ALEXANDER & ALEXANDER SERVICES INC, SC 14F1, 1997-01-17

ALEXANDER & ALEXANDER SERVICES INC
SC 14F1, 1997-01-17
INSURANCE AGENTS, BROKERS & SERVICE

Previous: AFFILIATED COMPUTER SERVICES INC, 8-A12B, 1997-01-17

Next: ALLEGHENY POWER SYSTEM INC, 35-CERT, 1997-01-17

<PAGE>

ALEXANDER & ALEXANDER SERVICES INC.
1185 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036

INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREOF

NO VOTE OR OTHER ACTION OF
THE COMPANY'S STOCKHOLDERS IS REQUIRED
IN CONNECTION WITH THIS INFORMATION
STATEMENT

This Information Statement is being mailed on or about January 17, 1997 to
the holders of shares of Common Stock, par value $1.00 per share (the "Common
Stock"), of Alexander & Alexander Services Inc., a Maryland corporation listed
on the New York Stock Exchange under the symbol "AAL" (the "Company"), in
connection with the anticipated designation of persons (the "Designated
Directors") to the Board of Directors of the Company, other than at a meeting
of stockholders. Such designation is to be made pursuant to an Agreement and
Plan of Merger (the "Agreement"), dated as of December 11, 1996, as amended as
of January 7, 1997, among the Company, Subsidiary Corporation, Inc., a
Maryland corporation (the "Offeror") and a wholly owned subsidiary of Aon
Corporation, a Delaware corporation listed on the New York Stock Exchange
under the symbol "AOC" (the "Parent"). On January 15, 1997, the Offeror
consummated a tender offer to purchase all outstanding shares of the Common
Stock and the associated preferred stock purchase rights ("Rights" and,
together with the Common Stock, the "Shares") for $17.50 per share in cash. NO
ACTION IS REQUIRED BY THE STOCKHOLDERS OF THE COMPANY IN CONNECTION WITH THE
APPOINTMENT OF THE DESIGNATED DIRECTORS. However, Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14f-1 promulgated thereunder requires the mailing to the Company's
stockholders of the information set forth in the Information Statement prior
to a change in a majority of the Company's directors other than at a meeting
of the Company's stockholders.

The Agreement provides that, among other things, as soon as practicable
after the purchase of the shares pursuant to the Offer and the satisfaction of
the other conditions set forth in the Agreement and in accordance with the
relevant provisions of the Maryland General Corporation Law, as amended (the
"Maryland GCL"), the Offeror will be merged with and into the Company (the
"Merger"). Following consummation of the Merger, the Company will continue as
the surviving corporation (the "Surviving Corporation") and will be a wholly
owned subsidiary of the Parent. At the effective time of the Merger (the
"Effective Time"), 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 (the "Class A Common Stock"), together with the related Class 1 special
shares ("RSC Shares") of Reed Stenhouse Companies Limited, a subsidiary of the
Company organized under the laws of Canada, and related Right, or (iii) the
Class C Common Stock, par value $1.00 per share (the "Class C Common Stock"),
together with the related Dividend Share (the "Dividend Share") of Alexander
and Alexander Services UK plc, a subsidiary of the Company organized under the
laws of Scotland, and related Right, in each case, that is issued and
outstanding (other than stock of the Company owned by any subsidiary of the
Company, Parent, the Offeror, or any other subsidiary of Parent 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 the $17.50 in cash, without interest thereon.

Concurrently with the execution of the Agreement, the Parent entered into
the Stock Purchase and Sale Agreement (the "Stock Purchase and Sale
Agreement") with American International Group, Inc. ("AIG"). Pursuant to the
Stock Purchase and Sale Agreement, and subject to the terms and conditions
thereof, the Parent agreed to buy and AIG agreed to sell for $317.5 million
all shares of the 8% Series B Cumulative Convertible Preferred Stock, par
value $1.00 per share ("Series B Preferred Stock"), owned by AIG or its
subsidiaries. The sale of the Series B Preferred Stock closed on January 17,
1997.
<PAGE>

The Agreement provides that, promptly after the Offeror acquires Shares
pursuant to the Offer, the Offeror will be entitled to designate at its option
up to that number of directors (the "Designated Directors"), of the Board of
Directors, rounded to the nearest whole number, as will make the percentage of
the Designated Directors equal to the aggregate voting power of the Shares
held by Aon 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 Common Stock, other
than the conversion of the shares of Class B Preferred Stock); provided,
however, that in the event that Designated Directors 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
Agreement and who are not officers of the Company. The Company has agreed, at
the option of Parent, either to increase the size of the Board of Directors of
the Company and/or obtain the resignation of such number of directors as is
necessary to enable the Designated Directors to be elected or appointed to the
Board.

