<PAGE>
Filed pursuant to Rule 424(b)(4)
Registration No. 333-25069
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 5, 1997)
3,087,134 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
All of the shares of Common Stock of Marsh & McLennan Companies, Inc., a
Delaware corporation (the "Company"), offered hereby (the "Offering") are being
sold by certain stockholders of the Company (the "Selling Stockholders"). The
Common Stock offered hereby was issued as partial consideration to the Selling
Stockholders in connection with the Company's business combination with Johnson
& Higgins, a New Jersey corporation. See "Prospectus Supplement Summary--The
Business Combination with Johnson & Higgins." The Company will not receive any
proceeds from the sale of the Common Stock offered hereby.
The Common Stock is listed on the New York Stock Exchange (the "NYSE"), the
Chicago Stock Exchange (the "CSE"), the Pacific Stock Exchange (the "PSE") and
the London Stock Exchange (the "LSE") under the trading symbol "MMC." On May 5,
1997, the last reported sale price of the Common Stock on the NYSE Composite
Tape was $122 7/8 per share. See "Price Range of Common Stock and Dividends."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
<S> <C> <C> <C>
Per Share $119.00 $3.57 $115.43
Total $367,368,946.00 $11,021,068.38 $356,347,877.62
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Expenses of the Offering, estimated to be $348,000, are payable by the
Company. See "Plan of Distribution" in the accompanying Prospectus.
J.P. Morgan & Co. is acting as book running lead manager for the Offering. J.P.
Morgan & Co. and Morgan Stanley & Co. Incorporated are acting as joint lead
managers. The shares offered hereby are offered severally by the Underwriters,
as specified herein, subject to receipt and acceptance by them, including their
right to reject orders in whole or in part and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made against
payment therefor on or about May 9, 1997 at the offices of J.P. Morgan
Securities Inc., 60 Wall Street, New York, New York.
J.P. MORGAN & CO. MORGAN STANLEY & CO.
INCORPORATED
JOINT LEAD MANAGERS
DONALDSON, LUFKIN & JENRETTE MERRILL LYNCH & CO.
SECURITIES CORPORATION
PAINEWEBBER INCORPORATED SMITH BARNEY INC.
May 5, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF SUCH ACTIVITIES, SEE "UNDERWRITING."
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus Supplement, the
accompanying Prospectus or the documents incorporated or deemed incorporated by
reference herein, and any information or representations not contained herein or
therein may not be relied upon as having been authorized by the Company or by
any underwriter or dealer. This Prospectus Supplement and the accompanying
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy the Common Stock in any circumstances in which such offer or solicitation is
unlawful. The delivery of this Prospectus Supplement or the accompanying
Prospectus at any time does not imply that the information herein or therein is
correct as of any time subsequent to the date of such information.
No action has been or will be taken in any jurisdiction by the Company or any
Selling Stockholder that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus Supplement or the accompanying
Prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. Persons into whose possession this Prospectus
Supplement or the accompanying Prospectus comes are required by the Company and
the Selling Stockholders to inform themselves about and to observe any
restrictions as to the offering of the Common Stock and the distribution of this
Prospectus Supplement and the accompanying Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
<S> <C>
Prospectus Supplement Summary......... S-3
Cautionary Statement Regarding
Forward-Looking Information......... S-6
Price Range of Common Stock and
Dividends........................... S-7
Capitalization........................ S-8
Unaudited Pro Forma Condensed Combined
Financial Information............... S-9
Selected Historical Consolidated
Financial Data...................... S-13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... S-15
The Company........................... S-26
Selling Stockholders.................. S-33
Underwriting.......................... S-34
Legal Matters......................... S-35
<CAPTION>
PROSPECTUS PAGE
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
The Company........................... 4
Use of Proceeds....................... 4
Selling Stockholders.................. 4
Description of Capital Stock.......... 5
Plan of Distribution.................. 8
Legal Matters......................... 9
Experts............................... 9
</TABLE>
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE COMPANY
Marsh & McLennan Companies, Inc., a professional services organization with
origins dating from 1871 in the United States, is a holding company which,
through its subsidiaries and affiliates, provides clients with analysis, advice
and transactional capabilities in the fields of insurance and reinsurance
broking, investment management and consulting. Unless the context indicates
otherwise, references in this Prospectus Supplement to the "Company" include
Marsh & McLennan Companies, Inc. and its subsidiaries.
INSURANCE SERVICES
Marsh & McLennan Companies, Inc. provides risk and insurance services primarily
through its wholly-owned subsidiaries, Marsh & McLennan, Incorporated, Johnson &
Higgins, Guy Carpenter & Company, Inc., Seabury & Smith, Inc. and Marsh &
McLennan Risk Capital Corp.
Marsh & McLennan, Incorporated (together with its subsidiaries, "MMI") is a
world leader in providing insurance broking services and professional counseling
on risk management issues, including risk analysis, coverage requirements,
self-insurance, alternative insurance and risk financing methods as well as
other insurance-related issues. MMI provides a single, integrated service to
clients throughout the world.
The business of Johnson & Higgins is described below under "Prospectus
Supplement Summary--The Business Combination with Johnson & Higgins--J&H
Business."
Guy Carpenter & Company, Inc. (together with its subsidiaries, "Guy Carpenter")
is a leading global reinsurance intermediary. It advises insurance and
reinsurance organizations on the complex issue of risk management and provides
an array of support services such as actuarial, financial and regulatory
consulting, portfolio analysis and catastrophe modeling. Guy Carpenter
structures and places reinsurance coverage and other risk-transfer financing
with reinsurance firms worldwide.
Seabury & Smith, Inc. (together with its subsidiaries, "Seabury & Smith") is a
leading provider of insurance program management and underwriting management
services in North America, including the design, placement and administration of
life, health, accident, disability, automobile, homeowners, professional
liability and other insurance, and related products. Seabury & Smith designs and
administers specialized, systems-driven insurance programs primarily for members
of affinity groups.
Marsh & McLennan Risk Capital Corp. originates, structures and manages insurance
industry investments and provides advisory services on a global basis.
INVESTMENT MANAGEMENT
Through its subsidiary, Putnam Investments, Inc. (together with its
subsidiaries, "Putnam"), one of the oldest and largest money management
organizations in the United States, the Company offers a full range of both
equity and fixed income products, invested domestically and globally, for
individual and institutional investors. At December 31, 1996, Putnam managed
more than 95 mutual funds and $173 billion in assets.
