granted. During the
Restricted Period, except as provided in Section 6.1(e) of the
Plan, the Participant shall not sell, transfer, pledge, assign
or otherwise dispose of such shares and any attempt by a
Participant to do so shall constitute immediate forfeiture of
the BEP Award.
(ii)Unless the Committee in its sole discretion shall determine
otherwise at or prior to the time a BEP Award is granted, during
the Restricted Period the Participant shall have all such rights
with respect to shares of Restricted Stock granted under this
Section 6.4 as are specified in Section 6.3(b) with respect to
other shares of Restricted Stock.
(f)Lapse of Restrictions - At the conclusion of the Restricted Period,
the restrictions on the BEP Award shall lapse and the Participant
shall thereafter have the right to sell or otherwise transfer the
BEP Award Shares.
(g)Termination of Employment - Except as otherwise provided by the
Committee either at the time of grant or thereafter, the Restricted
Period shall end and any other restrictions specified in the BEP
Award Agreement shall automatically be removed upon the
Participant's Termination of Employment by reason of death,
Disability or Retirement during the Restricted Period. In the event
of the Participant's Termination of Employment during the Restricted
Period for any other reason, unless the Committee shall otherwise
determine, the Participant's rights to the shares subject to the BEP
Award shall be forfeited and all such shares shall immediately be
surrendered to the Company.
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<PAGE>
6.5 Performance Share/Unit Awards
(a)Grants - Performance Share/Unit Awards granted under the Plan shall
be in such form as the Committee may from time to time approve,
subject to the terms and conditions of this Section 6.5 and may
contain any terms and conditions (which terms and conditions need
not be the same in each case), not inconsistent with the Plan, as
the Committee shall deem desirable.
(b)Performance Period - The Committee shall, at the time of grant,
establish a performance period for the Award. Such period shall
commence and end on the dates specified by the Committee.
Notwithstanding the above, the Committee may, in its sole
discretion, accelerate the end of a performance period.
(c)Performance Criteria and Valuation - The Committee shall, at the
time of grant, establish performance criteria with respect to the
Performance Share/Unit Award. These performance criteria may include
any measures of performance of the Company or its Subsidiaries or
such other criteria as the Committee shall select. At the end of the
performance period established by the Committee pursuant to Section
6.5(b), the Committee shall evaluate actual performance during such
performance period compared to the performance criteria established
for the Award, and shall determine the value, if any, of the
Performance Share/Unit Award and the amount payable in respect
thereof.
(d)Dividends and Interest - Subject to the provisions of the Plan and
the Award Agreement, a Participant who receives a Performance Share
Award under this Section 6.5 shall be entitled to receive, currently
or on a deferred basis, interest or dividends, or interest or
dividend equivalents, with respect to the number of shares of Stock
covered by the Award, as determined at the time of the Award by the
Committee in its sole discretion, and the Committee may provide that
such amounts (if any) shall be deemed to have been reinvested in
additional Stock or otherwise been reinvested.
(e)Payment - Payment shall be made in cash or in Stock having a fair
market value on the date of payment (determined by the Committee
using any reasonable valuation method) equal to the amount payable,
or partly in cash and partly in Stock, as determined by the
Committee. No fractional shares of Stock will be issued.
(f) Termination of Employment
(i) If a Participant's employment terminates during the performance
period specified in the Award Agreement by reason of death,
Disability or Retirement, any payment to the Participant, or to
the Participant's estate or to those person(s) who acquire the
right to receive such payment by bequest or inheritance, shall
be determined by the Committee at the end of that performance
period based on the criteria established under Section 6.5(c).
Any such payment shall be prorated to reflect the period of time
the Participant was employed during the performance period.
Notwithstanding the above, the Committee, in its sole
discretion, may accelerate
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<PAGE>
such payment by taking into consideration the extent to
which the performance criteria were achieved at the time
of the Termination of Employment.
(ii)In the event the Participant's Termination of Employment occurs
prior to the end of the specified performance period for any
reason other than those specified in Section 6.5(f)(i), the
Participant's right to the Performance Share/Unit Award shall be
forfeited as of the date of his or her Termination of
Employment, except that the Committee may, in its sole
discretion, make provisions for payment, if any, as it deems
appropriate.
6.6 Other Stock Based Awards
(a)Grants - Awards of Stock and Awards that are valued in whole or in
part by reference to, or are otherwise based on, Stock ("Other Stock
Based Awards") may be granted under the Plan. The provisions of
Other Stock Based Awards need not be the same in each case. The
Committee, in its sole discretion, may grant Other Stock Based
Awards as it deems appropriate (i) to take advantage of the
compensation practices or tax and accounting regulations applicable
at the time of the grant, even if such practices or regulations are
different from those in effect on the effective date of the Plan and
(ii) to conform to and comply with tax, securities or other law or
regulations in jurisdictions outside the United States.
(b)Terms and Conditions - Other Stock Based Awards made pursuant to
this Section 6.6 shall be subject to the following terms and
conditions:
(i) Subject to the provisions of the Plan and the Award Agreement, a
Participant who receives an Award under this Section 6.6 shall
be entitled to receive, currently or on a deferred basis,
interest or dividends, or interest or dividend equivalents, with
respect to the number of shares of Stock covered by the Award,
as determined at the time of the Award by the Committee in its
sole discretion, and the Committee may provide that such amounts
(if any) shall be deemed to have been reinvested in additional
Stock or otherwise been reinvested.
(ii)Any Award under this Section 6.6 and any Stock covered by any
such Award may be forfeited to the extent so provided in the
Award Agreement as determined by the Committee in its sole
discretion.
(c)Termination of Employment - Unless otherwise specified by the
Committee, all Other Stock Based Awards granted under this Section
6.6 will be forfeited upon the Participant's Termination of
Employment, except that, in the event the Participant's Termination
of Employment occurs by reason of death, Retirement or Disability,
the Committee may, in its sole discretion, waive any or all of the
remaining limitations, restrictions or requirements, if any, imposed
pursuant to the Plan or in the applicable Award Agreement.
14
<PAGE>
SECTION 7. PERFORMANCE AWARDS
7.1 Performance Objectives.
(a)Notwithstanding anything else in the Plan to the contrary, unless
the Committee otherwise determines at the time of grant, any Award
(other than an Option or a Stock Appreciation Right) intended to
qualify as "other performance based compensation" within the meaning
of Section 162(m)(4)(C) of the Code, including Performance Shares,
Performance Units or Other Stock Based Awards, granted to an officer
who is (i) subject to the reporting requirements of Section 16(a) of
the Securities Exchange Act of 1934, as amended, and (ii) whose
compensation is deductible under the Code in the United States,
shall become vested, if at all, only upon the determination by the
Committee that performance objectives established by the Committee
have been attained, in whole or in part. An Award subject to such a
determination by the Committee shall be known as a Performance
Award.
(b)Performance objectives for Performance Awards shall be determined
over a measurement period or periods established by the Committee
and shall relate to at least one of the following criteria: (i)
operating margin (operating income divided by operating revenues);
(ii) operating income; (iii) income before income taxes and minority
interest, (iv) return on equity; and (v) earnings per share, as such
criteria may relate to the performance of (A) the Company, (B) a
Subsidiary, (C) a division or unit of any of the foregoing or (D)
any of the foregoing compared to that of other companies or of each
other (the "Performance Criteria").
(c)The maximum number of shares of Stock that may be subject to any
Performance Award in any 12 month period shall not exceed 500,000
shares, as such number may be adjusted pursuant to Section 3.
7.2 Annual Incentive Compensation.
The Committee may, in addition to the Performance Awards described
above, pay cash amounts under the Plan to any officer of the Company or
of any Subsidiary described in Section 7.1(a) above upon the
achievement, in whole or in part, of performance goals or objectives
established in writing by the Committee with respect to such
performance periods as the Committee shall determine. Any such goals or
objectives shall be based on one or more of the Performance Criteria.
Notwithstanding anything else contained herein to the contrary, the
maximum amount of such cash payment to any single officer with respect
to any 12 month period shall not exceed the lesser of (A) $3,000,000 or
(B) three times the officer's annual base salary as in effect on the
last day of the fiscal year preceding the calendar year in which such
cash payment is made.
7.3 Interpretation.
Notwithstanding anything else in the Plan to the contrary, to the
extent required to qualify any Performance Award as "other performance
based compensation" within
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the meaning of Section 162(m) (4) (C) of the Code, the Committee
shall not be entitled to exercise any discretion otherwise authorized
under the Plan (such as the right to accelerate vesting without regard
to the achievement of the relevant performance objectives) with
respect to such Performance Award if the ability to exercise such
discretion (as opposed to the exercise of such discretion) would cause
such award to fail to qualify as other performance based compensation.
SECTION 8. AMENDMENTS AND TERMINATION
8.1 The Board of Directors may terminate, suspend, amend or alter the Plan,
but no such action may impair or adversely affect the rights of a
Participant under an Option or other Award theretofore granted, without
the Participant's consent, other than as provided in Section 9.12. In
addition, no amendment shall become effective without the approval of
stockholders if such amendment would
(i) Increase the amount of Stock which may be issued under the Plan
(except as authorized in accordance with Section 3 of the Plan)
in a manner that would require stockholder approval for the Plan
to continue to qualify for the exemption available under Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the
"1934 Act");
(ii) Permit the grant of Options with an exercise price which is
less than the fair market value of the Stock on the date of
grant;
(iii)Expand the class of eligible participants in the Plan to
include any member of the Company's Board of Directors who is
not also an employee of the Company or one of its Subsidiaries;
(iv) Extend the duration of Awards to a period greater than that
permitted under Section 9.13;
(v) Modify any provision of the Plan in a manner that would cause
compensation payable pursuant to any Award to fail to be
deductible for U.S. federal income tax purposes if such
compensation is (x) intended to pay compensation qualifying as
other performance based compensation under Section 162(m) of the
Code and (y) granted to an executive officer who is subject to
the reporting requirements under Section 16(a) of the 1934 Act
and whose compensation is deductible by the Company or a
Subsidiary under U.S. tax law; or
(vi) Extend the period during which Awards under the Plan may be
granted past the date specified in Section 12.
8.2 In granting an Award, the Committee may establish any conditions that
it determines are consistent with the purposes and provisions of the
Plan, including, without limitation, a condition that the granting of
an Award is subject to the surrender for cancellation of any or all
outstanding Awards held by the Participant. Any new Award made under
this section may contain such terms and conditions as
16
<PAGE>
the Committee may determine, including an exercise price that is lower
than that of any surrendered Option or Stock Appreciation Right.
8.3 Any amendment or alteration of the Plan may be limited to, or may
exclude from its effect, particular Participants or particular groups
of Participants.
SECTION 9. GENERAL PROVISIONS
9.1 Unfunded Status of Plan - The Plan is intended to constitute an
"unfunded" plan for incentive compensation, and is not intended to be
subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Stock or payments with
respect to Options, Stock Appreciation Rights and/or other Awards
hereunder, provided, however, that the existence of such trusts or
other arrangements is consistent with the unfunded status of the Plan.
9.2 Transfers, Leaves of Absence and Other Changes in Employment Status -
For purposes of the Plan:
(a) A transfer of an employee from the Company to a Subsidiary, or
vice versa, or from one Subsidiary to another; or
(b)A leave of absence, duly authorized in writing by the Company, for
military service or sickness, or for any other purpose approved by
the Company if the period of such leave does not exceed ninety days;
or
(c)Any leave of absence in excess of ninety days approved by the
Company, provided the employee's right to reemployment is guaranteed
either by a statute or by contract;
shall not be deemed a Termination of Employment. The Committee, in its
sole discretion, shall determine the disposition of all Awards made
under the Plan in all cases involving any substantial change in
employment status other than as specified herein.
9.3 Distribution of Stock - The Committee may require Participants
receiving Stock in connection with any Award under the Plan to
represent to and agree with the Company in writing that the Participant
is acquiring the shares for investment without a view to distribution
thereof. The certificates for such shares may include any legend which
the Committee deems appropriate to reflect any restrictions on
transfer.
9.4 Limits on Transfer - Subject to the provisions of the Plan and the
Award Agreement, and except as provided in Section 6.1(e) with respect
to BEP Awards, no Award
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<PAGE>
may be sold, transferred, pledged, assigned, encumbered or otherwise
alienated or hypothecated, other than by will, by the laws of descent
and distribution or to a member of the Participant's family or to a
trust or similar vehicle for the benefit of such family members to
whom or to which the Committee shall permit an Award to be transferred
upon such terms and conditions as the Committee shall establish.
9.5 Stop Transfer Orders/Restrictions - All certificates for shares of
Stock delivered under the Plan pursuant to any Restricted Stock Award,
BEP Award or Other Stock Based Award shall be subject to such
stop-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the
Stock is then listed, and any applicable Federal, state or foreign
securities law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such
restrictions.
9.6 Payment for Restricted Stock, BEP, Performance Share/Unit, or Other
Stock Based Awards - Except as otherwise required in the applicable
Award Agreement, recipients of Awards under the Plan (other than
Options) shall not be required to make any payment or provide
consideration for the receipt of such Awards, other than the rendering
of services.
9.7 Other Compensation Plans - Nothing contained in the Plan shall prevent
the Board of Directors from adopting other compensation arrangements,
subject to stockholder approval if such approval is required.
9.8 Grants Under Predecessor Plan - Subject to the approval of the Plan by
stockholders at the Company's 1995 Annual Stockholders' Meeting, the
provisions of the Plan shall apply to, and govern, existing and
subsequent awards under the Predecessor Plan (as defined in Section
3.1) and, unless otherwise determined by the Committee, existing and
subsequent awards under the Predecessor Plan shall be deemed to be
amended to provide any additional rights applicable to Awards
hereunder, subject to the right of any affected participant in the
Predecessor Plan to refuse to consent to such amendment.
9.9 Subsidiary Plans - The Committee may approve or adopt incentive
compensation plans under the Plan for employees of Subsidiaries as
required to meet the provisions of the tax or securities laws or other
applicable laws, rules or regulations in the jurisdictions in which any
Subsidiary operates. Any shares of Stock issued under any such
Subsidiary plans shall be deemed to have been issued under the Plan.
The Committee, in its sole discretion, may delegate its authority under
this Section 9.9 to the Chief Executive Officer or any other
appropriate officer of the Company, provided that no such delegation
shall be made with respect to any plan of a Subsidiary that would
provide Awards to an executive officer or a director of the Company.
9.10 Authority Limited to Committee - No person shall at any time have any
right to receive an Award hereunder and no person shall have authority
to enter into an agreement on behalf of the Company for the granting of
an Award or to make any representation or warranty with respect
thereto, except as granted by the
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<PAGE>
Committee pursuant to the Plan or as provided in Section 4.4.
Participants shall have no rights with respect to any Award
except as set forth in the Plan and the applicable Award Agreement.
9.11 No Right to Employment - Neither the action of the Company in
establishing the Plan, nor any action taken by it or by the Board of
Directors or by the Committee under the Plan or any Award Agreement,
nor any provision of the Plan, shall be construed as giving to any
person the right to be retained in the employ of the Company or any
Subsidiary.
9.12 Change of Control
(a)For the purposes of the Plan, a "change of control" shall be deemed
to have taken place if:
(i) Any individual, firm, corporation or other entity, or any group
(as defined in Section 13(d)(3) of the 1934 Act) becomes,
directly or indirectly, the beneficial owner (as defined in the
General Rules and Regulations of the Securities and Exchange
Commission with respect to Sections 13(d) and 13(g) of the 1934
Act) of more than 35% of the then outstanding shares of the
Company's capital stock entitled to vote generally in the
election of directors of the Company; or
(ii) Any individual, firm, corporation or other entity or any group
(as defined in Section 13(d)(3) of the 1934 Act) commences a
tender or exchange offer subject to Section 14(d)(1) of the 1934
Act for any class of the Company's capital stock; or
(iii) The stockholders of the Company approve a definitive agreement
for (A) the merger or other business combination of the Company
with or into another corporation pursuant to which the
stockholders of the Company do not own, immediately after the
transaction, more than 50% of the voting power of the
corporation that survives and is a publicly owned corporation
and not a subsidiary of another corporation, or (B) the sale,
exchange or other disposition of all or substantially all of the
assets of the Company; or
(iv) During any period of two years or less, individuals who at the
beginning of such period constituted the Board of Directors of
the Company cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for the
election by the stockholders of the Company, of each new
director was approved by a vote of at least 75% of the directors
then still in office who were directors at the beginning of the
period;
provided, however, that a "change of control" shall not be deemed
to have taken place if beneficial ownership is acquired by, or a
tender or exchange offer is commenced or announced by, the Company
or any of its Subsidiaries, any profit-sharing, employee ownership
or other employee benefit plan of the Company or any Subsidiary or
any trustee of or fiduciary with respect to any
19
<PAGE>
such plan when acting in such capacity, or any group comprised
solely of such entities
(b)In the event of a "change of control" as defined in subsection (a)
above, Awards granted under the Plan will be subject to the
following provisions:
(i) All outstanding Options and Stock Appreciation Rights granted
under the Plan shall become exercisable in full whether or not
otherwise exercisable at such time, and any such Option or Stock
Appreciation Right shall remain exercisable in full thereafter
until it expires pursuant to its terms;
(ii)All restrictions contained in Restricted Stock Awards and BEP
Awards granted under Sections 6.3 and 6.4, respectively, of the
Plan shall lapse, and the Participant shall thereupon own the
stock free and clear of such restrictions;
(iii) With respect to Performance Share/Unit Awards granted under
the Plan, the performance period established for such Awards
shall be deemed to have been completed, and such Awards shall
become payable in an amount equal to the greater of the amount
payable upon achievement of the performance criteria established
for the Award at the time of grant or the actual performance
achieved to the date of the "change of control"; and
(iv)With respect to Other Stock Based Awards, such Awards shall
become fully exercisable or payable in accordance with the terms
and conditions specified in the Award Agreement.
9.13 Award Period - No Award granted under the Plan shall be exercisable
or payable more than 10 years from the date of grant except for
Nonqualified Stock Options, which shall not be exercisable for more
than 10 years and one day from the date of grant.
SECTION 10. TAXES
10.1 Pursuant to Section 83(b) of the Code, if any Participant properly
elects (within thirty days of the date on which property subject to a
substantial risk of forfeiture and non-transferable is transferred to
such Participant pursuant to an Award) to include in gross income for
U.S. Federal income tax purposes an amount equal to the fair market
value (on the date of such transfer) of the Stock subject to the Award
(or the difference between the fair market value and the option price
on the date of exercise of an Option), such Participant shall make
arrangements satisfactory to the Committee to pay to the Company, at
the time of such transfer (or at the time of exercise in the case of an
Option), any U.S. Federal, state or local taxes required to be withheld
with respect to such shares. If such Participant shall fail to make
such tax payments as are required, the Company and its Subsidiaries
shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the
Participant.
20
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10.2 Any Participant who does not or cannot make the election described in
Section 10.1 with respect to an Award, shall, no later than the date as
of which the value of the Award first becomes includable in the gross
income of the Participant for income tax purposes, pay to the Company,
or make arrangements satisfactory to the Company regarding payment of,
any taxes of any kind required by law to be withheld with respect to
the Stock or other property subject to such Award, and the Company and
its Subsidiaries shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment of any kind otherwise due to
the Participant.
10.3 Unless the Committee shall in its sole discretion determine otherwise
(and subject to any limitations imposed by Section 16 of the 1934 Act,
payment of any taxes required to be withheld may be made, in whole or
in part, by an election by a Participant (in accordance with rules
adopted by the Committee from time to time): (i) to have the Company
withhold shares of Stock otherwise issuable pursuant to the Plan having
a fair market value equal to such tax liability and/or (ii) to tender
to the Company shares of Stock owned by the Participant (or by the
Participant and his or her spouse, jointly) and acquired more than six
months prior to such tender (excluding any shares of Restricted Stock
awarded under Section 6.3 or Section 6.4 of the Plan) and having a fair
market value equal to such tax liability. The fair market value of any
Stock so tendered shall be determined in such reasonable manner as may
be required in order to comply with or to conform to the requirements
of any applicable or relevant laws or regulations.
SECTION 11. EFFECTIVE DATE OF PLAN
The Plan shall be effective on the date it is approved by an affirmative vote
of the holders of a majority of the shares of voting stock of the Company
represented at the meeting at which the Plan is adopted and entitled to vote.
SECTION 12. TERM OF PLAN
Unless terminated earlier by the Board of Directors, no Award shall be made
under the Plan after December 31, 2005, except that the foregoing shall not
apply to or prevent any amendment, modification or suspension at any time of
any Award or the waiver at any time of any terms or conditions thereof by the
Committee under the provisions of the Plan or the amendment or modification by
the Board of Directors of the Plan under Section 8.1.
EXHIBIT 10.2
1995 LONG TERM INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
BETWEEN
ALEXANDER & ALEXANDER SERVICES INC.
AND
---------------------------
("Employee")
Alexander & Alexander Services Inc. (the "Company"), by action of the
Compensation, Benefits and Nominating Committee of its Board of Directors (the
"Committee") pursuant to the 1995 Long Term Incentive Plan (the "Plan") has
granted to the Employee, as of __________, an option (the "Option") to purchase
_______ shares of the Common Stock, $1 par value (the "Stock"), of the Company
at $________ per share, which is the closing price of the Stock on the New York
Stock Exchange on the date of grant. The Option is intended to be a "non
qualified option" within the meaning of Section 2(j) of the Plan. The terms of
this Agreement shall pertain to the Option except as otherwise provided.
The Option is subject in all respects to the provisions of the Plan, a
copy of which has been furnished to the Employee and receipt of which the
Employee acknowledges by acceptance of this Agreement. The Plan is incorporated
by reference into this Agreement.
In addition to the provisions of the Plan, the following terms,
conditions and restrictions are applicable to the Option:
(a) Neither the Option nor any part thereof may be exercised unless and
until any Stock to be received upon exercise of the Option shall be listed or
approved for listing on the New York Stock Exchange and registered under the
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Securities Act of 1933, unless the issuance of the Stock shall, in the opinion
of counsel to the Company, be exempt from registration.
(b) Subject to the provisions of subparagraph (a) of this Agreement,
the Option shall be exercisable as to an initial installment of not more than
50% of the total number of shares covered hereby on and after_________, and an
additional installment of 50% on or after __________. Each installment shall
remain exercisable until _____________ (the "Expiration Date"), a date 10 years
from the date of grant, or such earlier date as (1) all shares covered by the
Option shall have been purchased or (2) the Option shall have expired as
provided in Section 6.1(g) of the Plan. To the extent not exercised,
installments shall accumulate, provided that the Option shall expire in any
event on the Expiration Date. To the extent that any installment or part of any
installment of the Option may not be exercised as provided for above because
shares of Stock are not registered under the Securities Act of 1933 or the
issuance of Stock, in the opinion of counsel to the Company, is not exempt from
registration, then such installment or part of such installment shall become
exercisable when shares of Stock first become registered or the issuance of
shares of Stock may be exempt, but in no event prior to the times set forth
above or after the Expiration Date.
(c) Notwithstanding paragraph (b) of this Agreement, the Option shall
become exercisable commencing on the date of a "change of control" of the
Company under the terms and conditions specified in Section 9.12 of the Plan.
(d) The Option shall not be transferable by the Employee otherwise than
by will and the laws of descent and distribution. During the Employee's
lifetime, the Option shall be exercisable only by the Employee. Any attempt by
the Employee to transfer, assign, pledge, hypothecate or otherwise dispose of,
or any attempt to subject to execution, attachment or similar process, any part
of the Option, contrary to the provisions of the Plan and this Agreement shall
be void and ineffectual, shall give no right to the purported transferee, and
shall result in the forfeiture of the Option.
(e) Any question concerning Termination of Employment, Disability,
Retirement, or changes in employment status specified in Section 9.2 of the
Plan, shall be determined by the Committee, whose determination shall be final.
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<PAGE>
(f) Nothing contained in this Agreement shall restrict the right of the
Company or any of its Subsidiary companies to terminate the Employee's
employment at any time, with or without cause. Termination of Employment,
whether by the Company or any of its Subsidiary companies or otherwise, and
regardless of the reason therefore, shall have the results provided for in the
relevant sections of the Plan and this Agreement.
(g) Subject to the terms and conditions set forth in this Agreement and
in the Plan, the Option shall be exercised by notice to the Plan administrator
as designated from time to time by the Company. Information concerning the
procedures and requirements for exercising the Option shall be made available
to the Employee on or before the first date on which any portion of the Option
becomes exercisable.
(h) The date of the exercise of the Option with respect to any
particular shares shall be the date on which the notice and payment, as
specified by the Plan administrator, shall be received by the Company or its
agent.
(i) In addition to the terms and conditions of this Agreement and the
provisions of the Plan, the Option is subject to execution by the Employee of
the attached Non-Competition Agreement which is hereby incorporated into this
Agreement by reference.
In consideration of the Option covered by this Agreement, and for other good
and valuable consideration, the parties hereto indicate their agreement by
their signatures below.
ALEXANDER & ALEXANDER SERVICES INC.
- ---------------------------------------------
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Pursuant to Section 4.5 of the Plan, the Employee's right to the Option covered
by this Agreement is subject to execution of the Agreement. Please indicate
acceptance of the Option covered by this Agreement, subject to the restrictions
and upon the terms and conditions set forth above and in the Plan, by executing
this Agreement and the attached Non-Competition Agreement (in duplicate) and
immediately returning one copy to ________________________________. It will be
assumed that the Option has been declined if acceptance has not been received
within thirty (30) days of the receipt of this Agreement.
ACCEPTED & AGREED TO:
------------------------------------------- -----------------
EMPLOYEE'S SIGNATURE DATE
<PAGE>
1995 LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT
--------------------------------
BETWEEN
ALEXANDER & ALEXANDER SERVICES INC.
AND
- ------------------
("Employee")
Effective __________________ ("Date of Grant"), the Compensation, Benefits and
Nominating Committee (the "Committee") of the Board of Directors of Alexander &
Alexander Services Inc. (the "Company") awarded to the Employee ______ shares
(the "Shares") of the Company's Common Stock, $1.00 par value (the "Stock"),
subject to the terms and conditions described below (the "Restricted Stock
Award").
The Restricted Stock Award is made pursuant to and is subject in all respects,
to the provisions of the 1995 Long-Term Incentive Plan (the "Plan"), a copy of
which has been furnished to the Employee and receipt of which the Employee
acknowledges by acceptance of this Agreement. The Plan is incorporated by
reference into this Agreement.The Plan will control if there is any conflict
between the Plan and this Agreement, and on such matters as are not contained
in this Agreement. Capitalized terms not defined in this Agreement have the
meanings given to them in the Plan.
In addition to the provisions of the Plan, the following terms and conditions
set forth in this Agreement are applicable to the Restricted Stock Award.
1. RESTRICTIONS ON DISPOSITION OF SHARES
-------------------------------------
The Employee agrees not to sell, exchange, transfer, pledge, hypothecate or
otherwise dispose of any Shares (or any new, additional
1
<PAGE>
or different shares of Stock received pursuant to Section 3 of the Plan), for
those periods of time (the "Restricted Periods") ending on the following dates:
a) With respect to 50% of the Shares, on that date which is two
years after the Date of Grant: and
b) With respect to 50% of the Shares, on that date which is three
years after the Date of Grant;
provided, however, that the Restricted Periods shall end earlier as provided in
Section 6.3(d) of the Plan.
The foregoing restrictions shall be in addition to any restriction on
the Employee's ability to sell, exchange, transfer, pledge, hypothecate
or otherwise dispose of the Shares under the Federal or any state
securities laws. Any attempt by the Employee to sell, transfer, pledge
assign or otherwise dispose of the Shares shall constitute immediate
forfeiture of the Restricted Stock Award.
2. ISSUANCE OF SHARES
------------------
Upon receipt of a signed copy of this Agreement by the Company or its
agent, the Shares shall be issued to the Employee, who shall thereupon
be a stockholder with respect thereto. The Employee shall have the
right to vote such Shares and to receive all dividends and
distributions paid with respect to such Shares, but the right to sell
or otherwise dispose of them shall be subject to the restrictions
specified in Paragraph 1 of this Agreement.
3. LAPSE OF RESTRICTIONS
---------------------
The restrictions imposed in Paragraph 1 of this Agreement shall lapse
upon the expiration of each relevant Restricted Period and the stated
percentage of the Shares shall thereupon be free and clear of the
restrictions imposed in Paragraph 1 of this Agreement.
4. CHANGE OF CONTROL
-----------------
2
<PAGE>
Notwithstanding Paragraph 3 of this Agreement, the restrictions imposed
in Paragraph 1 of this Agreement shall lapse commencing on the date of
a "change of control" of the Company under the terms and conditions
specified in Section 9.12 of the Plan.
5. INVESTMENT REPRESENTATIONS
--------------------------
The Employee consents and agrees that he or she will make no
distribution of the Shares in violation of the Securities Act of 1933,
as amended, or any other federal or state securities statutes, rules or
regulations.
6. NON-COMPETITION AGREEMENT
-------------------------
In consideration of the Restricted Stock Award and the Employee's
employment with the Company, the Employee agrees to the terms of the
Non-Competition Agreement set forth in Exhibit A to this Agreement. Any
agreements on the same or similar subject matter heretofore entered
into between the Employee and the Company or any of its Subsidiaries
are hereby confirmed, shall remain in full force and effect and shall
not be terminated, amended or otherwise modified as a result of the
Employee's agreement to the terms of Exhibit A or as a result of any
invalidity or unenforceability in whole or in part of any of the terms
of Exhibit A.
7. INTERPRETATION, ETC.
------------------
The Plan and this Agreement shall be administered by the Committee in
accordance with the applicable provisions of the Plan. All
determinations by the Committee as to any matter, including matters of
interpretation of this Agreement and the Plan and questions concerning
Termination of Employment, Disability, Retirement or those changes in
employment status specified in Section 9.2 of the Plan shall be
conclusive and binding upon the Employee.
8. INCOME TAX WITHHOLDING
----------------------
To the extent necessary, the Employee hereby authorizes the Company to
withhold from his or her salary any withholding tax
3
<PAGE>
resulting from the Restricted Stock Award as may be required by
Federal or state tax law.
9. MISCELLANEOUS
-------------
This Agreement and the Plan embody the entire agreement and
understanding between the Company and the Employee with respect to the
Restricted Stock Award and the other matters referred to herein and may
not be changed, modified or terminated orally but only by a written
instrument executed by the Employee and the Company. This Agreement
shall be construed and enforced in accordance with, and governed by,
the laws of the State of Maryland. The provisions of this Agreement are
intended to be separate and divisible and if, for any reason, any one
or more of such provisions should be held to be invalid and
unenforceable in whole or in part, the Employee agrees that the same
shall not be held to affect the validity or enforceability of any other
provision of this Agreement. Nothing contained in this Agreement or in
the Plan shall restrict the right of the Company or any of its
Subsidiaries to terminate the Employee's employment at any time, with
or without cause. The Termination of Employment, whether by the Company
or any of its Subsidiaries or otherwise, regardless of the reason
therefore, shall have the results provided for in Section 6.3(d) of the
Plan.
ALEXANDER & ALEXANDER SERVICES INC.
By:_______________________________
4
<PAGE>
Pursuant to Section 4.5 of the Plan, the Employee's right to the Restricted
Stock Award covered by this Agreement is subject to execution of this Agreement
and of the associated Non-Competition Agreement. Please indicate acceptance of
the Restricted Stock Award covered by this Agreement, subject to the
restrictions and upon the terms and conditions set forth above and in the Plan,
by executing this Agreement and the attached Non-Competition Agreement (in
duplicate) and immediately returning one original set to________________
- ------------------------------------------------------------------.
If all the above are not received within the 30 day period, the Restricted
Stock Award granted under this Agreement shall be forfeited.
ACCEPTED AND AGREED TO:
- ---------------------------- -----------------------------
Employee's Signature
5
<PAGE>
1995 LONG TERM INCENTIVE PLAN
-----------------------------
LIMITED STOCK APPRECIATION RIGHT AGREEMENT
BETWEEN
ALEXANDER & ALEXANDER SERVICES INC.
AND
--------------------
("EMPLOYEE")
Alexander & Alexander Services Inc. (the "Company"), by action of the
Compensation, Benefits and Nominating Committee of the Board of Directors (the
"Committee") pursuant to the 1995 Long Term Incentive Plan (the "Plan") has
granted to the Employee Limited Stock Appreciation Rights ("LSAR") with respect
to the shares of the Company's Common Stock, $1.00 par value (the "Stock"),
subject to the option (the "Option") granted to the Employee under the Plan on
______________.
The LSAR is subject to the provisions of the Plan, a copy of which has
been furnished to the Employee and receipt of which the Employee acknowledges
by acceptance of this Agreement. The Plan is incorporated by reference into
this Agreement.
In addition to the provisions of the Plan, the following terms,
conditions and restrictions set forth in this Agreement are applicable to the
LSAR:
(a) The Employee's right to exercise the LSAR shall begin on the
date which is 6 months from the date on which it is granted and shall terminate
on the latest of the following (i) such time as the Employee is no longer
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934; (ii) the occurrence of an event specified in Section 6.2(b)(iii) of the
Plan; or (iii) subject to the provisions of subparagraph (b) below, the
exercise in full of the Option. The right of an Employee who is no longer
subject to the provisions of Section 16(b) of the Act to exercise his Option
shall continue as provided in Section 6.1 of the Plan.
1
<PAGE>
(b) In the event that the Employee is issued a Replacement Option under
the conditions specified in subparagraph (i) of the Option agreement and
Section 6.1(f) of the Plan, the LSAR shall not terminate upon exercise of the
Option but instead shall automatically apply to the shares subject to the
Replacement Option. The Employee's right to exercise the LSAR related to the
Replacement Option shares shall begin on the date which is 6 months from the
date the Replacement Option is issued and shall terminate as specified in
subparagraph (a) above. If further Replacement Options are issued upon exercise
in full or in part of the Option, this subparagraph (b) shall apply to those
later Replacement Options.
(c) The LSAR shall be exercisable only by the Employee. Any attempt by
the Employee to transfer, assign, pledge, hypothecate or otherwise dispose of,
or any attempt to subject to execution, attachment or similar process, any part
of the LSAR, contrary to the provisions of the Plan and this Agreement shall be
void and ineffectual, shall give no right to the purported transferee, and
shall result in the forfeiture of the LSAR.
(d) Any question concerning Termination of Employment, Disability,
Retirement or changes in employment status specified in Section 9.2 of the
Plan, shall be determined by the Committee, whose determination shall be final.
(e) Nothing contained in this Agreement shall restrict the right of the
Company or any of its subsidiary Companys to terminate the Employee's
employment at any time, with or without cause.
(f) The Employee may exercise the LSAR, or any portion thereof, in lieu
of the Option. Exercise of the LSAR shall be by written notice to the Company
or its agent and shall be subject to the terms and conditions set forth in the
Plan. Any exercise of the LSAR shall result in the cancellation of a
corresponding portion of the underlying Option and any exercise of the
underlying Option shall result in the cancellation of a corresponding portion
of this LSAR.
(g) For a period of 30 days following the later to occur of (i) a
"change of control" as defined in Section 9.12 of the Plan and (ii) the date
which is 6 months after the date of grant the Employee may surrender all or a
portion of his Option in exchange for an amount in cash equal to the product of
(x) the number of shares subject to the Option being so surrendered times (y)
(A) the excess of (1) the highest price offered in connection with any
purchase, tender offer, merger or other transaction resulting in a "change of
control" or (2) if a "change of control" occurs by reason of a change in the
composition of the Board of Directors, the highest average of the high and low
sales prices of a share of Stock on the New York Stock Exchange on any date
during the thirty calendar day period ending on the date the change in the
composition of the Board occurs over (B) the exercise price of the Option.
2
<PAGE>
(g) The LSAR shall be deemed not to have been exercised unless all the
preceding provisions of this Agreement shall have been complied with, and for
all purposes of the Plan, the date of the exercise with respect to any
particular shares shall be the date on which the notice specified in paragraph
(e) above has been received by the Company or its agent.
In consideration of the LSAR covered by this Agreement, and for other good and
valuable consideration, the parties hereto indicate their agreement by their
signatures below.
ALEXANDER & ALEXANDER SERVICES INC.
- ---------------------------------------------
Pursuant to Paragraph 4.5 of the Plan, the Employee's right to the LSAR covered
by this Agreement is subject to execution of the Agreement. Please indicate
acceptance of the LSAR covered by this Agreement, subject to the restrictions
and upon the terms and conditions set forth above and in the Plan, by executing
this Agreement (in duplicate) and immediately returning the enclosed duplicate
original (one copy) to _____________ ___________________. It will be assumed
that the LSAR has been declined if acceptance has not been received within
thirty (30) days of the receipt of this Agreement.
ACCEPTED & AGREED TO:
------------------------------------ -------------------
EMPLOYEE'S SIGNATURE
3
Exhibit 10.9
ALEXANDER & ALEXANDER SERVICES INC.
NON-EMPLOYEE DIRECTOR
DEFERRED STOCK OWNERSHIP PROGRAM
(AMENDED AND RESTATED AS OF AUGUST 18, 1995)
1. PURPOSE.
This Non-Employee Director Deferred Stock Ownership Program (the "Plan") is
intended to attract and retain the services of experienced and knowledgeable
directors of Alexander & Alexander Services Inc. (the "Company") for the benefit
of the Company and its shareholders and to provide such directors an economic
interest in the Company's Common Stock, $1.00 par value (the "Common Stock") on
a tax deferred basis, thereby creating a long term mutuality of interest between
such directors and stockholders.
2. ELIGIBILITY.
Each director of the Company who is not otherwise an employee of the Company or
a subsidiary (each, an "Eligible Director") shall be a beneficiary under a
grantor trust established by the Company, the assets of which shall be subject
to the claims of the Company's creditors in the event of its bankruptcy or
insolvency (the "Company Trust"). The interest of an Eligible Director as a
beneficiary of the Company Trust shall be subject to the terms and conditions
set forth in this Plan, as incorporated into the trust agreement governing the
Company Trust (the "Trust Agreement").
3. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the Company (the
"Board"); provided that the Plan is intended to qualify for the exemption
-------------
available under Rule 16b-3 ("Rule 16b-3"), as promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), with respect to awards made pursuant to a formula set forth in the
plan and shall be administered so as to comply with the requirements of Rule
16b-3. Subject to the express provisions of the Plan, the Board shall have
plenary authority to interpret the Plan, to prescribe, amend and rescind rules
and regulations relating to it, to determine the terms and provisions of the
independent directors' fees made pursuant to the Plan and to make all other
determinations necessary or advisable for the administration of the Plan. The
Board's determinations of the matters referred to in this Paragraph 3 shall be
conclusive. No member of the Board shall be held liable for
<PAGE>
any action taken in the administration of the Plan, unless such action involves
willful misconduct by such member, and each member of the Board shall be
indemnified and held harmless by the Company for all actions taken in the proper
administration of the Plan.
4. AMOUNT OF ANNUAL FEE AND EXPENSES.
The Annual Fee payable to each Eligible Director who serves as a director for
the entire period between two Annual Meetings of Stockholders for services as an
Eligible Director (the "Annual Fee") shall be $40,000 or such greater or lesser
amount as the Board shall determine from time to time by resolution. The Annual
Fee is intended to compensate an Eligible Director for attendance at meetings of
and other services to the Board and any committees of the Board. In addition to
the Annual Fee, Eligible Directors will be reimbursed for reasonable
out-of-pocket expenses incurred in the performance of their service in that
capacity, in accordance with the Company's policy on expense reimbursements.
To the extent that an Eligible Director does not serve as a director for the
entire period between two Annual Meetings of Stockholders, the Annual Fee shall
be adjusted to reflect only the period for which such Eligible Director was a
director.
5. CONTRIBUTIONS IN RESPECT OF THE ANNUAL FEE.
Except as expressly provided below, no portion of the Annual Fee shall be paid
directly to an Eligible Director. Instead, the Company shall contribute shares
of Common Stock to the Company Trust to be credited to the account of the
Eligible Director. The amount of Common Stock representing the Annual Fee shall
be calculated in accordance with paragraph 12 below and shall be credited to
each Eligible Director's account under the Company Trust, one half on the date
of each Annual Meeting of Stockholders and one half on the date six months
thereafter. Any Eligible Director elected to the Board at a time other than at
an Annual Meeting of Stockholders shall have credited to his or her account
under the Company Trust the amount of Common Stock equal to the pro rata portion
of the Annual Fee for the period from his or her election to the next regularly
scheduled semi-annual payment. The contribution to be made for the period
between the effective date of this Plan and the Annual Meeting of Stockholders
for 1995 shall be determined by multiplying the Annual Fee by a fraction, the
numerator of which is the number of days in 1995 occurring on or prior to such
Annual Meeting of Stockholders and the denominator of which is 365. All
contributions to the Company Trust shall be made as soon as practicable
following the date on which each contribution amount is determined.
Notwithstanding anything else contained herein to the contrary, in the event an
Eligible Director has an immediate personal tax liability under the Plan with
respect to contributions made hereunder, the Eligible Director will receive a
cash payment in an amount equal to the tax liability, and the amount of Common
<PAGE>
Stock to be contributed to the Company Trust in respect of such Eligible
Director shall be reduced by a like amount.
6. CONVERSION OF NON-EMPLOYEE DIRECTOR RETIREMENT PLAN.
In connection with the termination of the Non-Employee Director Retirement Plan
(the "Retirement Plan"), the Company shall make an additional contribution to
the Company Trust in respect of certain Eligible Directors, as determined
pursuant to this Section 6. For each Eligible Director in office on December 31,
1994, who, as of such date, (i) had completed sufficient service to be entitled
to receive the maximum benefit under such Retirement Plan, the Company shall
contribute Common Stock having a value as of such date equal to the present
value of such accrued maximum retirement benefit (the "Present Value") or (ii)
had completed at least 75% of the service required to be fully vested in such
Present Value but had not become fully vested, the Company shall contribute
Common Stock having a value as of such date equal to two-thirds of the Present
Value. No contribution shall be made hereunder for any other Eligible Director
by reason of the termination of the Retirement Plan. Notwithstanding the
foregoing, in the event an Eligible Director has an immediate personal tax
liability by reason of the contribution to the Company Trust to be made
hereunder, the Eligible Director will receive a cash payment in an amount equal
to the tax liability and the amount of Common Stock to be contributed to the
Company Trust in respect of an Eligible Director shall be reduced by a like
amount.
7. TRANSFERS FROM STOCK ACCOUNTS.
Each Eligible Director may, by not less than six months' advance written notice
given during any of the four quarterly ten business day periods commencing on
the third business day following the release of quarterly or annual financial
earnings, direct the Trustee of the Company Trust to sell any shares of Common
Stock credited to his or her account that were contributed to the Company Trust
more than one year prior to the effective date of any such sale direction.
Notwithstanding anything contained herein to the contrary, no direction to sell
any shares of Common Stock held in the Company Trust shall be effected if such
sale would subject the Eligible Director to liability under Section 16 of the
1934 Act.
8. INVESTMENT OF ACCOUNTS.
In the event that an Eligible Director directs the Trustee to sell all Common
Stock pursuant to Section 7 hereof, the proceeds of such sale and all amounts
attributable thereto shall be invested under the Company Trust by the Trustee or
a professional
3
<PAGE>
investment manager appointed by the Company and held for the
benefit of such Eligible Director until distributed in accordance with the Plan.
9. DISTRIBUTIONS FOLLOWING CESSATION OF BOARD MEMBERSHIP.
Except as otherwise provided in Section 10 below, no shares of Common Stock or
other assets shall be distributed from an Eligible Director's account under the
Company Trust prior to the latter of (i) the cessation of such Eligible
Director's Board membership or (ii) if the first anniversary of the date the
corresponding shares of Common Stock are contributed to the Company Trust (such
latter date hereafter called the "Distribution Date"). Each Eligible Director
may elect, by written notice to the Company delivered not later than December 31
of the calendar year preceding the calendar year in which the Distribution Date
occurs, whether such shares of Common Stock or other assets, as the case may be,
shall be distributed to the Eligible Director (or, in the event of his or her
death, to his or her designated beneficiary) in a single lump sum or in a number
of annual installments not to exceed ten. Any such distribution election shall
be subject to such terms and conditions as the Board shall otherwise deem
necessary or appropriate.
If an Eligible Director elects installment payments, the first such installment
shall be payable as soon as practicable after the Distribution Date with each
subsequent installment to be made as soon as practicable after the anniversary
date of such first installment. The amount of each such installment shall be
equal to the value of any such Common Stock and any such other assets held for
the benefit of such Eligible Director on the date the installment is payable
divided by the number of installments (including the current installment)
remaining to be paid. All installment payments shall be made in cash or property
other than securities of the Company.
In the event of an Eligible Director's death, any shares of Common Stock or
other assets credited to an Eligible Director's account under the Company Trust
shall be distributed to such Eligible Director's designated beneficiary as soon
as practicable following the cessation of his or her services as a director.
10. HARDSHIP WITHDRAWALS.
Upon a finding by the Company's Chief Executive Officer that an Eligible
Director who has requested a withdrawal of all or a portion of the amount
credited his or her account under the Company Trust needs such withdrawal to
satisfy an immediate financial need, the Chief Executive Officer may permit the
distribution to the Eligible Director of up to that amount credited to the
Eligible Director's account under the Company Trust in assets other than Common
Stock which is required to satisfy such financial needs.
4
<PAGE>
11. RIGHTS AS STOCKHOLDERS.
The rights of Eligible Directors with respect to shares of Common Stock
contributed by the Company to the Trust, including without limitation the right
to vote, dispose of, pledge, assign, transfer, bequeath by will or receive
dividends or other distributions upon such shares, shall be determined in
accordance with the Plan. Nothing in the Plan shall confer on any individual any
right to continue as a director of the Company or interfere in any way with the
right of the Company to terminate the Plan participant's service as a director
at any time.
12. VALUATION OF COMMON STOCK.
The number of shares of the Common Stock to be credited to an Eligible
Director's account in the Company Trust as of each installment contribution
under Section 5 and with respect to any contribution required to be made under
Section 6, shall be determined by dividing (i) in the case of contributions made
pursuant to Section 5, the portion of the Annual Fee being satisfied by such
installment by the mean of the high and low sales prices of the Common Stock on
the New York Stock Exchange on the date on which an installment payment is
required to be made (or the next preceding date on which trading occurred if
there was no trading on such date), or (ii) in the case of a contribution made
pursuant to Section 6, the portion of the Present Value being contributed by the
mean of the high and low sales prices of the Common Stock on the New York Stock
Exchange on December 31, 1994. In the event that the Common Stock is no longer
traded on the New York Stock Exchange at the date of any installment payment,
then the Board shall establish the price of the Common Stock at the fair market
value determined under Treasury Regulation Section 20.2031-2.
13. Stock Subject to the Plan.
There are reserved for issuance under the Plan 160,000 shares of the authorized
and unissued shares of the Common Stock.
14. Adjustments Upon Changes in Capitalization.
Notwithstanding any other provision of the Plan, the number and class of shares
held pursuant to the Trust Agreement shall be proportionately adjusted in the
event of changes in the outstanding Common Stock by reason of stock dividends,
stock splits, recapitalizations, mergers, consolidations, combinations or
exchanges of shares, split-ups, split-offs, spin-offs, liquidations or other
similar changes in capitalization, or any distribution to common stockholders
other than cash dividends and, in the event of any such change in the
outstanding Common Stock, the aggregate number and class
5
<PAGE>
of shares available under the Plan shall be appropriately adjusted by the
Board. The Board's determination of any adjustment shall be conclusive.
15. AMENDMENT AND TERMINATION.
Unless the Plan shall theretofore have been terminated as hereinafter provided,
the Plan shall terminate on the date of the Annual Meeting of Stockholders in
2005. The Plan may be terminated, modified or amended by the Board of Directors,
provided that (i) in no event shall the provisions of the Plan relating to the
determination of the number of shares to be credited to an Eligible Director
hereunder, the eligibility of Eligible Directors, the distribution of amounts
from the Company Trust or the investment of assets held under the Company Trust
be amended more frequently than once every six months and (ii) no amendment
shall become effective without the approval of the Company's shareholders, if
such approval is required to continue to qualify the Plan for the exemption
provided under Rule 16b-3.
16. WITHHOLDING.
Unless other arrangements satisfactory to the Board are made to satisfy any such
obligation, upon the distribution from the Company Trust to an Eligible Director
the Company shall have the right to retain without notice sufficient amounts to
cover the amount of any tax required by any government to be withheld or
otherwise deducted and paid with respect to such distribution from the Company
Trust.
17. LIMITATIONS ON LIABILITY.
Neither the establishment of the Plan nor any modification thereof, nor the
creation of any account under the Trust Agreement, nor the payment of any
benefits, shall be construed as giving to any participant or other person any
legal or equitable right against the Company (or any person connected
therewith), except as provided by law or by any Plan provision. Nothing
contained in the Plan, and no action taken pursuant to its provisions, shall
create or be construed to create a fiduciary relationship between the Company
(or any person connected therewith) and any participant or other person. In no
event shall the Company (or any person connected therewith) be liable to any
person for the failure of any participant or other person to be entitled to any
particular tax consequences with respect to the Plan or any contribution thereto
or distribution therefrom.
18. CONSTRUCTION.
The Plan is intended to be exempt from ERISA and, if any provision of the Plan
is subject to more than one interpretation or construction, such ambiguity shall
be resolved in favor of that interpretation or construction which is consistent
with the Plan being so exempted. In case any provision of the Plan shall be held
to be illegal or void, such illegality or invalidity shall not affect the
remaining provisions of the Plan,
6
<PAGE>
but shall be fully severable, and the Plan
shall be construed and enforced as if said illegal or invalid provisions had
never been inserted herein. For all purposes of the Plan, where the context
admits, words in the masculine gender shall include the feminine and neuter
genders, the singular shall include the plural, and the plural shall include the
singular. Headings of Paragraphs are inserted only for convenience of reference
and are not to be considered in the construction of the Plan. Except to the
extent preempted by the laws of the United States of America, the laws of the
State of Maryland shall govern, control and determine all questions arising with
respect to the Plan and the interpretation and validity of its respective
provisions.