The Offer closed on January 14, 1997. Aon presently has the right to
designate a majority of the Company's Board of Directors until the Company's
next stockholder meeting.

The terms of the Agreement, a summary of the events leading up to the Offer
and the execution of the Agreement and certain other information concerning
the Offer and the Merger are contained in the Offer to Purchase and in the
Solicitation/Recommendation Statement on Schedule 14D-9 of the Company (the
"Schedule 14D-9") with respect to the Offer, copies of which have been
delivered to stockholders of the Company. Certain other documents (including
the Agreement) were filed with the Securities and Exchange Commission (the
"Commission") as exhibits to the Schedule 14D-9 and as exhibits to the Tender
Offer Statement on Schedule 14D-1 of the Offeror and the Parent (the "Schedule
14D-1"). The exhibits to the Schedule 14D-9 and the Schedule 14D-1 may be
examined at, and copies thereof may be obtained from, the regional offices of
and public reference facilities maintained by the Commission (except that the
exhibits thereto cannot be obtained from the regional offices of the
Commission) in the manner set forth in Section 8 of the Offer to Purchase. In
the Agreement, the Parent represented that it has and will make available to
the Purchaser the funds to purchase all shares of Common Stock tendered
pursuant to the Offer and to consummate the Merger.

The information contained in this Information Statement concerning Aon and
the Designated Directors has been furnished to the Company by Aon and the
Designated Directors. With respect to the accuracy and completeness of such
information, the Company has relied solely upon the information furnished by
Aon and the Designated Directors in preparing the sections of this Information
Statement relating to such information.

OUTSTANDING SECURITIES AND VOTING RIGHTS

As of January 17, 1997, there were (a) 44,895,850 Shares issued and
outstanding and (b) securities convertible or exchangeable into an aggregate
of 17,969,260 Shares (including RSC Shares retractable into 59,307 Shares,
Class C Common Stock convertible into 54,188 Shares, Series A Convertible
Preferred Stock convertible into 3,607,843 Shares and Series B Preferred Stock
convertible into 14,247,922 Shares). As of the date hereof, the Offeror owns
44,293,552 Shares and Aon owns all outstanding shares of Series B Preferred
Stock.

CHANGE IN CONTROL OF COMPANY

On January 15, 1997, the Offeror consummated a tender offer to purchase all
outstanding Shares for $17.50 per share in cash. Pursuant to the Offer, the
Offeror acquired approximately 44,293,552 Shares, or 99% of the outstanding
Shares. All Shares validly tendered and not withdrawn before expiration of the
Offer at 12:00 midnight, New York City time, on January 14, 1997, were
accepted for payment, including approximately 1,846,882 Shares tendered
pursuant to guaranteed delivery procedures. The Offeror obtained all funds
needed to consummate the Offer through a capital contribution from the Parent
to the Offeror. Parent obtained the funds necessary for such capital
contribution from cash on hand and the proceeds from a preferred equity
financing completed on January 13, 1997. Pursuant to such preferred equity
financing, Parent received approximately $792

2
<PAGE>

million from the sale by a subsidiary of 8.205% Capital Securities, payments as
to which are guaranteed by Parent.

Pursuant to the Stock Purchase and Sale Agreement, on January 17, 1997,
Parent purchased all of the outstanding Series B Preferred Stock from AIG or
its subsidiaries. Each share of Series B Preferred Stock is currently
convertible into approximately 2.94 shares of Class D Common Stock of the
Company. The Class D Common Stock is exchangeable for Common Stock on a share-
for-share basis.

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

As to the beneficial ownership of the Company's Common Stock, the following
table sets forth information as of January 17, 1997, regarding each director
and named executive officer reported under the caption "Executive
Compensation," and all directors, and executive officers as a group.

<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY SUBJECT TO
NAME OWNED(1) OPTIONS(2)
---- ------------ ------------
<S> <C> <C>
Frank G. Zarb...................................... 171,692 100,000
H. Furlong Baldwin................................. -- --
Kenneth J. Davis................................... -- 1,100
Joseph L. Dionne................................... -- --
Maurice H. Hartigan................................ -- --
Ronald A. Iles..................................... -- 15,100
Edward F. Kosnik................................... -- --
Dennis L. Mahoney.................................. -- --
All directors and executive officers
as a group (17 persons)(3)........................ 187,461 116,200
</TABLE>
- --------
(1) All directors and executive officers tendered shares held directly or
indirectly by them with the exception of Mr. Zarb whose tender was not
accepted by the depositary due to error and Mr. Horrick who did not tender
because of a recent acquisition of shares which would have resulted in a
violation of Section 16 of the Securities Exchange Act of 1934.
(2) Represents shares which are subject to options exercisable within 60 days
from January 17, 1997.
(3) No individual director or executive officer beneficially owns more than 1
percent of any class of the Company's common voting shares.

BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

The Board of Directors presently consists of three members. Pursuant to the
Company's Bylaws, each director holds office until such director's successor is
elected and qualified or until such director's earlier resignation, death or
removal. The individuals described below comprise the Company's current Board
of Directors.

Aon and the Offeror have informed the Company that they will choose the
Designated Directors from the persons listed on Schedule I to this Information
Statement. Schedule I also sets forth the present principal occupation or
employment and five year employment history and citizenship for each of the
persons who may be designated as a director. Aon, Sub, and the Designated
Directors have advised the Company that none of the Designated Directors
beneficially owns any securities (or rights to acquire securities) of the
Company or has been involved in any transactions with the Company or any of its
directors, executive officers or affiliates that are required to be disclosed
pursuant to the rules of the Securities and Exchange Commission, except as may
be disclosed in the Offer to Purchase. Aon and Sub have informed the Company
that each of the persons listed on Schedule I to this Information Statement has
consented to act as a director, if so designated. The Designated Directors will
constitute a majority of the Board after they are appointed.

3
<PAGE>

CONTINUING DIRECTORS

The following is certain biographical information, as of January 17, 1997,
with respect to the current members of the Board of Directors, all of whom
will continue to serve on the Board of Directors after the appointment of the
Designated Directors.

H. FURLONG BALDWIN, 65
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.

JOSEPH L. DIONNE, 63
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.

MAURICE H. HARTIGAN II, 57
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.

MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES

The Board of Directors met eleven times during 1996. All directors attended
75% or more of the aggregate number of meetings of the board and its
committees on which they served.

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 three nonemployee directors: Messrs. Dionne, Baldwin and Hartigan.
The committee met seven times during 1996.

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. This committee consists of three
non-employee directors: Messrs. Dionne (Chair), Baldwin, and Hartigan. The
committee met five times during 1996.

4
<PAGE>

DIRECTOR COMPENSATION

The Company's Non-Employee Director Deferred Stock Ownership Plan (the "NEDD
Plan") was approved by stockholders at the 1995 annual meeting of stockholders
and became effective as of January 1, 1995. Like the Company's revised
compensation programs for its executive officers and other key employees, the
NEDD Plan places its emphasis on equity-based variable compensation intended to
encourage the creation of value for stockholders.

Each non-employee director receives a single annual fee of $40,000 for all
services as a director (the "Annual Fee"), regardless of the committee services
such director provides. The Annual Fee generally is not paid currently to any
director. Instead, payment of such Annual Fee is deferred pursuant to the terms
of the NEDD Plan. Under the NEDD Plan, in lieu of payment of the Annual Fees,
the Company will generally contribute shares of Common Stock equal to that
portion of the Annual Fees so deferred to a grantor trust established by the
Company (the "Company Trust"). Shares are then allocated to an account
established for each director (a "Director's Account"). In the event that a
non-employee director is subject to current income taxation on the Annual Fee
payable, the Company will pay sufficient cash to the non-employee director to
discharge the taxes due on the Annual Fee and the amount of stock to be
contributed to the Company Trust in respect of such director will be reduced by
like amount.

Shares contributed to a Director's Account may be sold by the independent
trustee of the Company Trust or by an investment manager appointed by the
Company after the shares have been held in the Company Trust for one year (or
earlier, upon the death of the director or a Change of Control of the Company)
at the direction of the director given during a window period more than six
months prior to the effective date of such sale. Any shares of Common Stock
then held in a Director's Account will be distributed six months following the
cessation of the Eligible Director's services as a member of the Board. To the
extent that a Director's Account holds assets other than Common Stock, such
assets will generally be distributed immediately following the time at which
the Eligible Director ceases to be a member of the Board (or earlier in the
event of a determination of hardship). Notwithstanding the foregoing, dividends
on Common Stock held in a Director's Account will be passed through to each
director as soon as practicable following the date received by the Company
Trust.

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 three 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 Information 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

5
<PAGE>

. Executive as Stockholders--Create a common interest between executive
officers and the Company's stockholders through the use of stock awards
that link a portion of each executive officer's compensation opportunity
directly to the value of the Company's Common Stock.

The compensation program for the key employees of the Company and its
subsidiaries (including the Company's executive officers) was revised in 1995
to increase the emphasis on variable compensation and the rewards payable for
superior performance. To further align the interests of management with those
of stockholders, new equity based programs were approved by stockholders at
the 1995 annual meeting of stockholders.

The programs which implement the CBNC's compensation philosophy have been
developed with the assistance of outside consultants and counsel. The CBNC
will continue to annually review the Company's compensation policies and
programs in light of this philosophy and of competitive practices in the
United States and in those foreign countries in which executive officers of
the Company reside and/or geographically operate.