CONSULTING
The Company provides consulting services to a predominantly corporate clientele
through its wholly-owned subsidiary, Mercer Consulting Group, Inc. (together
with its subsidiaries, "Mercer"). One of the largest consulting firms in the
world, Mercer is a market leader in human resources, employee benefits and
compensation consulting. Mercer also provides strategic and economic consulting.
These areas of expertise are offered by professionals located in major business
centers around the world.
S-3
<PAGE>
THE BUSINESS COMBINATION WITH JOHNSON & HIGGINS
On March 27, 1997, the Company consummated a strategic business combination (the
"Transaction") with Johnson & Higgins (together with its subsidiaries, "J&H")
whereby J&H became a subsidiary of the Company. Established in New York in 1845,
J&H provides insurance broking, risk management and employee benefit consulting
services to clients worldwide. It had revenues of approximately $1.2 billion for
the year ended December 31, 1996.
J&H BUSINESS
INSURANCE SERVICES
J&H provides retail insurance brokerage services on a worldwide basis. J&H's
clients for retail insurance brokerage services are predominantly corporations,
government and related agencies, non-profit organizations and individuals.
Insurance coverage is placed on behalf of such clients with insurers directly or
through wholesale brokers.
J&H provides wholesale insurance brokerage services through three business
units: Henry Ward Johnson provides general wholesale brokerage and specialty
wholesale marketing and consulting services primarily to J&H's retail branches
in the United States; J&H's London wholesale unit acts as a traditional
wholesaler into the London and continental European markets for J&H offices
worldwide; and J&H's Global Captive Management group includes the J&H
Intermediaries unit, which assists mostly U.S.-based clients needing access to
insurers and reinsurers located in Bermuda.
J&H offers a full range of treaty reinsurance brokerage services through Willcox
Incorporated Reinsurance Intermediaries. J&H also offers reinsurance brokerage
services into the London market through London-based Willcox Johnson & Higgins.
In addition, J&H owns a minority interest (approximately 49%) in Reinmex, the
largest reinsurance broker in Mexico.
J&H provides, through its Global Captive Management group, services in
establishing and managing captive insurance companies, primarily in Bermuda. J&H
also provides, through J&H/KVI, a joint venture between J&H and Kirke-Van
Orsdel, Inc., administrative services for group universal life programs,
outsourcing services for employers seeking assistance with employee benefit
program design, administration and customer service and "invisible branch
office" insurance services for financial services companies wishing to outsource
such functions.
EMPLOYEE BENEFIT CONSULTING
J&H, through A. Foster Higgins, provides employee benefit consulting services to
medium-sized and large corporations in the U.S. and Canada. Lines of business
include retirement plans (e.g., pensions, defined contribution plans, investment
services and retiree health care), communications (e.g., organizational research
and personalized communication), process reengineering and outsourcing,
information consulting and international consulting. A. Foster Higgins also
works with health care providers to help them tailor services to the employer
market. A. Foster Higgins employs a consulting staff including actuaries,
lawyers, health care professionals, system specialists and writers, as well as
benefit professionals with a broad range of experience.
INTEGRATION OF THE COMPANY AND J&H
A newly-formed subsidiary of the Company, known as J&H Marsh & McLennan, Inc.
("J&H/M&M"), will be used to facilitate the integration and management of the
respective insurance services operations of the Company and J&H.
A management committee of four Vice Chairmen will be responsible for integrating
and operating these businesses. The four Vice Chairmen are expected to include
Richard H. Blum, a director of the Company and former Chairman and Chief
Executive Officer of Guy Carpenter, John T. Sinnott, President and Chief
Executive Officer of MMI, Richard A. Nielsen, Vice Chairman and Chief Operating
Officer of J&H, and Norman Barham, President of
S-4
<PAGE>
J&H. Mr. A. J. C. Smith, who is Chairman of the Company, is expected to be the
Chairman of the Board and Chief Executive Officer of J&H/M&M.
A. Foster Higgins, a subsidiary of J&H engaged in the employee benefits
consulting business, operationally will be combined with the similar business
conducted by Mercer.
As part of the Transaction, David A. Olsen, Chairman of J&H, Richard A. Nielsen,
Norman Barham and a person to be designated who is not affiliated with J&H are
expected to join the Board of Directors of the Company. In addition, at the time
of his appointment as director, Mr. Olsen is expected to be appointed Vice
Chairman of the Company.
THE TRANSACTION
The Company agreed to pay total consideration of approximately $1.8 billion in
connection with the Transaction (the "Consideration"), of which approximately
$1.3 billion has been paid and approximately $500 million will be paid in equal
annual installments on each of the next three or four anniversaries of the
closing of the Transaction (the "Closing"). The Consideration consists of
approximately $600 million in cash and approximately 9.8 million shares of
Common Stock (valued at $121 7/8 per share). The cash portion of the
Consideration that has been paid was financed with bank borrowings and
commercial paper.
Subject to certain limited exceptions, approximately 3.6 million shares of the
Common Stock portion of the Consideration may not be sold during the first year
following the Closing and during the two years following the Closing
approximately 1.8 million shares of the Common Stock portion of the
Consideration may not be sold. In addition, approximately 800,000 shares of the
Common Stock portion of the Consideration (of which approximately 600,000 shares
are subject to the foregoing sale restriction) were placed in escrow for a
period of up to two years in order to secure certain indemnification obligations
with respect to certain representations and warranties.
The Consideration is divided among: (i) the stockholders of J&H, who were active
directors or managing principals of J&H (the "Former J&H Stockholders"), (ii)
certain retired directors of J&H (or their estates) (the "Retirees"), some of
whom were entitled to dividend-equivalent payments for a period of up to 10
years following their retirement in return for having surrendered their J&H
stock upon retirement, and (iii) approximately 600 key employees of J&H (the
"Key Employees").