19. SPENDTHRIFT PROVISION.
No amount payable under the Plan will, except as otherwise specifically provided
by law, be subject in any manner to anticipation, alienation, attachment,
garnishment, sale, transfer, assignment (either at law or in equity), levy,
execution, pledge, encumbrance, charge or any other legal or equitable process,
and any attempt to do so will be void; nor will any benefit be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the person entitled thereto. The foregoing shall not preclude any arrangement
for: (i) the withholding of taxes from Plan benefit payments, (ii) the recovery
by the Plan of overpayments of benefits previously made to a participant, or
(iii) the direct deposit of benefit payments to an account in a banking
institution (if not part of an arrangement constituting an assignment or
alienation).
In the event that any participant's benefits are garnished or attached by order
of any court, the Company may bring an action for a declaratory judgment in a
court of competent jurisdiction to determine the proper recipient of the
benefits to be paid by the Plan. During the pendency of said action, any
benefits that become payable shall be paid into the court as they become
payable, to be distributed by the court to the recipient it deems proper at the
close of said action.
20. EFFECTIVENESS OF THE PLAN.
The Plan is effective as of January 1, 1995, subject to the approval of the Plan
at the next Annual Meeting of Shareholders.
7
EXHIBIT 10.10
ALEXANDER & ALEXANDER SERVICES INC.
PERFORMANCE BONUS PLAN FOR EXECUTIVE OFFICERS
ARTICLE I
PURPOSE
The purpose of the Alexander & Alexander Services Inc. Performance
Bonus Plan for Executive Officers (the "Plan") is to enable the Company to
recruit and retain qualified executive officers by paying them, upon the
attainment of performance criteria established in accordance with the Plan,
intive compensation up to the maximum amount that may be paid under the
Plan, including that portion of the bonus paid in the form of restricted stock
under the Company's Bonus Equity Plan.
The Plan is intended, among other things, to address the limitations
under Section 162(m) of the Internal Revenue Code of 1986, as amended, on the
deductibility of certain compensation in excess of $1 million per year paid by
the Company to those executive officers of the Company who, on the last day of
the Company's fiscal year, are (a) the Chief Executive Officer and (b) other
executive officers covered by Section 162(m).
ARTICLE II
DEFINITIONS
The following words and phrases shall have the meanings indicated for
purposes of the Plan, unless the context clearly indicates otherwise:
(a) AVERAGE TOTAL CAPITAL shall mean the sum of (A) short-term debt and the
current portion of long-term debt, (B) long-term debt, and (C) total
stockholders' equity, such sum to be averaged over the period beginning
with the end of the previous Bonus Year and including each of the first
three financial quarters of the current Bonus Year and the end of the
current Bonus Year, respectively, each amount as disclosed in the
Consolidated Balance Sheets in the Company's Annual and Quarterly Reports
for the relevant periods.
(b) AVERAGE TOTAL STOCKHOLDERS' EQUITY shall mean the total stockholders'
equity of the Company averaged over the period beginning with the end of
the previous Bonus Year and including each of the first three financial
quarters of the current Bonus Year and the end of the current Bonus Year,
respectively, all as disclosed in the Consolidated Balance Sheets in the
Company's Annual and Quarterly Reports for the relevant periods.
(c) BEP shall mean the Company's Bonus Equity Plan, as the same shall be in
effect from time to time.
(d) BEP STOCK VALUE shall mean the discounted value, determined in accordance
with the terms of the BEP, of the shares of the Company's common stock
awarded to any Covered Employee in respect of a Bonus Award.
(e) BOARD shall mean the Board of Directors of the Company.
(f) BONUS AWARD shall mean the amount of bonus compensation payable to any
Covered Employee for each Bonus Year, whether payable in cash or in
restricted stock under the BEP.
(g) BONUS YEAR shall mean a calendar year.
(h) CASH FLOW shall mean the sum of (a) net cash provided (used) by operating
activities (excluding amounts, if any, attributable to discontinued
operations and changes in accounting), and (b) net
1
<PAGE>
purchases of property and equipment, all amounts as disclosed in the
Consolidated Statement of Cash Flows in the Company's Annual Report
for the Bonus Year.
(i) CHIEF EXECUTIVE OFFICER shall mean the Chief Executive Officer of the
Company or the individual acting in such capacity.
(j) COMMITTEE shall mean the Compensation, Benefits and Nominating Committee
of the Board, or any similar committee thereof comprised of at least two
Outside Directors.
(k) COMPANY shall mean Alexander & Alexander Services Inc.
(l) COVERED EMPLOYEE shall mean the Chief Executive Officer and each of those
other executive officers of the Company who, on the last day of the Bonus
Year, are "covered employees" within the meaning of Section 162(m).
(m) EARNINGS PER SHARE shall mean net income per share available for Common
Shareholders of the Company's common stock, as disclosed in the
Consolidated Statement of Operations in the Company's Annual Report for
the Bonus Year.
(n) INCOME FROM CONTINUING OPERATIONS shall mean the consolidated income from
continuing operations of the Company, as disclosed in the Consolidated
Statement of Operations in the Company's Annual Report for the Bonus Year.
(o) OPERATING INCOME shall mean the operating income of the Company, as
disclosed in the Consolidated Statement of Operations in the Company's
Annual Report for the Bonus Year.
(p) SPECIFIED BONUS AWARD shall mean the target Bonus Award payable to each
Covered Employee in the event that certain specified Performance Goals are
met.
(q) VARIABLE BONUS AWARD shall mean incentive compensation over and above the
Specified Bonus Award payable to a Covered Employee in the event that the
Performance Goals related thereto are met.
(r) OUTSIDE DIRECTOR shall mean a member of the Board who is an "outside
director" as that term is defined under Section 162(m).
(s) PERFORMANCE GOALS shall mean the financial measurements of performance
that must be met in order for a Covered Employee to receive a Bonus Award.
(t) RETURN ON CAPITAL shall mean the earnings (loss) available for common
shareholders (as disclosed in the Consolidated Statement of Operations in
the Company's Annual Report for the Bonus Year) divided by the Average
Total Capital.
(u) RETURN ON EQUITY shall mean the earnings (loss) available for common
shareholders (as disclosed in the Consolidated Statement of Operations in
the Company's Annual Report for the Bonus Year) divided by the Average
Total Stockholders' Equity.
(v) SECTION 162(M) shall mean Section 162(m) of the Internal Revenue Code of
1986, as amended, and the regulations and rules issued thereunder.
ARTICLE III
ADMINISTRATION OF THE PLAN
SECTION 3.1 The Plan shall be administered by the Committee. If,
however, the Committee shall fail to be composed solely of Outside Directors,
then those members of the Committee that are Outside Directors shall act as the
Committee.
SECTION 3.2 The Plan shall be interpreted and construed in accordance
with Section 162(m). Any specific action by the Committee that would cause any
Bonus Award to fail to be deductible under Section 162(m) shall be void.
Otherwise, the Committee shall have full and
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exclusive authority, power and discretion to construe and interpret the Plan
(subject to the advice of appropriate legal counsel with respect to any question
of law), and generally to determine any and all questions arising under the
Plan, including the sole authority to establish Performance Goals and to
determine whether any Bonus Award is payable solely in cash or partly in
cash and partly in BEP stock. The Committee shall have the authority to
reduce the Bonus Award of any Covered Employee earned under this Plan,
or any portion thereof, even if the Performance Goals that would provide
the maximum amount of such Bonus Award have been met. The Committee shall
not, however, have any authority hereunder to increase the amount of any
Bonus Award calculated in accordance with the Plan.
SECTION 3.3 The Committee shall certify to the Company in writing that
any applicable Performance Goals have been met before any amounts are paid in
respect of Bonus Awards under the Plan. If permitted under Section 162(m), such
certification may be based upon reasonably estimated financial information
available prior to the end of the Bonus Year.
ARTICLE IV
CALCULATION OF BONUS AMOUNTS FOR COVERED EMPLOYEES
SECTION 4.1 Each Covered Employee shall be eligible to receive a
Specified Bonus Award under the Plan, as more fully described in Section 4.2.
In addition, each Covered Employee who receives a Specified Bonus Award for a
given Bonus Year shall also be eligible to receive a Variable Bonus Award, as
more fully described in Section 4.3. Payment in respect of any Bonus Award
shall be made either in cash or in a combination of cash and restricted shares
of the Company's common stock issued under the BEP, provided that in no event
shall more than 50% of any Bonus Award be paid in shares of BEP stock. The
total Bonus Award paid to any Covered Employee in respect of a Specified Bonus
Award and a Variable Bonus Award for any Bonus Year shall not exceed the sum of
$5 million plus the excess, if any, of (a) the fair market value of any shares
of BEP stock on the date the Committee certifies that the applicable
Performance Goals have been met, over (b) the BEP Stock Value of such shares of
BEP stock. The amount payable in respect of a Bonus Award shall be paid as soon
as practicable following the certification described in Section 3.3 above,
subject to the Committee's discretion in Section 3.2 to reduce the amount of
any Bonus Award.
SECTION 4.2 A Specified Bonus Award shall be paid to a Covered Employee
if one or both of the following Performance Goals, established by the Committee
in accordance with Section 162(m), is achieved: (a) a specified amount of
Income from Continuing Operations as of the end of the Bonus Year or a
specified minimum increase in such income as compared to the end of the prior
Bonus Year; or (b) a specified amount of Operating Income for the Bonus Year.
Subject to the limitations contained in Section 4.1, the maximum Specified
Bonus Award that each Covered Employee shall be entitled to receive and the
actual Performance Goals for each Bonus Year shall be determined by the
Committee in writing at the beginning of the Bonus Year within the time
required under Section 162(m).
SECTION 4.3 The amount of any Variable Bonus Award that may be payable
to any Covered Employee for a particular Bonus Year shall be based on such
Covered Employee's achievement of one or more additional Performance Goals
established by the Committee for such Covered Employee. These additional
Performance Goals shall relate to any one or more of the following financial
measurements as each relates to the Company and its consolidated subsidiaries
or, with respect to 4.3(a) or (b), as such measurement relates to any one or
more of the Company's operating units: (a) Return on Capital; (b) Return on
Equity; (c) Earnings per Share; (d) Cash Flow and (e) an increase in Operating
Income above the amount specified under Section 4.2(b). Different Variable
Bonus Award Performance Goals may be established for each Covered Employee. The
amount of each Covered Employee's Variable Bonus Award may be expressed as a
formula
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pursuant to which additional amounts may be paid for incremental
increases in actual performance against a stated Performance Goal.
SECTION 4.4 In the event that any person who was a Covered Employee at
the end of the prior Bonus Year, is not a Covered Employee at the conclusion of
the current Bonus Year, the Specified and Variable Bonus Award Performance
Goals and maximum Bonus Award applicable to such person shall be applicable to
the executive officer who replaces him or her as a Covered Employee for such
Bonus Year. In any year in which there is a change in more than one Covered
Employee, the determination as to which executive officer replaces which prior
Covered Employee shall be made on the basis of the salary payable for such
Bonus Year, so that the new Covered Employee with the greatest amount of salary
replaces the prior Covered Employee having the greatest amount of salary for
the prior Bonus Year and so on, except that any new Chief Executive Officer
(who was not also a Covered Employee as of the end of the last Bonus Year)
shall replace the person who was the Chief Executive Officer at the end of the
prior Bonus Year. Nothing in this Section 4.4 shall be construed to change the
Performance Goals and maximum Bonus Award for any Bonus Year with respect to
any person who was a Covered Employee for both the prior and the current Bonus
Years.
SECTION 4.5 The Committee may defer to a succeeding year payment of any
portion (up to $1 million) of a Bonus Award which may be payable to a Covered
Employee for a particular Bonus Year. Payment of such deferred award may be
conditioned upon such terms as the Committee shall determine, including the
achievement of extraordinary performance by such Covered Employee.
ARTICLE V
CHANGE OF MEASUREMENT PERIOD
If permitted by Section 162(m), the Committee may establish a
measurement period for determining the achievement of any Performance Goal
other than the Bonus Year if the Committee concludes that such alternative
measurement period is appropriate under the circumstances. Any such change must
be made before the new measurement period begins. In such event, all relevant
criteria will be based upon the books and records of the Company for the
specified measurement period in a manner consistent with the terms of the Plan.
ARTICLE VI
STOCKHOLDER APPROVAL AND AMENDMENT
SECTION 6.1 This Plan shall become effective as of January 1, 1995,
subject, however, to the approval of the Company's stockholders at the 1995
Annual Meeting of the Stockholders of the Company.
SECTION 6.2 The Plan may be amended at any time by the Committee, which
shall act in accordance with Section 3.1 of the Plan. In the event that Section
162(m) is modified or interpreted in a manner which causes the Plan to fail to
provide for the deductibility of compensation payable hereunder, the Committee
shall retain the right to modify the Plan for Covered Employees to the extent
necessary to bring any provisions hereof into compliance, including but not
limited to deletion of any non-conforming provisions, or to discontinue the
Plan altogether. No amendment shall be made without approval of the
stockholders of the Company if such approval is required in order for the Plan
to continue to meet the requirements of Section 162(m).
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Exhibit 10.11
THE ALEXANDER & ALEXANDER SERVICES INC.
EMPLOYEE DISCOUNT STOCK PURCHASE PLAN
ARTICLE I
PURPOSE
This Employee Discount Stock Purchase Plan is intended to encourage
employees of Alexander & Alexander Services Inc. ("A&A") and its subsidiaries
(collectively, together with A&A, the "Company") to remain in the employ of the
Company and to participate in its growth by permitting them to purchase shares
of A&A's common stock at a price that is less than fair market value on the date
of purchase. Such purchases shall be made from funds accumulated through payroll
deductions within a period of not more than 27 months from the Commencement Date
of any Offering under this Plan. This Plan is intended to qualify as a "Employee
Stock Purchase Plan" within the meaning of Section 423 of the Code.
ARTICLE II
DEFINITIONS
SECTION 2.1 The following words and phrases shall have the meanings
indicated for purposes of the Plan, unless the context clearly indicates
otherwise:
(a) ACCOUNT. The account established for each Participant.
(b) BOARD. The Board of Directors of A&A.
(c) CODE. The Internal Revenue Code of 1986, as amended, and as
it may be amended from time to time.
(d) COMMITTEE. The Committee appointed from time to time to
administer the Plan. Unless otherwise specified by the
Board or any relevant subcommittee thereof, the Committee
shall be the Company's U.S. Employee Benefits Committee.
(e) COMMENCEMENT DATE. The date as of which an Offering shall
commence, as determined pursuant to the Plan and specified
in each Offering.
(f) EMPLOYEE. Any salaried employee of the Company whose
customary employment is (i) 20 hours per week or more, or
(ii) at least five months in any calendar year.
(g) EXPIRATION DATE. The last day of any Offering period, as
determined pursuant to the Plan and as specified in each
Offering, which date
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shall occur not later than 27 months from the Commencement
Date of any Offering. The Expiration Date shall be the last
day on which payroll deductions made during the Offering
period may be withdrawn; if not withdrawn on or prior to the
Expiration Date, all such payroll deductions shall be
applied to the purchase of Stock pursuant to the terms of
the Offering.
(h) HARDSHIP. For purposes of this Plan, each of the following
circumstances shall be deemed to be a hardship: (1) medical
expenses previously incurred by the Participant or any
dependents of the Participant or any other member of the
Participant's family, or necessary for the Participant or
such dependent or family member, (ii) the purchase
(including mortgage payments) of a principal residence for
the Participant, (iii) payment of tuition and related
educational fees for the next 12 months' education for the
Participant or the Participant's spouse, children or
dependents, (iv) the need to prevent the eviction of the
Participant from his or her principal residence or
foreclosure on the mortgage of the Participant's principal
residence, (v) payment of funeral and other expenses
incurred in connection with the death of any member of the
Participant's family, or (vi) any other circumstance of
immediate and heavy financial need identified as such in
revenue rulings, notices or other documents of the Internal
Revenue Service of general applicability. The Committee's
determination of the existence of an Participant's Hardship
shall be final and binding on the Participant.
(i) MINIMUM HOLDING PERIOD. The period of time Shares purchased
under the Plan will be held in custody in a Participant's
Account, as specified in the terms and conditions of each
Offering.
(j) OFFERING. Any offering made in accordance with the terms and
conditions of the Plan permitting Participants to purchase
Stock under the Plan.
(k) OPTION. The right of an eligible Employee to purchase Stock
by participating in an Offering.
(l) OPTIONEE OR PARTICIPANT. An Employee who exercises his or
her Option by authorizing payroll deductions pursuant to
Section 6.3 hereof.
(m) PLAN. The A&A Services Inc. Employee Discount Stock Purchase
Plan, as herein set forth, and as amended from time to time.
(n) PURCHASE PRICE. The price per Share at which Stock may be
purchased under the Plan, which shall not be less than 85%
of the fair market value of a Share on either the
Commencement Date or the Expiration Date.
(o) SHARES OR STOCK. Shares of the common stock, par value $1.00
per share, of A&A.
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(p) SUBSIDIARIES. Any entity described in Section 424(f) of the
Code.
SECTION 2.2 The masculine gender shall include the feminine, and the
singular shall include the plural, where appropriate.
ARTICLE III
ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee, which shall have full
power and authority to: (a) interpret and administer the Plan and any instrument
or agreement entered into under the Plan; (b) establish such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; (c) determine the terms of each Offering and Options
granted pursuant thereto, including establishing the Purchase Price for each
Offering; and (d) make any other determination and take any other action that
the Committee deems necessary or desirable for administration of the Plan.
Decisions of the Committee shall be final, conclusive and binding upon all
persons, including the Company, any Participant or Optionee and any other
employee of the Company. A majority of the members of the Committee may
determine its actions and fix the time and place of its meetings.
ARTICLE IV
EMPLOYEES ELIGIBLE TO PURCHASE STOCK
All Employees shall be eligible to purchase Stock under the Plan except
for any Employee who, immediately after the granting of an Option, would own (or
be deemed to own under the rules of Section 423(b)(3) of the Code) any class of
Company stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or any of its
Subsidiaries. If the effect of the granting of an Option to an Employee is such
that his total stock ownership (as determined under Section 423(b)(3) of the
Code) equals or exceeds such five percent (5%) limitation, such Option shall be
entirely void as if it had never been granted.
ARTICLE V
STOCK
The maximum number of Shares which may be purchased under the Plan is
750,000 Shares, subject, however, to adjustment as hereinafter provided. At any
time after the effective date of the Plan, if there is a change in the number of
Shares outstanding, whether as a result of a stock dividend, a split-up of
Shares, merger, consolidation, recapitalization or similar corporate
transaction, then, effective with the record date for such change, the Board
shall appropriately adjust the maximum number of Shares which thereafter may be
purchased under the Plan.
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ARTICLE VI
OFFERINGS; GRANTING OF OPTIONS; AUTHORIZATION OF PAYROLL
DEDUCTIONS BY PARTICIPANTS
SECTION 6.1 Offerings may be made from time to time to all Employees.
Every eligible Employee on the Commencement Date of any Offering shall be deemed
to have been granted an Option pursuant to the terms of that Offering.
SECTION 6.2 Unless otherwise specified by the Committee, there shall be
two Offerings under the Plan during each calendar year. Unless otherwise
specified by the Committee prior to the Commencement Date for any Offering, the
Commencement Dates and Expiration Dates, respectively, of each Offering shall
(a) January 1 and June 30 and (b) July 1 and December 31.
SECTION 6.3 Each Employee shall become a Participant pursuant to the
terms of an Offering by filing an election to participate in that Offering in
the form of a payroll deduction authorization (in the manner prescribed by the
Committee) within such time as may be specified in such Offering. The election
shall specify the amount of each payroll deduction which the Employee wishes to
apply to the purchase of Stock in the Offering, which shall not be less than $10
per payroll period nor greater than $1,000 per payroll period (subject to the
limitations contained in Section 7(b) of the Plan). Payroll deductions shall (a)
commence with the first regular payroll period coinciding with or ending on the
Commencement Date of the Offering, or at such other time as may be specified in
such Offering, and (b) shall end on the earlier of the last regular payroll
period coinciding with or ending before the Expiration Date or, if earlier, upon
the termination of a Participant's employment with the Company.
ARTICLE VII
TERMS AND CONDITIONS OF OFFERINGS AND OPTIONS
SECTION 7 Except as provided in subparagraph (b) of this Section 7, all
Participants shall have the same rights and privileges, as specified below:
1. PURCHASE PRICE: Each Offering shall state the Purchase Price per
share at which Stock may be purchased thereunder. In determining
the Purchase Price, the fair market value per share of Stock
shall be the closing price reported on the New York Stock
Exchange Composite Tape for the date on which such value is
being determined, provided, however, that if any such date is
not a stock trading date, then the closing price on the next
trade date shall be used. In no event, however, shall the
Purchase Price per share for any Offering be less than the par
value per share of Stock.
2. ACCRUAL LIMITATION: Notwithstanding any other provision of the
Plan, no Option shall be granted to any Employee which would
permit such Employee to purchase Stock pursuant to all unexpired
offerings under all existing employee stock purchase plans, as
defined in Section 423 of the Code, accruing at a rate which
exceeds at any time twenty-five
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thousand dollars ($25,000) of the fair market value of the Stock
(determined at the time such Option is granted) during any
calendar year in which such Option is outstanding. For purposes
of this subparagraph (b):
a) an Option accrues when the Option (or any portion thereof)
first becomes exercisable during any calendar year;
b) an Option accrues at the rate provided in the applicable
Offering, but in no case may such rate for any Employee
exceed twenty-five thousand dollars ($25,000) of the fair
market value of the Stock determined at the time the Option
is granted for any one calendar year;
c) an Option that has accrued under any one Offering may not be
carried over by a Participant to any other Offering; and
d) only rights to purchase Stock that have been granted under
an employee stock purchase plan which complies with Section
423 of the Code shall be taken into account for purposes of
this subparagraph (b).
3. NONTRANSFERABILITY OF OPTIONS: An Option shall not be
transferable by the Employee or Participant to whom it has been
granted otherwise than by will or the laws of descent and
distribution and shall be exercisable, during his lifetime, only
by him. However, in the discretion of the Committee, the terms
of any Offering may prohibit transfer under any circumstances
and provide for cancellation of the unexercised portion of any
Option upon the death of a Participant.
4. PURCHASES: Purchases of Shares by any Participant pursuant to an
Offering shall be made with funds accumulated in his Account
through payroll deductions from such Participant's salary or as
otherwise permitted by the Committee, under rules of uniform
application over the time period specified in such Offering.
5. OTHER PROVISIONS: Each Offering shall contain such other
provisions as the Committee shall deem advisable, including
restrictions on resale of Stock purchased through an Offering,
provided that no such provisions may in any way conflict, or be
inconsistent, with the terms of the Plan as amended from time to
time.
6. REQUIREMENTS OF LAW: The issuance of any Stock hereunder is
conditioned upon registration of the Stock to be issued under
applicable federal and state securities laws and its listing on
any applicable stock exchange. In no event shall any Stock be
issued hereunder prior to the effective date of any such
registration or listing application.
7. ISSUANCE OF SHARES: The shares of Stock purchased by each
Participant shall be considered to be issued and outstanding to
his credit as of the close of business on the Expiration Date
for any
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Offering. Shares purchased by each Participant during an
Offering shall be credited to that individual's Account no later
than the day after the Expiration Date of that Offering.
8. ACCOUNT BALANCES: No interest shall accrue at any time for any
amount credited to the Account of a Participant. After the close
of each Offering, a report will be sent to each Participant
stating the entries made to his Account, the number of Shares
purchased and the applicable Purchase Price.
9. MINIMUM HOLDING PERIOD: A Participant will possess all the
rights and privileges of a stockholder with respect to all of
the Shares held in his or her Account under the Plan, including
the right to vote such Shares, and will receive all dividends,
distributions and stockholder communications with respect to
such Shares. However, Shares shall remain in the Account until
the expiration of the Minimum Holding Period with respect to
such Shares, as determined by the Committee at or prior to the
Commencement Date of the Offering.
ARTICLE VIII
WITHDRAWALS FROM PARTICIPANT ACCOUNTS
SECTION 8.1 Except for any officer of the Company who is subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended (an "Executive Officer"), Participants may cease participation in an
Offering at any time prior to the Expiration Date and withdraw all cash amounts
in their Account. Such withdrawal shall serve to cancel the Participant's Option
and the Participant shall thereupon cease his or her participation in such
Offering. Partial cash withdrawals shall not be permitted. Cash withdrawal
requests shall be made in such form and under such conditions as may be
specified from time to time by the Committee. Executive Officers may not make
cash withdrawals for so long as they remain Executive Officers.
SECTION 8.2 A Participant may request, once in each calendar year,
delivery of a stock certificate representing all or any portion of the Shares
(in a whole number of Shares) held in his or her Account for at least the
Minimum Holding Period. Unless otherwise specified by the Committee at or prior
to the Commencement Date of any Offering, the Minimum Holding Period with
respect to Shares purchased under such Offering shall be one year from the
Expiration Date of that Offering,. A Participant shall not be permitted to
pledge, transfer or sell Shares held in his or her Account until they are issued
in certificate form after expiration of the Minimum Holding Period. Withdrawals
of Shares prior to the end of the Minimum Holding Period will be permitted only
for the purpose of Hardship, demonstrated to the reasonable satisfaction of the
Committee.
SECTION 8.3 Upon termination of a Participant's employment with the
Company for any reason, whether voluntary or involuntary, his or her
participation in the Plan shall immediately terminate. As soon thereafter as
practicable, the Participant shall receive the following: (a) cash in an amount
equal to the balance
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in his or her Account as of the date of the termination of employment, (b) a
stock certificate for all whole Shares held in the Account for at least the
Minimum Holding Period and (c) the cash equivalent of any fractional Share in
the Account. Any Shares held for less than the Minimum Holding Period shall
remain in the Account for the remainder of any such holding period(s) and
certificates for such Shares shall be issued to the former Participant only at
the conclusion of the Minimum Holding Period applicable to such Shares.
ARTICLE IX
RECAPITALIZATION OR REORGANIZATION AND STOCK DIVIDENDS
SECTION 9.1 If the Company shall be the surviving corporation in any
merger, consolidation, or reorganization, each outstanding Option shall pertain
to and apply to the securities to which a holder of a number of shares subject
to the Option would have been entitled. In the event of a dissolution or
liquidation of the Company, or any merger, consolidation or reorganization in
which the Company is not the surviving corporation, the Committee, at its
election, may cause each outstanding Option to terminate, provided, however,
that each Optionee shall, in such event, subject to such rules and limitations
of uniform application as the Committee may prescribe, be entitled to the rights
of terminating Participants provided in Section 8.
SECTION 9.2 The aggregate number of Shares which may be purchased by
the exercise of outstanding Options and the Purchase Price per share covered by
each such outstanding Option and the number of Shares held in a Participant's
Account, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a subdivision or consolidation of Shares
or other capital adjustment, or the payment of a stock dividend or other
increase or decrease in such Shares effected without the receipt of
consideration by the Company.
SECTION 9.3 The grant of an Option under the Plan shall not affect in
any way the Company's right or power to make adjustments, reclassifications,
reorganizations, or changes of its capital or business or to merge, consolidate,
dissolve, liquidate, sell or transfer all or any part of its business or assets.
ARTICLE X
AMENDMENT OF THE PLAN
The Board may suspend or terminate the Plan, reconstitute the Plan in
whole or in part, or amend or revise the Plan in any respect whatsoever except
that (a) no amendment shall cause any Option to fail to qualify as an option
under an "employee stock purchase plan" as defined in Section 423 of the Code,
(b) without approval of the stockholders, no amendment shall increase the number
of Shares which may be sold under the Plan or make any change in the Employees
or class of Employees eligible to participate in the Plan, and (c) without the
approval of an Optionee, no change shall be made in the terms of any outstanding
Option adverse to the interest of the Optionee.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1 The Board may approve or adopt discount stock purchase
plans under the Plan for employees of Subsidiaries as required to meet the
provisions of the tax or securities laws or other applicable laws, rules or
regulations in the jurisdictions in which any Subsidiary operates. Any shares of
Stock issued under any such Subsidiary plans shall be deemed to have been issued
under the Plan. The Board, in its sole discretion, may delegate its authority
under this Section 11.1 to (a) its Compensation, Benefits and Nominating
Committee or (b) to the extent permitted under applicable law, to the Chief
Executive Officer or any other appropriate officer of the Company.
SECTION 11.2 Neither the Plan nor any document generated in connection
herewith shall be construed to give any Employee the right to be retained in the
employ of the Company. The Company retain the unqualified right to terminate the
employment of any Employee at any time.
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THE ALEXANDER & ALEXANDER SERVICES INC.
WORLDWIDE EMPLOYEE SAVINGS-RELATED STOCK PURCHASE PLAN
ARTICLE I
PURPOSE
This Worldwide Employee Savings-Related Stock Purchase Plan has been established
by the Board of Directors of Alexander & Alexander Services Inc. ("A&A")
pursuant to its powers under Section 11.1 of A&A's Employee Discount Stock
Purchase Plan ("Stock Plan"). It is intended to encourage employees of
subsidiaries of A&A (collectively, together with A&A, the "Company") organized
under the laws of jurisdictions outside the United States of America and the
United Kingdom to remain in the employ of the Company and to participate in its
growth by permitting them to purchase shares of A&A's common stock at a price
that is less than fair market value on the date of purchase. Such purchases
shall be made from funds accumulated through payroll deductions over a period of
not more than 66 months from the Commencement Date of any Offering under this
Plan.
ARTICLE II
DEFINITIONS
SECTION 2.1 The following words and phrases shall have the meanings indicated
for purposes of the Plan, unless the context clearly indicates otherwise:
(a) ACCOUNT. The savings account established for each Participant with the
Savings Institution.
(b) ACQUISITION PRICE. In relation to an Option means the aggregate price
payable on exercise, being the number of Shares subject to the Option
which the Optionee desires to purchase multiplied by the Purchase
Price.
(c) BOARD. The Board of Directors of A&A.
(d) COMMITTEE. The Committee appointed from time to time to administer the
Plan.
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(e) COMMENCEMENT DATE. The date as of which an Offering shall commence, as
determined pursuant to the Plan and specified in each Offering.
(f) EMPLOYEE. Any salaried employee of a Foreign Subsidiary of the Company
whose customary employment is (i) 20 hours per week or more, or (ii)
at least five months in any calendar year.
(g) FOREIGN SUBSIDIARY. A Subsidiary designated by the Committee to offer
this Plan to its Employees. Annex A lists the Foreign Subsidiaries as
at the date of establishment of this Plan.
(h) LOCAL CURRENCY. Those lawful currency or currencies in which salaries
of Employees are paid and any other currencies as the Committee may
from time-to-time approve for the purpose of the Plan.
(i) LOCAL CURRENCY EQUIVALENT. An amount of money in a Local Currency
which is equivalent to an amount in United States Dollars (US$)
calculated by using the noon buying rate for that Local Currency in
New York City on the relevant day.
(j) MAXIMUM CONTRIBUTION. Under all Savings Contracts made by an Employee
is the Local Currency Equivalent of US$1,000 per month.
(k) MONTHLY CONTRIBUTIONS. The Local Currency Equivalent per month agreed
to be paid by a Participant into his Savings Contract.
(l) OFFERING. Any offering made in accordance with the terms and
conditions of the Plan permitting Participants to enter into Savings
Contracts and acquire Options under the Plan.
(m) OFFERING PERIOD. The period starting on the Commencement Date and
ending on the Repayment Date.
(n) OPTION. The right of an eligible Employee to purchase Stock through
the Plan.
(o) OPTIONEE OR PARTICIPANT. An Employee to whom an Option has been
granted under the Plan.
(p) PLAN. The A&A Services Inc. Worldwide Employee Savings-Related Stock
Purchase Plan, as herein set forth, and as amended from time-to-time.
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(q) PURCHASE PRICE. The price per Share at which Stock may be purchased
under the Plan, which shall not be less than 85% of the fair market
value of a Share on the Commencement Date.
(r) REPAYMENT DATE. The repayment date under the Savings Contract being a
date not more than five years after the commencement of the Savings
Contract on which the total value of the Savings Contract is due to be
paid to the Employee.
(s) SAVINGS AUTHORITY. The bank or other savings institution recognized by
the Company from time-to-time for the purpose of receiving Monthly
Contributions under Savings Contracts.
(t) SAVINGS CONTRACT. The contract between a Participant and the Savings
Authority which provides for the payment of Monthly Contributions by
payroll deduction.
(u) SHARE OR STOCK. Shares of the common stock, par value $1.00 per share,
of A&A.
(v) SUBSIDIARIES. Any entity described in Section 424(f) of the Internal
Revenue Code of 1986 as amended.
SECTION 2.2 The masculine gender shall include the feminine, and the singular
shall include the plural, where appropriate.
ARTICLE III
ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee, which shall have full power and
authority to: (a) interpret and administer the Plan and any instrument or
agreement entered into under the Plan; (b) establish such rules and regulations
and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; (c) determine the terms of each Offering and Options
granted pursuant thereto, including establishing the Purchase Price for each
Offering and the length of the Offering Period; and (d) make any other
determination and take any other action that the Committee deems necessary or
desirable for administration of the Plan. Decisions of the Committee shall be
final, conclusive and binding upon all persons, including the Company, any
Participant or Optionee and any other employee of the Company. A majority of the
members of the Committee may determine its actions and fix the time and place of
its meetings.
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ARTICLE IV
EMPLOYEES ELIGIBLE TO PURCHASE STOCK
All Employees shall be eligible to receive an Option to purchase Stock under the
Plan.
ARTICLE V
STOCK
The maximum number of Shares which may be purchased under the Plan is 750,000
Shares, subject, however, to adjustment as hereinafter provided. At any time
after the effective date of the Plan, if there is a change in the number of
Shares outstanding, whether as a result of a stock dividend, a split-up of
Shares, merger, consolidation, recapitalization or similar corporate
transaction, then, effective with the record date for such change, the Board
shall appropriately adjust the maximum number of Shares which thereafter may be
purchased under the Plan.
ARTICLE VI
OFFERINGS; GRANTING OF OPTIONS; AUTHORIZATION OF
PAYROLL DEDUCTIONS BY PARTICIPANTS
SECTION 6.1 Offerings may be made from time-to-time to all Employees. Every
Employee on the Commencement Date of any Offering shall be offered the
opportunity to enter into a Savings Contract and to receive an Option pursuant
to the Plan.
SECTION 6.2 Offerings may be made under the Plan whenever the Committee thinks
fit. The Committee shall establish the length of the Offering Period, which need
not be the same for all Foreign Subsidiaries; provided, however, that no
Offering Period shall be less than 12 months nor greater than 66 months in
length.
SECTION 6.3 Each Employee shall become a Participant pursuant to the terms of an
Offering by filing an election to participate in that Offering in the form of a
payroll deduction authorization (in the manner prescribed from time-to-time by
the Committee) within such time as may be specified in such Offering. Such
authorization shall include the Employee's agreement to enter into a Savings
Contract and shall provide for the Employee to state
4
<PAGE>
the Monthly Contributions (being not less than and a multiple of the Local
Currency Equivalent of US$10) which he wishes to make under such Savings
Contract; and shall provide that, in the event of a scaling down in accordance
with Section 6.5, the Committee is authorized by the Employee to reduce the
amount of his Monthly Contributions to the extent of such scaling down. The
aggregate of the Monthly Contributions which may be made by any Participant
under all Savings Contracts entered into by him may not exceed the Maximum
Contribution.
SECTION 6.4 Each application shall be deemed to be for an Option over such
number of Shares as can be acquired at the Purchase Price with an amount of
money equal to the sum of the Monthly Contributions which the Employee has
agreed to make multiplied by 1.15.
SECTION 6.5 To the extent that valid applications are received for Options in
excess of any maximum number of Shares which are available for grant during the
relevant Offering or the limitations in Article V, then the applications shall
be scaled down to the extent necessary by reducing the proposed Monthly
Contributions in excess of the Local Currency Equivalent of US$10 pro rata and
then, so far as necessary, selecting by lot.
SECTION 6.6 Payroll deductions shall (a) commence with the first regular payroll
period coinciding with or ending on the Commencement Date of the Offering, or at
such other time as may be specified in such Offering, and (b) shall end on the
last regular payroll period coinciding with or ending before the Repayment Date
or, if earlier, upon the termination of a Participant's employment with the
Foreign Subsidiary.
ARTICLE VII
TERMS AND CONDITIONS OF OFFERING AND OPTIONS
SECTION 7 All Participants shall have the same rights and privileges, as
specified below:
(a) PURCHASE PRICE: Each Offering shall state the Purchase Price per share at
which Stock may be purchased thereunder. In determining the Purchase
Price, the fair market value per share of Stock shall be the closing
price reported on the New York Stock Exchange Composite Tape for the date
on which such value is being determined, provided, however, that if any
such date is not a stock trading date, then the closing price on the next
trade date shall be used. In no event,
5
<PAGE>
however, shall the Purchase Price per share for any Offering be less than the
par value per share of Stock.
(b) NONTRANSFERABILITY OF OPTIONS: An Option shall not be transferable by
the Employee or Participant to whom it has been granted otherwise than
by will or the laws of descent and distribution and shall be
exercisable, during his lifetime, only by him.
(c) PURCHASES: An Option may be exercised in whole or in part by the delivery
to the Company of an Option Certificate stating the number of Shares over
which the Option is then to be exercised, with the notice of exercise in
the prescribed form duly completed and signed by the Optionee (or in any
other form specified by the Committee), together with a remittance for
the Acquisition Price payable in respect of the number of Shares over
which the Option is to be exercised.
(d) OTHER PROVISIONS: Each Offering shall contain such other provisions as
the Committee shall deem advisable, including restrictions on resale of
Stock purchased through an Offering, provided that no such provisions may
in any way conflict, or be inconsistent, with the terms of the Plan as
amended from time-to-time.
(e) REQUIREMENTS OF LAW: The issuance of any Stock hereunder is conditioned
upon compliance with all legal requirements, including but not limited to
the registration of the Stock to be issued under applicable securities
laws and its listing on any applicable stock exchange. In no event shall
any Stock be issued hereunder prior to the effective date of any such
registration or listing application.
(f) ISSUANCE OF SHARES: The Shares purchased by each Participant shall be
issued and delivered to him within a reasonable period of time following
the delivery of the Acquisition Price to the Company.
(g) OPTION CERTIFICATE: The Company shall within sixty days of the
Commencement Date grant an Option to each Employee who has made a valid
application. The grant of the Option shall be evidenced by the issue of
an Option Certificate to the Employee in such form as the Committee may
determine stating the number of Shares subject to his Option and the
applicable Purchase Price.
6
<PAGE>
ARTICLE VIII
RIGHTS OF EXERCISE
SECTION 8.1 Save as provided in Section 8.2 and Article X, an Option may be
exercised only during the period of six months commencing with the Repayment
Date under the relevant Savings Contract; and save as provided in Sections
8.2(a) and 8.2(b), an Option shall not be exercisable later than six months
after the Repayment Date; and save as provided in Section 8.2, an Option may
only be exercised by a Participant while he is an Employee.
SECTION 8.2 Except as otherwise determined by the Committee and stated in the
terms of an offering, an Option may be exercised by a Participant or his
personal representatives within the periods specified in relation to the
applicable circumstances set out below:
(a) within 12 months following the date of his death if such death occurs
before the Repayment Date; or
(b) within 12 months following the Repayment Date in the event of his death
within six months after the Repayment Date; or
(c) within six months following his ceasing to be an Employee by reason of
injury, disability, or retirement; or
(d) with the approval of the Committee within six months following his
ceasing to be an Employee by reason of (i) A&A ceasing to have control of
the Foreign Subsidiary for which he worked or (ii) the transfer of the
business or part of the business in which he works to a person who is not
a Subsidiary; or
(e) within six months following her ceasing to be an Employee by reason of
pregnancy,
and for the purposes of the Plan (and, in particular, Section 8.2(e)), a woman
who leaves employment due to pregnancy or confinement in circumstances where she
has a legal right to return to work shall be deemed to have remained in
employment until such time as she is no longer capable of exercising that right
to return to work and not to have ceased to have been employed if she exercises
that right.
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SECTION 8.3 No person shall be treated for the purposes of the Plan as ceasing
to be an Employee until he ceases to hold any office or employment in any
Foreign Subsidiary.
SECTION 8.4 An Option shall lapse upon the occurrence of the earliest of the
following events:
(a) subject to (b) below, six months after the Repayment Date; or
(b) where the Option Holder dies:
(i) before the Repayment Date, 12 months after the date of death; or
(ii) within the period of six months after the Repayment Date, 12 months
after the Repayment Date;
(c) the expiry of any of the applicable periods specified in Sections
8.2(c), (d) and (e) save that, if at the time any of such applicable
periods expire, time is running under Sections 8.2(a) and (b), the Option
shall not lapse by reason of this Section 8.4(c) until the expiry of the
period in Sections 8.4(a) and (b); or
(d) the date on which a Participant ceases to be an Employee for any reason
other than those specified in Section 8.2; or
(e) the Participant fails to make more than six Monthly Contributions under
the Savings Contract.
SECTION 8.5: Where an Option is exercised prematurely pursuant to Section 8.2 or
Article X, the number of Shares in respect of which it may be exercised shall be
reduced so that it shall be proportionate to the length of time for which the
Optionee has been making Monthly Contributions under the Savings Contract.
ARTICLE IX
WITHDRAWALS FROM PARTICIPANT ACCOUNTS
Except for any officer of the Company who is subject to the reporting
requirements of Section 16(a) of the US Securities Exchange Act of 1934, as
amended (an "Executive Officer"), Participants may cease participation in an
Offering at any time prior to the Expiration Date and withdraw all cash amounts
in their Account. Such withdrawal shall serve to cancel the
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<PAGE>
Participant's Option and the Participant shall thereupon cease his or her
participation in such Offering. Partial cash withdrawals shall not be permitted.
Cash withdrawal requests shall be made in such form and under such conditions as
may be specified from time-to-time by the Committee. Executive Officers may not
make cash withdrawals for so long as they remain Executive Officers.
ARTICLE X
RECAPITALIZATION OR REORGANIZATION AND STOCK DIVIDENDS
SECTION 10.1 If the Company shall be the surviving corporation in any merger,
consolidation, or reorganization, each outstanding Option shall pertain to and
apply to the securities to which a holder of a number of shares subject to the
Option would have been entitled. In the event of a dissolution or liquidation of
the Company, or any merger, consolidation or reorganization in which the Company
is not the surviving corporation, the Committee, at its election, may cause each
outstanding Option to terminate, provided, however, that each Optionee shall, in
such event, subject to such rules and limitations of uniform application as the
Committee may prescribe, be entitled to the rights of terminating Participants
provided in Article VIII.
SECTION 10.2 The aggregate number of Shares which may be purchased by the
exercise of outstanding Options and the Purchase Price per share covered by each
such outstanding Option and the number of Shares held in a Participant's
Account, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a subdivision or consolidation of Shares
or other capital adjustment, or the payment of a stock dividend or other
increase or decrease in such Shares effected without the receipt of
consideration by the Company.
SECTION 10.3 The grant of an Option under the Plan shall not affect in any way
the Company's right or power to make adjustments, reclassifications,
reorganizations, or changes of its capital or business or to merge, consolidate,
dissolve, liquidate, sell or transfer all or any part of its business or assets.
9
<PAGE>
ARTICLE XI
AMENDMENT OF THE PLAN
Subject to the provisions of the Company's Stock Plan, the Committee may suspend
or terminate the Plan, reconstitute the Plan in whole or in part, or amend or
revise the Plan in any respect whatsoever except that no change shall be made in
the terms of any outstanding Option adverse to the interest of the Optionee
without his consent.
ARTICLE XII
MISCELLANEOUS
Neither the Plan nor any document generated in connection herewith shall be
construed to give any Employee the right to be retained in the employ of the
Company.
10
EXHIBIT 10.12
ALEXANDER & ALEXANDER SERVICES INC.
ASSISTANT SECRETARY'S CERTIFICATE
---------------------------------
The undersigned hereby certifies that he is the Senior Vice President, General
Counsel and Assistant Secretary of Alexander & Alexander Services Inc., a
Maryland corporation (the "Company") and that as such he is authorized to
execute and deliver this certificate. The undersigned hereby certifies as
follows:
Attached hereto as Exhibit A is a true, correct and complete copy
of resolutions duly adopted by the Board of Directors at a meeting
duly called and held on August 17, 1995. Such resolutions have not
been amended or modified, are in full force and effect in the form
adopted and are the only resolutions adopted by the Board of
Directors in connection with certain amendments to the Company's
Employee Discount Stock Purchase Plan.
IN WITNESS WHEREOF, I have signed this certificate
Dated: March 29, 1996
ALEXANDER & ALEXANDER SERVICES INC.
By: /s/ Albert A. Skwietz, Jr.
Name: Albert A. Skwiertz, Jr.
Title: Senior Vice President, General Counsel
and Assistant Secretary
<PAGE>
RESOLUTIONS AMENDING
THE ALEXANDER & ALEXANDER SERVICES INC.
EMPLOYEE DISCOUNT STOCK PURCHASE PLAN
AS OF AUGUST 17, 1995
RESOLVED, that the Board of Directors of the Company hereby
approves amending the Company's Employee Discount Stock Purchase Plan (the
"Plan") as follows:
(a) to delete the third sentence of Section 8.2, which deleted
sentence provided as follows: "A Participant shall not be permitted to pledge,
transfer or sell Shares held in his or her Account until they are issued in
certificate form after expiration of the Minimum Holding Period."; and
(b) to delete the second and third sentences of Article I of
the Plan and replace those sentences with the following single sentence: "Such
purchases shall be made from funds accumulated through payroll deductions in
accordance with the provisions of the Plan, which is intended to qualify as an
"Employee Stock Purchase Plan" within the meaning of Section 423 of the Code.";
and
(c) to delete the existing Section 2.1(g) and replace it with
the following:
(g) EXPIRATION DATE. The last day of any Offering
period, as determined pursuant to the Plan and as
specified in each Offering. The Expiration Date shall
be not later than (i) 27 months from the Commencement
Date of any Offering made to Employees of any
Subsidiary organized under the laws of any state of
the United States or (ii) 60 months from the
Commencement Date of any Offering made to Employees
of any Subsidiary organized under the laws of any
other jurisdiction.
EXHIBIT 10.17
SECRETARY'S CERTIFICATE
I, ALICE L. RUSSELL, Secretary of Alexander & Alexander Services Inc.,
a corporation organized under the laws of the State of Maryland, DO HEREBY
CERTIFY that at a meeting of the Compensation, Benefits & Nominating Committee
of the Board of Directors of said corporation duly held on the 20th day of
March, 1996, a quorum being present, the following resolution was duly adopted
and has not been modified or rescinded, and is now in full force and effect; and
that the same is not in contravention of or in conflict with the By-Laws or
Charter or Articles of Incorporation and is in accord therewith and pursuant
thereto:
RESOLVED, that, effective March 20, 1996, the Alexander & Alexander
Services Inc. and Subsidiaries Supplemental Executive Retirement Plan
for Senior Management is amended by eliminating in its entirety
paragraph 4.3 Mitigation of Article IV of the Plan; and
----------
FURTHER RESOLVED, that, effective March 20, 1996, the Alexander &
Alexander Services Inc. and Subsidiaries Supplemental Executive
Retirement Plan for Key Employees is amended by eliminating in its
entirety paragraph 4.3 Mitigation of Article IV of the Plan.
----------
WITNESS my hand and the seal of said Corporation this 26th day of
March, 1996.
C O R P O R A T E S E A L
/s/ Alice L. Russell
--------------------
Secretary
EXHIBIT 10.18
EMPLOYMENT CONTINUATION AGREEMENT
THIS AGREEMENT between Alexander & Alexander Services Inc., a Maryland
corporation (the "Company"), and ________________ (the "Executive"), dated as of
this 16th day of February 1996.
W I T N E S S E T H :
WHEREAS, the Company has employed the Executive in an officer position
and has determined that the Executive holds an important position with the
Company;
WHEREAS, the Company believes that, in the event it is confronted with
a situation that could result in a change in ownership or control of the
Company, continuity of management will be essential to its ability to evaluate
and respond to such situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security;
WHEREAS, the Company desires to assure itself of the Executive's
services during the period in which it is confronting such a situation, and to
provide the Executive certain financial assurances to enable the Executive to
perform the responsibilities of his position without undue distraction and to
exercise his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive
desire to enter into an agreement providing the Company and the Executive with
certain rights and obligations upon the occurrence of a Change of Control or
Potential Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date
of this Agreement shall be the earlier of the date on which a Potential Change
of Control or Change of Control occurs (the "Effective Date"),
<PAGE>
provided that if the Executive is not employed by the Company, or is employed
but on a disability leave of absence, on the Effective Date, this Agreement
shall be void and without effect.
(b) Termination of Agreement Following a Potential Change of
Control. Notwithstanding Section 1(a), in the event the Effective Date occurs
upon a Potential Change of Control, this Agreement shall cease to be effective
upon (i) a good faith determination by the Board of Directors of the Company
("Board") that the events giving rise to a Potential Change of Control will not
result in the occurrence of a Change of Control or (ii) receipt by the Company
of a written notice from the Executive, given after the first anniversary of the
occurrence of a Potential Change of Control (but prior to the occurrence of a
Change of Control), that he wants the Agreement to cease to be effective.
Following such a determination by the Board or receipt of such a notice from the
Executive, neither the Company nor the Executive shall have any obligation to
the other under this Agreement, unless and until it thereafter again becomes
effective by reason of the occurrence of another Potential Change of Control or
any actual Change of Control.
(c) Employee's Election. At the Employee's election, the rights
and benefits afforded the Employee under the terms and conditions set forth in
this Agreement are in lieu of, and not in addition to, any severance benefits
the Employee may be entitled to receive pursuant to any employment agreement or
arrangement between the Company and the Employee or any severance plan or
arrangement offered by the Company under which the Employee is eligible.