COMPONENTS OF EXECUTIVE COMPENSATION PROGRAM

Base Salary

The CBNC establishes each officer's base salary by comparison to competitive
market levels for the executive's job function determined by reference to
compensation paid in the industry or by a peer group, in the country where
such executive permanently resides and/or geographically operates. The "Peer
Group" used in the Stock Price Performance Graph on page 9 of this information
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 1996 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 1996, 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.

Equity Based Incentives

The Company's equity based incentives have historically taken the form of
both stock options and restricted stock awards. The Company adopted the 1995
LTIP to provide its executive officers and other key employees equity
opportunities that are intended to further align the interests of such
officers and employees with those of the Company's stockholders.

6
<PAGE>

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 1996, 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 1996
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, 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 1996.

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 served as chairman of the board, chief executive officer
and president of the Company from June 1994 until January 17, 1997. The
compensation payable to Mr. Zarb with respect to his 1996 services was
generally determined according to the philosophy described above. With respect
to Mr. Zarb's annual base salary of $900,000 set in June 1994, he requested and
received no increase in 1996.

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
H. Furlong Baldwin
Maurice H. Hartigan

7
<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")
during years ended December 31, 1996, 1995 and 1994.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- --------------------- -------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND COMPENSATION AWARD(S) OPTIONS LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS ($)(2) ($)(3) ($)(4) PAYOUTS($)(5) ($)(6)(7)
- ------------------ ---- --------- ---------- ------------ ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FRANK G. ZARB**......... 1996 $900,000 * -- -- -- -- $64,669
Chairman, CEO, 1995 $900,000 $ 978,005 -- $ 325,995 100,000 -- $40,242
President and Director 1994 $487,500 $1,000,000 -- $4,773,887 600,000 -- $25,163
of the Company
KENNETH J. DAVIS (1).... 1996 $467,216 * $460,749 $ 159,375 25,000 -- $ 374
Chairman of A&A Inc., 1995 $427,984 $ 295,680 $ 90,923 $ 397,358 25,000 -- $ 379
EVP of the Company 1994 $327,674 $ 299,591 $ 53,450 $ 210,625 50,000 -- $ 367
RONALD A. ILES (1)...... 1996 $546,000 * $120,499 $ 296,250 -- $245,825 --
Deputy Chairman of 1995 $528,430 $ 360,726 $105,473 $ 90,180 -- -- $20,244
the Company, Chairman 1994 $440,640 $ 526,868 $ 52,536 $ 421,250 50,000 -- $14,744
of A&A Services
UK plc and Chairman
of Alexander Howden
Group Ltd.
EDWARD F. KOSNIK**...... 1996 $425,000 * -- $ 694,688 50,000 -- $25,217
Senior EVP, COO, 1995 $325,096 $ 379,920 -- $ 94,980 100,000 -- $13,724
CFO and Director of 1994 $109,231 $ 125,000 -- -- 150,000 -- $ 4,665
the Company
DENNIS L. MAHONEY (1) 1996 $531,180 * $111,662 $ 296,250 -- -- $ 374
EVP of the Company 1995 $492,885 $ 321,554 $ 62,369 $ 448,808 -- -- $ 379
and Deputy Chairman 1994 $475,830 $ 477,360 $100,563 -- 50,000 -- $ 367
and Chief Executive
Officer of Alexander
Howden Group, Ltd.
</TABLE>
- --------
*Bonus Information for 1996 not available at this time.
**Terminated without cause effective the close of business on January 17,
1997.
(1) All cash compensation was paid in U.K. pounds sterling except for Mr.
Davis who also received compensation in U.S. dollars in connection with a
long term work assignment in the United States during 1996. 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 1.56 in
1996, 1.58 in 1995 and 1.53 in 1994.
(2) These awards sometimes take the form of non-cash compensation or other
personal benefits because of tax regulations or competitive business
practices in a particular country or region. In this category, Mr. Davis
received a $25,869 car allowance and $401,785 for housing expenses related
to a long term work assignment in the United States. Mr. Iles received
$26,098 car allowance and $59,622 for other transportation expenses. Mr.
Mahoney received $86,607 for housing expenses.
(3) Value of restricted stock awards reported reflect the fair market value of
the shares awarded on the date of grant. Dividends are paid on the shares
of restricted stock at the same rate as on Common Stock. Shares of
restricted stock vest immediately upon the death or disability of the
holder of restricted stock or in certain circumstances, upon change in
control of the Company. Pursuant to the terms of the 1995 LTIP,
restrictions on all restricted stock held by the named executives lapsed
on December 16, 1996.
(4) 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."
(5) Represents amounts paid to Mr. Iles during 1996 pursuant to a contingent
benefit agreement, the terms of which are more fully described below under
the caption "Compensation Arrangements with Named Executive Officers".
(6) Amounts reported in 1996 include: (i) matching contributions made by the
Company under the Thrift Plan and an unfunded supplemental retirement plan
of $64,669 for Mr. Zarb and $25,217 for Mr. Kosnik; (ii) matching
contributions under U.K. Equity Scheme of $374 for each Messrs. Davis and
Mahoney; (iii) insurance premiums paid by the Company of $285 for each of
Messrs. Zarb and Kosnik.
(7) 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."