The stock purchase agreement for the Transaction commits J&H to distribute to
the Former J&H Stockholders, Retirees, Key Employees and others up to $175
million in excess cash of J&H plus a portion of pre-Closing earnings, promptly
upon finalization of certain financial information about J&H, to the extent that
such distributions will not reduce the working capital of J&H below certain
minimal levels (such distributions of excess cash (which do not include any
distributions designated as a portion of pre-Closing earnings) are referred to
herein as the "Specified Permitted Distributions"). The Specified Permitted
Distributions are generally reflected in the unaudited pro forma condensed
combined financial statements of the Company contained in "Unaudited Pro Forma
Condensed Combined Financial Information."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling 3,087,134 shares
Stockholders...............................
Use of Proceeds.............................. The Company will not receive any of the
proceeds from the sale of shares of Common
Stock offered hereby.
NYSE, CSE, PSE & LSE Symbol.................. "MMC"
</TABLE>
S-5
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the "1995 Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information so long as those statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the statement. The Company desires to take
advantage of the "safe-harbor" provisions of the 1995 Act. Certain information,
particularly information contained herein under "Unaudited Pro Forma Condensed
Combined Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and information regarding future
economic performance and finances, and plans and objectives of management
contained, or incorporated by reference, in this Prospectus Supplement and the
accompanying Prospectus, is forward-looking. In some cases, information
regarding certain important factors that could cause actual results to differ
materially from any such forward-looking statement appear together with such
statement. The following factors could also cause actual results to differ
materially from any such forward-looking statement: (i) unanticipated events and
circumstances may occur rendering the Transaction less beneficial to the Company
than projected; (ii) the Company faces intense competition in its markets, and
there is, accordingly, no guarantee that after consummation of the Transaction
the Company will achieve the expected financial and operating results and
synergies; and (iii) such results and synergies depend on the ability of the
Company and J&H to integrate successfully their operations and thereby achieve
the anticipated cost savings and be in a position to take advantage of potential
opportunities for growth. In addition, the regulatory and competitive factors
discussed below under "The Company--Regulation" and "The Company--Competitive
Conditions" in addition to other possible factors not listed, could affect the
Company's actual results and cause such results to differ from those expressed
in the forward-looking statements.
S-6
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed on the NYSE, the CSE, the PSE and the LSE under the
trading symbol "MMC." The following table sets forth, for the indicated calendar
periods, the reported high and low sales prices of the Common Stock on the NYSE
Composite Tape and the cash dividends per share of Common Stock. As of February
28, 1997, there were 17,764 stockholders of record of the Common Stock.
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
PRICE RANGE DIVIDENDS
-------------------- PAID PER
HIGH LOW SHARE
--------- --------- ---------
Years Ended December 31,
1997:
First quarter $129 5/8 $102 5/8 $.90
Second quarter (through May 5, 1997) 122 7/8 113 1/8 --
1996:
First quarter 101 5/8 84 1/4 .80
Second quarter 97 5/8 89 .80
Third quarter 99 88 .80
Fourth quarter 114 7/8 95 1/2 .90
1995:
First quarter 85 76 1/4 .725
Second quarter 84 76 1/8 .725
Third quarter 89 3/8 76 5/8 .725
Fourth quarter 90 1/8 80 1/2 .80
1994:
First quarter 86 3/4 80 1/4 .675
Second quarter 88 3/4 81 1/4 .675
Third quarter 88 3/8 76 .725
Fourth quarter 80 3/8 71 1/4 .725
</TABLE>
The timing and amount of future dividends will be (i) dependent upon the
Company's results of operations, financial condition, cash requirements and
other relevant factors, (ii) subject to the discretion of the Board of Directors
of the Company and (iii) payable only out of the Company's surplus or current
net profits in accordance with the General Corporation Law of the State of
Delaware.
S-7
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1996, the short-term debt and
capitalization of the Company on an historical basis and on a pro forma basis
giving effect to the Transaction. The following information should be read in
conjunction with "Unaudited Pro Forma Condensed Combined Financial Information,"
and the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996,
incorporated by reference herein.
<TABLE>
<CAPTION>
----------------------
<S> <C> <C>
AS OF DECEMBER 31,
1996
<CAPTION>
DOLLARS IN MILLIONS, EXCEPT SHARE FIGURES AND RATIOS HISTORICAL PRO FORMA
--------- -----------
<S> <C> <C>
Short-term debt:
Commercial paper $ 387.6 $ 531.6
Current portion of long-term debt 4.8 8.7
--------- -----------
Total short-term debt $ 392.4 $ 540.3
--------- -----------
--------- -----------
Long-term debt:
Revolving credit facility $ 250.0 $ 250.0
Bank borrowings -- 289.0
Mortgage--9.8% due 2009 200.0 200.0
Mortgage--7.87% due 2012 -- 130.8
Other 8.2 8.2
--------- -----------
Total long-term debt $ 458.2 $ 878.0
--------- -----------
--------- -----------
Stockholders' equity:
Preferred Stock, $1 par value, authorized 6,000,000 shares, none
issued -- --
Common Stock, $1 par value, authorized 200,000,000 shares, issued
76,794,531 historical shares; issued 86,594,531 pro forma shares $ 76.8 $ 86.6
Additional paid-in capital 148.1 1,146.3
Retained earnings 1,901.6 1,901.6
Unrealized securities holding gains, net of income taxes 221.2 221.2
Cumulative translation adjustments (75.7) (75.7)
Treasury shares, at cost, 4,475,571 shares (383.4) (383.4)
--------- -----------
Stockholders' equity $ 1,888.6 $ 2,896.6
--------- -----------
--------- -----------
Total capitalization $ 2,739.2 $ 4,314.9
--------- -----------
--------- -----------
Long-term debt to total capitalization 16.7% 20.3%
--------- -----------
--------- -----------
Total debt to total capitalization 31.1% 32.9%
--------- -----------
--------- -----------
</TABLE>
S-8
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined statement of income for the
year ended December 31, 1996 and the unaudited pro forma condensed combined
balance sheet as of December 31, 1996 give effect to the Transaction with J&H.
The purchase method of accounting has been applied to the Transaction.
Accordingly, assets acquired and liabilities assumed have been reflected at
their current estimated fair values which, ultimately, will be subject to
further refinement. The pro forma statement of income assumes the Transaction
occurred on January 1, 1996 and the pro forma balance sheet assumes the
Transaction occurred on December 31, 1996.