2. Definitions. (a) Change of Control. For the purposes of this
Agreement, a "Change of Control" shall be deemed to have occurred if:
(i) Any individual, firm, corporation or other entity, or any
group (as defined in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) becomes, directly or indirectly, the
beneficial owner (as defined in the General Rules and Regulations of
the Securities and Exchange Commission with respect to Section 13(d)
and 13(g) of the 1934 Act) of more than 35% of the then outstanding
shares of the Company's capital stock entitled to vote generally in the
election of directors of the Company; or
(ii) The stockholders of the Company approve a definitive
agreement for (A) the merger or other business combination of the
Company with or into another corporation pursuant to which the
stockholders of the Company do not own, immediately after the
transaction, more than 50% of the voting power of the corporation
<PAGE>
that survives and is a publicly owned corporation and not a subsidiary
of another corporation, or (B) the sale, exchange or other disposition
of all or substantially all of the assets of the Company; or
(iii) During any period of two years or less, individuals who
at the beginning of such period constituted the Board cease for any
reason to constitute at least a majority thereof unless the election,
or the nomination for the election by the stockholders of the Company,
of each new director was approved by a vote of at least 75% of the
directors then still in office who were directors at the beginning of
the period;
provided, however, that a "change of control" shall not be deemed to have taken
place if beneficial ownership is acquired by, or a tender or exchange offer is
commenced or announced by, the Company or any of it is Subsidiaries, any
profit-sharing, employee ownership or other employee benefit plan of the Company
or any Subsidiary or any trustee of or fiduciary with respect to any such plan
when acting in such capacity, or any group comprised solely of such entities.
(b) Potential Change of Control. For the purposes of this
Agreement, a Potential Change ofControl shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate
financing) for securities representing at least 20% of the voting power
of the Company's securities;
(ii) the Company enters into an agreement the consummation
of which would constitute a Change of Control;
(iii) proxies for the election of directors of the
Company are solicited by anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential
Change of Control by the Board.
3. Employment Period. Subject to Section 6 of this Agreement, the
Company agrees to continue the Executive in its employ, and the Executive agrees
to remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a substantially lower position than the position
held on the date first set forth above, the Board may declare that this
Agreement shall be without force and effect by written
<PAGE>
notice delivered to the Executive (i) within 30 days following such demotion and
(ii) prior to the occurrence of a Potential Change of Control or a Change of
Control.
4. Duties. From and after the Effective Date, the Executive agrees to
devote his full attention during normal business hours to the business and
affairs of the Company and to use his best efforts to perform faithfully
and efficiently the duties and responsibilities reasonably commensurate
with his skills, ability and training assigned to him from time to time by
the Company, except for (i) time spent in managing his personal, financial
and legal affairs and serving on corporate, civic or charitable boards or
committees, in each case only if and to the extent not substantially
interfering with the performance of such responsibilities, and (ii) periods
of vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on any
boards and committees on which he is serving or with which he is otherwise
associated immediately preceding the Effective Date shall not be deemed to
interfere with the performance of the Executive's services to the Company.
During the Employment Period, the Executive's services shall be performed
at the location where the Executive was employed immediately preceding the
Effective Date.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to
the monthly salary paid to the Executive by the Company and any of its
affiliated companies immediately prior to the Effective Date. The base
salary shall be reviewed at least once each year after the Effective Date,
and may be increased (but not decreased) at any time and from time to time
by action of the Board or any committee thereof or any individual having
authority to take such action in accordance with the Company's regular
practices. The Executive's base salary, as it may be increased from time to
time, shall hereafter be referred to as "Base Salary". Neither the Base
Salary nor any increase in Base Salary after the Effective Date shall serve
to limit or reduce any other obligation of the Company hereunder.
(b) Annual Bonus. During the Employment Period, in
addition to the Base Salary, for each fiscal year of the Company ending
during the Employment Period, the Executive shall be afforded the
opportunity to receive an annual bonus on terms and conditions no less
favorable to the Executive (taking into account reasonable changes in the
Company's goals and objectives) than the annual bonus opportunity that had
been made available to the Executive for the fiscal year ended immediately
prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount
payable in respect of the Annual Bonus Opportunity shall be paid as soon as
practicable following the year for which the amount (or prorated portion)
is
<PAGE>
earned or awarded, unless electively deferred by the Executive pursuant to any
deferral programs or arrangements that the Company may make available to the
Executive.
(c) Long-term Incentive Compensation Programs. During the
Employment Period, the Executive shall participate in all long-term incentive
compensation programs for key executives at a level that is commensurate with
the Executive's participation in such plans immediately prior to the Effective
Date, or, if more favorable to the Executive, at the level made available to the
Executive or other similarly situated officers at any time thereafter.
(d) Benefit Plans. During the Employment Period, the
Executive (and, to the extent applicable, his dependents) shall be entitled to
participate in or be covered under the Company's employee benefit programs,
including, but not limited to, all pension, retirement, deferred compensation,
savings, medical, dental, health, disability, group life, accidental death and
travel accident insurance plans and programs of the Company and its affiliated
companies at a level that is commensurate with the Executive's participation in
such plans immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available to the Executive or other similarly
situated officers at any time thereafter.
(e) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the policies and procedures of the
Company as in effect immediately prior to the Effective Date. Notwithstanding
the foregoing, the Company may apply the policies and procedures in effect after
the Effective Date to the Executive, if such policies and procedures are more
favorable to the Executive than those in effect immediately prior to the
Effective Date.
(f) Vacation and Fringe Benefits. During the Employment
Period, the Executive shall be entitled to paid vacation and fringe benefits at
a level that is commensurate with the paid vacation and fringe benefits
available to the Executive immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available from time to time to the
Executive or other similarly situated officers at any time thereafter.
(g) Indemnification. During and after the Employment Period,
the Company shall indemnify the Executive and hold the Executive harmless from
and against any claim, loss or cause of action arising from or out of the
Executive's performance as an officer, director or employee of the Company or
any of its Subsidiaries or in any other capacity, including any fiduciary
capacity, in which the Executive serves at the request of the
<PAGE>
Company to the maximum extent permitted by applicable law and the Company's
Certificate of Incorporation and By-Laws (the "Governing Documents"), provided
that in no event shall the protection afforded to the Executive hereunder be
less than that afforded under the Governing Documents as in effect immediately
prior to the Effective Date.
(h) Office and Support Staff. The Executive shall be entitled
to an office with furnishings and other appointments, and to secretarial and
other assistance, at a level that is at least commensurate with the foregoing
provided to other similarly situated officers.
6. Termination. (a) Death, Disability or Retirement. This
Agreement shall terminate automatically upon the Executive's death, termination
due to "Disability" (as defined below) or voluntary retirement under any of the
Company's retirement plans as in effect from time to time. For purposes of this
Agreement, Disability shall mean the Executive's inability to perform the duties
of his position, as determined in accordance with the policies and procedures
applicable with respect to the Company's long-term disability plan, as in effect
immediately prior to the Effective Date.
(b) Voluntary Termination. Notwithstanding anything in this
Agreement to the contrary, following a Change of Control the Executive may, upon
not less than 30 days' written notice to the Company, voluntarily terminate
employment for any reason (including early retirement under the terms of any of
the Company's retirement plans as in effect from time to time), provided that
any termination by the Executive pursuant to Section 6(d) on account of Good
Reason (as defined therein) shall not be treated as a voluntary termination
under this Section 6(b).
(c) Cause. The Company may terminate the Executive's
employment for Cause. For purposes of this Agreement, "Cause" means (i) the
Executive's conviction or plea of nolo contendere to a felony; (ii) an act or
acts of dishonesty or gross misconduct on the Executive's part which result or
are intended to result in material damage to the Company's business or
reputation; or (iii) repeated material violations by the Executive of his
obligations under Section 4 of this Agreement, which violations are demonstrably
willful and deliberate on the Executive's part and which result in material
damage to the Company's business or reputation.
(d) Good Reason. Following the occurrence of a Change of
Control, the Executive may terminate his employment for Good Reason. For
purposes of this Agreement, "Good Reason" means the occurrence of any of the
following, without the express written consent of the Executive, after the
occurrence of a Change of Control:
<PAGE>
(i) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial
or inadvertent failure remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) the Company's requiring the Executive to be based at any
office or location more than 35 miles (or such other distance as shall
be set forth in the Company's relocation policy as in effect at the
Effective Time) from that location at which he principally performed
his services immediately prior to the Change of Control, except for
travel reasonably required in the performance of the Executive's
responsibilities; or
(iii) any failure by the Company to obtain the assumption and
agreement to perform this Agreement by a successor as contemplated by
Section 12(b).
(e) Notice of Termination. Any termination by the Company for
Cause or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(e).
For purposes of this Agreement, a "Notice of Termination" means a written notice
given, in the case of a termination for Cause, within 10 business days of the
Company's having actual knowledge of the events giving rise to such termination,
and in the case of a termination for Good Reason, within 180 days of the
Executive's having actual knowledge of the events giving rise to such
termination, and which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (iii) if the termination date
is other than the date of receipt of such notice, specifies the termination date
of this Agreement (which date shall be not more than 15 days after the giving of
such notice). The failure by the Executive to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing his rights
hereunder.
(f) Date of Termination. For the purpose of this Agreement,
the term "Date of Termination" means (i) in the case of a termination for which
a Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein, as the case may be, and
(ii) in all other cases, the actual date on which the Executive's employment
terminates during the Employment Period.
<PAGE>
7. Obligations of the Company upon Termination. (a) Death
or Disability. If the Executive's employment is terminated during the
Employment Period by reason of the Executive's death or Disability, this
Agreement shall terminate without further obligations to the Executive or the
Executive's legal representatives under this Agreement other than those
obligations accrued hereunder at the Date of Termination, and the Company
shall pay to the Executive (or his beneficiary or estate) (i) the Executive's
full Base Salary through the Date of Termination (the "Earned Salary"), (ii)
any vested amounts or benefits owing to the Executive under the Company's
otherwise applicable employee benefit plans and programs, including any
compensation previously deferred by the Executive (together with any accrued
earnings thereon) and not yet paid by the Company and any accrued vacation pay
not yet paid by the Company (the "Accrued Obligations"), and (iii) any other
benefits payable due to the Executive's death or Disability under the Company's
plans, policies or programs (the "Additional Benefits").
Any Earned Salary shall be paid in cash in a single lump sum
as soon as practicable, but in no event more than 30 days (or at such earlier
date required by law), following the Date of Termination. Accrued Obligations
and Additional Benefits shall be paid in accordance with the terms of the
applicable plan, program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment
Period, the Executive's employment shall be terminated for Cause or voluntarily
terminated by the Executive (other than on account of Good Reason following a
Change of Control), the Company shall pay the Executive (i) the Earned Salary in
cash in a single lump sum as soon as practicable, but in no event more than 10
days, following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and
------------------------------------------------------
Termination by the Executive for GoodReason.
- -------------------------------------------
(i) Lump Sum Payments. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause, or
following a Change of Control the Executive terminates his employment
for Good Reason, the Company shall pay to the Executive the following
amounts:
(A) the Executive's Earned Salary;
(B) an amount equal to the product of (i) the incentive
compensation the Executive would have been entitled
<PAGE>
to receive under Paragraph 5(b) for the calendar year
in which his employment terminates had he remained
employed for the entire year and assuming that all
targets for such year had been met (the "Target
Bonus"), multiplied by (ii) a fraction, the numerator
of which is equal to the number of days in the
calendar year of the Executive's termination of
employment which have elapsed, as of the date of such
termination, and the denominator of which is 365 (the
"Accrued Bonus");
(C) a cash amount (the "Severance Amount") equal to ____
times the sum of
(1) the Executive's annual Base Salary; and
(2) the greater of
(x) the average of the bonuses payable to
the Executive for the five fiscal
years of the Company (or such lesser
period for which the Executive was
employed, with any bonus payable for
any period of employment of less than
a full fiscal year annualized for the
purposes of this calculation) ending
immediately prior to the Effective
Date; or
(y) the Target Bonus
(D) a cash amount (the "Incremental Retirement Benefit")
equal to the present value, calculated using a discount
rate equal to the then prevailing applicable Federal
rate as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended (the "Code"),
of the additional retirement benefits (including,
without limitation, any pension, retiree life or
retiree medical benefits) that would have been payable
or available to the Executive under any employee
benefit plan qualified under Section 401(a) of the Code
and under any supplemental retirement plan or
arrangement based on (x) the age and service the
Executive would have attained or completed had the
Executive continued in the Company's employ until the
expiration of the Employment Period and, (y) where
compensation is a relevant factor, his pensionable
compensation at the Date of Termination; and
<PAGE>
(E) the Accrued Obligations.
The Earned Salary, Accrued Bonus, Severance Amount and
Incremental Retirement Benefit shall be paid in cash in a
single lump sum as soon as practicable, but in no event more
than 30 days (or at such earlier date required by law),
following the Date of Termination. Accrued Obligations shall
be paid in accordance with the terms of the applicable plan,
program or arrangement.
(ii) Continuation of Benefits. If, during the Employment
Period, the Company terminates the Executive's employment other than
for Cause, or following a Change of Control the Executive terminates
his employment for Good Reason, the Executive (and, to the extent
applicable, his dependents) shall be entitled, after the Date of
Termination until the earlier of (1) the third anniversary of the Date
of Termination (the "End Date") and (2) the date the Executive becomes
eligible for comparable benefits under a similar plan, policy or
program of a subsequent employer, to continue participation in all of
the Company's employee and executive welfare and fringe benefit plans
(the "Benefit Plans"). To the extent any such benefits cannot be
provided under the terms of the applicable plan, policy or program, the
Company shall provide a comparable benefit under another plan or from
the Company's general assets. The Executive's participation in the
Benefit Plans will be on the same terms and conditions that would have
applied had the Executive continued to be employed by the Company
through the End Date.
(iii) In the event that the Executive shall in good faith give
a Notice of Termination for Good Reason and it shall thereafter be
determined that Good Reason did not exist and independent counsel
chosen by the Board of Directors of the Company shall have determined
after appropriate investigation that Good Reason did not exist, the
employment of the Executive shall, unless the Company and the Executive
shall otherwise mutually agree, be deemed to have terminated, at the
date of giving such purported Notice of Termination, by mutual consent
of the Company and the Executive and the Executive shall be entitled to
<PAGE>
receive only those payments and benefits which he would have been
entitled to receive his Earned Salary, Accrued Bonus and Accrued
Obligations.
(d) Discharge of the Company's Obligations. Except as
expressly provided in the last sentence of this Section 7(d), the amounts
payable to the Executive pursuant to this Section 7 (whether or not reduced
pursuant to Section 7(e)) following termination of his employment shall be in
<PAGE>
full and complete satisfaction of the Executive's rights under this Agreement
and any other claims he may have in respect of his employment by the Company or
any of its Subsidiaries. Such amounts shall constitute liquidated damages with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment with the Company and its
Subsidiaries. Nothing in this Section 7(d) shall be construed to release the
Company from its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action arising from or out
of the Executive's performance as an officer, director or employee of the
Company or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the Company
to the maximum extent permitted by applicable law and the Governing Documents.
(e) Limit on Payments by the Company.
(i) Application of Section 7(e). In the event that any amount
or benefit paid or distributed to the Executive pursuant to this
Agreement, taken together with any amounts or benefits otherwise paid
or distributed to the Executive by the Company or any affiliated
company (collectively, the "Covered Payments"), would be an "excess
parachute payment" as defined in Section 280G of the Code and would
thereby subject the Executive to the tax (the "Excise Tax") imposed
under Section 4999 of the Code (or any similar tax that may hereafter
be imposed), the provisions of this Section 7(e) shall apply to
determine the amounts payable to Executive pursuant to this Agreement.
(ii) Calculation of Benefits. Immediately following delivery
of any Notice of Termination, the Company shall notify the Executive of
the aggregate present value of all termination benefits to which he
would be entitled under this Agreement and any other plan, program or
arrangement as of the projected Date of Termination, together with the
projected maximum payments, determined as of such projected Date of
Termination that could be paid without the Executive being subject to
the Excise Tax.
(iii) Imposition of Payment Cap. If (x) the aggregate value of
all compensation payments or benefits to be paid or provided to the
Executive under this Agreement and any other plan, agreement or
arrangement with the Company exceeds the amount which can be paid to
the Executive without the Executive incurring an Excise Tax
and (y) the Executive would receive a greater net-after tax amount
(taking into account all applicable taxes payable by the Executive,
including any Excise Tax) by applying the limitation contained in this
Section 7(e)(iii), then the amounts payable to the Executive under
this Section 7 shall be reduced (but not below zero) to the maximum
amount which may be paid hereunder without the Executive becoming
subject to such an Excise Tax (such reduced payments to be referred to
as the "Payment Cap"). In the event that Executive receives reduced
payments and benefits hereunder, Executive shall have the right to
designate which of the payments and benefits otherwise provided for in
this Agreement that he will receive in connection with the application
of the Payment Cap.
(iv) Application of Section 280G. For purposes of determining
whether any of the Covered Payments will be subject to the Excise Tax and e
the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute
payments" within the meaning of Section 280G of the
Code, and all "parachute payments" in excess of the
"base amount" (as defined under Section 280G(b)(3) of
the Code) shall be treated as subject to the Excise
Tax, unless, and except to the extent that, in the good
faith judgment of the Company's independent certified
public accountants appointed prior to the Effective
Date or tax counsel selected by such Accountants (the
"Accountants"), the Company has a reasonable basis to
conclude that such Covered Payments (in whole or in
part) either do not constitute "parachute payments" or
represent reasonable compensation for personal services
actually rendered (within the meaning of Section
280G(b)(4)(B) of the Code) in excess of the "base
amount," or such "parachute payments" are otherwise not
subject to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the
Accountants in accordance with the principles of
Section 280G of the Code.
(v) Applicable Tax Rates. For purposes of determining whether
the Executive would receive a greater net after-tax benefit were the
amounts payable under this Agreement reduced in accordance with
Paragraph 7(e)(iii), the Executive shall be deemed to pay:
<PAGE>
(A) Federal income taxes at the highest applicable
marginal rate of Federal income taxation for the
calendar year in which the first amounts are to be
paid hereunder, and
(B) any applicable state and local income taxes at the
highest applicable marginal rate of taxation for such
calendar year, net of the maximum reduction in
Federal incomes taxes which could be obtained from
the deduction of such state or local taxes if paid in
such year;
provided, however, that the Executive may request that such
determination be made based on his individual tax circumstances, which
shall govern such determination so long as the Executive provides to
the Accountants such information and documents as the Accountants shall
reasonably request to determine such individual circumstances.
(vi) Adjustments in Respect of the Payment Cap. If the
Executive receives reduced payments and benefits under this Section
7(e) (or this Section 7(e) is determined not to be applicable to the
Executive because the Accountants conclude that Executive is not
subject to any Excise Tax) and it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding (a
"Final Determination") that, notwithstanding the good faith of the
Executive and the Company in applying the terms of this Agreement, the
aggregate "parachute payments" within the meaning of Section 280G of
the Code paid to the Executive or for his benefit are in an amount that
would result in the Executive being subject an Excise Tax and the
Executive would still be subject to the Payment Cap under the
provisions of Section 7(e)(iii), then the amount equal to such excess
parachute payments shall be deemed for all purposes to be a loan to the
Executive made on the date of receipt of such excess payments, which
the Executive shall have an obligation to repay to the Company on
demand, together with interest on such amount at the applicable Federal
rate (as defined in Section 1274(d) of the Code) from the date of the
payment hereunder to the date of repayment by the Executive. If this
Section 7(e) is not applied to reduce the Executive's entitlements
under this Section 7 because the Accountants determine that the
Executive would not receive a greater net-after tax
<PAGE>
benefit by applying this Section 7(e) and it is established pursuant
to a Final Determination that, notwithstanding the good faith of the
Executive and the Company in applying the terms of this Agreement, the
Executive would have received a greater net after tax benefit by
subjecting his payments and benefits hereunder to the Payment Cap,
then the aggregate "parachute payments" paid to the Executive or for
his benefit in excess of the Payment Cap shall be deemed for all
purposes a loan to the Executive made on the date of receipt of such
excess payments, which the Executive shall have an obligation to repay
to the Company on demand, together with interest on such amount at the
applicable Federal rate (as defined in Section 1274(d) of the Code)
from the date of the payment hereunder to the date of repayment by the
Executive. If the Executive receives reduced payments and benefits by
reason of this Section 7(e) and it is established pursuant to a Final
Determination that the Executive could have received a greater amount
without exceeding the Payment Cap, then the Company shall promptly
thereafter pay the Executive the aggregate additional amount which
could have been paid without exceeding the Payment Cap, together with
interest on such amount at the applicable Federal rate (as defined in
Section 1274(d) of the Code) from the original payment due date to the
date of actual payment by the Company.
8. Non-exclusivity of Rights. Except as expressly provided
herein, nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Company or any of its affiliated companies and
for which the Executive may qualify, nor shall anything herein limit or
otherwise prejudice such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies, including
employment agreements or stock option agreements. Amounts which are vested
benefits or which the Executive is otherwise entitled to
receive under any plan or program of the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan or
program.
9. No Offset; No Mitigation. The Company's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any
claim in any contest (whether initiated by the Executive or by the Company) as
to the validity, enforceability or interpretation of any provision of this
Agreement, the Company shall pay the Executive's legal expenses (or cause such
expenses to be paid) including, without limitation, his reasonable
<PAGE>
attorney's fees, on a quarterly basis, upon presentation of proof of
such expenses in a form acceptable to the Company, provided that the
Executive shall reimburse the Company for such amounts, plus simple
interest thereon at the 90-day United States Treasury Bill rate as in
effect from time to time, compounded annually, if the Executive shall
not prevail, in whole or in part, as to at least one material issue as
to the validity, enforceability or interpretation of any provision of
this Agreement.
11. Confidential Information; Noncompetition and
Nonsolicitation. By and in consideration of the salary and benefits to
be provided by the Company hereunder, including the severance
arrangements set forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, (i) obtained by the Executive during
his employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
(b) [This section is intentionally omitted.]
(c) Nonsolicitation of Employees. During the Employment Period and
for 180 days year following the termination of the Employment Period, Executive
will not, directly or indirectly, induce any employee of the Company or any of
its subsidiaries to terminate employment with such entity, and shall not,
directly or indirectly, either individually or as owner, agent, employee,
consultant or otherwise, employ or offer employment to any person who is or was
employed by the Company or a subsidiary thereof.
(d) Company Property. Except as expressly provided herein,
promptly following the Executive's termination of employment, the Executive
shall return to the Company all property of the Company and all copies thereof
in the Executive's possession or under his control.
(e) Injunctive Relief and Other Remedies with Respect to
Covenants. Executive acknowledges and agrees that the covenants and obligations
of Executive with respect to noncompetition, nonsolicitation,
<PAGE>
confidentiality and Company property relate to special, unique and extraordinary
matters and that a violation of any of the terms of such covenants and
obligations will cause the Company irreparable injury for which adequate
remedies are not available at law. Therefore, Executive agrees that the Company
shall be entitled to an injunction, restraining order or such other equitable
relief (without the requirement to post bond) restraining Executive from
committing any violation of the covenants and obligations contained in this
Paragraph 11. These injunctive remedies are cumulative and are in addition to
any other rights and remedies the Company may have at law or in equity. In
connection with the foregoing provisions of this Paragraph 11, Executive
represents that his economic means and circumstances are such that such
provisions will not prevent him from providing for himself and his family on a
basis satisfactory to him. In no event, however, shall an asserted violation of
the provisions of this Section 11 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this Agreement.
12. Successors. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall
not be assignable by the Executive otherwise than by will or the laws
of descent and distribution. This Agreement shall inure to the benefit
of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors. The Company shall require any
successor to all or substantially all of the business and/or assets of the
Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent as the Company would be
required to perform if no such succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall
be governed by and construed in accordance with the laws of the State
of New York, applied without reference to principles of conflict of
laws.
(b) Arbitration. Except to the extent provided in Section
11(e), any dispute or controversy arising under or in connection with this
Agreement shall be resolved by binding arbitration. The arbitration shall be
held in New York, New York and except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at
the time of the arbitration, and otherwise in accordance with principles
which would be applied by a court of law or equity. The arbitrator shall be
acceptable to both the Company and the Executive.
<PAGE>
If the parties cannot agree on an acceptable arbitrator, the dispute shall be
heard by a panel of three arbitrators, one appointed by each of the parties and
the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the matters referred to
herein. No other agreement relating to the terms of the Executive's employment
by the Company, oral or otherwise, shall be binding between the parties unless
it is in writing and signed by the party against whom enforcement is sought.
There are no promises, representations, inducements or statements between the
parties other than those that are expressly contained herein. The Executive
acknowledges that he is entering into this Agreement of his own free will and
accord, and with no duress, that he has read this Agreement and that he
understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder
shall be in writing and shall be given by hand-delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: at the home address of the
Executive noted on the records
of the Company
If to the Company: Alexander & Alexander Services
1185 Avenue of the Americas
New York, New York
Attn.: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any
amounts payable under this Agreement such Federal, state or local taxes as shall
be required to be withheld pursuant to any applicable law or regulation.
(g) Severability; Reformation. In the event that one or more
of the provisions of this Agreement shall become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby. In the
<PAGE>
event that any of the provisions of any of Section 11 are not enforceable
in accordance with its terms, the Executive and the Company agree that such
Section shall be reformed to make such Section enforceable in a manner which
provides the Company the maximum rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or
default by the other party of any of the terms of this Agreement shall not
operate as a waiver of any other breach or default, whether similar to or
different from the breach or default waived. No waiver of any provision of this
Agreement shall be implied from any course of dealing between the parties hereto
or from any failure by either party hereto to assert its or his rights hereunder
on any occasion or series of occasions.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(j) Captions. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and the Company has caused this Agreement to be executed in its name on its
behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
ALEXANDER & ALEXANDER SERVICES INC.
------------------------------------------
Frank G. Zarb
Chairman of the Board,
President and Chief Executive Officer
WITNESSED:
- ------------------------------
EXECUTIVE:
------------------------------------
WITNESSED:
- -------------------------------
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of February 15, 1996, between Alexander &
Alexander Services Inc., a Maryland corporation (the "Company"), and Edward F.
Kosnik ("Executive"), a resident of the State of Connecticut.
W I T N E S S E T H:
WHEREAS, the Executive currently serves as the Company's
Senior Executive Vice President and Chief Financial Officer; and
WHEREAS, the Company believes that the services performed to
date by Executive have been of substantial value to the Company and that
Executive's continued service would be of great value to the Company; and
WHEREAS, the Company desires to assure itself of Executive's
continued employment and Executive is willing to continue his employment with
the Company upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and of the mutual benefits herein provided, the Company and
Executive hereby agree as follows:
1. Term of Employment.
Except as provided in Section 8, the Company shall employ
Executive for the period commencing on August 17, 1995 (the "Effective Date")
and ending on August 31, 2000 (the "Employment Period").
2. Duties.
During Executive's employment hereunder, Executive agrees (a)
to serve as Senior Executive Vice President and Chief Financial Officer of the
Company and (b) to perform such duties as may be assigned to him from time to
time by the Company which are consistent with the Executive's skill, position,
training and ability. During his employment hereunder, Executive shall devote
his entire time, energy and skill during regular business hours (other than
during periods of illness, vacation and other approved absences) to the affairs
of the Company and to the promotion of its interests.
<PAGE>
3. Base Compensation.
During the term of this Agreement, the Company shall pay
Executive a base salary at an annual rate of not less than $400,000 in
approximately equal installments payable semi-monthly. The Company shall
annually review Executive's base salary and he shall be eligible for an increase
in such then existing base salary, contingent on his performance and the
Company's then existing merit increase guidelines applicable to employees with
responsibilities and skills similar to those of Executive. During the term
hereof, the Company shall not have the ability to decrease the then existing
base salary of Executive without his consent.
4. Incentive Compensation.
During the term of this Agreement, Executive will participate
in the Company's annual and long term incentive compensation programs at a level
commensurate with his position at the Company and consistent with then current
policies and practices. The amount payable to Executive under the applicable
annual bonus plan in respect of his services to the Company for each of the
calendar years 1995 and 1996 shall not be less than $200,000
5. Supplemental Retirement Benefits.
(a) Pre-55 Age and Service Supplement. If, prior to
attaining age 55, Executive's employment is terminated (i) by reason
of his death, (ii) by the Company under the provisions of Section
8(a)(iii) or (iii) by Executive under the provisions of Section
8(a)(iv)or Section 8(a) (v), then the benefit of Executive (or his
spouse, if applicable) under Section 4.1(a) of the Company's
Supplemental Executive Retirement Plan for Senior Management (the
"SERP") shall be calculated as if Executive had remained in the
Company's employ until the last day of the month in which Executive
attains (or would have attained) age 55 and earned compensation during
such period of deemed employment at a rate equal to his actual
compensation in effect immediately prior to such termination.
(b) Special Spouse's Benefit. If Executive dies prior to
attaining age 55 while an employee of the Company or while receiving
benefits under Section 8(b)(i) or Section 8(b)(ii), the Company shall
pay Executive's spouse a special spouse's benefit, commencing as of
the first day of the calendar month immediately following the date of
Executive's death, and continuing until the first day of the month
next following the date on which Executive would have attained age 55,
in an amount equal to the sum of (x) the benefits that would be
payable to Executive's spouse under the SERP and (y) the benefits that
would be payable to Executive's spouse under Section 5(a), determined
as though Executive had lived until age 55, commenced payment of his
benefits in the form of a 50% joint and survivor annuity and died
immediately thereafter.
<PAGE>
(c) Manner of Payment. Any additional retirement benefit
payable in accordance with Section 5(a) shall be paid at the same
time, in the same manner and subject to the same terms and conditions
as, benefits payable to Executive under the SERP, except that in no
event shall the benefits payable under Section 5(a) be less than the
actuarial equivalent of the benefit payable thereunder at the age at
which Executive elects to commence receipt of his retirement benefits.
Without limiting the generality of the foregoing, upon the occurrence
of a Change of Control of the Company, as defined in the SERP, the
Company shall contribute to a grantor trust an amount sufficient to
fund, on a present value basis, the Company's obligations, if any, to
Executive (or his spouse) under Sections 5(a) and 5(b).
(d) No Mitigation. Notwithstanding anything in this
Agreement or the SERP to the contrary, the benefits payable to
Executive under Section 5(a) shall not be reduced, offset or otherwise
altered by reason of Executive's employment with any other employer
during the period that such benefits are payable, unless, in
connection with such employment, Executive breaches his covenants
under this Agreement.
6. Benefits and Perquisites.
Executive shall be entitled to participate in the employee
benefit plans, policies and programs which are available generally to
the Company's employees. Executive shall be provided with perquisites
in accordance with the Company's plans, programs and policies
generally applicable to senior officers.
7. Expenses.
The Company agrees to reimburse Executive for expenses properly
incurred by him in the performance of his duties hereunder in
accordance with policies established from time to time by the Company.
Executive will provide the Company with substantiation of such
expenses in such manner as is reasonably requested by the Company.
8. Termination of Employment and this Agreement.
(a) Executive's employment hereunder shall cease and
terminate upon the earliest of the events specified below:
(i) The death of Executive.
(ii) Termination of Executive's employment
for Cause, limited to (A) a finding by the Board of Directors of
the Company that the Executive has willfully and materially
failed, refused or neglected to perform and discharge his duties
and responsibilities hereunder for at least 10 business days
after written notice from the Company setting forth the actions
or omissions, as
the case may be, which constitute such failure, refusal or
neglect, (B) a violation of any of the covenants set forth
in Sections 9 through 14 hereof, (C) a material breach of
Executive's fiduciary duties to the Company or any subsidiary
or affiliate which results in a material detriment to the
Company, (D) repeated material gross misconduct by Executive,
(E) commission by Executive of an intentional tort against
the business and operations of the Company or any member of
the same controlled group of corporations (the "A & A Group")
which results in a material detriment to the Company or any
member of the A & A Group or (F) Executive's commission of an act
constituting a criminal act which the Board of Directors of the
Company determines in good faith will have a material adverse
impact on the business or reputation of the Company or any member
of the A & A Group if Executive remains in the Company's employ.
(iii)Termination of Executive's employment
by the Company other than for Cause pursuant to 90 days' written
notice to Executive.
(iv) Termination of Executive's employment by
Executive for Good Reason, limited to a termination occurring (A)
within 90 days following a reduction in Executive's base salary
payable under Section 3, (B) within 90 days following a material
breach of this Agreement by the Company, or (C) within 90 days
following the relocation of Executive's principal place of
employment to any location other than a principal city in North
America, the United Kingdom, Australia or Western Europe;
provided, however, that Executive shall give the Company at least
30 days prior written notice of his intention to terminate his
employment under this subsection 8(a)(iv).
(v) Termination of Executive's employment by
Executive within 36 months following a Change of Control (as
defined in the SERP, as in effect on the date hereof and
expressly incorporated herein by reference) which is a
termination for Good Reason under the A&A Services Senior
Executive Severance Plan (the "Severance Plan").
(b) Post-Termination Matters
(i) Severance Benefits. If Executive's
employment is terminated by the Company pursuant to Section
8(a)(iii) or by Executive pursuant to Section 8(a)(iv), Executive
shall be entitled to receive from the Company, in a single lump
sum payment, an amount equal to two times his then current annual
salary and his targeted annual bonus for the then current year in
lieu of any benefits under the Severance Plan to which Executive
would otherwise be entitled. Executive shall, however, also be
entitled to receive those benefits listed in Section 8.1.2.b of
the Severance Plan as of the date of this Agreement for the
shorter of the period ending (A) 24 months from the termination
of his employment or (B) upon his commencement of subsequent
employment by an employer other than the Company.
<PAGE>
(ii) Termination Following a Change of
Control. If Executive's employment is terminated by either party
pursuant to Section 8(a)(v), Executive shall be entitled to
receive from the Company an amount equal to three times his then
current annual salary and his targeted annual bonus for the then
current year in lieu of any benefits under the Severance Plan to
which Executive would otherwise be entitled.
(iii) Liquidated Damages. The amount paid to
Executive pursuant to either Section 8(b)(i) or Section 8(b)(ii)
shall be paid as liquidated damages and shall be in lieu of all
other amounts which may be due to Executive as severance pay or
otherwise as a result of the termination of Executive's
employment hereunder, except that Executive's rights under
Section 5 hereof and any benefit plan, policy or arrangement
providing benefits other than severance shall be determined under
the terms of such Section or such plan, policy or arrangement.
(iv) Breach by Executive. Executive agrees
that his failure to remain in the Company's employ in accordance
with the terms of this Agreement may result in disruption of the
ongoing business affairs of the Company. Executive therefore
agrees that, in addition to any other rights or remedies
available to the Company, if Executive terminates his employment
hereunder for reasons other than those described in Section
8(a)(iv) or Section 8(a)(v) and obtains (or intends to obtain)
other employment, Executive shall not disclose any information
regarding such employment to any third party, including, without
limitation, any Client (as defined below), without the written
consent of the Company for a period of 90 days after giving the
Company written notice of his intent to terminate his employment
with the Company. Additionally, if the Company provides Executive
with written notice not later than two business days after the
termination of Executive's employment, Executive shall refrain
from commencing such other employment and shall refrain from
publicizing his obtaining of such other employment for a period
of time specified in such notice ("Notice Period"), which Notice
Period shall not exceed ninety (90) days from the date of such
notice. During the Notice Period, the Company shall continue
compensation, benefits and perquisites for Executive at the rate
and level in effect as of the termination of his employment and
shall not require Executive to perform any services on behalf of
the Company except to reasonably cooperate in any appropriate
announcement of Executive's termination of employment with the
Company.
(v) Definition of "Client". As used herein,
"Client" shall mean any actual clients and customers of the Company, and
any active prospective clients or customers of the Company which
Executive alone, or in combination with others, handled, serviced, or
solicited at any time during the two
<PAGE>
(2) year period immediately preceding the
termination of Executive's employment with the Company.
9. Confidentiality and Non-Disclosure.
It is understood that in the course of Executive's employment
with the Company, Executive has become and will continue to become acquainted
with Confidential Information (as defined below). Executive recognizes that
Confidential Information has been developed by the members of the A & A Group at
great expense, is confidential and proprietary to the members of the A&A Group,
and is and shall remain the exclusive property of the members of the A& A Group.
Executive agrees that Executive will not without the express, written consent of
the Company during the term of employment and for two (2) years after the
Termination Date, disclose, copy, make any use of, or remove from the Company's
premises Confidential Information (as defined below), except as may be required
in the course of Executive's employment. "Confidential Information" shall mean
the confidential and proprietary information of any member of the A & A Group
relating to: (a) internal business and management practices and procedures; (b)
sources with which insurance is placed; (c) A & A clients' policy expiration
dates, policy terms, conditions, and rates; (d) A & A clients' risk
characteristics and confidential information; (e) insurance markets and
marketing for A&A clients; (f) salary, bonus and other personal information
relating to employees of any member of the A&A Group; (g) corporate financial
and business information, strategies and plans of A&A, any member of the A&A
Group, or the A&A Group as a whole; (h) corporate human resource information,
strategies and plans of A & A, any member of the A & A Group, or the A & A Group
as a whole; (i) decisions and deliberations of committees or boards of any
member of the A & A Group in which Executive participates; or (i) litigation
affecting any member (s) of the A & A Group.
10. Recruitment of Employees.
Executive recognizes that the employees of each member of the
A & A Group are a valuable resource of each such member. Executive agrees that
Executive shall not, for a period of two (2) years following the Termination
Date, either alone or in conjunction with any other person or entity solicit,
induce or recruit any employee to leave the employ of any member of the A & A
Group.
11. Right to New Ideas.
Any invention, improvement, innovation, new product, process,
or idea made or developed by Executive, alone or in conjunction with others,
during the course of Executive's employment with the Company, relating to the
business of any member of the A & A Group, shall be deemed to have been made or
developed by Executive solely for the benefit of such member and shall be the
sole and exclusive property of such member. Executive shall not, either during
the course of Executive's employment or after the Termination Date, use or
disclose to any third party such invention,
<PAGE>
improvement, innovation or new product, process or idea, except as expressly
authorized by the Company in writing.
12. Return of Confidential Information.
As of the Termination Date Executive shall promptly return to
the Company originals or copies of any and all materials, documents, notes,
manuals or lists containing or embodying Confidential Information, or relating
directly or indirectly to the business of any member of the A & A Group, in the
possession or control of Executive.
13. Prior Covenants.
Executive agrees that the covenants contained in this
Agreement are in addition to and not in lieu of any covenants previously entered
into between Executive and the Company and reaffirms the validity,
reasonableness and his willingness to be bound by the terms of those prior
covenants.
14. Disclosure of this Agreement.
As soon as reasonably possible prior to the commencement by
Executive of employment with any third party during the two (2) year period
following the Termination Date, Executive shall promptly furnish such new
employer with a copy of this Agreement.
15. Remedies with Respect to Covenants.
(a) The parties recognize that irreparable
injury will result to the A & A Group, its business and its property in the
event of a breach by Executive of the covenants contained in Section 8(b)(iv),
and Sections 9 through 14 (a "Breach"). It is agreed that in the event of any
Breach, or threatened Breach, the Company shall be entitled, in addition to any
other remedies and damages available, to an injunction to restrain such Breach
or threatened Breach. Executive agrees that any member of the A & A Group for
which Executive performs services may enforce this Agreement. Executive and the
Company agree that all reasonable expenses, including attorneys' fees, that are
incurred by the party that is successful in any action involving any such
covenant shall be borne by the losing party.
(b) If Executive shall have committed a
Breach under Section 9 or 10, and if the Company shall bring legal action for
injunctive or other relief, such relief shall have the duration specified in
such Section, commencing from the date such relief is granted, but reduced by
the period of time elapsed between the Termination Date and such Breach.
<PAGE>
16. Nature and Reformation of Covenants.
(a) Executive agrees and acknowledges that
nothing contained in this Agreement or the enforcement of any covenant herein
alters or shall alter Executive's ability to obtain a livelihood for the
Executive or Executive's family. Executive recognizes that the covenants
contained in this Agreement are reasonably necessary to protect the Company's
legitimate interest in the customers and accounts Executive develops as an
employee and to protect Confidential Information. Executive further
acknowledges that the business of the Company and the A & A Group is not
confined to a specific geographical area, and that the absence of a geographical
limitation in Sections 9 and 10 hereof is, in view of the nature of the
business, reasonable.
(b) Executive agrees that the covenants
contained in Section 8(b)(iv) and Sections 9 through 14 are a substantial part
of the consideration being received by the Company in respect of this Agreement,
and are being made by Executive expressly to induce the Company to enter into
this Agreement. Executive and the Company agree that if any provision of any
such covenant cannot be enforced as written, due to the length or scope of the
prohibitions contained therein or for any other reason, a court or arbitrator
having jurisdiction over this Agreement shall reform any such unenforceable
provision so that it shall be enforceable in the manner which provides the
Company and each member of the A & A Group with the greatest level of protection
permissible at law.
17. Assignment.
This Agreement shall not be assigned by either Executive or
the Company except that the Company shall have the right to assign its rights
hereunder to any direct or indirect parent or subsidiary of the Company or to
any successor in interest of the Company whether by merger, consolidation,
purchase of assets or otherwise. The Company represents and warrants that it
currently has no intention to enter into any transactions which could result in
this Agreement being assigned.
18. Survival.
The provisions of Section 5, Section 8(b) and Sections 9
through 16 shall survive the term of this Agreement and shall continue in full
force and effect in accordance with their terms.
<PAGE>
19. Notices.
All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been given if delivered
by hand or mailed within the continental United States by first-class,
registered or certified mail, return receipt requested postage and registry fees
prepaid and addressed as follows:
(a) if to the Company:
Alexander & Alexander Services Inc.
1185 Avenue of the Americas
New York, New York 10036
Attn: General Counsel
(b) if to Executive:
Edward F. Kosnik
9 Ashton Drive
Greenwich, Connecticut 06831
Addresses may be changed by notice in writing signed by the
addressee.
20. Disputes.
Any disputes arising under this Agreement (excepting disputes
relating to the covenants set forth in Sections 9, 10, 11, 12, 13 and/or 14)
shall be resolved by binding arbitration under the rules of the American
Arbitration Association then in effect in the State of New York, by an
arbitrator acceptable to both the Company and Executive. If the parties cannot
agree on an acceptable arbitrator, the dispute shall be heard by a panel of
three arbitrators, one appointed by each of the parties and the third appointed
by the other two arbitrators. Any such arbitration shall be held in New York,
New York, and the costs of such arbitration shall be borne by the party who
loses such arbitration.
21. Miscellaneous.
(a) Entire Agreement. Except as otherwise
expressly provided, this Agreement embodies the en tire understanding
between Executive and the Company, except that nothing in this
Agreement shall be deemed to limit, restrict, constrain, supersede
or otherwise impair the Company's rights and benefits under the terms
of any agreement between the Company and Executive in effect on the
date hereof regarding confidentially, non-competition by Executive,
non-solicitation or any other matter discussed and described in
Sections 9 through 16 hereof.
<PAGE>
(b) Amendments. No amendment, change, alteration or
other modification of this Agreement shall be made except in writing
signed by both parties hereto.
(c) Headings. The headings in this Agreement are for
convenience of reference only and shall not be considered as part of this
Agreement nor limit or otherwise affect the meaning hereof.
(d) Severability. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal and
unenforceable in any respect, the validity, legality and enforceability
of the remaining provisions contained herein shall not in any way be
affected or impaired thereby.
(e) Governing Law. This Agreement shall in all respects
be governed and construed in accordance with the laws of the State of
Maryland.
(f) Withholding. Any payments provided for herein shall be
reduced by any amounts required to be withheld by the Company from time to
time under applicable Federal, State or local income tax laws or similar
statutes then in effect.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above written.
ALEXANDER & ALEXANDER SERVICES INC.
By:
------------------------------------
Edward F. Kosnik
-------------------------------------
<PAGE>
AMENDMENT NUMBER 1
THIS AMENDMENT made as of the 16th day of February, 1996, by and
between Alexander & Alexander Services Inc., a Maryland corporation (the
"Company"), and Edward F. Kosnik (the "Executive"), a resident of the State of
Connecticut.
WITNESSETH
WHEREAS, the Executive and the Company are party to a certain
Employment Agreement dated as of February 15, 1996 (the "Employment Agreement");
and
WHEREAS, the Executive and the Company are desirous of amending the
Employment Agreement, to more fully set forth their mutual responsibilities and
obligations in the event of a change of control of the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 8(a)(v) of the Employment Agreement shall be
omitted in its entirety and replaced by The following:
"(v) Termination of Executive's employment by Executive within 36
months following a Potential Change of Control or a Change of Control, as
defined in that certain Employment Continuation Agreement dated as of February
16, 1996 between the Executive and the Company, which agreement is attached
hereto as Exhibit A and incorporated herein by reference (the "Exhibit A
Agreement"). Except as expressly provided below, in the event of the occurrence
of a Change of Control or a Potential Change of Control, the terms of the
Exhibit A Agreement shall be the sole and exclusive agreement governing the
employment relationship between the Company and the Executive, and this
Agreement shall be of no further force and effect. Notwithstanding the foregoing
sentence: (i) in the event that either the Board of Directors or the Executive,
following the occurrence of a Potential Change of Control, shall exercise the
right pursuant to section 1(b) of the Exhibit A Agreement to terminate the
Exhibit A Agreement, then this Agreement shall become effective immediately upon
such action by the Board of Directors or the Executive, as if no termination of
this Agreement shall have occurred; and (ii) the terms and obligations of
sections 5, 8(v), 9, 10, 11, and 12 of this Agreement shall survive such
termination of this Agreement."
2. Section 8(b)(ii) of the Employment Agreement shall be
omitted in its entirety and replaced by the following:
<PAGE>
(ii) Termination Following a Change of Control. If Executive's
employment is terminated by either party pursuant to the terms of the
Exhibit A Agreement, Executive shall be entitled to receive from the
Company those payments and benefits specified in the Exhibit A
Agreement.
3. Except as amended herein, the Employment Agreement
remains unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties hereto execute this Amendment
Number 1 as of the date first written above.
ALEXANDER & ALEXANDER SERVICES INC.
By:________________________________
Its:
------------------------------------
Edward F. Kosnik
<PAGE>
EMPLOYMENT CONTINUATION AGREEMENT
THIS AGREEMENT between Alexander & Alexander Services Inc., a Maryland
corporation (the "Company"), and Edward F. Kosnik (the "Executive"), dated as of
this 16th day of February 1996.
W I T N E S S E T H :
WHEREAS, the Company has employed the Executive in an officer position
and has determined that the Executive holds an important position with the
Company;
WHEREAS, the Company believes that, in the event it is confronted with
a situation that could result in a change in ownership or control of the
Company, continuity of management will be essential to its ability to evaluate
and respond to such situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security;
WHEREAS, the Company desires to assure itself of the Executive's
services during the period in which it is confronting such a situation, and to
provide the Executive certain financial assurances to enable the Executive to
perform the responsibilities of his position without undue distraction and to
exercise his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive
desire to enter into an agreement providing the Company and the Executive with
certain rights and obligations upon the occurrence of a Change of Control or
Potential Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date
of this Agreement shall be the earlier of the date on which a Potential Change
of Control or Change of Control occurs (the "Effective Date"), provided that if
the Executive
<PAGE>
is not employed by the Company, or is employed but on a disability leave of
absence, on the Effective Date, this Agreement shall be void and without effect.
(b) Termination of Agreement Following a Potential Change of
Control. Notwithstanding Section 1(a), in the event the Effective Date occurs
upon a Potential Change of Control, this Agreement shall cease to be effective
upon (i) a good faith determination by the Board of Directors of the Company
("Board") that the events giving rise to a Potential Change of Control will not
result in the occurrence of a Change of Control or (ii) receipt by the Company
of a written notice from the Executive, given after the first anniversary of the
occurrence of a Potential Change of Control (but prior to the occurrence of a
Change of Control), that he wants the Agreement to cease to be effective.
Following such a determination by the Board or receipt of such a notice from the
Executive, neither the Company nor the Executive shall have any obligation to
the other under this Agreement, unless and until it thereafter again becomes
effective by reason of the occurrence of another Potential Change of Control or
any actual Change of Control.
(c) Employee's Election. At the Employee's election, the
rights and benefits afforded the Employee under the terms and conditions set
forth in this Agreement are in lieu of, and not in addition to, any severance
benefits the Employee may be entitled to receive pursuant to any employment
agreement or arrangement between the Company and the Employee or any severance
plan or arrangement offered by the Company under which the Employee is eligible.
2. Definitions. (a) Change of Control. For the purposes of this
Agreement, a "Change of Control" shall be deemed to have occurred if:
(i) Any individual, firm, corporation or other entity, or any
group (as defined in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) becomes, directly or indirectly, the
beneficial owner (as defined in the General Rules and Regulations of
the Securities and Exchange Commission with respect to Section 13(d)
and 13(g) of the 1934 Act) of more than 35% of the then outstanding
shares of the Company's capital stock entitled to vote generally in the
election of directors of the Company; or
(ii) The stockholders of the Company approve a definitive
agreement for (A) the merger or other business combination of the
Company with or into another corporation pursuant to which the
stockholders of the Company do not own, immediately after the
transaction, more than 50% of the voting power of the corporation that
survives and is a publicly owned corporation and not a subsidiary of
another corporation, or (B) the sale, exchange or other disposition of
all or substantially all of the assets of the Company; or
<PAGE>
(iii) During any period of two years or less, individuals who
at the beginning of such period constituted the Board cease for any
reason to constitute at least a majority thereof unless the election,
or the nomination for the election by the stockholders of the Company,
of each new director was approved by a vote of at least 75% of the
directors then still in office who were directors at the beginning of
the period;
provided, however, that a "change of control" shall not be deemed to have taken
place if beneficial ownership is acquired by, or a tender or exchange offer is
commenced or announced by, the Company or any of it is Subsidiaries, any
profit-sharing, employee ownership or other employee benefit plan of the Company
or any Subsidiary or any trustee of or fiduciary with respect to any such plan
when acting in such capacity, or any group comprised solely of such entities.
(b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate financing) for
securities representing at least 20% of the voting power of the Company's
securities;
(ii) the Company enters into an agreement the consummation of which would
constitute a Change of Control;
(iii) proxies for the election of directors of the Company are solicited by
anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential Change of
Control by the Board.
3. Employment Period. Subject to Section 6 of this Agreement, the
Company agrees to continue the Executive in its employ, and the Executive agrees
to remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a substantially lower position than the position
held on the date first set forth above, the Board may declare that this
Agreement shall be without force and effect by written notice delivered to the
Executive (i) within 30 days following such demotion and (ii) prior to the
occurrence of a Potential Change of Control or a Change of Control.