8
<PAGE>

STOCK PRICE PERFORMANCE GRAPH

The graph below provides an indicator of cumulative total stockholder returns
for the Company for the period December 31, 1991 to December 31, 1996 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.

SUMMARY
1991 1992 1993 1994 1995 1996
---- ----- ----- ----- ----- -----
A&A 0.0 134.1 104.9 101.6 104.5 97.1
S&P 500 0.0 107.4 117.8 119.8 160.1 193.6
PEER GP 0.0 105.0 121.2 108.2 118.1 120.4

9
<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 $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 1996 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

10
<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 1996 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 Severance Plan or any
other employee benefit or compensation plan, program or arrangement in which
the officer

11
<PAGE>

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 1996, 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 1996

The following table sets forth information concerning individual grants of
stock options made to the named executives during 1996:

<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM(3)
--------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
% OF TOTAL EXERCISE
OPTIONS OPTIONS OR BASE
GRANTED GRANTED TO PRICE EXPIRATION
NAME (SHARES)(2) EMPLOYEES IN ($/SHARE) DATE 5%(3) 10%(3)
---- ----------- FISCAL 1996 -------- ---------- ------- -------
------------
Frank G. Zarb .......... -- -- -- -- -- --
Kenneth J. Davis ....... 25,000 0.99% $ 16.00 8/22/06 251,500 637,500
Ronald A. Iles ......... -- -- -- -- -- --
Edward F. Kosnik ....... 25,000 0.99% $ 16.00 8/22/06 251,500 637,500
25,000 0.99% $19.625 2/16/06 308,625 781,875
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
1996, 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. 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 Mr. Davis and Mr. Kosnik to
realize the potential values on their August 22, 1996 grants 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 $26.06 and $41.50,
respectively, and in order for Mr. Kosnik to realize the potential values
on his February 16, 1996 grants set forth in the table above, the price
per share of the Company's Common Stock would have to be approximately
$31.97 and $50.90, respectively, as of the expiration date of their
options.

12
<PAGE>

AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND 1996 FISCAL YEAR-END OPTION
VALUES

The following table sets forth information concerning individual unexercised
options held by the named executives during the Company's 1996 fiscal year:

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS AT
ACQUIRED VALUE AT FY END (SHARES) FY END ($)
NAME ON EXERCISE (#) REALIZED EXERCISABLE EXERCISABLE
---- -------------- -------- ------------------- --------------------
<S> <C> <C> <C> <C>
Frank G. Zarb........... -- -- 700,000 $ 150,000
Kenneth J. Davis........ -- -- 78,480 $ 218,874
Ronald A. Iles.......... -- -- 59,914 $ 151,247
Edward F. Kosnik........ 185,320 532,795 -- --
Dennis L. Mahoney....... -- -- 31,584 $ 106,596
</TABLE>

COMPENSATION, BENEFITS AND NOMINATING COMMITTEE REPORT ON
STOCK OPTION EXCHANGE

On November 26, 1996, the CNBC authorized the Company to offer to exchange
certain outstanding non-qualified stock options granted under the 1995 Long-
Term Incentive Plan and the 1988 Long-Term Incentive Compensation Plan for
stock options to purchase fewer shares of Common Stock (such reduction based
on a formula described below) at a per share exercise price equal to the fair
market value of Common Stock on the date of grant.

The CNBC believes that the exchange of "underwater" options is in the best
interests of the Company and its stockholders. The overwhelming majority of
the Company's outstanding stock options had exercise prices that were
substantially above the then current market price of the Common Stock. Stock
options have been an important element of the Company's long-term incentive
compensation. In awarding stock options to key employees, the CNBC's intent
was that such options would represent a significant portion of such employee's
total compensation opportunity. This intent has been thwarted lately due to
soft market conditions causing a substantial downturn in the market price of
the Company's Common Stock. Thus, the Committee concluded that these stock
options no longer provided sufficient incentives to the Company's employees
nor adequately encouraged key personnel to remain in the Company's employ.

