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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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ALEXANDER & ALEXANDER SERVICES INC.
(NAME OF SUBJECT COMPANY)
ALEXANDER & ALEXANDER SERVICES INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
014476 10 5
(CUSIP NUMBER OF CLASS OF SECURITIES)
ALBERT A. SKWIERTZ, JR., ESQ.
SENIOR VICE PRESIDENT & GENERAL COUNSEL
ALEXANDER & ALEXANDER SERVICES INC.
1185 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 444-4500
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE
ANDCOMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPIES TO:
KEVIN KEOGH, ESQ.
WHITE & CASE
1155 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 819-8200
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Alexander & Alexander Services Inc., a
Maryland corporation (the "Company"), and the address of its principal
executive offices is 1185 Avenue of the Americas, New York, New York 10036.
The title of the class of equity securities to which this statement relates is
the Common Stock, par value $1.00 per share, of the Company (the "Shares"),
including the associated preferred stock purchase rights (the "Rights") issued
pursuant to the Rights Agreement dated as of June 11, 1987, as amended and
restated as of March 22, 1990 and as amended as of April 21, 1992, June 6,
1994, July 15, 1994, November 16, 1995 and December 11, 1996 (the "Rights
Agreement"), between the Company and First Chicago Trust Company of New York,
a New York corporation, formerly Morgan Shareholder Services Trust Company, as
Rights Agent. Unless the context otherwise requires, all references herein to
the Shares shall include the Rights.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer, disclosed in a Tender Offer
Statement on Schedule 14D-1 dated December 16, 1996 (the "Schedule 14D-1"), of
Subsidiary Corporation, Inc., a Maryland corporation ("Sub") and a wholly-
owned subsidiary of Aon Corporation, a Delaware corporation ("Aon"), to
purchase all of the outstanding Shares at a price of $17.50 per Share net to
the seller in cash, without interest thereon, upon the terms and subject to
the conditions set forth in the Offer to Purchase dated December 11, 1996 (the
"Offer to Purchase"), and in the related Letter of Transmittal and any
supplement thereto (which together constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger among
Aon, Sub and the Company dated as of December 11, 1996 (the "Merger
Agreement"). A copy of the Merger Agreement is filed as Exhibit 2 hereto and
is incorporated herein by reference. The Merger Agreement provides that, upon
the terms and subject to the conditions contained therein, as promptly as
practicable after the purchase of Shares pursuant to the Offer and the
approval by the affirmative vote of the holders of stock representing a
majority of the outstanding voting power of the Company in accordance with the
Maryland General Corporation Law (the "MGCL") and the Company's charter (the
"Articles of Incorporation"), Sub will be merged with and into the Company
(the "Merger") and each then outstanding Share (other than stock of the
Company owned by any subsidiary of the Company, Aon, the Sub or any other
subsidiary of Aon or stock with respect to which appraisal rights are
available and properly exercised under Maryland law) will be converted
automatically into the right to receive $17.50, net to the Seller in cash
without any interest thereon.
According to the Schedule 14D-1, the address of the principal executive
offices of Aon are 123 N. Wacker Drive, Chicago, Illinois 60606, and the
address of the principal executive office of Sub is 32 South Street,
Baltimore, Maryland 21202.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above.
(b)(1) The information contained on pages 3 through 20 of the Company's
Proxy Statement, dated March 29, 1996, for the Company's 1996 Annual Meeting
of Stockholders filed as Exhibit 1 hereto containing certain information with
respect to certain contracts, agreements, arrangements or understandings
between the Company and certain of its directors, executive officers and
affiliates, which descriptions are incorporated herein by reference.
On May 16, 1996 an amendment to the 1995 Long-Term Incentive Plan ("1995
LTIP") was approved by stockholders. The 1995 LTIP provided that no more than
940,000 restricted shares may be used for Restricted Stock Awards and Bonus
Equity Plan Awards ("BEP Awards"). The amendment excludes BEP Awards from the
940,000 restricted share limitation, but does not increase the number of
shares authorized under the 1995 LTIP.
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The Company's Worldwide Employee Savings-Related Stock Purchase Plan (the
"Worldwide Employee Purchase Plan") was approved by the Board of Directors and
became effective as of May 16, 1996. Under the Worldwide Employee Purchase
Plan eligible employees outside the United States may purchase up to an
aggregate 750,000 shares of the Company's Common Stock. 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. 471,000 shares
have been subscribed to as of September 30, 1996. 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 Discount Stock Purchase Plan with similar terms.
On November 26, 1996, the Compensation Committee of the Board of Directors
approved the Employee Stock Option Exchange. The Employee Stock Option
Exchange is an offer to employees to exchange their current stock options for
a grant of new stock options on a neutral value basis. All active employee
option holders, except the Chief Executive Officer, are eligible to
participate in the exchange (approximately 780 employees). The exchange option
is completely voluntary. The exchange option applies to all option grants made
under the 1988 and 1995 Long-Term Incentive Plans with exercise prices above
the fair market value closing price of $14.50 per share established on
November 26, 1996, the date the exchange option was approved by the
Compensation Committee of the Board of Directors. The exchange option covers
approximately 4,685,000 option shares which are convertible into approximately
2,637,000 new option shares. Employees who elect to accept the exchange option
must exchange all of their eligible options; they may not exchange some but
retain others. Options granted under the exchange will have a new ten-year
life, and will vest 50% at the conclusion of two years from the date of grant
and 50% at the conclusion of three years. Under the terms of the Plans,
options vest and are exercisable in full at the commencement of the Offer.
The Company has entered into employment continuation agreements with Messrs.
Zarb, Kosnick, Cooperstone, Iles, Mahoney, Osterhaut, Williams, Horrick, Burk,
Seeley, Schneiderman, Skwiertz, Kershaw, Sneeder and Tesi. The agreements
provide that in the event an executive's employment is terminated under
certain circumstances within three years following a change of control or
during a potential change of control or in certain cases under other
circumstances, each executive will be entitled to a specified severance
benefit equal to three times their annual compensation and also provide for
the continuation of certain employee benefits for a period of three years
following a qualifying termination, and a cash payment in respect of the value
of certain other payments.
Except as described above, to the knowledge of the Company, as of the date
hereof there are no material contracts, agreements, arrangements or
understandings, or any actual or potential conflicts of interest between the
Company or its affiliates and the Company, its executive officers, directors
or affiliates.
(b)(2)
MERGER AGREEMENT
The following is a summary of the Merger Agreement. Defined terms used below
and not defined herein have the respective meanings assigned to those terms in
the Merger Agreement. Such summary is qualified in its entirety by reference
to the Merger Agreement, a copy of which is filed as Exhibit 2 hereto. The
Merger Agreement should be read in its entirety for a more complete
description of the matters summarized below.
The Offer. In the Merger Agreement, Sub has agreed to, and Aon has agreed to
cause Sub to, as promptly as practicable but in no event later than five
business days after the date of the public announcement by Aon and the Company
of the Merger Agreement, commence the tender offer (as it may be amended from
time to time as permitted in the Merger Agreement, the "Offer"). The
obligation of Sub to, and of Aon to cause Sub to, commence the Offer and
accept for payment, and pay for, any Shares tendered pursuant to the Offer
will be subject only to the conditions set forth under "Certain Conditions of
the Offer" (the "Offer Conditions") (any of which may be waived in whole or in
part by Sub in its sole discretion, provided that, without the consent of the
Company, Sub will not waive the Minimum Condition (as hereinafter defined). In
the Merger Agreement,
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Sub has expressly reserved the right to modify the terms of the Offer, except
that, without the consent of the Company, Sub will not (i) reduce the number of
shares subject to the Offer; (ii) reduce the Offer Price; (iii) impose any
other conditions to the Offer other than the Offer Conditions or modify the
Offer Conditions (other than to waive any Offer Conditions to the extent
permitted by the Merger Agreement); (iv) except as provided in the next
sentence, extend the Offer; (v) change the form of consideration payable in the
Offer or (vi) amend, waive or add any other term of the Offer in any manner
adverse to the Company or the holders of Shares. Notwithstanding the foregoing,
the Merger Agreement permits Sub, without the consent of the Company, to (i)
extend the Offer, if at the scheduled or extended expiration date of the Offer
any of the Offer Conditions are not satisfied or waived, until such time as
such conditions are satisfied or waived; (ii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the Securities
and Exchange Commission (the "SEC") or the staff thereof applicable to the
Offer and (iii) extend the Offer for any reason for one or more occasions for
an aggregate period of not more than 10 business days beyond the latest
expiration date that would otherwise be permitted under clause (i) or (ii) of
this sentence. So long as the Merger Agreement is in effect and the Offer
Conditions have not been satisfied or waived, Sub will, and Aon will cause Sub
to, cause the Offer not to expire. Subject to the terms and conditions of the
Offer and the Merger Agreement, Sub will, and Aon will cause Sub to, accept for
and pay for, all shares validly tendered and not withdrawn pursuant to the
Offer that Sub is permitted to accept for payment under applicable law, and pay
for, pursuant to the Offer as soon as practicable after the expiration of the
Offer.
Pursuant to the Merger Agreement, the Company has approved of and consented
to the Offer and represented that the Board of Directors of the Company, at a
meeting duly called and held, at which all directors were present, duly and
unanimously adopted resolutions approving the Merger Agreement, the Offer and
the Merger, determining that the Offer and the Merger are advisable and that
the terms of the Offer and the Merger are fair to, and in the best interests
of, the Company's stockholders and recommending that holders of shares accept
the Offer and that the Company's stockholders approve the Merger; provided,
however, that such approval, determination, recommendation or other action may
be withdrawn, modified or amended at any time from time to time if a majority
of the Board of Directors of the Company determines, in its good faith
judgment, based on the opinion of independent outside legal counsel to the
Company, that failing to take such action would constitute a breach of such
Board's duties under applicable law. The Company further represented that,
prior to the execution of the Merger Agreement, its Board of Directors received
the opinion of CS First Boston Corporation ("CS First Boston") that the
proposed consideration to be received by stockholders pursuant to the Offer and
the Merger is fair to the holders of Common Stock from a financial point of
view.
Pursuant to the Merger Agreement, the Company has agreed to cause Reed
Stenhouse Companies Limited, a corporation organized under the laws of Canada
and a subsidiary of the Company ("RSC"), to transmit to each holder of the
Class 1 special shares of RSC (the "RSC Class 1 Shares"), contemporaneously
with the transmission of the Offer Documents (as defined in the Merger
Agreement) to the holders of Common Stock: (i) the Offer Documents; (ii) a
letter stating that holders of RSC Class 1 Shares who wish to participate in
the Offer must request retraction of such RSC Class 1 Shares for shares of
Common Stock pursuant to Section 5 of the Restated Certificate of Incorporation
of RSC; and (iii) a form of retraction request, which retraction request will
provide that a holder of RSC Class 1 Shares requests retraction thereof on the
date Sub first accepts for payment Shares pursuant to the Offer and
contemporaneously therewith, and that the shares of Common Stock received upon
such retraction will be deemed validly tendered pursuant to the Offer. RSC will
retract such RSC Class 1 Shares in accordance with such retraction request (and
the Company represents and warrants that such retraction can be effected in
compliance with Section 36 of the Canada Business Corporations Act) and the
Company will cause to be issued (for tender as so requested) such number of
shares of Common Stock as is necessary to satisfy the redemption price in
accordance with the Restated Articles of Incorporation of RSC and the Keepwell
Agreement, between the Company and RSC.
Pursuant to the Merger Agreement, the Company will, and will cause Alexander
& Alexander Services UK plc, a corporation organized under the laws of Scotland
and a subsidiary of the Company ("AAUK"), to, transmit to each holder of any
share of Class C Common Stock (as hereinafter defined) and any related Dividend
Share of AAUK (the "Dividend Shares"), contemporaneously with the transmission
of the Offer Documents to
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the holders of Common Stock: (i) the Offer Documents; (ii) a letter stating
that holders of shares of Class C Common Stock and the related Dividend Shares
who wish to participate in the Offer must request the conversion of the shares
of Class C Common Stock into shares of Common Stock pursuant to Subsection E of
Article SIXTH of the Charter of the Company; and (iii) a form of conversion
request, which conversion request will provide that a holder of shares of Class
C Common Stock requests conversion thereof on the date Sub first accepts for
payment Shares pursuant to the Offer and contemporaneously therewith, and that
the shares of Common Stock received upon such conversion will be deemed validly
tendered pursuant to the Offer. The Company agrees to cause the cancellation of
such shares of Class C Common Stock in accordance with such conversion request
and issue (for tender as so requested) such number of shares of Common Stock as
is necessary to satisfy such conversion request in accordance with the Charter
of the Company.
The Merger. The Merger Agreement provides that at the Effective Time (as
defined in the Merger Agreement), Sub will be merged with and into the Company.
Following the Merger, the separate corporate existence of Sub will cease and
the Company will continue as the surviving corporation (the "Surviving
Corporation") and will succeed to and assume all the rights and obligations of
Sub in accordance with the MGCL.
The Charter (as defined in the MGCL) of the Company, as in effect immediately
prior to the Effective Time, will be the Charter of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
The By-Laws of the Company, as in effect immediately prior to the Effective
Time, will be the By-Laws of the Surviving Corporation until thereafter changed
or amended as provided therein or by the Charter of the Surviving Corporation
or by applicable law.
The directors of Sub immediately prior to the Effective Time will be the
directors of the Surviving Corporation until the next annual meeting of
stockholders (or the earlier of their resignation or removal) and until their
respective successors are duly elected and qualified. The officers of the
Company immediately prior to the Effective Time will be the officers of the
Surviving Corporation for a term of one year (or until the earlier of their
resignation or removal) and until their respective successors are duly elected
and qualified, as the case may be.
As of the Effective Time, by virtue of the merger of Sub with and into the
Company upon the terms and conditions set forth in the Merger Agreement (the
"Merger") and without any action on the part of the holder of any shares of
stock of Sub or rights to acquire any such stock:
(i) Each issued and outstanding share of stock of Sub will be converted
into and become 600,000 fully paid and nonassessable shares of Common
Stock, par value $1.00 per share, of the Surviving Corporation.
(ii) Each share of stock of the Company (including, without limitation,
the shares of Common Stock purchased pursuant to the Offer and the shares
of Series B Cumulative Convertible Preferred Stock, par value $1.00 per
share (the "Series B Preferred Stock") purchased pursuant to the Stock
Purchase and Sale Agreement among the Company and the holders of all of the
outstanding shares of the Series B Preferred Stock a copy of which is filed
as Exhibit 3 hereto (the "Preferred Stock Purchase Agreement")) owned by
any subsidiary of the Company, Aon, Sub or any other subsidiary of Aon
(other than the shares into which the outstanding shares of stock of Sub
were converted pursuant to the provisions of the Merger Agreement) will
automatically be canceled and retired and will cease to exist, and no
consideration will be delivered in exchange therefor.
(iii) Subject to the provisions of the Merger Agreement, each holder of a
share of (a) the Common Stock, together with the related Right, (b) the
Class A Common Stock, par value $.00001 per share, of the Company (the
"Class A Common Stock"), together with the related RSC Class 1 Share and
the related Right, or (c) the Class C Common Stock, par value $1.00 per
share, of the Company (the "Class C Common Stock"), together with the
related Dividend Share of AAUK and related Right (the Common Stock, Class A
Common Stock and Class C Common Stock are hereinafter collectively referred
to as the "Company Common Capital Stock"), in each case, that is issued and
outstanding (other than stock of the Company
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owned by any subsidiary of the Company, Aon, the Sub, or any other
subsidiary of Aon or stock with respect to which appraisal rights are
available and properly exercised under Maryland law) will be paid by the
Surviving Corporation as consideration for the conversion of each share in
cash, without interest, the price paid per share of Common Stock in the
Offer (the "Merger Consideration"). The Merger Consideration will be
allocated, in the case of clause (a), U.S. $.01 to the share of Common
Stock and U.S. $.01 to the Right, in the case of clause (b), the U.S.
dollar equivalent of Cdn. $.00001 to the share of Class A Common Stock,
U.S. $.01 to the Right and the balance of the Merger Consideration to the
RSC Class 1 Share, and, in the case of clause (c), the U.S. dollar
equivalent of 2 pence to the Dividend Share and the balance of the Merger
Consideration to the share of Class C Common Stock. As of the Effective
Time, all such shares will be converted and when so converted, will no
longer be outstanding and will automatically be cancelled and retired and
will cease to exist, and each holder of a certificate representing any such
shares will cease to have any rights with respect thereto, except the right
to receive the aforesaid amount, without interest.
(iv) Notwithstanding anything in the Merger Agreement to the contrary,
any issued and outstanding shares of Class A Common Stock or Class C Common
Stock or (if the holders of shares of Common Stock are entitled to
dissenters' rights under the MGCL) Common Stock held by a person (a
"Dissenting Stockholder") who objects to the Merger and complies with all
the provisions of MGCL concerning the right of holders of shares to dissent
from the Merger and require appraisal of their shares ("Dissenting Shares")
will not be converted as described in (iii) above, but will become the
right to receive such consideration as may be determined to be due to such
Dissenting Stockholder pursuant to the MGCL. If, after the Effective Time,
such Dissenting Stockholder withdraws his demand for appraisal or fails to
perfect or otherwise loses his right of appraisal, in any case pursuant to
the MGCL, his shares of Class A Common Stock or Class C Common Stock will
be deemed to be converted as of the Effective Time into the right to
receive the Merger Consideration. The Company will give Aon (i) prompt
notice of any demands for appraisal of shares received by the Company and
(ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands. The Company will not, without
the prior written consent of Aon, make any payment with respect to, or
settle, offer to settle or otherwise negotiate, any such demands.
(v) The holder of each share of Series A Convertible Preferred Stock (as
defined in the Merger Agreement) shall have the right to convert such share
into cash in the amount of $52.54.
If approval of the Merger by stockholders of the Company (the "Company
Stockholder Approval") is required by law, the Company will, at Aon's request,
as soon as practicable following the expiration of the Offer, convene a
meeting of its stockholders (the "Stockholders Meeting") for the purpose of
obtaining the Company Stockholder Approval. The Stockholders Meeting will be
held as soon as practicable following the purchase of Shares pursuant to the
Offer. The Company will, through its Board of Directors, but subject to the
duties of its Board of Directors under applicable law as determined by the
Board of Directors in good faith on the basis of the opinion of the Company's
outside independent legal counsel, recommend to its stockholders that the
Company Stockholder Approval be given.
If the Company Stockholder Approval is required by law, the Company will, at
Aon's request, as soon as practicable following the expiration of the Offer,
prepare and file a preliminary Proxy Statement with the SEC and will use its
reasonable best efforts to respond to any comments of the SEC or its staff and
to cause the Proxy Statement to be mailed to the Company's stockholders as
promptly as practicable after responding to all such comments to the
satisfaction of the staff.
In the Merger Agreement, Aon has agreed to cause all shares of the Common
Stock purchased pursuant to the Offer and all other shares of capital stock of
the Company entitled to vote on the Merger owned by Aon or any subsidiary of
Aon to be voted in favor of the Company Stockholder Approval.
Board of Directors. Promptly after such time as Sub acquires Shares pursuant
to the Offer, Sub shall be entitled to designate at its option up to that
number of directors, rounded to the nearest whole number, of the
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Company's Board of Directors, subject to compliance with Section 14(f) of the
Exchange Act, as will make the percentage of the Company's directors designated
by Sub equal to the aggregate voting power of the Shares of Common Stock held
by Parent or any of its subsidiaries (assuming the exercise of all outstanding
options to purchase, and the conversion or exchange of all securities
convertible or exchangeable into shares of the Company Common Capital Stock,
other than the conversion of the shares of Class B Preferred Stock); provided,
however, that in the event that Sub's designees are elected to the Board of
Directors of the Company, until the Effective Time, such Board of Directors
shall have at least three directors who are directors on the date of the Merger
Agreement and who are not officers of the Company (the "Independent
Directors"); and provided, further that, in such event, if the number of
Independent Directors shall be reduced below three for any reason whatsoever,
the remaining Independent Directors shall designate a person to fill such
vacancy who shall be deemed to be an Independent Director for purposes of the
Merger Agreement or, if no Independent Directors then remain, the other
directors shall designate three persons to fill such vacancies who shall not be
officers or affiliates of the Company or any of its subsidiaries, or officers
or affiliates of Aon or any of its subsidiaries, and such persons shall be
deemed to be Independent Directors for purposes of the Merger Agreement.
Subject to applicable law, the Company shall take all action requested by Aon
which is reasonably necessary to effect any such election, including mailing to
its stockholders the Information Statement containing the information required
by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and
the Company agrees to make such mailing with the mailing of the Schedule 14D-9
(provided that Sub shall have provided to the Company on a timely basis all
information required to be included in the Information Statement with respect
to Sub's designees). In connection with the foregoing, the Company will
promptly, at the option of Aon, either increase the size of the Company's Board
of Directors and/or obtain the resignation of such number of its current
directors as is necessary to enable Sub's designees to be elected or appointed
to the Company's Board of Directors as provided above.
Representations and Warranties of the Company. The Merger Agreement contains
customary representations and warranties with respect to the Company,
including, among other things, (i) with respect to the organization, corporate
powers and qualifications of the Company and each of its subsidiaries that
would constitute a "significant subsidiary" of such person within the meaning
of Rule 1.02(y) of Regulation S-X as promulgated by the SEC ("Significant
Subsidiary"); (ii) with respect to the capitalization of the Company and its
subsidiaries; (iii) that the Board of Directors of the Company has declared the
Merger advisable and the execution, delivery and performance of the Merger
Agreement by the Company and the consummation by the Company of the
transactions contemplated therein have been duly authorized by all necessary
corporate action on the part of the Company subject to approval by the
stockholders of the Company of the Merger (if required); (iv) with respect to
the absence of any undisclosed conflict between the terms and provisions of the
Merger Agreement and the transactions contemplated thereby with any laws,
regulations, agreements, contracts or other instruments and obligations; (v)
with respect to the accuracy of the documents filed with the SEC; (vi) with
respect to the Company's financial statements and financial condition; (vii)
the absence of certain events since September 30, 1996 including that there has
not been any event other than ordinary business operating results and general
insurance brokerage industry conditions and contingencies disclosed to Aon
prior to the date of the Merger Agreement which would cause a change or effect
(or any development that, insofar as can reasonably be foreseen is likely to
result in any change or effect) that is materially adverse to the business,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect"); (viii) with
respect to the accuracy and completeness of the information supplied by the
Company in connection with the Offer, the Proxy Statement or any other document
to be filed with the SEC in connection with the transactions contemplated by
the Merger Agreement; (ix) with respect to the compliance by the Company and
its subsidiaries with applicable laws, regulations, orders, judgments and
decrees; (x) that the Company and its Significant Subsidiaries have such
certificates, permits, licenses, franchises, consents, approvals, orders,
authorizations and clearances from appropriate Governmental Entities (as
defined in the Merger Agreement) as are necessary to conduct their businesses;
(xi) with respect to certain tax returns required to be filed and certain taxes
required to be paid by the Company and its subsidiaries; (xii) with respect to
the absence of certain liabilities with respect to the Company, (xiii) that the
Board of Directors has adopted a resolution that constitutes a valid and
irrevocable exemption from Section 3-602 of the MGCL as to the transactions
contemplated by the
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Merger Agreement and the Preferred Stock Purchase Agreement and (xiv) with
respect to the absence of any broker or other fees or commissions, other than
fees in connection with First Boston's engagement.
Representations and Warranties of Aon and Sub. The Merger Agreement contains
customary representations and warranties by Aon and Sub, including, among other
things, (i) with respect to the organization, corporate powers and
qualifications of Aon and Sub; (ii) that each of Aon and Sub has the requisite
corporate power and authority to execute and deliver the Merger Agreement and
to consummate the transactions contemplated therein; (iii) with respect to the
absence of any conflict between the terms and provisions of the Merger
Agreement and the transactions contemplated thereby with any laws, regulations,
agreements, contracts or other instruments and obligations; (iv) with respect
to the absence of any broker or other fees or commissions, other than Fees in
connection with Lazard Freres & Co., LLC; and (v) that Aon will have, and will
provide Sub with, the funds necessary to consummate the Offer and the Merger
and the transactions contemplated thereby.
Covenants Relating to the Conduct of Business. The Merger Agreement obligates
the Company and its subsidiaries, from the date of the Merger Agreement until
such time as Aon's designees constitute a majority of the Board of Directors of
the Company, to carry on their businesses in the ordinary course of business as
currently conducted and, to the extent consistent therewith, obligates the
Company and its subsidiaries to use their reasonable best efforts to preserve
intact their current business organizations, to keep available the services of
their current officers and key employees and to preserve their relationships
with customers, suppliers and others having business dealings with them. The
Merger Agreement also contains specific covenants as to certain impermissible
activities of the Company prior to such time as Aon's designees constitute a
majority of the Board of Directors of the Company, which provide that the
Company will not (and will not permit any of its subsidiaries to) without the
prior written consent of Aon: (i)(a) declare, set aside or pay any dividends
on, or make any other actual, constructive or deemed distributions in respect
of, any of its capital stock, or otherwise make any payments to its
stockholders in their capacity as such (other than regular quarterly dividends
of not more than $.90625 per share on the Series A Convertible Preferred Stock
and of not more than $.025 per share on the Common Stock, a regular quarterly
payment-in-kind dividend in respect of the Series B Preferred Stock on December
15, 1996 and thereafter cash dividends of not more than $1.00 per share on the
Series B Preferred Stock, in each case declared and paid in on dates consistent
with past practice), (b) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (c) except as
required under existing employee benefit plans, agreements, policies, awards or
arrangements in effect on the date of the Merger Agreement, or pursuant to the
Company's Employee Stock Option Exchange Program communicated to participants
on November 26, 1996, purchase, redeem or otherwise acquire any shares of its
capital stock or those of any subsidiary or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) except as required under existing employee benefit plans, agreements,
policies, awards or arrangements in effect on the date of the Merger Agreement,
or pursuant to the Company's Employee Stock Option Exchange Program
communicated to participants on November 26, 1996, issue, deliver, sell,
pledge, dispose of or otherwise encumber any shares of its capital stock, any
other voting securities or equity equivalent or any securities convertible
into, or any rights, warrants or options to acquire any such shares, voting
securities, equity equivalent or convertible securities (other than the
issuance of shares of Common Stock upon the exercise of Company Stock Options
(as defined in the Merger Agreement) outstanding on the date of the Merger
Agreement in accordance with their current terms, the issuance of shares of
Common Stock upon the retraction, redemption or conversion of RSC Class 1
Shares or shares of Class C Common Stock, Series A Convertible Preferred Stock
or Series B Preferred Stock, in each case in accordance with the terms thereof,
and the issuance on December 15, 1996 of shares of Series B Preferred Stock as
a regular quarterly payment-in-kind dividend in accordance with the terms
thereof); (iii) amend its Charter or Bylaws or other similar organizational
documents; (iv) acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire or agree
to acquire any assets, other than (a) transactions that are in the ordinary
course of business consistent with past practice and not material to the
Company and its subsidiaries taken as a whole and (b) acquisitions of one or
more insurance brokerage businesses with respect to
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which the aggregate amount of consideration paid or payable by the Company and
its subsidiaries does not exceed $15,000,000; (v) sell, lease or otherwise
dispose of, or agree to sell, lease or otherwise dispose of, any of its assets,
other than transactions that are in the ordinary course of business consistent
with past practice and which involve assets having an aggregate fair market
value or book value not in excess of $10,000,000; (vi) incur any indebtedness
for borrowed money or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others, except for borrowings or
guarantees incurred in the ordinary course of business consistent with past
practice, or make any loans, advances or capital contributions to, or other
investments in, any other person, other than to or in the Company or any
wholly-owned subsidiary of the Company; (vii) with certain specified
exceptions, alter (through merger, liquidation, reorganization, restructuring
or in any other fashion) the corporate structure or ownership of the Company or
any subsidiary, except as contemplated by the Merger Agreement or as otherwise
disclosed; (viii) enter into or adopt, or amend any existing severance plan,
agreement or arrangement or enter into or amend any Company Plan (as
hereinafter defined) or employment or consulting agreement, other than as
required by law or contemplated by the Merger Agreement; (ix) except as
otherwise provided in the Merger Agreement, and/or as required under existing
plans, agreements, policies, awards or arrangements in effect on the date of
the Merger Agreement, or pursuant to the Company's Employee Stock Option
Exchange Program communicated to the Company Options Recipients on November 26,
1996, increase the compensation payable or to become payable to its officers or
employees, except, in the case of employees who are not officers, for increases
in the ordinary course of business consistent with past practice, or grant any
severance or termination pay to, or enter into any employment or severance
agreement, or establish, adopt, enter into, or amend in any material respect or
take action to enhance in any material respect or accelerate any rights or
benefits under, any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer or
employee, except, in each case, as may be required to comply with applicable
law or regulation; (x) violate or fail to perform any material obligation or
duty imposed upon it by any applicable federal, state or local law, rule,
regulation, guideline or ordinance which would be reasonably expected to have a
Material Adverse Effect on the Company; (xi) redeem the Rights or, other than
as contemplated by the Merger Agreement, amend the Rights Agreement; (xii)
amend the Stock Purchase and Sale Agreement, dated as of June 6, 1994, between
the Company and American International Group, Inc.; (xiii) make any material
change in its method of accounting; (xiv) modify certain specified contracts;
(xv) authorize, recommend, propose or announce an intention to do any of the
foregoing, or enter into any contract, agreement, commitment or arrangement to
do any of the foregoing; and (xvi) take any action that would cause or that
could reasonably be expected to result in any representation or warranty in the
Merger Agreement to be or become untrue or incorrect in any material respect.
The Merger Agreement also provides that, from the date of the Merger Agreement
until the Effective Time, the Company may not terminate, amend, modify or waive
any provision of any confidentiality or standstill agreement to which the
Company or any of its subsidiaries is a party (other than any involving Aon).
No Solicitation. The Merger Agreement provides that, from and after the date
of the Merger Agreement, the Company will not, and will not permit any of its
or its subsidiaries' officers, directors or employees to, and the Company will
use its reasonable best efforts to cause all of its and its subsidiaries'
attorneys, financial advisors, agents and other representatives not to,
directly or indirectly, solicit, initiate or knowingly encourage (including by
way of furnishing information) any Takeover Proposal (as hereinafter defined),
or engage in or continue discussions or negotiations relating thereto;
provided, however, that the Company may engage in discussions or negotiations
with, or furnish information concerning the Company and its business,
properties or assets to, any third party which makes a Takeover Proposal if the
Board of Directors of the Company determines, in its good faith judgment, based
on the opinion of independent outside legal counsel to the Company, that
failing to take such action would constitute a breach of such Board's duties
under applicable law; provided further, that nothing in the Merger Agreement
shall prevent the Company or the Board from taking, and disclosing to the
Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Securities Exchange Act of 1934, as amended (together
with the rules and regulations promulgated thereunder, the "Exchange Act") with
regard to any tender offer or from making such disclosure to the Company's
stockholders which, as advised in an opinion of the Company's independent
outside legal counsel, is required under applicable
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law; provided further, that the Board shall not recommend that the stockholders
of the Company tender their shares in connection with any such tender offer
unless the Board determines, in its good faith judgment, based on the opinion
of independent outside legal counsel to the Company, that failing to take such
action would constitute a breach of the Board's duties under applicable law.