The unaudited pro forma condensed combined statement of income does not include
any potential cost savings that may be realized as a result of the Transaction,
except as specifically described in Note (b) to the unaudited pro forma
condensed combined financial statements. The Company has indicated that it
anticipates ultimately achieving pretax cost savings in the range of $150
million per year, over a period of years. See "Cautionary Statement Regarding
Forward-Looking Information."
The unaudited pro forma condensed combined financial statements have been
prepared by the Company based upon the assumptions disclosed in the notes to the
unaudited pro forma condensed combined financial statements. The unaudited pro
forma condensed combined financial statements presented herein are shown for
illustrative purposes only and do not purport to be indicative of the results
which would have been reported if the Transaction had occurred on the dates
indicated or which may occur in the future. The unaudited pro forma condensed
combined financial statements should be read in conjunction with "Prospectus
Supplement Summary--The Business Combination with Johnson & Higgins," the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, incorporated by
reference herein, and the financial statements of J&H included in the Company's
Current Report on Form 8-K, filed with the Commission on April 7, 1997,
incorporated by reference herein.
MARSH & MCLENNAN COMPANIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------
<S> <C> <C> <C> <C>
HISTORICAL
----------------------
<CAPTION>
IN MILLIONS, EXCEPT PER SHARE THE J&H, AS PRO FORMA PRO FORMA
FIGURES COMPANY ADJUSTED (A) ADJUSTMENTS COMBINED (F)
-------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Revenue $4,149.0 $1,147.7 -- $5,296.7
Expense 3,433.7 1,032.7 $ 15.3(b) 4,481.7
-------- ------------ ---------- ------------
Operating Income 715.3 115.0 (15.3) 815.0
Interest, Net (47.3) 5.9 (45.6)(c) (87.0)
-------- ------------ ---------- ------------
Income Before Income Taxes 668.0 120.9 (60.9) 728.0
Income Taxes 208.7 46.7 (9.6)(d) 245.8
-------- ------------ ---------- ------------
Net Income $ 459.3 $ 74.2 $(51.3) $ 482.2
-------- ------------ ---------- ------------
-------- ------------ ---------- ------------
Net Income Per Share $ 6.34 $ 5.87
-------- ------------
-------- ------------
Average Number of Shares
Outstanding 72.4 9.8(e) 82.2
-------- ---------- ------------
-------- ---------- ------------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
S-9
<PAGE>
MARSH & MCLENNAN COMPANIES, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------------------------
<S> <C> <C> <C> <C>
HISTORICAL
----------------------
<CAPTION>
THE J&H, AS PRO FORMA PRO FORMA
DOLLARS IN MILLIONS COMPANY ADJUSTED (G) ADJUSTMENTS COMBINED (F)
-------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 299.6 $ 258.3 $ (175.0)(h) $ 382.9
-------- ------------ ----------- ------------
Receivables 1,129.1 177.2 -- 1,306.3
Less-allowance for doubtful accounts (43.3) -- -- (43.3)
-------- ------------ ----------- ------------
Net receivables 1,085.8 177.2 -- 1,263.0
-------- ------------ ----------- ------------
Other current assets 363.2 68.9 -- 432.1
-------- ------------ ----------- ------------
Total current assets 1,748.6 504.4 (175.0) 2,078.0
-------- ------------ ----------- ------------
Long-term securities 573.3 -- -- 573.3
Fixed assets, net 770.1 168.4 -- 938.5
Intangible assets 545.3 246.8 1,414.5(i) 2,206.6
Other assets 907.9 183.1 -- 1,091.0
-------- ------------ ----------- ------------
$4,545.2 $1,102.7 $1,239.5 $6,887.4
-------- ------------ ----------- ------------
-------- ------------ ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 392.4 $ 3.9 $ 144.0(j) $ 540.3
Accounts payable and accrued liabilities 904.3 224.2 31.2(k) 1,159.7
Accrued income taxes 259.6 28.2 -- 287.8
-------- ------------ ----------- ------------
Total current liabilities 1,556.3 256.3 175.2 1,987.8
-------- ------------ ----------- ------------
Fiduciary liabilities 1,685.9 518.1 -- 2,204.0
Less--cash and investments held in a
fiduciary capacity (1,685.9) (518.1) -- (2,204.0)
-------- ------------ ----------- ------------
-- -- -- --
-------- ------------ ----------- ------------
Long-term debt 458.2 130.8 289.0(j) 878.0
-------- ------------ ----------- ------------
Other liabilities 642.1 253.4 62.5(k) 1,125.0
167.0(j)
-------- ------------ ----------- ------------
Commitments and contingencies -- -- -- --
-------- ------------ ----------- ------------
Stockholders' equity:
Preferred stock -- -- -- --
Common stock 76.8 -- 9.8(l) 86.6
Other stockholders' equity 2,195.2 462.2 (462.2)(l) 3,193.4
998.2(l)
-------- ------------ ----------- ------------
2,272.0 462.2 545.8 3,280.0
Less--treasury shares, at cost (383.4) -- -- (383.4)
-------- ------------ ----------- ------------
Total stockholders' equity 1,888.6 462.2 545.8 2,896.6
-------- ------------ ----------- ------------
$4,545.2 $1,102.7 $1,239.5 $6,887.4
-------- ------------ ----------- ------------
-------- ------------ ----------- ------------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
S-10
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
A description of the adjustments reflected in the unaudited pro forma condensed
combined financial statements follows:
(a) Certain amounts included in the J&H consolidated statement of income
(interest income, interest expense, equity in income of affiliates and minority
interest in income of subsidiaries) have been reclassified to conform with the
Company's financial statement presentation.
(b) To reflect the additional goodwill amortization expense of $35.4 million to
be incurred as a result of the Transaction partially offset by $20.1 million of
contractually provided adjustments to ongoing compensation and benefits
expenses, which are a direct result of J&H no longer being a private company.
Goodwill is being amortized over a forty year period.
(c) To record: (1) additional interest expense of $28.1 million associated with
the incremental $433 million of borrowings that was incurred by the Company to
finance the cash portion of the Transaction Consideration which was paid at
closing at an assumed interest rate of 6.5% and $8.4 million associated with
$167 million of the Transaction Consideration which will be issued in
installments at a contractual interest rate of 5.0%, and (2) a reduction in
interest income of $9.1 million on the $175 million of Specified Permitted
Distributions by J&H at an assumed interest rate of 5.2%.