Excluding the Chairman and Chief Executive Officer, the Company offered the
new stock options to holders of original stock options exercisable for up to
4,685,200 shares of Common Stock at original per share exercise prices ranging
from $16.00 to $26.50. All option holders, including the Named Executive
Officers, elected to exchange their original stock options for new stock
options with an exercise price equal to the closing price of the Company's
Common Stock on the New York Stock Exchange on November 26, 1996. Each
previously granted option was replaced with an option having an equivalent
value under the Black Scholes Option Pricing Model. Consequently, the new
options provide for the purchase of a fewer number of shares of Common Stock
than the options they replaced.

In determining to make the option exchange offer to employees, the CNBC
considered the fairness of such exchange in relation to the Company's other
stockholders. The CNBC concluded that the exchange for fewer number of shares
based on the Black Scholes Option Pricing Model (a reduction of approximately
56%) would reduce stockholder dilution while permitting the Company to more
effectively retain and motivate its key employees.

In some overseas territories, to comply with local law and practice, option
exchanges were not made. Rather, existing options were cancelled and followed
by discretionary grants of new options on a similar basis.

13
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF MKT.
NO. OF SECURITIES PRICE LENGTH OF
SECURITIES UNDERLYING OF STOCK EXERCISE ORIGINAL OPTION
UNDERLYING REPLACEMENT AT TIME PRICE AT NEW TERM REMAINING
OPTIONS OPTIONS OF TIME OF EXERCISE AT DATE OF
NAME/TITLE DATE EXCHANGED GRANTED EXCHANGE EXCHANGE PRICE EXCHANGE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ELLIOT S. COOPERSTONE 11-26-96 125,000 91,026 $14.50 $17.125 $14.50 7 yrs. 7 months
EXECUTIVE VICE PRESIDENT 11-26-96 75,000 40,507 $14.50 $24.50 $14.50 8 yrs. 8 months
OF THE COMPANY AND CEO & 11-26-96 25,000 22,937 $14.50 $19.625 $14.50 9 yrs. 10 months
PRESIDENT 11-26-96 25,000 18,408 $14.50 $16.00 $14.50 9 yrs. 3 months
ALEXANDER & ALEXANDER
INC.
- -----------------------------------------------------------------------------------------------------
KENNETH J. DAVIS 12-18-87 870 440 $17.75 $38.625 $17.75 9 yrs. 5 months
EXECUTIVE VICE PRESIDENT 11-26-96 1,800 88 $14.50 $24.75 $14.50 2 yrs. 0 months
OF THE COMPANY AND 11-26-96 5,000 391 $14.50 $25.00 $14.50 2 yrs. 7 months
CHAIRMAN, ALEXANDER & 11-26-96 6,000 1,018 $14.50 $23.875 $14.50 3 yrs. 7 months
ALEXANDER INC. 11-26-96 6,000 1,399 $14.50 $23.125 $14.50 4 yrs. 2 months
11-26-96 10,000 3,581 $14.50 $23.75 $14.50 5 yrs. 11 months
11-26-96 9,000 3,226 $14.50 $25.75 $14.50 6 yrs. 8 months
11-26-96 50,000 29,988 $14.50 $20.625 $14.50 7 yrs. 9 months
11-26-96 25,000 13,502 $14.50 $24.50 $14.50 8 yrs. 8 months
11-26-96 25,000 22,936 $14.50 $16.00 $14.50 9 yrs. 9 months
- -----------------------------------------------------------------------------------------------------
JAMES S. HORRICK 12-18-87 2,588 1,410 $17.75 $38.625 $17.75 9 yrs. 5 months
PRESIDENT & CEO 11-26-96 7,000 257 $14.50 $23.625 $14.50 1 yr. 8 months
A&A/REED STENHOUSE 11-26-96 6,000 434 $14.50 $25.00 $14.50 2 yrs. 7 months
COMPANIES LIMITED 11-26-96 6,000 971 $14.50 $23.875 $14.50 3 yrs. 7 months
11-26-96 6,000 1,363 $14.50 $23.125 $14.50 4 yrs. 1 month
11-26-96 10,000 3,521 $14.50 $23.75 $14.50 7 yrs. 10 months
11-26-96 10,000 3,529 $14.50 $25.75 $14.50 6 yrs. 8 months
11-26-96 50,000 29,988 $14.50 $20.625 $14.50 7 yrs. 10 months