The Company will promptly notify Aon of any Takeover Proposal, including the
material terms and conditions thereof and the identity of the person or group
making such Takeover Proposal, and will promptly notify Aon of any
determination by the Company's Board of Directors that a Superior Proposal (as
hereinafter defined) has been made. As used in the Merger Agreement, (i)
"Takeover Proposal" means any proposal or offer, other than a proposal or offer
by Aon or any of its subsidiaries for a tender or exchange offer, a merger,
consolidation or other business combination involving the Company or any of its
subsidiaries or any proposal to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, the Company or any of
its subsidiaries and (ii) "Superior Proposal" means a bona fide proposal or
offer made by a third party to acquire the Company pursuant to a tender or
exchange offer, a merger, consolidation or other business combination or a sale
of all or substantially all of the assets of the Company and its subsidiaries
on terms which a majority of the members of the Board of Directors of the
Company, having received the advice of an independent financial advisor,
determines in their good faith reasonable judgment to be more favorable to the
Company's stockholders than the transactions contemplated by the Merger
Agreement and for which any required financing is committed or which a majority
of such members, having received the advice of an independent financial
advisor, determines in their good faith reasonable judgment is reasonably
capable of being obtained by such third party.
Fees and Expenses. Except as provided in the Merger Agreement, whether or not
the Merger is consummated, all costs and expenses incurred by a party to the
Merger Agreement in connection with the Merger Agreement and the transactions
contemplated thereby, including, without limitation, the fees and disbursements
of counsel, financial advisors and accountants, will be paid by the party
incurring such costs and expenses, provided that all printing expenses and
filing fees will be divided equally between Aon and the Company. The Company
will pay, or cause to be paid, in same day funds to Aon $35 million (the
"Termination Fee") upon demand if: (i) Aon or Sub terminates the Merger
Agreement following the occurrence of any event set forth in clause (i) or (ii)
paragraph (c) of "Certain Conditions of the Offer" and within six months
following such termination a Third Party Acquisition Event occurs; (ii) the
Company terminates the Merger Agreement pursuant to section (v) of the section
entitled "Termination"; or (iii) the Merger Agreement is terminated and prior
thereto a Third Party Acquisition Event (as defined below) occurred. Aon will
pay, or cause to be paid, in same day funds to the Company $35 million (the
"Parent Minimum Damages") upon demand if the Company shall have terminated the
Merger Agreement pursuant to section (vi) of the section entitled
"Termination"; provided, however, that the Parent Minimum Damages shall be
repaid to Parent if, within six months following such termination, a Third
Party Acquisition Event shall occur having a value per share of Common Stock of
not less than the Offer Price.
A "Third Party Acquisition Event" means any of the following events: (A) any
person, corporation, partnership or other entity or group (such person,
corporation, partnership or other entity or group being referred to
hereinafter, singularly or collectively, as a "Person"), other than Aon or its
subsidiaries, acquires or becomes the beneficial owner of 30% or more of the
outstanding shares of the Company Common Capital Stock; (B) any new group is
formed which, at the time of formation, beneficially owns 30% or more of the
outstanding shares of the Company Common Capital Stock (other than a group
which includes or may reasonably be deemed to include Aon or any of its
subsidiaries); (C) the Company enters into an agreement providing for a merger
or other business combination involving the Company or the acquisition of a
substantial interest in, or a substantial portion of the assets, business or
operations of, the Company and its subsidiaries (other than the transactions
contemplated by the Merger Agreement); or (D) any Person (other than Aon or its
subsidiaries) is granted any option or right, conditional or otherwise, to
acquire or otherwise become the beneficial owner of shares of the Company
Common Capital Stock that results or would result in such Person being the
beneficial owner of 30% or more of the outstanding shares of the Company Common
Capital Stock. For purposes of this paragraph, the terms "group" and
"beneficial owner" shall be defined by reference to Section 13(d) of the
Exchange Act.
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after the Company Stockholder Approval (if
required by applicable law): (i) by mutual written consent
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of Aon and the Company; (ii) by either Aon or the Company (a) if (I) as a
result of the failure of any of the Offer Conditions the Offer has terminated
or expired in accordance with its terms without Sub having accepted for payment
any Shares pursuant to the Offer or (II) all of the Offer Conditions have not
been satisfied prior to April 1, 1997; provided, however, that the right to
terminate the Merger Agreement pursuant to this section (ii)(a) will not be
available to any party whose failure to perform any of its obligations under
the Merger Agreement results in the failure of any such Offer Condition or if
the failure of such Offer Condition results from facts or circumstances that
constitute a breach of representation or warranty under the Merger Agreement by
such party; or (b) if any Governmental Entity has issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated by the Merger Agreement and
such order, decree or ruling or other action has become final and
nonappealable; provided, however, that Aon will, if necessary to prevent any
such issuance or the taking of such action, offer to accept an order to divest
such of the Company's or Aon's assets and businesses as may be necessary to
forestall such injunction or order and to hold separate such assets and
business pending such divestiture, but only if the amount of such assets and
businesses is not material to the assets or profitability of the Company and
its subsidiaries taken as a whole or Aon and its subsidiaries taken as a whole,
respectively; (iii) by Aon or Sub prior to the purchase of Shares pursuant to
the Offer in the event of a breach by the Company of any representation,
warranty, covenant or other agreement contained in the Merger Agreement which
(a) would give rise to the failure of a condition set forth in paragraph (d) or
(e) of the section entitled "Certain Conditions of the Offer" and (b) cannot be
or has not been cured within 20 days after the giving of written notice to the
Company; (iv) by Aon or Sub if either Aon or Sub is entitled to terminate the
Offer as a result of the occurrence of any event set forth in paragraph (c) of
the section entitled "Certain Conditions of the Offer"; (v) by either Aon or
the Company if the Board of Directors of the Company reasonably determines that
a Takeover Proposal constitutes a Superior Proposal and a majority of the Board
of Directors of the Company determines in its good faith judgment, based on the
opinion of the independent outside legal counsel to the Company, that failing
to terminate the Merger Agreement would constitute a breach of such Board's
duties under applicable law; provided, however, that the Company may not
terminate the Merger Agreement pursuant to this section unless and until 48
hours have elapsed following delivery to Aon of a written notice of such
determination by the Board of Directors of the Company; provided, further, that
the Company may not terminate the Merger Agreement pursuant to this section
unless simultaneously with such termination the Company pays to Aon the amount
specified under the section entitled "Fees and Expenses"; and provided,
further, that any termination by Aon pursuant to this section shall in no way
constitute an admission that the Company complied with the covenant not to
solicit or any other provision of the Merger Agreement, or prejudice any claim
by Aon that the Company did not comply with the provisions of the covenant not
to solicit or any other provisions of the Merger Agreement; (vi) by the
Company, if any (a) any of the representations or warranties of Aon or Sub set
forth in the Merger Agreement that are qualified as to materiality are not true
and correct in any respect or any such representations or warranties that are
not so qualified are not true and correct in any material respect, or (b) Aon
or Sub have failed to perform in any material respect any obligation or to
comply in any material respect with any agreement or covenant of Aon or Sub to
be performed or complied with by it under the Merger Agreement and, in the case
of (a) or (b), such untruth or incorrectness or failure cannot be or has not
been cured within 20 days after the giving of written notice to Aon or Sub, as
applicable; or (vii) by the Company, (a) if the Offer has not been timely
commenced in accordance with the Merger Agreement or (b) Sub has not accepted
for payment any Shares pursuant to the Offer prior to April 1, 1997.
Pursuant to the Merger Agreement, in the event of a termination of the Merger
Agreement, the Merger Agreement shall become void and there shall be no
liability or obligation on the part of Aon, Sub or the Company or their
respective officers or directors, other than specified provisions which shall
survive any such termination; provided, however, that no party would be
released from liability for any breach of the Merger Agreement.
State Takeover Laws. The Merger Agreement provides that if any "fair price"
or "control share acquisition" statute or other similar statute or regulation
shall become applicable to the transactions contemplated by the Merger
Agreement, Aon and the Company and their respective Boards of Directors will
use their reasonable best efforts to grant such approvals and take such actions
as are necessary so that the transactions
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contemplated by the Merger Agreement may be consummated as promptly as
practicable on the terms contemplated by the Merger Agreement and otherwise act
to minimize the effects of any such statute or regulation on the transactions
contemplated by the Merger Agreement.
Indemnification; Directors and Officers Insurance. Under the Merger
Agreement, Aon has agreed that, from and after the Effective Time, it will
cause the Surviving Corporation to exculpate, indemnify and hold harmless all
past and present officers and directors of the Company and its subsidiaries
(the "Indemnified Parties") to the same extent such persons were exculpated and
indemnified on the date of the Merger Agreement by the Company pursuant to the
Company's Charter and By-Laws for acts or omissions occurring at or prior to
the Effective Time. Aon has agreed to cause the Surviving Corporation to
provide, for an aggregate period of not less than six years from the Effective
Time, the Company's current directors and officers an insurance and
indemnification policy that provides coverage for events occurring prior to the
Effective Time (the "D&O Insurance") that is no less favorable than the
Company's existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; provided, however, that the Surviving
Corporation will not be required to pay an annual premium for the D&O Insurance
in excess of 175% of the last annual premium paid prior to the date of the
Merger Agreement, but in such case will purchase as much coverage as possible
for such amount.
Options. The Merger Agreement provides that, prior to the commencement of the
Offer, the Board of Directors of the Company or the Compensation Committee of
the Board of Directors of the Company (the "Committee") will adopt procedures
pursuant to which each outstanding Company Stock Option, stock appreciation
right, limited stock appreciation right and other stock based award (an
"Option") which is exercisable immediately prior to the consummation of the
Offer in accordance with the terms of the applicable plan (collectively, the
"Stock Option Plans"), may be exercised by the holder thereof by the delivery
to the Company of a notice of exercise prior to the consummation of the Offer.
Upon the consummation of the Offer, each Option so exercised will be canceled
and promptly thereafter the Company will deliver to the holder thereof cash in
an amount equal to (i) the product of (x) the number of shares of Common Stock
subject or related to such Option and (y) the excess, if any, of the Merger
Consideration over the exercise or purchase price per share of Common Stock
subject or related to such Option, minus (ii) all applicable federal, state and
local taxes required to be withheld by the Company.
Prior to the commencement of the Offer, the Board of Directors of the Company
or the Committee will take action in accordance with the terms of the Stock
Option Plans to cause each Option outstanding immediately following the
consummation of the Offer, whether or not then exercisable, to become fully
exercisable. The Board of Directors of the Company or the Committee will also
adopt procedures pursuant to which each such Option may be exercised by the
holder thereof by the delivery to the Company of a notice of exercise prior to
the Effective Time. At the Effective Time, each such Option so exercised will
be canceled and promptly thereafter the Company will deliver to the holder
thereof cash in an amount equal to (i) the product of (x) the number of shares
of Common Stock subject or related to such Option and (y) the excess, if any,
of the Merger Consideration over the exercise or purchase price per share of
Common Stock subject or related to such Option minus (ii) all applicable
federal, state and local taxes required to be withheld by the Company.
In the Merger Agreement, the Company agreed to use its reasonable best
efforts to ensure that immediately following the Effective Time, each
outstanding Option which has not theretofore been exercised by the holder
thereof will be canceled (whether or not such holder has delivered the
acknowledgment referred to in the proviso to this sentence), and promptly
thereafter Aon will deliver to the holder thereof cash in an amount equal to
(i) the product of (x) the number of shares of Common Stock subject or related
to such Option and (y) the excess, if any, of the Merger Consideration over the
exercise or purchase price per share of Common Stock subject or related to such
Option, minus (ii) all applicable federal, state and local taxes required to be
withheld by the Company; provided, however, that any such payment to a holder
of an Option so canceled will be conditioned upon the delivery to Aon by such
holder of a receipt in writing acknowledging the receipt by such holder of such
payment in exchange for the cancellation of all Stock Options held by such
holder. For purposes of this paragraph, options offered under the Company's
Employee Discount Stock Purchase Plan are deemed
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outstanding only to the extent of employees' elections to participate therein
as in effect on the date of purchase of Shares pursuant to the Offer.
Prior to the commencement of the Offer, the Board of Directors of the Company
or the Committee will take action in accordance with the terms of the Stock
Option Plans and pursuant to all other plans and agreements providing for the
award of restricted Common Stock to cause the restrictions on the shares of
restricted Common Stock granted under such plans and agreements to lapse
effective upon the consummation of the Offer and to adopt procedures to enable
all holders thereof to tender such shares of Common Stock pursuant to the terms
of the Offer.
Employee Benefits. With respect to employee benefit matters, the Merger
Agreement provides that the Company will take, or cause to be taken, any and
all action as is necessary or appropriate so that effective upon the purchase
of Shares pursuant to the Offer, neither the Company nor any of its
subsidiaries are obligated to issue or sell to any Company Plan (as hereinafter
defined) any shares of or rights to acquire capital stock of the Company or any
of its subsidiaries. The Merger Agreement provides that Aon will cause the
Company, and each subsidiary of the Company, to honor from and after the
Effective Time, all Company Plans; provided, however, that Aon may cause the
Company to amend or terminate any Company Plan in accordance with its terms and
applicable law. Except as otherwise provided by the section entitled "Company
Stock Options" or this section, to the extent that after the purchase of Shares
pursuant to the Offer, Aon causes the amendment, modification or termination of
any Company Plan, Aon will cause the affected employees, former employees and
retirees to receive benefits of the type affected by such amendment,
modification or termination no less favorable than the comparable type of
benefits provided to similarly situated employees, former employees and
retirees of Aon or its affiliates ("Aon-Provided Plans").
The Merger Agreement provides that, for purposes of eligibility to
participate, vesting and eligibility for and accrual of benefits under all
Company Plans and Aon-Provided Plans, all service of any individual who is an
employee of the Company or any subsidiary of the Company immediately effective
prior to the Effective Time (a "Company Employee") with the Company and/or any
subsidiaries of the Company prior to the Effective Time will, on and after the
Effective Time, be treated as service with the Company, all subsidiaries of the
Company, Aon and/or subsidiaries of Aon (as applicable); provided, however,
that, with respect to a Company Employee's service prior to the Effective Time,
Aon will not be required to provide any benefit under any defined benefit
pension plan to such Company Employee in an amount greater than the benefit
such Company Employee has accrued as of the Effective Time, except that in
determining the amount of such accrued benefit, compensation paid to such
Company Employee on or after the Effective Time will be counted to the extent
that the compensation of such Company Employee after the Effective Time remains
a factor used in determining such accrued benefit under such plan. The Company,
subsidiaries of the Company, Aon and subsidiaries of Aon will cause all Company
Plans and Aon-Provided Plans to (x) waive any pre-existing condition
limitations otherwise applicable on and after the Effective Time to Company
Employees who are not subject to pre-existing condition limitations immediately
prior to the Effective Time, and (y) provide that any expenses incurred by
Company Employees (and their dependents) during any plan year within which the
Effective Time occurs will be taken into account for purposes of satisfying
applicable deductible, coinsurance and maximum out-of-pocket provisions (and
like adjustments or limitations on coverage) under the Company Plans and Aon-
Provided Plans. As used in this section, except as otherwise provided above,
"Company Plan" includes any United States or non-United States (i) "employee
benefit plan," within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); (ii) bonus, stock option,
stock purchase, restricted stock, incentive, equity participation, profit-
sharing, savings, pension, retirement, deferred compensation, medical, health,
life insurance, disability, accident, accrued leave, vacation, sick pay, sick
leave, supplemental retirement and unemployment benefit plan, program,
arrangement, commitment and/or practice; and (iii) employment, consulting,
termination, change in control, severance and salary continuation agreement,
contract, plan, policy, program and/or arrangement, that, in the case of (i),
(ii) and (iii), the Company and/or any subsidiary of the Company currently
maintains or contributes to (or with respect to which the Company or any
subsidiary of the Company has any obligation) for active, retired or former
employees or directors of the Company or any
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subsidiary of the Company, whether or not any such plan, program, arrangement,
commitment, contract, agreement and/or practice (referred to in (i), (ii) or
(iii)) is in writing, is insured or is exempt from the provisions of ERISA. Any
Company Employee whose employment is terminated by the Company, any subsidiary
of the Company, Aon or any subsidiary of Aon, or any successor of any thereof,
on or before one (1) year following the Effective Time (except for any Company
Employee whose employment is terminated for engaging in criminal conduct or
malfeasance in connection with his or her employment) will be provided, in
addition to all other applicable non-severance benefits, severance benefits no
less favorable than those such Company Employee would have received upon such
termination of his or her employment with the Company or a subsidiary of the
Company (as applicable) occurring immediately prior to the Effective Time. At
the Effective Time, the employment of Mr. Frank G. Zarb with the Surviving
Corporation shall be terminated without cause.
Conditions to Consummation of the Merger. Pursuant to the Merger Agreement,
the respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions: (i) if required by applicable law, the Company Stockholder Approval
has been obtained, provided, however, that Aon and Sub voted all of their
shares of capital stock of the Company entitled to vote thereon in favor of the
Merger; (ii) no statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other Governmental Entity preventing the
consummation of the Merger shall be in effect, provided, however, that each of
the parties has used its reasonable best efforts to prevent the entry of any
such temporary restraining order, injunction or other order and to appeal as
promptly as possible any injunction or other order that may be entered; (iii)
Sub has previously accepted for payment and paid for Shares pursuant to the
Offer, provided, however, that this condition will be deemed satisfied with
respect to the obligations of Aon or Sub if Sub fails to accept for payment and
pay for any Shares pursuant to the Offer in violation of the terms of the
Merger Agreement; and (iv) any waiting period (and any extension thereof) under
the HSR Act applicable to the Merger has expired or been terminated.
Amendment. The Merger Agreement may be amended by the parties thereto, by
action taken or authorized by their respective Boards of Directors at any time
before or after obtaining the Company Stockholder Approval (if required by
law), but, after the purchase of Shares pursuant to the Offer no amendment may
be made which decreases the Merger Consideration and after the Company
Stockholder Approval no amendment may be made which by law requires further
approval by the stockholders of the Company without obtaining such further
approval. Following the election or appointment of Sub's designees and prior to
the Effective Time, the affirmative vote of a majority of the Independent
Directors then in office is required by the Company to (i) amend or terminate
the Merger Agreement by the Company, (ii) exercise or waive any of the
Company's rights or remedies under the Merger Agreement or (iii) extend the
time for performance of Aon or Sub's respective obligations under the Merger
Agreement.
Extension; Waiver. At any time prior to the Effective Time, the parties to
the Merger Agreement, by action taken or authorized by their respective Board
of Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any obligations or other acts of the other parties hereto, (ii)
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement or in any document delivered pursuant to the Merger Agreement
or (iii) waive compliance with any of the agreements or conditions contained in
the Merger Agreement.
Certain Conditions of the Offer. Notwithstanding any other term of the Offer
or the Merger Agreement, Sub shall not be required to accept for payment or,
subject to any applicable rules and regulations of the SEC, including Rule 14e-
1(c) under the Exchange Act (relating to Sub's obligation to pay for or return
tendered Shares after the termination or withdrawal of the Offer), to pay for
any Shares tendered pursuant to the Offer unless (i) there have been validly
tendered and not withdrawn prior to the expiration of the Offer such number of
Shares that would constitute a majority of the combined voting power of the
shares of the Company Common Capital Stock (assuming the exercise of all
options to purchase, and the conversion or exchange of all securities
convertible or exchangeable into, shares of the Company Common Stock
outstanding at the expiration date of the Offer, other than the conversion of
the shares of the Series B Preferred Stock) (the "Minimum Condition"),
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(ii) any waiting period under the HSR Act or the Competition Act (Canada)
applicable to the purchase of Shares pursuant to the Offer has expired or been
terminated and (iii) the approvals of the Department of Insurance of the States
of Delaware, New York and Vermont have been received with respect to the
acquisition of control resulting from the transactions contemplated by the
Merger Agreement of the insurance-underwriting subsidiaries of the Company
organized under the laws of Delaware, New York and Vermont, respectively.
Furthermore, notwithstanding any other term of the Offer or the Merger
Agreement, Sub shall not be required to accept for payment or, subject as
aforesaid, to pay for any Shares not theretofore accepted for payment or paid
for, and may terminate the Offer if, at any time on or after the date of the
Merger Agreement and before the acceptance of such Shares for payment or the
payment therefor, any of the following conditions exists (other than as a
result of any action or inaction of Aon or any of its subsidiaries that
constitutes a breach of the Merger Agreement):
(a) there shall be instituted by any Governmental Entity any suit, action
or proceeding (i) making illegal or prohibiting the acquisition by Aon or
Sub of any Shares under the Offer, making illegal or prohibiting the making
or consummation of the Offer or the Merger or the performance of any of the
other transactions contemplated by the Merger Agreement, or seeking to
obtain from the Company, Aon or Sub any damages that are material in
relation to the Company and its subsidiaries taken as a whole, (ii)
prohibiting or materially limiting the ownership or operation by the
Company, Aon or any of their respective subsidiaries of any material
business or assets of the Company and its subsidiaries, or Aon and its
subsidiaries, or compelling the Company or Aon to dispose of or hold
separate any material business or assets of the Company and its
subsidiaries or Aon and its subsidiaries, as a result of the Offer, the
Merger or any of the other transactions contemplated by the Merger
Agreement or the Preferred Stock Purchase Agreement, (iii) imposing
material limitations on the ability of Aon or Sub to acquire or hold, or
exercise full rights of ownership of, any Shares to be accepted for payment
pursuant to the Offer, including, without limitation, the right to vote
such Shares or shares on all matters properly presented to the stockholders
of the Company, or (iv) prohibiting Aon or any of its subsidiaries from
effectively controlling any business or operations of the Company or its
subsidiaries, provided, however, that Aon shall, if necessary to prevent
any such consequence, offer to accept an order to divest such of the
Company's or Aon's assets and businesses as may be necessary to prevent
such consequence and to hold separate such assets and businesses pending
such divestiture, but only if the amount of such assets and businesses is
not material to the assets or profitability of the Company and its
subsidiaries taken as a whole or Aon and its subsidiaries taken as a whole,
as the case may be;
(b) there shall be enacted, entered, enforced, promulgated or deemed
applicable to the Offer or the Merger by any Governmental Entity, any
statute, rule, regulation, judgment, order or injunction, other than the
application to the Offer or the Merger of applicable waiting periods under
the HSR Act or the Competition Act (Canada), that would reasonably be
expected to result, directly or indirectly, in any of the consequences
referred to in clauses (i) through (iv) of paragraph (a) above;
(c) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to Aon or Sub its
approval or recommendation of the Offer, the Merger or the Merger
Agreement, or approved or recommended any Takeover Proposal or (ii) the
Board of Directors of the Company or any committee thereof shall have
resolved to take any of the foregoing actions (it being understood that the
taking and disclosing to the Company's stock- holders of a position
contemplated by Rule 14d-9(e) promulgated under the Exchange Act shall not
constitute an event referred to in clause (i) or (ii));
(d) any of the representations and warranties of the Company set forth in
the Merger Agreement that are qualified as to materiality shall not be true
and correct in any respect or any such representations and warranties that
are not so qualified shall not be true and correct in any material respect,
in each case as if such representations and warranties were made as of such
time;
(e) the Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under the
Merger Agreement;
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<PAGE>
(f) there shall have occurred and continued to exist for not less than
three business days (i) any general suspension of trading in, or limitation
on prices for, securities on a national securities exchange in the United
States (excluding any coordinated trading halt triggered solely as a result
of a specified decrease in a market index, or (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States; or
(g) the Merger Agreement shall have been terminated in accordance with
its terms.
PREFERRED STOCK PURCHASE AGREEMENT
Pursuant to the Preferred Stock Purchase Agreement, and subject to the terms
and condition thereof, Aon agreed to buy and AIG agreed to sell for $317.5
million all shares of Series B Preferred Stock owned by AIG and its
subsidiaries. The Preferred Stock Purchase Agreement provides that the sale of
the Series B Preferred Stock will close on the date which is two business days
after Aon or any affiliate of Aon first acquires any equity interest in the
Company or any right or security convertible or exercisable into such interest.
Pursuant to the terms of the Preferred Stock Purchase Agreement, Aon agreed
that it will not waive or modify its rights under the Merger Agreement that
requires the Company to pay dividends on the Series B Preferred Stock in cash
after December 15, 1996. The Preferred Stock Purchase Agreement provides that
all the rights and preferences of the Series B Preferred Stock shall remain in
full force and effect until the Closing; provided, however, that AIG agrees to
suspend voluntarily its rights under certain sections of the Articles
Supplementary and its right to require the Company to repurchase any of the
Series B Preferred Stock pursuant to the Articles Supplementary related
thereto, in each case until the earlier of the closing or termination of the
Preferred Stock Purchase Agreement. AIG has agreed that it will not transfer,
assign, sell, pledge or otherwise dispose of any of the Series B Preferred
Stock to any third party, other than as contemplated in the Preferred Stock
Purchase Agreement, until the earlier of the closing or the termination of the
Preferred Stock Purchase Agreement.
Except as described above, to the best knowledge of the Company, there are no
contracts, agreements, arrangements or understandings or actual or potential
conflicts of interest between the Company or its affiliates and Aon, Sub or
each of their officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) A special committee of the Board met on December 4, 1996 to consider the
possible transaction with Aon. The Board met on December 6, 1996 to receive a
report on the possible transaction with Aon from management of the Company
("Management"), the Company's financial advisor, CS First Boston, and legal
advisors. At two meetings of the Board held in the morning and the evening of
December 10, 1996, the Board met with its financial advisors and legal advisors
to review the business, financial condition and prospects of the Company, the
terms and conditions of the Offer and various matters related thereto,
including reports by CS First Boston on the financial condition and
performance, strategic alternatives and potential value of the Company. Based
on the proposed terms of the draft Merger Agreement presented to the Board on
December 10, 1996, at the second December 10, 1996 meeting and after receiving
advice from Management, CS First Boston and its legal advisors, the Board
unanimously determined that the Offer and Merger Agreement are fair to, and in
the best interest of, the common stockholders of the Company.
AT THE SECOND DECEMBER 10, 1996 MEETING, THE BOARD UNANIMOUSLY DETERMINED
THAT BOTH THE OFFER AND MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS
OF, THE COMPANY AND ITS COMMON STOCKHOLDERS. ACCORDINGLY, THE BOARD UNANIMOUSLY
RECOMMENDS THAT ALL HOLDERS OF SHARES ACCEPT THE OFFER AND MERGER AGREEMENT AND
TENDER THEIR SHARES PURSUANT TO THE OFFER.
A copy of a letter to stockholders communicating the recommendation of the
Board is filed as Exhibit 7 and is incorporated herein by reference.
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<PAGE>
(b) In reaching its determination and recommendations with respect to the
Offer, as indicated above, the Board reviewed in detail the Offer and the
various alternative transactions described by its financial advisors, and
deliberated extensively with its legal and financial advisors regarding the
foregoing. At the end of the second December 10, 1996 meeting, the Board
determined by unanimous vote that the Offer is fair to, and in the best
interest of, the Company and its common stockholders and authorized the
execution and delivery of the Merger Agreement. Numerous factors were taken
into account in arriving at this determination including, among other things,
the following:
(i) the terms and conditions of the Offer and the Merger Agreement and
the course of negotiations thereof;
(ii) the directors' knowledge of the Company's business, financial
condition, and results of operations, current business strategy, strategic
alternatives and future prospects, the nature of the markets in which the
Company operates, including pricing pressures and the trend toward
consolidation in such markets, and the Company's position in such markets;
(iii) the Board's belief, based on the lack of any indications of
interest from the five other companies with which the Company had
discussions during the past two years concerning possible business
combinations, together with its view that an acquisition of the Company
would be particularly attractive to Aon, that a proposal that could provide
greater value to the Company's common stockholders than the Offer would not
be forthcoming;
(iv) the presentations of the Company's financial advisor, CS First
Boston, at the Board meetings held on December 6 and December 10, 1996 and
CS First Boston's written opinion (the "CS First Boston Opinion") orally
presented to the Board on December 10, 1996 and confirmed in writing
December 11, 1996 that, based upon and subject to the information contained
therein, as of the date of the opinion, the consideration to be received by
the common stockholders of the Company (other than Aon and Sub) in the
Offer and the Merger is fair to such stockholders from a financial point of
view (a copy of the CS First Boston Opinion, setting forth the assumptions
made and matters considered and limitations set forth by CS First Boston,
is attached as Annex A hereto and stockholders are urged to read such
opinion in its entirety);
(v) that the Merger Agreement permits the Company to terminate the Merger
Agreement (subject to the payment of a breakup fee) if, prior to Sub's
purchase of Shares in the Offer, the Board reasonably determines that a
proposal or offer by a third party to acquire a substantial equity interest
in, or a substantial portion of the assets of, the Company and its
subsidiaries on terms which a majority of the members of the Board of
Directors of the Company, having received the advice of an independent
financial advisor, determines in their good faith reasonable judgment to be
more favorable to the Company's common stockholders than the transactions
contemplated by the Merger Agreement;
(vi) the downward trend in the price of the Company's Common Stock;
(vii) the premium over the price at which the Company's Common Stock was
trading represented by the Offer price at the time of the Board's
determination; and
(viii) the Board's determination that, pursuant to the Merger Agreement,
there is a substantial likelihood that the transaction will be completed.
The Board did not assign relative weights to the foregoing factors or
determine that any factor was of particular importance. Rather, the Board
viewed its position and recommendations as being based on the totality of the
information presented and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained CS First Boston as its financial advisor with
respect to Aon's interest in acquiring the Company and other matters arising
in connection therewith. Pursuant to a letter agreement dated December 6, 1996
between the Company and CS First Boston (the "Engagement Letter"), the Company
has agreed to pay CS First Boston (i) a fairness opinion fee of $1,000,000
payable at the time Aon commences the Offer and (ii) a total transaction fee
of $5,750,000 payable upon the acquisition of 50% or more of the voting
17
<PAGE>
securities of the Company (which amount shall include the $1,000,000 fairness
opinion fee). The Company has also agreed to reimburse CS First Boston for all
out-of-pocket expenses, including the fees and expenses of CS First Boston's
legal counsel, if any, and any other advisor retained by CS First Boston.
Pursuant to a letter agreement dated December 6, 1996 between the Company
and CS First Boston, the Company has indemnified CS First Boston against
certain expenses and liabilities if incurred in connection with its
engagement.
Except as described above, neither the Company, nor any person acting on its
behalf, has employed, retained or compensated any person to make solicitations
or recommendations to shareholders with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) On October 30, 1996, Mr. James Horrick, an officer of the Company,
purchased 1,000 shares of Common Stock of the Company. To the knowledge of the
Company, other than as disclosed herein, there have been no transactions in
Shares which were effected during the past 60 days by the Company, or by any
executive officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, all of the Company's executive
officers, directors, affiliates and subsidiaries currently intend to tender
all Shares held of record or beneficially owned by them pursuant to the Offer,
except for those Shares held by such persons which, if tendered, would cause
such persons to incur liability under the provisions of Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
foregoing does not include any Shares over which, or with respect to which,
any such executive officer, director, affiliate or subsidiary acts in a
fiduciary or representative capacity or is subject to the instructions of a
third party with respect to such tender.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
During 1994, 1995 and 1996, the Chief Executive Officers of the Company and
of Aon discussed from time to time the possibility of a business combination
involving Aon and the Company. Throughout the period, each Board of Directors
was kept informed of the discussions. During the past two years the Company
communicated with five other insurance brokerage companies concerning various
forms of possible business combinations. The most recent of these
communications took place approximately six weeks ago. Three of the five
companies signed confidentiality agreements with the Company; however, none of
the five companies engaged in a detailed due diligence investigation of the
Company or agreed to mutual due diligence, and none of the five companies
provided an indication of interest in merging with, being acquired by or
acquiring the Company. Approximately twelve months ago a special committee of
the Board, made up of six outside directors, was formed and since then has met
from time to time to consider possible business combinations. CS First Boston
worked with the Company throughout this two year period and was formally
retained by the Company on December 6, 1996.