4. Duties. From and after the Effective Date, the Executive agrees to
devote his full attention during normal business hours to the business and
affairs of the Company and to use his best efforts to perform faithfully and
efficiently the
<PAGE>
duties and responsibilities reasonably commensurate with his skills, ability and
training assigned to him from time to time by the Company, except for (i) time
spent in managing his personal, financial and legal affairs and serving on
corporate, civic or charitable boards or committees, in each case only if and to
the extent not substantially interfering with the performance of such
responsibilities, and (ii) periods of vacation and sick leave to which he is
entitled. It is expressly understood and agreed that the Executive's continuing
to serve on any boards and committees on which he is serving or with which he is
otherwise associated immediately preceding the Effective Date shall not be
deemed to interfere with the performance of the Executive's services to the
Company. During the Employment Period, the Executive's services shall be
performed at the location where the Executive was employed immediately preceding
the Effective Date.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to the
monthly salary paid to the Executive by the Company and any of its affiliated
companies immediately prior to the Effective Date. The base salary shall be
reviewed at least once each year after the Effective Date, and may be increased
(but not decreased) at any time and from time to time by action of the Board or
any committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. The Executive's base salary, as
it may be increased from time to time, shall hereafter be referred to as "Base
Salary". Neither the Base Salary nor any increase in Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to
the Base Salary, for each fiscal year of the Company ending during the
Employment Period, the Executive shall be afforded the opportunity to receive an
annual bonus on terms and conditions no less favorable to the Executive (taking
into account reasonable changes in the Company's goals and objectives) than the
annual bonus opportunity that had been made available to the Executive for the
fiscal year ended immediately prior to the Effective Date (the "Annual Bonus
Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity
shall be paid as soon as practicable following the year for which the amount (or
prorated portion) is earned or awarded, unless electively deferred by the
Executive pursuant to any deferral programs or arrangements that the Company may
make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the
Employment Period, the Executive shall participate in all long-term incentive
compensation programs for key executives at a level that is commensurate with
the Executive's participation in such plans immediately prior to the Effective
Date, or, if more favorable to the Executive, at the level made available to the
Executive or other similarly situated officers at any time thereafter.
<PAGE>
(d) Benefit Plans. During the Employment Period, the Executive
(and, to the extent applicable, his dependents) shall be entitled to participate
in or be covered under the Company's employee benefit programs, including, but
not limited to, all pension, retirement, deferred compensation, savings,
medical, dental, health, disability, group life, accidental death and travel
accident insurance plans and programs of the Company and its affiliated
companies at a level that is commensurate with the Executive's participation in
such plans immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available to the Executive or other similarly
situated officers at any time thereafter.
(e) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the policies and procedures of the
Company as in effect immediately prior to the Effective Date. Notwithstanding
the foregoing, the Company may apply the policies and procedures in effect after
the Effective Date to the Executive, if such policies and procedures are more
favorable to the Executive than those in effect immediately prior to the
Effective Date.
(f) Vacation and Fringe Benefits. During the Employment
Period, the Executive shall be entitled to paid vacation and fringe benefits at
a level that is commensurate with the paid vacation and fringe benefits
available to the Executive immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available from time to time to the
Executive or other similarly situated officers at any time thereafter.
(g) Indemnification. During and after the Employment Period,
the Company shall indemnify the Executive and hold the Executive harmless from
and against any claim, loss or cause of action arising from or out of the
Executive's performance as an officer, director or employee of the Company or
any of its Subsidiaries or in any other capacity, including any fiduciary
capacity, in which the Executive serves at the request of the Company to the
maximum extent permitted by applicable law and the Company's Certificate of
Incorporation and By-Laws (the "Governing Documents"), provided that in no event
shall the protection afforded to the Executive hereunder be less than that
afforded under the Governing Documents as in effect immediately prior to the
Effective Date.
(h) Office and Support Staff. The Executive shall be entitled
to an office with furnishings and other appointments, and to secretarial and
other assistance, at a level that is at least commensurate with the foregoing
provided to other similarly situated officers.
6. Termination. (a) Death, Disability or Retirement. This
Agreement shall terminate automatically upon the Executive's death, termination
due to "Disability" (as defined below) or voluntary retirement under any of the
Company's retirement plans as in effect from time to time. For purposes of this
Agreement, Disability shall mean the Executive's inability to perform the duties
of his position, as determined in accordance with the policies and procedures
applicable with respect to the Company's long-term disability plan, as in effect
immediately prior to the Effective Date.
(b) Voluntary Termination. Notwithstanding anything in this
Agreement to the contrary, following a Change of Control the Executive may, upon
not less than 30 days' written notice to the Company, voluntarily terminate
employment for any reason (including early retirement under the terms of any of
the Company's
<PAGE>
retirement plans as in effect from time to time), provided that any termination
by the Executive pursuant to Section 6(d) on account of Good Reason (as defined
therein) shall not be treated as a voluntary termination under this Section
6(b).
(c) Cause. The Company may terminate the Executive's
employment for Cause. For purposes of this Agreement, "Cause" means (i) the
Executive's conviction or plea of nolo contendere to a felony; (ii) an act or
acts of dishonesty or gross misconduct on the Executive's part which result or
are intended to result in material damage to the Company's business or
reputation; or (iii) repeated material violations by the Executive of his
obligations under Section 4 of this Agreement, which violations are demonstrably
willful and deliberate on the Executive's part and which result in material
damage to the Company's business or reputation.
(d) Good Reason. Following the occurrence of a Change of
Control, the Executive may terminate his employment for Good Reason. For
purposes of this Agreement, "Good Reason" means the occurrence of any of the
following, without the express written consent of the Executive, after the
occurrence of a Change of Control:
(i) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial
or inadvertent failure remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) the Company's requiring the Executive to be based at any
office or location more than 35 miles (or such other distance as shall
be set forth in the Company's relocation policy as in effect at the
Effective Time) from that location at which he principally performed
his services immediately prior to the Change of Control, except for
travel reasonably required in the performance of the Executive's
responsibilities; or
<PAGE>
(iii) any failure by the Company to obtain the assumption and
agreement to perform this Agreement by a successor as contemplated by
Section 12(b).
(e) Notice of Termination. Any termination by the Company for
Cause or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(e).
For purposes of this Agreement, a "Notice of Termination" means a written notice
given, in the case of a termination for Cause, within 10 business days of the
Company's having actual knowledge of the events giving rise to such termination,
and in the case of a termination for Good Reason, within 180 days of the
Executive's having actual knowledge of the events giving rise to such
termination, and which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (iii) if the termination date
is other than the date of receipt of such notice, specifies the termination date
of this Agreement (which date shall be not more than 15 days after the giving of
such notice). The failure by the Executive to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing his rights
hereunder.
(f) Date of Termination. For the purpose of this Agreement,
the term "Date of Termination" means (i) in the case of a termination for which
a Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein, as the case may be, and
(ii) in all other cases, the actual date on which the Executive's employment
terminates during the Employment Period.
7. Obligations of the Company upon Termination. (a) Death or
Disability. If the Executive's employment is terminated during the Employment
Period by reason of the Executive's death or Disability, this Agreement shall
terminate without further obligations to the Executive or the Executive's legal
representatives under this Agreement other than those obligations accrued
hereunder at the Date of Termination, and the Company shall pay to the Executive
(or his beneficiary or estate) (i) the Executive's full Base Salary through the
Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits
owing to the Executive under the Company's otherwise applicable employee benefit
plans and programs, including any compensation previously deferred by the
Executive (together with any accrued earnings thereon) and not yet paid by the
Company and any accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's death
or Disability under the Company's plans, policies or programs (the "Additional
Benefits").
<PAGE>
Any Earned Salary shall be paid in cash in a single lump sum
as soon as practicable, but in no event more than 30 days (or at such earlier
date required by law), following the Date of Termination. Accrued Obligations
and Additional Benefits shall be paid in accordance with the terms of the
applicable plan, program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment
Period, the Executive's employment shall be terminated for Cause or voluntarily
terminated by the Executive (other than on account of Good Reason following a
Change of Control), the Company shall pay the Executive (i) the Earned Salary in
cash in a single lump sum as soon as practicable, but in no event more than 10
days, following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and
------------------------------------------------------
Termination by the Executive for Good Reason.
- ---------------------------------------------
(i) Lump Sum Payments. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause, or
following a Change of Control the Executive terminates his employment
for Good Reason, the Company shall pay to the Executive the following
amounts:
(A) the Executive's Earned Salary;
(B) an amount equal to the product of (i) the incentive
compensation the Executive would have been entitled
to receive under Paragraph 5(b) for the calendar year
in which his employment terminates had he remained
employed for the entire year and assuming that all
targets for such year had been met (the "Target
Bonus"), multiplied by (ii) a fraction, the numerator
of which is equal to the number of days in the
calendar year of the Executive's termination of
employment which have elapsed, as of the date of such
termination, and the denominator of which is 365 (the
"Accrued Bonus");
(C) a cash amount (the "Severance Amount") equal to three
times the sum of
(1) the Executive's annual Base Salary; and
(2) the greater of
<PAGE>
(x) the average of the bonuses payable to
the Executive for the five fiscal
years of the Company (or such lesser
period for which the Executive was
employed, with any bonus payable for
any period of employment of less than
a full fiscal year annualized for the
purposes of this calculation) ending
immediately prior to the Effective
Date; or
(y) the Target Bonus
(D) a cash amount (the "Incremental Retirement Benefit")
equal to the present value, calculated using a discount
rate equal to the then prevailing applicable Federal
rate as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended (the "Code"),
of the additional retirement benefits (including,
without limitation, any pension, retiree life or
retiree medical benefits) that would have been payable
or available to the Executive under any employee
benefit plan qualified under Section 401(a) of the Code
and under any supplemental retirement plan or
arrangement based on (x) the age and service the
Executive would have attained or completed had the
Executive continued in the Company's employ until the
expiration of the Employment Period and, (y) where
compensation is a relevant factor, his pensionable
compensation at the Date of Termination; and
(E) the Accrued Obligations.
The Earned Salary, Accrued Bonus, Severance Amount and Incremental
Retirement Benefit shall be paid in cash in a single lump sum as soon
as practicable, but in no event more than 30 days (or at such earlier
date required by law), following the Date of Termination. Accrued
Obligations shall be paid in accordance with the terms of the
applicable plan, program or arrangement.
(ii) Continuation of Benefits. If, during the Employment
Period, the Company terminates the Executive's employment other than
for Cause, or following a Change of Control the Executive terminates
his employment for Good Reason, the Executive (and, to the extent
applicable, his dependents) shall be entitled, after the Date of
Termination until the earlier of (1) the third anniversary of the Date
of Termination (the "End Date") and (2) the date the Executive becomes
eligible for comparable benefits under a similar plan, policy or
program of a subsequent employer, to continue participation in all of
the Company's employee and executive welfare and fringe benefit plans
(the "Benefit Plans"). To the extent any such benefits cannot be
<PAGE>
provided under the terms of the applicable plan, policy or program, the
Company shall provide a comparable benefit under another plan or from
the Company's general assets. The Executive's participation in the
Benefit Plans will be on the same terms and conditions that would have
applied had the Executive continued to be employed by the Company
through the End Date.
(iii) In the event that the Executive shall in good faith give
a Notice of Termination for Good Reason and it shall thereafter be
determined that Good Reason did not exist and independent counsel
chosen by the Board of Directors of the Company shall have determined
after appropriate investigation that Good Reason did not exist, the
employment of the Executive shall, unless the Company and the Executive
shall otherwise mutually agree, be deemed to have terminated, at the
date of giving such purported Notice of Termination, by mutual consent
of the Company and the Executive and the Executive shall be entitled to
receive only those payments and benefits which he would have been
entitled to receive his Earned Salary, Accrued Bonus and Accrued
Obligations.
(d) Discharge of the Company's Obligations. Except as
expressly provided in the last sentence of this Section 7(d), the amounts
payable to the Executive pursuant to this Section 7 (whether or not reduced
pursuant to Section 7(e)) following termination of his employment shall be in
full and complete satisfaction of the Executive's rights under this Agreement
and any other claims he may have in respect of his employment by the Company or
any of its Subsidiaries. Such amounts shall constitute liquidated damages with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment with the Company and its
Subsidiaries. Nothing in this Section 7(d) shall be construed to release the
Company from its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action arising from or out
of the Executive's performance as an officer, director or employee of the
Company or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the Company
to the maximum extent permitted by applicable law and the Governing Documents.
(e) Limit on Payments by the Company.
(i) Application of Section 7(e). In the event that any amount
or benefit paid or distributed to the Executive pursuant to this
Agreement, taken together with any amounts or benefits otherwise paid
or distributed to the Executive by the Company or any affiliated
company (collectively, the "Covered Payments"), would be an "excess
parachute payment" as defined
<PAGE>
in Section 280G of the Code and would thereby subject the Executive to
the tax (the "Excise Tax") imposed under Section 4999 of the Code (or
any similar tax that may hereafter be imposed), the provisions of this
Section 7(e) shall apply to determine the amounts payable to Executive
pursuant to this Agreement.
(ii) Calculation of Benefits. Immediately following delivery
of any Notice of Termination, the Company shall notify the Executive of
the aggregate present value of all termination benefits to which he
would be entitled under this Agreement and any other plan, program or
arrangement as of the projected Date of Termination, together with the
projected maximum payments, determined as of such projected Date of
Termination that could be paid without the Executive being subject to
the Excise Tax.
(iii) Imposition of Payment Cap. If (x) the aggregate value of
all compensation payments or benefits to be paid or provided to the
Executive under this Agreement and any other plan, agreement or
arrangement with the Company exceeds the amount which can be paid to
the Executive without the Executive incurring an Excise Tax and (y) the
Executive would receive a greater net-after tax amount (taking into
account all applicable taxes payable by the Executive, including any
Excise Tax) by applying the limitation contained in this Section
7(e)(iii), then the amounts payable to the Executive under this Section
7 shall be reduced (but not below zero) to the maximum amount which may
be paid hereunder without the Executive becoming subject to such an
Excise Tax (such reduced payments to be referred to as the "Payment
Cap"). In the event that Executive receives reduced payments and
benefits hereunder, Executive shall have the right to designate which
of the payments and benefits otherwise provided for in this Agreement
that he will receive in connection with the application of the Payment
Cap.
(iv) Application of Section 280G. For purposes of determining
whether any of the Covered Payments will be subject to the Excise Tax
and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute
payments" within the meaning of Section 280G of the Code,
and all "parachute payments" in excess of the "base amount"
(as defined under Section 280G(b)(3) of the Code) shall be
treated as subject to the Excise Tax, unless, and except to
the extent that, in the good faith judgment of the Company's
independent certified public accountants appointed prior to
the Effective Date or tax counsel selected by such
Accountants (the "Accountants"), the Company has a
reasonable basis to conclude that such Covered Payments (in
whole or in part)
<PAGE>
either do not constitute "parachute payments" or represent
reasonable compensation for personal services actually
rendered (within the meaning of Section 280G(b)(4)(B) of the
Code) in excess of the "base amount," or such "parachute
payments" are otherwise not subject to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the
Accountants in accordance with the principles of
Section 280G of the Code.
(v) Applicable Tax Rates. For purposes of determining whether
the Executive would receive a greater net after-tax benefit were the
amounts payable under this Agreement reduced in accordance with
Paragraph 7(e)(iii), the Executive shall be deemed to pay:
(A) Federal income taxes at the highest applicable
marginal rate of Federal income taxation for the
calendar year in which the first amounts are to be
paid hereunder, and
(B) any applicable state and local income taxes at the
highest applicable marginal rate of taxation for such
calendar year, net of the maximum reduction in
Federal incomes taxes which could be obtained from
the deduction of such state or local taxes if paid in
such year;
provided, however, that the Executive may request that such
determination be made based on his individual tax circumstances, which
shall govern such determination so long as the Executive provides to
the Accountants such information and documents as the Accountants shall
reasonably request to determine such individual circumstances.
(vi) Adjustments in Respect of the Payment Cap. If the
Executive receives reduced payments and benefits under this Section
7(e) (or this Section 7(e) is determined not to be applicable to the
Executive because the Accountants conclude that Executive is not
subject to any Excise Tax) and it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding (a
"Final Determination") that, notwithstanding the good faith of the
Executive and the Company in applying the terms of this Agreement, the
aggregate "parachute payments" within the meaning of Section 280G of
the Code paid to the Executive or for his benefit are in an amount that
would result in the Executive being subject an Excise Tax and the
Executive would still be subject to the Payment Cap under the
provisions of Section 7(e)(iii), then the amount equal to such excess
parachute payments shall be deemed for all purposes to be a loan to the
Executive made on the date of receipt of such excess payments, which
the
<PAGE>
Executive shall have an obligation to repay to the Company on demand,
together with interest on such amount at the applicable Federal rate
(as defined in Section 1274(d) of the Code) from the date of the
payment hereunder to the date of repayment by the Executive. If this
Section 7(e) is not applied to reduce the Executive's entitlements
under this Section 7 because the Accountants determine that the
Executive would not receive a greater net-after tax benefit by
applying this Section 7(e) and it is established pursuant to a Final
Determination that, notwithstanding the good faith of the Executive
and the Company in applying the terms of this Agreement, the Executive
would have received a greater net after tax benefit by subjecting his
payments and benefits hereunder to the Payment Cap, then the aggregate
"parachute payments" paid to the Executive or for his benefit in
excess of the Payment Cap shall be deemed for all purposes a loan to
the Executive made on the date of receipt of such excess payments,
which the Executive shall have an obligation to repay to the Company
on demand, together with interest on such amount at the applicable
Federal rate (as defined in Section 1274(d) of the Code) from the date
of the payment hereunder to the date of repayment by the Executive. If
the Executive receives reduced payments and benefits by reason of this
Section 7(e) and it is established pursuant to a Final Determination
that the Executive could have received a greater amount without
exceeding the Payment Cap, then the Company shall promptly thereafter
pay the Executive the aggregate additional amount which could have
been paid without exceeding the Payment Cap, together with interest on
such amount at the applicable Federal rate (as defined in Section
1274(d) of the Code) from the original payment due date to the date of
actual payment by the Company.
8. Non-exclusivity of Rights. Except as expressly provided
herein, nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Company or any of its affiliated companies and
for which the Executive may qualify, nor shall anything herein limit or
otherwise prejudice such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies, including
employment agreements or stock option agreements. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan
or program of the Company or any of its affiliated companies at or subsequent to
the Date of Termination shall be payable in accordance with such plan or
program.
9. No Offset; No Mitigation. The Company's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise.
<PAGE>
10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Executive's legal expenses (or cause such expenses to
be paid) including, without limitation, his reasonable attorney's fees, on a
quarterly basis, upon presentation of proof of such expenses in a form
acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if the Executive shall not prevail, in whole or in part, as to at least one
material issue as to the validity, enforceability or interpretation of any
provision of this Agreement.
11. Confidential Information; Noncompetition and Nonsolicitation. By
and in consideration of the salary and benefits to be provided by the Company
hereunder, including the severance arrangements set forth herein, the Executive
agrees that:
(a) Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, (i) obtained by the Executive during
his employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
(b) [This section is intentionally omitted.]
(c) Nonsolicitation of Employees. During the Employment Period and
for 180 days year following the termination of the Employment Period, Executive
will not, directly or indirectly, induce any employee of the Company or any of
its subsidiaries to terminate employment with such entity, and shall not,
directly or indirectly, either individually or as owner, agent, employee,
consultant or otherwise, employ or offer employment to any person who is or was
employed by the Company or a subsidiary thereof.
(d) Company Property. Except as expressly provided herein,
promptly following the Executive's termination of employment, the Executive
shall return to the Company all property of the Company and all copies thereof
in the Executive's possession or under his control.
<PAGE>
(e) Injunctive Relief and Other Remedies with Respect to
Covenants. Executive acknowledges and agrees that the covenants and obligations
of Executive with respect to noncompetition, nonsolicitation, confidentiality
and Company property relate to special, unique and extraordinary matters and
that a violation of any of the terms of such covenants and obligations will
cause the Company irreparable injury for which adequate remedies are not
available at law. Therefore, Executive agrees that the Company shall be entitled
to an injunction, restraining order or such other equitable relief (without the
requirement to post bond) restraining Executive from committing any violation of
the covenants and obligations contained in this Paragraph 11. These injunctive
remedies are cumulative and are in addition to any other rights and remedies the
Company may have at law or in equity. In connection with the foregoing
provisions of this Paragraph 11, Executive represents that his economic means
and circumstances are such that such provisions will not prevent him from
providing for himself and his family on a basis satisfactory to him. In no
event, however, shall an asserted violation of the provisions of this Section 11
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors. The Company shall require any
successor to all or substantially all of the business and/or assets of the
Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent as the Company would be
required to perform if no such succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, applied
without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section
11(e), any dispute or controversy arising under or in connection with this
Agreement shall be resolved by binding arbitration. The arbitration shall be
held in New York, New York and except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration, and otherwise in accordance with principles which would
be applied by a court of law or equity. The arbitrator shall be acceptable to
both the Company and the Executive. If the parties cannot agree on an acceptable
arbitrator, the dispute shall be heard by a panel of three arbitrators, one
appointed by each of the parties and the third appointed by the other two
arbitrators.
(c) Amendments. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the matters referred to
herein. No other agreement relating to the terms of the Executive's employment
by the Company, oral or otherwise, shall be binding between the parties unless
it is in writing and signed by the party against whom enforcement is sought.
There are no promises, representations, inducements or statements between the
parties other than those that are expressly contained herein. The Executive
acknowledges that he is entering into this Agreement of his own free will and
accord, and with no duress, that he has read this Agreement and that he
understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder
shall be in writing and shall be given by hand-delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: at the home address of the Executive noted
on the records of the Company
If to the Company: Alexander & Alexander Services
1185 Avenue of the Americas
New York, New York
Attn.: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any
amounts payable under this Agreement such Federal, state or local taxes as shall
be required to be withheld pursuant to any applicable law or regulation.
(g) Severability; Reformation. In the event that one or more
of the provisions of this Agreement shall become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby. In the
event that any of the provisions of any of Section 11 are not enforceable in
accordance with its terms,
<PAGE>
the Executive and the Company agree that such Section shall be reformed to make
such Section enforceable in a manner which provides the Company the maximum
rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its or his rights hereunder on any occasion or
series of occasions.
(i) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(j) Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and the Company has caused this Agreement to be executed in its name on its
behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
ALEXANDER & ALEXANDER SERVICES INC.
-----------------------------------
Frank G. Zarb
Chairman of the Board,
President and Chief Executive Officer
WITNESSED:
- ------------------------------
EXECUTIVE:
------------------------------------
Edward F. Kosnik
WITNESSED:
- -------------------------------
Exhibit 10.27
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
______________________________________X
GEORGE F. GRODE, INSURANCE : NO. 3483, C.D. 1986
COMMISSIONER OF THE COMMONWEALTH :
OF PENNSYLVANIA, :
PLAINTIFF, :
:
V. :
:
THE MUTUAL FIRE, MARINE AND :
INLAND INSURANCE COMPANY, :
DEFENDANT. :
______________________________________X
CONSTANCE B. FOSTER, INSURANCE : NO. 3483, C.D. 1986 (BT)
COMMISSIONER OF THE COMMONWEALTH :
OF PENNSYLVANIA, AS REHABILITATOR :
OF THE MUTUAL FIRE, MARINE AND :
INLAND INSURANCE COMPANY, :
PLAINTIFF, :
:
V. :
:
EVANSTON INSURANCE COMPANY :
DEFENDANT. :
______________________________________X
CONSTANCE B. FOSTER, INSURANCE : NO. 3483, C.D. 1986 (HB)
COMMISSIONER OF THE COMMONWEALTH :
OF PENNSYLVANIA, AS REHABILITATOR :
OF THE MUTUAL FIRE, MARINE AND :
INLAND INSURANCE COMPANY, :
PLAINTIFF, :
:
V. :
:
INSURANCE COMPANY OF EVANSTON :
DEFENDANT. :
______________________________________X
<PAGE>
CONSTANCE B. FOSTER, INSURANCE : NO. 3483, C.D. 1986 (HC)
COMMISSIONER OF THE COMMONWEALTH :
OF PENNSYLVANIA, AS REHABILITATOR :
OF THE MUTUAL FIRE, MARINE AND :
INLAND INSURANCE COMPANY, :
PLAINTIFF, :
:
V. :
:
EVANSTON INSURANCE COMPANY :
DEFENDANT. :
______________________________________X
CONSTANCE B. FOSTER, INSURANCE : NO. 3483, C.D. 1986 (ET)
COMMISSIONER OF THE COMMONWEALTH :
OF PENNSYLVANIA, AS REHABILITATOR :
OF THE MUTUAL FIRE, MARINE AND :
INLAND INSURANCE COMPANY, :
PLAINTIFF, :
:
V. :
:
EVANSTON INSURANCE COMPANY :
DEFENDANT. :
______________________________________X
ORDER
AND NOW, this 9th day of May, 1995, upon consideration of the Motion of Linda S.
Kaiser, Insurance Commissioner of the Commonwealth of Pennsylvania, as
Rehabilitator of The Mutual Fire, Marine and Inland Insurance Company (In
Rehabilitation) ("the Rehabilitator") for approval of a certain Settlement
Agreement dated March 27, 1995 ("Settlement Agreement") between the
Rehabilitator and Miller, Alfano & Raspanti P.C. ("MAR") on the one part and
Alexander & Alexander Services, Inc.; Alexander & Alexander Inc.; Shand, Morahan
& Company, Inc.; Evanston
<PAGE>
Insurance Company; and Insurance Company of Evanston (collectively "the Settling
Defendants") on the other part, and it appearing to the Court that notice of
said Motion has been duly and validly given to all parties in interest by virtue
of the service of a copy of the Notice of Motion by first class United States
mail on all persons, firms and entities on the Short and Master Service Lists
with respect to matters arising out of the Rehabilitation of the Mutual Fire
Marine and Inland Insurance Company (In Rehabilitation) ("Mutual Fire"), and
that there is no opposition to the Motion, it is hereby: ORDERED that the Motion
is GRANTED; and it is further ORDERED that the Settlement Agreement, a true and
correct copy of which is attached to the Motion as Exhibit "1," is approved; and
it is further ORDERED that the Rehabilitator, Mutual Fire, and the Settling
Defendants are authorized and directed to render performance in accordance with
the terms and conditions of the Settlement Agreement; and it is further ORDERED
that: (i) Mutual Fire's present and past shareholders, policyholders, creditors,
employees and agents shall be forever barred from commencing, asserting or
continuing any and all claims, demands, suits or
<PAGE>
causes of action of any kind against any or all of the Releasees (as defined in
the Settlement Agreement); and (ii) all other parties, persons, firms and
entities subject to the jurisdiction of the Commonwealth Court shall be forever
barred from commencing, asserting or continuing any and all claims, demands,
suits or causes of action of any kind against any or all past and present
officers, directors or employees of Mutual Fire;
Based on or arising out of any matter whatsoever that is related to the subject
matter of any of the Litigation (as defined in the Settlement Agreement), the
Settlement Agreement and/or in any manner relating to or resulting from the
Rehabilitator's alleged injuries, losses or damages.
BY THE COURT:
/s/ Charles A. Lord
-----------------------------
Charles A. Lord, Senior Judge
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
CONSTANCE B. FOSTER, :
INSURANCE COMMISSIONER OF THE :
COMMONWEALTH OF PENNSYLVANIA, :
AS REHABILITATOR OF THE MUTUAL :
FIRE, MARINE & INLAND : CIVIL ACTION
INSURANCE COMPANY, :
: NO. 91-1179
PLAINTIFF, :
:
V. :
ALEXANDER & ALEXANDER :
SERVICES, INC. :
ALEXANDER & ALEXANDER INC. AND :
SHAND, MORAHAN & COMPANY, INC. :
:
DEFENDANTS. :
O R D E R
AND NOW, this 13th day of June, 1995, pursuant to Local Rule 23(b) of this
Court, this action is dismissed with prejudice, in accordance with the terms and
conditions of the Settlement Agreement approved by the Commonwealth Court of
Pennsylvania by Order dated May 9, 1995 at No. 3483 CD 1986.
BY THE COURT:
/s/ Herbert J. Hutton
------------------------
HERBERT J. HUTTON, J.
Entered 6/15/95
Clerk of Court
Alexander & Alexander Services Inc.
- --------------------------------------------------------------------------------
1995 ANNUAL REPORT
[LOGO]
<PAGE>
ALEXANDER & ALEXANDER SERVICES INC.
ALEXANDER & ALEXANDER SERVICES INC. SERVICES CLIENTS WORLDWIDE. THE LISTING
BELOW INCLUDES LOCATIONS WHERE WE HAVE OFFICES, AFFILIATES OR OTHER ESTABLISHED
SERVICING CAPABILITIES. ANGUILLA ANTIGUA & BARBUDA St. John's ARGENTINA Buenos
Aires ARUBA AUSTRALIA Adelaide, Brisbane, Cairns, Canberra, Darwin, Gold Coast,
Hobart, Melbourne, Newcastle, Parramatta, Perth, Rockhampton, Sydney, Toowoomba,
Townsville AUSTRIA Vienna BAHAMAS Freeport, Marsh Harbour, Nassau BAHRAIN
BARBADOS St. Michael BELGIUM Antwerp, Brussels BELIZE Belize City BERMUDA
Hamilton BOLIVIA La Paz BRAZIL Campinas, Rio de Janeiro, Sao Paulo BRITISH
VIRGIN ISLANDS Road Town CANADA Calgary, Edmonton, Grande Prairie, Halifax,
London, Montreal, Ottawa, Prince George, Regina, Saskatoon, St. John's, Thunder
Bay, Toronto, Vancouver, Victoria, Whitehorse, Winnipeg, Yellowknife CAYMAN
ISLANDS George Town CHILE Santiago CHINA COLOMBIA Bogota COSTA RICA San Jose
CURACAO Willemstad CYPRUS CZECH REPUBLIC Prague DENMARK DJIBOUTI DOMINICA
DOMINICAN REPUBLIC Santo Domingo ECUADOR Guayaquil EGYPT EL SALVADOR San
Salvador FIJI Nadi, Suva FINLAND Helsinki FRANCE Lyon, Paris, Strasbourg GERMANY
Berlin, Bielefeld, Cologne, Frankfurt, Hamburg, Hannover, Leipzig, Munich,
Stuttgart, Wiesbaden GREECE Athens, Piraeus GRENADA St. George's GUADELOUPE Baie
Mahault GUATEMALA Guatemala City GUYANA Georgetown HAITI HONDURAS San Pedro
Sula, Tegucigalpa HONG KONG HUNGARY Budapest INDIA Bombay INDONESIA Jakarta,
Surabaya IRAN IRELAND Dublin ISLE OF MAN Douglas ISRAEL Tel Aviv ITALY Genoa,
Milan, Rome, Turin JAMAICA Kingston, Montego Bay JAPAN Tokyo KAZAKHSTAN Almaty
KENYA Mombasa, Nairobi KUWAIT LUXEMBOURG Senningerberg MALAYSIA Johor Baharu,
Kuala Lumpur, Perak, Penang MEXICO Chihuahua, Guadalajara, Matamoros, Mexico
City, Monterrey, Puebla, Tehuacan, Tijuana MONTSERRAT MOROCCO NETHERLANDS
Amsterdam, Rotterdam, The Hague NEW ZEALAND Auckland, Blenheim, Christchurch,
Dunedin, Hamilton, Hastings, Nelson, New Plymouth, Wellington NICARAGUA Managua
NIGERIA Ibadan, Kaduna, Lagos NORWAY Oslo OMAN PAKISTAN PANAMA Panama City PAPUA
NEW GUINEA Lae, Port Moresby PARAGUAY PERU Lima PHILIPPINES Manila POLAND Warsaw
PORTUGAL Lisbon PUERTO RICO Hato Rey QATAR REPUBLIC OF KOREA Seoul RUSSIA Moscow
SAUDI ARABIA Al Khobar, Dammam, Jeddah, Riyadh SINGAPORE SOUTH AFRICA
Johannesburg SPAIN Barcelona, Bilbao, Madrid ST. KITTS & NEVIS ST. LUCIA
Castries ST. VINCENT SURINAME Paramaribo SWAZILAND Mbabane SWEDEN Stockholm
SWITZERLAND Geneva, Zurich TAIWAN Taipei THAILAND Bangkok TRINIDAD & TOBAGO Port
of Spain TURKEY Ankara, Istanbul TURKS & CAICOS ISLANDS Providenciales UNITED
ARAB EMIRATES Dubai UNITED KINGDOM Aberdeen, Belfast, Birmingham, Bournemouth,
Bristol, Cardiff, Chelmsford, Edinburgh, Glasgow, Grimsby, Guernsey, Harrow,
Leeds, Liverpool, London, Manchester, Newcastle upon Tyne, Reading, Redhill,
Romford, Sheffield, Southampton, Southend on Sea, St. Peter Port, Woking UNITED
STATES Albuquerque, Alexandria, Atlanta, Austin, Baltimore, Boston, Buffalo,
Burlington, Charlotte, Chicago, Cincinnati, Cleveland, Columbus, Coral Gables,
Costa Mesa, Dallas, Denver, Des Moines, Detroit, Fort Lauderdale, Fort Worth,
Green Bay, Greenwich, Harrisburg, Hartford, Hazelwood, Honolulu, Houston,
Indianapolis, Kansas City, Lexington, Lincoln, Los Angeles, Louisville,
Lyndhurst, Melville, Miami, Midland, Milwaukee, Minneapolis, Nashville, New
Orleans, New York, Newburyport, Omaha, Owings Mills, Pasadena, Philadelphia,
Phoenix, Pittsburgh, Portland (Me.), Portland (Ore.), Richmond, San Antonio, San
Francisco, San Jose, Santa Barbara, Seattle, Shreveport, St. Louis, Stamford,
Stockton, Syracuse, Tampa, Topeka, Tulsa, Utica, Wailuku, Washington, D.C.,
Winston-Salem U.S. VIRGIN ISLANDS St.Thomas, St. Croix URUGUAY UZBEKISTAN
Tashkent VENEZUELA Caracas, Maracaibo, Valencia ZAIRE Kinshasa
ALEXANDER & ALEXANDER
<PAGE>
ABOUT ALEXANDER & ALEXANDER
Alexander & Alexander Services Inc. provides professional risk management
consulting, insurance brokerage and human resource management consulting
services from offices in more than 80 countries.
RISK MANAGEMENT CONSULTING & INSURANCE SERVICES
- -----------------------------------------------
Alexander & Alexander designs and implements integrated insurance and risk
management programs globally. We have the expertise to help businesses of all
sizes, as well as associations and governmental agencies, address their risk
assessment, risk control and risk financing requirements.
SPECIALIST & REINSURANCE BROKING
- --------------------------------
The Alexander Howden Group places large and complex risks that require access to
wholesale and specialist insurance markets worldwide. We also provide a range of
broking and associated services to insurance and reinsurance companies and
Lloyd's syndicates.
HUMAN RESOURCE MANAGEMENT CONSULTING
- ------------------------------------
The Alexander Consulting Group provides integrated advisory and support services
in human resource management, including retirement planning, health care
management, organizational effectiveness, compensation, HR-related
communications, and information technologies.
ACG also offers brokerage services for group health and welfare, special risk,
and executive planning insurance coverages.
CONTENTS
Financial Highlights 1
Chairman's Letter 2
Financial Contents 9
Investor Information 55
Board of Directors
Inside Back Cover
<PAGE>
BOARD OF DIRECTORS
[PHOTO] Frank G. Zarb(1)(5) [PHOTO] Angus M.M. Grossart(2)
CHAIRMAN OF THE BOARD, PARTNER &
PRESIDENT & MANAGING DIRECTOR
CHIEF EXECUTIVE OFFICER NOBLE GROSSART LIMITED
ALEXANDER & ALEXANDER
SERVICES INC.
[PHOTO] H. Furlong Baldwin [PHOTO] Maurice H. Hartigan II(1)(2)
CHAIRMAN & CHIEF EXECUTIVE VICE PRESIDENT
EXECUTIVE OFFICER PNC BANK, N.A.
MERCANTILE BANKSHARES
CORPORATION
[PHOTO] Dr. Robert E. Boni(1)(3) [PHOTO] James B. Hurlock(4)
RETIRED CHAIRMAN PARTNER & CHAIRMAN
OF THE BOARD & OF THE MANAGEMENT
CHIEF EXECUTIVE OFFICER COMMITTEE
ARMCO INC. WHITE & CASE
[PHOTO] W. Peter Cooke(2)(5) [PHOTO] Ronald A. Iles(4)(5)
CHAIRMAN, DEPUTY CHAIRMAN
WORLD REGULATORY OF THE BOARD
ADVISORY PRACTICE A&A SERVICES INC.
PRICE WATERHOUSE LLP CHAIRMAN
ALEXANDER HOWDEN
GROUP LIMITED
[PHOTO] E. Gerald Corrigan(1)(3) [PHOTO] Edward F. Kosnik
CHAIRMAN, SENIOR EXECUTIVE VICE
INTERNATIONAL ADVISORS PRESIDENT & CHIEF
GOLDMAN, SACHS & CO. FINANCIAL OFFICER
ALEXANDER & ALEXANDER
SERVICES INC.
[PHOTO] Joseph L. Dionne(1)(3) [PHOTO] Vincent R. McLean(1)(2)
CHAIRMAN & RETIRED EXECUTIVE VICE
CHIEF EXECUTIVE OFFICER PRESIDENT & CHIEF
MCGRAW-HILL, INC. FINANCIAL OFFICER
SPERRY CORPORATION
[PHOTO] The Honorable [PHOTO] James D. Robinson III(4)(5)
Gerald R. Ford(3)(5) CHAIRMAN &
FORMER PRESIDENT OF THE CHIEF EXECUTIVE OFFICER,
UNITED STATES RRE INVESTORS, LLC
[PHOTO] Peter C. Godsoe(4) (1) MEMBER, EXECUTIVE
CHAIRMAN & COMMITTEE
CHIEF EXECUTIVE OFFICER (2) MEMBER, AUDIT COMMITTEE
THE BANK OF NOVA SCOTIA (3) MEMBER, COMPENSATION,
BENEFITS &
DIRECTOR EMERITUS NOMINATING COMMITTEE
(4) MEMBER, FINANCE/INVESTMENT
[PHOTO] Dr. Kenneth Black, Jr. COMMITTEE
EXECUTIVE DIRECTOR (5) MEMBER, PUBLIC POLICY AND
EDUCATIONAL FOUNDATION ETHICS
INC. COMMITTEE
Designed by: Inc Design, New York City. Printed in U.S.A. on recycled paper.
[LOGO]
<PAGE>
ONE
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
ALEXANDER & ALEXANDER SERVICES INC. & SUBSIDIARIES
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1995 1994 1993
- ------------------------------------------------------------------------------
OPERATING RESULTS:
Operating Revenues $1,282.4 $1,323.9 $1,341.6
Operating Income (Loss)(1) 122.7 (82.9) 52.3
Other Income (Expenses)(2) 33.3 (63.9) (20.4)
Income (Loss) from Continuing
Operations 89.4 (107.2) 23.6
Loss from Discontinued Operations -- (28.9) --
Cumulative Effect of Change in
Accounting -- (2.6) 3.3
Net Income (Loss) 89.4 (138.7) 26.9
Earnings (Loss) Attributable to
Common Shareholders 64.0 (153.8) 20.7
- ------------------------------------------------------------------------------
PER SHARE INFORMATION:
Primary Earnings (Loss) Per Share $ 1.44 $ (3.51) $ .48
Fully Diluted Earnings (Loss)
Per Share 1.42 (3.51) .48
Cash Dividends Per Common Share .10 .325 1.00
- ------------------------------------------------------------------------------
OTHER DATA:
Average Common and Common
Equivalent Shares Outstanding 44.6 43.8 43.4
Average Common and Common
Equivalent Shares Outstanding,
Assuming Full Dilution 57.1 43.8 43.4
Number of Employees (thousands) 11.9 13.3 14.5
==============================================================================
(1) INCLUDES RESTRUCTURING AND SPECIAL CHARGES OF $17.6 MILLION AND $69 MILLION
IN 1995 AND 1994, RESPECTIVELY (SEE NOTE 3 OF NOTES TO FINANCIAL
STATEMENTS).
(2) INCLUDES SPECIAL CHARGES PRIMARILY RELATED TO CONTINGENCY SETTLEMENTS AND
OTHER INDEMNITY COSTS OF $69.7 MILLION IN 1994. ALSO INCLUDES GAINS ON
SALES OF NON-CORE BUSINESSES OF $30.4 MILLION IN 1995, $20.2 MILLION IN
1994 AND $3.9 MILLION IN 1993 (SEE NOTES 2 AND 3 OF NOTES TO FINANCIAL
STATEMENTS).
1995 REVENUE BY CORE BUSINESS:
Risk Management and Insurance Services Broking - 60%
Specialist and Reinsurance Broking - 24% [PIE CHART]
Human Resource Management Consulting - 16%
1995 REVENUE BY REGION:
U.S. - 47%
U.K. - 25%
All Other - 12% [PIE CHART]
Canada - 9%
Asia Pacific - 7%
<PAGE>
two
- --------------------------------------------------------------------------------
TO MY FELLOW STOCKHOLDERS
In 1995, Alexander & Alexander completed its restructuring, significantly
improved sales and service capabilities, and resumed growing core business
revenues and profits during some of the toughest business conditions in memory.
Financial benchmarks tell part of the story, beginning with record net income of
$89.4 million. On a comparable basis with 1994:
o A&A's operating margin was 10.8 percent--up 9.1 percentage points.
o Revenues rose 4.4 percent.
o Expenses fell 5.2 percent.
o Year-to-year operating income increased $114.8 million.
Our 1994 restructuring program provided the foundation for much of our progress.
On the expense side, savings of more than $100 million were realized, and
millions more reallocated to sales and service initiatives. Major longstanding
contingencies were resolved. A larger, more flexible $200 million, three-year
revolving credit facility was established with a group of 13 major banks. By the
end of the first quarter of 1995, A&A emerged from the restructuring with a
strong cash position, a strengthened balance sheet and significantly better
prospects for renewed growth.
With the restructuring behind us, our focus has shifted to the more exciting
and satisfying objectives of winning and servicing our clients while producing
markedly better operating results. By year end, we had achieved every major
target, resulting in across-the-board operating income improvement.
[PHOTO]
Frank G. Zarb, Chairman of the Board, President & Chief
Executive Officer
"WE ACHIEVED EVERY MAJOR TARGET, RESULTING IN
ACROSS-THE-BOARD OPERATING INCOME IMPROVEMENT"
Approximately half of our retail brokerage and risk management consulting
revenues are generated in the United States. Lower operating costs drove U.S.
retail operating income up nearly $40 million from last year before
restructuring and special charges. In fact, operating income improved in retail
operations around the world. With a boost from major new business gains and
acquisitions, operating income growth was especially strong in Canada, Latin
America, Continental Europe and the Asia Pacific region.
Operating income at Alexander Howden Group, A&A's specialist and reinsurance
broking operation, rose on record revenues of more than $300 million. At the
Alexander Consulting Group, our human resource consulting company, operating
income improved $17.2 million on lower operating expenses.
In 1996, further gains from expense savings and revenue growth will be partly
offset by A&A's heavy investments in information technology, product development
and employee training. These investments should lead to improved financial
results in 1997 but will be a drag
<PAGE>
three
- --------------------------------------------------------------------------------
[ART]
" ...A & A HAS CLEARED THE WAY
FOR RENEWED GROWTH..."
<PAGE>
four
- -------------------------------------------------------------------------------
on profits in the short term. We are prepared to trade a degree of short-term
gain to protect and enhance the Company's long-term competitive position and to
better serve our clients.
We operate in an industry that is beginning to address the effects of years
during which, by and large, it did not keep pace with the changing needs of
clients. Now underwriters are shoring up their balance sheets while emphasizing
new product development. They are abandoning a "take it or leave it" service
mentality that drove many traditional insurance buyers into alternative markets.
Brokers face similar challenges. In a slow-growth, highly competitive
environment, commission-based income has been driven down by weak insurance
prices. Meanwhile, client demand for value puts added pressure on all brokers
to hold down costs while improving the quality and variety of products and
services.
There is no such thing as a cozy, long-term client relationship. Savvy about
their risk management needs and mindful of their corporate financial objectives,
risk managers are more likely to use the renewal process as an opportunity to
determine that they have the best and most cost-effective ways of dealing with
risk. As a result, account turnover rates have been increasing throughout the
industry. Brokers and underwriters who have the right product, strong financial
footing and leadership will emerge on top of the industry.
A mature industry characterized by slower growth, excess capacity and rising
client expectations spells opportunity for A&A. Our competitive advantages begin
with our willingness to innovate, to do things differently. For example, we have
refined a sales-driven strategy of providing middle market clients with
low-cost, segment-specific products of the best possible quality. We are
serving this important part of our business with increasingly sophisticated
information technology, a proven business segmentation strategy and vigorous new
product development.
<PAGE>
five
- --------------------------------------------------------------------------------
Clients having larger and more complex risk management needs will require
comprehensive advisory services that can help reduce their overall cost of risk.
A&A's arsenal for larger accounts includes a consultative approach integrating
risk assessment, risk finance, mitigation and administration. Although we will
sometimes use capital market alternatives, we are working with some of the
world's leading insurance markets to develop insurance-based products that will
continue to provide our clients with cost-effective, tax-advantaged risk
transfer. A good example of a breakthrough insurance product is BETA, a high
excess multiline, multiyear risk transfer product developed by A&A's Alexander
Capital Consultants in conjunction with Swiss Re.
These strategies will be supported with an A&A "infrastructure" that includes
re-engineered work processes, information technology and the growing
intellectual capital of our employees. Through a program we call the A&A Way, we
are capturing our best business practices and applying them on a fast,
customized basis for clients and prospective clients. A Midwestern pilot project
using A&A Way practices and a centralized risk transfer
"...OUR COMPETITIVE ADVANTAGES BEGIN
WITH OUR WILLINGNESS TO INNOVATE,
TO DO THINGS DIFFERENTLY..."
<PAGE>
six
- --------------------------------------------------------------------------------
center has consistently obtained significantly higher account renewal rates and
better operating margins.
The A&A Way is one component of a worldwide information technology investment of
approximately $45 million in 1995. We are expanding our global IT
infrastructure, building common messaging links with offices around the world
and adding links with clients through so-called "groupware." A&A also
participated in the formation of the World Insurance Network, an electronic
bridge that will standardize, streamline and accelerate data transmission
between brokers and insurance markets.
To equip our employees to work in this environment, additional resources have
been devoted to training and professional development. Most U.S. employees have
attended A&A Way process training, and thousands more worldwide are improving
their technical, marketing and servicing skills. This kind of investment is
necessary if you plan -- as we do -- to become a leader in all of our markets in
the eyes of our clients, employees and shareholders.
Innovation is not confined to our retail operations. Client demand for
increasingly sophisticated solutions prompted the Alexander Howden Group to form
Alexander Howden Developments. This new unit combines several areas of
analytical expertise to assess risk exposures and accumulations, evaluate
retention capabilities and investigate alternative programs. Similar energy is
evident at the Alexander Consulting Group, which is reshaping its core
businesses of health care and compensation, retirement planning and human
resource information technologies.
These initiatives are expected to boost future revenues and profitability.
Meaningful growth is more likely to result from acquisitions. For this reason,
we continue to explore potential acquisitions or strategic alliances that will
help us deliver the best possible products and services, or fill a regional or
segment niche. We achieved these objectives with the October acquisition of most
of the U.S. operations of Jardine Insurance Brokers, Inc. The transaction
increased our market share in the West, particularly California, while adding
talented professionals in the areas of health care, agribusiness and other
practices. Larger strategic acquisitions will be considered as our industry
consolidates and as we evaluate options in related financial services.
A&A's progress throughout the year benefited from the experience and leadership
provided by the Board of Directors. Importantly, A&A directors have been
personally involved in supporting our business objectives, including business
development. In January 1995, the Board voluntarily eliminated cash compensation
for its non-employee members in favor of an equity compensation plan. Their
interests are now fully linked with the interests of all A&A shareholders, which
is the way it should be.
"INDUSTRY CONDITIONS SPELL
OPPORTUNITY
FOR A&A"
<PAGE>
seven
- --------------------------------------------------------------------------------
[ART]
"WE HAVE THE PEOPLE, THE RESOURCES AND THE STRATEGY
TO MAKE OUR WAY THROUGH A CHALLENGING PERIOD..."
<PAGE>
eight
- --------------------------------------------------------------------------------
New members since January 1995 include:
H. Furlong Baldwin, Chairman & CEO of Mercantile Bankshares Corporation.
E. Gerald Corrigan, Chairman, International Advisors, Goldman, Sachs & Co. and
former CEO of the Federal Reserve Bank of New York.
Ronald A. Iles, Deputy Chairman of A&A Services Inc. and Chairman of Alexander
Howden Group Limited.
Edward F. Kosnik, Senior Executive Vice President and Chief Financial Officer,
A&A Services Inc.
[PHOTO]
MEMBERS OF A&A'S OFFICE OF THE CHAIRMAN: ELLIOT COOPERSTONE,
RON ILES, DENNIS MAHONEY, FRANK ZARB, KEN DAVIS AND ED
KOSNIK.
In October, the Board approved five senior-level appointments, including that of
Ron Iles as Deputy Chairman. Ed Kosnik was elected Senior Executive Vice
President. Three new Executive Vice Presidents are Elliot S. Cooperstone, Chief
Administrative officer, A&A Services Inc.; Kenneth J. Davis, Chairman, Global
Retail Board; and Dennis L. Mahoney, Deputy Chairman and Group CEO of the
Alexander Howden Group. In each instance, the Board recognized outstanding
achievement by talented executives who represent one of the strongest management
teams in the industry. They will work with me in A&A's Office of the Chairman.
While we do not expect the market to improve in the short term, I have never
been more confident of our ability to become a leader in every region and in
every segment where we do business. We have the people, the resources and the
strategy to make our way through a challenging period that will severely test
all brokers and consultants before the industry completes its consolidation and
the ultimate winners emerge. As I recently told our employees, the important
thing to remember is that there will be winners. And A&A will be among them.
/s/ Frank G. Zarb
Frank G. Zarb
Chairman of the Board,
President &
Chief Executive Officer
March 29, 1996
<PAGE>
nine
- --------------------------------------------------------------------------------
FINANCIAL CONTENTS
Selected Financial Data ten
Management's Discussion and Analysis eleven
Report of Management twenty-three
Independent Auditors' Report twenty-four
Consolidated Statements of Operations twenty-five
Consolidated Balance Sheets twenty-six
Consolidated Statements of Cash Flows twenty-eight
Consolidated Statements of Stockholders' Equity thirty
Notes to Financial Statements thirty-two
<PAGE>
ten
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
Alexander & Alexander Services Inc. & Subsidiaries
(in millions, except per share amounts)
The following Selected Consolidated Financial Data is presented in
accordance with generally accepted accounting principles. This data should be
read in conjunction with the financial statements and accompanying notes
included elsewhere herein.