(d) To record the tax effect of the pro forma adjustments (exclusive of the
goodwill amortization) at an assumed tax rate of 37.50%.
(e) To reflect the issuance of approximately 9.8 million shares of the Company's
Common Stock in connection with the Transaction.
(f) The pro forma condensed combined statement of income and the pro forma
condensed combined balance sheet do not include the effects of the Company's
January 1997 acquisition of Compagnie Europeenne De Courtage d'Assurances et de
Reassurances ("CECAR"), an insurance broker headquartered in France, for
approximately $200 million.
(g) Certain amounts included in the J&H consolidated balance sheet have been
reclassified to conform with the Company's financial statement presentation. In
particular, fiduciary cash and investments of $518.1 million have been offset
against the related liabilities and presented in the liability section of the
balance sheet. In addition, the receivables and payables for uncollected
premiums and claims amounting to $788.9 million have been excluded from the
asset and liability sections of the consolidated balance sheet, as they are
presented in footnote disclosures in the Company's financial statements.
(h) To reflect the $175 million of Specified Permitted Distributions by J&H. See
"Prospectus Supplement Summary--The Business Combination with Johnson &
Higgins--The Transaction."
(i) Represents the net of the $1.8 billion Transaction Consideration adjusted
for the items described in Notes (h), (k), (l)(2) and (l)(3). The preliminary
allocation of the Transaction Consideration to the underlying assets and
liabilities of J&H, including goodwill, is subject to further refinement as the
Company's management continues to review the estimated fair values of the assets
acquired and the liabilities assumed.
(j) To reflect the debt being incurred to finance the $433 million cash portion
of the Transaction Consideration which was paid at closing and the additional
obligation of $167 million for the cash portion of the Transaction Consideration
which will be issued in installments. The cash portion of the Transaction
Consideration paid at Closing was initially financed through commercial paper
borrowings. The Company has classified $289 million as long-term debt based upon
the Company's intent and ability to maintain or refinance these borrowings on a
long-term basis.
(k) To reflect the impact of the $150 million in purchase related liabilities
which are principally related to severance, real estate and transaction costs
net of the related income tax impact of $56.3 million. The short-term
S-11
<PAGE>
portion of $31.2 million has been included as an increase in accounts payable
and accrued liabilities and the long-term portion of $62.5 million has been
reflected as an increase in other liabilities.
(l) To record the net adjustment required in stockholders' equity to reflect (1)
the issuance of $1.2 billion of the Company's Common Stock, (2) the elimination
of the $462.2 million of J&H net assets, and (3) the $192 million discount on
the Company's Common Stock which is being issued in the Transaction. This
discount relates to a contractual restriction that limits the amount of stock
which can be sold by the recipients during the two years following the closing
date of the Transaction. See "Prospectus Supplement Summary--The Business
Combination with Johnson & Higgins--The Transaction."
S-12
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the five
years in the period ended December 31, 1996 have been derived from the
consolidated financial statements of the Company, which have been audited by
Deloitte & Touche LLP, the Company's independent certified public accountants
(and do not include financial data for J&H). The following information should be
read in conjunction with "Unaudited Pro Forma Condensed Combined Financial
Information," and the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996,
incorporated by reference herein.
<TABLE>
<CAPTION>
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
<CAPTION>
IN MILLIONS, EXCEPT PER SHARE FIGURES 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Insurance Services $ 1,907.3 $ 1,963.9 $ 1,886.5 $ 1,790.5 $ 1,632.8
Investment Management 1,082.5 750.0 615.4 518.1 396.0
Consulting 1,159.2 1,056.4 933.1 854.8 908.2
--------- --------- --------- --------- ---------
Total Revenue 4,149.0 3,770.3 3,435.0 3,163.4 2,937.0
--------- --------- --------- --------- ---------
Expense:
Compensation and Benefits 2,204.3 1,948.8 1,740.2 1,635.7 1,557.8
Other Operating Expenses (1) 1,229.4 1,126.6 1,024.5 934.9 838.2
--------- --------- --------- --------- ---------
Total Expense 3,433.7 3,075.4 2,764.7 2,570.6 2,396.0
--------- --------- --------- --------- ---------
Operating Income 715.3 694.9 670.3 592.8 541.0
Interest, Net (47.3) (45.1) (38.8) (34.2) (21.7)
--------- --------- --------- --------- ---------
Income Before Income Taxes and Cumulative
Effect of Accounting Changes 668.0 649.8 631.5 558.6 519.3
Income Taxes (1) 208.7 246.9 249.5 226.2 215.5
--------- --------- --------- --------- ---------
Income Before Cumulative Effect of
Accounting Changes 459.3 402.9 382.0 332.4 303.8
Cumulative Effect of Accounting Changes -- -- (10.5) -- (40.1)
--------- --------- --------- --------- ---------
Net Income $ 459.3 $ 402.9 $ 371.5 $ 332.4 $ 263.7
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Per Share data:
Income Before Cumulative Effect of
Accounting Changes $ 6.34 $ 5.53 $ 5.19 $ 4.52 $ 4.21
Cumulative Effect of Accounting Changes -- -- (.14) -- (.56)
--------- --------- --------- --------- ---------
Net Income $ 6.34 $ 5.53 $ 5.05 $ 4.52 $ 3.65
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Dividends Paid Per Share $ 3.30 $ 2.975 $ 2.80 $ 2.70 $ 2.65
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Average Number of Shares Outstanding 72.4 72.9 73.6 73.5 72.2
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
AS OF DECEMBER 31,
<CAPTION>
DOLLARS IN MILLIONS 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets $ 1,748.6 $ 1,679.1 $ 1,446.0 $ 1,312.4 $ 1,242.5
Working Capital 192.3 109.6 53.7 133.7 198.3
Total Assets 4,545.2 4,329.5 3,830.6 3,546.6 3,088.4
Long-term Debt 458.2 410.6 409.4 409.8 411.2
Stockholders' Equity 1,888.6 1,665.5 1,460.6 1,365.3 1,102.9
</TABLE>
- ------------------------
(1) In 1996, other operating expenses include unusual charges of $92.6 million
reduced by a $33.2 million gain on the sale of The Frizzell Group Limited. In
addition, 1996 income taxes include an adjustment which reduced the tax
provision by $40 million. The net impact of these items increased earnings per
share by $.04 for the year.