The discussions between the Company and Aon began during the Spring of 1994,
at which time the Company was also engaged in discussions with AIG regarding
the significant investment that AIG ultimately made in the Series B Preferred
Stock of the Company. At that time, the Board concluded that the investment by
AIG and the recruiting of a new chief executive officer were in the best
interests of the Company's stockholders and should be pursued.
Further discussion of a business combination between Aon and the Company
resumed in the Spring of 1995. At that time, a confidentiality agreement
between the two companies was executed and confidential information was
shared. The conversations in the Spring of 1995 principally concerned a
possible stock-for-stock transaction. Representatives of the Company and Aon
met from time to time in connection therewith to explore such a transaction as
well as to discuss the financial and other prospects of the Company and of
Aon. In addition, because of the right of AIG to require a repurchase of the
Series B Preferred Stock in connection with a change-in-control of the Company
at a substantial premium to its liquidation value, Mr. Patrick G. Ryan,
Chairman, President and Chief Executive Officer of Aon, discussed the
possibility of such a transaction with Mr. Maurice
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<PAGE>
R. Greenberg, Chairman of the Board, Chief Executive Officer and President of
AIG. (Subsequent to the Spring of 1995, Messrs. Ryan and Greenberg had
conversations from time to time). The discussions concerning the possible
transaction terminated in May of 1995 when the Company and Aon concluded that
the two companies were not likely to agree on financial terms.
From January to May of 1996 and again in July and August of 1996, Mr. Ryan
and Mr. Frank G. Zarb, Chairman, President and Chief Executive Officer of the
Company, discussed a possible business combination, including the possibility
of an all- stock merger or an all- or partial-cash acquisition by Aon of the
outstanding equity securities of the Company. During the Summer of 1996, the
confidentiality agreement between the two companies was reconfirmed and
confidential information was furnished to Aon by the Company. Each time the
conversations again were terminated when the parties concluded that the two
companies were not likely to agree on financial terms.
In the Fall of 1996, Mr. Ryan and Mr. Zarb discussed from time to time the
possibility of a business combination. On November 24, 1996, Messrs. Zarb and
Ryan met in New York City and discussed the possible business combination. Mr.
Ryan indicated to Mr. Zarb that Aon would prefer to pursue an all-cash
transaction assuming that a satisfactory arrangement could be made with AIG
and that a reasonably acceptable valuation of the Company could be agreed upon
between Aon and the Company. Thereafter, Messrs. Ryan, Greenberg and, for the
initial period of the meeting, Mr. Zarb, met to discuss a possible
transaction. Messrs. Zarb and Ryan, and Messrs. Ryan and Greenberg, engaged in
repeated conversations during the period of November 27 through December 10,
1996 (the day preceding the date of execution of the Merger Agreement)
relating to the possible transaction.
On November 29, 1996, certain representatives of the Company and its legal
advisors met with certain representatives of Aon and its legal advisors to
exchange certain information, to discuss the process by which discussions
between the Company and Aon might proceed and to reexecute a confidentiality
agreement between the Company and Aon. The Company continued to make financial
and other information available to representatives of Aon and its advisors.
On December 4, 1996, representatives of Aon furnished representatives of the
Company with a draft of the Merger Agreement.
On December 4, 1996, Mr. Zarb met with the special committee of the Board to
discuss the progress of discussions between the Company and Aon and to request
a determination from the special committee of the Board as to whether the
Company should continue discussions with Aon and whether a special meeting of
the Board should be held to consider the possible transaction. The special
committee of the Board recommended that discussions with Aon be continued and
that the Board consider the possible transaction.
Representatives of the two companies and their legal advisors met on
December 5, 1996 in New York City to discuss the draft of the Merger
Agreement.
On December 6, 1996, a special meeting of the Board was held to consider the
possible transaction. The Board carefully considered the possible transaction
together with the advice of its legal and financial advisors. As a result of
such review, the Board unanimously determined that it would be in the best
interests of the Company and its common stockholders for discussions to
continue with Aon and authorized and instructed Mr. Zarb to continue
discussions with Aon.
Representatives of Aon and the Company and their legal advisors met again on
December 7, 1996 to discuss a revised draft of the Merger Agreement. The terms
of the Merger Agreement were finalized in telephone conversations on December
9 and 10, 1996 between the representatives and advisors.
At two meetings of the Board held in the morning and the evening of December
10, 1996, the Board met with Management, the Company's financial advisor, CS
First Boston, and the Company's legal advisors to review the business,
financial condition and prospects of the Company, the terms and conditions of
the Offer and various
19
<PAGE>
matters related thereto, including reports by the Company's financial advisor
on the financial condition and performance, strategic alternatives and
potential value of the Company. Based on the proposed terms of the draft
Merger Agreement presented to the Board on December 10, 1996, at the second
December 10 meeting, and after receiving advice from Management, CS First
Boston and its legal advisors, the Board unanimously determined that the Offer
and Merger Agreement are fair to, and in the best interests of, the common
stockholders of the Company.
During the morning of December 11, 1996, the Company and Aon executed the
Merger Agreement, and AIG and Aon executed the Preferred Stock Purchase
Agreement. A joint press release by the Company and Aon announcing the
execution of such Agreements was then issued.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Maryland State Takeover Laws. Subtitle 6 of Title 3 of the MGCL (the
"Maryland Business Combination Law") prohibits certain business combinations
(including certain mergers, consolidations, share exchanges, sales or
dispositions of assets, issuances of stock, liquidations, reclassifications
and benefits from the corporation, including loans or guarantees) between a
Maryland corporation and any interested shareholder (defined generally as any
person who, directly or indirectly, beneficially owns 10 percent or more of
the outstanding voting power of the stock of the corporation or an affiliate
of the corporation who, at any time within the two-year period prior to the
date in question, was the beneficial owner of ten percent or more of the
voting power of the corporation's outstanding voting stock) for five years
after the most recent date on which the interested shareholder became an
interested shareholder. After such five-year period, any such business
combination must be approved by two supermajority shareholder votes, unless,
among other conditions, the corporation's common stockholders receive a
minimum price (as calculated in the MGCL) for their shares in cash or in the
same form as previously paid by the interested shareholder for its shares.
These provisions of the MGCL do not apply to a business combination with an
interested shareholder that is approved or exempted from the supermajority
vote requirements by the board of directors of the corporation prior to the
date on which the interested shareholder became such. The Company's Board of
Directors has approved the Offer, the Merger and the Preferred Stock Purchase
Agreement. Accordingly, the Maryland Business Combination Law is inapplicable
to the Offer and the Merger.
Subtitle 7 of Title 3 of the MGCL (the "Maryland Control Share Act")
generally prohibits an acquiring person from voting control shares (as
described below) of a Maryland corporation acquired pursuant to a control
share acquisition (as described below), unless voting rights for such shares
shall have been approved by the shareholders of the corporation by the
affirmative vote of two-thirds of all votes entitled to be cast (other than
interested shares, as described below) or unless the shares are acquired
pursuant to a merger agreement with the corporation or the corporation's
charter or by-laws contain a provision, adopted prior to the acquisition,
permitting the acquisition of such shares. "Control shares" generally mean
shares of a corporation acquired by a person within any of the following
ranges of voting power: (i) one-fifth or more, but less than one-third of all
voting power; (ii) one-third or more, but less than a majority of all voting
power; or (iii) a majority or more of all voting power. "Control share
acquisition" generally means the acquisition of, ownership of, or the power to
direct the exercise of voting power with respect to, control shares, but does
not include the acquisition of shares in a merger, consolidation or share
exchange to which the corporation is a party. "Interested shares" generally
mean shares of a corporation in respect of which an acquiring person, an
officer of the corporation or an employee of the corporation who is also a
director of the corporation is entitled to exercise voting power in the
election of directors. The Company's By-laws exempt any acquisition of shares
of stock of the Company from the Maryland Control Share Act.
Rights Agreement. The Rights Agreement provides that the Rights become
exercisable only following the public announcement by the Company that a
person or group (i) has acquired beneficial ownership of 20% or more of the
outstanding Shares or (ii) has commenced a tender or exchange offer that if
consummated would result in the ownership of 20% or more of such Shares. Under
such circumstances, if the Rights become exercisable, each holder thereof
would be entitled to purchase at the then-current exercise price, that number
of Series A Junior Participating Preferred Stock, par value $1.00 per share,
equal to twice the exercise price of the
20
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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 the Right. At the
Board meeting of December 10, 1996, the Board took action to render the Rights
Agreement inapplicable to the Offer, the Merger and the transactions
contemplated by the Preferred Stock Purchase Agreement. In all other respects,
however, the Rights remains in full force and effect. Pursuant to the terms of
the Merger Agreement, the Company is prohibited from redeeming the Rights or
amending the Rights Agreement, other than as contemplated by the Merger
Agreement.
U.S. Antitrust. Under the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended, and the rules that have been promulgated thereunder by the
Federal Trade Commission (the "FTC"), certain acquisition transactions may not
be consummated unless certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the FTC and certain waiting period requirements have been satisfied. The
acquisition of Shares by Aon pursuant to the Offer is subject to such
requirements.
Pursuant to the requirements of the HSR Act, Aon filed the required
Premerger Notification and Report Forms (the "Forms") with the Antitrust
Division and the FTC on December 13, 1996. The Company filed the required
Forms with the Antitrust Division and the FTC on December 13, 1996. In the
Merger Agreement, the Company has agreed to use its reasonable best efforts to
respond as promptly as practicable to all inquiries received from the FTC or
the Antitrust Division for additional information or documentation. The
applicable provisions of the HSR Act impose a fifteen-calendar day waiting
period following Aon's filing. That waiting period is scheduled to expire at
11:59 P.M. on December 28, 1996, unless early termination of the waiting
period is granted or Aon and the Company receive a request for additional
information or documentary material prior thereto. If such a request is made,
the waiting period will be extended until the tenth day after substantial
compliance by Aon with such request. Thereafter, such waiting periods can be
extended only by court order or by agreement.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions. At any time before or after the
consummation of any such transactions, the Antitrust Division or the FTC
could, notwithstanding termination of the waiting period, take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or seeking divestiture of the Shares so acquired or divestiture of
substantial assets of Aon or the Company. Private parties may also bring legal
actions under the antitrust laws. There can be no assurance that a challenge
to the Offer on antitrust grounds will not be made, or if such a challenge is
made, what the result will be.
If any applicable waiting period under the HSR Act has not expired or been
terminated prior to the Expiration Date, the Offeror will not be obligated to
proceed with the Offer or the purchase of any Shares not theretofore purchased
pursuant to the Offer.
Canadian Antitrust. Certain provisions of the Competition Act (Canada)
require pre-merger notification to the Director of Investigation and Research
(the "Canadian Director") of significant transactions, which may include the
acquisition of a large percentage of the stock of a public company which has
Canadian operations, or a merger or amalgamation involving such an entity.
Pre-merger notification is generally required with respect to transactions in
which the parties to the transaction and their affiliates have assets in
Canada, or annual gross revenues from sales in, from or into Canada, in excess
of Cdn. $400 million and which involve the direct or indirect acquisition of
an operating business in Canada of which the value of the Canadian assets, or
the annual gross revenues from sales in or from Canada generated from such
assets, exceed Cdn. $35 million. In the case of an acquisition of shares of a
public company, the transaction must also result in the acquiror holding
voting shares which carry more than 20% of the outstanding votes (or more than
50% if the acquiror already holds 20% or more) attached to all the voting
shares of the public company. If a transaction is subject to the pre-merger
notification requirements, notice must be given either seven days ("Short-Form
Filing") or 21 days ("Long-Form Filing"), at the option of the notifier, prior
to the completion of the transaction. The Canadian Director may waive the
waiting period, or during the seven-day period require submission of the Long-
Form Filing and
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observance of the 21-day waiting period. The 21-day waiting period cannot be
extended. After the applicable waiting period expires or is waived, the
transaction may be completed.
The Canadian Director may apply to the Competition Tribunal, a specialized
tribunal empowered to deal with certain matters governed by the Competition
Act with respect to a "merger" (as defined in the Competition Act) and, if the
Competition Tribunal finds that the merger prevents or lessens or is likely to
prevent or lessen competition substantially, it may order that the merger not
proceed or, in the event that the merger has been completed, order its
dissolution or the disposition of some or all the assets or shares involved. A
merger may be subjected to an order of the Competition Tribunal whether or not
it is a notifiable transaction and whether or not any applicable waiting
period has expired.
Sub has represented to the Company that it intends to file any required
notice with respect to the Offer and the Merger with the Canadian Director
and, to the extent necessary, observe any applicable waiting period.
German Antitrust. The merger is subject to German antitrust law, which
requires the pre-closing approval of any merger or acquisition, where (i) one
party has consolidated worldwide net sales in its most recent financial year
exceeding DM 2 billion or each of at least two parties to such a transaction
has consolidated worldwide net sales exceeding DM 1 billion, and (ii) such
transaction has effects in Germany. Accordingly, a pre-closing notification
must be filed with the German Federal Cartel Office in connection with the
Merger. The German Federal Cartel Office has an initial one-month review
period in which it may either (i) approve the Merger, or (ii) initiate an
investigation to examine the consequences of the Merger, which investigation
cannot last more than a total of four months from the date of the original
notification unless the parties to the transaction have agreed to an extension
of that period. The German Federal Cartel Office can prohibit the Merger even
after expiration of the four-month period if the transaction is being
completed before either the expiration of the initial one-month period without
an earlier clearance notice from the Federal Cartel Office or, if an
investigation of the Merger has been initiated, after the expiration of the
four-month period. The Merger will not be effective under German law if a
notice of prohibition is issued by the German Federal Cartel Office within the
requisite waiting period or until (i) the one-month waiting period has expired
and no additional investigation has been initiated, (ii) the four-month
waiting period has expired or (iii) clearance notice from the German Federal
Cartel Office is received. Breach of the relevant legislation or closing the
transaction without clearance or before the expiration of the relevant waiting
periods may constitute an administrative offense and subject the Offeror and
the Company to fines. On December 16, 1996, Aon filed a notification with the
German Federal Cartel Office in connection with the Merger. Accordingly, the
initial one-month review period will expire on January 17, 1997, unless the
German Federal Cartel Office commences an investigation of the Merger or
approves the Merger prior thereto.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1 The information contained on pages 3 through 20 of the Company's Proxy
Statement, dated March 29, 1996, for the Company's 1996 Annual Meeting
of Stockholders.
2 Agreement and Plan of Merger, dated as of December 11, 1996, by and
among Aon Sub and the Company.
3 Stock Purchase and Sale Agreement, dated as of December 11, 1996,
between Aon, and AIG.
4 Joint Press Release of Aon and the Company, dated December 11, 1996.
5 Amendment to the Rights Agreement, dated as of December 11, 1996
between the Company and First Chicago Trust Company of New York.
6 Opinion, dated as of December 11, 1996 by CS First Boston.*
7 Letter to Shareholders, dated December 16, 1996, communicating the
recommendation of the Board.
</TABLE>
- --------
* Attached as Annex A hereto.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
/s/ Frank G. Zarb
By___________________________________
Name: Frank G. Zarb
Title: Chairman of the Board,
President & Chief
Executive Officer
Dated December 16, 1996
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ANNEX A
LOGO
CS First Boston Corporation 11 Madison Avenue
New York, NY 10010
Telephone 212 325-2000
December 11, 1996
Board of Directors
Alexander & Alexander Services Inc.
1185 Avenue of the Americas
New York, New York 10036
Dear Sirs and Madam:
You have asked us to advise you with respect to the fairness to the holders
of the common stock, par value $1.00 per share (the "Common Stock"), of
Alexander & Alexander Services Inc. (the "Company") from a financial point of
view of the consideration to be received by such stockholders pursuant to the
terms of the Agreement and Plan of Merger, dated as of December 11, 1996 (the
"Acquisition Agreement"), among the Company, Aon Corporation (the "Acquiror")
and Subsidiary Corporation, Inc. (the "Sub"). The Acquisition Agreement
provides for a tender offer (the "Offer") by Sub for all of the outstanding
shares of the Common Stock and the subsequent merger (the "Merger") of the
Company with the Sub pursuant to which the Company will become a wholly owned
subsidiary of the Acquiror and each outstanding share of the Common Stock will
be converted into the right to receive $17.50 in cash.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, as well as the
Acquisition Agreement. We have also reviewed certain other information,
including financial forecasts, provided to us by the Company, and have met with
the Company's management to discuss the business and prospects of the Company.
We have also considered certain financial and stock market data of the
Company, and we have compared that data with similar data for other publicly
held companies in businesses similar to those of the Company and we have
considered the financial terms of certain other business combinations and other
transactions which have recently been effected. We have also considered such
other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. In
addition, we have not made an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of the Company, nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon financial, economic, market and other conditions as they exist and
can be evaluated on the date hereof.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a portion of which is
contingent upon the consummation of the Merger. We will also receive a fee for
rendering this opinion.
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In the past, we have performed certain investment banking services for the
Company and the Acquiror and have received customary fees for such services.
Mr. Frank G. Zarb, Chairman of the Board, President and Chief Executive Officer
of the Company, is a director of CS First Boston, Inc.
In the ordinary course of our business, CS First Boston and its affiliates
may actively trade the debt and equity securities of both the Company and the
Acquiror for their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the Offer and
the Merger and does not constitute a recommendation to any stockholder as to
whether or not such stockholder should tender shares pursuant to the Offer and
is not to be quoted or referred to, in whole or in part, in any registration
statement, prospectus or proxy statement, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without CS First Boston's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the common stockholders of the
Company in the Offer and the Merger is fair to such stockholders from a
financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
/s/ Jonathan Plutzik
By:__________________________________
Jonathan Plutzik
Managing Director
A-2
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EXHIBIT 1
SECURITY OWNERSHIP OF DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
As to the beneficial ownership of the Company's Common Stock, the following
table sets forth information as of February 16, 1996, regarding each director,
director nominee and named executive officer reported under the caption
"Executive Compensation," and all directors, director nominees and executive
officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY SUBJECT TO
NAME OWNED(1)(2) OPTIONS(3)
---- ------------ ------------
<S> <C> <C>
Frank G. Zarb....................................... 299,087 350,000
H. Furlong Baldwin.................................. 2,506 --
Kenneth Black, Jr.*................................. 12,350 --
Robert E. Boni...................................... 62,459 --
W. Peter Cooke...................................... 1,476 --
E. Gerald Corrigan.................................. 2,459 --
Kenneth J. Davis.................................... 29,951 33,150
Joseph L. Dionne.................................... 3,459 --
Gerald R. Ford...................................... 2,459 --
Peter C. Godsoe..................................... 1,652
Angus M. M. Grossart................................ 3,944 --
Maurice H. Hartigan................................. 2,459 --
James B. Hurlock.................................... 2,559 --
Ronald A. Iles...................................... 38,207 70,601
Edward F. Kosnik.................................... 7,606 50,000
Vincent R. McLean................................... 13,411 --
Dennis L. Mahoney................................... 20,358 5,000
James D. Robinson III............................... 4,459 --
All director nominees, emeritus directors and
executive officers as a group (28 persons)(4)...... 638,724 735,227
</TABLE>
- --------
* Dr. Black currently serves as an emeritus director of the Company.
(1) As to non-employee directors of the Company, amounts reported include the
aggregate number of shares that are: (i) held directly or indirectly for
the benefit of the individual director listed or directly for the benefit
of members of such individual's family as to which beneficial ownership is
disclaimed and (ii) held in such director's account in the Company's trust
under the Non-Employee Director Deferred Stock Ownership Plan. (See
section captioned "Director Compensation" for further information). Of the
shares held in the Company's trust, the following shares represent
deferred fees: Mr. Baldwin 506 shares, Dr. Black 785 shares, Dr. Boni
2,459 shares, Mr. Cooke 1,476 shares, Mr. Corrigan 2,459 shares, Mr.
Dionne 2,459 shares, President Ford 2,459 shares, Mr. Godsoe 1,152 shares,
Mr. Grossart 1,476 shares, Mr. Hartigan 2,459 shares, Mr. Hurlock 2,459
shares, Mr. McLean 2,459 shares and Mr. Robinson 2,459 shares. In
addition, as to Dr. Boni, 60,000 shares represent a portion of a deferred
special compensation award made to him in 1994, and as to Dr. Black and
Messrs. Grossart and McLean, 11,065 shares, 2,468 shares and 10,752
shares, respectively, represent a deferred present value distribution from
the directors' retirement plan which was terminated on January 1, 1995.
(2) As to executive officers, including employee directors, amounts reported
include the aggregate number of shares that are: (i) held directly or
indirectly for the benefit of the individuals listed or directly for the
benefit of members of an individual's family as to which beneficial
ownership is disclaimed; (ii) held in the stock fund under the Company's
Thrift Plan or similar plans on behalf of the individual as of December
31, 1995; (iii) held in the Employee Discount Stock Purchase Plan on
behalf of the individual as of December 31, 1995; (iv) restricted stock
that may vest in the future including shares awarded, but not issued, in
connection with 1995 annual incentive awards under the Company's bonus
equity program. Does not include 516 shares and 38 shares of Common Stock
and 990 shares and 72 shares of Class C Stock held under the U.K.
Voluntary Equity Scheme attributed to Messrs. Davis and Mahoney,
respectively, who do not have any present voting or dispositive power.
(3) Represents shares which are subject to options exercisable within 60 days
from March 15, 1996.
(4) No individual director, director nominee or executive officer beneficially
owns more than 1 percent of any class of the Company's common voting
shares. All officers and directors as a group own approximately 1.51
percent of the Common Stock, approximately 0.26 percent of the Class A
Stock, 0.01 percent of the Class C Stock and approximately 1.45 percent of
the total outstanding voting shares.
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NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FRANK G. ZARB, 61
Chairman of the Board and Director since June 1994
Mr. Zarb has served as chairman of the board, chief executive officer and
president of the Company since June 1994. From November 1993 until joining the
Company, he served as vice chairman and group chief executive officer of The
Travelers Inc. He was chairman and chief executive officer of Smith Barney Inc.
and Smith Barney, Harris Upham & Co. Incorporated (subsidiaries of The
Travelers Inc.) from November 1988 until June 1993, and president of such
corporations from June 1989 until June 1993. From 1978 until 1988 he was a
general partner at Lazard Freres & Co., an investment banking firm. Previously,
he served in the United States Government as: executive director of the Energy
Resources Council and administrator for the Federal Energy Administration from
1974 until 1977; Assistant to the President of the United States for Energy
Affairs from 1975 until 1977; Associate Director of the United States Office of
Management and Budget from 1973 until 1974; and United States Assistant
Secretary of Labor from 1971 until 1972. Mr. Zarb is also a director of the
Securities Investor Protection Corporation and CS First Boston, Inc. and a
member of the Board of Trustees of Hofstra University and the Gerald R. Ford
Foundation. He is a member of the New York Stock Exchange Nominating Committee
and serves on the U.S. Enrichment Corporation's Board of Directors.
H. FURLONG BALDWIN, 64
Director since February 1996
Mr. Baldwin has served as chairman of the board of directors and chief
executive officer of Mercantile Bankshares Corporation, a Baltimore-based bank
holding company for state and nationally chartered commercial banks since 1976
and 1984, respectively. Since 1956, he has held various executive and
management positions with the bank including chairman and chief executive
officer of Mercantile-Safe Deposit & Trust Company. He is also a director of
Baltimore Gas & Electric Company, Conrail, Inc., GRC International, Inc. and
USF&G Corporation.
ROBERT E. BONI, 68
Director since May 1988
Dr. Boni is a retired chairman of the board and chief executive officer of
Armco Inc., having held these positions from February 1986 until November 1990
and February 1985 until April 1990, respectively. Dr. Boni served as non-
executive chairman of the board of directors of the Company from January 1994
to June 1994. He is also a director of Maritrans Inc.
W. PETER COOKE, 64
Director since July 1994
Mr. Cooke has served as the chairman of the World Regulatory Advisory
Practice of Price Waterhouse LLP since January 1989. Prior to joining Price
Waterhouse, Mr. Cooke was the associate director of The Bank of England and
held various executive management positions with the bank since joining in
1955. He is also the deputy chairman of the Housing Corporation, the U.K.
governmental agency responsible for channeling government resources to the
social housing sector. He is also a director of Safra Republic Holdings.
E. GERALD CORRIGAN, 54
Director since January 1995
Mr. Corrigan has served as chairman, International Advisors of Goldman, Sachs
& Co. since January 1994. From January 1985 until July 1993 he was president
and chief executive officer of the Federal Reserve Bank of New York. He is also
a trustee of a number of non-profit, public policy oriented institutions.
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<PAGE>
JOSEPH L. DIONNE, 62
Director since July 1994
Mr. Dionne has served as chairman of the board of directors and chief
executive officer of McGraw-Hill, Inc. since 1988 and 1983, respectively, and
has served in various executive and management positions since joining McGraw-
Hill in 1967. He is also a director of The Equitable Life Assurance Society of
the United States, The Equitable Companies, Incorporated, The Harris
Corporation and Ryder System Inc.
GERALD R. FORD, 82
Director since October 1994
The Honorable Gerald R. Ford was President of the United States from August
1974 through January 1977, having served as Vice President of the United States
from December 1973 through August 1974. He is a lecturer and a business
consultant to several corporations. He is also a director of The Travelers Inc.
and an advisory director to Texas Commerce Bancshares, Inc. and American
Express Company.
PETER C. GODSOE, 56
Director since February 1989
Mr. Godsoe has served as chairman of the board of directors and chief
executive officer of The Bank of Nova Scotia since January 1995 and January
1993, respectively. He previously served as the deputy chairman and president
since January 1993 and January 1992, respectively. Since 1966, he has held
various executive and management positions with the bank, including vice
chairman from 1983 until 1992 and chief operating officer during 1992. Mr.
Godsoe is also a director of Reed Stenhouse Companies Limited, the Company's
retail broking subsidiary in Canada.
ANGUS M.M. GROSSART, 58
Director since August 1985
Mr. Grossart has served as the chairman and managing director of Noble
Grossart Limited, a United Kingdom merchant bank, since 1969. He is the
chairman of Scottish Investment Trust plc and deputy chairman of Edinburgh Fund
Managers plc. He is also a director of the Royal Bank of Scotland plc and
several other publicly held corporations in the United Kingdom.
MAURICE H. HARTIGAN II, 56
Director since October 1994
Mr. Hartigan has served as executive vice president of PNC Bank Corporation
since May 1995. Prior to joining PNC Bank, Mr. Hartigan was a senior managing
director of Chemical Banking Corporation in New York, where he headed the North
America Division of Chemical's Global Bank. He served in various executive and
management positions with the bank since joining in 1965.
JAMES B. HURLOCK, 62
Director since October 1994
Mr. Hurlock is a partner and has served as chairman of the management
committee for White & Case, an international law firm headquartered in New
York, since 1967 and 1980, respectively. He joined the firm in 1959, and has
served as the resident partner of the firm's offices in Brussels, Paris, and
London.
RONALD A. ILES, 60
Deputy Chairman of the Board since October 1995 and Director since January 1995
Mr. Iles has served as chairman of Alexander & Alexander Services U.K. plc,
the parent of the Company's European operations since 1993. He served as a
senior vice president of the Company from 1985 until 1995. In
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<PAGE>
January 1995, Mr. Iles was appointed chairman of Alexander Howden Group
Limited, an entity formed from the merger of the Company's specialist and
reinsurance broking operations. Since joining the predecessor entity of
Alexander Howden Reinsurance Brokers in 1957, Mr. Iles has held various
executive and management positions, including chairman from 1981 to December
1994.
EDWARD F. KOSNIK, 51
Director since March 1995
Mr. Kosnik has served as senior executive vice president since October 1995
and as chief financial officer of the Company since August 1994 and as
executive vice president from August 1994 until October 1995. Before joining
the Company, he was chairman of the board, president and chief executive
officer of JWP, Inc., a global services company, from April 1993 until February
1994, and executive vice president and chief financial officer from December
1992 until April 1993. From 1987 until 1992, he was president and chief
executive officer of Sprague Technologies Inc., a global manufacturer of
electronic components. From 1983 until 1987, he served as executive vice
president and chief financial officer of Penn Central Corporation. He is also a
director of Buckeye Partners, L.P.
VINCENT R. MCLEAN, 64
Director since April 1980
Mr. McLean is a retired officer of Sperry Corporation, a diversified
manufacturing concern, having served as executive vice president and chief
financial officer from 1983 until 1985. He is also a director of William Penn
Life Insurance Co. of New York, Banner Life Insurance Company and a trustee of
MAS Funds.
JAMES D. ROBINSON III, 60
Director since July 1994
Mr. Robinson has served as chairman and chief executive officer of RRE
Investors, LLC, a private venture investment firm and as president of J.D.
Robinson Inc., a strategic advisory company since September 1995 and February
1993, respectively. From 1977 until February 1993 he served as chairman of the
board and chief executive officer of American Express Company, having held
various executive and management positions since joining such corporation in
1970. He is also a director of the Coca-Cola Company, Bristol-Myers Squibb
Company, First Data Corporation, New World Communications Group, Cambridge
Technology Partners and Union Pacific Corporation.
EMERITUS DIRECTORS
Emeritus directors may be designated by the Board of Directors from time to
time on an annual basis. Dr. Kenneth Black, Jr., 71, has served as an emeritus
director of the Company since May 1995 and as a director of the Company from
May 1984 until May 1995. He is the Regents' Professor Emeritus of Insurance at
Georgia State University and Executive Director of Educational Foundation Inc.
Dr. Black is also a director of Haverty Furniture Stores, Inc., Scudder
Variable Life Insurance Fund, Swiss Re Corporation and USLIFE Corporation.
6
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met eight times during 1995. All directors attended
75% or more of the aggregate number of meetings of the board and its committees
on which they served, except Messrs. Cooke and Robinson who attended 64% and
71% of such meetings, respectively, as a result of prior commitments before
joining the board.
The following are the current members and functions of the standing
committees of the Board of Directors:
AUDIT COMMITTEE. This committee assists the Board of Directors in exercising
its fiduciary responsibilities for oversight of audit and related matters,
including corporate accounting, reporting and control practices. It is
responsible for recommending to the Board of Directors the independent auditors
to be employed for the following year. The Audit Committee meets periodically
with management, financial personnel, internal auditors and the independent
auditors to review internal accounting controls and auditing and financial
reporting matters. The independent auditors and the internal auditors have
unrestricted access to the Audit Committee. This committee consists of four
nonemployee directors: Messrs. McLean (chair), Cooke, Grossart and Hartigan.
The committee met six times during 1995.