11-26-96 20,000 10,802 $14.50 $24.50 $14.50 8 yrs. 9 months
11-21-96 20,000 18,349 $14.50 $16.00 $14.50 9 yrs. 9 months
- -----------------------------------------------------------------------------------------------------
RONALD A. ILES(/1/) 12-9-96 8,000 518 $14.00 $25.00 $14.00 2 yrs. 7 months
DEPUTY CHAIRMAN OF THE 12-9-96 8,000 1,188 $14.00 $23.875 $14.00 3 yrs. 7 months
BOARD OF THE COMPANY 12-9-96 8,000 1,670 $14.00 $23.125 $14.00 4 yrs. 1 month
AND CHAIRMAN, ALEXANDER 12-9-96 20,000 6,569 $14.00 $23.75 $14.00 5 yrs. 11 months
HOWDEN GROUP LIMITED 12-9-96 20,000 6,572 $14.00 $25.75 $14.00 6 yrs. 8 months
12-9-96 50,000 28,298 $14.00 $20.625 $14.00 7 yrs. 9 months
- -----------------------------------------------------------------------------------------------------
R. ALAN KERSHAW 12-21-95 10,000 10,000 $19.625 $24.50 $19.625 9 yrs. 6 months
VICE PRESIDENT & 11-26-96 3,000 217 $14.50 $25.00 $14.50 2 yrs. 6 months
TREASURER OF THE COMPANY 11-26-96 3,000 485 $14.50 $23.875 $14.50 3 yrs. 6 months
11-26-96 3,000 682 $14.50 $23.125 $14.50 4 yrs. 1 month
11-26-96 3,000 1,056 $14.50 $23.75 $14.50 5 yrs. 10 months
11-26-96 3,000 1,059 $14.50 $25.75 $14.50 6 yrs. 7 months
11-26-96 20,000 11,995 $14.50 $20.625 $14.50 7 yrs. 9 months
11-26-96 10,000 7,266 $14.50 $19.625 $14.50 9 yrs. 1 month
- -----------------------------------------------------------------------------------------------------
EDWARD F. KOSNIK 11-26-96 150,000 89,965 $14.50 $20.625 $14.50 7 yrs. 9 months
SENIOR EXECUTIVE VICE 11-26-96 100,000 54,009 $14.50 $24.50 $14.50 8 yrs. 8 months
PRESIDENT,
CHIEF OPERATING OFFICER 11-26-96 25,000 18,408 $14.50 $19.625 $14.50 9 yrs. 3 months
OF THE COMPANY AND CHIEF 11-26-96 25,000 22,937 $14.50 $16.00 $14.50 9 yrs. 9 months
FINANCIAL OFFICER
- -----------------------------------------------------------------------------------------------------
DENNIS L. MAHONEY (/1/) 12-18-87 6,501 3,260 $17.75 $38.625 $17.75 9 yrs. 5 months
EXECUTIVE VICE PRESIDENT 12-9-96 10,000 3,286 $14.00 $25.75 $14.00 6 yrs. 8 months
OF THE COMPANY AND 12-9-96 50,000 28,298 $14.00 $20.625 $14.00 7 yrs. 9 months
DEPUTY CHAIRMAN
ALEXANDER HOWDEN
LIMITED GROUP
- -----------------------------------------------------------------------------------------------------
DAN R. OSTERHOUT 12-18-87 786 400 $17.75 $38.625 $17.75 9 yrs. 5 months
SENIOR VICE PRESIDENT 11-26-96 3,500 129 $14.50 $23.625 $14.50 1 yr. 8 months
OF THE COMPANY AND 11-26-96 2,500 181 $14.50 $25.00 $14.50 2 yrs. 6 months
CHAIRMAN & CEO ALEXANDER 11-26-96 2,500 404 $14.50 $23.875 $14.50 3 yrs. 6 months
UNDERWRITING SERVICES 11-26-96 2,800 636 $14.50 $23.125 $14.50 4 yrs. 1 month
11-26-96 10,000 3,521 $14.50 $23.75 $14.50 5 yrs. 10 months
11-26-96 10,000 3,529 $14.50 $25.75 $14.50 6 yrs. 7 months
11-26-96 30,000 17,993 $14.50 $20.625 $14.50 5 yrs. 9 months
11-26-96 20,000 14,727 $14.50 $19.625 $14.50 9 yrs. 3 months
- -----------------------------------------------------------------------------------------------------
MARK J. SCHNEIDERMAN 12-21-95 25,000 25,000 $19.625 $24.50 $19.625 9 yrs. 6 months
SENIOR VICE PRESIDENT-- 11-26-96 25,000 18,165 $14.50 $19.625 $14.50 9 yrs. 1 month
HUMAN RESOURCES
- -----------------------------------------------------------------------------------------------------
</TABLE>

14
<PAGE>

- --------
+ Executive officers who were also members of the Company's operations board
were not eligible to particpate in the December 1995 repricing.

++ Mr. Zarb did not participate in either the December 1995 repricing or the
November 1996 Option Exchange.