RECENT OPERATING RESULTS
On April 21, 1997, the Company issued a press release reporting the unaudited
selected consolidated income statement data presented below for the three months
ended March 31, 1997 and March 31, 1996 (which do not reflect the Closing of the
Transaction on March 27, 1997 and therefore do not include any financial results
of J&H).
<TABLE>
<CAPTION>
--------------------
<S> <C> <C>
THREE MONTHS ENDED
MARCH 31,
<CAPTION>
IN MILLIONS, EXCEPT PER SHARE FIGURES 1997 1996
--------- ---------
<S> <C> <C>
Revenue:
Insurance Services $ 562.7 $ 555.5
Investment Management 340.6 238.3
Consulting 305.4 276.9
--------- ---------
Total Revenue 1,208.7 1,070.7
--------- ---------
Expense:
Compensation and Benefits 627.3 539.3
Other Operating Expenses 304.1 288.9
--------- ---------
Total Expense 931.4 828.2
--------- ---------
Operating Income 277.3 242.5
Interest, Net (14.3) (11.7)
--------- ---------
Income Before Income Taxes 263.0 230.8
Income Taxes 98.6 87.7
--------- ---------
Net Income $ 164.4 $ 143.1
--------- ---------
--------- ---------
Net Income Per Share $ 2.25 $ 1.96
--------- ---------
--------- ---------
Average Number of Shares Outstanding 73.0 72.9
--------- ---------
--------- ---------
</TABLE>
S-14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The information set forth in this section does not reflect any information about
J&H.
The following table summarizes the Company's results of operations for the years
ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
<CAPTION>
IN MILLIONS, EXCEPT PER SHARE FIGURES 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
Insurance Services $ 1,907.3 $ 1,963.9 $ 1,886.5
Investment Management 1,082.5 750.0 615.4
Consulting 1,159.2 1,056.4 933.1
--------- --------- ---------
4,149.0 3,770.3 3,435.0
--------- --------- ---------
Expense:
Compensation and Benefits 2,204.3 1,948.8 1,740.2
Other Operating Expenses 1,170.0 1,126.6 1,024.5
Unusual Charges, net 59.4 -- --
--------- --------- ---------
3,433.7 3,075.4 2,764.7
--------- --------- ---------
Operating Income $ 715.3 $ 694.9 $ 670.3
--------- --------- ---------
--------- --------- ---------
Income Before Cumulative Effect of Accounting Change $ 459.3 $ 402.9 $ 382.0
--------- --------- ---------
--------- --------- ---------
Net Income $ 459.3 $ 402.9 $ 371.5
--------- --------- ---------
--------- --------- ---------
Per Share Data:
Income Before Cumulative Effect of Accounting Change $ 6.34 $ 5.53 $ 5.19
--------- --------- ---------
--------- --------- ---------
Net Income $ 6.34 $ 5.53 $ 5.05
--------- --------- ---------
--------- --------- ---------
Average Number of Shares Outstanding 72.4 72.9 73.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
Revenue, derived mainly from commissions and fees, increased 10% in 1996.
Excluding The Frizzell Group Limited ("Frizzell"), a U.K.-based insurance
program management firm that was sold in June 1996, revenue grew 12% from 1995
primarily due to a 44% increase in the investment management segment, largely
attributable to higher assets under management. In addition, increased demand
for the Company's consulting services resulted in 10% revenue growth for that
segment. Insurance services revenue declined 3% due to the sale of Frizzell.
Excluding the impact of Frizzell, insurance services revenue increased 1% in
1996 reflecting growth in insurance broking and insurance program management,
offset, in large part, by a decline in reinsurance broking revenue.
In 1995, total revenue increased 10% over 1994 driven principally by 22% growth
in the investment management segment, largely attributable to growth in the
level of assets under management, and a 13% increase in the consulting segment
reflecting strong demand for the Company's consulting services. Insurance
services revenue rose 4% in 1995 reflecting a $24 million increase in interest
income on fiduciary funds and strong growth in insurance broking in Canada and
Continental Europe partially offset by a $25 million decrease in revenue
received from the activities of the Marsh & McLennan Risk Capital group of
companies ("MMRC").
Expenses increased 12% in 1996 compared with 1995. Included in 1996 were unusual
charges totaling $92.6 million which relate to real estate matters, integration
of the Company's worldwide insurance services operations, goodwill write-offs, a
provision related to the Lloyd's Reconstruction and Renewal Plan and certain
office closings. These charges were offset, in part, by a gain of $33.2 million
on the Company's sale of Frizzell in
S-15
<PAGE>
June 1996. Of the net $59.4 million unusual charge, $49.4 million is applicable
to insurance services, $8.5 million relates to consulting and $1.5 million is
recorded in General Corporate. Excluding the net unusual charges and the impact
of only one-half year of Frizzell, expenses increased 12% primarily due to
increased incentive compensation levels especially within investment management.
Volume-related costs, particularly those associated with higher staff levels,
grew for both investment management and consulting as a result of the increased
level of business activity.
Operating expenses increased 11% in 1995 primarily due to the impact of staff
growth and incentive compensation programs in the investment management and
consulting segments commensurate with the higher volume of business, and systems
automation initiatives in all operating segments.
Net income for 1996 includes a tax adjustment that reduced the income tax
provision by $40 million. The tax adjustment primarily relates to the permanent
deployment of funds outside the United States in a tax efficient manner and
favorable state and local tax developments in the U.S. The net impact of the tax
adjustment and the net unusual charges described above increased earnings per
share by $.04 for the year.
The translated values of revenue and expense from the Company's international
insurance services and consulting operations are subject to fluctuations due to
changes in currency exchange rates. However, the net impact of these
fluctuations on the Company's results of operations has not been material.
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," which was effective for fiscal
years beginning after December 15, 1995. In accordance with this Statement, the
Company has provided disclosure in Note 6 to the consolidated financial
statements presenting pro forma net income and earnings per share amounts as if
employee stock options had been expensed based on their fair value on the grant
date, determined using the Black-Scholes option pricing model.
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." A non-cash charge reflecting the
cumulative effect of this accounting change, net of income taxes, totaled $10.5
million or $.14 per share.