COMPENSATION, BENEFITS AND NOMINATING COMMITTEE. This committee is
responsible for overseeing the Company's executive compensation programs. It
administers certain compensation and benefit plans designated by the Board of
Directors and approves annual compensation and long-term incentive compensation
for executive officers and certain other senior executives of the Company and
its subsidiaries. This committee is also responsible for recommending nominees
for election to the Board of Directors and will consider candidate
recommendations from stockholders. Stockholders wishing to recommend
prospective nominees for the committee's consideration should submit such
recommendations in writing to: Alexander & Alexander Services Inc., 1185 Avenue
of the Americas, New York, NY 10036, Attn.: Chairman, Compensation, Benefits
and Nominating Committee. This committee consists of four non-employee
directors: Messrs. Dionne (Chair), Boni and Corrigan and President Ford. The
committee met eight times during 1995.
EXECUTIVE COMMITTEE. This committee has the authority to act for the Board of
Directors on most matters during intervals between the board's meetings and has
additional responsibilities regarding oversight of Company policy and
management controls. This committee consists of six directors: Messrs. Boni
(chair), Corrigan, Dionne, Hartigan, McLean and Zarb. The committee met twice
during 1995.
FINANCE/INVESTMENT COMMITTEE. This committee monitors the Company's financial
management and advises the Board of Directors on related matters. This
committee consists of four directors: Messrs. Godsoe (chair), Hurlock, Robinson
and Iles. The committee met five times during 1995.
PUBLIC POLICY AND ETHICS COMMITTEE. In February 1995, the Board of Directors
established the Public Policy and Ethics Committee. This committee is
responsible for overseeing the Company's continuing program relating to
standards of business conduct for its employees. This committee consists of
five directors: President Ford (chair) and Messrs. Cooke, Iles, Robinson and
Zarb. The committee met once in 1995.
DIRECTOR COMPENSATION
The Company's Non-Employee Director Deferred Stock Ownership Plan (the "NEDD
Plan") was approved by stockholders at the 1995 annual meeting of stockholders
and became effective as of January 1, 1995. Like the Company's revised
compensation programs for its executive officers and other key employees, the
NEDD Plan places its emphasis on equity-based variable compensation intended to
encourage the creation of value for stockholders.
Each non-employee director receives a single annual fee of $40,000 for all
services as a director (the "Annual Fee"), regardless of the committee services
such director provides. The Annual Fee generally is not
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paid currently to any director. Instead, payment of such Annual Fee is deferred
pursuant to the terms of the NEDD Plan. Under the NEDD Plan, in lieu of payment
of the Annual Fees, the Company will generally contribute shares of Common
Stock equal to that portion of the Annual Fees so deferred to a grantor trust
established by the Company (the "Company Trust"). Shares are then allocated to
an account established for each director (a "Director's Account"). In the event
that a non-employee director is subject to current income taxation on the
Annual Fee payable, the Company will pay sufficient cash to the non-employee
director to discharge the taxes due on the Annual Fee and the amount of stock
to be contributed to the Company Trust in respect of such director will be
reduced by like amount.
Shares contributed to a Director's Account may be sold by the independent
trustee of the Company Trust or by an investment manager appointed by the
Company after the shares have been held in the Company Trust for one year (or
earlier, upon the death of the director or a Change of Control of the Company)
at the direction of the director given during a window period more than six
months prior to the effective date of such sale. Any shares of Common Stock
then held in a Director's Account will be distributed six months following the
cessation of the Eligible Director's services as a member of the Board. To the
extent that a Director's Account holds assets other than Common Stock, such
assets will generally be distributed immediately following the time at which
the Eligible Director ceases to be a member of the Board (or earlier in the
event of a determination of hardship). Notwithstanding the foregoing, dividends
on Common Stock held in a Director's Account will be passed through to each
director as soon as practicable following the date received by the Company
Trust.
In 1995, Mr. Godsoe also received an annual retainer of Canadian $25,000 (US$
18,200) as a nonemployee director of Reed Stenhouse Companies Limited, the
Company's Canadian subsidiary.
Non-employee directors are also reimbursed for reasonable expenses. Emeritus
Directors of the Company receive no fee, retainer or other compensation for
such services, but are reimbursed for reasonable expenses. Directors who are
also employees of the Company or any subsidiary receive no additional
compensation for their services as directors of the Company.
REPORT ON EXECUTIVE COMPENSATION
BY THE COMPENSATION, BENEFITS AND NOMINATING COMMITTEE
The Company's compensation program for its executive officers is administered
and reviewed by the Compensation, Benefits and Nominating Committee (the
"CBNC") of the Board of Directors. The CBNC is comprised of four outside
directors, none of whom is an employee or former employee of the Company or a
director of another corporation that requires specific disclosure of such
relationship in this proxy statement.
COMPENSATION PHILOSOPHY
In determining the compensation payable to the Company's executive officers,
the CBNC seeks to achieve the following objectives through a combination of
fixed and variable compensation:
. Pay competitively--Provide a total compensation opportunity that is
consistent with competitive practices, enabling the Company to attract
and retain qualified executives;
. Pay for performance--Create a direct link between the compensation
payable to each executive officer and the financial performance both of
the Company generally and of the specific business unit or units for
which the executive is responsible. The amounts payable with respect to
the components of an individual's compensation will change from year to
year, depending on that financial performance; and
. Executive as Stockholders--Create a common interest between executive
officers and the Company's stockholders through the use of stock awards
that link a portion of each executive officer's compensation opportunity
directly to the value of the Company's Common Stock.
The compensation program for the key employees of the Company and its
subsidiaries (including the Company's executive officers) was revised in 1995
to increase the emphasis on variable compensation and the
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rewards payable for superior performance. To further align the interests of
management with those of stockholders, new equity based programs were approved
by stockholders at the 1995 annual meeting of stockholders.
The programs which implement the CBNC's compensation philosophy have been
developed with the assistance of outside consultants and counsel. The CBNC will
continue to annually review the Company's compensation policies and programs in
light of this philosophy and of competitive practices in the United States and
in those foreign countries in which executive officers of the Company reside
and/or geographically operate.
COMPONENTS OF EXECUTIVE COMPENSATION PROGRAM
Base Salary
The CBNC establishes each officer's base salary by comparison to competitive
market levels for the executive's job function determined by reference to
compensation paid in the industry or by a peer group, in the country where such
executive permanently resides and/or geographically operates. The "Peer Group"
used in the Stock Price Performance Graph on page 12 of this proxy statement
reflects the Company's direct competitors in its principal business. The "Peer
Group" is included in the group of corporations used for executive compensation
analysis. However, in determining executive compensation, the focus is on
recruiting and retaining executive talent. Accordingly, a larger group of
corporations than the Company's direct competitors is used for compensation
comparisons.
Base salaries generally approximate the median level of such competitive
rates and are adjusted based on individual performance. Salaries are reviewed
at regular intervals of between 12 to 24 months depending on job classification
and competitive market levels. Base salaries for executive officers were
generally increased in 1995 in accordance with the foregoing practices.
Notwithstanding this policy, certain executive officers (including Messrs.
Zarb, Davis, Kosnik, and Mahoney) have employment agreements which assure such
officers a minimum level of base salary that was determined through a process
of bilateral negotiations.
Annual Incentive
For fiscal year 1995, annual bonuses were established by the CBNC based
primarily on specified corporate and business unit performance objectives. For
certain U.S. executive officers, annual bonuses were primarily determined based
on performance against a pre-established earnings per share objective.
Individual performance compared to pre-established strategic, financial and
operational objectives determined the remaining portion of the annual incentive
of certain executive officers. For other executive officers, the performance of
the executive's business unit, primarily measured by reference to the unit's
attainment of pre-tax operating income objectives, also made up a substantial
portion of the executive's annual bonus opportunity.
Payment of annual bonuses for 1995 was partially made in the form of
restricted shares (the "BEP Shares"), in lieu of cash, under the "bonus equity
plan" which the Company recently adopted under the 1995 Long-Term Incentive
Plan (the "1995 LTIP"). Under this program, the CBNC awarded BEP Shares, which
vest on the second anniversary of the award date, to each executive officer in
lieu of a specified portion of such officer's earned cash bonus. The number of
shares awarded was determined by dividing the dollar amount designated by the
CBNC in its discretion by 75% of the fair market value based on the average of
the closing prices of the Common Stock on the Composite Tape of the New York
Stock Exchange for the five days prior to the date the shares were awarded.
This "discount" is intended to compensate the officer for the fact that BEP
Shares may be forfeited if the officer does not remain in the Company's employ
throughout the relevant vesting period.
Equity Based Incentives
The Company's equity based incentives have historically taken the form of
both stock options and restricted stock awards. The Company adopted the 1995
LTIP to provide its executive officers and other key employees equity
opportunities that are intended to further align the interests of such officers
and employees with those of
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the Company's stockholders. As noted above, the 1995 LTIP also authorizes the
award of BEP Shares in lieu of an earned portion of cash bonuses. Under this
program, the CBNC effectively uses a portion of an executive officer's cash
bonus to "purchase" stock from the Company.
Stock Options. Stock options have historically been the Company's primary
form of long-term incentive compensation. In awarding stock options to the
named executive officers in 1995, the CBNC's intent was that such options
represent a significant portion of each such officer's total compensation
opportunity, thus aligning the officer's economic interests with those of the
Company's stockholders. Consistent with this goal, all option awards in 1995
were made at the fair market value of the Common Stock as of the date of grant.
The number of options granted was based on the CBNC's subjective evaluation of
a number of factors, including competitive market practice, past grants,
management level and other matters relating to an individual's performance and
ability to influence corporate results. The CBNC believes these awards were
within the competitive range of similar awards made by the Company's
competitors for executive talent.
Restricted Stock. The CBNC has used traditional awards of restricted stock
only in special circumstances as an inducement for an executive officer to
remain in the Company's employ over a period of years or as a reward for
extraordinary performance or as a means to adjust compensation packages. It is
not the Company's practice to use traditional restricted stock awards as a
standard form of long-term incentive compensation. When used, the
circumstances, rather than past awards, constitute the primary factor for
determining the size of any restricted stock award. In addition to BEP Awards,
certain select executive officers received awards of traditional restricted
stock for a number of shares that the CBNC subjectively determined to be
necessary to induce such officers to remain in the employ of the Company or one
of its affiliates and/or reward such officer's superior performance during
1995.
Bonus Equity Awards. As is more fully described above, under the bonus equity
program, the CBNC awarded to each executive officer "discounted" restricted
stock in lieu of a portion of such officer's earned cash bonus for 1995. The
"purchase price" is discounted (up to a maximum of 25% of the value of the
stock) to reflect that the shares--including the portion related to the earned
bonus used to pay the "purchase price"--is subject to forfeiture if the officer
leaves the Company's employ prior to satisfying an additional service
requirement. These awards have at least the same retentive and incentive effect
as traditional restricted stock awards. However, as opposed to such traditional
awards, each officer effectively pays at least 75% of the cost of such shares
through foregone cash bonus payments and forfeits the shares and the "purchase
price" if the officer does not remain in the Company's employ during the
relevant vesting period.
Other Long-Term Incentive Compensation. In addition, the CBNC uses other
long-term performance based awards, payable in cash, as incentive to certain
senior executives of the Company and its subsidiaries to achieve specific
performance objectives and criteria.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Frank G. Zarb has served as chairman of the board, chief executive
officer and president of the Company since June 1994. The compensation payable
to Mr. Zarb with respect to his 1995 services was generally determined
according to the philosophy described above. Based on a performance criteria
established by the CBNC, Mr. Zarb was awarded an annual bonus of $1,304,000 for
services rendered in 1995 because the Company achieved and exceeded the
earnings per share objectives applicable to Mr. Zarb. Of this amount, $978,005
was paid in cash. The balance of Mr. Zarb's 1995 annual bonus was designated by
the CBNC as a "bonus equity plan" award. Accordingly, Mr. Zarb received 21,733
BEP Shares as part of his 1995 annual bonus in lieu of $325,995 cash. These
shares generally will not vest until early 1998.
In August 1995, pursuant to the terms of the 1995 LTIP, the CBNC awarded Mr.
Zarb 100,000 stock options based on an assessment of competitive practices for
comparable positions. With respect to Mr. Zarb's annual base salary of $900,000
set in June 1994, he received no increase in 1995 and requested no increase
during 1996. The CBNC acquiesced to Mr. Zarb's request concerning his 1996
annual base salary.
10
<PAGE>
Policy as to Section 162(m) of the Code
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
denies a publicly traded company a Federal income tax deduction for
compensation in excess of $1 million paid to certain of its executive officers
unless the amount of such excess is payable based solely upon the attainment of
objective performance criteria. The Company has undertaken to qualify
substantial components of the incentive compensation it makes available to its
executive officers for the performance exception to nondeductibility. Most
equity based awards available for grant under the Company's equity compensation
plans, and all of the equity based awards actually granted to executive
officers will so qualify. Amounts payable under the Company's Performance Bonus
Plan for Executive Officers, including amounts payable under the bonus equity
program, should also be exempt from the application of such Section 162(m) as
performance based compensation. However, in appropriate circumstances, it may
be necessary or appropriate to pay compensation or make incentive or retentive
awards that do not meet the performance based exception and therefore may not
be deductible by reason of Section 162(m).
COMPENSATION, BENEFITS AND NOMINATING
COMMITTEE
Joseph L. Dionne, Chairman
Dr. Robert E. Boni
E. Gerald Corrigan
The Honorable Gerald R. Ford
11
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The graph below provides an indicator of cumulative total stockholder
returns for the Company for the period December 31, 1990 to December 31, 1995
compared with the S&P 500 Stock Index and a peer group. The peer group is
comprised of the largest publicly traded companies worldwide which compete
against the Company in its principal industry segment. The members of the peer
group are as follows: Marsh & McLennan Cos. Inc., Arthur J. Gallagher & Co.,
Sedgwick Group plc and Willis Corroon Group plc. Total return is measured by
the increase or decrease in value of $100 invested at the beginning of the
period, including both reinvestment of dividends and capital appreciation or
depreciation.
INSERT BAR GRAPHIC
12
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded or paid to, or earned
by, the Company's Chief Executive Officer and each of the Company's other four
most highly compensated executive officers (referred to collectively with the
Chief Executive Officer as the "named executives") for the years ended December
31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------- --------------------------------
AWARDS PAYOUTS
--------------------- ----------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND COMPENSATION AWARD(S) OPTIONS LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(3) ($)(4) ($)(5) (#)(6) PAYOUTS($) ($)(7)(8)
------------------ ---- --------- ----------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank G. Zarb(1) ....... 1995 $900,000 $ 978,005 -- $ 325,995 100,000 -- $40,242
Chairman, CEO, 1994 $487,500 $1,000,000 $4,773,887 600,000 -- $25,163
President and Director
of the Company
Kenneth J. Davis(2) .... 1995 $427,984 $ 295,680 $ 90,923 $ 397,358 25,000 -- $ 379
Chairman of A&A Int'l 1994 $327,674 $ 299,591 $ 53,450 $ 210,625 50,000 -- $ 367
Inc., EVP of the
Company and CEO of A&A
Europe, Ltd.
Ronald A. Iles(2) ...... 1995 $528,430 $ 360,726 $105,473 $ 90,180 -- -- $20,244
Deputy Chairman of the 1994 $440,640 $ 526,868 $ 52,536 $ 421,250 50,000 -- $14,744
Company, Chairman of 1993 $430,357 $ 292,012 -- 20,000 $235,966 $15,657
A&A Services UK plc and
Chairman of
Alexander Howden Group
Ltd.
Edward F. Kosnik(1) .... 1995 $325,096 $ 379,920 -- $ 94,980 100,000 -- $13,724
Senior EVP, CFO and 1994 $109,231 $ 125,000 -- -- 150,000 -- $ 4,665
Director of the Company
Dennis L. Mahoney(2) ... 1995 $492,885 $ 321,554 $ 62,369 $ 448,808 -- -- $ 379
EVP of the Company and 1994 $475,830 $ 477,360 $100,563 -- 50,000 -- $ 367
Deputy Chairman and
Group Chief Executive
Officer of Alexander
Howden Group, Ltd.
</TABLE>
- -------
(1) Certain amounts were not required to be reported in 1993 because the named
executive was either not an employee of the Company or not an "executive
officer" of the Company as defined under the Securities Exchange Act of
1934.
(2) All cash compensation was paid in U.K. pounds sterling. Any amounts paid in
pounds sterling have been restated in U.S. dollars based on the average
exchange rate expressed in dollars per (Pounds)1.00 of 1.58 in 1995, 1.53
in 1994, and 1.50 in 1993.
(3) That portion of each executive officer's 1995 bonus paid in the form of BEP
Shares is reported in this table under "Restricted Stock Awards" (also
footnote 5 below).
(4) These awards sometimes take the form of non-cash compensation or other
personal benefits because of tax regulations or competitive business
practices in a particular country or region. In this category, Mr. Davis
received a $26,082 car allowance and $63,756 for housing expenses. Mr. Iles
received $26,316 car allowance and $42,127 for other transportation
expenses. Mr. Mahoney received $44,450 for housing expenses.
(5) Awards reported in 1995 reflect the dollar value of restricted shares
awarded under the "bonus equity plan" as well as the dollar value of
traditional restricted stock awarded. (See "Report on Executive
Compensation by the Compensation, Benefits and Nominating Committee" for a
description of annual incentive compensation).
The number of BEP Shares awarded as a portion of the 1995 annual bonus to
each named executive officer, together with the dollar value of the 1995 cash
bonus award foregone is as follows: Mr. Zarb 21,733 shares/$325,995; Mr.
Davis 4,928 shares/$73,920; Mr. Iles 6,012 shares/$90,180; Mr. Kosnik 6,332
shares/$94,980 and Mr. Mahoney 5,358 shares/$80,370. The restrictions on the
BEP Shares will lapse on the second anniversary of the grant date.
Excluding BEP Awards, the number of shares of restricted stock held by each
named executive as of December 31, 1995, together with the value of those
shares based on the closing market price on that date, is as follows: Mr.
Zarb--271,307 shares/$5,154,833; Mr. Davis--25,000 shares/$475,000; Mr.
Iles--20,000 shares/$380,000 and Mr. Mahoney--15,000 shares/$285,000. The
restrictions on 20,290 shares of restricted stock granted to Mr. Zarb will
lapse less than two years after date of grant.
(6) No stock appreciation rights ("SARs") have been granted by the Company
since January 1990. For all years reported, limited stock appreciation
rights ("LSARs") were granted to executive officers in tandem with stock
option awards. The LSARs are not included in this table and are described
below under the caption "Severance and Other Arrangements."
(7) Amounts reported in 1995 include: (i) matching contributions made by the
Company under the Thrift Plan and an unfunded supplemental retirement plan
of $39,912 for Mr. Zarb and $13,394 for Mr. Kosnik; (ii) matching
contributions under the U.K. Equity Scheme of $379 for each of Messrs.
Davis, Iles, and Mahoney; (iii) insurance premiums paid by the Company of
$330 for each of Messrs. Zarb and Kosnik; and (iv) interest of $19,865 on a
contingent benefit agreement earned by Mr. Iles and paid by the Company.
(8) The Company has entered into arrangements with certain of the named
executives that may result in payments to such executives upon termination
of employment or a change in control of the Company. These arrangements are
described below under the caption "Other Arrangements."
13
<PAGE>
COMPENSATION ARRANGEMENTS WITH NAMED EXECUTIVE OFFICERS
FRANK G. ZARB. Mr. Zarb entered into an employment agreement dated as of June
16, 1994 with the Company. The term of employment ends on the last day of the
month when Mr. Zarb attains the age of 65 and provides for a minimum annual
base salary of $900,000 and a bonus opportunity of at least $1.2 million. In
addition, pursuant to the agreement, Mr. Zarb was credited with five years of
"Continuous Employment" under the Alexander & Alexander Services Inc. and
Subsidiaries Supplemental Executive Retirement Plan for Management (the
"SERP"). The agreement also provides that if Mr. Zarb retires after age 62, he
will receive the difference, if any, between amounts payable under certain
defined benefit plans of his prior employer, The Travelers Inc., and the
aggregate amount payable under the SERP and certain other benefit plans. If Mr.
Zarb's employment under the agreement is terminated before age 65 by the
Company other than for cause or by Mr. Zarb for good reason (which, for
purposes of the agreement, includes a reduction in annual base salary or bonus
opportunity, involuntary relocation or a material breach of the agreement by
the Company), Mr. Zarb is entitled to receive $6 million if terminated before
June 16, 1996, and $4 million if terminated on or after June 16, 1996. The
maximum amount payable upon such termination of employment, when added to the
value of the stock options and restricted stock received under the employment
agreement is limited to $20 million. However, if the termination occurs for any
reason at any time following a change of control of the Company, the cash
severance Mr. Zarb is entitled to receive would be $12 million, and no maximum
limit would be placed on the aggregate of cash severance and the value of the
stock option and restricted stock granted pursuant to the agreement. In
addition to the foregoing, Mr. Zarb received LSARs in tandem with the stock
options granted pursuant to the agreement. In connection with the shares of
restricted stock awarded to Mr. Zarb in June 1994 and February 1995, the
Company has also agreed to file a registration statement under the Securities
Act of 1933 covering such shares.
KENNETH J. DAVIS. Mr. Davis entered into an employment agreement dated June
23, 1982 with a United Kingdom subsidiary of the Company. The term of
employment is through March 31, 2003. The employer may terminate the agreement
before March 31, 2003, and cease payment of all remuneration except amounts
previously accrued, under certain circumstances, including gross negligence in
the performance of duties or a criminal conviction (other than a minor
violation). The agreement provides for annual review of base salary. The salary
paid under this agreement in 1995 is disclosed in the Summary Compensation
Table. The agreement also provides for disability and retirement benefits, and
certain other perquisites.
RONALD A. ILES. In January 1988, the Company entered into a contingent
benefit agreement with Mr. Iles, payment of which was conditioned on Mr. Iles'
continued employment with the Company through December 1995. The total amount
payable to Mr. Iles from a notional account is based on assumed investments of
$30,000 made annually on March 1, 1986 through March 1, 1989, with the notional
investment earning interest calculated at a rate equal to the average of
Moody's monthly average of seasoned Triple A corporate bonds for the year,
compounded annually. Mr. Iles will be entitled to receive payment during 1996
of an amount equal to the balance in the notional account accrued through
December 31, 1995. The payment may be made in up to five installments. The
balance of the notional account will continue to earn interest at the rate
indicated until the final installment is paid.
EDWARD F. KOSNIK. Mr. Kosnik entered into an employment agreement dated as of
February 15, 1996 with the Company. The term of employment is through August
31, 2000. The agreement provides him a minimum annual base salary of $400,000
and a guaranteed minimum bonus for 1995 and 1996 of $200,000. The Company may
terminate the employment of Mr. Kosnik without notice, and cease payment of all
remuneration except amounts previously accrued, under certain circumstances,
including failure to perform his duties and responsibilities for at least ten
business days or the commission of a criminal act which the board of directors
determines will have a material adverse impact on the business or reputation of
the Company. If Mr. Kosnik's employment is terminated by the Company other than
for cause or by Mr. Kosnik for good reason (which, for purposes of the
agreement, includes a reduction in annual base salary, involuntary relocation
or a material breach of the agreement by the Company), Mr. Kosnik is entitled
to receive a single lump sum payment of an amount equal to two times his then
current annual salary and his targeted annual bonus in lieu of any benefits
under the
14
<PAGE>
Company's Senior Executive Severance Plan (the "Senior Severance Plan"). In
addition, the Company must continue to provide health and life insurance and
other benefits which Mr. Kosnik would be entitled to under the Senior Severance
Plan for a period of up to 24 months. The agreement was amended as of February
16, 1996, to provide for Mr. Kosnik's severance following a potential or actual
change of control to be governed by the Company's Employment Continuation
Agreement which is described more fully below.
DENNIS L. MAHONEY. Mr. Mahoney entered into an employment agreement dated
October 11, 1990 with a United Kingdom subsidiary of the Company. The term of
employment is through September 20, 2010. However, the agreement may be
terminated by either party upon 12 months prior written notice. The employer
may terminate the employment of Mr. Mahoney without notice, and cease payment
of all remuneration except amounts previously accrued, under certain
circumstances, including the failure to efficiently and diligently perform his
duties or a criminal conviction (other than a minor violation). The agreement
provides for an annual base salary that is subject to periodic review and
increase. The base salary paid under this agreement in 1995 is disclosed in the
Summary Compensation Table. If the employer terminates Mr. Mahoney without
cause and without the required notice, the employer must pay severance equal to
the base salary under the agreement, and must continue to provide medical and
long-term disability insurance and other benefits included under the agreement
for a period of 12 months. In addition, Mr. Mahoney will be credited with
benefits under the U.K. Pension Scheme calculated as if he had worked for an
additional 12 months or, if earlier, until the termination date of the
agreement, at a salary equal to his then annual base salary. If a change of
control of the Company occurs and the Company gives notice of termination or
terminates Mr. Mahoney's agreement without cause, the Company must pay
severance equal to one year's base salary and provide the benefits and
perquisites otherwise included under the agreement for an additional 12 months.
In addition, upon expiration of the 12 months period following termination of
employment, Mr. Mahoney will be entitled to receive an additional payment equal
to one and one-half times his base salary under the agreement during his final
12 months of employment, less any taxes owed, provided that in the employer's
judgment he has complied with certain non-competition and other provisions.
OTHER ARRANGEMENTS
EMPLOYMENT CONTINUATION AGREEMENTS. The Company has entered into employment
continuation agreements with Messrs. Iles, Kosnik and Mahoney. The agreements
provide that in the event an executive's employment is terminated under certain
circumstances within three years following a change of control (as defined in
the agreement) or during a potential change of control (as defined in the
agreement) each executive will be entitled to a specified severance benefit
equal to three times their annual compensation and also provide for the
continuation of certain employee benefits for a period of three years following
a qualifying termination, and a cash payment in respect of the value of certain
other payments. The benefits afforded under these agreements are in lieu of,
and not in addition to, other severance benefits. Under the events specified,
executives will be entitled to payment of severance benefits under the
agreement if employment is terminated by the executive for "good reason" or by
the Company for any reason other than (i) executive's conviction of a felony,
(ii) any acts of dishonesty or gross misconduct by the executive, or (iii)
repeated violations of executive's obligations under the agreement. For the
purpose of the agreement "good reason" is defined as any reduction in the
executive's then annual compensation and benefits and relocation more than 35
miles from the location at which the executive performed his services
immediately prior to the change of control. Executives are not entitled to a
severance benefit under this agreement in the event of change of the
executive's title or reduction of duties. The agreements also contain a non-
solicitation provision in connection with any severance benefit received under
this agreement. No additional payments will be made by the Company under the
agreements to compensate the executive for any excise taxes imposed on
payments.
TERMINATION PROTECTION AGREEMENTS. The Company has entered into termination
protection agreements with U.S. senior executives, including Messrs. Zarb and
Kosnik. These agreements provide that in the event that (i) the officer's
employment is terminated under certain circumstances within three years
following a change of control of the Company (as defined in the agreements) and
(ii) benefits are not paid under the terms of the Senior
15
<PAGE>
Severance Plan or any other employee benefit or compensation plan, program or
arrangement in which the officer participates, the Company will pay the officer
such benefits as would have been paid under the termination provisions of any
applicable plan, program or arrangement. An officer will be entitled to payment
of severance benefits under his agreement if that officer's employment is
terminated (i) by the officer for good reason (as defined in the Senior
Severance Plan), or (ii) by the Company for any reason other than on account of
the officer's conviction of a felony. The agreements also provide for
additional payments to compensate the officer for any excise taxes imposed on
payments under the agreements.
LIMITED STOCK APPRECIATION RIGHTS ("LSARS"). Under the 1995 LTIP and
predecessor long-term incentive plans (the "Predecessor Plans") as currently in
effect, the CBNC may also provide for the grant of LSARs. LSARs may be
exercised for a specified period of time following a change of control. Upon
exercise of a LSAR, the holder thereof is entitled to receive the difference
between the exercise price and the greater of (i) the highest sales price
offered in connection with a transaction resulting in a change of control or
(ii) the highest average of the sales price of the Common Stock during the 30
day period preceding a change in the composition of the Company's Board of
Directors constituting a change of control. LSARs have been granted in tandem
with all outstanding nonqualified stock options awarded to the named executive
officers under the 1995 LTIP and Predecessor Plans. In 1995, LSARS were granted
in tandem with options granted to the named executive officers under the 1995
LTIP, which grants are included in the information reported in the Summary
Compensation Table above.
OPTION GRANTS IN 1995
The following table sets forth information concerning individual grants of
stock options made to the named executives during 1995:
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM(3)
--------------------------------------------- ----------------------------
% OF TOTAL
OPTIONS EXERCISE
OPTIONS GRANTED TO OR BASE
GRANTED EMPLOYEES IN PRICE EXPIRATION
NAME (SHARES)(2) FISCAL 1995 ($/SHARE) DATE 5%(3) 10%(3)
---- ----------- ------------ --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Zarb ................. 100,000 3.3% $24.50 8/17/05 $ 1,541,000 $ 3,905,000
Kenneth J. Davis .............. 25,000 0.8% $24.50 7/18/05 $ 385,250 $ 976,250
Ronald A. Iles ................ -- -- -- -- -- --
Edward F. Kosnik .............. 100,000 3.3% $24.50 7/18/05 $ 1,541,000 $ 3,905,000
Dennis L. Mahoney ............. -- -- -- -- -- --
</TABLE>
- --------
(1) All options are exercisable for Common Stock at an exercise price equal to
the fair market value of the Common Stock at the date of grant. During
1995, no SARs were issued under the 1995 LTIP. LSARs are not included in
this table and are described under the caption "Other Arrangements."
(2) Options awarded to Messrs. Zarb, Davis and Kosnik are exercisable 50
percent beginning two years from the date of grant and the remaining 50
percent beginning three years from the date of grant.
(3) The dollar amounts under the 5% and 10% columns in the table above are the
result of calculations required by the SEC and therefore are not intended
to forecast possible future appreciation of the stock price of the Company.
Although permitted by the SEC's rules, the Company did not use an alternate
formula for grant date valuation because the Company is not aware of any
formula which will determine with reasonable accuracy a present value based
on future unknown or volatile factors. No gain on the stock options awarded
to the named executives or other employees is possible without appreciation
in the price of the Company's Common Stock, which will benefit all
stockholders. The real value of the options in this table depends upon the
actual performance of the Company's Common Stock during the applicable
period. In order for the named executive officers to realize the potential
values set forth in the 5% and 10% columns in the table above, the price
per share of the Company's Common Stock would have to be approximately
$39.91 and $63.55, respectively, as of the expiration date of their
options.
16
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND 1995 FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning individual unexercised
options held by the named executives during the Company's 1995 fiscal year:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FY-END (SHARES) AT FY-END ($)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Frank G. Zarb .......... -- -- 350,000/350,000 $656,250/$468,750
Kenneth J. Davis ....... -- -- 33,150/82,000 $ 1,563/$0
Ronald A. Iles ......... -- -- 70,601/65,000 $ 0/$0
Edward F. Kosnik ....... -- -- 50,000/200,000 $ 0/$0
Dennis L. Mahoney ...... -- -- 5,000/55,000 $ 0/$0
</TABLE>
PENSION TABLES
The following table sets forth estimated annual benefits payable upon
retirement under a program maintained for the Company's employees in the United
States through a funded, noncontributory pension plan qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Basic Plan"), and
an unfunded supplemental executive retirement plan.