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
OPERATING RESULTS:
Operating Revenues $1,282.4 $1,323.9 $1,341.6 $1,369.5 $1,385.1
Operating Income (Loss)(1) 122.7 (82.9) 52.3 85.5 16.4
Other Income (Expenses)(2) 33.3 (63.9) (20.4) 17.4 (22.8)
Income (Loss) from Continuing
Operations 89.4 (107.2) 23.6 57.1 (9.5)
Loss from Discontinued
Operations(3) -- (28.9) -- (145.0) --
Cumulative Effect of Change in
Accounting -- (2.6) 3.3 -- (2.2)
Net Income (Loss) 89.4 (138.7) 26.9 (87.9) (11.7)
Earnings (Loss) Attributable to
Common Shareholders 64.0 (153.8) 20.7 (87.9) (11.7)
================================================================================
PER SHARE INFORMATION:
Primary Earnings Per Share:
Income (Loss) from
Continuing Operations $ 1.44 $ (2.79) $ .40 $ 1.32 $ (.22)
Loss from Discontinued
Operations -- (.66) -- (3.35) --
Cumulative Effect of Change
in Accounting -- (.06) .08 -- (.05)
- --------------------------------------------------------------------------------
Net Earnings (Loss) $ 1.44 $ (3.51) $ .48 $ (2.03) $ (.27)
- --------------------------------------------------------------------------------
Fully Diluted Earnings
Per Share:
Income (Loss) from
Continuing Operations $ 1.42 $ (2.79) $ .40 $ 1.32 $ (.22)
Loss from Discontinued
Operations -- (.66) -- (3.35) --
Cumulative Effect of
Change in Accounting -- (.06) .08 -- (.05)
- --------------------------------------------------------------------------------
Net Earnings (Loss) $ 1.42 $ (3.51) $ .48 $ (2.03) $ (.27)
- --------------------------------------------------------------------------------
Cash Dividends Per Common
Share .10 .325 1.00 1.00 1.00
===============================================================================
FINANCIAL POSITION:
Total Assets $2,942.4 $2,945.7 $2,793.8 $2,609.6 $2,737.8
Working Capital 251.5 237.6 186.2 191.7 172.6
Long-term Debt 126.2 132.7 111.8 125.1 169.9
Stockholders' Equity 402.6 317.5 276.2 185.5 370.1
===============================================================================
OTHER DATA:
Average Common and Common
Equivalent Shares
Outstanding 44.6 43.8 43.4 43.2 43.1
Average Common and Common
Equivalent Shares Outstanding,
Assuming Full Dilution 57.1 43.8 43.4 43.2 43.1
Cash Dividends Paid:(4)
Common Stock $ 4.4 $ 14.3 $ 41.7 $ 40.9 $ 40.6
Series A Preferred 8.3 8.3 6.2 -- --
===============================================================================
(1) Includes restructuring and special charges of $17.6 million and $69 million
in 1995 and 1994, respectively and $45.5 Million in 1991 (see Note 3 of
Notes to Financial Statements).
(2) Includes special charges primarily related to contingency settlements and
other indemnity costs of $69.7 million in 1994, $16.5 million in 1992 and
$13 million in 1991. Also includes gains on sales of non-core businesses of
$30.4 million in 1995, $20.2 million in 1994, $3.9 million in 1993 and
$43.8 million in 1992 (see Notes 2 and 3 of Notes to Financial Statements).
(3) Includes $145.0 million in 1992 relating to an increase in the estimated
liabilities under indemnities provided to the purchasers of discontinued
businesses. (See Note 6 of Notes to Financial Statements for a description
of the Company's discontinued operations).
(4) Dividends on the Series B Cumulative Convertible Preferred Stock are
payable in kind (additional Series B Preferred Shares) until December 15,
1996 and thereafter, at the Board of Directors' discretion, until
December 15, 1999.
<PAGE>
eleven
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
OVERVIEW
- --------
Alexander & Alexander Services Inc. (the "Company") provides professional risk
management consulting, insurance brokerage and human resource management
consulting services from offices in more than 80 countries. The Company's
principal industry segments are (i) insurance services, comprised of risk
management and insurance broking services and specialist and reinsurance
broking, and (ii) human resource management consulting.
Since mid-1994, management of the Company has implemented significant
changes, including a restructuring program aimed at expense reduction and
process improvement, a broad-based cash and stock compensation program tied to
individual performance and increasing stockholder value, as well as investments
in the Company's information technology systems and training programs. In
addition, the Company reduced its financial exposures to various longstanding
litigation and other contingencies and sold various non-core businesses.
Management believes that such actions were necessary in order to stabilize
the Company, to improve margins and financial performance, and to effectively
reposition the Company to meet the challenges of an increasingly competitive
business environment, the evolving needs and demands of its clients, including a
trend toward fee based remuneration, and the renewed trend towards industry
consolidation.
The Company's revenues are generally derived from commissions and fees and
can be affected by pricing and seasonality. The Company's insurance broking
revenues are generally impacted by overall available market capacity and premium
rates charged by insurance companies. Fee arrangements are becoming more
prevalent on large risk management accounts. Insurance broking commissions and
fee growth continue to be constrained, particularly in the U.S., due to soft
pricing and excess market capacity and the resultant intense competition among
insurance carriers and brokers for market share. These market conditions are
becoming increasingly evident in the U.K., Continental Europe and in other parts
of the world. In addition, changing client demands and needs in the U.S. have
resulted in higher account turnover rates within the industry.
During 1996, soft market conditions are expected to continue in most
liability coverages. Partially offsetting this trend are anticipated hardening
conditions for selected catastrophe coverages. The Company anticipates modest
broking revenue growth for its insurance broking operations in 1996.
Revenue growth from the Company's human resource management consulting
operations was constrained in 1995 by the impact of the Company's restructuring
initiatives. Moderate growth is expected for this segment in 1996.
The timing and realization of revenues are also affected by the timing of
renewal cycles in different parts of the world and lines of business. This
produces a degree of seasonality in the Company's results. Broking revenues for
risk management and insurance broking services are strongest during the first
quarter for Continental Europe and strongest in the U.S. and Asia-Pacific during
the fourth quarter. Specialist and reinsurance broking revenues are strongest in
the first and second quarters. Revenues for human resource management consulting
are typically strongest in the fourth quarter and weakest in the first quarter.
In addition to commissions and fees, the Company derives revenues from
investment income earned on fiduciary funds. Despite a rise in worldwide
interest rates in 1995, the trend in recent years has been downward. There is
also pressure from insurance companies to shorten the time that fiduciary funds
are held prior to remittance to carriers. Investment income earned on fiduciary
funds during 1996 is anticipated to remain near 1995 levels.
Revenue growth of the Company's industry segments will depend increasingly
on the development of new products and services, new business generation and
selective acquisitions.
In October 1995, the Company purchased most of the U.S. insurance broking
and consulting business of Jardine Insurance Brokers, Inc. (the JIB
acquisition). The Company will continue to evaluate domestic and international
geographical market expansion possibilities and further industry specialization.
Furthermore, the Company is considering additional possible niche and
substantial strategic acquisitions relating to its core businesses, as well as
other opportunities in the financial services industry. As part of its
evaluation of opportunities, the Company engages with interested parties in
discussions concerning possible transactions. The
<PAGE>
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Company will continue to evaluate such opportunities and prospects. However, the
Company cannot predict if any transaction will be consummated, nor the terms or
form of consideration required. Nor can the Company predict, if any such
transaction is consummated, what the financial benefit, if any, will be to the
Company.
Overall, comparable operating expenses declined significantly in 1995,
resulting from implementing the 1994 plan of restructuring and other expense
initiatives. The Company realized over $100 million of expense savings from
these efforts. Approximately one-half of these savings were reinvested in the
Company in the form of new technology, products and personnel to support revenue
growth, or absorbed through inflationary increases in costs. The Company plans
to continue such investments in 1996 which will slow short-term profit growth.
SUMMARY
- -------
The Company reported net income of $89.4 million, or $1.44 per share for 1995.
Fully diluted earnings per share for the period were $1.42. Included in the
results is an after-tax gain of $18.7 million, or $0.42 per share, from the sale
of Alexsis Inc., the Company's U.S.-based third party claims administrator and a
pre-tax charge of $17.6 million ($11.2 million after-tax or $0.25 per share)
primarily associated with the JIB acquisition in the fourth quarter.
In 1994, the Company reported a net loss of $138.7 million, or $3.51 per
share on a primary and fully diluted basis. Included in the results were
after-tax charges for restructuring, contingency settlements and other reserves
of $106.6 million, or $2.43 per share, an after-tax gain of $12.5 million, or
$0.28 per share, from the sale of the Company's U.S.-based personal lines
insurance broking business, and after-tax charges of $28.9 million, or $0.66 per
share, relating to certain indemnity obligations and exposures of the Company's
discontinued operations.
In 1993, net income was $26.9 million, or $0.48 per share on a primary and
fully diluted basis, including after-tax gains of $2.3 million, or $0.05 per
share, from the sale of three small operations and a gain relating to a
cumulative effect adjustment of $3.3 million, or $0.08 per share, from a change
in accounting for income taxes.
The following discussion and analysis of significant factors affecting the
Company's operating results and liquidity and capital resources should be read
in conjunction with the accompanying financial statements and related notes.
CONSOLIDATED
- ------------
OPERATING REVENUES
Consolidated operating revenues for 1995 were $1,282.4 million compared to
$1,323.9 million for 1994. The sale of non-core businesses reduced revenues by
approximately $109 million in 1995 compared to 1994. Partially offsetting this
decline was $8.5 million from the favorable effects of changes in foreign
currency rates. The JIB acquisition in the fourth quarter of 1995 increased
revenues by approximately $11.5 million.
Excluding the effects of these items, total revenues increased by $47.5
million, or 3.9 percent, on a comparable basis. Consolidated operating revenues
decreased in 1994 by $17.7 million, or 1.3 percent, versus 1993.
COMMISSIONS AND FEES
Total 1995 commissions and fees were $1,219.5 million compared to $1,272.3
million in 1994, a decrease of $52.8 million, or 4.1 percent. Total 1994
commissions and fees decreased from 1993 levels by $15.4 million, or 1.2
percent. The sale of non-core businesses reduced such revenues in the 1995 and
1994 comparable periods by approximately $106.5 million and $8.4 million,
respectively. The favorable effects of changes in foreign currency rates
increased commissions and fees by $7.9 million and $0.5 million in 1995 and
1994, respectively. Additionally, the impact of acquisitions increased these
revenues by $11.2 million and $7.2 million in 1995 and 1994, respectively.
After adjusting for the effects of these items, total commissions and fees
increased by $34.6 million, or 3 percent, in 1995 versus a decrease of $14.7
million, or 1.3 percent, in 1994 versus 1993.
FIDUCIARY INVESTMENT INCOME
Investment income earned on fiduciary funds increased by $11.3 million, or 21.9
percent, in 1995 primarily due to higher worldwide interest rates, particularly
in the U.S. and U.K.
In 1994, fiduciary investment income declined by $2.3 million, or 4.3
percent, versus 1993 primarily due to lower average investment levels,
particularly in the U.S.
The Company enters into interest rate swaps and forward rate agreements to
limit the earnings volatility associated with changes in short-term interest
rates on its existing and anticipated fiduciary investments. In addition, as
part of its interest rate management program, the Company utilizes various types
of interest rate options, including caps, collars, floors and interest rate
guarantees. These financial instruments increased the Company's fiduciary
investment income by $1 million in 1995,
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$0.2 million in 1994 and $2.2 million in 1993. For additional information
relating to the Company's interest rate financial instruments, see Note 12 of
Notes to Financial Statements.
The majority of the Company's fiduciary funds investment portfolio is
invested in securities with short-term maturities; as a result, the Company's
level of fiduciary investment income is closely associated with changes in
short-term, worldwide interest rates, primarily in the United States and United
Kingdom. Excluding the impact of derivative financial instruments, a one
percentage point change in worldwide interest rates could affect the Company's
level of fiduciary investment income by approximately $8 million.
The Company generally enters into derivative instruments to hedge its
exposure to interest rate changes up to a three year period. The approximate net
amount of the fiduciary investment portfolio that has been hedged using
derivative instruments, and the effective fixed rate of return the Company will
receive on those hedges, is summarized below:
For the Years Ended December 31, 1996 1997 1998
- -------------------------------------------------------------------------------
Net Value Hedged $138.6 $184.2 $68.7
Effective Interest Rate 8.9% 7.2% 7.2%
===============================================================================
Because these derivative instruments have effectively locked in a fixed
interest rate on a portion of the fiduciary funds portfolio, the Company's
fiduciary investment income is not as impacted by short-term interest rates as
would otherwise be the case. For example, a one percentage point change in
worldwide market interest rates would, as cited above, affect fiduciary
investment income and related cash flows by approximately $8 million; however,
the impact is reduced to approximately $7 million in 1996 when the financial
hedging instruments are included.
A change in the level of short-term, worldwide interest rates would also
result in a change in the fair market value of the Company's portfolio of
derivative financial instruments. At December 31, 1995, the fair market value of
all interest rate derivative financial instruments was approximately $6.8
million, representing the economic gain the Company could have realized if the
Company terminated all interest rate derivatives on that date. If interest rates
at December 31, 1995 had been one percentage point higher, the fair market value
of all interest rate derivatives would have been approximately $3 million.
Likewise, if interest rates had been one percentage point lower, the fair market
value of all interest rate derivatives would have been approximately $10
million.
OPERATING EXPENSES
Consolidated operating expenses for 1995 were $1,159.7 million compared to
$1,406.8 million in 1994. Excluding the 1995 special charges and the 1994
restructuring charges and the 1994 non recurring charges described below, total
operating expenses declined by $150.9 million, or 11.7 percent. Reflected in
this decrease was the effect of the sale of non-core businesses which reduced
total operating expenses by approximately $102.8 million on a comparable basis.
Partially offsetting this decline was the negative impact of changes in foreign
currency rates, and the fourth quarter JIB acquisition which increased total
expenses by $9.3 million and $11.2 million, respectively.
Excluding the effects of these items, total expenses decreased $68.6
million, or 5.6 percent, on a comparable basis.
Consolidated operating expenses increased by $117.5 million, or 9.1
percent, in 1994 versus 1993. Excluding the restructuring charges described
below, total operating expenses increased in 1994 by $48.5 million, or 3.8
percent. In 1994, total operating expenses increased by $50.3 million after
adjusting for foreign currency fluctuations and the effects of acquisitions and
dispositions.
SALARIES AND BENEFITS
Consolidated salaries and benefits decreased by $79.2 million, or 9.7 percent,
in 1995 versus 1994. Excluding the effect of changes in foreign currency rates,
a $59.2 million decrease resulting from the sale of non-core businesses, the
fourth quarter JIB acquisition and the 1994 increase due to additional incentive
and benefit expenses, total salaries and benefits decreased by $24.5 million, or
3.3 percent, versus 1994. Contributing to this decrease was a 3.9 percent
decline in headcount, excluding the impact of acquisitions and dispositions,
primarily due to early retirement programs and worldwide workforce reductions
pursuant to the Company's 1994 plan of restructuring. Also reflected in the
decrease were lower employee benefit costs resulting from the Company's expense
reduction initiatives. Somewhat offsetting these items was an increase in
incentives attributable to improved sales and profit performance coupled with
the implementation of several new long-term incentive compensation plans and
normal salary progressions.
Consolidated salaries and related benefits increased by $29 million, or 3.7
percent, in 1994 versus 1993. The increase reflects $10.1 million of additional
incentive and benefit expenses in 1994 representing a combination of amendments
to existing incentive plans, payments required to certain
<PAGE>
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employees in the U.K. due to the modification of employment terms and a special
compensation award to a director.
Also contributing to the 1994 change was an additional $9.1 million of
salaries and benefits resulting from the 1993 Mexico acquisition and from the
November 1993 pooling of interests acquisition of Clay & Partners (Clay).
Excluding the effects of these items and a decrease due to the effect of
sold operations, salaries and benefits increased $16.4 million over 1993 levels.
Staff costs for 1994 also reflected normal salary progressions and higher
benefit costs, partially offset by a decline in headcount of 8.3 percent in
1994. Performance-based incentive costs declined by $4.8 million in 1994.
The Company will adopt SFAS No. 123, "Accounting for Stock Based
Compensation," in 1996. The Company has elected to continue to measure
compensation costs using APBOpinion No. 25 and accordingly will provide the
disclosures required by SFAS No. 123.
OTHER OPERATING EXPENSES
Consolidated other operating expenses for 1995 were $407 million compared to
$523.5 million for 1994, a decrease of $116.5 million, or 22.3 percent. The sale
of non-core businesses reduced expenses by approximately $43.6 million in the
comparable periods. Partially offsetting this decline was the negative impact of
changes in foreign currency rates, including hedging contracts gains and losses,
and the fourth quarter JIB acquisition which increased other operating expenses
by $2.6 million and $3.3 million, respectively.
After adjusting for the effects of these items, total other operating
expenses decreased $78.8 million, or 16.5 percent, in 1995 versus 1994 on a
comparable basis.
Contributing to this decline was the implementation of the 1994 plan of
restructuring and other expense initiatives, including tightening of travel and
entertainment practices, elimination of certain employee perquisites and the
consolidation of vendor and supply management. Additionally, this decrease
reflects lower insurance costs primarily related to the Company's professional
indemnity programs.
In 1994, the Company provided $29.2 million, including $24.9 million in the
fourth quarter, of additional reserves relating to the settlement of certain
large litigation matters and reserve strengthening. In addition, higher system
development costs were reflected in 1994 due to the standardization and
automation efforts underway in the U.S.
Consolidated other operating expenses increased by $19.5 million, or 3.9
percent, in 1994 versus 1993. Excluding the negative impact of changes in
foreign exchange rates and acquisitions and dispositions, other operating
expenses increased by $19.3 million, or 4.3 percent, in 1994 versus 1993.
Insurance costs reflect third-party insurance premiums and self-insurance
reserves for the Company's professional indemnity programs. The Company believes
its insurance-related reserves are sufficient to cover potential claims and
liabilities; however, there is no assurance that escalating litigation costs and
awards, as well as insurance company insolvencies, will not have an adverse
impact on the future overall cost of insurance coverages.
The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions" effective January 1, 1993 for its U.S. plans and
effective January 1, 1995 for its international plans. This statement requires
the Company to accrue the estimated cost of future retiree benefit payments
during the years the employee provides services. The Company previously expensed
the cost of these benefits, which are principally health care and life
insurance, as premiums or claims were paid. The Company elected to recognize the
initial postretirement benefit obligation of $14 million and $5.9 million for
its U.S. plans and international plans, respectively, over a period of twenty
years.
RESTRUCTURING AND SPECIAL CHARGES
In the fourth quarter of 1995, the Company recorded a $17.6 million pre-tax
charge ($11.2 million after-tax or $0.25 per share) related primarily to the JIB
acquisition. The JIB portion of this charge amounted to $13 million of which
$12.5 million reflects the anticipated costs associated with the abandonment of
certain of the Company's office space and the remaining balance reflects the
anticipated costs associated with involuntary workforce reductions. The lease
liability will be paid out through the year 2007. The remaining $4.6 million of
the charge primarily represents costs associated with other involuntary
workforce reductions in the U.S.
In the fourth quarter of 1994, management committed to a formal plan of
restructuring the Company's operations and recorded a $69 million pre-tax charge
($45.1 million after-tax or $1.03 per share). The restructuring charge included
$25.2 million to consolidate real estate space requirements at 48 offices
worldwide, and $43.8 million for
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voluntary early retirement programs and involuntary workforce reductions
involving approximately 1,100 positions, of which 650 were in the U.S.
At December 31, 1995 the remaining liabilities associated with the 1994
restructuring program amounted to $21.4 million, of which $9 million is included
in current liabilities in the Company's 1995 consolidated balance sheet. The
remaining long-term liabilities will be paid out in the form of annuity payments
for certain early retirees as well as lease payments through the year 2020.
OTHER INCOME AND EXPENSES
INVESTMENT INCOME
Investment income earned on operating funds increased by $8.3 million, or 76.1
percent, in 1995 compared to an increase of $1.3 million, or 13.5 percent in
1994. Contributing to the 1995 increase were higher average operating cash and
investment levels during 1995 primarily resulting from the Company's improved
operating performance and the proceeds from the July 1994 issuance of the
Company's 8% Series B cumulative convertible preferred stock coupled with
slightly higher worldwide interest rates. In 1994 the increase was primarily
attributable to interest income earned on the proceeds from the aforementioned
July 1994 preferred stock issuance.
INTEREST EXPENSE
Interest expense increased by $2.6 million, or 16.3 percent, in 1995 compared to
an increase of $1.6 million, or 11.1 percent, in 1994. The 1995 increase is due
to a higher average debt level resulting from the $50 million borrowing in
mid-1994 relating to a contract with a reinsurance company and the issuance of
long-term notes payable upon settlement of the Shand Morahan &Company (Shand)
and Mutual Fire, Marine & Inland Insurance Company (Mutual Fire) contingencies
during the first quarter of 1995. The 1994 increase is due primarily to a higher
debt level associated with the aforementioned $50 million borrowing.
OTHER
Other income (expenses) consists of the following:
For the Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Gains on sales of businesses $30.4 $20.2 $3.9
Litigation costs (0.1) (9.1) (20.2)
Other 2.4 (0.2) 0.7
- -------------------------------------------------------------------------------
$32.7 $10.9 $(15.6)
================================================================================
During 1995 and 1994, as part of its efforts to streamline its operations
and concentrate on its core businesses, the Company disposed of certain
operations. On February 28, 1995, the Company completed the sale of Alexsis
Inc., its U.S.-based third party claims administrator, for total cash proceeds
of $47.1 million resulting in a pre-tax gain of $28.7 million ($18.7 million
after-tax or $0.42 per share).
During 1995, the Company sold three small operations for gross proceeds of
$9.1 million resulting in pre-tax gains totaling $1.7 million ($1.1 million
after-tax or $0.02 per share).
On November 10, 1994, the Company completed the sale of its U.S.-based
personal lines insurance broking business. The total proceeds from the sale were
$30.2 million with a resulting pre-tax gain of $20.2 million ($12.5 million
after-tax or $0.28 per share).
During 1993, the Company sold three small operations for gross proceeds of
$9.6 million. Pre-tax gains of $3.9 million were recognized on the sales with
resulting after-tax gains totaling $2.3 million or $0.05 per share.
Litigation costs are associated primarily with the Mutual Fire lawsuit
described in Note 14 of Notes to Financial Statements as well as a 1993
settlement of certain other litigation matters.
SPECIAL CHARGES
In the fourth quarter of 1994, the Company recorded pre-tax special charges of
$69.7 million ($45.3 million after-tax or $1.03 per share). These charges, which
were reflected in non-operating results, included a $32.5 million settlement in
January 1995 which resolved certain indemnification obligations relating to the
1987 sale of Shand and a $37.2 million increase to the Company's pre-
existing reserves. The latter was based on settlement discussions which led to a
March 1995 settlement agreement, subsequently approved by the courts, relating
to lawsuits and other disputes brought against the Company and others by the
rehabilitator of Mutual Fire. The resolution of these contingencies reflected
management's view that negotiated settlements would be more cost-effective than
protracted litigation. For further information relating to these matters, see
Note 14 of Notes to Financial Statements.
INCOME TAXES
The Company's effective tax rates were 39 percent, 29 percent and 20 percent in
1995, 1994 and 1993, respectively. These rates compare to the U.S. statutory
rate of 35 percent. The effective rates were negatively impacted by certain
expenses, including
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entertainment and amortization of goodwill, which were not deductible in certain
jurisdictions in which the Company conducts business. Offsetting these factors
were foreign tax rates lower than the U.S. statutory rate and state and local
tax benefits on losses generated in the U.S. operations in 1994 and 1993.
The Company's 1993 effective tax rate was favorably impacted by the
recognition of a $3.5 million tax benefit associated with a prior year capital
loss. The rate was also favorably affected by the results of Clay &Partners, a
U.K.-based actuarial consulting operation acquired in 1993 in a pooling of
interests transaction. Prior to the merger, Clay operated as a partnership and
accordingly, its results did not reflect corporate income taxes of approximately
$1.9 million.
The Company files a consolidated U.S. federal income tax return which
includes the losses of its U.S. discontinued operations. A reconciliation of the
book to taxable income (loss) for the Company's U.S. operations is as follows:
For the Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Income (loss) before taxes $37.4 $(200.9) $(74.2)
Amortization of goodwill 4.4 4.2 4.8
Depreciation 1.0 6.6 5.4
Tax leases 8.3 7.0 7.6
Dispositions of subsidiaries/
businesses 27.8 (19.2) (8.5)
Contingency settlements (83.9) 69.7 --
Restructuring expenses (11.4) 25.8 (2.9)
Repatriation of foreign earnings 0.9 9.3 131.0
Other, including accruals
not currently deductible (4.4) 18.9 39.9
- -------------------------------------------------------------------------------
Taxable income (loss)
from continuing operations (19.9) (78.6) 103.1
Taxable income (loss) from
discontinued operations (5.4) (4.8) 4.6
- -------------------------------------------------------------------------------
U.S. taxable income (loss) $(25.3) $(83.4) $107.7
===============================================================================
The Company recorded an $8.8 million benefit with regard to the 1995 U.S.
taxable loss, which will be carried back. The Company carried back $38.4 million
of the 1994 U.S. taxable loss, and received a tentative refund of federal income
tax in the amount of $16.3 million in February 1996. The amount carried back
relates primarily to the deductions claimed for interest incurred in connection
with the settlement of the examination by the Internal Revenue Service (IRS) of
years 1987 through 1989 and for payments on various contingency settlements. The
remaining 1994 U.S. taxable loss, $45 million, will be carried forward. As
discussed in Note 5 of Notes to Financial Statements, the Company is currently
under examination by the IRS for years 1990 and 1991. It is not expected that
the examination will have any effect on realization of the 1994 carryforward.
At December 31, 1995, the Company has a net deferred tax asset balance of
$97.1 million which is comprised of net deferred tax assets in the U.S. of
$118.6 million offset by net deferred tax liabilities of $21.5 million outside
the U.S. The deferred tax asset is net of a $35.2 million valuation allowance
primarily relating to foreign and U.S. state net operating loss and capital loss
carryforwards. The valuation allowance represents approximately 85 percent of
these carryforwards. At this time the Company believes that it is more likely
than not that this portion of these deferred tax assets will not be realized.
The valuation allowance decreased in 1995 by a net amount of $1.5 million,
principally due to the utilization for tax purposes of foreign capital loss
carryforwards, offset by increases in foreign and U.S. state net operating
losses.
A substantial portion of the net deferred tax asset relates to various
financial statement expenses and accruals, primarily in the U.S., that will not
be tax deductible until paid. These costs, which will be paid in future years,
principally include restructuring costs, deferred compensation expenses,
professional indemnity costs, and pension and other employee benefit expenses.
The net deferred tax asset also includes $15.8 million relating to the $45
million carryforward of the 1994 U.S. taxable loss which will expire in the year
2009, U.S. federal foreign tax credits totaling $11.8 million which expire in
years 1998 through 2000, and U.S. federal alternative minimum tax credits of
$7.5 million which can be carried forward indefinitely. The Company expects that
sufficient taxable income will be generated in future years to realize these
carryforwards, and therefore, the Company believes a valuation allowance is not
necessary for these amounts.
Although future earnings cannot be predicted with certainty, management
currently believes that realization of the net deferred tax asset is more likely
than not. The net U.S. deferred tax asset would be realized with average future
annual earnings equivalent to 1995 results excluding non-recurring items and
sold subsidiaries and businesses.
As discussed in Note 5 of Notes to Financial Statements, the Company was
advised during 1994 that the Joint Committee on Taxation had approved the
agreement reached in 1993 by the Company and the Appeals Office of the IRS on
settlement of tax issues with respect to years 1980 through 1986. Also during
1994, the Company reached an agreement with the IRS on settlement of the
examination of years 1987 through 1989. On February 28, 1995, the Company paid
the amounts due for such
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years and charged the tax and net interest totaling $35.6 million against
previously established reserves.
In 1994, the Company received a Notice of Proposed Adjustment from the IRS
in connection with the examination of its 1990 and 1991 federal income tax
returns, proposing an increase in taxable income for the 1991 year which, if
sustained, would result in additional tax liability estimated by the Company at
$50 million, excluding interest and penalties. This proposed adjustment relates
to intercompany transactions involving the stock of a United Kingdom subsidiary.
The Company disagrees with the proposed adjustment and has requested advice
from the IRS National Office on this issue. The Company currently believes that
the National Office review should be completed in the first half of 1996.
Although the ultimate outcome of the matter cannot be predicted with certainty,
the Company and its independent tax counsel believe there are substantial
arguments in support of the Company's position and that the Company should
prevail in the event that the issue was to be litigated.
A similar set of transactions occurred in 1993. Depending on the outcome of
the IRS National Office review of the 1991 issue, the IRS could propose an
increase in 1993 taxable income which would result in an additional tax
liability estimated by the Company at $25 million, excluding interest and
penalties. The Company's 1993 tax return is not currently under examination. The
Company believes it should prevail in the event this similar issue is raised by
the IRS. Accordingly, no provision for any liability with respect to the 1991
and 1993 transactions has been made in the consolidated financial statements.
The Company believes that its current tax reserves are adequate to cover
its tax liabilities.
DISCONTINUED OPERATIONS
In 1985, the Company discontinued its insurance underwriting operations. In
1987, the Company sold Sphere Drake Insurance Group (Sphere Drake). The Sphere
Drake sales agreement provides indemnities by the Company to the purchaser for
various potential liabilities including provisions covering future losses on
certain insurance pooling arrangements from 1953 to 1967 between Sphere Drake
and Orion Insurance Company (Orion), a U.K.-based insurance company, and future
losses pursuant to a stop-loss reinsurance contract between Sphere Drake and
Lloyd's Syndicate 701 (Syndicate 701). In addition, the sales agreement requires
the Company to assume any losses in respect of actions or omissions by Swann &
Everett Underwriting Agency (Swann & Everett), an underwriting management
company previously managed by Alexander Howden Group Limited (Alexander Howden).
In 1994, Orion, which has financial responsibility for sharing certain of
the insurance pool liabilities, was placed in provisional liquidation by order
of the English courts. Based on current facts and circumstances, the Company
believes that the provisional liquidation will not have a material adverse
effect on the net liabilities of discontinued operations.
The net liabilities of discontinued operations shown in the accompanying
Consolidated Balance Sheets include insurance liabilities associated with the
above indemnities, liabilities of insurance underwriting subsidiaries currently
in run-off and other related liabilities.
The insurance liabilities represent estimates of future claims expected to
be made under occurrence-based insurance policies and reinsurance business
written through Lloyd's and the London market covering primarily asbestosis,
environmental pollution, and latent disease risks in the United States, which
are coupled with substantial litigation expenses. These claims are expected to
develop and be settled over the next twenty to thirty years.
Liabilities stemming from these claims cannot be estimated using
conventional actuarial reserving techniques because the available historical
experience is not adequate to support the use of such techniques and because
case law, as well as scientific standards for measuring the adequacy of site
cleanup (both of which have had, and will continue to have, a significant
bearing on the ultimate extent of the liabilities) is still evolving.
Accordingly, the Company's independent actuaries have combined available
exposure information with other relevant industry data and have used various
projection techniques to estimate the insurance liabilities, consisting
principally of incurred but not reported losses.
On July 1, 1994, the Company entered into a finite risk contract with a
reinsurance company, providing protection primarily for exposures relating to
Orion, Syndicate 701 and Swann & Everett. The contract provided for a payment by
the Company of $80 million, $50 million of which was borrowed from the
reinsurance company, and for payment by the Company of the first $73 million of
paid claims. The contract entitles the Company to recover paid claims in excess
of the Company's $73 million retention. At December 31, 1995, the recoveries
were limited to $115.2 million, which includes the Company's payment of $80
million. In addition, commencing December 31, 1996, depending on the timing
and amount of paid loss recoveries under the contract, the Company may be
entitled to receive a payment from the reinsurance company in excess of
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the amounts recovered for paid losses if the contract is terminated. The
contract is accounted for under the deposit method of accounting and the
accounting requirements for discontinued operations. As a result of this
transaction, the Company recorded a $6 million charge in the second quarter of
1994 which represented the cost of the premium and deductible that exceeded
existing reserves for covered exposures at that time.
During the third quarter of 1994, the Company recorded a $20.9 million
charge relating to an agreement that resolved certain indemnity obligations to
Sphere Drake. Under terms of the Sphere Drake agreement, the Company received a
cash payment of $5 million in settlement of the zero coupon notes receivable and
related indemnities as well as certain income tax liabilities.
While the insurance liabilities represent the Company's best estimate of
the probable liabilities within a range of independent actuarial estimates of
reasonably probable loss amounts, there is no assurance that further adverse
development may not occur due to variables inherent in the estimation processes
and other matters described above. Based on independent actuarial estimates of a
range of reasonably possible loss amounts, liabilities could exceed recorded
amounts by approximately $170 million. However, in the event of such adverse
development, based on the independent actuarial estimate of pay out patterns, up
to approximately $130 million of this excess would be recoverable under the
finite risk contracts.
The Company believes that, based on current estimates, the established
total net liabilities of discontinued operations are sufficient to cover its
exposures.
CUMULATIVE EFFECT ADJUSTMENTS
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." This statement requires that certain
benefits provided to former or inactive employees after employment but prior to
retirement, including disability benefits and health care continuation coverage,
be accrued based upon the employees' service already rendered. The cumulative
effect of this accounting change was an after-tax charge of $2.6 million or
$0.06 per share in the first quarter of 1994. The increase to the annual cost of
providing such benefits will not be significant.
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." The cumulative effect of adopting this standard increased net
income in the first quarter of 1993 by $3.3 million or $0.08 per share. Tax
benefits of $3.2 million were also allocated to paid-in capital representing the
difference in the tax bases over the book bases of the net assets of taxable
business combinations accounted for as pooling of interests. These benefits
would have been recognized at the respective dates of combination if SFAS No.
109 had been applied at that time.
Segment Information
- -------------------------------------------------------------------------------
INSURANCE SERVICES
Operating results for the Insurance Services segment of the Company's operations
are summarized below:
For the Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Operating revenues:
Risk management and insurance
services broking $ 739.8 $ 816.4 $ 832.7
Specialist insurance and
reinsurance broking 269.4 245.4 242.3
Fiduciary investment income 62.6 51.4 53.6
- -------------------------------------------------------------------------------
Total operating revenues 1,071.8 1,113.2 1,128.6
- -------------------------------------------------------------------------------
Operating expenses:
Operating expenses 912.7 1,069.1 1,035.7
Restructuring/Special charges 15.7 56.3 --
- -------------------------------------------------------------------------------
Total operating expenses 928.4 1,125.4 1,035.7
- -------------------------------------------------------------------------------
Operating income (loss) $ 143.4 $ (12.2) $ 92.9
===============================================================================
RISK MANAGEMENT AND INSURANCE
SERVICES BROKING REVENUES
Worldwide risk management and insurance services broking commissions and fees
were $739.8, which decreased $76.6 million, or 9.4 percent, in 1995 compared to
a $16.3 million, or 2 percent, decrease in 1994. Reflected in the 1995 decrease
are the net impact of sold operations which reduced revenues by $106.5 million,
a favorable foreign exchange rate variance of $4.9 million and an increase in
revenues of $11.2 million relating to the fourth quarter JIB acquisition.
Excluding the effect of these items, 1995 commissions and fees increased
$13.8 million, or 2 percent.
In 1995, the Continental Europe, Latin America, and Asia-Pacific operations
reported increased commissions and fees of $1.4 million, $7 million and $5.1
million, respectively. The European operations favorable variance reflects
increased commissions and fees, particularly in Germany, the Netherlands and
France, partially offset by a decrease for such revenues in the U.K. The
Continental Europe increases are primarily attributable to increased commission
rates and the acquisition of a small brokerage business. The U.K. decrease
reflects weakened pricing resulting from a softening insurance market. The
increases in the Latin American operations are primarily due to new
<PAGE>
nineteen
- --------------------------------------------------------------------------------
business production and favorable client retention levels. The increase in the
Asia-Pacific operations reflects the acquisition of a small brokerage business.
Broking revenues in the U.S. decreased by $29.7 million in 1994 compared to
1993 reflecting the continued softness in certain insurance markets and lost
business. Partially offsetting the U.S. decline were revenue increases for
certain of the Company's international risk management and insurance services
operations. Particularly, there was an increase of $13.2 million in the Latin
American operations, primarily from the 1993 Mexico acquisition, and also
increases of $5.3 million and $3.7 million in the European and Canadian
operations, respectively. These increases were due primarily to new business
production. Furthermore, sold operations served to reduce 1994 broking revenues
by $8.4 million and changes in foreign currency rates negatively impacted such
revenues by $1 million.
SPECIALIST INSURANCE AND
REINSURANCE BROKING REVENUES
To achieve operational efficiencies, in late 1994 the specialist insurance
broking and reinsurance broking operations committed to merge their operations
into one business unit, headquartered in London effective January 1, 1995. Prior
to the merger, they operated as independent business units.
Total 1995 broking commissions and fees of $269.4 million increased $24
million, or 9.8 percent, versus 1994 levels. This compares to an increase of
$3.1 million, or 1.3 percent, in 1994. These increases were primarily due to
reported new business increases of $22.2 million and $3.2 million in the U.S.
and overseas operations, respectively.
In 1994, selected premium revenues and new business in the Company's
international operations, particularly in Canada, France, Asia-Pacific and Latin
America were substantially offset by a decline in the U.S.
The Company enters into foreign exchange forward contracts and foreign
exchange option agreements primarily to provide risk management against future
exposures that arise at its London-based specialist insurance and reinsurance
broking operations. The exposures arise because a significant portion of the
revenues of these operations are denominated in U.S. dollars, while their
expenses are primarily denominated in U.K. pounds sterling. In the event the
U.S. dollar's value was to change by $0.10 per U.K. pound sterling, the annual
operating income and cash flow of the specialist and reinsurance broking
operation would change by approximately $4 million.
The fair market value of foreign exchange contracts is impacted by changes
in the spot foreign exchange rate. At December 31, 1995, the fair market value
of all foreign exchange hedging instruments was a liability of $0.7 million. If
the dollar appreciated by $0.10 against the U.K. pound sterling, the fair value
of these foreign exchange instruments would be a liability of $4.7 million. If
the dollar depreciated by $0.10, the fair value would be an asset of $2.5
million.
Foreign exchange contracts are marked to market at each balance sheet date
and are included in other current assets or liabilities, with the resulting gain
or loss recorded as a component of other operating expenses. If these contracts
had been terminated at December 31, 1995 and December 31, 1994, the results
would have been a liability of $0.7 million and an asset of $2.6 million,
respectively. For additional information relating to the Company's foreign
exchange financial instruments, see Note 12 of Notes to Financial Statements.
These foreign exchange contracts are purchased from large international
banks and financial institutions with strong credit ratings. Credit limits are
established based upon the credit ratings of such institutions and are monitored
on a regular basis. Management does not anticipate incurring any losses due to
non-performance by these institutions. In addition, the Company monitors the
market risk associated with foreign exchange and options contracts by using
probability analysis, external pricing systems and information from banks and
brokers.
FIDUCIARY INVESTMENT INCOME
During 1995, investment income earned on fiduciary funds, increased by $11.2
million, or 21.8 percent, versus 1994 levels. The increase was primarily due to
higher worldwide interest rates, particularly in the U.S. and U.K.
Investment income earned on fiduciary funds decreased by $2.2 million in
1994 primarily due to lower average investment levels, particularly in the U.S.
OPERATING EXPENSES
Operating expenses were $928.4 million in 1995. Excluding a $15.7 million
special charge in 1995 primarily associated with the JIB acquisition and $40.2
million of restructuring charges in 1994, worldwide risk management and
insurance services operating expenses decreased by $154.3 million, or 18.5
percent, in 1995 compared to an increase of $14.6 million, or 1.8 percent, in
1994. The effect of changes in foreign currency rates increased expenses by $2.1
million and $6 million in 1995 and 1994, respectively. The fourth quarter JIB
acquisition increased expenses $11.2 million in 1995. Reflected
<PAGE>
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- --------------------------------------------------------------------------------
in the 1995 decrease is a reduction of expenses of approximately $102.8 million
due to the sale of non-core businesses.
After adjusting for the effects of changes in foreign currency rates and
acquisitions and dispositions, total 1995 operating expenses decreased $64.8
million, or 8.9 percent, on a comparable basis.
The U.S. and European operations reported decreased operating expenses of
$67 million and $2.1 million, respectively. The U.S. favorable operations
variance primarily reflects the implementation of the 1994 plan of restructuring
and other expense initiatives, including tightening of travel and entertainment
practices, elimination of certain employee perquisites and the consolidation of
vendor and supply management. In addition, 1994 expenses included $24.9 million
of additional reserves relating to the settlement of certain large litigation
matters and reserve strengthening. The European operations favorable variance
reflects reduced operating expenses in the U.K. substantially offset by
increased operating expenses in Continental Europe. Furthermore, increased
operating expenses of $3.9 million and $3.4 million were reported in the
Asia-Pacific and Latin American operations, respectively. The reported
reductions were primarily the result of the aforementioned restructuring and
other expense initiatives undertaken in 1994 somewhat offset by an increase in
incentives attributable to improved sales and profit performance coupled with
the implementation of several new long-term incentive compensation plans. The
reported increase in the Asia-Pacific operations was primarily due to an
acquisition of a small brokerage business.
Contributing to the 1994 increase were higher insurance costs and increased
operating expenses of $13 million in the Latin American operations, primarily
due to the 1993 Mexico acquisition, somewhat offset by a decline in expenses of
$15.2 million for operations sold in 1994 and 1993.
Operating expenses, excluding $16.1 million of 1994 restructuring charges,
for the specialist insurance and reinsurance broking operations decreased by
$2.1 million, or 0.9 percent, in 1995 compared to an increase of $18.8 million,
or 8.8 percent, in 1994. Foreign exchange rate variances, including hedging
contracts gains and losses, negatively impacted 1995 expenses by $5.3 million
and had a minimal impact on 1994 expenses.
Excluding the impact of foreign exchange rate variances, total operating
expenses decreased by $7.4 million, or 3.2 percent, in 1995.
Contributing to the 1995 decrease were lower expenses of $18.4 million in
the U.K. operations partially offset by higher expenses of $5.6 million in the
U.S. operations. The reported reduction in the U.K. operations was primarily the
result of the aforementioned restructuring and other expense initiatives
undertaken in 1994. Both of these variances reflect additional incentives during
1995 due to improved operating performance.
A significant portion of the 1994 operating expense increase was due to
certain additional incentive and benefit expenses in the U.K. operations arising
from amendments to existing incentive plans and payments required to its
employees as a result of modification of employment terms.
HUMAN RESOURCE MANAGEMENT CONSULTING
Operating results for the Human Resource Management Consulting segment of the
Company's operations are summarized below:
For the Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Operating revenues:
Commissions and fees $210.3 $210.5 $212.7
Fiduciary investment income 0.3 0.2 0.3
- -------------------------------------------------------------------------------
Total operating revenues 210.6 210.7 213.0
- --------------------------------------------------------------------------------
Operating expenses:
Operating expenses 199.2 221.5 220.5
Restructuring/Special charges 1.4 8.3 --
- -------------------------------------------------------------------------------
Total operating expenses 200.6 229.8 220.5
- -------------------------------------------------------------------------------
Operating income (loss) $ 10.0 $(19.1) $ (7.5)
================================================================================
Human resource management consulting commissions and fees of $210.3 million
decreased by $0.2 million, or 0.1 percent, in 1995 compared to a decrease of
$2.2 million, or 1 percent in 1994. After adjusting for the effects of changes
in foreign exchange rates, these revenues decreased by $2.1 million, or 1
percent, and by $2.8 million, or 1.3 percent, in 1995 and 1994, respectively.
The 1995 decrease is primarily attributable to revenue shortfalls in the
U.S. operations partially offset by increases in the Canadian operations.
Contributing to the 1994 decrease was a shortfall in the U.K. operations
primarily due to the enactment of legislation requiring commission disclosure to
clients on financial services products.
Operating expenses, excluding $1.4 million of special charges in 1995 and
$8.3 million of 1994 restructuring charges, decreased by $22.3 million, or 10.1
percent, in 1995 compared to an increase of $1 million, or 0.5 percent, in 1994.
After adjusting for the effect of changes in foreign exchange rates,
operating expenses decreased by $24.2 million, or 10.9 percent, in 1995 compared
to an increase of $0.8 million, or 0.4 percent, in 1994.
Reflected in the 1995 decrease were reductions of $18 million, $4.2 million
and $2.4 million in the operating expenses of the U.S., U.K., and Canadian
<PAGE>
twenty-one
- --------------------------------------------------------------------------------
operations, respectively, primarily a result of the aforementioned restructuring
and other expense initiatives undertaken in 1994. Contributing to the 1994
increase were higher salary costs in the U.K. from the Clay acquisition, which
operated as a partnership in 1993, partially offset by decreases in the total
operating expenses of the U.S. operations due primarily to one-time expenses
reflected in their 1993 results.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1995, the Company's operating cash and cash equivalents totaled
$241.2 million, a $7.5 million decrease over the 1994 year-end balance. In
addition, the Company had $42.2 million of operating funds invested in
short-term and long-term investments at December 31, 1995, a $41.1 million
decrease compared to December 31, 1994.
OPERATING ACTIVITIES
The Company's funds from operating activities consist primarily of net income
adjusted for non-cash items, including depreciation and amortization, deferred
income taxes, and gains on sales of business. The net cash flows relating to
discontinued operations and changes in working capital balances are also
included, as well as, certain items such as 1995 special charges and 1994
restructure and special charges. In 1995, the Company's operating activities
used $10.3 million of operating funds, including the items described below.
The 1994 charges for restructuring required $26.4 million of cash payments
during 1995. The Company anticipates that approximately $9 million will be
funded during 1996.
As described in Note 5 of Notes to Financial Statements, in February 1995,
the Company paid to the IRS the amount due in settlement of the examinations of
the years 1980 through 1989. Tax and net interest totaling $35.6 million was
charged against previously established reserves.
During the first quarter of 1995, the Company made a cash payment of $14
million under the terms of the settlement relating to Shand. A $12 million cash
payment was made on April 1, 1995, in accordance with the Mutual Fire settlement
agreement. These payments were applied against the 1994 special charges reserve
and the Company's previously established reserves.
During the first quarter of 1995, the Company made cash payments of
approximately $21.8 million relating to the settlement of certain large
litigation matters. These payments were applied against the Company's previously
established reserves.
INVESTING ACTIVITIES
The Company's net capital expenditures for property and equipment and
acquisitions were $52.1 million and $26.2 million during 1995 and 1994,
respectively. These expenditures increased primarily as a result of the
Company's fourth quarter JIB acquisition.
In January 1995, the Company received the remaining proceeds of $29.2
million from the November 1994 sale of the U.S.-based personal lines business.
In addition, the Company received $7.2 million in January 1995 from the sale of
its minority interest in a U.K. merchant bank and $47.1 million in February 1995
from the sale of Alexsis Inc.
On October 12, 1995, the Company acquired most of the U.S. retail insurance
broking and consulting business of JIB for a purchase price not to exceed $48.3
million. The Company paid $21.1 million at closing and issued two 6.375%
promissory notes totaling $21.2 million with payments of $10.6 million due on
April 9 and October 12, 1996, respectively. During the fourth quarter of 1995,
the October promissory note was revalued to $8.1 million as a result of certain
revenue retention criteria with respect to former JIB offices. The remaining
purchase price of approximately $6 million is contingent on the retention of
specific accounts over a four-year period ending October 12, 1999. The acquired
offices generated revenues of approximately $53 million in 1994.
The acquisition was accounted for as a purchase. Of the purchase price,
$44.3 million has been allocated to identifiable intangible assets (expiration
lists) and goodwill. In completing its integration plans, the Company incurred a
one-time charge of $13 million in the fourth quarter relating to the closing of
certain of its offices and workforce reductions.
FINANCING ACTIVITIES
During the first quarter of 1995, the Company increased long-term debt by $19.8
million and recorded a note receivable of $1.3 million under the terms of the
settlement relating to Shand. In the second quarter of 1995, $15.8 million of
this long-term debt was prepaid and $1.3 million of cash was received in payment
of the note receivable. The remaining contingent note payable of $4 million was
paid in full in September 1995.
As a result of the Mutual Fire settlement, the Company issued a $35 million
zero coupon note in March 1995, payable in six annual installments. Using a
discount rate of 9.3%, the present value of the note was recorded as a $25.9
million long-term debt obligation. The present value of the outstanding
principal balance of the note payable was $27.5 million at December 31, 1995.
The decline in cash dividend payments reflects the reduction in the
Company's Common Stock
<PAGE>
twenty-two
- --------------------------------------------------------------------------------
dividend by 90 percent in the second quarter of 1994, resulting in annualized
cash flow improvement of $40 million. The 1995 cash flow improvement from this
action was approximately $10 million compared to 1994. In addition, dividends on
the Company's Series B Cumulative Convertible Preferred Shares (Series B
Convertible Preferred Shares) are payable in kind (additional Series B
Convertible Preferred Shares) until December 15, 1996, and thereafter, at the
discretion of the Board of Directors, until December 15, 1999.
Under the terms of the Series B convertible preferred stock purchase
agreement (AIG Agreement) the declaration or payment of dividends on Common
Stock in excess of prescribed amounts may require the Company to purchase all or
part of the then outstanding Series B Convertible Preferred Shares. Dividends on
the Series B Convertible Preferred Shares reduced the amount of earnings
otherwise available for common stockholders by approximately $17 million in the
first year after issuance, and will reduce earnings by approximately $23 million
in the fifth year after issuance, assuming dividends on the Series B Convertible
Preferred Shares were to be paid in kind throughout the first five years after
issuance.