INSURANCE SERVICES
Revenue attributable to the insurance services segment consists primarily of
fees paid by clients; commissions and fees paid by insurance and reinsurance
companies; interest income on premiums, and in certain cases on claims,
collected and not yet remitted to insurers, reinsurers or clients, such funds
being held in a fiduciary capacity.
Revenue generated by insurance services is affected by premium rate levels in
the property and casualty insurance markets and available insurance capacity, as
compensation is frequently related to the premiums paid by insureds. Revenue is
also affected by fluctuations in the amount of risk retained by insurance and
reinsurance clients themselves, and insured values, the development of new
products, markets and services, lost business, merging of clients and the volume
of business from new and existing clients, as well as interest rates for
fiduciary funds.
The Company has been instrumental in the formation of several substantial
insurance and reinsurance entities. MMRC is also an advisor to The Trident
Partnership L.P., an independent private investment partnership formed in 1994
to invest selectively in the global insurance and reinsurance industry, and Risk
Capital Reinsurance Company, a U.S. reinsurer formed in 1995 to provide
traditional and other kinds of reinsurance, both on a stand-alone basis and as
part of integrated capital solutions for insurance companies. Through MMRC, the
Company receives compensation in various forms including fees, royalties and
dividends, as well as appreciation that has been realized on the sale of the
Company's holdings in insurance entities it assisted in organizing. These
amounts are reflected within the insurance services segment in the applicable
line of business to which they apply.
S-16
<PAGE>
The following table summarizes the results of operations for the Company's
insurance services segment for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
<CAPTION>
IN MILLIONS OF DOLLARS 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
Insurance Broking $ 1,321.3 $ 1,260.0 $ 1,209.3
Reinsurance Broking 258.5 295.1 298.5
Insurance Program Management 233.6 306.1 300.0
Interest Income on Fiduciary Funds 93.9 102.7 78.7
--------- --------- ---------
1,907.3 1,963.9 1,886.5
--------- --------- ---------
Expense:
Operating Expenses 1,544.2 1,574.7 1,480.4
Unusual Charges, net 49.4 -- --
--------- --------- ---------
1,593.6 1,574.7 1,480.4
--------- --------- ---------
Operating Income $ 313.7 $ 389.2 $ 406.1
--------- --------- ---------
--------- --------- ---------
Operating Income Margin 16.4% 19.8% 21.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
INSURANCE BROKING REVENUE
Insurance broking services are provided to clients primarily in connection with
risk management and the insurance placement process and involve analyzing
various types of property and liability loss exposures including large and
complex risks that require access to world insurance markets. Services include
insurance broking activities and professional consulting services on risk
management issues, including risk analysis, coverage requirements, self
insurance, alternative insurance and risk financing methods, claims collection,
injury management and loss prevention.
Insurance broking revenue, which is received from a predominantly corporate
clientele, increased 5% in 1996. Client revenue rose primarily due to an
increase in new business in the United States and Europe offset by declines in
commercial property and casualty premium rates worldwide. Global specialty lines
of coverage, including financial services, marine and energy, and aviation, also
experienced strong new business levels. The Company does not expect premium rate
levels to improve in the near future and anticipates that the insurance broking
marketplace will continue to be highly competitive.
In 1995, insurance broking revenue increased 4% over 1994 levels. Revenue from
MMRC declined $15 million compared with 1994 primarily due to a lower level of
realized appreciation on capital deployed in the various insurance entities the
Company has helped organize. Client revenue increased primarily due to new
business growth in Canada, Continental Europe, Australia and Latin America,
along with an increase in certain global specialty lines. In the United States,
property premium rates, with the exception of catastrophe coverages, were
generally stable while the casualty market experienced renewal rates that were
generally down on a year-over-year basis.
REINSURANCE BROKING REVENUE
Reinsurance broking services involve acting as an intermediary for insurance and
reinsurance organizations on all classes of reinsurance. The intermediary
assists the insurer by providing advice, placing reinsurance coverage with
reinsurance organizations located around the world and furnishing related
services such as actuarial, financial and regulatory consulting, portfolio
analysis and catastrophe modeling. Generally, the purpose of reinsurance is to
spread the risk of primary insurance or the reinsurance thereof to lessen the
concentration of risk with any one insurance or reinsurance company.
S-17
<PAGE>
Reinsurance broking revenue in 1996 declined 12% compared with 1995. This
decline was primarily due to reduced demand for reinsurance resulting from the
consolidation among various U.S. and U.K. insurance companies, reduced
reinsurance demand due to higher risk retentions by ceding insurance companies
and the impact of lower property catastrophe premium rates.
In 1995, reinsurance broking revenue decreased slightly from 1994. The effect of
lower premium rates for property catastrophe and liability reinsurance, along
with reduced demand in the London market and a $10 million decrease in MMRC
related revenue, was offset in large part by new business.
INSURANCE PROGRAM MANAGEMENT REVENUE
The insurance program management operation of Seabury & Smith primarily designs,
places and administers life, health, accident, disability, automobile,
homeowners and professional liability insurance programs primarily on a group
marketing basis to individuals, businesses and their employees, and associations
and other affinity groups and their members in the United States and Canada. In
addition, it provides underwriting management services to insurers in the United
States, Canada and the United Kingdom, primarily for professional liability
coverages.
Insurance program management revenue decreased 24% in 1996 due to the sale of
Frizzell. Revenue for Seabury & Smith, which comprises the whole of program
management subsequent to the sale of Frizzell, increased 6%. This growth was
largely the result of increased services provided to corporations and
institutions and their employees, along with increased insurance placed on
behalf of small businesses.
In 1995, insurance program management revenue increased 2% over 1994. Within
North America, revenue rose 7% in 1995. This growth was the result of increased
services provided to corporations and institutions and their employees,
increased insurance placed on behalf of small businesses, higher revenue from
professional liability products in the United States and the acquisition of a
U.K.-based company that specializes in providing professional liability
insurance products. Revenue for Frizzell, which operated in the United Kingdom,
decreased 3% in 1995 as the market for motor and household insurance services
was extremely competitive during the year.
INTEREST INCOME ON FIDUCIARY FUNDS
Interest income on fiduciary funds decreased 9% in 1996 due to generally lower
average short-term interest rates worldwide. In 1995, interest income on
fiduciary funds increased 31% due to generally higher average short-term
interest rates throughout the world.