U.S. PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE
PENSIONABLE
EARNINGS(1) YEARS OF SERVICE(2)
- ----------- -------------------------------------------------------------
5 10 15 20 25 30 35
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 350,000 $23,982 $ 47,963 $ 71,945 $100,301 $128,658 $157,015 $185,371
400,000 27,482 54,963 82,445 114,926 147,408 179,890 212,371
450,000 30,982 61,963 92,945 129,551 166,158 202,765 239,371
500,000 34,482 68,963 103,445 144,176 184,908 225,640 266,371
600,000 41,482 82,963 124,445 173,426 222,408 271,390 320,371
700,000 48,482 96,963 145,445 202,676 259,908 317,140 374,371
800,000 55,482 110,963 166,445 231,926 297,408 362,890 428,371
900,000 62,482 124,963 187,445 261,176 334,908 408,640 482,371
1,000,000 69,482 138,963 208,445 290,426 372,408 454,390 536,371
</TABLE>
- --------
(1) The normal retirement benefit is a monthly income for life determined
pursuant to a formula based on an employee's credited years of service and
average annual pensionable credited earnings (which generally does not
include incentive compensation payments) for the 60 highest consecutive
months prior to retirement ("Final Average Earnings"). The amount of an
employee's covered compensation is based on the 35-year period ending with
the employee's Social Security retirement age. If approved by the CBNC,
earnings other than Final Average Earnings ("Pensionable Earnings") may be
used to calculate the normal retirement benefit. The amounts shown are not
subject to any deduction for Social Security or other offset amounts and
are payable in the form of a straight life annuity.
(2) Pursuant to the terms of Mr. Zarb's employment agreement, the Company
agreed that, if he should retire after attaining age 62, it would provide
Mr. Zarb with such additional supplemental retirement benefits as were
necessary to assure that he receives retirement benefits in the aggregate
from the Company and its plans and the defined benefit retirement plans at
The Travelers Inc. and its subsidiaries (the "Travelers Plans") that are at
least equal to the retirement benefits he would have received from the
Travelers Plans had he retired from The Travelers Inc. on the same date as
he retires from the Company. As of December 31, 1995, there were no accrued
benefits payable to Mr. Zarb under this provision of his agreement.
(3) The approximate credited years of service for each of the named executives
who participates in the Basic Plan and supplemental retirement plan is as
follows: Mr. Zarb at age 61--18 months; and Mr. Kosnik at age 51--16
months. Messrs. Davis, Iles and Mahoney are not eligible to participate in
either the Basic Plan or the supplemental executive retirement plan.
17
<PAGE>
The following table sets forth estimated annual benefits payable upon
retirement under the Alexander & Alexander U.K. Pension Scheme (the "U.K.
Pension Scheme"):
U.K. PENSION SCHEME TABLE (1)
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE(3)
PENSIONABLE ----------------------------------------------------------------------------
EARNINGS(2) 30 35 40
----------- -------- -------- --------
<S> <C> <C> <C>
$276,458 $138,229 $161,267 $184,306
315,952 157,976 184,306 210,634
394,940 197,470 230,381 263,294
473,928 236,964 276,458 315,952
552,916 276,458 322,535 368,610
631,904 315,952 368,610 421,270
710,892 355,446 414,687 473,928
</TABLE>
- --------
(1) The retirement benefit will be paid in pounds sterling. Amounts have been
stated in U.S. dollars based on the average 1995 exchange rate expressed in
dollars per (Pounds)l.00 of 1.58.
(2) The normal retirement benefit is a monthly income for life, with a
guarantee of 60 months payment, equal to a percentage of an employee's
"final pensionable salary" which is determined based on credited years of
service. The maximum percentage, reached after 40 years of credited
service, is 66.67 percent. The "final pensionable salary" is the highest
average annual salary paid during any three consecutive years during the
last 10 years prior to retirement. All pension payments are indexed at 3
percent per year. Mr. Iles reached normal retirement age in December 1995
when he elected to take a lump sum benefit of $118,134 from the plan and to
defer pension payment of $313,677 per year until his retirement. Mr.
Mahoney will be entitled to a retirement benefit equal to 29.2 percent and
increasing to 66.67 percent in September 2010 of his then current
pensionable salary; and Mr. Davis will be entitled to a retirement benefit
equal to 54.6 percent and increasing to 66.67 percent in March 2003 of his
then current pensionable salary. 1995 salaries for Messrs. Iles, Mahoney
and Davis in U.S. dollars equaled $528,430, $492,885 and $427,984,
respectively. The amounts shown are not subject to any deduction for Social
Security or other offset amounts.
(3) The approximate credited years of service for each of the named executives
who participates in the U.K. Pension Scheme are as follows: Mr. Davis at
age 53--32 years and 9 months; Mr. Iles 40 years and Mr. Mahoney at age
45--17 years and 6 months. Messrs. Zarb and Kosnik do not participate in
the U.K. Pension Scheme.
CERTAIN TRANSACTIONS
Mr. Grossart, who is a director of the Company, is also a director of Noble
Grossart Limited ("Noble Grossart"), a U.K. merchant bank. In addition, he is a
director and shareholder of Noble Grossart Holdings Limited ("N.G. Holdings"),
which owns 100 percent of Noble Grossart. Mr. Grossart owns 34 percent of the
shares of N.G. Holdings. In January 1995, a subsidiary of the Company sold its
20 percent interest in the shares of N.G. Holdings (the "Minority Interest").
In connection with the sale of the Company's Minority Interest, the Company
received $7.2 million in cash proceeds.
Mr. Godsoe, who is a director of the Company, is also chairman of the board
and chief executive officer of The Bank of Nova Scotia. During 1995, the
Company paid $196,600 and $89,000 to the Bank of Nova Scotia in connection with
a letter of credit issued by the bank for the settlement of certain
contingencies and commitment fees in connection with the Company's $200 million
revolving credit facility (the "Credit Facility"), respectively. In addition,
several subsidiaries of the Company have banking relationships with The Bank of
Nova Scotia which include credit facilities, letters of credit and interest
rate and foreign exchange hedging facilities. The amounts paid under these
arrangements amounted to $8,440.
18
<PAGE>
Mr. Hartigan, who is a director of the Company, is also executive vice
president of PNC Bank Corporation ("PNC"). During 1995, the Company paid
$89,000 to PNC in connection with its role as the confirming bank for a letter
of credit issued by The Bank of Nova Scotia for the settlement of certain
contingencies. The Company also paid PNC commitment and upfront fees of $44,925
in connection with its Credit Facility.
Mr. Hurlock, who is a director of the Company, is also a partner in the law
firm of White & Case. In connection with services rendered by White & Case, the
Company paid legal fees of approximately $354,358 during 1995, and
approximately $58,388 during 1996 to date.
As reported under the heading "Security Ownership of Certain Beneficial
Owners," Prudential Insurance Company of America ("Prudential") holds
approximately 9.44 percent of the Company's Common Stock. U.S. subsidiaries of
the Company place insurance and reinsurance with Prudential. In connection with
such placements, the Company estimates that those subsidiaries earned
$2,694,000 during 1995, and $251,133 during 1996 to date. In addition, the
Company paid Prudential $2,354 for advisory services during 1995.
19
<PAGE>
EXHIBIT 2
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AMONG
AON CORPORATION,
SUBSIDIARY CORPORATION, INC.
AND
ALEXANDER & ALEXANDER SERVICES INC.
Dated as of December 11, 1996
<PAGE>
TABLE OF CONTENTS
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ARTICLE I
THE OFFER
SECTION 1.1 The Offer............................................ 2
SECTION 1.2 Company Actions...................................... 3
SECTION 1.3 Reed Stenhouse Companies Limited..................... 5
SECTION 1.4 Alexander & Alexander Services UK plc................ 6
SECTION 1.5 MJDS................................................. 7
ARTICLE II
THE MERGER
SECTION 2.1 The Merger........................................... 7
SECTION 2.2 Closing.............................................. 7
SECTION 2.3 Effective Time....................................... 8
SECTION 2.4 Effects of the Merger................................ 8
SECTION 2.5 Charter and By-laws; Officers and Directors.......... 8
ARTICLE III
EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES
SECTION 3.1 Effect on Stock...................................... 9
SECTION 3.2 Surrender of Certificates............................ 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.1 Organization......................................... 13
SECTION 4.2 Subsidiaries......................................... 13
SECTION 4.3 Capital Structure.................................... 14
SECTION 4.4 Authority............................................ 15
SECTION 4.5 Consent and Approvals; No Violations................. 16
SECTION 4.6 SEC Documents and Other Reports...................... 18
SECTION 4.7 Absence of Material Adverse Change................... 18
SECTION 4.8 Information Supplied................................. 18
SECTION 4.9 Compliance with Laws................................. 19
SECTION 4.10 Licenses and Permits................................. 19
SECTION 4.11 Tax Matters.......................................... 19
SECTION 4.12 Liabilities.......................................... 20
SECTION 4.13 Opinion of Financial Advisor......................... 20
SECTION 4.14 State Takeover Statutes; Rights Agreement............ 20
SECTION 4.15 Brokers.............................................. 21
</TABLE>
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
SECTION 5.1 Organization......................................... 21
SECTION 5.2 Authority............................................ 21
SECTION 5.3 Consents and Approvals; No Violations................ 22
SECTION 5.4 Information Supplied................................. 23
SECTION 5.5 Interim Operations of Sub............................ 23
SECTION 5.6 Brokers.............................................. 23
SECTION 5.7 Financing............................................ 23
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 6.1 Conduct of Business by the Company Pending
the Merger......................................... 24
SECTION 6.2 No Solicitation...................................... 27
SECTION 6.3 Third Party Standstill Agreements.................... 28
SECTION 6.4 Other Actions........................................ 28
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Stockholder Approval; Preparation of
Proxy Statement.................................... 29
SECTION 7.2 Access to Information................................ 30
SECTION 7.3 Fees and Expenses.................................... 30
SECTION 7.4 Options.............................................. 31
SECTION 7.5 Public Announcements................................. 33
SECTION 7.6 Real Estate Transfer Tax............................. 33
SECTION 7.7 State Takeover Laws.................................. 33
SECTION 7.8 Indemnification; Directors and Officers
Insurance.......................................... 34
SECTION 7.9 Notification of Certain Matters...................... 35
SECTION 7.10 Board of Directors................................... 35
SECTION 7.11 Reasonable Best Efforts.............................. 36
SECTION 7.12 Certain Litigation................................... 37
SECTION 7.13 Employee Benefits.................................... 37
SECTION 7.14 Stapled Securities................................... 39
ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.1 Conditions to Each Party's Obligation to
Effect the Merger.................................. 40
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ARTICLE IX
TERMINATION AND AMENDMENT
<S> <C> <C>
SECTION 9.1 Termination.......................................... 41
SECTION 9.2 Effect of Termination................................ 43
SECTION 9.3 Amendment............................................ 43
SECTION 9.4 Extension; Waiver.................................... 43
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Non-Survival of Representations and
Warranties......................................... 44
SECTION 10.2 Notices.............................................. 44
SECTION 10.3 Interpretation....................................... 45
SECTION 10.4 Counterparts......................................... 45
SECTION 10.5 Entire Agreement; No Third-Party
Beneficiaries...................................... 46
SECTION 10.6 Governing Law........................................ 46
SECTION 10.7 Assignment........................................... 46
SECTION 10.8 Severability......................................... 46
SECTION 10.9 Enforcement of this Agreement........................ 46
SECTION 10.10 Obligations of Subsidiaries.......................... 47
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, dated as of December 11, 1996 (this
"Agreement"), among AON CORPORATION, a Delaware corporation ("Parent"),
SUBSIDIARY CORPORATION, INC., a Maryland corporation and a wholly-owned
subsidiary of Parent ("Sub"), and ALEXANDER & ALEXANDER SERVICES INC., a
Maryland corporation (the "Company") (Sub and the Company being hereinafter
collectively referred to as the "Constituent Corporations").
W I T N E S S E T H:
--------------------
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company have unanimously approved the acquisition of the Company by Parent
pursuant to a tender offer (as it may be amended from time to time as permitted
under this Agreement, the "Offer") by Sub for all of the outstanding shares of
Common Stock, par value $1.00 per share (the "Common Stock"), together with the
related Rights (as defined in Section 4.3), of the Company, at a price of $17.50
per share (the "Offer Price"), net to the seller in cash, without interest
thereon, followed by a merger (the "Merger") of Sub with and into the Company
upon the terms and subject to the conditions set forth herein (the shares of
Common Stock subject to the Offer are hereinafter referred to as the "Shares");
WHEREAS, the Board of Directors of the Company has (i) determined that
the consideration to be paid for each Share in the Offer is fair to and in the
best interests of the stockholders of the Company, (ii) approved and adopted
this Agreement and the transactions contemplated hereby and (iii) adopted
resolutions unanimously determining that the Offer and the Merger are advisable,
approving such transactions and recommending that the Company's stockholders
accept the Offer and approve the Merger;
WHEREAS, the Company has been advised that Parent and Sub are entering
into on the date hereof a Stock Purchase and Sale Agreement (the "Preferred
Stock Purchase Agreement") with American International Group, Inc., which,
together with certain of its subsidiaries, holds all of the outstanding shares
of the Company's 8% Series B Cumulative Convertible Preferred Stock, par value
$1.00 per share (the "Series B Preferred Stock"); and
WHEREAS, pursuant to the Merger, each issued and outstanding share of
Company Common Capital Stock (as hereinafter defined) not owned directly or
indirectly by Parent or the Company will be converted into the right to receive
the
<PAGE>
consideration paid per share of the Common Stock pursuant to the Offer.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
ARTICLE I
THE OFFER
---------
SECTION 1.1 The Offer. (a) Subject to the provisions of this
Agreement, as promptly as practicable but in no event later than five business
days after the date of the public announcement by Parent and the Company of this
Agreement, Sub shall, and Parent shall cause Sub to, commence the Offer. The
obligation of Sub to, and of Parent to cause Sub to, commence the Offer and
accept for payment, and pay for, any Shares tendered pursuant to the Offer shall
be subject only to the conditions set forth in Exhibit A (the "Offer
Conditions") (any of which may be waived in whole or in part by Sub in its sole
discretion, provided that, without the consent of the Company, Sub shall not
waive the Minimum Condition (as defined in Exhibit A)). Sub expressly reserves
the right to modify the terms of the Offer, except that, without the consent of
the Company, Sub shall not (i) reduce the number of Shares subject to the Offer,
(ii) reduce the Offer Price, (iii) impose any other conditions to the Offer
other than the Offer Conditions or modify the Offer Conditions (other than to
waive any Offer Conditions to the extent permitted by this Agreement), (iv)
except as provided in the next sentence, extend the Offer, (v) change the form
of consideration payable in the Offer or (vi) amend, waive or add any other term
of the Offer in any manner adverse to the Company or the holders of Shares.
Notwithstanding the foregoing, Sub may, without the consent of the Company, (i)
extend the Offer, if at the scheduled or extended expiration date of the Offer
any of the Offer Conditions shall not be satisfied or waived, until such time as
such conditions are satisfied or waived, (ii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the Securities
and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer
and (iii) extend the Offer for any reason for one or more occasions for an
aggregate period of not more than 10 business days beyond the latest expiration
date that would otherwise be permitted under clause (i) or (ii) of this
sentence. So long as this Agreement is in effect and the Offer Conditions have
not been satisfied or waived, Sub shall, and Parent shall cause Sub to, cause
the Offer not to expire. Subject to the terms and conditions of the Offer and
this Agreement, Sub shall, and Parent shall cause Sub to, accept for and pay
for, all Shares validly tendered and not
-2-
<PAGE>
withdrawn pursuant to the Offer that Sub is permitted to accept for payment
under applicable law, and pay for, pursuant to the Offer as soon as practicable
after the expiration of the Offer.
(b) On the date of commencement of the Offer, Parent and Sub shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-
1") with respect to the Offer, which shall contain an offer to purchase and a
related letter of transmittal and summary advertisement (such Schedule 14D-1 and
the documents included therein pursuant to which the Offer will be made,
together with any supplements or amendments thereto, the "Offer Documents").
Parent, Sub and the Company each agrees promptly to correct any information
provided by it for use in the Offer Documents if and to the extent that such
information shall have become false or misleading in any material respect, and
Parent and Sub further agree to take all steps necessary to cause the Schedule
14D-1 as so corrected to be filed with the SEC and the other Offer Documents as
so corrected to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. The Company and its
counsel shall be given reasonable opportunity to review and comment upon the
Offer Documents prior to their filing with the SEC or dissemination to the
stockholders of the Company. Parent and Sub agree to provide the Company and its
counsel any comments Parent, Sub or their counsel may receive from the SEC or
its staff with respect to the Offer Documents promptly after the receipt of such
comments.
(c) Prior to the expiration of the Offer, Parent shall provide or
cause to be provided to Sub all funds necessary to accept for payment, and pay
for, any Shares that Sub is permitted to accept for payment under applicable law
and pay for, pursuant to the Offer.
SECTION 1.2 Company Actions. (a) The Company hereby approves of and
consents to the Offer and represents that the Board of Directors of the Company,
at a meeting duly called and held, at which all directors were present, duly and
unanimously adopted resolutions approving this Agreement, the Offer and the
Merger, determining that the Offer and the Merger are advisable and that the
terms of the Offer and the Merger are fair to, and in the best interests of, the
Company's stockholders and recommending that holders of Shares accept the Offer
and that the Company's stockholders approve the Merger; provided, however, that
such approval, determination, recommendation or other action may be withdrawn,
modified or amended at any time or from time to time if a majority of the Board
of Directors of the Company determines, in its good faith judgment, based on the
opinion of independent outside legal counsel to the Company, that failing to
take such action would constitute a breach of such Board's duties
-3-
<PAGE>
under applicable law. The Company represents that its Board of Directors has
received the opinion of CS First Boston Corporation ("First Boston") that the
proposed consideration to be received by stockholders pursuant to the Offer and
the Merger is fair to the Company's stockholders from a financial point of view.
The Company has been authorized by First Boston to permit, subject to prior
review and consent by First Boston (such consent not to be unreasonably
withheld), the inclusion of such fairness opinion (or a reference thereto) in
the Offer Documents and in the Schedule 14D-9 referred to below. The Company
hereby consents to the inclusion in the Offer Documents of the recommendation of
the Company's Board of Directors described in this Section 1.2(a); provided,
however, that such recommendation may be withdrawn, modified or amended at any
time or from time to time if a majority of the Board of Directors of the Company
determines, in its good faith judgment, based on the opinion of independent
outside legal counsel to the Company, that failing to take such action would
constitute a breach of such Board's duties under applicable law. The Company
has been advised by each of its directors and executive officers that each such
person intends to tender all Shares owned by such person pursuant to the Offer.
(b) On the date the Offer Documents are filed with the SEC, the
Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from
time to time, the "Schedule 14D-9") containing the recommendation described in
paragraph (a) (subject to the withdrawal, modification or amendment of such
recommendation at any time or from time to time if the Board of Directors of the
Company determines, in its good faith judgment, based on the opinion of
independent outside legal counsel to the Company, that failing to take such
action would constitute a breach of such Board's duties under applicable law)
and shall mail a copy of the Schedule 14D-9 to the stockholders of the Company.
Each of the Company, Parent and Sub agrees promptly to correct any information
provided by it for use in the Schedule 14D-9 if and to the extent that such
information shall have become false or misleading in any material respect, and
the Company further agrees to take all steps necessary to amend or supplement
the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented
to be filed with the SEC and disseminated to the Company's stockholders, in each
case as and to the extent required by applicable federal securities laws. Parent
and its counsel shall be given reasonable opportunity to review and comment upon
the Schedule 14D-9 prior to its filing with the SEC or dissemination to
stockholders of the Company. The Company agrees to provide Parent and its
counsel any comments the Company or counsel may receive from the SEC or its
staff with respect to the Schedule 14D-9 promptly after the receipt of such
comments.
-4-
<PAGE>
(c) In connection with the Offer and the Merger, the Company shall
cause its transfer agent to furnish Sub promptly with mailing labels containing
the names and addresses of the record holders of Shares as of a recent date and
of those persons becoming record holders subsequent to such date, together with
copies of all lists of stockholders, security position listings and computer
files and all other information in the Company's possession or control regarding
the beneficial owners of Shares, and shall furnish to Sub such information and
assistance (including updated lists of stockholders, security position listings
and computer files) as Parent or Sub may reasonably request in communicating the
Offer to the Company's stockholders. Subject to the requirements of applicable
law, and except for such steps as are necessary to disseminate the Offer
Documents and any other documents necessary to consummate the Merger, Parent and
Sub and their agents shall hold in confidence the information contained in any
such labels, listings and files, will use such information only in connection
with the Offer and the Merger and, if this Agreement shall be terminated, will,
upon request, deliver, and will use their reasonable best efforts to cause their
agents to deliver, to the Company all copies of such information then in their
possession or control.
SECTION 1.3 Reed Stenhouse Companies Limited. The Company shall cause
Reed Stenhouse Companies Limited, a corporation organized under the laws of
Canada and a Subsidiary of the Company ("RSC"), to transmit to each holder of
the Class 1 special shares of RSC (the "RSC Class 1 Shares"), contemporaneously
with the transmission of the Offer Documents to the holders of Common Stock: (i)
the Offer Documents; (ii) a letter stating that holders of RSC Class 1 Shares
who wish to participate in the Offer must request retraction of such RSC Class 1
Shares for shares of Common Stock pursuant to Section 5 of the Restated
Certificate of Incorporation of RSC; and (iii) a form of retraction request,
which retraction request shall provide that a holder of RSC Class 1 Shares
requests retraction thereof on the date Sub first accepts for payment Shares
pursuant to the Offer and contemporaneously therewith, and that the shares of
Common Stock received upon such retraction shall be deemed validly tendered
pursuant to the Offer. RSC shall retract such RSC Class 1 Shares in accordance
with such retraction request (and the Company represents and warrants that such
retraction can be effected in compliance with Section 36 of the Canada Business
Corporations Act) and the Company shall cause to be issued (for tender as so
requested) such number of shares of Common Stock as is necessary to satisfy the
redemption price in accordance with the Restated Articles of Incorporation of
RSC and the related Keepwell Agreement (the "Keepwell Agreement"), between the
Company and RSC. In addition, the Company shall cause (x) RSC to transmit to the
holders of RSC Class 1 Shares a recommendation of
-5-
<PAGE>
the Company and RSC that such holders retract such shares and tender the shares
of Common Stock received on such retraction pursuant to the Offer and (y) the
transfer agent for the RSC Class 1 Shares to furnish Sub promptly with mailing
labels containing the names and addresses of the record holders of RSC Class 1
Shares as of a recent date and of those persons becoming record holders
subsequent to such date, together with all copies of all lists of stockholders,
security position listings and computer files and all other information in the
Company's or RSC's possession or control regarding the beneficial owners of RSC
Class 1 Shares, and shall furnish to Sub such information and assistance
(including updated lists of stockholders, security position listings and
computer files) as Parent or Sub may reasonably request in communicating the
documentation referred to in the first sentence of this Section 1.3 to the
holders of RSC Class 1 Shares. Parent and Sub and their agents shall hold in
confidence the information contained in any such labels, listings and files,
will use such information only in connection with the Offer and the Merger and,
if this Agreement shall be terminated, will, upon request, deliver, and will use
their reasonable best efforts to cause their agents to deliver, to the Company
all copies of such information then in their possession or control.
SECTION 1.4 Alexander & Alexander Services UK plc. The Company shall,
and shall cause Alexander & Alexander Services UK plc, a corporation organized
under the laws of Scotland and a Subsidiary of the Company ("AAUK"), to,
transmit to each holder of any share of Class C Common Stock (as defined in
Section 3.1) and any related Dividend Share of AAUK (the "Dividend Shares"),
contemporaneously with the transmission of the Offer Documents to the holders of
Common Stock: (i) the Offer Documents; (ii) a letter stating that holders of
shares of Class C Common Stock and the related Dividend Shares who wish to
participate in the Offer must request the conversion of the shares of Class C
Common Stock into shares of Common Stock pursuant to Subsection E of Article
SIXTH of the Charter of the Company; and (iii) a form of conversion request,
which conversion request shall provide that a holder of shares of Class C Common
Stock requests conversion thereof on the date Sub first accepts for payment
Shares pursuant to the Offer and contemporaneously therewith, and that the
shares of Common Stock received upon such conversion shall be deemed validly
tendered pursuant to the Offer. The Company shall cause the cancellation of such
shares of Class C Common Stock in accordance with such conversion request and
the Company shall issue (for tender as so requested) such number of shares of
Common Stock as is necessary to satisfy such conversion request in accordance
with the Charter of the Company. In addition, the Company shall (x) transmit to
the holders of the shares of Class C Common Stock a recommendation of the
Company and AAUK that such holders convert such shares and tender the shares of
Common Stock
-6-
<PAGE>
received on such conversion pursuant to the Offer and (y) the transfer agent for
the Class C Common Stock to furnish Sub promptly with mailing labels containing
the names and addresses of the record holders of shares of Class C Common Stock
as of a recent date and of those persons becoming record holders subsequent to
such date, together with all copies of all lists of stockholders, security
position listings and computer files and all other information in the Company's
or AAUK's possession or control regarding the beneficial owners of shares of
Class C Common Stock, and shall furnish to Sub such information and assistance
(including updated lists of stockholders, security position listings and
computer files) as Parent or Sub may reasonably request in communicating the
documentation referred to in the first sentence of this Section 1.4 to the
holders of shares of Class C Common Stock. Parent and Sub and their agents
shall hold in confidence the information contained in any such labels, listings
and files, will use such information only in connection with the Offer and the
Merger and, if this Agreement shall be terminated, will, upon request, deliver,
and will use their reasonable best efforts to cause their agents to deliver, to
the Company all copies of such information then in their possession or control.
SECTION 1.5 MJDS. Each of the parties shall comply with the provisions
of National Policy No. 45 adopted by the Canadian Securities Administrators in
connection with the making of the Offer to residents of Canada, unless the Offer
is an exempt takeover bid for the purposes of section 93(1)(e) of the Securities
Act (Ontario) and the comparable provisions of the securities legislation of the
other provinces of Canada.
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the General Corporation Law of the State of
Maryland (the "MGCL"), Sub shall be merged with and into the Company at the
Effective Time (as defined in Section 2.3). Following the Merger, the separate
corporate existence of Sub shall cease and the Company shall continue as the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of Sub in accordance with the MGCL.
SECTION 2.2 Closing. The closing of the Merger will take place at
10:00 a.m. on a date to be specified by Parent or Sub, which shall be no later
than the second business day after satisfaction or waiver of the conditions set
forth in
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<PAGE>
Article VIII (the "Closing Date"), at the offices of Sidley & Austin, One First
National Plaza, Chicago, Illinois 60603, unless another date, time or place is
agreed to in writing by the parties hereto.
SECTION 2.3 Effective Time. The Merger shall become effective when
Articles of Merger (the "Articles of Merger"), executed in accordance with the
relevant provisions of the MGCL, are accepted for record by the State Department
of Assessments and Taxation of Maryland (the "SDAT"); provided, however, that,
upon mutual consent of the Constituent Corporations, the Articles of Merger may
provide for a later date of effectiveness of the Merger not more than 30 days
after the date the Articles of Merger are accepted for record. When used in
this Agreement, the term "Effective Time" shall mean the later of the date and
time at which the Articles of Merger are accepted for record by the SDAT or such
later time established by the Articles of Merger. The filing of the Articles of
Merger shall be made as soon as practicable after the satisfaction or waiver of
the conditions to the Merger set forth herein.
SECTION 2.4 Effects of the Merger. The Merger shall have the effects
set forth in Section 3-114 of the MGCL.
SECTION 2.5 Charter and By-laws; Officers and Directors. (a) The
Charter (as defined in the MGCL) of the Company, as in effect immediately prior
to the Effective Time, shall be the Charter of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
(b) The By-Laws of the Company, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by the Charter of the
Surviving Corporation or by applicable law.
(c) The directors of Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation, until the next annual
meeting of stockholders (or the earlier of their resignation or removal) and
until their respective successors are duly elected and qualified, as the case
may be.
(d) The officers of the Company immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, for a term of one year
(or until the earlier of their resignation or removal) and until their
respective successors are duly elected and qualified, as the case may be.
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<PAGE>
ARTICLE III
EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES
SECTION 3.1 Effect on Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
stock of Sub or rights to acquire any such stock:
(a) Capital Stock of Sub. Each issued and outstanding share of stock
of Sub shall be converted into and become 600,000 fully paid and
nonassessable shares of Common Stock, par value $1.00 per share, of the
Surviving Corporation.
(b) Parent Owned Stock. Each share of stock of the Company
(including, without limitation, the Shares purchased pursuant to the Offer
and the shares of the Series B Preferred Stock purchased pursuant to the
Preferred Stock Purchase Agreement) owned by any Subsidiary of the Company,
Parent, Sub or any other Subsidiary of Parent (other than the shares into
which the outstanding shares of stock of Sub were converted pursuant to
Section 3.1(a)) shall automatically be canceled and retired and shall cease
to exist, and no consideration shall be delivered in exchange therefor.
(c) Conversion of Shares. Subject to Section 3.1(d), each holder of a
share of (i) the Common Stock, together with the related Right, (ii) the
Class A Common Stock, par value $.00001 per share, of the Company (the
"Class A Common Stock"), together with the related RSC Class 1 Share and
related Right, or (iii) the Class C Common Stock, par value $1.00 per
share, of the Company (the "Class C Common Stock"), together with the
related Dividend Share and related Right (the Common Stock, Class A Common
Stock and Class C Common Stock are hereinafter collectively referred to as
the "Company Common Capital Stock"), in each case, that is issued and
outstanding (other than shares to be cancelled in accordance with Section
3.1(b)), shall be paid by the Surviving Corporation as consideration for
the conversion of each share in cash, without interest and without any
further action by such holder, the price paid per share of Common Stock in
the Offer (the "Merger Consideration"). The Merger Consideration shall be
allocated, in the case of clause (i), U.S. $.01 to the Right and the
balance of the Merger Consideration to the share of Common Stock, in the
case of clause (ii), the U.S. dollar equivalent of Cdn. $.00001 to the
share of Class A Common
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<PAGE>
Stock, U.S. $.01 to the Right and the balance of the Merger Consideration
to the RSC Class 1 Share, and, in the case of clause (iii), the U.S. dollar
equivalent of 2 pence to the Dividend Share, U.S. $.01 to the Right and the
balance of the Merger Consideration to the share of Class C Common Stock.
As of the Effective Time, all such shares shall be converted in accordance
with this paragraph, and when so converted, shall no longer be outstanding
and shall automatically be cancelled and retired and shall cease to exist,
and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the
aforesaid amount, without interest.
(d) Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, any issued and outstanding shares of Class
A Common Stock, Class C Common Stock or (if the holders of shares of Common
Stock are entitled to dissenters' rights under the MGCL) Common Stock held
by a person (a "Dissenting Stockholder") who objects to the Merger and
complies with all the provisions of the MGCL concerning the right of
holders of shares to dissent from the Merger and require appraisal of their
shares ("Dissenting Shares") shall not be converted as described in Section
3.1(c), but shall become the right to receive such consideration as may be
determined to be due to such Dissenting Stockholder pursuant to the MGCL.
If, after the Effective Time, such Dissenting Stockholder withdraws his
demand for appraisal or fails to perfect or otherwise loses his right of
appraisal, in any case pursuant to the MGCL, his shares of Class A Common
Stock, Class C Common Stock or Common Stock shall be deemed to be converted
as of the Effective Time into the right to receive the Merger Consideration
allocated as provided in Section 3.1(c). The Company shall give Parent (i)
prompt notice of any demands for appraisal of shares received by the
Company and (ii) the opportunity to participate in and direct all
negotiations and proceedings with respect to any such demands. The Company
shall not, without the prior written consent of Parent, make any payment
with respect to, or settle, offer to settle or otherwise negotiate, any
such demands.