On March 27, 1995, the Company's then existing credit agreement was
replaced by a new $200 million three-year facility with various banks which
expires in March 1998. The agreement provides for unsecured borrowings and for
the issuance of up to $100 million of letters of credit. During the second
quarter of 1995, the Company arranged a $10 million letter of credit under this
agreement. On October 13, 1995, the Company redeemed all $60.2 million of its
outstanding 11% Convertible Subordinated Debentures, due 2007, together with
accrued interest and a $0.9 million redemption premium. This redemption was
primarily funded by the Company through the borrowing of $60 million under its
revolving credit facility. In December 1995, the Company repaid $30 million of
its revolving credit facility borrowings. The interest rate on the remaining $30
million was 6.3125% as of December 31, 1995. The Company borrowed $10 million
under this agreement in January 1996 and an additional $20 million in February
1996. See Note 8 of Notes to Financial Statements for further information
regarding this credit agreement.
Supplementing the credit agreement, the Company has unsecured lines of
credit available for general corporate purposes totaling $87.9 million, of which
$87.8 million were unused at December 31, 1995. These lines consist of
uncommitted cancellable facilities in foreign countries. If drawn, the lines
bear interest at market rates and carry annual fees of not greater than 1/2
percent of the line.
In March 1995, a U.S. subsidiary prepaid an unsecured $10 million term loan
which was due August 1995.
OTHER
As a result of the devaluation of the Mexican peso in late 1994, the Company's
accumulated translation adjustment balance for its Mexican operations reflected
an unrealized loss of $6.2 million at December 31, 1994. Further devaluation of
the Mexican peso during 1995 has increased this unrealized loss to $9.5 million
at December 31, 1995. However, the Company expects to maintain its strategic
investment in Mexico for the long term and further anticipates that its Mexican
operation will remain profitable. Accordingly, the Company does not consider its
investment in Mexico to be impaired.
In 1995, the Accumulated Translation Adjustments, which represent the
cumulative effect of translating the Company's international operations to U.S.
dollars, negatively impacted total Stockholders' Equity by an additional $2.9
million. The decrease primarily reflects the weakening of the U.K. pound against
the U.S. dollar despite the strengthening of most of the other major European
currencies and the Canadian dollar against the U.S. dollar.
At December 31, 1995, the Company had an accumulated deficit of $227.5
million. The Company's current financial position satisfies Maryland law
requirements for the payment of dividends. At December 31, 1995, the current
maximum amount of unrestricted funds the Company has available to pay Common
Stock dividends under Maryland law equaled approximately $287.6 million. The
Board of Directors will continue to take into consideration the Company's
financial performance and projections, as well as the provisions of the AIG
Agreement pertaining to dividends described in Note 10 of Notes to Financial
Statements, in connection with future decisions with respect to dividend
declarations. In addition, no dividends may be declared or paid on the Company's
Common Stock unless an equivalent amount per share is declared and paid on the
dividend-paying shares associated with the Class A and Class C Common Stock.
As described in Notes 6 and 14 of Notes to Financial Statements, the
Company believes its most significant litigation matters and other contingencies
have been settled.
The Company believes that cash flow from operations, along with current
cash balances, will be sufficient to fund working capital as well as all other
obligations on a timely basis. In the event additional funds are required, the
Company believes it will have sufficient resources, including borrowing
capacity, to meet such requirements.
<PAGE>
twenty-three
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
The Company's management is responsible for the preparation and contents of
the information and representations contained in the consolidated financial
statements and other sections of this Annual Report. Management believes that
the consolidated financial statements and related information have been prepared
in accordance with generally accepted accounting principles appropriate in the
circumstances, including amounts that are based on management's judgment and
best estimates.
The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded against loss from unauthorized
use or disposition and that accounting records provide a reliable basis for the
preparation of financial statements. The internal accounting control system is
augmented by an internal auditing program, written policies, including the
Integrity Guidelines and the careful selection and training of qualified
personnel.
Deloitte & Touche LLP has been engaged, with the approval of the Company's
stockholders, as the independent auditors to audit the financial statements of
the Company and to express an opinion thereon. Their opinion is based on
procedures believed by them to be sufficient to provide reasonable assurance
that the financial statements present fairly, in all material respects, the
Company's financial position, cash flows and results of operations. Their report
is set forth on Page 24. The Audit Committee of the Board of Directors is
composed of four directors, none of whom is an employee of the Company. It
assists the Board in exercising its fiduciary responsibilities for oversight of
audit and related matters, including corporate accounting, reporting and control
practices. It is responsible for recommending to the Board of Directors
the independent auditors to be employed for the coming year. The Audit
Committee meets periodically with management, internal auditors and the
independent auditors to review internal accounting controls, auditing and
financial reporting matters. The independent auditors and the internal auditors
have unrestricted access to the Audit Committee.
/s/ Frank G. Zarb
Frank G. Zarb
Chairman of the Board,
President & Chief Executive Officer
/s/ Edward F. Kosnik
Edward F. Kosnik
Senior Executive Vice President &
Chief Financial Officer
<PAGE>
twenty-four
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To The Stockholders of Alexander & Alexander Services Inc.:
We have audited the accompanying consolidated balance sheets of Alexander &
Alexander Services Inc. and Subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies at December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Notes 5, 7 and 11 to the consolidated financial statements,
the Company changed its method of accounting for international postretirement
benefits in 1995, certain investments in debt and equity securities and
postemployment benefits in 1994, and income taxes and United States
postretirement benefits in 1993.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Baltimore, Maryland
February 14, 1996
<PAGE>
twenty-five
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Alexander & Alexander Services Inc. & Subsidiaries
For the years ended December 31, (in millions, except per share amounts)
1995 1994 1993
- -------------------------------------------------------------------------------
OPERATING REVENUES:
Commissions and fees $1,219.5 $1,272.3 $1,287.7
Fiduciary investment income 62.9 51.6 53.9
- -------------------------------------------------------------------------------
Total 1,282.4 1,323.9 1,341.6
- -------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries and benefits 735.1 814.3 785.3
Other operating expenses 407.0 523.5 504.0
Restructuring and special charges 17.6 69.0 --
- -------------------------------------------------------------------------------
Total 1,159.7 1,406.8 1,289.3
- -------------------------------------------------------------------------------
Operating income (loss) 122.7 (82.9) 52.3
- -------------------------------------------------------------------------------
OTHER INCOME (EXPENSES):
Investment income 19.2 10.9 9.6
Interest expense (18.6) (16.0) (14.4)
Other 32.7 10.9 (15.6)
Special charges -- (69.7) --
- -------------------------------------------------------------------------------
Total 33.3 (63.9) (20.4)
- -------------------------------------------------------------------------------
Income (loss) before income taxes
and minority interest 156.0 (146.8) 31.9
Income taxes (benefit) 60.9 (42.6) 6.4
- -------------------------------------------------------------------------------
Income (loss) before minority interest 95.1 (104.2) 25.5
Minority interest (5.7) (3.0) (1.9)
- -------------------------------------------------------------------------------
Income (loss) from continuing operations 89.4 (107.2) 23.6
Loss from discontinued operations -- (28.9) --
- -------------------------------------------------------------------------------
Income (loss) before cumulative
effect of change in accounting 89.4 (136.1) 23.6
Cumulative effect of change in
accounting -- (2.6) 3.3
- -------------------------------------------------------------------------------
Net income (loss) 89.4 (138.7) 26.9
===============================================================================
Preferred stock dividends (25.4) (15.1) (6.2)
- -------------------------------------------------------------------------------
Earnings (loss) attributable to
common shareholders $ 64.0 $ (153.8) $ 20.7
===============================================================================
PER SHARE INFORMATION:
Primary earnings per share:
Income (loss) from continuing
operations $ 1.44 $ (2.79) $ 0.40
Loss from discontinued operations -- (0.66) --
Cumulative effect of change in
accounting -- (0.06) 0.08
- -------------------------------------------------------------------------------
Net earnings (loss) $ 1.44 $ (3.51) $ 0.48
===============================================================================
Average common and common
equivalent shares outstanding 44.6 43.8 43.4
===============================================================================
Fully diluted earnings per share:
Income (loss) from continuing
operations $ 1.42 $ (2.79) $ 0.40
Loss from discontinued operations -- (0.66) --
Cumulative effect of change in
accounting -- (0.06) 0.08
- -------------------------------------------------------------------------------
Net earnings (loss) $ 1.42 $ (3.51) $ 0.48
===============================================================================
Average common and common
equivalent shares outstanding,
assuming full dilution 57.1 43.8 43.4
===============================================================================
Cash dividends per common share $ .10 $ .325 $ 1.00
===============================================================================
See Notes to Financial Statements.
<PAGE>
Twenty-six
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Alexander & Alexander Services Inc. & Subsidiaries
As of December 31, (in millions)
1995 1994
- -------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents:
Operating $ 241.2 $ 248.7
Fiduciary 496.4 428.5
Short-term investments:
Operating 11.3 19.2
Fiduciary 224.9 292.2
Premiums and fees receivable (less allowance
for doubtful accounts of $20.5 in 1995
and $23.7 in 1994) 1,292.8 1,206.1
Deferred income taxes 20.0 71.5
Other current assets 85.4 120.7
- -------------------------------------------------------------------------------
Total current assets 2,372.0 2,386.9
- -------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Land and buildings 39.2 39.7
Furniture and equipment 274.6 296.5
Leasehold improvements 83.0 95.1
- -------------------------------------------------------------------------------
396.8 431.3
Less accumulated depreciation and amortization (270.4) (293.3)
- -------------------------------------------------------------------------------
Property and equipment--net 126.4 138.0
- -------------------------------------------------------------------------------
OTHER ASSETS:
Intangible assets (net of accumulated
amortization of $124.5 in 1995
and $117.5 in 1994) 210.7 175.1
Deferred income taxes 102.1 87.1
Long-term operating investments 30.9 64.1
Other 100.3 94.5
- -------------------------------------------------------------------------------
Total assets $2,942.4 $2,945.7
===============================================================================
<PAGE>
twenty-seven
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (continued)
Alexander & Alexander Services Inc. & Subsidiaries
As of December 31, (in millions)
1995 1994
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Premiums payable to insurance companies $ 1,810.4 $1,738.3
Short-term debt 19.1 1.0
Current portion of long-term debt 9.3 17.1
Deferred income taxes 9.4 8.5
Accrued compensation and related benefits 81.8 60.0
Income taxes payable 24.7 66.3
Other accrued expenses 165.8 258.1
- --------------------------------------------------------------------------------
Total current liabilities 2,120.5 2,149.3
- --------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt 126.2 132.7
Deferred income taxes 15.6 13.4
Net liabilities of discontinued operations 33.4 56.8
Other 234.1 266.0
- --------------------------------------------------------------------------------
Total long-term liabilities 409.3 468.9
- --------------------------------------------------------------------------------
Commitments and Contingent Liabilities
(Notes 5, 6, 13 and 14)
8% Series B cumulative convertible preferred
stock contingency (Note 14) 10.0 10.0
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 15,000,000 shares,
$1 par value:
Series A junior participating preferred stock,
issued and outstanding, none -- --
$3.625 Series A convertible preferred stock,
issued and outstanding, 2,300,000 shares,
liquidation preference of $115 million 2.3 2.3
8% Series B cumulative convertible preferred stock,
issued and outstanding 4,477,170 and 4,136,213 shares,
respectively, liquidation preference of $224 million
and $205 million, respectively 4.5 4.1
Common stock, authorized 200,000,000 shares, $1 par
value; issued and outstanding 42,259,282 and
41,569,902 shares, respectively 42.3 41.5
Class A common stock, authorized 26,000,000 shares,
$.00001 par value; issued and outstanding 1,920,821
and 2,282,088 shares, respectively -- --
Class C common stock, authorized 11,000,000
shares, $1 par value; issued and outstanding
361,092 and 372,557 shares, respectively 0.4 0.4
Class D common stock, authorized 40,000,000
shares, $1 par value; issued and outstanding,
none -- --
Paid-in capital 638.1 615.0
Accumulated deficit (227.5) (287.1)
Unrealized investment gains, net of income taxes 5.6 1.5
Accumulated translation adjustments (63.1) (60.2)
- --------------------------------------------------------------------------------
Total stockholders' equity 402.6 317.5
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,942.4 $2,945.7
================================================================================
See Notes to Financial Statements.
<PAGE>
twenty-eight
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Alexander & Alexander Services Inc. & Subsidiaries
For the Years Ended December 31, (in millions)
1995 1994 1993
- --------------------------------------------------------------------------------
CASH PROVIDED (USED) BY:
OPERATING ACTIVITIES:
Income (loss) from continuing operations $89.4 $(107.2) $23.6
Adjustments to reconcile to net cash provided
(used) by operating activities:
Depreciation and amortization 46.1 51.2 54.5
Deferred income taxes 36.0 (77.5) (27.5)
Gains on disposition of subsidiaries and
other assets (30.4) (20.2) (3.9)
Restructuring and special charges, net of
cash payments 17.6 131.8 --
Other 12.5 14.2 13.4
Changes in assets and liabilities (net of
effects from acquisitions and
dispositions):
Net fiduciary cash and cash equivalents and
short-term investments 25.3 105.8 (46.0)
Premiums and fees receivable (58.8) 9.0 (69.3)
Other current assets (13.5) 16.0 (15.8)
Other assets (13.6) 9.2 (11.9)
Premiums payable to insurance companies 16.7 (70.8) 74.6
Other accrued expenses (90.2) 3.7 8.0
Other long-term liabilities (31.3) (0.6) 12.8
Discontinued operations (net) (16.1) 1.4 (11.9)
Cumulative effect of change in accounting -- (2.6) 3.3
- --------------------------------------------------------------------------------
Net cash provided (used) by operating
activities (10.3) 63.4 3.9
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net purchases of property and equipment (27.7) (21.5) (26.0)
Purchases of businesses (24.4) (4.7) (21.0)
Proceeds from sales of subsidiaries and
other assets 88.1 4.1 9.6
Purchases of operating investments (188.0) (79.2) (61.7)
Sales and maturities of operating
investments 231.3 9.0 68.3
- --------------------------------------------------------------------------------
Net cash provided (used) by investing
activities 79.3 (92.3) (30.8)
================================================================================
<PAGE>
twenty-nine
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Alexander & Alexander Services Inc. & Subsidiaries
For the Years Ended December 31, (in millions)
1995 1994 1993
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends $ (12.7) $ (22.6) $ (47.9)
Proceeds from issuance of short-term debt 0.2 9.0 18.7
Payments of short-term debt (0.8) (24.8) (1.5)
Proceeds from issuance of long-term debt 62.5 51.8 19.4
Payment for a finite risk contract -- (80.0) --
Repayments of long-term debt (126.1) (8.3) (26.0)
Issuance of preferred and common stock 1.4 196.1 112.1
Distribution of earnings of pooled entity -- -- (5.5)
- --------------------------------------------------------------------------------
Net cash provided (used) by financing
activities (75.5) 121.2 69.3
Effect of exchange rate changes on
operating cash and cash equivalents (1.0) 4.9 (7.9)
Operating cash and cash equivalents at
beginning of year 248.7 151.5 117.0
- --------------------------------------------------------------------------------
Operating cash and cash equivalents
at end of year $ 241.2 $248.7 $151.5
================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 19.3 $14.2 $14.6
Income taxes 72.1 37.0 56.0
- --------------------------------------------------------------------------------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Notes payable issued for contingency
settlements 45.7 -- --
Series B cumulative convertible preferred
stock dividends-in-kind 17.1 6.8 --
Common stock issued for business acquisitions
and employee benefit and stock plans 5.1 6.8 2.3
Notes received on dispositions of subsidiaries -- 29.2 2.0
Notes payable on acquisition of subsidiary 18.7 -- --
Sale of direct financing lease and
related mortgage notes -- 19.0 --
================================================================================
See Notes to Financial Statements.
<PAGE>
thirty
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
Alexander & Alexander Services Inc. & Subsidiaries
for the years ended December 31, (in millions)
1995 1994 1993
- --------------------------------------------------------------------------------
$3.625 SERIES A CONVERTIBLE PREFERRED STOCK:
Balance, beginning of year $ 2.3 $ 2.3 $ --
Shares issued by private placement -- -- 2.3
- --------------------------------------------------------------------------------
Balance, end of year $ 2.3 $ 2.3 $ 2.3
================================================================================
8% SERIES B CUMULATIVE CONVERTIBLE PREFERRED
STOCK:
Balance, beginning of year $ 4.1 $ -- $ --
Shares issued by private placement -- 4.0 --
Dividends-in-kind 0.4 0.1 --
- --------------------------------------------------------------------------------
Balance, end of year $ 4.5 $ 4.1 $ --
================================================================================
COMMON STOCK:
Balance, beginning of year $ 41.5 $ 40.7 $40.1
Conversions of Class A and Class C shares into
common stock, 372,732 shares, 104,125 shares
and 502,450 shares, respectively 0.4 0.1 0.5
Other, principally stock compensation
transactions 0.4 0.7 0.1
- --------------------------------------------------------------------------------
Balance, end of year $ 42.3 $ 41.5 $40.7
================================================================================
CLASS A COMMON STOCK:
Balance, beginning of year $ 0.0 $ 0.0 $ 0.0
Conversions into common stock, 361,267 shares,
87,300 shares and 478,892 shares,
respectively -- -- --
- --------------------------------------------------------------------------------
Balance, end of year $ 0.0 $ 0.0 $ 0.0
================================================================================
CLASS C COMMON STOCK:
Balance, beginning of year $ 0.4 $ 0.4 $ 0.4
Conversions into common stock, 11,465 shares,
16,825 shares and 23,558 shares, respectively -- -- --
- --------------------------------------------------------------------------------
Balance, end of year $ 0.4 $ 0.4 $ 0.4
================================================================================
PAID-IN CAPITAL:
Balance, beginning of year $615.0 $423.4 $296.5
Conversions into common stock (0.4) (0.1) (0.4)
Preferred stock issuances 16.7 188.9 108.6
Other, principally stock compensation
transactions 6.8 2.8 1.1
Tax benefit from acquisitions accounted for
as pooling of interests -- -- 17.6
- --------------------------------------------------------------------------------
Balance, end of year $638.1 $615.0 $423.4
================================================================================
<PAGE>
thirty-one
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued)
Alexander & Alexander Services Inc. & Subsidiaries
For the years ended December 31, (in millions)
1995 1994 1993
- --------------------------------------------------------------------------------
ACCUMULATED DEFICIT:
Balance, beginning of year $(287.1) $(119.0) $ (92.5)
Net income (loss) 89.4 (138.7) 26.9
Dividends:
Common stock (4.4) (14.3) (41.7)
Preferred stock (25.4) (15.1) (6.2)
Distribution of earnings of pooled
entity -- -- (5.5)
- --------------------------------------------------------------------------------
Balance, end of year $(227.5) $(287.1) $(119.0)
================================================================================
UNREALIZED INVESTMENT GAINS, NET OF
INCOME TAXES:
Balance, beginning of year $ 1.5 $ -- $ --
Change in unrealized gains, net of tax 4.1 1.5 --
- --------------------------------------------------------------------------------
Balance, end of year $ 5.6 $ 1.5 $ --
================================================================================
ACCUMULATED TRANSLATION ADJUSTMENTS:
Balance, beginning of year $ (60.2) $ (71.6) $ (59.0)
Foreign currency translation
adjustments (2.9) 11.4 (12.6)
- --------------------------------------------------------------------------------
Balance, end of year $ (63.1) $ (60.2) $(71.6)
================================================================================
See Notes to Financial Statements.
<PAGE>
thirty-two
- ------------------------------------------------------------------------------
Notes to Financial Statements
(in millions, except per share amounts)
1. Significant Accounting Policies
- ------------------------------------------------------------------------------
CONSOLIDATION
The accompanying consolidated financial statements of Alexander & Alexander
Services Inc. (the Company) include the accounts of all majority-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.
NATURE OF OPERATIONS
The Company is a holding company which, through its subsidiaries, provides risk
management, insurance brokerage and human resource management consulting
services on a global basis. The principal industry segment is insurance
services. This segment accounted for approximately 84 percent of the Company's
total revenues in 1995 which are derived primarily from risk management and
insurance services, specialist and reinsurance broking operations. Human
resource management consulting operations, which represent approximately 16
percent of total revenues in 1995, provide integrated advisory and support
services in human resource management, including retirement planning, health
care management, organizational effectiveness, compensation, human
resource-related communications, information technologies and also offers
brokerage services for group health and welfare coverages.
The Company operates from offices located in more than 80 countries and
territories through wholly-owned subsidiaries, affiliates and other servicing
capabilities. The Company's extensive international operations represented 53
percent of consolidated operating revenues in 1995, primarily in the United
Kingdom and Canada.
The Company's clients are primarily commercial enterprises, including a
broad range of industrial, transportation, service, financial and other
businesses. Clients also include government and governmental agencies,
not-for-profit organizations and individuals.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS AND INVESTMENTS
Cash equivalents are highly liquid investments, including certificates of
deposit, government securities and time deposits, with maturities of three
months or less at the time of purchase and are stated at estimated fair value or
cost. Short-term investments are similar investments with maturities of more
than three months but less than one year from the date of purchase. Long-term
investments consists of debt securities with maturities greater than one year
and equity securities.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." In accordance with the statement, the Company has
classified as available for sale, all of its debt and equity securities. These
securities are carried at fair value with unrealized gains and losses reported
as a separate component of Stockholders' Equity. Prior to the adoption of this
statement, cash equivalents and short-term investments were stated at cost. The
cost of securities sold is determined by the specific identification method.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign operations, where the local
currency is the functional currency, are translated into U.S. dollars at the
exchange rates in effect at each year end for assets and liabilities and average
exchange rates during the year for the results of operations. The related
unrealized gains or losses resulting from translation are reported as a
separate component of Stockholders' Equity.
Net foreign currency transaction gains, included in operating income,
amounted to $5.7 million, $4.8 million and $9 million for the years ended
December 31, 1995, 1994 and 1993, respectively.
PROPERTY AND DEPRECIATION
The cost of property and equipment is generally depreciated using the
straight-line method over the estimated useful lives of the related assets which
range from 3 to 40 years for buildings and 3 to 10 years for equipment.
Leasehold improvements are capitalized and amortized over the shorter of the
life of the asset or the lease term.
<PAGE>
thirty-three
- --------------------------------------------------------------------------------
INTANGIBLE ASSETS
Intangible assets resulting from acquisitions, principally expiration lists and
goodwill, are amortized using the straight-line method over periods not
exceeding 17 and 40 years, respectively. The costs of non-compete agreements are
amortized using the straight-line method over the terms of the agreements.
Amortization of intangible assets included in operating expenses amounted to
$12.3 million, $11.9 million and $13 million for the years ended December 31,
1995, 1994 and 1993, respectively.
The Company periodically evaluates the carrying value of its intangible
assets by projecting operating results over the remaining lives of such assets
on an undiscounted basis. Such projections take into account past financial
performance as well as management's estimate of future operating results.
INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The adoption of SFAS No. 109 changes the Company's method of
accounting for income taxes from the deferred method to an asset and liability
method whereby deferred income taxes reflect the net tax effects of temporary
differences between the tax bases and financial reporting bases of assets and
liabilities.
Income taxes are generally not provided on undistributed earnings of foreign
subsidiaries because they are considered to be permanently invested or will not
be repatriated unless any additional federal income taxes would be substantially
offset by foreign tax credits.
FIDUCIARY FUNDS
Premiums which are due from insureds are reported as assets of the Company and
as corresponding liabilities, net of commissions, to the insurance carriers.
Premiums received from insureds but not yet remitted to the carriers are held as
cash or investments in a fiduciary capacity.
REVENUE RECOGNITION
Commissions and fees for insurance services are generally recognized on the
effective date of the policies or the billing date, whichever is later. Any
subsequent commission adjustments, including policy cancellations, are generally
recognized upon notification from the insurance carriers. Contingent commissions
and commissions on policies billed and collected directly by insurance carriers
are recognized when received.
Fees and commissions for human resource management consulting services are
generally recognized when the services are provided.
PER SHARE DATA
Primary earnings per share are computed by dividing earnings (loss) attributable
to common stockholders by the weighted average number of shares of Common Stock
and their equivalents (Class A and Class C Common Stock) outstanding during the
period and, if dilutive, shares issuable upon the exercise of stock options. The
$3.625 Series A Convertible Preferred Stock and the 8% Series B Cumulative
Convertible Preferred Stock are not common stock equivalents for primary share
computations.
Fully diluted earnings per share in the first and second quarters and for
the full year of 1995 assumes the conversion of the 8% Series B Cumulative
Convertible Preferred Stock. In 1995, the $3.625 Series A Convertible Preferred
Stock and the 11% Convertible Subordinated Debentures were anti-dilutive for
fully diluted earnings per share calculations.
Fully diluted earnings per share for the 1994 and 1993 periods were
anti-dilutive; therefore, the amounts for primary and fully diluted earnings are
the same.
PRESENTATION
Unless otherwise indicated, all amounts are stated in millions of U.S. dollars.
Certain prior period amounts have been reclassified to conform with the current
year presentation.
2. ACQUISITIONS AND DISPOSITIONS
- ---------------------------------------------------------------------------
ACQUISITIONS
On October 12, 1995, the Company acquired most of the U.S. retail insurance
broking and consulting business of Jardine Insurance Brokers, Inc. (the JIB
acquisition) for a purchase price not to exceed $48.3 million. The Company paid
$21.1 million at closing and issued two 6.375% promissory notes totaling $21.2
million with payments of $10.6 million due on April 9 and October 12, 1996,
respectively. During the fourth quarter of 1995, the October promissory note was
revalued to $8.1 million as a result of certain revenue retention criteria with
respect to former JIB offices. The remaining purchase price of approximately $6
million is contingent on the retention of specific accounts over a four-year
period ending October 12, 1999. The acquired offices generated revenues of
approximately $53 million in 1994.
The acquisition was accounted for as a purchase. Of the purchase price,
$44.3 million has been allocated to identifiable intangible assets (expiration
lists) and goodwill. The expiration lists will be amortized over an average of
nine years and goodwill will be amortized over twenty years.
<PAGE>
thirty-four
- --------------------------------------------------------------------------------
On November 30, 1993, the Company issued 2.3 million shares of its Common
Stock for all of the partnership interests of Clay & Partners (Clay), a
U.K.-based actuarial consulting operation. This acquisition was accounted for as
a pooling of interests. In connection with the merger, the Company recorded
$14.4 million as additional paid-in capital representing deferred tax benefits
associated with the taxable business combination of Clay.
Prior to the merger, Clay operated as a partnership. Accordingly, the
Company's results for 1993 do not include approximately $2.2 million for
partners' salaries or $0.7 million for corporate income taxes. Pro-forma net
income (loss) for the Company, assuming partner salaries and corporate income
taxes were charged to operations, would have been $28.5 million, or $0.51 per
share, in 1993.
Effective July 1, 1993, the Company acquired an 80 percent interest in a
Mexican insurance brokerage company which was accounted for as a purchase. The
purchase price was $16.9 million, including a $7.4 million cash payment and
notes payable of $9.5 million due in three installments from 1994 to 1996. The
excess of the purchase price over the fair value of net tangible assets acquired
was approximately $16 million.
As a result of the devaluation of the Mexican peso, the Company's
accumulated translation adjustment balance for its Mexican operations reflected
an unrealized loss of $9.5 million and $6.2 million at December 31, 1995 and
December 31, 1994, respectively. However, the Company expects to maintain its
strategic investment in Mexico for the long-term and further anticipates that
its Mexican operation will remain profitable. Accordingly, the Company does not
currently consider its investment in Mexico to be impaired.
DISPOSITIONS
On February 28, 1995, the Company completed the sale of Alexsis Inc., its
U.S.-based third party claims administrator for total cash proceeds of $47.1
million resulting in a pre-tax gain of $28.7 million ($18.7 million after-tax or
$0.42 per share).
During 1995, the Company sold three small operations for gross proceeds of
$9.1 million resulting in pre-tax gains totaling $1.7 million ($1.1 after-tax or
$0.02 per share).
On November 10, 1994, the Company completed the sale of its U.S.-based
personal lines insurance broking business. The total proceeds from the sale were
$30.2 million, including $1 million in cash and a note receivable of $29.2
million due in January 1995, with a resulting pre-tax gain of $20.2 million
($12.5 million after-tax or $0.28 per share).
During 1993, the Company sold three small operations for gross proceeds of
$9.6 million.
Pre-tax gains of $3.9 million have been recognized on the sales with
resulting after-tax gains totaling $2.3 million or $0.05 per share.
These gains are included in Other Income (Expenses) in the Consolidated
Statements of Operations.
Total revenues and operating income from all of these operations were $12
million, $120.9 million and $128.3 million; and $4.1 million, $10.4 million and
$2.5 million, respectively, for the years ended December 31, 1995, 1994 and
1993.
3. RESTRUCTURING AND SPECIAL CHARGES
- --------------------------------------------------------------------------------
In the fourth quarter of 1995, the Company recorded a $17.6 million pre-tax
charge ($11.2 million after-tax or $0.25 per share) related primarily to the JIB
acquisition. The JIB portion of this charge amounted to $13 million, of which
$12.5 million reflects the anticipated costs associated with the abandonment of
certain of the Company's office space and the remaining balance reflects the
anticipated costs associated with involuntary workforce reductions. The lease
liability will be paid through the year 2007. The remaining $4.6 million of the
charge primarily represents costs associated with other involuntary workforce
reductions in the U.S.
In the fourth quarter of 1994, management committed to a formal plan of
restructuring the Company's operations and recorded a $69 million pre-tax charge
($45.1 million after-tax or $1.03 per share). The restructuring charge included
$25.2 million to consolidate real estate space requirements at 48 offices
worldwide, and $43.8 million for voluntary early retirement programs and
involuntary workforce reductions involving approximately 1,100 positions, of
which 650 were in the U.S.
The involuntary severance portion and voluntary early retirement program
amounted to $22.9 million and $20.9 million, respectively. Of these amounts,
$8.8 million will be paid from various pension plans of the Company. The Company
paid $17.1 million and $5.7 million of the liabilities in 1995 and 1994,
respectively, and expects to pay $5.2 million of the liabilities in 1996. The
remainder of the liabilities will generally be paid in the form of annuities
through the year 2020.
The charge associated with real estate activities relates to the closure,
abandonment and downsizing of office space globally. The costs primarily include
remaining lease obligations and write-offs of leasehold improvements and fixed
assets. The Company paid $9.3 million and $1.2 million of these liabilities
during the years 1995 and 1994, respectively, and has written off assets of $2.7
million during 1995.
<PAGE>
thirty-five
- --------------------------------------------------------------------------------
The Company expects to pay $3.8 million of the liability in 1996. The remainder
of the liability will be paid out over the remaining lease periods, which extend
through the year 2009.
In the fourth quarter of 1994, the Company recorded pre-tax special charges
of $69.7 million ($45.3 million after-tax or $1.03 per share). These charges,
which are reflected in non-operating results, include a $32.5 million settlement
in January 1995 which resolved certain indemnification obligations relating to
the 1987 sale of Shand Morahan & Company (Shand) and a $37.2 million increase to
the Company's pre-existing reserves, based on settlement discussions which led
to a March 1995 settlement agreement with the rehabilitator of Mutual Fire,
Marine & Inland Insurance Company, (Mutual Fire). See Note 14 of Notes to
Financial Statements.
4. OTHER INCOME (EXPENSES)
- ------------------------------------------------------------------
Other income (expenses) consists of the following:
For the Years Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------
Gains on sales of
businesses (See Note 2) $30.4 $20.2 $ 3.9
Litigation costs (0.1) (9.1) (20.2)
Other 2.4 (0.2) 0.7
- ------------------------------------------------------------------
$32.7 $10.9 $(15.6)
==================================================================
Litigation costs are associated primarily with the Mutual Fire lawsuit
described in Note 14 of Notes to Financial Statements as well as a 1993
settlement of certain other litigation matters.
5. Income Taxes
- -----------------------------------------------------------------
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The cumulative effect of adopting this standard increased 1993
net income by $3.3 million or $0.08 per share. Tax benefits of $3.2 million were
also allocated to paid-in capital representing the difference in the tax bases
over the book bases of the net assets of taxable business combinations accounted
for as pooling of interests. These benefits would have been recognized at the
respective dates of combination if SFAS No. 109 had been applied at that time.
The components of income (loss) from continuing operations before income
taxes are as follows:
For the Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------
United States $ 37.4 $(200.9) $ (74.2)
International 118.6 54.1 106.1
- -------------------------------------------------------------------
$156.0 $(146.8) $ 31.9
===================================================================
The components of the provision (benefit) for income taxes on continuing
operations are as follows:
For the Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------
Current:
Federal $ (17.7) $ 1.7 $ (0.2)
State and local 1.9 (0.7) (0.8)
International 40.7 33.9 34.9
- ------------------------------------------------------------------
24.9 34.9 33.9
- ------------------------------------------------------------------
Deferred:
Federal 28.7 (67.3) (28.7)
State and local -- (3.6) (2.0)
International 7.3 (6.6) 3.2
- ------------------------------------------------------------------
36.0 (77.5) (27.5)
- -------------------------------------------------------------------
$ 60.9 $(42.6) $ 6.4
==================================================================
A reconciliation of the tax provision and the amount computed by applying
the U.S. federal income tax rate of 35% to income (loss) from continuing
operations before income taxes is as follows:
For the Years Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------
Computed "expected" tax
expense (benefit) $ 54.6 $(51.4) $11.2
State and local income taxes-
net of federal income tax 1.2 (1.6) (1.9)
Foreign statutory rates under
U.S. federal statutory rate (0.4) (2.8) (2.9)
Foreign partnership income not taxed -- -- (1.9)
Tax benefit of capital losses -- -- (3.5)
Tax rate changes -- -- (1.2)
Adjustment to prior year tax provisions -- -- (2.9)
Amortization of intangible assets 2.6 2.6 2.5
U.S. federal income tax on foreign
earnings, net of credits 0.9 0.5 3.3
Other non-deductible expenses 4.2 7.5 4.1
Other, net (2.2) 2.6 (0.4)
- -------------------------------------------------------------------
Actual tax expense (benefit) $60.9 $(42.6) $ 6.4
==================================================================
Federal income taxes have not been provided on undistributed earnings of
foreign subsidiaries which aggregated approximately $364.6 million at December
31, 1995, because such earnings are permanently invested or will not be
repatriated unless any additional income taxes would be substantially offset by
foreign tax credits. It is not practicable to determine the amount of
unrecognized deferred income tax liabilities on these undistributed earnings.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes as well as loss and tax
credit carryforwards.
<PAGE>
thirty-six
- --------------------------------------------------------------------------------
The following is a summary of the significant components of the
Company's gross deferred tax assets and liabilities:
As of December 31, 1995 1994
- --------------------------------------------------------
Deferred tax assets:
Deferred compensation $ 9.2 $ 10.2
Restructuring charges 11.0 19.6
Shand/Mutual Fire reserves -- 30.9
Capital loss carryforwards 13.2 16.7
Net operating loss and tax
credit carryforwards 63.1 63.6
Business combinations 16.5 17.1
Other accruals not
currently deductible 78.6 81.5
- --------------------------------------------------------
191.6 239.6
Less: Valuation allowance (35.2) (36.7)
- ---------------------------------------------------------
Total deferred tax assets 156.4 202.9
- --------------------------------------------------------
Deferred tax liabilities:
Deferred commissions 8.6 9.6
Depreciation 2.2 3.0
Gains on settlement of pension
liabilities, net of accruals 22.7 19.7
Gain on sale of personal
lines business -- 11.3
Tax leases 10.5 13.9
Other accruals 15.3 8.7
- --------------------------------------------------------
Total deferred tax liabilities 59.3 66.2
- --------------------------------------------------------
Net deferred tax asset $ 97.1 $136.7
========================================================
The deferred tax balances shown in the Consolidated Balance Sheets are after
reclassification of the above amounts within the various jurisdictions in which
the Company operates.
As of December 31, 1995, the Company has a U.S. federal net operating loss
carryforward of $45 million which expires in the year 2009 and U.S. state net
operating loss carryforwards totaling $224.9 million which expire in various
years through 2010. The Company also has U.S. federal foreign tax credit
carryforwards of $11.8 million which expire in years 1998 through 2000, and
U.S. federal alternative minimum tax credits of $7.5 million which can be
carried forward indefinitely. In addition, the Company has foreign net operating
loss and capital loss carryforwards for tax purposes of $12.2 million and
$31.3 million, respectively, which can be carried forward indefinitely and
approximately $7 million of foreign net operating losses which expire in various
years through 2009.
The Company expects that sufficient taxable income will be generated in
future years to realize the U.S. federal net operating loss and tax credit
carryforwards and, therefore, the Company believes that a valuation allowance is
not necessary for these amounts. The $35.2 million valuation allowance at
December 31, 1995 relates primarily to foreign and U.S. state net operating loss
and capital loss carryforwards. The valuation allowance decreased by a net
amount of $1.5 million in 1995, of which $3.5 million relates to a decrease in
foreign capital loss carryforwards and $2 million to increases in foreign and
U.S. state net operating losses.
Although future earnings cannot be predicted with certainty, management
currently believes that realization of the net deferred tax asset is more likely
than not. The net U.S. deferred tax asset would be realized with average future
annual earnings equivalent to 1995 results, excluding nonrecurring items and
sold subsidiaries and businesses.
During 1994, the Company was advised that the Joint Committee on Taxation
had approved the agreement reached in 1993 by the Company and the Appeals Office
of the Internal Revenue Service (IRS) on settlement of tax issues with respect
to years 1980 through 1986. Also during 1994, the Company reached an agreement
with the IRS on settlement of the examination of years 1987 through 1989. On
February 28, 1995, the Company paid the amounts due for such years and charged
the tax and net interest totaling $35.6 million against previously established
reserves.
The Company is currently under examination by the IRS for years 1990 and
1991. In 1994, the Company received a Notice of Proposed Adjustment from the
IRS proposing an increase in taxable income for the 1991 year which, if
sustained, would result in an additional tax liability estimated by the Company
at $50 million, excluding interest and penalties. This proposed adjustment
relates to intercompany transactions involving the stock of a U.K. subsidiary.
The Company disagrees with the proposed adjustment and has requested advice
from the IRS National Office on this issue. The Company currently believes that
the National Office review should be completed in the first half of 1996.
Although the ultimate outcome of the matter cannot be predicted with certainty,
the Company and its independent tax counsel believe there are substantial
arguments in support of the Company's position and that the Company should
prevail in the event that the issue were to be litigated.
A similar set of transactions occurred in 1993. Depending on the outcome of
the IRS National Office review of the 1991 issue, the IRS could propose an
increase in 1993 taxable income which would result in an additional tax
liability estimated by the Company at $25 million, excluding interest and
penalties. The Company's 1993 tax return is not currently under examination. The
Company believes it should prevail in the event this similar issue is raised by
the IRS. Accordingly, no provision for any liability
<PAGE>
thirty-seven
- --------------------------------------------------------------------------------
with respect to the 1991 and 1993 transactions has been made in the consolidated
financial statements.
The Company believes that its current tax reserves are adequate to cover all
of its tax liabilities.
6. DISCONTINUED OPERATIONS
- -------------------------------------------------------------
In 1985, the Company discontinued its insurance underwriting operations. In
1987, the Company sold Sphere Drake Insurance Group (Sphere Drake). The Sphere
Drake sales agreement provides indemnities by the Company to the purchaser for
various potential liabilities including provisions covering future losses on
certain insurance pooling arrangements from 1953 to 1967 between Sphere Drake
and Orion Insurance Company (Orion), a U.K.-based insurance company, and future
losses pursuant to a stop-loss reinsurance contract between Sphere Drake and
Lloyd's Syndicate 701 (Syndicate 701). In addition, the sales agreement requires
the Company to assume any losses in respect of actions or omissions by Swann &
Everett Underwriting Agency (Swann & Everett), an underwriting management
company previously managed by Alexander Howden Group Limited (Alexander Howden).
The net liabilities of discontinued operations shown in the accompanying
Consolidated Balance Sheets include insurance liabilities associated with the
above indemnities, liabilities of insurance underwriting subsidiaries currently
in run-off and other related liabilities.
A summary of the net liabilities of discontinued operations is as follows:
As of December 31, 1995 1994
- -------------------------------------------------------------
Liabilities:
Insurance liabilities $257.1 $277.6
Other 14.9 31.4
- -------------------------------------------------------------
Total liabilities 272.0 309.0
- -------------------------------------------------------------
Assets:
Recoverable under finite risk contracts:
Insurance liabilities 126.4 135.7
Premium adjustment 9.8 10.8
Reinsurance recoverables 51.6 64.2
Cash and investments 27.2 23.6
Other 9.3 10.9
- -------------------------------------------------------------
Total assets 224.3 245.2
- -------------------------------------------------------------
Total net liabilities of
discontinued operations 47.7 63.8
Less current portion classified as other
accrued expenses 14.3 7.0
- -------------------------------------------------------------
Remainder classified as net liabilities of
discontinued operations $ 33.4 $ 56.8
=============================================================
The insurance liabilities represent estimates of future claims expected to
be made under occurrence-based insurance policies and reinsurance business
written through Lloyd's and the London market covering primarily asbestosis,
environmental pollution, and latent disease risks in the United States which are
coupled with substantial litigation expenses. These claims are expected to
develop and be settled over the next twenty to thirty years.
Liabilities stemming from these claims cannot be estimated using
conventional actuarial reserving techniques because the available historical
experience is not adequate to support the use of such techniques and because
case law, as well as scientific standards for measuring the adequacy of site
clean-up (both of which have had, and will continue to have, a significant
bearing on the ultimate extent of the liabilities) is still evolving.
Accordingly, the Company's independent actuaries have combined available
exposure information with other relevant industry data and have used various
projection techniques to estimate the insurance liabilities, consisting
principally of incurred but not reported losses.
In 1994, Orion which has financial responsibility for sharing certain of the
insurance pool liabilities, was placed in provisional liquidation by order of
the English Courts. Based on current facts and circumstances, the Company
believes that the provisional liquidation will not have a material adverse
effect on the net liabilities of discontinued operations.
The Company has certain protection against adverse developments of the
insurance liabilities through two finite risk contracts issued by Centre
Reinsurance (Bermuda) Limited (reinsurance company). A contract entered into in
1989 provides the insurance underwriting subsidiaries currently in run-off with
recoveries of recorded liabilities of $76 million, and for up to $50 million of
additional recoveries in excess of those liabilities subject to a deductible for
one of the run-off companies of $15 million. At December 31, 1995, based on an
estimate by an independent actuarial firm, the Company had recorded $13.5
million of the deductible.
On July 1, 1994, the Company entered into an insurance-based financing
contract (finite risk contract) with the reinsurance company providing
protection primarily for exposures relating to Orion, Syndicate 701 and Swann &
Everett. The contract provided for the payment by the Company of $80 million,
$50 million of which was borrowed from the reinsurance company, and for payment
by the Company of the first $73 million of paid claims. The contract entitles
the Company to recover paid claims in excess of the Company's $73 million
retention. At December 31, 1995, recoveries were limited to
<PAGE>
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- --------------------------------------------------------------------------------
$115.2 million, which includes the Company's payment of $80 million. In
addition, commencing December 31, 1996, depending on the timing and amount of
paid loss recoveries under the contract, the Company may be entitled to receive
a payment from the reinsurance company in excess of the amounts recovered for
paid losses if the contract is terminated. The contract is accounted for under
the deposit method of accounting and the accounting requirements for
discontinued operations.
The Company's right to terminate the contract entered into in 1994 is
subject to the consent of American International Group, Inc. (AIG) as long as
AIG is the holder of certain shares of the Company's stock. In addition, the
reinsurance company also has the right, under certain circumstances, all of
which are under the Company's control, to terminate that contract.
The insurance liabilities set forth above represent the Company's best
estimates of the probable liabilities based on independent actuarial estimates.
The recoverable amounts under the finite risk contracts, which are considered
probable of realization based on independent actuarial estimates of losses and
pay-out patterns, represent the excess of such liabilities over the Company's
retention levels. The premium adjustment represents the recoverable amount
considered probable of realization at the earliest date the Company can exercise
its right to terminate the finite risk contract covering the insurance
underwriting subsidiaries currently in run-off.
Changes in the total net liabilities of discontinued operations are as
follows:
For the Years Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------
Beginning balance $ 63.8 $113.5 $102.4
Provisions for loss -- 28.9 ---
Litigation settlement -- -- 22.3
Net cash proceeds on the zero
coupon notes -- 5.0 ---
Claims and expense payments (7.3) (7.0) (11.9)
Payment for a finite risk contract -- (80.0) --
Net capital infusion (3.0) -- ---
Tax settlement (5.8) -- --
Other -- 3.4 ---
Translation adjustment -- -- 0.7
- ----------------------------------------------------------------------
Ending balance $ 47.7 $ 63.8 $113.5
======================================================================
The 1994 provision for loss of $28.9 million includes a $6 million charge
associated with the 1994 finite risk contract, a $20.9 million charge relating
to an agreement that resolved certain indemnity obligations to Sphere Drake and
a $2 million charge recorded in the fourth quarter of 1994 related to other
liabilities. Under terms of the Sphere Drake agreement, the Company received a
cash payment of $5 million in settlement of the zero coupon notes receivable and
related indemnities as well as certain income tax liabilities.
While the insurance liabilities set forth above represent the Company's best
estimate of the probable liabilities within a range of independent actuarial
estimates of reasonably probable loss amounts, there is no assurance that
further adverse development may not occur due to variables inherent in the
estimation processes and other matters described above. Based on independent
actuarial estimates of a range of reasonably possible loss amounts, liabilities
could exceed recorded amounts by approximately $170 million. However, in the
event of such adverse development, based on independent actuarial estimates of
pay-out patterns, up to approximately $130 million of this excess would be
recoverable under the finite risk contracts.
The Company believes that, based on current estimates, the established total
net liabilities of discontinued operations are sufficient to cover its
exposures.
7. EMPLOYEES' RETIREMENT PLANS AND BENEFITS
- -----------------------------------------------------------------
Pension Plans
The Company has contributory and non-contributory defined benefit pension plans
covering substantially all employees. The plans generally provide pension
benefits that are based on the employee's years of service and compensation
prior to retirement. In general, it is the Company's policy to fund these plans
consistent with the laws and regulations of the respective jurisdictions in
which the Company operates.
Total pension costs are summarized as follows:
For the Years Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------
Service cost $ 23.8 $ 38.8 $ 29.5
Interest cost 46.2 43.4 38.4
Actual return on plan assets (127.9) 22.7 (73.4)
Net amortization and deferral 55.8 (99.7) 7.4
- ----------------------------------------------------------------
Net pension costs (credit) $ (2.1) $ 5.2 $ 1.9
================================================================
During the first quarter of 1995, the Company realized a pension curtailment
gain of $4.4 million due to the sale of Alexsis Inc. (see Note 2 of Notes to
Financial Statements).
<PAGE>
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- --------------------------------------------------------------------------------
The following table sets forth the funded status and amounts recognized in
the Company's Consolidated Balance Sheets:
As of December 31, 1995 1994
- --------------------------------------------------------------------
U.S. INT'L U.S. Int'l
- --------------------------------------------------------------------
Vested benefit obligation $ 289.5 $ 277.1 $ 199.1 $ 247.1
====================================================================
Accumulated benefit
obligation $ 299.6 $ 278.5 $ 223.3 $ 248.7
====================================================================
Projected benefit
obligation $(351.8) $(298.9) $(271.6) $(270.3)
Plan assets at fair
market value 344.5 427.1 289.3 383.7
- --------------------------------------------------------------------
Excess (shortfall) of plan
assets over projected
benefit obligation (7.3) 128.2 17.7 113.4
Unrecognized net
loss (gain) 18.2 (33.5) (5.5) (26.8)
Unrecognized prior
service cost 0.1 (6.2) (1.3) (6.6)
Unrecognized net assets
being amortized over
the plans' average
remaining service lives (11.6) (26.9) (14.0) (29.4)
- --------------------------------------------------------------------
Prepaid (accrued)
pension cost $ (0.6) $ 61.6 $ (3.1) $ 50.6
====================================================================
Assumptions used were
as follows:
Assumed discount rate 7.0% 6.0-9.0% 8.5% 6.5-9.5%
Assumed rate of
compensation increase 4.5% 3.5-5.0% 5.0% 3.5-5.0%
Expected rate of return
on plan assets 9.75% 7.0-10.75% 9.75% 7.0-10.25%
====================================================================
At December 31, 1995 and 1994, approximately 75 percent and 76 percent,
respectively, of all plan assets are invested in equity securities and 25
percent and 24 percent, respectively, in cash equivalents and/or fixed-income
securities.
THRIFT PLANS
The Company maintains thrift plans for most U.S. and Canadian employees. Under
the thrift plans, eligible employees may contribute amounts through payroll
deduction, supplemented by Company contributions, for investments in various
funds established by the plans. The cost of these plans was $9.1 million in
1995, $11.9 million in 1994 and $11.3 million in 1993.
POSTRETIREMENT BENEFITS
The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," effective January 1, 1993 for its U.S. plans and
effective January 1, 1995 for its international plans. This statement requires
the Company to accrue the estimated cost of future retiree benefit payments
during the years the employee provides services. The Company previously expensed
the cost of these benefits, which are principally health care and life
insurance, as premiums or claims were paid. The statement allowed recognition of
the cumulative effect of the liability in the year of the adoption or the
amortization of the obligation over a period of up to twenty years. The Company
elected to recognize the initial postretirement benefit obligation of $14
million and $5.9 million for its U.S. plans and international plans,
respectively, over a period of twenty years.
Total postretirement benefit costs are summarized as follows:
For the years ended December 31, 1995 1994
- -----------------------------------------------------------------------
U.S. INT'L U.S.
- -----------------------------------------------------------------------
Service cost $0.5 $0.3 $ 0.8
Interest cost 1.5 0.6 1.5
Actual return on plan assets (0.6) -- 0.2
Net amortization and deferral 1.0 0.3 0.6
- -----------------------------------------------------------------------
Net postretirement costs $2.4 $1.2 $ 3.1
=======================================================================
The following table sets forth the funded status and amounts recognized in
the Company's consolidated financial statements:
As of December 31, 1995 1994
- -----------------------------------------------------------------------
U.S. INT'L U.S.