(/1/)Messrs. Iles, Mahoney and Williams did not participate in the Stock Option
Exchange, however, they were awarded discretionary grants from the CBNC in
December following the voluntary cancellation of all their outstanding
options under the 1988 Long-Term Incentive Compensation Plan and the 1995
LTIP.

15
<PAGE>

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>
- --------
* This information has not been updated since the Company's Proxy Statement
filed with the Commission on March 29, 1996.
(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.

16
<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
PENSIONABLE
EARNINGS(2) YEARS OF SERVICE(3)
----------- --------------------------
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>
- --------
* This information has not been updated since the Company's Proxy Statement
filed with the Commission on March 29, 1996.

(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. Dionne, who is a director of the Company is also chairman of the board
of directors and chief executive officer of McGraw-Hill, Inc. ("McGraw-Hill").
During 1996, the Company paid Standard & Poor's (a McGraw-Hill subsidiary)
$81,250 in connection with debt rating services provided.

Mr. Hartigan, who is a director of the Company, is also executive vice
president of PNC Bank Corporation ("PNC"). During 1996, the Company paid
$76,000 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 fees of $39,000 in
connection with its Credit Facility.

Mr. Zarb, chairman of the board, president and chief executive officer of
the Company is also a director of Credit Suisse First Boston. During 1996, the
Company committed to fees of $5,750,000 primarily for consultation related to
the merger of the Company with AON. In addition, the Company paid Credit
Suisse commitment fees of $39,000 in connection with its Credit Facility.

17
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE

Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities to file reports of ownership and changes in
ownership with the SEC and the New York Stock Exchange. Officers, directors and
greater than 10% stockholders are required by certain regulations to furnish
the Company with copies of all Section 16(a) forms they file.

Based solely on its review of the copies of such forms received by it, the
Company believes that, since December 31, 1996 , its officers, directors and
greater than 10% beneficial owners have complied with all applicable filing
requirements with respect to the Company's equity securities.

SIGNATURE

Pursuant to the requirements of the Exchange Act, the Registrant has duly
caused the report to be signed on its behalf by the undersigned thereto duly
authorized.

Alexander & Alexander Services Inc.

/s/ Albert A. Skwiertz, Jr.
By___________________________________
Name: Albert A. Skwiertz, Jr.
Title: Senior Vice President and
General Counsel

18
<PAGE>

SCHEDULE I

Patrick G. Ryan.......... Mr. Ryan has been Chairman of the Board of Aon
123 N. Wacker Drive Corporation ("Aon") since 1990 and President and
Chicago, Illinois 60606 Chief Executive Officer of Aon since the merger of
Aon and Ryan Insurance Group, Inc. ("Ryan Group")
in 1982. Prior to the merger, Mr. Ryan served as
Chairman of the Board and Chief Executive Officer
of Ryan Group. Mr. Ryan is a director of First
Chicago NBD Corporation, Chairman of the Board of
Trustees of Northwestern University and a Trustee
of Rush-Presbyterian-St. Luke's Medical Center. Mr.
Ryan is a citizen of the United States.

Harvey N. Medvin......... Mr. Medvin became Vice President and Chief
123 N. Wacker Drive Financial Officer of Aon in 1982 and was elected
Chicago, Illinois 60606 Executive Vice President, Chief Financial Officer
and Treasurer of Aon in 1987. He also serves as a
director or officer of certain of Aon's
subsidiaries. Mr. Medvin is a citizen of the United
States.

Raymond I. Skilling...... Mr. Skilling is an attorney at law and a Solicitor
123 N. Wacker Drive of the English Supreme Court. Mr. Skilling has
Chicago, Illinois 60606 served as a director of Aon since 1977. He serves
as Executive Vice President and Chief Counsel of
Aon. He has been employed by Aon since 1976, prior
to which he was a partner in the international law
firm now called Clifford Chance, headquartered in
London, England. Mr. Skilling has been a legal
advisor to Aon since 1967. Mr. Skilling is a
citizen of the United Kingdom.

Michael D. O'Halleran.... Mr. O'Halleran has been employed by subsidiaries of
123 N. Wacker Drive Aon since November, 1987. From November, 1987 to
Chicago, Illinois 60606 August, 1995 he was Chairman, President and Chief
Executive Officer of Aon Risk Services, Inc. In
August, 1995, Mr. O'Halleran was named President of
Aon Group, Inc., the commercial brokerage and
consulting operations of Aon. He now serves as
President and Chief Operating Officer of Aon Group,
Inc. In addition, Mr. O'Halleran serves on the
boards of directors of the Boys and Girls Clubs of
Chicago Special Children's Charities, Providence-
St. Mel High School, Angus Robinson, Jr. Memorial
Foundation and the University of Wisconsin-
Whitewater. Mr. O'Halleran is a citizen of the
United States.