(e) Shares of Series A Convertible Preferred Stock. The holder of each
share of Series A Convertible Preferred Stock (as defined in Section 4.3)
shall have the right to convert such share only into cash in the amount of
$52.54.
SECTION 3.2 Surrender of Certificates. (a) Paying Agent. Prior to
the Effective Time, Parent shall designate a bank or trust company to act as
paying agent in the Merger (the
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"Paying Agent"), and prior to the Effective Time, Parent shall make available,
or cause the Surviving Corporation to make available, to the Paying Agent cash
in amounts necessary for the payment of the Merger Consideration as provided in
Section 3.1 upon surrender of certificates representing shares of Company Common
Capital Stock as part of the Merger (it being understood that any and all
interest earned on funds made available to the Paying Agent pursuant to this
Agreement shall be turned over to Parent). If the amount of cash deposited with
the Paying Agent pursuant to this Section 3.2 is insufficient to pay all of the
amounts required to be paid pursuant to Section 3.1, Parent from time to time
after the Effective Time shall take all steps necessary to enable or cause the
Surviving Corporation to deposit with the Paying Agent additional cash in an
amount sufficient to make all such payments.
(b) Payment Procedure. (i) Concurrently with or immediately prior to
the Effective Time, Parent or Sub shall deposit in trust with the Paying Agent
cash in United States dollars in an aggregate amount equal to the product of (A)
the number of shares of Company Common Capital Stock outstanding immediately
prior to the Effective Time (other than shares which are owned by any Subsidiary
of the Company, Parent or any Subsidiary of Parent (including Sub) or a person
known at the time of such deposit to be a Dissenting Stockholder) and (B) the
Merger Consideration (such amount being hereinafter referred to as the "Payment
Fund"). The Payment Fund shall be invested by the Paying Agent as directed by
Parent in direct obligations of the United States, obligations for which the
full faith and credit of the United States is pledged to provide for the payment
of principal and interest, commercial paper rated of the highest quality by
Moody's Investors Services, Inc. or Standard & Poor's Ratings Group or
certificates of deposit, bank repurchase agreements or bankers' acceptance a
commercial bank having at least $100,000,000 in assets (collectively, "Permitted
Investments") or in money market funds which are invested in Permitted
Investments, and any net earnings with respect thereto shall be paid to Parent
as and when requested by Parent. The Paying Agent shall, pursuant to
irrevocable instructions of Parent or Sub, make the payments referred to in this
Section 3.2 out of the Payment Fund. The Payment Fund shall not be used for any
other purpose except as otherwise agreed to by Parent.
(ii) As soon as reasonably practicable after the Effective Time, the
Paying Agent shall mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time represented shares of
Company Common Capital Stock (the "Certificates"), (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of
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the Certificates to the Paying Agent and shall be in a form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration as provided in Section 3.1. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Paying Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor the
amount of cash into which the shares of Company Common Capital Stock theretofore
represented by such Certificate shall have been converted pursuant to Section
3.1, and the Certificate so surrendered shall forthwith be cancelled. In the
event of a transfer of ownership of shares of Company Common Capital Stock that
is not registered in the transfer records of the Company, payment may be made to
a person other than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of such Certificate or establish to the satisfaction of
the Surviving Corporation that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 3.2, each Certificate (other
than Certificates representing Dissenting Shares) shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the amount of cash, without interest, into which the shares of stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 3.1. No interest will be paid or will accrue on the cash payable
upon the surrender of any Certificate.
(c) No Further Ownership Rights in Shares. All cash paid upon the
surrender of Certificates in accordance with the terms of this Article III shall
be deemed to have been paid in full satisfaction of all rights pertaining to the
shares of stock theretofore represented by such Certificates. At the Effective
Time, the stock transfer books of the Company shall be closed, and there shall
be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of stock that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Paying Agent for any reason, they
shall be cancelled and exchanged as provided in this Article III.
(d) No Liability. None of Parent, Sub, the Company or the Paying
Agent shall be liable to any person in respect of any cash delivered to a public
official pursuant to any applicable
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abandoned property, escheat or similar law. If any Certificates shall not have
been surrendered prior to two years after the Effective Time (or immediately
prior to such earlier date on which any payment pursuant to this Article III
would otherwise escheat to or become the property of any Governmental Entity (as
defined in Section 4.5)), the cash payment in respect of such Certificate shall,
to the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interests of any person previously
entitled thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to Parent and Sub as follows:
SECTION 4.1 Organization. The Company and each of its Significant
Subsidiaries (as defined in Section 10.3) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now being conducted, except where the failure to be so
organized, validly existing or in good standing would not have a Material
Adverse Effect (as defined in Section 10.3) on the Company. The Company has
delivered to Parent complete and correct copies of its Charter and By-laws and
the Charter and By-laws (or similar organizational documents) of its Significant
Subsidiaries.
SECTION 4.2 Subsidiaries. Except as set forth in item 4.2 of the
letter from the Company to Parent dated the date hereof, which letter relates to
this Agreement and is designated therein as the Company Letter (the "Company
Letter"), Exhibit 21 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 lists each Subsidiary of the Company existing as of the
date hereof (other than Subsidiaries that are immaterial) and accurately
reflects thereon the ownership interests in such Subsidiaries of the Company and
its Subsidiaries. The authorized capital stock of RSC consists of four classes
of capital stock, each unlimited in amount. As of the date of this Agreement,
1,805,616.112 RSC Class 1 Shares were issued, outstanding and (excluding 42,910
shares owned by a Subsidiary of the Company) owned by persons other than the
Company or any of its Subsidiaries, all of which shares were validly issued,
fully paid and nonassessable and free of preemptive rights, and (ii) all other
shares of capital stock of RSC were owned by the Company. The authorized
capital stock of
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AAUK consists of 46,000,000 Deferred Shares of 25 pence (Type 1), 12,927,195
Dividend Shares of 2 pence (Type 2), 37,960,000 Ordinary Non-Voting Shares 1
pence (Type 3) and 100,000,000 Ordinary Shares of (Pounds)1.00 (Type 4). As of
the date of this Agreement, (i) 372,748 Dividend Shares were issued, outstanding
and owned by persons other than the Company or any of its Subsidiaries, all of
which shares were validly issued, fully paid and nonassessable and free of
preemptive rights, and (ii) and all other shares of capital stock of AAUK were
owned by the Company and its wholly-owned Subsidiaries.
SECTION 4.3 Capital Structure. The authorized capital stock of the
Company consists of 200,000,000 shares of Common Stock, 26,000,000 shares of
Class A Common Stock, 11,000,000 shares of Class C Common Stock, 40,000,000
shares of Class D Common Stock, and 15,000,000 shares of Preferred Stock, par
value $1.00 per share (the "Company Preferred Stock"), of which 2,300,000 shares
have been designated as "Series A Convertible Preferred Stock" (the "Series A
Convertible Preferred Stock"), 500,000 shares have been designated as "Series A
Junior Participating Preferred Stock" (the "Series A Junior Preferred Stock")
and 6,200,000 shares have been designated as "8% Series B Cumulative Convertible
Preferred Stock". At the close of business on December 6, 1996, (i) 42,812,129
shares of Common Stock were issued and outstanding, all of which were validly
issued, fully paid and nonassessable and free of preemptive rights, (ii)
1,848,526.112 shares of Class A Common Stock were issued and outstanding, all of
which were validly issued, fully paid and nonassessable and free of preemptive
rights, (iii) 348,690 shares of Class C Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable and
free of preemptive rights, (iv) no shares of Class D Common Stock were
outstanding, (v) 2,300,000 shares of Series A Convertible Preferred Stock were
outstanding, all of which were validly issued, fully paid and nonassessable and
free of preemptive rights, (vi) no shares of Series A Junior Participating
Preferred Stock of the Company were outstanding and (vii) 4,751,208.9707 shares
of Series B Preferred Stock were outstanding, all of which were validly issued,
fully paid and nonassessable and free of preemptive rights. As of the date of
this Agreement, except as provided in the Company's Charter with respect to
Class A Common Stock, Class C Common Stock, Class D Common Stock, Series A
Convertible Preferred Stock and Series B Preferred Stock, except for the rights
to purchase shares of the Series A Junior Preferred Stock (the "Rights") issued
pursuant to the Rights Agreement dated as of June 11, 1987, as amended and
restated as of March 22, 1990, and as amended as of April 21, 1992, June 6,
1994, July 15, 1994 and November 16, 1995 (as so amended, the "Rights
Agreement"), between the Company and First Chicago Trust Company of New York, as
Rights Agent, and except
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for stock options covering not in excess of 6,100,000 shares of Common Stock and
rights to acquire not in excess of 600,000 shares under the Company's Employee
Discount Stock Purchase Plan, Bonus Equity Plan and Worldwide Savings Related
Stock Purchase Plan (collectively, the "Company Stock Options"), there are no
options, warrants, calls, rights or agreements to which the Company or any of
its Subsidiaries is a party or by which any of them is bound obligating the
Company or any of its Subsidiaries to issue or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of the Company or any
Subsidiary or obligating the Company or any of its Subsidiaries to grant, extend
or enter into any such option, warrant, call, right or agreement. At such time
as the amount of outstanding RSC Class 1 Shares and shares of Class C Common
Stock shall in the aggregate be less than 1,500,000, RSC shall be entitled to
cause the mandatory redemption of all outstanding RSC Class 1 Shares for shares
of Common Stock (on a share-for-share basis) in compliance with the provisions
of Section 36 of the Canada Business Corporations Act and simultaneously
therewith the Company shall be entitled to repurchase at Cdn.$0.00001 per share
all outstanding shares of Class A Common Stock. At such time as the shares of
Class A Common Stock and Class C Common Stock shall in the aggregate be less
than 1,500,000, the Company shall be entitled to cause the mandatory conversion
of all outstanding shares of Class C Common Stock into shares of Common Stock on
a share-for-share basis and simultaneously therewith AAUK shall be entitled to
mandatorily redeem at 2 pence per share all outstanding Dividend Shares.
Following the actions contemplated in Section 7.14(c), there shall be
outstanding no shares of Class A Stock, shares of Class C Stock, RSC Class 1
Shares or Dividend Shares. Following the consummation of the Merger, each share
of Series A Convertible Preferred Stock shall cease to be convertible at the
option of a holder into shares of Common Stock but will, at the option of a
holder, be convertible solely into cash of $52.54 per share of Series A
Convertible Preferred Stock (assuming the purchase of Shares pursuant to the
Offer prior to March 22, 1997).
Except as set forth in the Company Filed SEC Documents (as defined in
Section 4.7), as of the date of this Agreement, there are no outstanding
contractual obligations of the Company or any of its Subsidiaries (i) to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or (ii) to vote or to dispose of any shares of the capital stock of any
of the Company's Subsidiaries.
SECTION 4.4 Authority. The Board of Directors of the Company has
declared the Merger advisable, and the Company has all requisite power and
authority to enter into this Agreement and, subject to approval by the
stockholders of the Company of
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the Merger (if required), to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject to approval by the stockholders of the Company of the Merger (if
required). This Agreement has been duly executed and delivered by the Company
and (assuming the valid authorization, execution and delivery of this Agreement
by Parent and Sub) constitutes the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except that such
enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to the enforcement of creditors' rights
generally and (ii) is subject to general principles of equity. The only
stockholder action required in order to effect the Merger under the MGCL is
approval of the Merger by the holders of a majority of the shares of the Company
Common Capital Stock outstanding as of the record date for the Stockholders
Meeting (as defined in Section 7.1(a)(i)), all holders of the Company Common
Capital Stock voting together as a single class; provided, however, that if
Parent purchases an amount of Shares pursuant to the Offer sufficient to permit
the Merger to be effected in accordance with Section 3-106 of the MGCL, no
stockholder approval will be required.
SECTION 4.5 Consent and Approvals; No Violations. Except as set forth
in item 4.5 of the Company Letter, the execution and delivery by the Company of
this Agreement do not, and the consummation by the Company of the transactions
contemplated hereby and thereby and compliance by the Company with the
provisions hereof will not, result in any (a) material violation of, or material
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any pledge,
claim, lien, charge, encumbrance or security interest of any kind or nature
whatsoever (collectively, "Liens") upon any of the material properties or
material assets of the Company or any of its Subsidiaries under, any provision
of the Charter or Bylaws of the Company or (b) violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any Lien upon any of the
material properties or material assets of the Company or any of its Subsidiaries
under, (i) any provision of the Charter, Bylaws or comparable organization
documents of any of the Significant Subsidiaries of the Company, (ii) any loan
or credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument,
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permit, concession, franchise or license applicable to the Company or any of its
Significant Subsidiaries or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
Significant Subsidiaries or any of their respective properties or assets, other
than, in the case of clause (i), (ii) or (iii), any such violations, defaults,
rights, losses or Liens, that, individually or in the aggregate, would not have
a Material Adverse Effect on the Company. No filing or registration with, or
authorization, consent or approval of, any domestic (federal and state), foreign
or supranational court, commission, governmental body, regulatory agency,
authority or tribunal (a "Governmental Entity") is required by or with respect
to the Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or is necessary for the consummation
of the Offer, the Merger and the other transactions contemplated by this
Agreement, except for (i) in connection, or in compliance, with the provisions
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and the Securities Exchange Act of 1934, as amended (together with
the rules and regulations promulgated thereunder, the "Exchange Act"), (ii) the
filing of Articles of Merger with the SDAT and appropriate documents with the
relevant authorities of other states in which the Company or any of its
Subsidiaries is qualified to do business, (iii) such filings and consents as may
be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by the
Offer, the Merger or the other transactions contemplated by this Agreement, (iv)
such filings, authorizations, orders and approvals as may be required by state
takeover laws (the "State Takeover Approvals"), (v) such filings as may be
required in connection with the taxes described in Section 7.6, (vi) such
filings and consents as may be required by insurance or insurance brokerage laws
or regulations, (vii) in connection, or in compliance, with the provisions of
the Competition Act (Canada) (the "Competition Act"), (viii) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the laws of any foreign country in which the
Company or any of its Subsidiaries conducts any business or owns any property or
assets and (ix) such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
Item 4.5 of the Company Letter sets forth the estimated amount which would be
payable to each of the top twenty highest paid officers of the Company in the
United States under (i) any employment, severance, continuity or similar
agreement or (ii) any cancellation and cash-out of Company Stock Options, in
each case assuming the purchase of Shares pursuant to
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the Offer, the consummation of the Merger and the termination without cause of
such person's employment.
SECTION 4.6 SEC Documents and Other Reports. The Company has filed all
required documents with the SEC since January 1, 1993 (the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied in
all material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and as
of their respective dates none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Documents comply as of
their respective dates as to form in all material respects with the then
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of the unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly present the consolidated financial position of the Company and its
consolidated Subsidiaries as at the dates thereof and the consolidated results
of their operations and their consolidated cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein). The Company has
not, since December 31, 1995, made any change in the accounting policies applied
in the preparation of financial statements other than as described in the
Company Filed SEC Documents (as hereinafter defined).
SECTION 4.7 Absence of Material Adverse Change. Except as disclosed in
the Company SEC Documents filed and publicly available prior to the date of this
Agreement (the "Company Filed SEC Documents"), since September 30, 1996, there
has been no event other than ordinary business operating results and general
insurance brokerage industry conditions and contingencies disclosed to Parent
prior to the date hereof causing a Material Adverse Change (as defined in
Section 10.3) with respect to the Company.
SECTION 4.8 Information Supplied. None of the information supplied or
to be supplied by the Company specifically for inclusion or incorporation by
reference in (i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the
information to be filed by the Company in connection with the Offer pursuant to
Rule 14f-1 promulgated under the Exchange Act
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(the "Information Statement") or (iv) the proxy statement (together with any
amendments or supplements thereto, the "Proxy Statement") relating to the
Stockholders Meeting, will, in the case of the Offer Documents, the Schedule
14D-9 and the Information Statement, at the respective times the Offer
Documents, the Schedule 14D-9 and the Information Statement are filed with the
SEC or first published, sent or given to the Company's stockholders, or, in the
case of the Proxy Statement, at the time the Proxy Statement is first mailed to
the Company's stockholders or at the time of the Stockholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Schedule 14D-9, the Information Statement and the Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by the Company with respect to statements
made or incorporated by reference therein based on information supplied by
Parent or Sub specifically for inclusion or incorporation by reference therein.
SECTION 4.9 Compliance with Laws. Except as disclosed in the Company
Filed SEC Documents, the Company and its Subsidiaries are in compliance with all
applicable laws, regulations, orders, judgments and decrees except where the
failure to so comply would not have a Material Adverse Effect on the Company.
SECTION 4.10 Licenses and Permits. The Company and its Significant
Subsidiaries have such certificates, permits, licenses, franchises, consents,
approvals, orders, authorizations and clearances from appropriate Governmental
Entities (the "Company Licenses") as are necessary to conduct their businesses
in the manner described in the Company SEC Documents and as currently conducted,
and all such Company Licenses are valid and in full force and effect, except
such licenses which the failure to have or to be in full force and effect,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company. The Company and its Significant Subsidiaries are in compliance in
all material respects with their respective obligations under the Company
Licenses, with such exceptions as, individually or in the aggregate, would not
have a Material Adverse Effect on the Company.
SECTION 4.11 Tax Matters. The Company has filed all material tax
returns and has paid all taxes shown to be due on such tax returns except for
those taxes being contested by the Company in good faith.
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SECTION 4.12 Liabilities. Except as reflected or reserved against in
the financial statements included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, or disclosed in the footnotes thereto, as
of December 31, 1995, the Company and its Subsidiaries had no liabilities
(including, without limitation, tax liabilities), absolute or contingent, that
were material, either individually or in the aggregate, to the Company and its
Subsidiaries taken as a whole or not incurred in the ordinary course of
business. Except as so reflected, reserved or disclosed, as of such date, the
Company and its Subsidiaries had no commitments which were materially adverse,
either individually or in the aggregate, to the Company and its Subsidiaries
taken as a whole.
SECTION 4.13 Opinion of Financial Advisor. The Company has received
the opinion of First Boston, dated the date hereof, to the effect that, as of
the date hereof, the consideration to be received in the Offer and the Merger
by the Company's stockholders is fair to the Company's stockholders from a
financial point of view.
SECTION 4.14 State Takeover Statutes; Rights Agreement. The Board of
Directors of the Company has duly adopted a resolution that is a valid action of
such Board, is binding on the Company and constitutes a valid and irrevocable
exemption from Section 3-602 of the MGCL as to the transactions contemplated by
this Agreement and the Preferred Stock Purchase Agreement. By reason of Section
4 of Article IX of the Company's By-Laws, the transactions contemplated by this
Agreement and the Preferred Stock Purchase Agreement are approved for purposes
of, and exempt from the provisions of, Subtitle 7 of Title 3 of the MGCL. The
Company has heretofore provided Parent with a complete and correct copy of the
Rights Agreement, including all amendments (including the amendment referred to
in the immediately following sentence) and exhibits thereto. The Board of
Directors of the Company has amended the Rights Agreement to provide that a
Distribution Date, a Section 11(a)(ii) Event or a Section 13 Transaction (as
such terms are defined in the Rights Agreement) shall not occur or be deemed to
occur, the Rights shall not separate (to the extent the Rights Agreement
otherwise provides for such separation) or become exercisable, and neither
Parent nor Sub shall become an Acquiring Person (as defined in the Rights
Agreement) as a result of the execution, delivery or performance of this
Agreement or the Preferred Stock Purchase Agreement, the announcement, making or
consummation of the Offer, the acquisition of shares of capital stock pursuant
to the Offer, the Merger or the Preferred Stock Purchase Agreement, the
consummation of the Merger or any other transactions contemplated by this
Agreement or the Preferred Stock Purchase Agreement. No other action is required
to prevent the holders of Rights from
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having any right under the Rights Agreement as a result of the Offer, the Merger
or any other transaction contemplated by this Agreement or the Preferred Stock
Purchase Agreement.
SECTION 4.15 Brokers. No broker, investment banker, financial advisor
or other person, other than First Boston, the fees and expenses of which will be
paid by the Company (and are reflected in an agreement between First Boston and
the Company, a copy of which has been furnished to Parent), is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
OF PARENT AND SUB
-----------------
Parent and Sub represent and warrant to the Company as follows:
SECTION 5.1 Organization. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now being conducted, except where the
failure to be so organized, validly existing or in good standing would not have
a Material Adverse Effect on Parent or Sub or prevent or materially delay the
consummation of the Offer or the Merger.
SECTION 5.2 Authority. Parent and Sub have requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Sub. This Agreement has been duly
executed and delivered by Parent and Sub, as the case may be, and (assuming the
valid authorization, execution and delivery of this Agreement by the Company)
constitutes a valid and binding obligation of each of Parent and Sub enforceable
against them in accordance with its terms, except that such enforceability (i)
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors' rights generally and (ii)
is subject to general principles of equity.
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SECTION 5.3 Consents and Approvals; No Violations. The execution and
delivery by Parent and Sub of this Agreement do not, and the consummation by
Parent and Sub of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any (a) material violation of, or material
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any Lien upon
any of the material properties or material assets of Parent or any of its
Subsidiaries under, any provision of the Certificate of Incorporation or Bylaws
of Parent or Sub or (b) violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a material benefit
under, or result in the creation of any Lien upon any of the material properties
or material assets of Parent or any of its Subsidiaries under, (i) any provision
of the Certificate of Incorporation, Bylaws or comparable organization documents
of any of Significant Subsidiaries of Parent, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent or any of its Significant
Subsidiaries or (iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Parent or any of its Significant Subsidiaries or any
of their respective properties or assets, other than, in the case of clause (i),
(ii) or (iii), any such violations, defaults, rights, losses or Liens, that,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent. No filing or registration with, or authorization, consent or approval
of, any Governmental Entity is required by or with respect to Parent or any of
its Subsidiaries in connection with the execution and delivery of this Agreement
by Parent or Sub or is necessary for the consummation of the Offer, the Merger
and the other transactions contemplated by this Agreement, except for (i) in
connection, or in compliance, with the provisions of the HSR Act and the
Exchange Act, (ii) the filing of Articles of Merger and appropriate documents
with the relevant authorities of other states in which Parent or any of its
Subsidiaries is qualified to do business, (iii) such filings and consents as may
be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by the
Offer, the Merger or the other transactions contemplated by this Agreement, (iv)
such filings, authorizations, orders and approvals as may be required to obtain
the State Takeover Approvals, (v) such filings as may be required in connection
with the taxes described in Section 7.6, (vi) such filings and consents as may
be required by insurance or insurance brokerage laws or regulations, (vii) in
connection, or in compliance, with the provisions of the Competition Act, (viii)
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such consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under the laws of any foreign country in which
Parent or any of its Subsidiaries conducts any business or owns any property or
assets and (ix) such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
SECTION 5.4 Information Supplied. None of the information supplied or
to be supplied by Parent or Sub specifically for inclusion or incorporation by
reference in (i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the
Information Statement or (iv) the Proxy Statement will, in the case of the Offer
Documents, the Schedule 14D-9 and the Information Statement, at the respective
times the Offer Documents, the Schedule 14D-9 and the Information Statement are
filed with the SEC or first published, sent or given to the Company's
stockholders, or, in the case of the Proxy Statement, at the time the Proxy
Statement is first mailed to the Company's stockholders or at the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Offer Documents will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made by Parent or Sub
with respect to statements made or incorporated by reference therein based on
information supplied by the Company specifically for inclusion or incorporation
by reference therein.
SECTION 5.5 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
SECTION 5.6 Brokers. No broker, investment banker, financial advisor
or other person, other than Lazard Freres & Co., LLC, the fees and expenses of
which will be paid by Parent, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Sub.
SECTION 5.7 Financing. Parent will have, and shall provide Sub with,
the funds necessary to consummate the Offer and the Merger and the transactions
contemplated hereby in accordance with the terms hereof.
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ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
-----------------------------------------
SECTION 6.1 Conduct of Business by the Company Pending the Merger.
During the period from the date of this Agreement until such time as Parent's
designees shall constitute a majority of the Board of Directors of the Company,
the Company shall, and shall cause each of its Subsidiaries to, in all material
respects carry on its business in the ordinary course of its business as
currently conducted and, to the extent consistent therewith, use reasonable best
efforts to preserve intact its current business organizations, keep available
the services of its current officers and key employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be materially
impaired. Without limiting the generality of the foregoing, and except as
otherwise expressly contemplated by this Agreement, during such period, the
Company shall not, and shall not permit any of its Subsidiaries to, without the
prior written consent of Parent (which consent shall not be unreasonably
withheld):
(a) (w) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to its stockholders in their capacity as
such (other than regular quarterly dividends of not more than $.90625 per share
on the Series A Convertible Preferred Stock and of not more than $.025 per share
on the Common Stock, a regular quarterly payment-in-kind dividend in respect of
the Series B Preferred Stock on December 15, 1996 and thereafter cash dividends
of not more than $1.00 per share on the Series B Preferred Stock, in each case
declared and paid in on dates consistent with past practice), (x) split, combine
or reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or (y) except as required under existing employee benefit plans,
agreements, policies, awards or arrangements in effect on the date of this
Agreement, or pursuant to the Company's Employee Stock Option Exchange Program
communicated to the Company Options Recipients on November 26, 1996, purchase,
redeem or otherwise acquire any shares of its capital stock or those of any
Subsidiary or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities;
(b) except as required under existing employee benefit plans,
agreements, policies, awards or arrangements in effect on
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the date of this Agreement, or pursuant to the Company's Employee Stock Option
Exchange Program communicated to the Company Options Recipients on November 26,
1996, issue, deliver, sell, pledge, dispose of or otherwise encumber any shares
of its capital stock, any other voting securities or equity equivalent or any
securities convertible into, or any rights, warrants or options to acquire any
such shares, voting securities, equity equivalent or convertible securities
(other than the issuance of shares of Common Stock upon the exercise of Company
Stock Options outstanding on the date of this Agreement in accordance with their
current terms, the issuance of shares of Common Stock upon the retraction,
redemption or conversion of RSC Class 1 Shares, or shares of Class C Common
Stock, Series A Convertible Preferred Stock or Series B Preferred Stock, in each
case in accordance with the terms thereof, and the issuance on December 15, 1996
of shares of Series B Preferred Stock as a regular quarterly payment-in-kind
dividend in accordance with the terms thereof);
(c) amend its Charter or Bylaws or other similar organizational
documents;
(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets, other than (A) transactions that are in the ordinary course
of business consistent with past practice and not material to the Company and
its Subsidiaries taken as a whole and (B) acquisitions of one or more insurance
brokerage businesses with respect to which the aggregate amount of consideration
paid or payable by the Company and its Subsidiaries (valuing any non-cash
consideration at its fair market value and any contingent payments at the
maximum amount payable and treating any liabilities assumed as consideration
paid) does not exceed $15,000,000;
(e) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than transactions that are in the
ordinary course of business consistent with past practice and which involve
assets having an aggregate fair market value or book value not in excess of
$10,000,000;
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others, except for borrowings or guarantees incurred in the
ordinary course of business consistent with past practice, or make any loans,
advances or capital contributions to, or other investments in,
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any other person, other than to or in the Company or any wholly-owned Subsidiary
of the Company;
(g) alter (through merger, liquidation, reorganization, restructuring
or in any other fashion) the corporate structure or ownership of the Company or
any Subsidiary, except as contemplated by this Agreement or as set forth in item
6.1(g) of the Company Letter;
(h) enter into or adopt, or amend any existing, severance plan,
agreement or arrangement or enter into or amend any Company Plan (as defined in
Section 7.13) or employment or consulting agreement, other than as required by
law or as contemplated by Sections 7.4 and 7.13;
(i) except as otherwise provided in Section 7.4 or as required under
existing plans, agreements, policies, awards or arrangements in effect on the
date of this Agreement, or pursuant to the Company's Employee Stock Option
Exchange Program communicated to the Company Options Recipients on November 26,
1996, increase the compensation payable or to become payable to its officers or
employees, except, in the case of employees who are not officers, for increases
in the ordinary course of business consistent with past practice, or grant any
severance or termination pay to, or enter into any employment or severance
agreement, or establish, adopt, enter into, or amend in any material respect or
take action to enhance in any material respect or accelerate any rights or
benefits under, any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer or
employee, except, in each case, as may be required to comply with applicable law
or regulation;
(j) violate or fail to perform any material obligation or duty
imposed upon it by any applicable federal, state or local law, rule, regulation,
guideline or ordinance which would be reasonably expected to have a Material
Adverse Effect on the Company;
(k) redeem the Rights or, other than as contemplated by Section 4.14,
amend the Rights Agreement;
(l) amend the Stock Purchase and Sale Agreement, dated as of June 6,
1994, between the Company and American International Group, Inc.;
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(m) make any material change in its method of accounting;
(n) take any of the actions prohibited in item 6.1(n) of the Company
Letter; or
(o) authorize, recommend, propose or announce an intention to do any
of the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
The Company shall promptly advise Parent orally and in writing of any
change or event having, or which could reasonably be expected to have, a
Material Adverse Effect on the Company or which could prevent or materially
delay the consummation of the Offer or the Merger.
SECTION 6.2 No Solicitation. From and after the date hereof, the
Company will not, and will not permit any of its or its Subsidiaries' officers,
directors or employees to, and the Company will use its reasonable best efforts
to cause all of its and its Subsidiaries' attorneys, financial advisors, agents
and other representatives not to, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing information) any Takeover
Proposal, or engage in or continue discussions or negotiations relating thereto;
provided, however, that the Company may engage in discussions or negotiations
with, or furnish information concerning the Company and its business, properties
or assets to, any third party which makes a Takeover Proposal (as hereinafter
defined) if the Board of Directors of the Company determines, in its good faith
judgement, based on the opinion of independent outside legal counsel to the
Company, that failing to take such action would constitute a breach of such
Board's duties under applicable law; provided, further, that nothing in this
Section 6.2 shall prevent the Company or the Board from taking, and disclosing
to the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender offer or from
making such disclosure to the Company's stockholders which, as advised in an
opinion of the Company's independent outside legal counsel, is required under
applicable law; provided, further, that the Board shall not recommend that the
stockholders of the Company tender their shares in connection with any such
tender offer unless the Board determines, in its good faith judgment, based on
the opinion of independent outside legal counsel to the Company, that failing to
take such action would constitute a breach of the Board's duties under
applicable law. The Company will promptly notify Parent of any Takeover
Proposal, including the material terms and conditions thereof and the identity
of the person or group making such Takeover Proposal, and will promptly notify
Parent of any determination by the Company's Board of
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Directors that a Superior Proposal has been made. As used in this Agreement,
(i) "Takeover Proposal" shall mean any proposal or offer, other than a proposal
or offer by Parent or any of its Subsidiaries for a tender or exchange offer, a
merger, consolidation or other business combination involving the Company or any
of its Subsidiaries or any proposal to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets of, the Company or
any of its Subsidiaries and (ii) "Superior Proposal" shall mean a bona fide
proposal or offer made by a third party to acquire the Company pursuant to a
tender or exchange offer, a merger, consolidation or other business combination
or a sale of all or substantially all of the assets of the Company and its
Subsidiaries on terms which a majority of the members of the Board of Directors
of the Company, having received the advice of an independent financial advisor,
determines in their good faith reasonable judgment to be more favorable to the
Company's stockholders than the transactions contemplated hereby and for which
any required financing is committed or which a majority of such members, having
received the advice of an independent financial advisor, determines in their
good faith reasonable judgment is reasonably capable of being obtained by such
third party.