- -----------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $(14.0) $(2.9) ($11.0)
Fully eligible active participants (1.9) (1.0) (3.1)
Other active participants (5.3) (2.8) (5.4)
- ------------------------------------------------------------------------
(21.2) (6.7) (19.5)
Plan assets at fair market value 5.8 -- 5.4
- -----------------------------------------------------------------------
Accumulated benefit obligation
in excess of plan assets (15.4) (6.7) (14.1)
Unrecognized net obligation 8.7 5.7 11.7
Unrecognized net loss 2.8 0.2 1.9
- -----------------------------------------------------------------------
Accrued postretirement benefit
liability $ (3.9) $(0.8) $(0.5)
========================================================================
Assumptions used were as follows:
Assumed discount rate 7.0% 8.5-9.0% 8.5%
Assumed rate of compensation increase 4.5% 4.0-5.0% 4.5%
Expected rate of return on plan assets 5.75% --% 5.75%
Assumed medical trend rate-
1996 and after 9to5.5% 11.5TO7.5% 10to5.5%
The amount of a 1% increase in
assumed trend rate on:
Aggregate of service and interest
cost $ 0.2 $ 0.2 $ 0.2
Accumulated postretirement
benefit obligation 1.2 0.9 1.2
========================================================================
During the first quarter of 1995, the Company incurred a postretirement
curtailment loss of $2.8 million due to the sale of Alexsis Inc.
<PAGE>
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- --------------------------------------------------------------------------------
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers
Accounting for Postemployment Benefits." This statement requires that certain
benefits provided to former or inactive employees after employment but prior to
retirement, including disability benefits and health care continuation coverage,
be accrued based upon the employees' services already rendered. The cumulative
effect of this accounting change was an after tax charge of $2.6 million or
$0.06 per share in the first quarter of 1994.
DEFERRED COMPENSATION PLAN
The Company has a deferred compensation plan which permitted certain of its key
officers and employees to defer a portion of their incentive compensation during
1986 to 1989. The Company has purchased whole life insurance policies on each
participant's life to assist in the funding of the deferred compensation
liability. At December 31, 1995, the cash surrender value of these policies was
$0.6 million, which is net of $44.9 million of policy loans. The Company's
obligation under the plan, including accumulated interest, was $16 million and
$16.2 million at December 31, 1995 and 1994, respectively, and is included in
Other Long-Term Liabilities in the Consolidated Balance Sheets.
8. DEBT
- -----------------------------------------------------------
Consolidated short-term debt outstanding is as follows:
As of December 31, 1995 1994
- -----------------------------------------------------------
Lines of credit $0.1 $0.7
Notes payable (A) 19.0 0.3
- -----------------------------------------------------------
$19.1 $1.0
===========================================================
The weighted average interest rate on short-term borrowings was 6.5 percent
and 7.0 percent at December 31, 1995 and 1994, respectively.
Consolidated long-term debt outstanding is as follows:
As of December 31, 1995 1994
- -----------------------------------------------------------
11% Convertible subordinated
debentures (B) $ -- $60.2
Notes payable (C) 77.5 50.0
Obligations under capital leases (D) 24.2 22.1
Term loans (E) -- 10.0
Credit agreement (F) 30.0 --
Other 3.8 7.5
- -----------------------------------------------------------
135.5 149.8
Less current portion (9.3) 17.1
- -----------------------------------------------------------
$ 126.2 $132.7
===========================================================
The principal payments required during the next five years are $9.3 million
in 1996, $18 million in 1997, $47.8 million in 1998, $17.4 million in 1999, and
$15.9 million in 2000.
A. CURRENT NOTES PAYABLE
In connection with the JIB acquisition on October 12, 1995, the Company issued
two 6.375% promissory notes totaling $21.2 million with payments of $10.6
million due on April 9 and October 12, 1996, respectively. During the fourth
quarter of 1995, the October promissory note was revalued to $8.1 million in
accordance with the revenue retention criteria for the former JIB offices
stipulated in the purchase agreement. (See Note 2 of Notes to Financial
Statements.)
B. 11% CONVERTIBLE SUBORDINATED DEBENTURES
On October 13, 1995, the Company redeemed all $60.2 million of its outstanding
11% Convertible Subordinated Debentures due 2007 together with accrued interest
and a $0.9 million redemption premium. This redemption was primarily funded by
the Company through the borrowing of $60 million under its revolving long-term
credit facility. (See Item F.)
C. NOTES PAYABLE
As a result of the Mutual Fire settlement as described in Note 14 of Notes to
Financial Statements, the Company issued a $35 million zero coupon note in March
1995. Using a discount rate of 9.3%, the present value of the note was recorded
as a $25.9 million long-term debt obligation. The note is payable in six annual
installments, commencing April 1, 1996. The carrying value of the outstanding
principal balance, including imputed interest, of the note payable at December
31, 1995 was $27.5 million.
In January 1995, the Company negotiated the settlement of certain
obligations relating to the 1987 sale of Shand. Under the terms of the
settlement, the Company paid $14 million in cash, issued a five year interest
bearing note in the principal amount of $14 million, which was pre-paid in June
1995, and paid a net contingent obligation of $4.5 million.
In July 1994, the Company borrowed $50 million from the reinsurance company
that executed a finite risk contract relating to the Company's discontinued
operations. The note is payable in five equal annual installments, commencing
July 1, 1997, and bears interest at a rate of 9.45 percent. If the
<PAGE>
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- --------------------------------------------------------------------------------
Company defaults on the borrowing, the reinsurance company may utilize the note
to settle reinsurance claims under the finite risk contract.
D. OBLIGATIONS UNDER CAPITAL LEASES
The Company's obligations under capital leases consists primarily of lease
agreements for office facilities. Future minimum lease payment obligations are
approximately $2.7 million for each of the next five years and an aggregate of
$24.2 million thereafter.
E. TERM LOANS
In March 1995, a U.S. subsidiary prepaid an unsecured $10 million term loan with
a bank which was due August 1995.
F. CREDIT AGREEMENT
On March 27, 1995, the Company's then existing credit agreement was replaced by
a new $200 million three-year facility with various banks which expires in March
1998. The agreement provides for unsecured borrowings and for the issuance of up
to $100 million of letters of credit, and contains various covenants, including
minimum consolidated tangible net worth, maximum leverage and minimum cash flow
requirements. The Company currently believes that the covenant regarding minimum
cash flow coverage is the most restrictive. The covenant requires that the
Company's ratio of profits before taxes, interest expense and depreciation and
amortization to interest expense and cash dividends exceed 4.25 at all times.
The Company's ratio was 6.85 at December 31, 1995. In addition, the occurrence
of a "Special Event" under the terms of the Series B convertible preferred stock
purchase agreement, which, if not waived, would constitute an event of default
under the new agreement. (See Note 10 of Notes to Financial Statements.)
Interest rates charged on amounts drawn on this credit agreement are dependent
upon the Company's credit ratings, the duration of the borrowings and the
Company's choice of one of a number of published rates, including the prime
lending rate, certificate of deposit rates, the federal funds rate and LIBOR.
During the second quarter of 1995, the Company arranged a $10 million letter
of credit under the agreement. On October 13, 1995, the Company borrowed $60
million under the agreement to fund the redemption of its outstanding 11%
Convertible Subordinated Debentures due 2007. In December 1995, the Company
repaid $30 million of its long-term revolving credit agreement borrowings. The
interest rate on the remaining $30 million is 6.3125 percent as of December 31,
1995. The Company borrowed $10 million under this agreement in January 1996 and
an additional $20 million in February 1996.
Supplementing the credit agreement, the Company has unsecured lines of
credit available for general corporate purposes totaling $87.9 million of which
$87.8 million were unused as of December 31, 1995. These lines consist of
uncommitted facilities principally in the U.K. and Canada. If drawn, the lines
bear interest at market rates and carry annual fees of not greater than 1/2
percent of the line.
9. STOCK OPTION AND INCENTIVE PLANS
- ---------------------------------------------------------------------------
Long-Term Incentive Awards
The Company's 1995 Long-Term Incentive Plan (1995 LTIP) was approved by
stockholders at the 1995 annual meeting of stockholders and became effective
on May 18, 1995. The 1995 LTIP includes grants in the form of non-qualified
stock options and incentive stock options, stock appreciation rights,
restricted stock awards, bonus equity awards, performance share/unit awards
and other stock based awards.
As of the effective date of the 1995 LTIP, the Company had awards
outstanding under the 1988 Long-Term Incentive Compensation Plan (1988 Plan) and
under the 1982 Employee Stock Option Plan (1982 Plan). Awards outstanding
under the 1988 Plan include stock options, stock appreciation rights and
restricted stock. Only stock option awards are outstanding under the 1982
Plan. At December 31, 1995, 4,226,067 shares of common stock were
available for issuance. This amount includes 538,761 shares available under
the 1988 Plan.
Stock options may be granted at a price not less than the fair market value
of the Common Stock on the date the option is granted and, with respect to
incentive stock options, must be exercised not later than 10 years from date of
grant and, with respect to non-qualified options, must be exercised not later
than 10 years and one day from date of grant. The 1995 LTIP also provides for
replacement options for a limited number of key executives. In December 1995,
the Company exchanged 1,358,300 stock options ranging in a per-share exercise
price of $24.50 to $23.13 for stock options having an exercise price of $19.63.
The Company will adopt SFAS No. 123, "Accounting for Stock Based
Compensation," in December 1996. The Company has elected to continue to measure
compensation costs using APB Opinion No. 25 and accordingly will provide the
disclosures required by SFAS No 123.
<PAGE>
forty-two
- --------------------------------------------------------------------------------
Stock option transactions were as follows:
Number Option Price
of Per Share
Shares Range
- -----------------------------------------------------------
Outstanding,
January 1, 1993 2,925,055 $17.75-$38.63
Granted 488,500 26.00-27.63
Exercised (93,948) 17.75-25.38
Canceled (188,307)
- ------------------------------------------------------------
Outstanding,
December 31, 1993 3,131,300 $17.75-$38.63
Granted 2,361,500 14.19- 20.63
Exercised (5,375) 17.75
Canceled (503,320)
- ------------------------------------------------------------
Outstanding,
December 31, 1994 4,984,105 $14.19-$38.63
Granted 3,006,100 19.63- 25.63
Exercised (7,685) 17.75- 23.13
Canceled (1,841,136)
- ------------------------------------------------------------
Outstanding,
December 31, 1995 6,141,384 $14.19-$38.63
============================================================
The number of options exercisable at December
31 were as follows:
- ------------------------------------------------------------
1995 2,592,525
1994 2,197,405
1993 2,231,301
============================================================
Stock appreciation rights may be granted alone or in conjunction with a
stock option at a price not less than the fair market value of the Common Stock
at date of grant. Upon exercise of a stock appreciation right, the participant
will receive cash, Common Stock or a combination thereof equal to the excess of
the market value over the exercise price of the stock appreciation right.
Exercise of either the right or the stock option will result in the surrender of
the other.
Restricted stock awards may be granted which limit the sale or transfer of
the shares until the expiration of a specified time period. With certain
specified exceptions, such awards are subject to forfeiture if the participant
does not remain in the employ of the Company until the end of the restricted
time period. A maximum of 940,000 shares may be issued under the 1995 LTIP.
There were 202,798 shares, 308,500 shares, and 60,000 shares of restricted
stock, excluding BEP Awards (described below), issued in 1995, 1994 and 1993,
respectively. In addition to awards made under the 1988 Plan in 1994, 271,307
shares of restricted stock were awarded to an executive officer to offset the
loss of certain benefits from the executive's prior employer when the executive
joined the Company.
Bonus equity program awards (BEP Awards) may be granted based on a
percentage of the cash incentive compensation otherwise payable to a participant
under any compensation program of the Company. The size of the BEP Award is
determined by formula. The number of shares of Common Stock is determined by
dividing the dollar amount designated for the award by the fair market value
(based on a five-day average of the Common Stock closing price) discounted by up
to 25 percent. Shares subject to the BEP Award are restricted as to transfer
(generally for a period of up to three years) and are subject to forfeiture
should the participant terminate employment for reasons other than death,
disability or retirement during the restricted period. No BEP Awards were
granted in 1995, 1994 and 1993.
Performance share/unit awards may be granted based upon specified
performance criteria. Upon achievement of the performance share/unit criteria,
the participant will receive cash, Common Stock or a combination thereof equal
to the award. There were no performance share/unit awards made in 1995 or 1993
and 23,000 awards were made in 1994.
PERFORMANCE BONUS PLAN FOR EXECUTIVE OFFICERS.
The Company's Performance Bonus Plan for Executive Officers (Performance Bonus
Plan) was approved by stockholders at the 1995 annual meeting of stockholders
and became effective as of January 1, 1995.
The Performance Bonus Plan establishes certain performance criteria for
determining the maximum amount of bonus compensation, including BEP Awards, for
those executive officers who, on the last day of the Company's taxable year,
consist of the chief executive officer and the four most highly compensated
executive officers and whose compensation is deductible in the U.S. (Covered
Employees). The Performance Bonus Plan is designed to comply with Section 162(m)
of the Internal Revenue Code of 1986, which is effective for the tax year
commencing 1995, and which limits the tax deductibility by the Company of annual
compensation paid to Covered Employees in excess of $1 million, except to the
extent such compensation is paid pursuant to the performance criteria
established by the Performance Bonus Plan. For 1995, the compensation paid to
the one Covered Employee eligible under the Performance Bonus Plan, should be
fully deductible to the Company.
EMPLOYEE DISCOUNT STOCK PURCHASE PLAN
The Company's 1995 Employee Discount Stock Purchase Plan (Employee Purchase
Plan) was approved by stockholders at the 1995 annual meeting of stockholders
and became effective as of
<PAGE>
forty-three
- --------------------------------------------------------------------------------
July 1, 1995. Eligible U.S. employees may purchase up to an aggregate of 750,000
shares of the Company's Common Stock, at a price equal to the lower of the
closing price of the Common Stock reported on the New York Stock Exchange at the
beginning or end of the offering period, discounted by up to 15 percent.
Shares purchased are limited to the number of shares that can be purchased
by the aggregate amount deducted from the participant's salary during a 6-month
purchase period. Shares of Common Stock purchased under the Employee Purchase
Plan must remain in an employee's account for one year after the purchase date.
As of December 31, 1995, 81,994 shares of Common Stock were issued under the
1995 Employee Purchase Plan, at a weighted average price of $16.15 per share. At
December 31, 1995, there were 668,006 shares available for issuance under the
Employee Purchase Plan.
In January 1996, the Company commenced offering to eligible employees
outside the U.S., the opportunity to participate in an international employee
discount stock purchase plan (Plan). At the end of the 5-year offering period,
participants can elect to purchase from the contributions saved, shares of the
Company's Common Stock at a 15 percent discount of the closing price of the
Common Stock reported on the New York Stock Exchange on the first date of the
5-year offering period. Non-U.S. employees who are "executive officers" of the
Company, as that term is defined pursuant to Section 16 of the Securities
Exchange Act of 1934, participate in a subplan of the Employee Purchase Plan on
terms similar to the Plan.
NON-EMPLOYEE DIRECTOR DEFERRED
STOCK OWNERSHIP PLAN
The Company's Non-Employee Director Deferred Stock Ownership Plan ("NEDD Plan")
was approved by stockholders at the 1995 annual meeting of stockholders and
became effective as of January 1, 1995.
Under the NEDD Plan each non-employee director of the Company is entitled to
a single annual fee or retainer (Annual Fee) for all services as a director
during the period from one annual meeting of stockholders to the next. The
Annual Fee is currently set at $40,000 per year. Under the NEDD Plan, in lieu of
payment of the Annual Fee, the Company will generally contribute shares of
Common Stock to a grantor trust established by the Company (Company Trust) equal
to that portion of the Annual Fee then payable. Under the NEDD Plan, shares of
Common Stock delivered to the grantor trust may not be sold for a period of one
year from the date of grant or earlier in the event of a change of control.
Approximately 160,000 shares of Common Stock are authorized for issuance
under the NEDD Plan which will expire on December 31, 2005. As of December 31,
1995, 50,103 shares were delivered to the Company's trust under the NEDD Plan.
Of that number 24,285 shares were delivered in connection with the termination
of the Non-Employee Director Retirement Plan.During 1994, 140,000 shares of
Common Stock were also delivered to the Company Trust to fund a special
compensation award to a non-employee director.
10. COMMON AND PREFERRED STOCK
- ---------------------------------------------------------------------------
AUTHORIZED CAPITAL STOCK
The Company has authorized capital stock of 292 million shares of five classes
of stock consisting of 200 million shares of Common Stock, par value $1.00
(Common Stock); 26 million shares of Class A Common Stock, par value $.00001
(Class A Stock); 11 million shares of Class C Common Stock, $1.00 par value
(Class C Stock); 40 million shares of Class D Common Stock, $1.00 par value
(Class D Stock) and 15 million shares of Preferred Stock, $1.00 par value
(Preferred Stock).
Of the 15 million shares of Preferred Stock authorized, the Board of
Directors in March 1993 designated 2.3 million shares as $3.625 Series A
Convertible Preferred Stock, $1.00 par value (Series A Convertible Preferred
Stock), and in July 1994 designated (i) 6.2 million shares as 8% Series B
Cumulative Convertible Preferred Stock, $1.00 par value (Series B Convertible
Preferred Stock) and (ii) 1 million shares as Series A Junior Participating
Preferred Stock, $1.00 par value (Junior Participating Preferred Stock).
At December 31, 1995, the Company had 10.4 million shares of Common Stock
reserved for issuance under its employee stock incentive plans; 2.3 million
shares reserved for issuance upon the conversion or redemption of Class A Stock,
the Class C Stock, the Class D Stock and the Series A Convertible Preferred
Stock; and 13.2 million shares of Class D Stock reserved for issuance in
connection with the conversion of the Series B Convertible Preferred Stock.
COMMON STOCK CLASSES
Each holder of the Common Stock, Class A Stock and Class C Stock is entitled to
one vote for each share held on all matters voted upon by the stockholders of
the Company, including the election of directors. In certain instances, however,
holders of the Class A and Class C Stock vote as a group. Holders of the Class D
Stock are not entitled to
<PAGE>
forty-four
- --------------------------------------------------------------------------------
vote, except that the Company's Charter cannot be amended so as to adversely
affect the holders of the Class D Stock without the approval of the holders of
two-thirds of such shares then outstanding. The Common Stock, Class A Stock,
Class C Stock and Class D Stock do not have pre-emptive or conversion rights or
cumulative voting rights for the election of directors and there are no
redemption or sinking fund provisions applicable thereto.
Subject to the provisions of Maryland law, dividends on the Common Stock and
the Class D Stock (when and if issued) may be declared and paid by the Board of
Directors. Neither the Class A Stock nor the Class C Stock have dividend rights;
however, associated with each share of Class A Stock is a dividend paying share
(RSC Class 1 Share) issued by Reed Stenhouse Companies Limited, a Canadian
subsidiary of the Company, and associated with each share of Class C Stock is a
dividend paying share (UK Dividend Share) issued by Alexander & Alexander
Services UK plc, a U.K. subsidiary of the Company. No dividends may be declared
or paid on the Common Stock, unless an equivalent amount per share is declared
and paid on the RSC Class 1 Shares and the UK Dividend Shares. Accordingly, the
Company's ability to pay dividends is limited by the amounts available to the
Canadian and U.K. subsidiaries for such purposes. At December 31, 1995, these
amounts approximate Canadian $96.5 million or $70.9 million, assuming certain
solvency tests are met under Canadian law, and 127 million U.K. pounds sterling
or $196.6 million. In the event sufficient earnings are not available in the
Canadian or U.K. subsidiary to pay dividends the Company's legal structure
allows it to make earnings or capital available in those subsidiaries to pay
dividends.
Holders of the Common Stock, Class C Stock and Class D Stock are entitled to
receive, upon liquidation of the Company, all remaining assets available for
distribution to stockholders after satisfaction of the Company's liabilities and
the preferential rights of any Preferred Stock which may then be outstanding.
Holders of the Class A Stock are not entitled to receive any dividends or
liquidating or other distributions with respect to such shares from the Company,
but are entitled to receive in respect of their associated RSC Class 1 Shares an
amount in Canadian dollars equivalent to the U.S. dollar amount to be paid on
the Common Stock.
The Class C Stock shares are convertible at any time into, and shares of RSC
Class 1 Shares are exchangeable at any time (and the Class A Stock is
concurrently redeemable), for fully paid, non-assessable shares of Common Stock
on the basis of one share of Common Stock for each share of Class C Stock or RSC
Class 1 Share (subject to adjustment). In addition, upon the happening of
certain events, the Company can require such conversion. Shares of the Series B
Convertible Preferred Stock are convertible into Class D Stock, at a conversion
price of $17 per share (subject to adjustment). The Class D Stock may be
exchanged for Common Stock at anytime on a share-for-share basis, provided,
however, that no person is entitled to acquire Common Stock upon such exchange
if after giving effect thereto such person has more than 9.9 percent of the
combined voting power of the common stock voting shares then outstanding, absent
certain events. The Common Stock, Class A Stock, Class C Stock and Class D Stock
have customary anti-dilution provisions.
PREFERRED STOCK SERIES AND RELATED RIGHTS
The Company has one class of Preferred Stock which can be issued in one or more
series with full or limited voting rights, with the rights of each series to be
determined by the Board of Directors before each issuance.
SERIES A CONVERTIBLE PREFERRED STOCK.
Holders of the Series A Convertible Preferred Stock are entitled to receive
cumulative cash dividends at an annual rate of $3.625 per share, payable
quarterly in arrears. The shares are convertible into Common Stock at a
conversion price of $31.875 per share (subject to adjustments). The Series A
Convertible Preferred Stock may be redeemed by the Company on or after March 22,
1997, at $52.18 per share until March 14, 1998, and declining ratably annually
to $50 per share on or after March 15, 2003, plus accrued and unpaid dividends.
The Series A Convertible Preferred Stock is non-voting, except as provided by
law, and except that, among other things, holders will be entitled to vote as a
separate class with other series of outstanding Preferred Stock to elect a
maximum of two directors if the equivalent of six or more quarterly dividends of
the Series A Convertible Stock is in arrears. With respect to dividend rights
and rights of liquidation, dissolution and winding up, the Series A Convertible
Preferred Stock ranks senior to all classes of common capital stock and to the
Junior Participating Preferred Stock (when and if issued) and pari passu to the
Series B Convertible Preferred Stock. The liquidation preference for the Series
A Convertible Preferred Stock is $50 per share.
SERIES B CONVERTIBLE PREFERRED STOCK.
Holders of the Series B Convertible Preferred Stock are entitled to receive
dividends at a rate of 8% per annum payable quarterly in arrears. Until December
15, 1996, dividends on the Series B Convertible Preferred Stock are payable in
kind and thereafter, at the discretion of the Company's Board of Directors, in
cash or in kind until December 15, 1999,
<PAGE>
forty-five
- --------------------------------------------------------------------------------
provided that if the Company at any time pays dividends in cash on or after
December 15, 1996, the Company may not thereafter declare or pay dividends in
kind. The Series B Convertible Preferred Stock has the same dividend rights,
voting rights and rights of liquidation, dissolution and winding up as the
Series A Convertible Preferred Stock. In addition, however, following the
occurrence of a Specified Corporate Action (as defined in the Company's Charter)
holders of the Series B Convertible Preferred Stock also have the right to vote
as a class with the holders of the Common Stock and the Class D Stock on all
matters as to which the holders of Common Stock are entitled to vote. A
Specified Corporate Action is defined generally as an action by the Company that
would permit a change in control and certain related events. For the purposes of
such vote, the holders of the Series B Convertible Preferred Stock will be
deemed holders of that number of shares of Class D Stock into which such shares
would then be convertible.
The Series B Convertible Preferred Stock may be redeemed in whole or in part
by the Company after December 15, 1999, so long as after that date the Common
Stock has traded 30 consecutive trading days on the New York Stock Exchange at a
price in excess of 150 percent of the then effective conversion price. The
redemption price is $54 per share until December 14, 2000, declining ratably
annually to $50 per share on or after December 14, 2006, plus accrued and unpaid
dividends. All redemptions are to be made pro-rata.
Holders of Series B Convertible Preferred Stock have the right to
require the Company to purchase all or any part of the Series B Convertible
Preferred Stock then held by such holders upon the occurrence of a Special
Event. A Special Event consists of actions solely within the control of the
Company and includes the declaration or payments of dividends aggregating in
excess of cumulatively 25 percent of earnings in 1996, and cumulatively 50
percent of earnings thereafter; the disposition by the Company of assets
representing 35 percent or more of the Company's book value or gross revenues;
certain mergers or consolidations of the Company or any of its principal
subsidiaries with or into any other firm or entity involving 20 percent or more
of the total market value of the Company's equity securities; and repurchases
and redemptions of the Company's securities (other than the Company's Series B
Convertible Preferred Stock) in excess of net proceeds to the Company from the
sale of stock (less amounts expended for repurchases and redemptions of the
Company's preferred shares). Other Special Events include the acquisition by a
third party, with the consent or approval of the Company, of beneficial
ownership of securities representing 35 percent or more of the Company's total
outstanding voting power. The repurchase price in the event of a Special Event
is $72.06 per share, plus in each case accrued and unpaid dividends.
JUNIOR PARTICIPATING PREFERRED STOCK
AND RELATED RIGHTS.
The Company has a Shareholder Rights Plan (the "Rights Plan") designed to deter
coercive takeover tactics and to prevent an acquirer from gaining control of the
Company without offering a fair price to all stockholders.
Under the terms of the Rights Plan, adopted in July 1987 and as amended, one
preferred share purchase right (a "Right") accompanies each share of outstanding
Common Stock, Class A Stock, Class C Stock and Class D Stock. Each Right
entitles the holder thereof to purchase one one-hundredth of a share of Junior
Participating Preferred Stock.
The Rights become exercisable only following the public announcement by the
Company that a person or group (i) has acquired beneficial ownership of 20
percent or more of the Company's voting shares or (ii) has commenced a tender or
exchange offer that if consummated would result in the ownership of 20 percent
or more of such voting shares. Under such circumstances, if the Rights become
exercisable, each holder will be entitled to purchase at the then-current
exercise price, that number of Junior Participating Preferred Stock equal to
twice the exercise price of the Right. If the Company is subsequently acquired,
each right will entitle the holder to purchase at the then-current exercise
price, stock of the surviving company having a market value of twice the
exercise price of one Right. In addition, if a person or group acquires more
than 20 percent, but less than 50 percent, of the Company's common voting
shares, the Board of Directors may exchange each Right for one one-hundredth of
a share of Junior Participating Preferred Stock. Rights beneficially owned by a
holder of 20 percent or more of the voting shares become void once such holder
passes the 20 percent threshold. The Rights, which expire on July 6, 1997, are
redeemable by the Board of Directors prior to becoming exercisable at a
redemption price of $.01 per Right.
In June 1994, the Board of Directors amended the Rights Plan so that the
initial acquisition of the Series B Convertible Preferred Shares, the
acquisition of the Class D Stock upon conversion of the Series B Convertible
Preferred Stock, the acquisition of Common Stock upon exchange of the Class D
Stock, or permitted acquisitions by the purchaser, its affiliates or any
transferee thereof of the Company's securities will not cause the Rights
<PAGE>
forty-six
- --------------------------------------------------------------------------------
to become exercisable. In addition, on November 16, 1995, the Rights Plan was
amended to provide for modifications of the definitions of Acquiring Person and
Distribution Date to raise from 15 percent to 20 percent the percentage of stock
ownership needed to cause a person to become an Acquiring Person or to cause a
Distribution Date to occur (as such capitalized terms are defined in the Rights
Agreement).
Each share of Junior Participating Preferred Stock will be entitled to a
minimum preferential quarterly dividend payment of $10 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of Common Stock. In the event of liquidation, the holders of the Junior
Participating Preferred Stock will be entitled to a minimum preferential
liquidation payment of $100 per share but will be entitled to an aggregate
payment of 100 times the payment made per share of Common Stock. Each share of
Junior Participating Preferred Stock will have 100 votes, voting together with
the Company's common voting shares. In the event of any merger, consolidation or
other transaction in which voting shares are exchanged, each share of Junior
Participating Preferred Stock will be entitled to receive 100 times the amount
received per share of Common Stock. The Junior Participating Preferred Stock
shares have customary anti-dilution provisions. Because of the nature of the
dividend, liquidation and voting rights of the Junior Participating Preferred
Stock, the value of the one one-hundredth interest in a share of Junior
Participating Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of Common Stock. Shares of Junior
Participating Preferred Stock purchasable upon exercise of the Rights will not
be redeemable.
DIVIDENDS AND DISTRIBUTIONS
Under Maryland General Corporation Law, the Board of Directors of the Company
may not declare or pay dividends to holders of any class of the Company's
capital stock if, after giving effect to such distribution, (1) the Company
would be unable to pay its debts as they become due in the usual course; or (2)
the Company's total assets would be less than the sum of its liabilities plus
the dissolution preference of the holders of any class or series of preferred
stock issued and outstanding. In determining whether a distribution by the
Company (other than upon voluntary or involuntary liquidation), by dividend,
redemption or other acquisition of shares or otherwise, is permitted pursuant to
the balance sheet solvency test under the Maryland General Corporation Law, the
aggregate liquidation preference of the Series B Convertible Preferred Shares
will not be counted as a liability. The Series B Convertible Preferred Shares
have a liquidation preference of $50 per share.
11. INVESTMENTS
- --------------------------------------------------------------------------------
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." In accordance with the
Statement, the Company has classified all debt and equity securities as
available for sale. The net unrealized holding gains totaled $5.6 million and
$1.5 million, net of deferred income taxes of $2 million and $0.2 million, and
are reported as a separate component of Stockholders' Equity for December 31,
1995 and 1994, respectively. Net unrealized holding gains increased $4.1 million
and decreased $2 million during 1995 and 1994, respectively.
At December 31, 1995 and 1994, the amortized cost and estimated fair value
of the Company's debt and equity securities and related financial instruments
used to hedge such investments are summarized below:
As of December 31, 1995
- ---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------
U.S. Government agencies/
state issuances $2.7 $ --- $ --- $ 2.7
Other interest-bearing
securities 138.1 --- --- 138.1
Mortgage-backed securities --- --- --- ---
Equity securities 3.1 6.5 --- 9.6
Financial instruments
used as hedges --- 1.3 (0.2) 1.1
- ---------------------------------------------------------------------------
Total $143.9 $7.8 $(0.2) $151.5
===========================================================================
As of December 31, 1994
- ---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------
U.S. Government agencies/
state issuances $ 63.5 $ --- $(0.1 $ 63.4
Other interest-bearing
securities 146.7 --- --- 146.7
Mortgage-backed securities 83.8 --- --- 83.8
Equity securities 1.9 4.6 --- 6.5
Financial instruments
used as hedges --- 0.3 (3.1) (2.8)
- ----------------------------------------------------------------------------
Total $295.9 $ 4.9 $(3.2) $297.6
===========================================================================
The above debt and equity securities and financial instruments used as
hedges are classified
<PAGE>
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- --------------------------------------------------------------------------------
in the Consolidated Balance Sheet at December 31, as follows:
As of December 31, 1995 1994
- -------------------------------------------------------------------------------
Cash and cash equivalents:
Operating $ 34.1 $ 63.9
Fiduciary 73.1 51.8
Short-term investments:
Operating 0.3 1.8
Fiduciary 18.8 117.9
Long-term operating investments 25.2 62.2
- -------------------------------------------------------------------------------
Total $ 151.5 $297.6
===============================================================================
At December 31, 1995 and 1994, the amortized cost and estimated fair value
of debt securities by contractual maturity are summarized below:
As of December 31, 1995 1994
- --------------------------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
- -------------------------------------------------------------------------------
Due in one year or less $120.8 $120.8 $ 152.7 $152.6
Due after one year
through five years 4.8 4.8 46.7 46.7
Due after five years
through ten years 10.2 10.2 0.7 0.7
Due after ten years 5.0 5.0 10.1 10.1
- --------------------------------------------------------------------------------
140.8 140.8 210.2 210.1
Mortgage-backed securities 0.0 0.0 83.8 83.8
- --------------------------------------------------------------------------------
Total debt securities $140.8 $140.8 $ 294.0 $293.9
================================================================================
Certain of the above investments with maturities greater than one year are
classified as short-term and included in current assets as they represent
fiduciary investments that will be utilized during the normal operating cycle of
the business to pay premiums payable to insurance companies that are included in
current liabilities.
12. FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The Company enters into foreign exchange forward contracts and foreign exchange
option agreements primarily to provide risk management against existing firm
commitments as well as anticipated future exposures that will arise at its
London-based specialist insurance and reinsurance broking operations. The
exposures arise because a significant portion of the revenues of these
operations are denominated in U.S. dollars, while their expenses are primarily
denominated in U.K. pounds sterling.
The Company generally sells forward U.S. dollars and purchases U.K. pounds
sterling for periods of up to two years in the future. Such contracts provide
risk management against future anticipated transactions which are not firm
commitments. In addition, the Company enters into foreign exchange contracts to
manage market risk associated with foreign exchange volatility on intercompany
loans and expected intercompany dividends. Finally, the Company enters into
foreign exchange contracts to effectively offset existing contracts when
anticipated exchange rate movements would benefit the Company.
Gains and losses on foreign exchange contracts are marked to market at each
balance sheet date and are included in other current assets or liabilities, with
the resulting gain or loss recorded as a component of other operating expenses.
The fair market value of all foreign exchange contracts at December 31, 1995,
was a liability of $0.7 million.
Foreign exchange options written by the Company are marked to market at each
balance sheet date and the resulting gain or loss is recorded as a component of
other operating expenses. Future cash requirements may exist if the option is
exercised by the holder. At December 31, 1995, the Company had $20 million
notional principal of written foreign exchange options outstanding. Based on
foreign exchange rates at December 31, 1995, the Company recognized a current
liability of $0.6 million, consisting of unamortized premiums, representing the
estimated cost to settle these options at that date.
At December 31, 1994, the Company's foreign exchange options could have been
exercised at a nominal cost to the Company.
At December 31, 1995, the Company had $69.9 million notional principal of
forward exchange contracts outstanding, primarily to exchange U.S. dollars into
U.K. pounds sterling, and $16.3 million notional principal outstanding,
primarily to exchange U.K. pounds sterling into U.S. dollars.
The Company has entered into interest rate swaps and forward rate
agreements, which are accounted for as hedges, as a means to limit the earnings
volatility associated with changes in short-term interest rates on its existing
and anticipated fiduciary investments. These instruments are contractual
agreements between the Company and financial institutions which exchange fixed
and floating interest rate payments periodically over the life of the agreements
without exchanges of the underlying principal amounts. The notional principal
amounts of such agreements are used to measure the interest to be paid or
received and do not represent the amount of exposure to credit loss. The Company
records the difference between the fixed and floating rates of such agreements
as a component of its fiduciary investment income. Interest rate swaps and
forward rate agreements which relate to debt securities are marked to market in
accordance with SFAS No. 115. At December 31, 1995, an unrealized gain of $1.1
million on interest rate
<PAGE>
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- --------------------------------------------------------------------------------
swaps and forward rate agreements which hedge existing fiduciary investments was
reflected in fiduciary cash and equivalents in the Consolidated Balance Sheet.
At December 31, 1995 and 1994, the Company has the following interest rate
swaps and forward rate agreements in effect, by year of final maturity:
As of December 31, 1995
- -----------------------------------------------------------------
Gross Net Weighted Gross Net Weighted
Receiving Average Paying Average
Year Fixed Interest Rate Fixed Interest Rate
- -----------------------------------------------------------------
1996 $390.3 7.38% $471.7 6.27%
1997 203.2 6.68 40.0 5.90
1998 182.9 7.08 --- ---
- -----------------------------------------------------------------
Total $776.4 7.13% $511.7 6.24%
==================================================================
As of December 31, 1994
- -----------------------------------------------------------------
Gross Net Weighted Gross Net Weighted
Receiving Average Paying Average
Year Fixed Interest Rate Fixed Interest Rate
- -----------------------------------------------------------------
1995 $457.0 6.84% $257.0 6.83%
1996 291.9 7.30 31.2 8.85
1997 97.8 6.65 --- ---
- -----------------------------------------------------------------
Total $846.7 6.98% $288.2 7.05%
==================================================================
The Company generally enters into interest rate swap agreements with a final
maturity of three years or less. The floating rate on these agreements is
generally based upon the six-month LIBOR rate on the relevant reset dates.
Forward rate agreements generally have a final maturity date that is less than
two years, and use six-month LIBOR as the floating rate index.
In addition, as part of its interest rate management program, the Company
utilizes various types of interest rate options, including caps, collars, floors
and interest rate guarantees. The Company generally writes covered interest rate
options under which the Company receives a fixed interest rate.
The options are marked to market at each balance sheet date, based on the
Company's estimated cost to settle the options. The estimated cost to settle the
options, less any premium deferred by the Company, is recognized as a reduction
to fiduciary investment income in the period when such changes in market value
occur. The Company recognized a current liability of $0.3 million and $1.3
million, representing the estimated cost to settle these options at December 31,
1995 and 1994, respectively.
The estimated cost to settle these agreements was determined by obtaining
quotes from banks and other financial institutions which make a market in these
instruments.
At December 31, 1995 and 1994, the Company had the following written
interest rate option agreements outstanding, by year of final maturity:
As of December 31, 1995
- ---------------------------------------------------------------------------
Gross Net Weighted Gross Net Weighted
Receiving Average Paying Average
Year Fixed Interest Rate Fixed Interest Rate
- ---------------------------------------------------------------------------
1996 $43.2 5.41% $10.0 4.60%
1997 15.5 8.50 --- ---
1998 10.0 8.50 --- ---
- ---------------------------------------------------------------------------
Total $68.7 6.54% $10.0 4.60%
===========================================================================
As of December 31, 1994
- ---------------------------------------------------------------------------
Gross Net Weighted Gross Net Weighted
Receiving Average Paying Average
Year Fixed Interest Rate Fixed Interest Rate
- ---------------------------------------------------------------------------
1995 $15.6 5.27% $ --- ---
1996 43.4 5.42 10.0 4.60%
- ---------------------------------------------------------------------------
Total $59.0 5.38% $ 10.0 4.60%
===========================================================================
The above financial instruments are purchased from large international banks
and financial institutions with strong credit ratings. Credit limits are
established based on such credit ratings and are monitored on a regular basis.
Management does not anticipate incurring any losses due to non-performance by
these institutions. In addition, the Company monitors the market risk associated
with these agreements by using probability analyses, external pricing systems
and information from banks and brokers.
The following methods and assumptions were used in estimating the fair value
of each class of financial instrument. The fair values of short-term and
long-term investments were estimated based upon quoted market prices for the
same or similar instruments. The fair value of long-term debt, including the
current portion, was estimated on the basis of market prices for similar issues
at current interest rates for the applicable period. The fair value of interest
rate swaps and forward rate agreements was estimated by discounting the future
cash flows using rates currently available for agreements of similar terms and
maturities. The fair value of foreign exchange forward contracts and foreign
exchange option agreements was estimated based upon year-end exchange rates. The
fair value of interest rate options was estimated based upon market quotes of
the cost to settle these agreements. The carrying amounts of the Company's other
financial instruments approximate fair value due to their short-term maturities.
<PAGE>
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- --------------------------------------------------------------------------------
The following table presents the carrying amounts and the estimated fair
value of the Company's financial instruments that are not marked to market.
As of December 31, 1995 1994
- ------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------
Long-term debt,
including
current portion $135.6 $135.8 $149.8 $146.4
Interest rate swaps
and forward rate
agreements -- 5.1 -- (5.4)
========================================================================
13. Commitments
========================================================================
Lease Commitments
The Company leases property and equipment under noncancelable operating lease
agreements which expire at various dates.
Future minimum annual rentals under noncancelable operating leases,
excluding $18.6 million of future sublease rental income, which have been
translated at December 31, 1995 closing foreign exchange rates, are as follows:
Operating Leases
- -----------------------------------------------------------
1996 $83.3
1997 67.7
1998 55.3
1999 46.3
2000 41.4
Thereafter 192.2
- -----------------------------------------------------------
Total minimum lease payments $486.2
===========================================================
Rent expense for office space, which includes property taxes and certain
other costs, amounted to $83.9 million, $93.6 million and $92 million for the
years ended December 31, 1995, 1994, and 1993, respectively.
Other Commitments
At December 31, 1995, the Company had $76.4 million of letters of credit
outstanding which are required under certain agreements in the ordinary course
of business.
14. Contingencies
- ---------------------------------------------------------------------------
The Company and its subsidiaries are subject to various claims and lawsuits from
both private and governmental parties, which include claims and lawsuits in the
ordinary course of business, consisting principally of alleged errors and
omissions in connection with the placement of insurance and in rendering
consulting services. In some of these cases, the remedies that may be sought or
damages claimed are substantial. Additionally, the Company and its subsidiaries
are subject to the risk of losses resulting from the potential uncollectibility
of insurance and reinsurance balances and claims advances made on behalf of
clients and indemnifications connected with the sales of certain businesses.
Certain claims asserted against the Company and certain of its subsidiaries
alleging, among other things, that certain Alexander Howden subsidiaries
accepted, on behalf of certain insurance companies, insurance or reinsurance at
premium levels not commensurate with the level of underwriting risks assumed and
retroceded or reinsured those risks with financially unsound reinsurance
companies.
A claim asserting these allegations is pending in a suit filed in New York.
In an action brought in 1988 against the Company and certain subsidiaries
(CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON SUBSCRIBING TO INSURANCE AGREEMENTS
ML8055801, ET AL. V. ALEXANDER & ALEXANDER SERVICES INC., ET AL., formerly
captioned DENNIS EDWARD JENNINGS V. ALEXANDER & ALEXANDER EUROPE PLC, ET AL., 88
Civ. 7060 (RO) (S.D.N.Y.)), plaintiffs seek compensatory and punitive damages,
as well as treble damages under RICO totaling $36 million. The defendants have
counterclaimed against certain of the plaintiffs for contribution. Discovery in
this case remains to be concluded and no trial date has been set. Management of
the Company believes there are valid defenses to all the claims that have been
made with respect to these activities and the Company is vigorously defending
the pending action.
Certain other claims were resolved during 1995: (1) In a New York action
brought in 1985, claims were asserted against the Company and certain
subsidiaries (PINE TOP INSURANCE COMPANY, LTD. V. ALEXANDER & ALEXANDER SERVICES
INC., ET AL., 85 Civ. 9860 (RPP) (S.D.N.Y.)). The plaintiff sought compensatory
and punitive, as well as treble damages under RICO totaling approximately $87
million, arising from alleged RICO violations, common law fraud, breach of
contract and negligence. Two subsidiaries counterclaimed for breach of certain
reinsurance contracts with the plaintiff. This action was settled as of January
12, 1995 and the action was voluntarily dismissed in February 1995. The
settlement amount was $4.5 million. The Company's portion was $2.1 million which
was previously reserved under its professional indemnity
<PAGE>
fifty
- --------------------------------------------------------------------------------
program; and (2) In an Ohio action brought in 1985 (THE HIGHWAY EQUIPMENT
COMPANY, ET AL. V. ALEXANDER HOWDEN LIMITED, ET AL. (Case No. 1-8501667, U.S.
Bankruptcy Court, So. Dist. Ohio, Western Div.)), plaintiffs sought compensatory
and punitive damages, as well as treble damages under RICO totaling $24 million.
A directed verdict in the Company's favor was reaffirmed on August 15, 1995 by
the U.S. Court of Appeals for the Sixth Circuit.
These above actions are covered under the Company's professional indemnity
program, except for possible damages under RICO. The Company currently believes
the reasonably possible loss that might result from these actions, if any, would
not be material to the Company's financial position or results of operations.
In 1987, the Company sold Shand, its domestic underwriting management
subsidiary. Prior to the sale, Shand and its subsidiaries had provided
underwriting management services for and placed insurance and reinsurance with
and on behalf of Mutual Fire. Mutual Fire was placed in rehabilitation by the
Courts of the Commonwealth of Pennsylvania in December 1986. In February 1991,
the rehabilitator commenced an action captioned FOSTER V. ALEXANDER & ALEXANDER
SERVICES INC., 91 Civ. 1179 (E.D.Pa.). The complaint, which sought compensatory
and punitive damages, alleged that Shand and, in certain respects, the Company
breached duties to and agreements with Mutual Fire. The rehabilitator sought
damages estimated at approximately $234 million.
On March 27, 1995, the Company, Shand and the rehabilitator entered into a
settlement agreement which was subsequently approved by the Courts and which
terminated the rehabilitator's litigation and released the Company and Shand
from any further claims by the rehabilitator. Under the terms of the settlement,
the Company paid $12 million in cash and issued a $35 million six-year zero
coupon note. In addition, in 1995 Shand returned $4.6 million of trusteed assets
to the rehabilitator and the rehabilitator has eliminated any right of set-offs
previously estimated to be $4.7 million. The Mutual Fire settlement agreement
includes certain features protecting the Company from potential exposure to
claims for contribution brought by third parties and expenses arising out of
such claims.
Although the Company's professional liability underwriters have denied
coverage for the Mutual Fire lawsuit, the Company has instituted a declaratory
judgment action attempting to validate coverage (ALEXANDER & ALEXANDER SERVICES
INC. AND ALEXANDER & ALEXANDER INC. V. THOSE CERTAIN UNDERWRITERS AT LLOYD'S OF
LONDON, SUBSCRIBING TO INSURANCE EVIDENCED BY POLICY NUMBERS 879/P. 31356 AND
879/P. 35349 AND ASSICURAZIONI GENERALI, S.P.A., No. 92 Civ. 6319 (F.D.N.Y.).
All required documents in this case have been submitted to the Court, and the
Company is awaiting a decision on the matter.
Under the 1987 agreement with the purchaser of Shand, the Company agreed to
indemnify the purchaser against certain contingencies, including, among others,
(i) losses arising out of pre-sale transactions between Shand or Shand's
subsidiaries, on the one hand, and Mutual Fire, on the other, and (ii) losses
arising out of pre-sale errors or omissions by Shand or Shand's subsidiaries.
The Company's obligations under the indemnification provisions in the 1987 sales
agreement were not limited as to amount or duration.
Starting in late 1992, the purchaser of Shand had asserted a number of
claims under both the Mutual Fire indemnification provision and the errors and
omissions indemnification provision of the sales agreement. During 1995 most of
those claims have been resolved by a series of settlement agreements, involving
the settlement or release of (a) claims relating to reinsurance recoverables due
to Shand's subsidiaries from Mutual Fire, (b) claims relating to deterioration
of reserves for business written by Mutual Fire and ceded to Shand's
subsidiaries, and (c) a number of potential errors and omissions claims by
third-party reinsurers against Shand. Under the settlement agreement entered
into in January 1995, covering the errors and omissions claims by third-party
reinsurers, the Company obtained from the purchasers of Shand a release and
limitation of indemnification obligations relating to certain third-party errors
and omissions claims, and restructured the contractual relationship with the
purchaser so that the parties' future interests as to third-party claims are
more closely aligned. The Company paid $14 million in cash, issued a five-year
interest bearing note in the principal amount of $14 million and expected to pay
a contingent obligation of $4.5 million. In June 1995, the $14 million note
payable was prepaid in whole. The remaining contingent note payable of $4.5
million was paid in full in September 1995.
Notwithstanding these settlements, the limitation of certain contract
obligations and the restructuring of the parties' relationship, some of the
Company's indemnification provisions under the 1987 agreement are still in
effect. As a result, there remains the
<PAGE>
fifty-one
- --------------------------------------------------------------------------------
possibility of substantial exposure under the indemnification provisions of the
1987 agreement, although the Company, based on current facts and circumstances,
believes the possibility of a material loss resulting from these exposures is
remote.
In November 1993, a class action suit was filed against the Company and two
of its then directors and officers, Tinsley H. Irvin and Michael K. White, in
the United States District Court for the Southern District of New York under the
caption HARRY GLICKMAN V. ALEXANDER & ALEXANDER SERVICES INC., ET AL. (Civil
Action No. 93 Civ. 7594). On January 6, 1995, the plaintiff filed a second
amended complaint which, among other things, dropped Mr. White as a defendant.
The second amended complaint purports to assert claims on behalf of a class of
persons who purchased the Company's Common Stock during the period May 1, 1991
to November 4, 1993, alleging that during this period the Company's financial
statements contained material misrepresentations as a result of inadequate
reserves established by the Company's subsidiary, Alexander Consulting Group
Inc., for unbillable work-in-progress. The second amended complaint seeks
damages in an unspecified amount, as well as attorneys' fees and other costs,
for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934. In response to the second amended complaint, the Company filed a
motion to dismiss. A hearing on the Company's motion to dismiss was held on
January 26, 1996. On February 27, 1996 the Company's motion to dismiss was
granted and plaintiff was denied leave to replead. Plaintiff has until April 1,
1996 to appeal the verdict. Should plaintiff appeal, management will vigorously
defend the matter as management believes there are valid defenses to the
allegations set forth in the amended complaint. The Company currently believes
that this action is covered by the Company's insurance program and that the
reasonably possible loss that might result, if any, would not be material to the
Company's financial position or results of operations.
These contingent liabilities involve significant amounts. While it is not
possible to predict with certainty the outcome of such contingent liabilities,
the applicability or availability of coverage for such matters under the
Company's professional indemnity insurance program, or their financial impact on
the Company, management currently believes that such impact will not be material
to the Company's financial position. However, it is possible that future
developments with respect to these matters could have a material effect on
future interim or annual results of operations.
Under the Series B Convertible Preferred Stock Purchase Agreement, as
amended, the Company has agreed to make certain payments to the purchaser
pursuant to indemnifications given with respect to tax payments and reserves in
excess of recorded tax reserves as of March 31, 1994. The Company's potential
exposures under the indemnification, individually or in the aggregate, are
limited to $10 million. As a result of this indemnification, the Company has
classified $10 million of the proceeds from the issuance of the Series B
Convertible Preferred Shares outside stockholders' equity until such time as the
indemnification, if any, is satisfied or terminated.
<PAGE>
fifty-two
- --------------------------------------------------------------------------------
15. BUSINESS SEGMENTS
-----------------
Segment information is provided for the Company's two reportable industry
segments, Insurance Services and Human Resource Management Consulting.
Insurance Services operations include risk management and insurance
services, specialist insurance and reinsurance broking.
Human Resource Management Consulting includes a variety of human resource
management consulting services, including actuarial and benefit plan consulting
services, flexible compensation consulting, communications and management
consulting services, executive planning services and human resource
organizational analysis, as well as brokerage services for group health and
welfare coverages.