SECTION 6.3 Third Party Standstill Agreements. During the period
from the date of this Agreement through the Effective Time, the Company shall
not terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which the Company or any of its Subsidiaries is a party
(other than any involving Parent).
SECTION 6.4 Other Actions. Except as expressly contemplated or
permitted by this Agreement or except as set forth in the Company Letter, the
Company shall not, and shall not permit any of its Subsidiaries to, take any
action that would, or that could reasonably be expected to, result in (i) any of
the representations and warranties of the Company set forth in this Agreement
that are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect, or (iii) any of the Offer Conditions not being satisfied
(subject to the Company's right to take actions specifically permitted by
Section 6.2).
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ARTICLE VII
ADDITIONAL AGREEMENTS
---------------------
SECTION 7.1 Stockholder Approval; Preparation of Proxy Statement.
(a) If approval of the Merger by stockholders of the Company (the "Company
Stockholder Approval") is required by law, the Company shall, at Parent's
request, as soon as practicable following the expiration of the Offer, duly
call, give notice of, convene and hold a meeting of its stockholders (the
"Stockholders Meeting") for the purpose of obtaining the Company Stockholder
Approval. The Stockholders Meeting shall be held as soon as practicable
following the purchase of Shares pursuant to the Offer. The Company shall,
through its Board of Directors, but subject to the duties of its Board of
Directors under applicable law as determined by the Board of Directors in good
faith on the basis of the opinion of the Company's outside independent legal
counsel, recommend to its stockholders that the Company Stockholder Approval be
given. Notwithstanding the foregoing, if Sub or any other Subsidiary of Parent
shall acquire shares entitled to cast 90% or more of all the votes entitled to
be cast on the Merger, the parties shall, at the request of Parent, take all
necessary and appropriate action to cause the Merger to become effective as soon
as reasonably practicable after the expiration of the Offer without a
Stockholders Meeting in accordance with Section 3-106 of the MGCL.
(b) If the Company Stockholder Approval is required by law, the
Company shall, at Parent's request, as soon as practicable following the
expiration of the Offer, prepare and file a preliminary Proxy Statement with the
SEC and shall use its reasonable best efforts to respond to any comments of the
SEC or its staff and to cause the Proxy Statement to be mailed to the Company's
stockholders as promptly as practicable after responding to all such comments to
the satisfaction of the staff. The Company shall notify Parent promptly of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply Parent with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement or the
Merger. If at any time prior to the Stockholders Meeting there shall occur any
event that should be set forth in an amendment or supplement to the Proxy
Statement, the Company shall promptly prepare and mail to its stockholders such
an amendment or supplement. The Company shall not mail any Proxy Statement, or
any amendment or supplement thereto, to which Parent reasonably objects. Parent
shall cooperate with the Company in the
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preparation of the Proxy Statement or any amendment or supplement thereto.
(c) Parent agrees to cause all shares of the Common Stock purchased
pursuant to the Offer and all other shares of capital stock of the Company
entitled to vote on the Merger owned by Parent or any Subsidiary of Parent to be
voted in favor of the Company Stockholder Approval.
SECTION 7.2 Access to Information. Subject to currently existing
contractual and legal restrictions applicable to the Company, the Company shall,
and shall cause each of its Subsidiaries to, upon reasonable notice, afford to
Parent and to the officers, employees, accountants, counsel, actuaries,
financial advisors and other representatives of Parent reasonable access to, and
permit them to make such inspections as they may reasonably require of, during
normal business hours (to the extent feasible without undue interference with or
disruption to the operation of the Company, or any of its business units) during
the period from the date of this Agreement through the Effective Time, all their
respective properties, books, contracts, commitments and records (including,
without limitation, the work papers of independent accountants and actuaries)
and, during such period, the Company shall, and shall cause each of its
Subsidiaries to, furnish promptly to Parent (i) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (ii) all
other information concerning its business, properties and personnel as Parent
may reasonably request. All information obtained by Parent pursuant to this
Section 7.2 shall be kept confidential in accordance with the Confidentiality
Agreement dated November 29, 1996, between Parent and the Company.
SECTION 7.3 Fees and Expenses. (a) Except as provided in this
Section 7.3 and Section 7.6, whether or not the Merger is consummated, all costs
and expenses incurred by a party hereto in connection with this Agreement and
the transactions contemplated hereby, including, without limitation, the fees
and disbursements of counsel, financial advisors and accountants, shall be paid
by the party incurring such costs and expenses, provided that all printing
expenses and filing fees shall be divided equally between Parent and the
Company.
(b) The Company shall pay, or cause to be paid, in same day funds to
Parent $35 million (the "Termination Fee") upon demand if: (i) Parent or Sub
terminates this Agreement under Section 9.1(d) following the occurrence of any
event set forth in clause (i) or (ii) of paragraph (c) of Exhibit A and within
six months following such termination a Third Party Acquisition Event
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occurs; (ii) the Company terminates this Agreement pursuant to Section 9.1(e);
or (iii) this Agreement is terminated and prior thereto a Third Party
Acquisition Event (as defined below) occurred.
(c) Parent shall pay, or cause to be paid, in same day funds to the
Company $35 million (the "Parent Minimum Damages") upon demand if the Company
shall have terminated this Agreement pursuant to Section 9.1(f), including,
without limitation, based upon a breach by Parent or Sub or its obligations
under Section 7.11; provided, however, that the Parent Minimum Damages shall be
repaid to Parent if, within six months following such termination, a Third Party
Acquisition Event shall occur having a value per share of Common Stock of not
less than the Offer Price.
A "Third Party Acquisition Event" means any of the following events:
(A) any person, corporation, partnership or other entity or group (such person,
corporation, partnership or other entity or group being referred to hereinafter,
singularly or collectively, as a "Person"), other than Parent or its
Subsidiaries, acquires or becomes the beneficial owner of 30% or more of the
outstanding shares of the Company Common Capital Stock; (B) any new group is
formed which, at the time of formation, beneficially owns 30% or more of the
outstanding shares of the Company Common Capital Stock (other than a group which
includes or may reasonably be deemed to include Parent or any of its
Subsidiaries); (C) the Company enters into an agreement providing for a merger
or other business combination involving the Company or the acquisition of a
substantial interest in, or a substantial portion of the assets, business or
operations of, the Company and its subsidiaries (other than the transactions
contemplated by this Agreement); or (D) any Person (other than Parent or its
Subsidiaries) is granted any option or right, conditional or otherwise, to
acquire or otherwise become the beneficial owner of shares of the Company Common
Capital Stock that results or would result in such Person being the beneficial
owner of 30% or more of the outstanding shares of the Company Common Capital
Stock. For purposes of this Section 7.3(b), the terms "group" and "beneficial
owner" shall be defined by reference to Section 13(d) of the Exchange Act.
SECTION 7.4 Options. (a) Prior to the commencement of the Offer, the
Board of Directors of the Company or the Compensation Committee of the Board of
Directors of the Company (the "Committee") shall adopt procedures pursuant to
which each outstanding Company Stock Option, stock appreciation right, limited
stock appreciation right and other stock based award (an "Option") which is
exercisable immediately prior to the consummation of the Offer in accordance
with the terms of the applicable plan (collectively, the "Stock Option Plans"),
may be
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exercised by the holder thereof by the delivery to the Company of a notice of
exercise prior to the consummation of the Offer. Upon the consummation of the
Offer, each Option so exercised shall be canceled and promptly thereafter the
Company shall deliver to the holder thereof cash in an amount equal to (i) the
product of (x) the number of shares of Common Stock subject or related to such
Option and (y) the excess, if any, of the Merger Consideration over the exercise
or purchase price per share of Common Stock subject or related to such Option,
minus (ii) all applicable federal, state and local taxes required to be withheld
by the Company.
(b) Prior to the commencement of the Offer, the Board of Directors of
the Company or the Committee shall take action in accordance with the terms of
the Stock Option Plans to cause each Option outstanding immediately following
the consummation of the Offer, whether or not then exercisable, to become fully
exercisable. The Board of Directors of the Company or the Committee shall also
adopt procedures pursuant to which each such Option may be exercised by the
holder thereof by the delivery to the Company of a notice of exercise prior to
the Effective Time. At the Effective Time, each such Option so exercised shall
be canceled and promptly thereafter the Company shall deliver to the holder
thereof cash in an amount equal to (i) the product of (x) the number of shares
of Common Stock subject or related to such Option and (y) the excess, if any, of
the Merger Consideration over the exercise or purchase price per share of Common
Stock subject or related to such Option minus (ii) all applicable federal, state
and local taxes required to be withheld by the Company.
(c) The Company will use its reasonable best efforts to ensure that
immediately following the Effective Time, each outstanding Option which has not
theretofore been exercised by the holder thereof shall be canceled (whether or
not such holder has delivered the acknowledgment referred to in the proviso to
this sentence), and promptly thereafter Parent shall deliver to the holder
thereof cash in an amount equal to (i) the product of (x) the number of shares
of Common Stock subject or related to such Option and (y) the excess, if any, of
the Merger Consideration over the exercise or purchase price per share of Common
Stock subject or related to such Option, minus (ii) all applicable federal,
state and local taxes required to be withheld by the Company; provided, however,
that any such payment to a holder of an Option so canceled shall be conditioned
upon the delivery to Parent by such holder of a receipt in writing acknowledging
the receipt by such holder of such payment in exchange for the cancellation of
all Options held by such holder. For purposes of this subsection (c), options
offered under the Company's Employee Discount Stock Purchase Plan shall be
deemed
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outstanding only to the extent of employees' elections to participate therein as
in effect on the date of purchase of Shares pursuant to the Offer. No further
options shall be granted under any Stock Option Plan after the date of this
Agreement except pursuant to the normal operation of the Company's Employee
Discount Stock Purchase Plan, and no further Options shall be granted thereunder
after the purchase of Shares pursuant to the Offer.
(d) Prior to the commencement of the Offer, the Board of Directors of
the Company or the Committee shall take action in accordance with the terms of
the Stock Option Plans and pursuant to all other plans and agreements providing
for the award of restricted Common Stock to cause the restrictions on the shares
of restricted Common Stock granted under such plans and agreements to lapse
effective upon the consummation of the Offer and to adopt procedures to enable
all holders thereof to tender such shares of Common Stock pursuant to the terms
of the Offer.
SECTION 7.5 Public Announcements. Parent and the Company will consult
with each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law or by
obligations pursuant to any listing agreement with any national securities
exchange.
SECTION 7.6 Real Estate Transfer Tax. Parent and the Company agree
that either the Surviving Corporation or Parent will pay any state or local tax
which is attributable to the transfer of the beneficial ownership of the
Company's or its Subsidiaries' real property, if any (collectively, the
"Transfer Taxes"), and any penalties or interest with respect to the Transfer
Taxes, payable in connection with the consummation of the Offer and the Merger.
The Company agrees to cooperate with Parent in the filing of any returns with
respect to the Transfer Taxes, including supplying in a timely manner a complete
list of all real property interests held by the Company and its Subsidiaries and
any information with respect to such property that is reasonably necessary to
complete such returns. The portion of the consideration allocable to the real
property of the Company and its Subsidiaries shall be determined by Parent in
its reasonable discretion. The stockholders of the Company shall be deemed to
have agreed to be bound by the allocation established pursuant to this Section
7.6 in the preparation of any return with respect to the Transfer Taxes.
SECTION 7.7 State Takeover Laws. If any "fair price" or "control share
acquisition" statute or other similar statute
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or regulation shall become applicable to the transactions contemplated hereby,
Parent and the Company and their respective Boards of Directors shall use their
reasonable best efforts to grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
minimize the effects of any such statute or regulation on the transactions
contemplated hereby.
SECTION 7.8 Indemnification; Directors and Officers Insurance. (a)
From and after the Effective Time, Parent agrees to cause the Surviving
Corporation to exculpate, indemnify and hold harmless all past and present
officers and directors of the Company and its Subsidiaries (the "Indemnified
Parties") to the same extent such persons are currently exculpated and
indemnified by the Company pursuant to the Company's Charter and By-Laws for
acts or omissions occurring at or prior to the Effective Time. Parent shall
cause the Surviving Corporation to provide, for an aggregate period of not less
than six years from the Effective Time, the Company's current directors and
officers an insurance and indemnification policy that provides coverage for
events occurring prior to the Effective Time (the "D&O Insurance") that is no
less favorable than the Company's existing policy or, if substantially
equivalent insurance coverage is unavailable, the best available coverage;
provided, however, that the Surviving Corporation shall not be required to pay
an annual premium for the D&O Insurance in excess of 175 percent of the last
annual premium paid prior to the date hereof, but in such case shall purchase as
much coverage as possible for such amount.
(b) Any Indemnified Party wishing to claim indemnification under
Section 7.8(a), upon learning of any claim, action, suit, proceeding or
investigation subject to indemnification thereunder, shall promptly notify the
Surviving Corporation thereof. An Indemnified Party may select counsel to
represent him or her in connection with any of the foregoing, which counsel
shall be reasonably acceptable to the Surviving Corporation, and the Surviving
Corporation will cooperate in the defense of any such matter; provided, however,
that the Surviving Corporation shall not be liable for any settlement effected
without its written consent; and provided, further, that the Surviving
Corporation shall not be obligated to pay the fees and disbursements of more
than one counsel for all Indemnified Parties in any single matter except to the
extent that, in the opinion of counsel for the Indemnified Parties, two or more
of such Indemnified Parties have conflicting interests in the outcome of such
matter. The Surviving Corporation shall not have any obligation hereunder to an
Indemnified Party if and when a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final, that the
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indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
SECTION 7.9 Notification of Certain Matters. Parent shall give prompt
notice to the Company, and the Company shall give prompt notice to Parent, of:
(i) the occurrence, or non-occurrence, of any event the occurrence, or non-
occurrence, of which would be likely to cause (x) any representation or warranty
contained in this Agreement that is not qualified as to materiality to be untrue
or inaccurate in any material respect, (y) any representation or warranty
contained in this Agreement that is qualified as to materiality to be untrue or
inaccurate in any respect, or (z) any covenant, condition or agreement contained
in this Agreement not to be complied with or satisfied; and (ii) any failure of
Parent or the Company, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 7.9 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
SECTION 7.10 Board of Directors. Promptly after such time as Sub
acquires Shares pursuant to the Offer, Sub shall be entitled to designate at its
option up to that number of directors, rounded to the nearest whole number, of
the Company's Board of Directors, subject to compliance with Section 14(f) of
the Exchange Act, as will make the percentage of the Company's directors
designated by Sub equal to the aggregate voting power of the Shares of Common
Stock held by Parent or any of its Subsidiaries (assuming the exercise of all
outstanding options to purchase, and the conversion or exchange of all
securities convertible or exchangeable into shares of the Company Common Capital
Stock, other than the conversion of the shares of Class B Preferred Stock);
provided, however, that in the event that Sub's designees are elected to the
Board of Directors of the Company, until the Effective Time, such Board of
Directors shall have at least three directors who are directors on the date of
this Agreement and who are not officers of the Company (the "Independent
Directors"); and provided, further that, in such event, if the number of
Independent Directors shall be reduced below three for any reason whatsoever,
the remaining Independent Directors shall designate a person to fill such
vacancy who shall be deemed to be an Independent Director for purposes of this
Agreement or, if no Independent Directors then remain, the other directors shall
designate three persons to fill such vacancies who shall not be officers or
affiliates of the Company or any of its Subsidiaries, or officers or affiliates
of Parent or any of its Subsidiaries, and such persons shall be deemed to be
Independent Directors for purposes of this Agreement. Subject to applicable law,
the Company shall take all action requested by
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Parent which is reasonably necessary to effect any such election, including
mailing to its stockholders the Information Statement containing the information
required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, and the Company agrees to make such mailing with the mailing of the
Schedule 14D-9 (provided that Sub shall have provided to the Company on a timely
basis all information required to be included in the Information Statement with
respect to Sub's designees). In connection with the foregoing, the Company will
promptly, at the option of Parent, either increase the size of the Company's
Board of Directors and/or obtain the resignation of such number of its current
directors as is necessary to enable Sub's designees to be elected or appointed
to the Company's Board of Directors as provided above.
SECTION 7.11 Reasonable Best Efforts. Each of the Company, Parent
and Sub agrees to use its reasonable best efforts to cause the purchase of
Shares pursuant to the Offer and the consummation of the Merger to occur as soon
as practicable. Without limiting the foregoing, (a) each of the Company, Parent
and Sub agree to use its reasonable best efforts to take, or cause to be taken,
all actions necessary to comply promptly with all legal requirements that may be
imposed on itself with respect to the Offer and the Merger (which actions shall
include furnishing all information required under the HSR Act, including,
without limitation, with respect to the transactions contemplated by the
Preferred Stock Purchase Agreement, and in connection with approvals of or
filings with any other Governmental Entity) and shall promptly cooperate with
and furnish information to each other in connection with any such requirements
imposed upon any of them or any of their Subsidiaries in connection with the
Offer and the Merger and (b) each of the Company, Parent and Sub shall, and
shall cause its Subsidiaries to, use its reasonable best efforts to obtain (and
shall cooperate with each other in obtaining) any consent, authorization, order
or approval of, or any exemption by, any Governmental Entity or other public or
private third party required to be obtained or made by Parent, Sub, the Company
or any of their Subsidiaries in connection with the Offer and the Merger or the
taking of any action contemplated thereby or by this Agreement. Notwithstanding
anything to the contrary contained in this Agreement, (i) the Company shall not
be obligated to use its reasonable best efforts or to take any action pursuant
to this Section 7.11 if the Board of Directors of the Company shall determine,
in its good faith judgment, based on the opinion of independent outside legal
counsel to the Company, that such action would constitute a breach of such
Board's duties under applicable law, and (ii) in connection with any filing or
submission required or action to be taken by Parent, the Company or any of its
respective Subsidiaries to consummate the Offer, the Merger or the other
transactions contemplated in this
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Agreement, the Company shall not, without Parent's prior written consent, commit
to any divestiture of assets or businesses of the Company and its Subsidiaries
if such divested assets and/or businesses are material to the assets or
profitability of the Company and its Subsidiaries taken as a whole; and neither
Parent nor any of its Subsidiaries shall be required to divest any assets or
business of Parent or its Subsidiaries or the Company or its Subsidiaries if
such divested assets and/or businesses are material to the assets or
profitability of Parent or its Subsidiaries taken as a whole or the Company and
its Subsidiaries taken as a whole, respectively, or hold separate or otherwise
take or commit to take any action that materially limits its freedom of action
with respect to the Company or any such assets or businesses.
SECTION 7.12 Certain Litigation. The Company agrees that it shall not
settle any litigation commenced after the date hereof against the Company or any
of its directors by any stockholder of the Company relating to the Offer, the
Merger, this Agreement or the Preferred Stock Purchase Agreement without the
prior written consent of Parent (which shall not be unreasonably withheld).
SECTION 7.13 Employee Benefits. The Company shall take, or shall cause
to be taken, any and all action as shall be necessary or appropriate so that
effective upon the purchase of Shares pursuant to the Offer, neither the Company
nor any of its Subsidiaries shall be obligated to issue or sell to any Company
Plan (as defined in clause (i) of the definition of "Company Plan" set forth
below) any shares of or rights to acquire capital stock of the Company or any of
its Subsidiaries. Parent agrees that it will cause the Company, and each
Subsidiary of the Company, to honor from and after the Effective Time, all
Company Plans (as hereinafter defined); provided, however, that Parent may cause
the Company to amend or terminate any Company Plan in accordance with its terms
and applicable law. Except as otherwise provided by Section 7.4 or this Section
7.13, to the extent that after the purchase of Shares pursuant to the Offer,
Parent shall cause the amendment, modification or termination of any Company
Plan, Parent shall cause the affected employees, former employees and retirees
to receive benefits of the type affected by such amendment, modification or
termination no less favorable than the comparable type of benefits provided to
similarly situated employees, former employees and retirees of Parent or its
affiliates ("Parent-Provided Plans").
For purposes of eligibility to participate, vesting and eligibility
for and accrual of benefits under all Company Plans and Parent-Provided Plans,
all service of any individual who is an employee of the Company or any
Subsidiary of the Company
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immediately prior to the Effective Time (a "Company Employee") with the Company
and/or any Subsidiary of the Company prior to the Effective Time shall, on and
after the Effective Time, be treated as service with the Company, all
Subsidiaries of the Company, the Parent and/or Subsidiaries of the Parent (as
applicable); provided, however, that, with respect to a Company Employee's
service prior the Effective Time, the Parent shall not be required to provide
any benefit under any defined benefit pension plan to such Company Employee in
an amount greater than the benefit such Company Employee has accrued as of the
Effective Time, except that in determining the amount of such accrued benefit,
compensation paid to such Company Employee on or after the Effective Time shall
be counted to the extent that the compensation of such Company Employee after
the Effective Time remains a factor used in determining such accrued benefit
under such plan. The Company, the Subsidiaries of the Company, the Parent and
the Subsidiaries of the Parent shall cause all Company Plans and Parent-Provided
Plans to (x) waive any pre-existing condition limitations otherwise applicable
on and after the Effective Time to Company Employees who are not subject to pre-
existing condition limitations immediately prior to the Effective Time, and (y)
provide that any expenses incurred by Company Employees (and their dependents)
during any plan year within which the Effective Time occurs shall be taken into
account for purposes of satisfying applicable deductible, coinsurance and
maximum out-of-pocket provisions (and like adjustments or limitations on
coverage) under the Company Plans and Parent-Provided Plans. As used in this
Agreement, except as otherwise provided above, "Company Plan" shall include any
United States or non-United States (i) "employee benefit plan," within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), (ii) bonus, stock option, stock purchase, restricted
stock, incentive, equity participation, profit-sharing, savings, pension,
retirement, deferred compensation, medical, health, life insurance, disability,
accident, accrued leave, vacation, sick pay, sick leave, supplemental retirement
and unemployment benefit plan, program, arrangement, commitment and/or practice,
and (iii) employment, consulting, termination, change in control, severance and
salary continuation agreement, contract, plan, policy, program and/or
arrangement, that, in the case of (i), (ii) and (iii), the Company and/or any
Subsidiary of the Company currently maintains or contributes to (or with respect
to which the Company or any Subsidiary of the Company has any obligation) for
active, retired or former employees or directors of the Company or any
Subsidiary of the Company, whether or not any such plan, program, arrangement,
commitment, contract, agreement and/or practice (referred to in (i), (ii) or
(iii)) is in writing, is insured or is exempt from the provisions of ERISA. Any
Company Employee whose employment is terminated by the Company, any Subsidiary
of
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the Company, the Parent or any Subsidiary of the Parent, or any successor of any
thereof, on or before one (1) year following the Effective Time (except for any
Company Employee whose employment is terminated for engaging in criminal conduct
or malfeasance in connection with his or her employment) shall be provided, in
addition to all other applicable non-severance benefits, severance benefits no
less favorable than those such Company Employee would have received upon such
termination of his or her employment with the Company or a Subsidiary of the
Company (as applicable) occurring immediately prior to the Effective Time.
At the Effective Time, the employment of Frank G. Zarb with the
Surviving Corporation shall be terminated without cause.
SECTION 7.14 Stapled Securities. (a) Simultaneously with any
retraction at the option of a holder of RSC Class 1 Shares for shares of Common
Stock, whether as contemplated by Section 1.3 or otherwise, the Company shall
repurchase from the Trustee (as hereinafter defined), pursuant to the relevant
Exchange and Trust Agreement, among the Company, RSC and The Montreal Trust
Company, as trustee (the "Trustee"), an amount of shares of Class A Common Stock
equal to the amount of RSC Class 1 Shares so retracted and at a repurchase price
of Cdn. $0.00001 per share of Class A Common Stock.
(b) Simultaneously with any conversion at the option of a holder of
Class C Common Stock into Common Stock, whether as contemplated by Section 1.4
or otherwise, the Company shall cause AAUK to mandatorily redeem at par (2 pence
per share) each Dividend Share associated with a share of Class C Common Stock
so converted.
(c) Immediately following the purchase of Shares pursuant to the Offer
and in any event prior to the Effective Time, the Company shall (i) take such
actions as Parent may reasonably request to cause all of the RSC Class 1 Shares
then outstanding to be redeemed or retracted for shares of Common Stock (on a
share-for-share basis), pursuant to Section 4 or 5 of the Restated Certificate
of Incorporation of RSC (which shares of Common Stock the Company shall then
issue) (ii) repurchase from the Trustee, pursuant to the Trust Agreement, an
amount of shares of Class A Common Stock equal to the amount of RSC Class 1
Shares redeemed or retracted in accordance with the preceding clause (i) and at
a repurchase price of Cdn. $0.00001 per share of Class A Common Stock, (iii)
take such actions as Parent may reasonably request to cause all of the shares of
Class C Common Stock then outstanding to be converted into an identical amount
of shares of Common Stock, pursuant to subsection E, F or G of Article SIXTH of
the Charter of the Company (which shares of Common Stock the Company shall then
issue) and (iv) cause AAUK to mandatorily
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redeem at par (2 pence per share) each Dividend Share related to a share of
Class C Common Stock so converted.
ARTICLE VIII
CONDITIONS PRECEDENT
--------------------
SECTION 8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) Company Stockholder Approval. If required by applicable law, the
Company Stockholder Approval shall have been obtained; provided, however,
that Parent and Sub shall vote all of their shares of capital stock of the
Company entitled to vote thereon in favor of the Merger.
(b) No Injunction or Restraint. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other Governmental Entity preventing the consummation of
the Merger shall be in effect; provided, however, that each of the parties
shall have used its reasonable best efforts to prevent the entry of any
such temporary restraining order, injunction or other order and to appeal
as promptly as possible any injunction or other order that may be entered.
(c) Purchase of Shares. Sub shall have previously accepted for payment
and paid for Shares pursuant to the Offer; provided, however, that this
condition will be deemed satisfied with respect to the obligations of
Parent or Sub if Sub fails to accept for payment and pay for any Shares
pursuant to the Offer in violation of the terms of this Agreement.
(d) HSR Act. Any waiting period (and any extension thereof) under the
HSR Act applicable to the Merger shall have expired or been terminated.
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ARTICLE IX
TERMINATION AND AMENDMENT
-------------------------
SECTION 9.1 Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after the Company
Stockholder Approval (if required by applicable law):
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if (x) as a result of the failure of any of the Offer
Conditions set forth in Exhibit A the Offer shall have terminated or
expired in accordance with its terms without Sub having accepted for
payment any Shares pursuant to the Offer or (y) all of the Offer
Conditions have not been satisfied prior to April 1, 1997; provided,
however, that the right to terminate this Agreement pursuant to this
Section 9.1(b)(i) shall not be available to any party whose failure to
perform any of its obligations under this Agreement results in the
failure of any such Offer Condition or if the failure of such Offer
Condition results from facts or circumstances that constitute a breach
of representation or warranty under this Agreement by such party; or
(ii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree or ruling or other action shall
have become final and nonappealable; provided, however, that Parent
shall, if necessary to prevent any such issuance or the taking of such
action, offer to accept an order to divest such of the Company's or
Parent's assets and businesses as may be necessary to forestall such
injunction or order and to hold separate such assets and business
pending such divestiture, but only if the amount of such assets and
businesses is not material to the assets or profitability of the
Company and its Subsidiaries taken as a whole or Parent and its
Subsidiaries taken as a whole, respectively;
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<PAGE>
(c) by Parent or Sub prior to the purchase of Shares pursuant to the
Offer in the event of a breach by the Company of any representation,
warranty, covenant or other agreement contained in this Agreement which (i)
would give rise to the failure of a condition set forth in paragraph (d) or
(e) of Exhibit A and (ii) cannot be or has not been cured within 20 days
after the giving of written notice to the Company;
(d) by Parent or Sub if either Parent or Sub is entitled to terminate
the Offer as a result of the occurrence of any event set forth in paragraph
(c) of Exhibit A to this Agreement;
(e) by either Parent or the Company if the Board of Directors of the
Company reasonably determines that a Takeover Proposal constitutes a
Superior Proposal and the Board of Directors of the Company determines, in
its good faith judgment, based on the opinion of independent outside legal
counsel to the Company, that failing to terminate this Agreement would
constitute a breach of such Board's duties under applicable law; provided,
however, that the Company may not terminate this Agreement pursuant to this
Section 9.1(e) unless and until 48 hours have elapsed following delivery to
Parent of a written notice of such determination by the Board of Directors
of the Company; provided, further, that the Company may not terminate this
Agreement pursuant to this Section 9.1(e) unless simultaneously with such
termination the Company pays to Parent the amount specified under Section
7.3(b); and provided, further, that any termination by Parent pursuant to
this Section 9.1(e) shall in no way constitute an admission that the
Company complied with the provisions of Section 6.2 or any other provision
hereof, or prejudice any claim by Parent that the Company did not comply
with the provisions of Section 6.2 or any other provisions hereof.
(f) by the Company, if (i) any of the representations or warranties
of Parent or Sub set forth in this Agreement that are qualified as to
materiality shall not be true and correct in any respect or any such
representations or warranties that are not so qualified shall not be true
and correct in any material respect, or (ii) Parent or Sub shall have
failed to perform in any material respect any obligation or to comply in
any material respect with any agreement or covenant of Parent or Sub to be
performed or complied with by it under this Agreement
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and, in the case of (i) or (ii), such untruth or incorrectness or failure
cannot be or has not been cured within 20 days after the giving of written
notice to Parent or Sub, as applicable; or
(g) by the Company, (i) if the Offer has not been timely commenced in
accordance with Section 1.1 or (ii) Sub shall not have accepted for payment
any Shares pursuant to the Offer prior to April 1, 1997;
SECTION 9.2 Effect of Termination. In the event of a termination of
this Agreement by either the Company or Parent as provided in Section 9.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company or their respective
officers or directors, except with respect to the last sentences of each of
Section 1.2(c), 1.3 and 1.4, Section 4.15, Section 5.6, the last sentence of
Section 7.2, Section 7.3, this Section 9.2 and Section 10.7; provided, however,
that nothing herein shall relieve any party for liability for any breach hereof.
SECTION 9.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors at
any time before or after obtaining the Company Stockholder Approval (if required
by law), but, after the purchase of Shares pursuant to the Offer no amendment
shall be made which decreases the Merger Consideration and after the Company
Stockholder Approval no amendment shall be made which by law requires further
approval by the stockholders of the Company without obtaining such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. Following the election or
appointment of the Sub's designees pursuant to Section 7.10 and prior to the
Effective Time, the affirmative vote of a majority of the Independent Directors
then in office shall be required by the Company to (i) amend or terminate this
Agreement by the Company, (ii) exercise or waive any of the Company's rights or
remedies under this Agreement or (iii) extend the time for performance of Parent
and Sub's respective obligations under this Agreement.
SECTION 9.4 Extension; Waiver. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Board of Directors, may, to the extent legally allowed, (i) subject to the
provisions of Section 9.3, extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) subject to the
provisions of Section 9.3, waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto or
(iii)
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<PAGE>
subject to the provisions of Section 9.3, waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
ARTICLE X
GENERAL PROVISIONS
------------------
SECTION 10.1 Non-Survival of Representations and Warranties. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time.
SECTION 10.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given when delivered personally, one day
after being delivered to an overnight courier or when telecopied (with a
confirmatory copy sent by overnight courier) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to
Aon Corporation
123 North Wacker Drive
Chicago, IL 60606
Attention: Raymond I. Skilling, Esq.
Executive Vice President
& Chief Counsel
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attn: Thomas A. Cole, Esq.
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<PAGE>
(b) if to the Company, to
Alexander & Alexander Services Inc.
1185 Avenue of the Americas
21st Floor
New York, New York 10036
Attention: Albert A. Skwiertz, Jr.
Senior Vice President
& General Counsel
with a copy to:
White & Case
1155 Avenue of the Americas
New York, New York 10036
Attention: Kevin Keogh
SECTION 10.3 Interpretation. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." As used in this Agreement, the term
"subsidiary" or "Subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person. As used in this Agreement, the term "Significant Subsidiary" of any
person means a Subsidiary of such person that would constitute a "significant
subsidiary" of such person within the meaning of Rule 1.02(v) of Regulation S-X
as promulgated by the SEC. As used in this Agreement, "Material Adverse Change"
or "Material Adverse Effect" means, when used in connection with the Company or
Parent, as the case may be, any change or effect (or any development that,
insofar as can reasonably be foreseen, is likely to result in any change or
effect) that is materially adverse to the business, financial condition or
results of operations of the Company and its Subsidiaries taken as a whole or
Parent and its Subsidiaries taken as a whole, as the case may be. As used in
this Agreement, "consummation of the Offer" means the purchase of Shares
pursuant to the Offer.
SECTION 10.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one
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and the same agreement, and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other parties.
SECTION 10.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, except as provided in the last sentence of Section 7.2, constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
This Agreement, except for the provisions of Section 7.8, is not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
SECTION 10.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 10.7 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, except
that Sub may assign, in its sole discretion, any of or all its rights, interests
and obligations under this Agreement to Parent or to any direct or indirect
wholly owned Subsidiary of Parent, but no such assignment shall relieve Sub of
any of its obligations hereunder. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 10.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
SECTION 10.9 Enforcement of this Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties
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shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, such remedy being
in addition to any other remedy to which any party is entitled at law or in
equity.
SECTION 10.10 Obligations of Subsidiaries. Whenever this Agreement
requires any Subsidiary of Parent (including Sub) or of the Company to take any
action, such requirement shall be deemed to include an undertaking on the part
of Parent or the Company, as the case may be, to cause such Subsidiary to take
such action.
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<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
AON CORPORATION
By:
-------------------------
Name: Patrick G. Ryan
Title: Chairman, President
& Chief Executive
Officer
Attest:
- --------------------------
Name: William J. Fasel
Title: Corporate Secretary
SUBSIDIARY CORPORATION, INC.
By:
-------------------------
Name: Patrick G. Ryan
Title: President
Attest:
- --------------------------
Name: Raymond I. Skilling
Title: Secretary
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ALEXANDER & ALEXANDER SERVICES INC.
By:
------------------------------
Name: Frank G. Zarb
Title: Chairman of the Board,
President & Chief
Executive Officer
Attest:
- --------------------------
Name: Alice Russell
Title: Secretary
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EXHIBIT A
---------
CONDITIONS OF THE OFFER
-----------------------
Notwithstanding any other term of the Offer or this Agreement, Sub
shall not be required to accept for payment or, subject to any applicable rules
and regulations of the SEC, including Rule 14e-l(c) under the Exchange Act
(relating to Sub's obligation to pay for or return tendered Shares after the
termination or withdrawal of the Offer), to pay for any Shares tendered pursuant
to the Offer unless (i) there shall have been validly tendered and not withdrawn
prior to the expiration of the Offer such number of Shares that would constitute
a majority of the combined voting power of the shares of the Company Common
Capital Stock (assuming the exercise of all options to purchase, and the
conversion or exchange of all securities convertible or exchangeable into,
shares of the Company Common Stock outstanding at the expiration date of the
Offer, other than the conversion of the shares of the Series B Preferred Stock)
(the "Minimum Condition"), (ii) any waiting period under the HSR Act or the
Competition Act (Canada) applicable to the purchase of Shares pursuant to the
Offer shall have expired or been terminated and (iii) the approvals of the
Department of Insurance of the States of Delaware, New York and Vermont, shall
have been received with respect to the acquisition of control (or the disclaimer
thereof) resulting from the transactions contemplated by this Agreement of the
insurance-underwriting Subsidiaries of the Company organized under the laws of
Delaware and New York, respectively. Furthermore, notwithstanding any other term
of the Offer or this Agreement, Sub shall not be required to accept for payment
or, subject as aforesaid, to pay for any Shares not theretofore accepted for
payment or paid for, and may terminate the Offer if, at any time on or after the
date of this Agreement and before the acceptance of such Shares for payment or
the payment therefor, any of the following conditions exists (other than as a
result of any action or inaction of Parent or any of its Subsidiaries that
constitutes a breach of this Agreement):
(a) there shall be instituted by any Governmental Entity any suit,
action or proceeding (i) making illegal or prohibiting the acquisition by
Parent or Sub of any Shares under the Offer, making illegal or prohibiting
the making or consummation of the Offer or the Merger or the performance of
any of the other transactions contemplated by this Agreement, or seeking to
obtain from the Company, Parent or Sub any damages that are material in
relation to the Company and its Subsidiaries taken as a whole, (ii)
prohibiting or materially limiting the ownership or operation by the
Company, Parent or any of their respective Subsidiaries
<PAGE>
of any material business or assets of the Company and its Subsidiaries, or
Parent and its Subsidiaries, or compelling the Company or Parent to dispose
of or hold separate any material business or assets of the Company and its
Subsidiaries or Parent and its Subsidiaries, as a result of the Offer, the
Merger or any of the other transactions contemplated by this Agreement,
(iii) imposing material limitations on the ability of Parent or Sub to
acquire or hold, or exercise full rights of ownership of, any Shares to be
accepted for payment pursuant to the Offer, including, without limitation,
the right to vote such Shares or shares on all matters properly presented
to the stockholders of the Company, or (iv) prohibiting Parent or any of
its Subsidiaries from effectively controlling any business or operations of
the Company or its Subsidiaries, provided, however, that Parent shall, if
necessary to prevent any such consequence, offer to accept an order to
divest such of the Company's or Parent's assets and businesses as may be
necessary to prevent such consequence and to hold separate such assets and
businesses pending such divestiture, but only if the amount of such assets
and businesses is not material to the assets or profitability of the
Company and its Subsidiaries taken as a whole or Parent and its
Subsidiaries taken as a whole, as the case may be;
(b) there shall be enacted, entered, enforced, promulgated or deemed
applicable to the Offer or the Merger by any Governmental Entity, any
statute, rule, regulation, judgment, order or injunction, other than the
application to the Offer or the Merger of applicable waiting periods under
the HSR Act or the Competition Act (Canada), that would reasonably be
expected to result, directly or indirectly, in any of the consequences
referred to in clauses (i) through (iv) of paragraph (a) above;
(c) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to Parent or Sub its
approval or recommendation of the Offer, the Merger or this Agreement, or
approved or recommended any Takeover Proposal or (ii) the Board of
Directors of the Company or any committee thereof shall have resolved to
take any of the foregoing actions (it being understood that the taking and
disclosing to the Company's stockholders of a position contemplated by Rule
14d-9(e) promulgated under the Exchange Act shall not constitute an event
referred to in clause (i) or (ii));
-2-
<PAGE>
(d) any of the representations and warranties of the Company set
forth in this Agreement that are qualified as to materiality shall not be
true and correct in any respect or any such representations and warranties
that are not so qualified shall not be true and correct in any material
respect, in each case as if such representations and warranties were made
as of such time;
(e) the Company shall have failed to perform in any material respect
any obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under this
Agreement;
(f) there shall have occurred and continued to exist for not less
than three business days (i) any general suspension of trading in, or
limitation on prices for, securities on a national securities exchange in
the United States (excluding any coordinated trading halt triggered solely
as a result of a specified decrease in a market index) or (ii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States; or
(g) this Agreement shall have been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of Parent and Sub
and may, subject to the terms of this Agreement, be waived by Parent and Sub in
whole or in part at any time and from time to time in their sole discretion.
The failure by Parent or Sub at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right, the waiver of any such right
with respect to particular facts and circumstances shall not be deemed a waiver
with respect to any other facts and circumstances and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to time.
-3-
<PAGE>
EXHIBIT 3
STOCK PURCHASE AND SALE AGREEMENT
---------------------------------
Stock Purchase and Sale Agreement (the "Agreement") dated as of December
11, 1996 between AMERICAN INTERNATIONAL GROUP, INC., a Delaware corporation and
including its wholly-owned subsidiaries ("AIG"), and AON CORPORATION, a Delaware
corporation ("Aon").
WHEREAS, AIG desires to sell to Aon or a designated wholly owned subsidiary
thereof (the "Purchaser"), and the Purchaser desires to purchase, an aggregate
of 4,846,232 shares (the "Shares") (including 95,024 shares to be issued as a
regular quarterly dividend on December 15, 1996) of 8% Series B Cumulative
Convertible Preferred Stock, par value $1.00 per share, of A&A (the "Series B
Stock") for the consideration and upon the terms and subject to the conditions
set forth herein.
NOW, THEREFORE, in consideration of the premises and of the respective
covenants, agreements and conditions contained herein, each of the parties agree
as follows:
1. Closing.
a. Time and Place of the Closing. The Closing (the "Closing") shall take
place at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New
York on the date which is two Business Days after Aon or any affiliate of Aon
first acquires on or after the date hereof in any manner any equity interest in
Alexander & Alexander Services Inc. ("A&A"), or any right or security
convertible or exercisable into any such interest, or any right to acquire any
thereof, by purchase or tender offer or otherwise (an "Aon Equity Acquisition").
Aon shall give AIG two business days prior written notice of the date the
Closing is scheduled to occur. The "Closing Date" shall be the date the Closing
occurs.
b. Transactions at the Closing. At the Closing, subject to the terms and
conditions of this Agreement, AIG shall sell to Aon, and Aon shall purchase from
AIG, the Shares. At the Closing, AIG shall deliver to Aon a certificate or
certificates representing the Shares, with stock powers duly endorsed in blank
for transfer, against receipt of the Purchase Price with respect thereto by wire
transfer of immediately available funds to an account or accounts previously
designated by AIG.
c. Purchase Price. The Purchase Price for the Shares shall be
$317,500,000 in cash plus a cash amount equal to all accrued and unpaid
dividends on the Series B Stock to and including the Closing
<PAGE>
-2-
Date (as well as cash equal to the liquidation preference of any additional
shares of Series B Stock issued as a pay-in-kind dividend on the Series B Stock
after December 15, 1996, if any, which shares shall be included in the
definition of "Shares" herein). In the event that the Closing Date occurs after
the record date for any dividend payment date after December 15, 1996 and before
the dividend payment date, AIG will assign to Aon its right to receive any
dividend so declared by A&A.
2. Conditions to the Closing.
a. Conditions Precedent to the Obligations of Aon. The obligations of Aon
to be discharged under this Agreement on the Closing Date are subject to
satisfaction of the following conditions at the Closing (unless expressly waived
in writing by Aon at or prior to the Closing);
(i) Compliance by AIG. All of the terms, covenants and conditions of
this Agreement to be complied with and performed by AIG at or prior to the
Closing shall have been complied with and performed by AIG in all material
respects, and the representations and warranties made by AIG in this Agreement
shall be true and correct in all material respects at and as of the Closing,
with the same force and effect as though such representations and warranties had
been made at and as of the Closing.
(ii) No Injunction. No statute, rule, regulation, executive order,
decree, temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other governmental
entity preventing the consummation of the purchase of the Shares shall be in
effect.
b. Conditions Precedent to Obligations of AIG. The obligations of AIG to
be discharged under this agreement on the Closing Date are subject to
satisfaction of the following conditions at the Closing (unless waived by AIG at
or prior to the Closing):
(i) Compliance by Aon. All of the terms, covenants and conditions of
this Agreement to be complied with and performed by Aon at or prior to the
Closing shall have been complied with and performed by it in all material
respects, and the representations and warranties made by Aon in this Agreement
shall be true and correct in all material respects at and as of the Closing,
with the same force and effect as though such representations and warranties had
been made at and as of the Closing.
<PAGE>
-3-
(ii) No Injunction. No statute, rule, regulation, executive order,
decree, temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other governmental
entity preventing the consummation of the purchase of the Shares shall be in
effect.
3. Representations and Warranties of Aon.
Aon hereby represents and warrants to AIG:
a. Organization, Good Standing, Power, Authority, Etc. Aon is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Aon has the full corporate power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement. Aon has taken all action required by law, its Certificate of
Incorporation, its by-laws or otherwise required to be taken by it to authorize
the execution, delivery and performance by it of this Agreement. This Agreement
is a valid and binding obligation of Aon, enforceable in accordance with its
terms, except that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and general principles of equity.
b. No Conflicts. Neither the execution and delivery of this Agreement nor
the consummation by Aon of the transactions contemplated hereby will (i)
conflict with, or result in a breach of, any provision of its charter or by-
laws, (ii) violate any statute or law or any judgment, order, writ, injunction,
decree, rule or regulation applicable to Aon and/or any of its subsidiaries or
(iii) cause a breach of any material contract of Aon, which breach would prevent
consummation of the transactions contemplated hereby.
c. No Consents. No consent, authorization or approval of, or declaration,
filing or registration with, or exemption by, any governmental or regulatory
authority is required in connection with the execution and delivery of, and the
performance by Aon of its obligations under, this Agreement or the consummation
by Aon of the transactions to be performed by it as contemplated hereby, other
than the approvals of the Department of Insurance of the States of Delaware, New
York, and Vermont with respect to the transactions contemplated hereby and
filings under the Hart-Scott-Rodino Antitrust Improvements Act ("HSR") and the
Competition Act (Canada).
d. Investment Intent, Etc. Aon (i) has such knowledge, sophistication and
experience in business and financial matters
<PAGE>
-4-
that it is capable of evaluating the merits and risks of an investment in the
Shares, (ii) can bear the economic risk of an investment in the Shares and can
afford a complete loss of such investment, and (iii) is purchasing the Shares
for investment and not with a view to, or for a sale in connection with, any
public distribution in violation of the Securities Act of 1933 (the "Act").
4. Representations and Warranties of AIG.
AIG hereby represents and warrants to Aon:
a. Organization, Good Standing, Power, Authority, Etc. AIG is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. AIG has the full power and authority to execute and
deliver this Agreement. AIG has taken all action required by law, its charter,
its by-laws or otherwise required to be taken by it to authorize the execution
and delivery of this Agreement and the consummation of the transactions
contemplated to be performed by it hereby. This Agreement is a valid and binding
agreement of AIG, enforceable in accordance with terms, except that such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and general principles of equity.
b. No Conflicts. Neither the execution and delivery of this Agreement nor
the consummation by AIG of the transactions contemplated hereby will (i)
conflict with, or result in a breach of, any provision of its charter or by-
laws, (ii) violate any statute or law or any judgment, order, writ, injunction,
decree, rule or regulation applicable to AIG and/or any of its subsidiaries or
(iii) cause a breach of any material contract of AIG, which breach would prevent
consummation of the transactions contemplated hereby.
c. No Consents. No consent, authorization or approval of, or declaration,
filing or registration with, or exemption by, any governmental or regulatory
authority is required in connection with the execution and delivery of, and the
performance by AIG of its obligations under, this Agreement or the consummation
by AIG of the transactions to be performed by it as contemplated hereby, other
than such filings under HSR as may be required.
d. Title to Shares. AIG, indirectly through its wholly owned
subsidiaries, owns the Shares. Each wholly owned subsidiary of AIG which owns
Shares has legal and valid title to such Shares, free and clear of all
restrictions on transfer (other than those
<PAGE>
-5-
imposed by the Act, securities or Blue Sky laws of certain jurisdictions, the
A&A charter and restrictions under Section 6 of the Stock Purchase Agreement
(the "Stock Purchase Agreement") by and between AIG and A&A dated as of June 6,
1994), liens, encumbrances, security interests and claims whatsoever.
5. Covenants.
a. Pre-Closing Activities. From and after the date of this Agreement
until the Closing, each of AIG and Aon shall act with good faith towards, and
shall use its reasonable best efforts to consummate, the transactions
contemplated by this Agreement.
b. Publicity. Each of AIG and Aon will consult with each other before
issuing any press release or otherwise making any public statements with respect
to the transactions contemplated hereby and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law.
c. Dividends. Aon will not waive or modify its rights under the Merger
Agreement that require A&A to pay dividends on the Series B Stock in cash after
December 15, 1996.
d. Series B Stock. All the rights and preferences of the Series B Stock
shall remain in full force and effect until the Closing; provided, however, that
AIG agrees to suspend voluntarily its rights under Section 9(d) of the Articles
Supplementary and its right to require A&A to repurchase any of the Series B
Stock pursuant to Section 7 of the Articles Supplementary related thereto, in
each case until the earlier of the Closing or termination of this Agreement.
AIG will not transfer, assign, sell, pledge or otherwise dispose of any of the
Shares to any third party, other than as contemplated in this Agreement, until
the earlier of the Closing or the termination of this Agreement.
e. Waiver of Rights and Acknowledgment. Effective as of the date hereof,
AIG waives its rights, if any, under Section 6.o of the Stock Purchase
Agreement. AIG acknowledges that the consent of AIG referred to in paragraph
(1) of the letter between A&A and AIG dated June 30, 1994, or any other consent
related to the same subject matter, cannot be withheld or delayed with respect
to commercially reasonable actions proposed to be taken by A&A.
6. Termination. This Agreement (A) shall terminate without any action by
the parties hereto on the earliest of (i) if the Closing shall not have
occurred, April 15, 1997, (ii) if the Closing has not occurred, four Business
Days after an Aon Equity
<PAGE>
-6-
Acquisition and (iii) the effective date of termination of the Merger Agreement
between Aon, A&A and the other parties thereto, dated the date hereof and as
amended from time to time, and (B) may be terminated at any time prior to the
Closing by a written instrument executed and delivered by the parties hereto.
7. Miscellaneous.
a. Notices. All notices or other communications given or made hereunder
shall be validly given or made if in writing and delivered by facsimile
transmission or in person at, or mailed by registered or certified mail, return
receipt requested, postage prepaid, to, the following addressees (and shall be
deemed effective at the time of receipt thereof).
If to Aon: Aon Corporation
123 North Wacker Drive
Chicago, IL 60606
Attention: Raymond I. Skilling, Esq.
Executive Vice President &
Chief Counsel
If to AIG: American International Group, Inc.
70 Pine Street
New York, New York 10270
Attention: Vice Chairman - Investments
and Financial Services
Or to such other addresses the party to whom notice is to be given may have
previously furnished in writing to the others in the manner set forth above.
b. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE STATE AND FEDERAL COURTS IN THE STATE OF NEW YORK IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
c. Severability; Interpretation. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, each of Aon and AIG directs that such court
interpret and apply the remainder of this Agreement in the manner which it
determines most closely effectuates their intent in entering into this
Agreement, and in doing so particularly take into account the relative
<PAGE>
-7-
importance of the term, provision, covenant or restriction being held invalid,
void or unenforceable.
d. Headings. The section headings herein are for convenience only and
shall not affect the construction hereof.
e. Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any party without the prior written
consent of the other party, except that Aon may assign the right to acquire the
Shares in accordance with the terms hereof to one or more wholly owned
subsidiaries of Aon.
f. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
g. Survival of Representations and Warranties. The representations and
warranties in this Agreement shall survive the Closing Date.
h. Entire Agreement; No Third Party Beneficiaries. This Agreement,
including the documents and instruments referred to herein, constitutes the
entire agreement, and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and is not intended to confer upon any person other than the parties any rights
or remedies hereunder.
i. Enforcement of this Agreement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
j. Amendment. This Agreement may be amended, modified or supplemented;
provided that the same shall be in writing and be signed by each of the parties
hereto.
<PAGE>
-8-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
AMERICAN INTERNATIONAL
GROUP, INC., for and on behalf
of itself and its wholly
owned subsidiaries
By:_______________________________
Name:
Title:
AON CORPORATION
By:_______________________________
Name:
Title:
<PAGE>
EXHIBIT 4
FOR IMMEDIATE RELEASE
CONTACT: GARY SULLIVAN
(212) 444-4572
ALEXANDER & ALEXANDER SERVICES, INC.,
AON CORPORATION REACH AGREEMENT ON MERGER
NEW YORK, December 11, 1996--Alexander & Alexander Services Inc. (A&A) and
Aon Corporation (Aon) today announced that they have entered into a definitive
agreement providing for the combination of A&A with Aon. In the transaction,
A&A shareholders will receive $17.50 in cash per share of A&A common stock.
The total consideration to holders of A&A's common stock will be approximately
$790 million. The agreement was approved unanimously by both boards.
A&A currently has outstanding two series of Preferred Stock. The Series A
preferred shares, having an aggregate liquidation preference of $115 million,
will be unaffected by the transaction, except that following the transaction
they shall no longer be convertible into A&A's common shares, but will be
convertible into an aggregate of approximately $120 million in cash. Pursuant
to a separate agreement between Aon and American International Group, Inc.
(AIG), A&A's Series B preferred shares held by subsidiaries of AIG will be
acquired by Aon for a cash consideration of $317.5 million.
The combination with A&A will be effected by a cash tender offer for A&A's
common shares, which is expected to commence no later than December 16, 1996.
Immediately upon completion of the tender offer, the purchase of the Series B
preferred shares will be effected. Any A&A common shares not acquired in the
tender offer (including shares to be issued upon conversion of A&A's Class A
and C common shares and related securities held by Canadian and United Kingdom
shareholders) will subsequently be acquired in a cash merger for $17.50 per
share. The tender offer will not extend to the Class A and C common shares of
A&A.
The transaction is valued at approximately $1.23 billion, taking into
account the aggregate consideration to holders of the A&A common stock, the
conversion value of the Series A preferred and the purchase price for the
Series B preferred stock.
The tender offer is subject to several conditions, including the tender and
non-withdrawal of at least a majority of the voting power of A&A's common
shares (assuming the exercise of options and conversion of Series A preferred
shares), and various regulatory approvals.
Patrick G. Ryan, Chairman and Chief Executive Officer of Aon, stated, "I
have the highest regard for A&A and its outstanding people. This is a unique
opportunity to bring together our two excellent organizations. The combination
of Aon, A&A and Bain Hogg, the most recent member of our corporate family,
provides unparalleled resources and expertise for clients around the world."
A&A's Chairman and Chief Executive Officer, Frank G. Zarb, said, "A&A has
chosen to merge with the premier company in the business. With the combined
strengths of both organizations, the new Aon will shape the future of this
industry."
He added, "The need for consolidation has been increasingly evident in
recent years. With ever more challenging market conditions ahead of us, I
believe this decision serves the best interest of A&A shareholders, our
clients and our employees."
Aon Corporation is an insurance services holding company that comprises a
family of insurance brokerage, consulting and consumer insurance companies.
Aon's common stock (Symbol AOC) is listed on the New York,
1
<PAGE>
Chicago and London Stock exchanges. Lazard Freres & Co. LLC has acted as
financial adviser to Aon in connection with the proposed transaction.
Alexander & Alexander Services, Inc. is a holding company which, through its
subsidiaries, provides professional risk management consulting, insurance
brokerage and human resource management consulting services on a global basis.
The common stock of Alexander & Alexander (Symbol: AAL) is listed on the New
York Stock Exchange. CS First Boston acted as financial adviser to A&A in
connection with the proposed transaction.
2
<PAGE>
EXHIBIT 5
AMENDMENT
AMENDMENT, dated as of December 11, 1996 to the Rights Agreement, dated as
of June 11, 1987, as amended and restated as of March 22, 1990, as amended
April 21, 1992, as amended June 6, 1994, as amended July 15, 1994, and as
amended November 16, 1995 (the "Rights Agreement"), between Alexander &
Alexander Services Inc., a Maryland corporation (the "Company") and First
Chicago Trust Company of New York, a New York corporation, formerly Morgan
Shareholder Services Trust Company, (the "Rights Agent").
WITNESSETH
WHEREAS, the Company and the Rights Agent have heretofore executed and
entered into the Rights Agreement; and
WHEREAS, pursuant to Section 27 of the Rights Agreement, the Company and the
Rights Agent may from time to time supplement or amend the Rights Agreement in
accordance with the provisions of Section 27 thereof; and
WHEREAS, all actions necessary to make this Amendment a valid agreement,
enforceable according to its terms have been taken, and the execution and
delivery of this Amendment by the Company and the Rights Agent have been in
all respects duly authorized by the Company and the Rights Agent;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, the Company and the Rights Agent agree as follows:
1. A new Section 34 shall be added which states the following:
"34. Exemption of Aon Offer and Merger. Notwithstanding anything to
the contrary contained in this Agreement, a Distribution Date, a
Section 11(a)(ii) Event and a Section 13 Transaction shall not occur or
be deemed to occur, and none of Aon Corporation ("Aon"), its Affiliates
or its Associates shall become an Acquiring Person, as a result of the
execution, delivery or performance of the Agreement and Plan of Merger
dated as of December 11, 1996 among Aon, Subsidiary Corporation, Inc.
and Alexander & Alexander Services Inc., as the same may be amended
from time to time (the "Merger Agreement"), the Stock Purchase and Sale
Agreement dated as of December 11, 1996 between Aon and American
International Group, Inc., as the same may be amended from time to time
(the "Preferred Stock Purchase Agreement"), the announcement, making or
consummation of the Offer (as defined in the Merger Agreement), the
acquisition of shares of capital stock pursuant to the Offer, the
Merger (as defined in the Merger Agreement) or the Preferred Stock
Purchase Agreement, the consummation of the Merger or any other
transactions contemplated by this Agreement, the Preferred Stock
Purchase Agreement or the acquisition of any shares of capital stock
upon the conversion of securities acquired pursuant to the Preferred
Stock Purchase Agreement, and Section 11(a)(ii) and Section 13 shall
not apply to the foregoing transactions or events."
2. This Amendment shall be deemed to be a contract made under the laws of
the State of Maryland and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts
made and to be performed entirely within such State.
3. Except as hereinabove expressly provided, all provisions of the Rights
Agreement shall continue in full force and effect.
4. This Amendment may be executed in one or more counterparts all of
which shall be considered one and the same instrument and shall become
effective as of the date hereof when one or more counterparts have been
signed by each of the parties and delivered to each of the other parties.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: ALEXANDER & ALEXANDER SERVICES INC.
/s/ Alice Russell /s/ Frank G. Zarb
By___________________________________ By___________________________________
Name: Alice Russell Name: Frank G. Zarb
Title: Secretary Title: Chairman of the Board,
President & Chief
Executive Officer
Attest:
/s/ John Piskadlo FIRST CHICAGO TRUST COMPANY OF NEW
By___________________________________ YORK
Name: John Piskadlo
Title: Assistant Vice President /s/ Charles W. Kerye
By___________________________________
Name: Charles W. Kerye
Title: Vice President
2
<PAGE>
EXHIBIT 6
LOGO
CS First Boston Corporation 11 Madison Avenue
New York, NY 10010
Telephone 212 325-2000
December 11, 1996
Board of Directors
Alexander & Alexander Services Inc.
1185 Avenue of the Americas
New York, New York 10036
Dear Sirs and Madam:
You have asked us to advise you with respect to the fairness to the holders
of the common stock, par value $1.00 per share (the "Common Stock"), of
Alexander & Alexander Services Inc. (the "Company") from a financial point of
view of the consideration to be received by such stockholders pursuant to the
terms of the Agreement and Plan of Merger, dated as of December 11, 1996 (the
"Acquisition Agreement"), among the Company, Aon Corporation (the "Acquiror")
and Subsidiary Corporation, Inc. (the "Sub"). The Acquisition Agreement
provides for a tender offer (the "Offer") by Sub for all of the outstanding
shares of the Common Stock and the subsequent merger (the "Merger") of the
Company with the Sub pursuant to which the Company will become a wholly owned
subsidiary of the Acquiror and each outstanding share of the Common Stock will
be converted into the right to receive $17.50 in cash.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, as well as the
Acquisition Agreement. We have also reviewed certain other information,
including financial forecasts, provided to us by the Company, and have met with
the Company's management to discuss the business and prospects of the Company.
We have also considered certain financial and stock market data of the
Company, and we have compared that data with similar data for other publicly
held companies in businesses similar to those of the Company and we have
considered the financial terms of certain other business combinations and other
transactions which have recently been effected. We have also considered such
other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. In
addition, we have not made an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of the Company, nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon financial, economic, market and other conditions as they exist and
can be evaluated on the date hereof.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a portion of which is
contingent upon the consummation of the Merger. We will also receive a fee for
rendering this opinion.
A-1
<PAGE>
In the past, we have performed certain investment banking services for the
Company and the Acquiror and have received customary fees for such services.
Mr. Frank G. Zarb, Chairman of the Board, President and Chief Executive Officer
of the Company, is a director of CS First Boston, Inc.
In the ordinary course of our business, CS First Boston and its affiliates
may actively trade the debt and equity securities of both the Company and the
Acquiror for their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the Offer and
the Merger and does not constitute a recommendation to any stockholder as to
whether or not such stockholder should tender shares pursuant to the Offer and
is not to be quoted or referred to, in whole or in part, in any registration
statement, prospectus or proxy statement, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without CS First Boston's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the common stockholders of the
Company in the Offer and the Merger is fair to such stockholders from a
financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
/s/ Jonathan Plutzik
By:__________________________________
Jonathan Plutzik
Managing Director
A-2
<PAGE>
EXHIBIT 7
ALEXANDER & Alexander Services Inc.
December 16, 1996
Dear Stockholder:
I am pleased to inform you that on December 11, 1996, Alexander & Alexander
Services Inc. ("Alexander & Alexander") entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Aon Corporation and Subsidiary
Corporation, Inc. (the "Offeror"). Pursuant to the Merger Agreement, the
Offeror today commenced a tender offer to purchase all outstanding shares of
Alexander & Alexander's Common Stock, par value $1.00 per share, and
associated preferred stock purchase rights (the "Shares"), for $17.50 per
share in cash. Under the Merger Agreement, the tender offer will be followed
by a merger in which any remaining Shares (other than Shares held by
dissenting stockholders, if applicable) will be converted into the same
consideration as is paid in the tender offer.
Your Board of Directors has unanimously approved the Merger Agreement, the
tender offer and the merger, has determined that the terms of each of the
tender offer and merger are fair to and in the best interests of Alexander &
Alexander's common stockholders, and recommends that the Alexander &
Alexander's common stockholders accept the tender offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9, including, among other things, the opinion of CS First Boston
Corporation, Alexander & Alexander's financial advisor, that the cash
consideration of $17.50 per share to be received by the holders of Common
Stock pursuant to the offer and the merger is fair to such common stockholders
from a financial point of view.
Accompanying this letter is a copy of the Alexander & Alexander Services
Inc. Solicitation/Recommendation Statement on Schedule 14D-9 as well as
Offeror's Offer to Purchase and related materials, including a Letter of
Transmittal for use in tendering Shares. We urge you to read the enclosed
materials carefully. The management and directors of Alexander & Alexander
thank you for the support you have given the company.
Sincerely,
/s/ Frank G. Zarb
_____________________________________
Frank G. Zarb
Chairman of the Board, President &
Chief Executive Officer