The following tables present information about the Company's operations by
business segment and geographical areas for each of the three years in the
period ended December 31, 1995:
BUSINESS SEGMENTS
<TABLE><CAPTION>
- -----------------------------------------------------------------------------------------------------
Operating Operating Identifiable Depreciation Capital
Revenues Income(a) Assets & Amortization Expenditures
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Insurance services $1,071.8 $143.4 $2,667.6 $39.4 $25.2
Human resource management
consulting 210.6 10.0 125.5 6.1 3.0
General corporate -- (30.7) 149.3 0.6 (0.5)
- ------------------------------------------------------------------------------------------------------
$1,282.4 $122.7 $2,942.4 $46.1 $27.7
=====================================================================================================
1994
Insurance services $1,113.2 $(12.2) $2,525.4 $44.7 $19.0
Human resource management
consulting 210.7 (19.1) 130.3 6.0 2.9
General corporate -- (51.6) 290.0 0.5 (0.4)
- ------------------------------------------------------------------------------------------------------
$1,323.9 $(82.9) $2,945.7 $51.2 $21.5
=====================================================================================================
1993
Insurance services $1,128.6 $ 92.9 $2,544.1 $48.3 $21.0
Human resource management
consulting 213.0 (7.5) 121.4 5.6 4.0
General corporate -- (33.1) 128.3 0.6 1.0
- -----------------------------------------------------------------------------------------------------
$1,341.6 $ 52.3 $2,793.8 $54.5 $26.0
=====================================================================================================
</TABLE>
(a) Includes restructuring/special charges of $15.7 million and $56.3 million
for 1995 and 1994, respectively, in insurance services, $1.4 million and
$8.3 million for 1995 and 1994, respectively, in human resource management
consulting and $0.5 million and $4.4 million for 1995 and 1994,
respectively, in general corporate as described in Notes 3 of Notes to
Financial Statements.
<PAGE>
fifty-three
- --------------------------------------------------------------------------------
GEOGRAPHICAL AREAS:
- --------------------------------------------------------------------------------
Operating Operating Identifiable
Revenues Income(a)(b) Assets
- --------------------------------------------------------------------------------
1995
United States $ 608.2 $ 36.1 $ 895.5
United Kingdom 317.5 55.1 1,092.3
Canada, principally Reed
Stenhouse Cos. Ltd 121.2 21.7 201.2
Other countries 235.5 40.5 604.1
General corporate -- (30.7) 149.3
- --------------------------------------------------------------------------------
$1,282.4 $122.7 $2,942.4
================================================================================
1994
United States $ 685.4 $(78.8) $ 904.2
United Kingdom 312.5 19.4 1,065.8
Canada, principally Reed
Stenhouse Cos. Ltd 118.9 10.0 191.0
Other countries 207.1 18.1 494.7
General corporate -- (51.6) 290.0
- --------------------------------------------------------------------------------
$1,323.9 $(82.9) $2,945.7
================================================================================
1993
United States $ 727.1 $(11.8) $1,029.2
United Kingdom 315.5 64.1 987.8
Canada, principally Reed
Stenhouse Cos. Ltd 120.9 13.0 208.1
Other countries 178.1 20.1 440.4
General corporate -- (33.1) 128.3
- --------------------------------------------------------------------------------
$1,341.6 $ 52.3 $2,793.8
================================================================================
(a) The 1995 special charges referred to in Note 3 of Notes to Financial
Statements have been allocated to their respective geographical areas in
1995, including $16 million in the U.S., $1 million in the U.K.,
$0.1 million in other countries and $0.5 million in general corporate.
(b) The 1994 restructuring charges referred to in Note 3 of Notes to Financial
Statements have been allocated to their respective geographical areas in
1994, including $31.8 million in the U.S., $21.9 million in the U.K.,
$4 million in Canada, $6.9 million in Other Countries and $4.4 million in
general corporate.
<PAGE>
fifty-four
- --------------------------------------------------------------------------------
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
Quarterly operating results for 1995 and 1994 are summarized below (in millions,
except per share data).
Income
(Loss) from Net
Operating Operating Continuing Income
Revenues Income (Loss) Operations (Loss)
- ----------------------------------------------------------------------------
1995
1st $ 324.2 $ 41.7 $ 41.7 $ 41.7
2nd 328.1 39.2 22.7 22.7
3rd 299.7 27.6 17.5 17.5
4th 330.4 14.2 7.5 7.5(a)
- ----------------------------------------------------------------------------
Year $1,282.4 $ 122.7 $ 89.4 $ 89.4
- ----------------------------------------------------------------------------
1994
1st $ 323.0 $ 5.2 $ (1.8) $ (4.4)
2nd 335.1 14.6 3.8 (2.2)(b)
3rd 332.6 4.2 0.1 (20.8)(c)
4th 333.2 (106.9) (109.3) (111.3)(d)
- -----------------------------------------------------------------------------
Year $1,323.9 $ (82.9) $(107.2) $(138.7)
=============================================================================
Per Income Primary Fully
Share of (Loss) from Net Diluted Net
Common Continuing Earnings Earnings
Stock Operations (Loss) (Loss) Dividends High Low
- --------------------------------------------------------------------------------
1995
1st $ .80 $ .80 $ .69 $.025 $23 3/4 $18 1/2
2nd .37 .37 .36 .025 26 7/16 22 1/8
3rd .25 .25 .25 .025 25 1/2 22 3/8
4th .02 .02(a) .02 .025 24 3/8 18 5/8
- --------------------------------------------------------------------------------
Year $ 1.44 $1.44 $ 1.42(e) $.100
- --------------------------------------------------------------------------------
1994
1st $ (.09) $ (.15) $ (.15) $.250 $22 3/4 $17 1/4
2nd .04 (.10)(b) (.10) .025 18 1/8 14
3rd (.11) (.58)(c) (.58) .025 20 7/8 16
4th (2.61) (2.66)(d) (2.66) .025 21 1/2 18 1/2
- --------------------------------------------------------------------------------
Year $(2.79)(e) $(3.51)(e) $(3.51)(e) $.325
================================================================================
(a) Includes a charge of $17.6 million ($11.2 million after-tax or $0.25 per
share) for restructuring and other special charges related primarily to the
acquisition of certain U.S. operations from Jardine Insurance Brokers, Inc.
(see Note 3 of Notes to Financial Statements).
(b) Includes a charge of $6 million, or $.14 per share, relating to the
Company's discontinued operations (see Note 6 of Notes to Financial
Statements).
(c) Includes a loss from discontinued operations of $20.9 million, or $.47 per
share, relating to an agreement in principle to resolve certain indemnity
obligations to Sphere Drake (see Note 6 of Notes to Financial Statements).
(d) Includes charges of $163.6 million ($106.6 million after-tax or $2.43 per
share) for restructuring, contingency settlements and other reserves.
(e) Full year earnings per share amounts do not equal the sum of the quarterly
amounts due to changes in weighted average shares during the periods.
<PAGE>
fifty-five
- --------------------------------------------------------------------------------
Investor Information
<TABLE><CAPTION>
<S> <C>
CORPORATE HEADQUARTERS EXCHANGE LISTINGS
Alexander & Alexander Services Inc. Alexander & Alexander's Common Stock is listed
1185 Avenue of the Americas on the New York Stock Exchange (symbol: AAL) and
New York, NY 10036 the London Stock Exchange Ltd. (symbol: ALXA). Its
Class C Common Stock is listed on the London Stock
ANNUAL MEETING OF STOCKHOLDERS Exchange Ltd. Reed Stenhouse's RSC Class 1 Special
Stockholders are invited to attend Shares (associated with the shares of Alexander &
our annual meeting on Thursday, May 16, at Alexander's Class A Common Stock) are listed on
9:30 a.m., at the McGraw-Hill Building the Toronto Stock Exchange and Montreal Stock
Auditorium, 1221 Avenue of the Americas, Exchange.
2nd floor, New York City.
TRANSFER AGENTS AND REGISTRARS
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS Stockholders inquiring about security transfer
As of March 1, 1996, there were approximately 2,761 matters, dividend payments, address corrections
record holders of the Company's Common Stock, 453 and other issues related to their account should
beneficial holders of Class A Common Stock and contact:
1,100 record holders of Class C Common Stock. First Chicago Trust Company
of New York
P.O. Box 2500
Jersey City, N.J. 07303-2500
The R-M Trust Company
Balfour House
390 High Road
Ilford, Essex IGI INQ
England
Montreal Trust Company
of Canada
151 Front Street West
Toronto, Ontario M5J 2N1
Canada
FINANCIAL AND INVESTOR INFORMATION
Copies of our annual and quarterly
reports, and Forms 10-K and 10-Q
may be obtained by contacting
Corporate Communications in New
York at (212) 444-4583; facsimile
(212) 444-4697, or Public & Client
Relations in London at
44 (171) 623 5500; facsimile 44 (171) 623 1178.
Our internet address is [email protected].
Investors, securities analysts and
others desiring additional financial
information should contact Alan
Kershaw, Vice President and Treasurer,
at (410) 363-5873; facsimile (410) 363-5300.
In Europe, contact Peter R.J.
Tritton, Director, Public &
Client Relations, Alexander & Alexander
Services UK plc, at 44 (171) 623 5500;
facsimile 44 (171) 626 1178.
For a complete listing of
our capabilities and services,
please visit our website
at http://www.alexalex.com.
AUDITORS
Deloitte & Touche LLP
</TABLE>
<PAGE>
Fifty-Six
- --------------------------------------------------------------------------------
Key Company & Subsidiary Officers
<TABLE><CAPTION>
<S> <C>
Frank G. Zarb* David A. Jones Alice L. Russell
CHAIRMAN OF THE BOARD, PRESIDENT & CHIEF VICE PRESIDENT & ASSISTANT GENERAL COUNSEL CORPORATE SECRETARY
EXECUTIVE OFFICER ALEXANDER & ALEXANDER SERVICES INC. ALEXANDER & ALEXANDER SERVICES INC.
ALEXANDER & ALEXANDER SERVICES INC.
R. Alan Kershaw* Mark J. Schneiderman*
Lawrence E. Burk* VICE PRESIDENT & TREASURER SENIOR VICE PRESIDENT, HUMAN RESOURCES
CHAIRMAN, PRESIDENT & ALEXANDER & ALEXANDER SERVICES INC. ALEXANDER & ALEXANDER SERVICES INC.
CHIEF EXECUTIVE OFFICER
ALEXANDER & ALEXANDER INC. Edward F. Kosnik* Donald L. Seeley*
SENIOR EXECUTIVE VICE PRESIDENT & SENIOR VICE PRESIDENT
Elliot S. Cooperstone* CHIEF FINANCIAL OFFICER ALEXANDER & ALEXANDER SERVICES INC.
EXECUTIVE VICE PRESIDENT & ALEXANDER & ALEXANDER SERVICES INC. PRESIDENT & CHIEF EXECUTIVE OFFICER
CHIEF ADMINISTRATIVE OFFICER THE ALEXANDER CONSULTING GROUP INC.
ALEXANDER & ALEXANDER SERVICES INC. Peter K. Lathrop
EXECUTIVE VICE PRESIDENT & VICE PRESIDENT, TAXES Albert A. Skwiertz, Jr.*
CHIEF OPERATING OFFICER ALEXANDER & ALEXANDER SERVICES INC. SENIOR VICE PRESIDENT, GENERAL COUNSEL &
ALEXANDER & ALEXANDER INC. ASSISTANT SECRETARY
Paul E. Lavin ALEXANDER & ALEXANDER SERVICES INC.
Kenneth J. Davis* VICE PRESIDENT, OPERATIONS PLANNING
EXECUTIVE VICE PRESIDENT ALEXANDER & ALEXANDER SERVICES INC. Richard P. Sneeder, Jr.*
ALEXANDER & ALEXANDER SERVICES INC. VICE PRESIDENT & CONTROLLER
CHAIRMAN Dennis L. Mahoney* ALEXANDER & ALEXANDER SERVICES INC.
GLOBAL RETAIL BOARD EXECUTIVE VICE PRESIDENT
ALEXANDER & ALEXANDER SERVICES INC. Kenneth J. Tesi
Timothy P. S. Gibson DEPUTY CHAIRMAN & GROUP CEO VICE PRESIDENT & DIRECTOR
CHIEF EXECUTIVE OFFICER ALEXANDER HOWDEN GROUP LIMITED CORPORATE AUDITING
ALEXANDER & ALEXANDER LIMITED ALEXANDER & ALEXANDER SERVICES INC.
ASIA PACIFIC REGION Michael J. McKeon
SENIOR VICE PRESIDENT & Alan E. Williams*
James S. Horrick* CHIEF INFORMATION OFFICER CHAIRMAN, MARINE & AVIATION
PRESIDENT & CHIEF EXECUTIVE OFFICER ALEXANDER & ALEXANDER SERVICES INC. ALEXANDER HOWDEN GROUP LIMITED
ALEXANDER & ALEXANDER/REED STENHOUSE
COMPANIES LIMITED Stephen H. Meyers
VICE PRESIDENT, FINANCE &
Ronald A. Iles* ASSISTANT SECRETARY
DEPUTY CHAIRMAN OF THE BOARD ALEXANDER & ALEXANDER SERVICES INC. *FOR THE PURPOSES OF FEDERAL SECURITIES
ALEXANDER & ALEXANDER SERVICES INC. LAW, AT DECEMBER 31, 1995, SUCH PERSONS
CHAIRMAN WERE DEEMED "EXECUTIVE OFFICERS" OF THE
ALEXANDER HOWDEN GROUP LIMITED Dan R. Osterhout* COMPANY AS DEFINED BY RULE 3B-7 OF THE
SENIOR VICE PRESIDENT SECURITIES EXCHANGE ACT OF 1934.
ALEXANDER & ALEXANDER SERVICES INC.
CHAIRMAN & CHIEF EXECUTIVE OFFICER
ALEXANDER UNDERWRITING SERVICES INC.
</TABLE>
EXHIBIT 21
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
A&A UNDERWRITING SERVICES INC. (DELAWARE) 100.00 100.00
ALEXANDER HOWDEN NORTH AMERICA, INC. [GA] (GEORGIA) 100.00 100.00
ALEXANDER HOWDEN NORTH AMERICA, INC. [MA] (MASSACHUSETTS) 100.00 100.00
ALEXANDER HOWDEN NORTH AMERICA, INC. [NY] (NEW YORK) 100.00 100.00
ALEXANDER HOWDEN NORTH AMERICA, INC. [OH] (OHIO) 100.00 100.00
ALEXANDER HOWDEN NORTH AMERICA, INC. [TX] (TEXAS) 100.00 100.00
ALEXANDER HOWDEN INSURANCE SERVICES OF TEXAS, INC. (TEXAS) 100.00 100.00
IRBJ DISPOSITION COMPANY (ILLINOIS) 100.00 100.00
AMERICAN SPECIAL RISK INSURANCE COMPANY (DELAWARE) 100.00 100.00
ATLANTA INTERNATIONAL INSURANCE COMPANY (NEW YORK) 100.00 100.00
ALEXANDER & ALEXANDER (ASIA) HOLDINGS PTE. LTD.* (SINGAPORE) 97.23 97.23
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER (MALAYSIA) SDN BHD. (MALAYSIA) 49.00 47.64
Comments: 49.00% Total Ownership
ALEXANDER & ALEXANDER (TAIWAN) LTD. (TAIWAN) 50.00 48.62
Comments: 50.00% Total Ownership
ALEXANDER & ALEXANDER INSURANCE AGENCY LTD. (TAIWAN) 50.00 48.62
Comments: 50.00% Total Ownership
ALEXANDER & ALEXANDER PTE. LTD. (SINGAPORE) 100.00 97.23
Comments: 100.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER & ALEXANDER RISK MANAGEMENT SERVICES, INC. (TAIWAN) 50.00 48.62
Comments: 50.00% Total Ownership
ALEXANDER HOWDEN GROUP (ASIA) PTE. LTD. (SINGAPORE) 100.00 97.23
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER (HONG KONG) HOLDINGS LTD. (HONG KONG) 100.00 100.00
ALEXANDER LIPPO (HONG KONG) LTD. (HONG KONG) 50.00 50.00
ALEXANDER & ALEXANDER AUSTRALIA HOLDINGS LTD. (AUSTRALIA) 100.00 100.00
ALEXANDER & ALEXANDER LIMITED (AUSTRALIA) 100.00 100.00
ALEXANDER STENHOUSE ACCUMULATION FUND NOMINEES LTD. (AUSTRALIA) 100.00 100.00
ALEXANDER STENHOUSE FINANCIAL SERVICES LTD. (AUSTRALIA) 100.00 100.00
ALEXANDER STENHOUSE NOMINEES LTD. (AUSTRALIA) 100.00 100.00
ANISTICS PTY. LTD. (AUSTRALIA) 100.00 100.00
BURNIE ENTERPRISES PTY. LTD. (PAPA NEW GUINEA) 100.00 100.00
ALEXANDER & ALEXANDER (PNG) PTY. LTD. (PAPA NEW GUINEA) 63.00 63.00
JOHN C. LLOYD REINSURANCE BROKERS LTD. (AUSTRALIA) 87.50 87.50
REED STENHOUSE ASIA PACIFIC LTD. (SCOTLAND) 100.00 100.00
SOUTHERN CROSS UNDERWRITING PTY. LIMITED (AUSTRALIA) 56.00 56.00
THE ALEXANDER CONSULTING GROUP LTD. (AUSTRALIA) 100.00 100.00
ALEXANDER & ALEXANDER HOLDINGS (NZ) LTD. (NEW ZEALAND) 100.00 100.00
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER & ALEXANDER LTD. (NEW ZEALAND) 100.00 100.00
ADAM & ADAM LIMITED (NEW ZEALAND) 100.00 100.00
ALEXANDER & ALEXANDER LTD. (FIJI) 100.00 100.00
ALEXANDER HOWDEN REINSURANCE BROKERS (NZ) LTD. (NEW ZEALAND) 100.00 100.00
INTERNATIONAL INSURANCE BROKERS LTD. (NEW ZEALAND) 100.00 100.00
THE ALEXANDER CONSULTING GROUP LTD. (NEW ZEALAND) 100.00 100.00
ALEXANDER & ALEXANDER INTERNATIONAL INC. (MARYLAND) 100.00 100.00
ALEXANDER & ALEXANDER (THAILAND) LTD. (THAILAND) 25.00 25.00
ALEXANDER & ALEXANDER EUROPE B.V. (THE NETHERLANDS) 100.00 100.00
ALEXANDER & ALEXANDER BELGIUM N.V. (BELGIUM) 100.00 100.00
ALEXANDER STENHOUSE BELGIUM INTERNATIONAL* (BELGIUM) 25.50 25.50
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER EUROPE GMBH* (AUSTRIA) 51.00 51.00
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER HOLDINGS B.V. (THE NETHERLANDS) 100.00 100.00
ALEXANDER & ALEXANDER B.V. (THE NETHERLANDS) 100.00 100.00
BEKOUW MENDES REINSURANCE B.V. (THE NETHERLANDS) 100.00 100.00
BEKOUW MENDES RISK MANAGEMENT B.V. (THE NETHERLANDS) 100.00 100.00
ALEXANDER INSURANCE MANAGERS N.V. (NETHERLANDS ANTILLES) 100.00 100.00
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
BRONS OROBIO GROEP B.V. (THE NETHERLANDS) 100.00 100.00
BEKOUW MENDES C.V. (THE NETHERLANDS) 25.61 25.61
FIRMA A. J. DRIESSEN C.V. 25.00 6.40
BRONS VAN LENNEP B.V.* (THE NETHERLANDS) 100.00 100.00
OROBIO MEES HERMAN B.V.* (THE NETHERLANDS) 100.00 100.00
BRONS VAN LENNEP B.V.* (THE NETHERLANDS) 100.00 100.00
BRONS VAN LENNEP DEN HAAG B.V. (THE NETHERLANDS) 100.00 100.00
N. V. VERZEKERING MAATSCHAPPIJ VAN 1890 (THE NETHERLANDS) 100.00 100.00
OROBIO MEES HERMAN B.V.* (THE NETHERLANDS) 100.00 100.00
ALEXANDER & ALEXANDER INSURANCE BROKERS - HUNGARY (HUNGARY) 100.00 100.00
ALEXANDER & ALEXANDER INSURANCE BROKERS LTD. CZECH. REPUBLIC (CZECH REPUBLIC) 100.00 100.00
ALEXANDER & ALEXANDER INSURANCE BROKERS LTD. POLAND (POLAND) 100.00 100.00
ALEXANDER & ALEXANDER ITALIA S.P.A.* (ITALY) 25.00 25.00
Comments: 75.00% Total Ownership
ALEXANDER & ALEXANDER SCANDINAVIA AB (SWEDEN) 100.00 100.00
ALEXANDER & ALEXANDER SPAIN CORREDURIA DE SEGUROS, S.A. (SPAIN) 100.00 100.00
ALEXANDER & ALEXANDER GALICIA, S.A. (SPAIN) 51.00 51.00
ALEXANDER STENHOUSE RISK MANAGEMENT S.A. (SPAIN) 100.00 100.00
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER COYLE HAMILTON LTD. (IRELAND) 75.00 75.00
ALEXANDER INSURANCE MANAGERS LTD. S.A.R.L. (LUXEMBOURG) 99.80 99.80
ALEXANDER STENHOUSE BELGIUM INTERNATIONAL* (BELGIUM) 74.50 74.50
Comments: 100.00% Total Ownership
FIDES ALEXANDER (A.G.) SWITZERLAND (SWITZERLAND) 45.00 45.00
FUTURO 3000 S.R.L.* (ITALY) 95.00 95.00
Comments: 100.00% Total Ownership
REED STENHOUSE NETHERLANDS B.V. (THE NETHERLANDS) 100.00 100.00
ALEXANDER & ALEXANDER ITALIA S.P.A.* (ITALY) 50.00 50.00
Comments: 75.00% Total Ownership
ALEXANDER & ALEXANDER LTD. (THAILAND) (THAILAND) 25.00 25.00
ALEXANDER & ALEXANDER LTDA. CORRETORES DE SEGUROS (BRAZIL) 99.63 99.63
ALEXANDER MACFARLANE CORRETORA DE SEGUROS LTDA. (BRAZIL) 50.00 49.82
AM-MARINE AND LIFE CORRETORA DE SEGUROS LTDA. (BRAZIL) 50.00 49.82
ALEXANDER & ALEXANDER OF COLOMBIA LTDA.* (COLOMBIA) 23.60 23.60
Comments: 50.00% Total Ownership
ALEXANDER & DAVIDSON DE COLOMBIA LTDA. (COLOMBIA) 49.00 49.00
ALEXANDER INSURANCE MANAGERS (SINGAPORE) PTE. LTD. (SINGAPORE) 100.00 100.00
ALEXANDER, AYLING, BARRIOS & CIA, S.A. (ARGENTINA) 98.00 98.00
INDUSTRIE ASSEKURANZ GMBH (GERMANY) 20.00 20.00
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
JASPERS INDUSTRIE ASSEKURANZ GMBH & CO. KG (GERMANY) 20.00 20.00
ALEXANDER & ALEXANDER EUROPE GMBH* (AUSTRIA) 49.00 9.80
Comments: 100.00% Total Ownership
PBG PENSIONS BERATUNGS-GESELLSCHAFT MBH (PARTNERSHIP)* (GERMANY) 10.00 2.00
PBG PENSIONS BERATUNGS-GESELLSCHAFT MBH (PARTNERSHIP)* (GERMANY) 70.00 70.00
Comments: 72.00% Total Ownership
SERVICIOS A.B.S., S.A. (MEXICO) 75.00 75.00
ALEXANDER & ALEXANDER SERVICES UK PLC (SCOTLAND) 100.00 100.00
ALEXANDER & ALEXANDER CORRETORES E CONSULTORES DE SEGUROS LDA. (PORTUGAL) 73.00 73.00
ALEXANDER & ALEXANDER FINANCE LIMITED (ENGLAND) 100.00 100.00
ALEXANDER HOWDEN HOLDINGS LIMITED (ENGLAND) 100.00 100.00
A. H. E. ALEXANDER HOWDEN DE ESPANA S.A. (SPAIN) 99.00 99.00
ALEXANDER HOWDEN FINANCIAL SERVICES LIMITED (ENGLAND) 100.00 100.00
ALEXANDER HOWDEN GROUP (BERMUDA) LTD. (BERMUDA) 100.00 100.00
A. H. G. FAR EAST LTD. (HONG KONG) 100.00 100.00
ASIAN REINSURANCE UNDERWRITERS LTD. (HONG KONG) 100.00 100.00
HOWDEN STERLING ASIA LIMITED (HONG KONG) 100.00 100.00
SPHERE DRAKE FAR EAST LIMITED (HONG KONG) 100.00 100.00
STERLING OFFICES FAR EAST LIMITED (HONG KONG) 100.00 100.00
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER UNDERWRITING AGENCIES LIMITED* (BERMUDA) 50.00 50.00
Comments: 100.00% Total Ownership
HOWDEN COVER HISPANOAMERICANA (BERMUDA) LTD. (BERMUDA) 100.00 100.00
ALEXANDER HOWDEN DE ESPANA (SPAIN) 50.00 50.00
HOWDEN CHILE CONSULTORES LTDA. (CHILE) 51.00 51.00
TRENT INSURANCE COMPANY LTD. (BERMUDA) 100.00 100.00
ALEXANDER HOWDEN GROUP AGENCY MANAGEMENT LTD. (ENGLAND) 100.00 100.00
ALEXANDER HOWDEN GROUP LIMITED (ENGLAND) 100.00 100.00
ALEXANDER HOWDEN (HELLAS) LTD. (GUERNSEY) 100.00 100.00
ALEXANDER HOWDEN (KAZAKHSTAN) LTD. (KAZAKHSTAN) 99.90 99.90
ALEXANDER HOWDEN ASIA PACIFIC LTD. (ENGLAND) 100.00 100.00
ALEXANDER HOWDEN BRASIL LTDA. (BRAZIL) 33.00 33.00
ALEXANDER HOWDEN GROUP MANAGEMENT SERVICES LTD. (ENGLAND) 100.00 100.00
ALEXANDER HOWDEN LIMITED (ENGLAND) 100.00 100.00
ALEXANDER HOWDEN OSSA DE COLOMBIA SA (COLOMBIA) 51.00 51.00
ALEXANDER HOWDEN PREVISIONALES Y PERSONAS LTDA. (COLOMBIA) 51.00 51.00
ALEXANDER HOWDEN UK LIMITED (ENGLAND) 100.00 100.00
KEITH RAYMENT & ASSOCIATES LTD. (ENGLAND) 51.00 51.00
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER HOWDEN Y ASSOCIADOS S.A. DE C.V.* (MEXICO) 71.00 71.00
ALEXANDER UNDERWRITING SERVICES LIMITED (ENGLAND) 100.00 100.00
ALEXANDER Y ALEXANDER CHILE LTDA. (CHILE) 51.00 51.00
ENERGY INSURANCE BROKERS & RISK MANAGEMENT CONSULTANTS LTD. (ENGLAND) 100.00 100.00
HOWDEN CHILE REASEGUROS LTDA. (CHILE) 51.00 51.00
HOWDEN DASTUR REINSURANCE BROKERS (PRIVATE) LTD. (INDIA) 40.00 40.00
INDEPENDENT ENGINEERING SERVICES LTD. (ENGLAND) 100.00 100.00
KEYACTION LTD. (ENGLAND) 100.00 100.00
MANSFELD, HUBENER & PARTNERS GMBH (GERMANY) 34.00 34.00
NORWEGIAN INSURANCE PARTNERS A/S (NORWAY) 40.00 40.00
RYDATA LIMITED (ENGLAND) 100.00 100.00
UZBEKSUGURTA HOWDEN LIHOU (REPUBLIC OF UZBEKISTAN) 39.00 39.00
ALEXANDER HOWDEN INTERNATIONAL LIMITED (ENGLAND) 100.00 100.00
A.H.O.H (BERMUDA) LIMITED (BERMUDA) 100.00 100.00
IRM FRANCE S.A.* (FRANCE) 45.60 45.60
Comments: 100.00% Total Ownership
SPICAFAB LIMITED (ENGLAND) 100.00 100.00
ALEXANDER HOWDEN GROUP (AUSTRALIA) LIMITED (AUSTRALIA) 100.00 100.00
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER HOWDEN REINSURANCE BROKERS (AUSTRALIA) LTD. (AUSTRALIA) 100.00 100.00
ALEXANDER HOWDEN GROUP CANADA LIMITED* (CANADA) 30.00 30.00
Comments: 100.00% Total Ownership
ALEXANDER HOWDEN CANADA LIMITED (CANADA) 100.00 30.00
Comments: 100.00% Total Ownership
DORMANTE HOLDINGS LIMITED (ENGLAND) 100.00 100.00
SOLAR UNDERWRITING AGENCIES LTD. (ENGLAND) 100.00 100.00
HOWDEN MANAGEMENT & DATA SERVICES LTD. (ENGLAND) 100.00 100.00
ALEXANDER HOWDEN LEASING LTD. (ENGLAND) 100.00 100.00
ALEXANDER HOWDEN UNDERWRITING LIMITED (ENGLAND) 100.00 100.00
ALEXANDER STENHOUSE & PARTNERS LIMITED (SCOTLAND) 100.00 100.00
ALEXANDER & ALEXANDER EUROPE LTD. (ENGLAND) 100.00 100.00
ALEXANDER & ALEXANDER FRANCE S.A. (FRANCE) 100.00 100.00
SOCIETE GENERALE DE COURTAGE D'ASSURANCES* (FRANCE) 39.54 39.54
Comments: 53.28% Total Ownership
ALEXANDER & ALEXANDER CONSULTANTS S.A. (FRANCE) 99.56 39.37
Comments: 52.14% Total Ownership
ASSISTANCE AU MANAGEMENT ET A LA PREVENTION DES RISQUES DE L'ENTREPRISE (FRANCE) 89.64 35.44
Comments: 46.95% Total Ownership
FRANCE COTE D'AFRIQUE (FRANCE) 98.56 38.97
Comments: 52.51% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
GROUPEMENT EUROPEEN D'ASSURANCES GENERALES (FRANCE) 99.56 39.37
Comments: 53.05% Total Ownership
SASE FRANCE SOCIETE DES ASSURES DU SUD SET (FRANCE) 99.08 39.18
Comments: 52.79% Total Ownership
RALPH S. HARRIS (INSURANCE) PTY. LTD. (ZIMBABWE) 100.00 100.00
REED STENHOUSE EUROPE HOLDINGS B.V. (THE NETHERLANDS) 100.00 100.00
REED STENHOUSE GMBH 100.00 100.00
SOCIETE GENERALE DE COURTAGE D'ASSURANCES* (FRANCE) 13.74 13.74
Comments: 53.28% Total Ownership
ALEXANDER & ALEXANDER CONSULTANTS S.A. (FRANCE) 99.56 13.68
Comments: 52.14% Total Ownership
ASSISTANCE AU MANAGEMENT ET A LA PREVENTION DES RISQUES DE L'ENTREPRISE (FRANCE) 89.64 12.32
Comments: 46.95% Total Ownership
FRANCE COTE D'AFRIQUE (FRANCE) 98.56 13.54
Comments: 52.51% Total Ownership
GROUPEMENT EUROPEEN D'ASSURANCES GENERALES (FRANCE) 99.56 13.68
Comments: 53.05% Total Ownership
SASE FRANCE SOCIETE DES ASSURES DU SUD SET (FRANCE) 99.08 13.61
Comments: 52.79% Total Ownership
STENHOUSE REED SHAW AFRICA (PTY) LTD. (SOUTH AFRICA) 100.00 100.00
ALEXANDER & ALEXANDER LIMITED (ENGLAND) 100.00 100.00
ALEXANDER & ALEXANDER (C.I.) LIMITED (GUERNSEY) 100.00 100.00
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER INSURANCE MANAGERS (HOLDINGS) LTD.* (GUERNSEY) 10.00 10.00
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (GUERNSEY) LTD. (GUERNSEY) 100.00 10.00
Comments: 100.00% Total Ownership
BAILIWICK CONSULTANCY & MANAGEMENT CO. LTD. (GUERNSEY) 100.00 10.00
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER (ISLE OF MAN) LIMITED (ENGLAND) 100.00 100.00
ALEXANDER & ALEXANDER (UK) LTD. (ENGLAND) 100.00 100.00
ALEXANDER & ALEXANDER (IRELAND) LIMITED (IRELAND) 99.99 99.99
ALEXANDER STENHOUSE MAGEE LIMITED (IRELAND) 99.00 99.00
ALEXANDER & ALEXANDER UK LTD. (ENGLAND) 100.00 100.00
ALEXANDER STENHOUSE LIMITED (ENGLAND) 100.00 100.00
ALEXANDER STENHOUSE MANAGEMENT SERVICES LTD. (SCOTLAND) 100.00 100.00
ALEXANDER STENHOUSE UK LTD. (ENGLAND) 100.00 100.00
ANISTICS LTD. (ENGLAND) 100.00 100.00
ALEXANDER & ALEXANDER U.K. PENSION TRUSTEES LTD. (ENGLAND) 100.00 100.00
ALEXANDER CLAY AND PARTNERS CONSULTING* (UNITED KINGDOM) 41.52 41.52
Comments: 100.00% Total Ownership
THE ALEXANDER CONSULTING GROUP LTD. (SCOTLAND) 100.00 41.52
Comments: 100.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER FINANCIAL SERVICES LTD. (SCOTLAND) 100.00 41.52
Comments: 100.00% Total Ownership
ALEXANDER HOWDEN Y ASSOCIADOS S.A. DE C.V.* (MEXICO) 5.70 5.70
Comments: 76.50% Total Ownership
HALFORD, SHEAD & CO. LIMITED (ENGLAND) 100.00 100.00
IRM FRANCE S.A.* (FRANCE) 54.45 54.45
Comments: 100.00% Total Ownership
REED STENHOUSE UNDERWRITING MANAGEMENT LTD. (SCOTLAND) 100.00 100.00
SCOTTISH & COMMONWEALTH INSURANCE CO. LTD. (BERMUDA) 100.00 100.00
STENHOUSE MARKETING SERVICES (LONDON) LTD. (ENGLAND) 100.00 100.00
STENHOUSE MARKETING SERVICES INC. (DELAWARE) 100.00 100.00
COUPAREY NOMINEES LTD. (ENGLAND) 100.00 100.00
ALEXANDER & ALEXANDER U.S. INC.* (MARYLAND) 87.76 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER INC. (MARYLAND) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER MIDDLE EAST LTD. (BERMUDA) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF ARIZONA INC. (ARIZONA) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF CONNECTICUT INC. (CONNECTICUT) 100.00 87.76
Comments: 100.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER & ALEXANDER OF KENTUCKY, INC. (KENTUCKY) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF MISSISSIPPI INC. (MISSISSIPPI) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF NEW YORK INC. (NEW YORK) 100.00 87.76
Comments: 100.00% Total Ownership
A&A REAL ESTATE SERVICES INC. (NEW YORK) 100.00 87.76
Comments: 100.00% Total Ownership
AARE CORPORATION (NEW YORK) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF THE CAROLINAS INC. (NORTH CAROLINA) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF VIRGINIA, INC. (VIRGINIA) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF WYOMING, INC. (WYOMING) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER SECURITIES CORPORATION (DELAWARE) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER, INC. [FL] (FLORIDA) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER, INC. [LA] (LOUISIANA) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER, INC. [MA] (MASSACHUSETTS) 100.00 87.76
Comments: 100.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER & ALEXANDER, INC. [OK] (OKLAHOMA) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER, INC. [TN] (TENNESSEE) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER, INC. [WVA] (WEST VIRGINIA) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ASSOCIATES INC. (TEXAS) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER RISK MANAGEMENT AND CONSULTING SERVICES, INC. (TEXAS) 100.00 87.76
Comments: 100.00% Total Ownership
ECCO INSURANCE SERVICES, INC. (TEXAS) 100.00 87.76
Comments: 100.00% Total Ownership
ECCO SERVICES, INC. (TEXAS) 100.00 87.76
Comments: 100.00% Total Ownership
ECCO INSURANCE SERVICES INC. (CALIFORNIA) 100.00 87.76
Comments: 100.00% Total Ownership
GILLILAND & MCREYNOLDS, INC. (TEXAS) 100.00 87.76
Comments: 100.00% Total Ownership
INSURANCE ADMINISTRATORS INC. (TEXAS) 100.00 87.76
Comments: 100.00% Total Ownership
MT. FRANKLIN GENERAL AGENCY 98.00 86.00
Comments: 98.0% Total Ownership
SRA, INC. (TEXAS) 100.00 87.76
Comments: 100.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER HELLAS E.P.E. (GREECE) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER HOWDEN GROUP LIMITED (BERMUDA) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS LTD.* (BERMUDA) 15.25 13.38
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (BARBADOS) LTD. (BARBADOS) 100.00 13.38
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (CAYMAN) LTD. (CAYMAN ISLANDS) 100.00 13.38
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (DUBLIN) LTD. (IRELAND) 100.00 13.38
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (HOLDINGS) LTD.* (GUERNSEY) 90.00 12.05
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (GUERNSEY) LTD. (GUERNSEY) 100.00 12.05
Comments: 100.00% Total Ownership
BAILIWICK CONSULTANCY & MANAGEMENT CO. LTD. (GUERNSEY) 100.00 12.05
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (ISLE OF MAN) LTD. (ISLE OF MAN) 100.00 13.38
Comments: 100.00% Total Ownership
ALEXANDER HOWDEN REINSURANCE INTERMEDIARIES, INC. (NEW YORK) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER REINSURANCE INTERMEDIARIES, INC. (NEW YORK) 100.00 87.76
Comments: 100.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER UNDERWRITING AGENCIES LIMITED* (BERMUDA) 50.00 43.88
Comments: 100.00% Total Ownership
BARROS & CARRION, INC. (PUERTO RICO) 100.00 87.76
Comments: 100.00% Total Ownership
ASESORES Y CORREDORES DE SEGUROS, S.A. (REPUBLICA DOMINICANA) 100.00 87.76
Comments: 100.00% Total Ownership
FUTURO 3000 S.R.L.* (ITALY) 5.00 4.39
Comments: 100.00% Total Ownership
HEMISPHERE MARINE & GENERAL ASSURANCE LTD. (BERMUDA) 100.00 87.76
Comments: 100.00% Total Ownership
INSURANCE PLANNING, INC. (NEVADA) 80.00 70.21
Comments: 80.00% Total Ownership
R. B. JONES CORPORATION (DELAWARE) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF KANSAS, INC. (KANSAS) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF MISSOURI INC. (MISSOURI) 100.00 87.76
Comments: 100.00% Total Ownership
S. HAMMOND STORY AGENCY, INC. (GEORGIA) 100.00 87.76
Comments: 100.00% Total Ownership
SECURITY OFFSHORE INSURANCE LTD. (BERMUDA) 2.79 2.45
Comments: 2.79% Total Ownership
SHL PACIFIC REGIONAL HOLDINGS INC. (CALIFORNIA) 100.00 87.76
Comments: 100.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER & ALEXANDER OF CALIFORNIA, INC. (CALIFORNIA) 100.00 87.76
Comments: 100.00% Total Ownership
AGR DISPOSITION COMPANY INC. (CALIFORNIA) 100.00 87.76
Comments: 100.00% Total Ownership
FIGURECHECK LTD. (UNITED KINGDOM) 100.00 87.76
Comments: 100.00% Total Ownership
RUBEN ENTERTAINMENT INSURANCE SERVICES (UNITED KINGDOM) 50.00 43.88
Comments: 50.00% Total Ownership
ALEXANDER & ALEXANDER OF JAPAN, INC. (NEVADA) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF IDAHO, INC. (IDAHO) 100.00 87.76
Comments: 100.00% Total Ownership
CAMPBELL & CO., INC. (IDAHO) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF INDIANA, INC. (INDIANA) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF MICHIGAN, INC. (MICHIGAN) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER OF OHIO, INC. (OHIO) 100.00 87.76
Comments: 100.00% Total Ownership
OHIO CAP INSURANCE COMPANY, INC. 7.00 6.14
Comments: 7.00% Total Ownership
ALEXANDER & ALEXANDER OF WASHINGTON INC. (WASHINGTON) 100.00 87.76
Comments: 100.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER OF HAWAII INC. (HAWAII) 100.00 87.76
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER MEXICO S.A. DE C.V. (MEXICO) 100.00 87.76
Comments: 100.00% Total Ownership
ASESORES KENNEDY AGENTE DE SEGUROS Y DE FIANZAS, S.A. DE C.V. (MEXICO) 80.00 70.21
Comments: 80.00% Total Ownership
INMUEBLES NIAGARA S.A. DE C.V.* (MEXICO) 8.83 6.20
Comments: 88.83% Total Ownership
CONSEJEROS ACTUARIALES Y ADMINISTRATIVOS, S.C. (MEXICO) 80.00 70.21
Comments: 100.00% Total Ownership
GRUPO KEN S.A. DE C.V. (MEXICO) 80.00 70.21
Comments: 80.00% Total Ownership
ASESORES DE REASEGUROS INTERNACIONALES MEXICANOS S.A. DE C.V. (MEXICO) 99.20 69.65
Comments: 99.920% Total Ownership
INMUEBLES NIAGARA S.A. DE C.V.* (MEXICO) 80.00 70.21
Comments: 88.83% Total Ownership
PROMOTORA ZIRCON S.A. DE C.V. (MEXICO) 80.00 70.21
Comments: 80.00% Total Ownership
SERVICIOS ADMINISTRATIVOS KENNEDY S.A. DE C.V. (MEXICO) 80.00 70.21
Comments: 80.00% Total Ownership
SERVICIOS IMMOBILARIOS GUADALAJARA, S.C. (MEXICO) 80.00 70.21
Comments: 80.00% Total Ownership
WILKEN ASESORES, S.C. {PARTNERSHIP} (MEXICO) 80.00 70.21
Comments: 80.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER & ALEXANDER OF COLOMBIA LTDA.* (COLOMBIA) 27.40 24.05
Comments: 50.00% Total Ownership
ALEXANDER INSURANCE MANAGERS LTD.* (BERMUDA) 84.75 74.38
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (BARBADOS) LTD. (BARBADOS) 100.00 74.38
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (CAYMAN) LTD. (CAYMAN ISLANDS) 100.00 74.38
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (DUBLIN) LTD. (IRELAND) 100.00 74.38
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (HOLDINGS) LTD.* (GUERNSEY) 90.00 66.94
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (GUERNSEY) LTD. (GUERNSEY) 100.00 66.94
Comments: 100.00% Total Ownership
BAILIWICK CONSULTANCY & MANAGEMENT CO. LTD. (GUERNSEY) 100.00 66.94
Comments: 100.00% Total Ownership
ALEXANDER INSURANCE MANAGERS (ISLE OF MAN) LTD. (ISLE OF MAN) 100.00 74.38
Comments: 100.00% Total Ownership
ALEXANDER CLAY AND PARTNERS CONSULTING* (UNITED KINGDOM) 47.37 47.37
Comments: 100.00% Total Ownership
THE ALEXANDER CONSULTING GROUP LTD. (SCOTLAND) 100.00 47.37
Comments: 100.00% Total Ownership
ALEXANDER FINANCIAL SERVICES LTD. (SCOTLAND) 100.00 47.37
Comments: 100.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER CLAY COMMUNICATIONS LIMITED (ENGLAND) 100.00 100.00
ALEXANDER UNDERWRITING SERVICES INC. (MARYLAND) 100.00 100.00
CLAY & PARTNERS (1987) LIMITED (ENGLAND) 100.00 100.00
CLAY & PARTNERS INDEPENDENT TRUST CORPORATION LTD. (ENGLAND) 100.00 100.00
CLAY & PARTNERS LTD. (ENGLAND) 100.00 100.00
CLAY & PARTNERS PENSION TRUSTEES LIMITED (ENGLAND) 100.00 100.00
CLAYTIME LTD. (ENGLAND) 100.00 100.00
JUFCREST LIMITED (UNITED KINGDOM) 50.00 50.00
MANZITTI HOWDEN BECK S.P.A. (ITALY) 40.00 40.00
L. & F. LONGOBARDI SRL (ITALY) 24.27 9.71
PTS LIQUIDATION, CO. (PENNSYLVANIA) 100.00 100.00
REED STENHOUSE COMPANIES LTD.* (CANADA) 100.00 100.00
164226 CANADA INC.* (CANADA) 50.00 50.00
Comments: 100.00% Total Ownership
REED STENHOUSE COMPANIES LTD.* (CANADA) 1.84 0.92
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER CANADA INC. (CANADA) 100.00 100.00
164226 CANADA INC.* (CANADA) 50.00 50.00
Comments: 100.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
REED STENHOUSE COMPANIES LTD.* (CANADA) 1.84 0.92
Comments: 100.00% Total Ownership
ALEXANDER HOWDEN GROUP CANADA LIMITED* (CANADA) 70.00 70.00
Comments: 100.00% Total Ownership
ALEXANDER HOWDEN CANADA LIMITED (CANADA) 100.00 70.00
Comments: 100.00% Total Ownership
DUGGAN INSURANCES LTD. (IRELAND) 100.00 100.00
LA SOCIETE DE COURTAGE MELOCHE ALEXANDER INC. (CANADA) 100.00 100.00
REED STENHOUSE LIMITED (CANADA) 100.00 100.00
RISK MANAGEMENT CONSULTANTS OF CANADA LTD. (CANADA) 100.00 100.00
THE ALEXANDER CONSULTING GROUP LTD. (CANADA) 100.00 100.00
Y&D PROPERTIES LTD. (CANADA) 50.00 50.00
STENHOUSE (SOUTH EAST ASIA) PTE. LTD. (SINGAPORE) 100.00 100.00
ALEXANDER & ALEXANDER (ASIA) HOLDINGS PTE. LTD.* (SINGAPORE) 2.77 2.77
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER (MALAYSIA) SDN BHD. (MALAYSIA) 49.00 1.36
Comments: 49.00% Total Ownership
ALEXANDER & ALEXANDER (TAIWAN) LTD. (TAIWAN) 50.00 1.39
Comments: 50.00% Total Ownership
ALEXANDER & ALEXANDER INSURANCE AGENCY LTD. (TAIWAN) 50.00 1.39
Comments: 50.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
ALEXANDER & ALEXANDER PTE. LTD. (SINGAPORE) 100.00 2.77
Comments: 100.00% Total Ownership
ALEXANDER & ALEXANDER RISK MANAGEMENT SERVICES, INC. (TAIWAN) 50.00 1.39
Comments: 50.00% Total Ownership
ALEXANDER HOWDEN GROUP (ASIA) PTE. LTD. (SINGAPORE) 100.00 2.77
Comments: 100.00% Total Ownership
THE ALEXANDER CONSULTING GROUP INC. (MARYLAND) 100.00 100.00
ALEXANDER & ALEXANDER BENEFITS SERVICES INC. [NJ] (NEW JERSEY) 100.00 100.00
A&A MANAGING GENERAL AGENCY, INC. (TEXAS) 100.00 100.00
ALEXANDER & ALEXANDER BENEFITS SERVICES (ARIZONA) INC. (ARIZONA) 100.00 100.00
ALEXANDER & ALEXANDER BENEFITS SERVICES INC. [OH] (OHIO) 100.00 100.00
ALEXANDER & ALEXANDER BENEFITS SERVICES OF LOUISIANA INC. (LOUISIANA) 100.00 100.00
ALEXANDER & ALEXANDER INSURANCE BENEFITS SERVICES INC. (MASSACHUSETTS) 100.00 100.00
PBA INC. (MINNESOTA) 100.00 100.00
PILOTS INTERNATIONAL ASSOCIATION (NORTH DAKOTA) 100.00 100.00
ALEXANDER & ALEXANDER CONSULTING GROUP INC. [NJ] (NEW JERSEY) 100.00 100.00
ALEXANDER & ALEXANDER BENEFITS SERVICES INC. [VA] (VIRGINIA) 100.00 100.00
ALEXANDER & ALEXANDER CONSULTING GROUP INC. [TX] (TEXAS) 100.00 100.00
ALEXANDER CLAY AND PARTNERS CONSULTING* (UNITED KINGDOM) 11.11 11.11
Comments: 100.00% Total Ownership
</TABLE>
<PAGE>
Subsidiaries of
ALEXANDER & ALEXANDER SERVICES INC.
<TABLE><CAPTION>
%Owned %Owned
Subsidiary By Parent Overall
- -------------------------------------------------------- --------- -------
<S> <C> <C>
THE ALEXANDER CONSULTING GROUP LTD. (SCOTLAND) 100.00 11.11
Comments: 100.00% Total Ownership
ALEXANDER FINANCIAL SERVICES LTD. (SCOTLAND) 100.00 11.11
Comments: 100.00% Total Ownership
ALEXANDER CONSULTING INVESTMENT SERVICES INC. (MARYLAND) 100.00 100.00
TRUST PROPERTY & CASUALTY INSURANCE COMPANY (VERMONT) 100.00 100.00
NOTE: * designates entities with multiple parents.
</TABLE>
EXHIBIT 23.0
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Alexander & Alexander Services
Inc. Registration Statement Nos. 2-98915 and 33-10440 on Form S-4; Registration
Statement Nos. 33-5316 and 33-55081 on Form S-3; Registration Statement Nos.
2-68206, 33-16608, 33-60783, 33-60905, 33-16609, 33-25580, 33-58341 and 33-60054
on Form S-8; and Registration Statement Nos. 2-97056, 2-97057 and 2-97734 on
Form S-14 of our reports dated February 14, 1996 appearing in and incorporated
by reference in the Annual Report on Form 10-K of Alexander & Alexander Services
Inc. for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
BALTIMORE, MARYLAND
MARCH 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 738
<SECURITIES> 0
<RECEIVABLES> 1,293
<ALLOWANCES> 22
<INVENTORY> 0
<CURRENT-ASSETS> 2,372
<PP&E> 397
<DEPRECIATION> 270
<TOTAL-ASSETS> 2,942
<CURRENT-LIABILITIES> 2,120
<BONDS> 0
0
7
<COMMON> 43
<OTHER-SE> 353
<TOTAL-LIABILITY-AND-EQUITY> 2,942
<SALES> 0
<TOTAL-REVENUES> 1,282
<CGS> 0
<TOTAL-COSTS> 1,160
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> 156
<INCOME-TAX> 161
<INCOME-CONTINUING> 89
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89
<EPS-PRIMARY> $1.44
<EPS-DILUTED> $1.42
</TABLE>