EXPENSE
Insurance services operating expenses decreased 2% in 1996. Excluding the impact
of Frizzell, expenses increased 2% reflecting normal salary progressions. The
Company's insurance services segment has continued a cost containment program
while maintaining the level of expenditures for systems-related improvements.
Expenses for insurance services rose 6% in 1995 primarily reflecting normal
salary progressions and spending on technology and systems automation
initiatives.
UNUSUAL CHARGES, NET
During 1996, the Company completed the sale of Frizzell for approximately $290
million which resulted in a $33.2 million pretax gain. In addition, pretax
charges aggregating $82.6 million were also recorded in the insurance services
segment representing a provision of approximately $31 million for U.K. real
estate; $17 million for costs related to the integration of the Company's
worldwide insurance services operations; $17 million for goodwill write-offs;
$15 million related to the Lloyd's Reconstruction and Renewal Plan; and $3
million for office closings. Excluding the impact of the Frizzell gain and the
unusual charges, the margin for insurance services was 19.0%.
S-18
<PAGE>
The following table summarizes the results of operations for the Company's
insurance services segment by geographic area for the years ended December 31,
1996, 1995 and 1994:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
<CAPTION>
IN MILLIONS OF DOLLARS 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
United States $ 1,025.3 $ 1,006.9 $ 1,028.1
Europe 696.1 784.0 709.9
Canada 96.4 93.9 86.7
Pacific Rim and Other 89.5 79.1 61.8
--------- --------- ---------
$ 1,907.3 $ 1,963.9 $ 1,886.5
--------- --------- ---------
--------- --------- ---------
Operating Income:
United States(a) $ 155.6 $ 186.9 $ 216.0
Europe(a) 111.9 155.5 150.3
Canada 27.0 25.9 23.6
Pacific Rim and Other(a) 19.2 20.9 16.2
--------- --------- ---------
$ 313.7 $ 389.2 $ 406.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(a) Excluding the unusual charges in 1996, operating income would have been
$179.2 million in the United States, $135.7 million in Europe, $21.2 million in
the Pacific Rim and Other, and insurance services in total would have been
$363.1 million.
The sale of Frizzell caused a decline in both revenue and operating income in
Europe in 1996. Operating income also declined in Europe as a result of the
unusual charges recorded which primarily related to the U.K. The decline in
operating income in the United States reflects reduced reinsurance broking
income due to lower revenues, as well as the impact in the United States of the
unusual charges.
INVESTMENT MANAGEMENT
The Company's investment management and related services, which are performed
principally in the United States, are provided by Putnam. The services include
securities investment advisory and management services consisting of investment
research and management, accounting and related services for a group of publicly
held investment companies (the "Putnam Funds"). A number of the open-end funds
serve as funding media for variable insurance contracts. Investment management
services are also provided to corporate profit sharing and pension funds, state
and other government and public employee retirement funds, university endowment
funds, charitable foundations, collective investment vehicles and other domestic
and foreign institutional accounts. Putnam serves as transfer agent, dividend
disbursing agent, registrar and custodian for the Putnam Funds and provides one
or more of such services to several external clients. In addition, Putnam
provides administrative and trustee services for employee benefit plans (in
particular 401(k) plans), IRA's and other clients for which it receives
compensation pursuant to service and trust or custodian contracts. Putnam also
acts as principal underwriter of the shares of the open-end Putnam Funds,
selling primarily through independent broker/dealers, financial planners and
financial institutions, including banks, and also directly to certain large
401(k) plans and other institutional accounts. Essentially all of Putnam's
mutual funds are available with a contingent deferred sales charge in lieu of a
front-end load.
Putnam's revenue is derived primarily from investment management fees received
from the Putnam Funds and institutional accounts. Fees paid by the Putnam Funds
are approved annually by the trustees or shareholders of the Putnam Funds and
are charged at various rates depending on the individual mutual fund or account
and are usually based upon a sliding scale in relation to the level of assets
under management and, in certain instances, are also based on investment
performance. Management of Putnam and the trustees of the Putnam Funds
S-19
<PAGE>
regularly review the fund fee structure in light of fund performance, the level
and range of services provided, industry conditions and other relevant factors.
Putnam also receives compensation for providing certain shareholder and custody
services.
The following table summarizes the results of operations for the Company's
investment management segment for the years ended December 31, 1996, 1995 and
1994:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
<CAPTION>
IN MILLIONS OF DOLLARS 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenue $ 1,082.5 $ 750.0 $ 615.4
Expense 744.7 506.5 407.2
--------- --------- ---------
Operating Income $ 337.8 $ 243.5 $ 208.2
--------- --------- ---------
--------- --------- ---------
Operating Income Margin 31.2% 32.5% 33.8%
--------- --------- ---------
--------- --------- ---------
</TABLE>
REVENUE
Putnam's revenue increased 44% in 1996 reflecting exceptional growth in the
level of assets under management on which management fees are earned. The higher
asset level reflected a substantial increase in the level of mutual fund sales,
higher equity market valuations and new 401(k) business.
Revenue for Putnam increased 22% in 1995 reflecting strong growth in the level
of assets under management on which management fees are earned. The higher asset
level reflected significantly higher equity market valuations, mutual fund sales
and new 401(k) business.
EXPENSE
Putnam's expenses rose 47% in 1996 reflecting the effect of significantly higher
incentive compensation levels, staff growth to support new business, increased
costs resulting from the higher level of business activity, and expanding client
needs.
Expenses for Putnam increased 24% in 1995 reflecting the effect of staff growth
and incentive compensation levels consistent with strong operating performance,
costs to develop new systems which were considered necessary to manage the
growth of Putnam's client base, and service-related costs including those for a
new client service center that became operational in the fourth quarter of 1994.
S-20
<PAGE>
The following table summarizes the year-end and average assets under management
for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
<CAPTION>
IN BILLIONS OF DOLLARS 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Mutual Funds:
Domestic Equity $ 80.0 $ 46.8 $ 26.2
Taxable Bond 29.9 26.0 22.8
Tax-Free Income 16.4 16.9 15.2
International Equity 7.5 3.7 3.0
--------- --------- ---------
133.8 93.4 67.2
--------- --------- ---------
Institutional Accounts:
Fixed Income 19.1 19.0 18.8
Domestic Equity 14.0 8.9 6.7
International Equity 6.5 4.4 2.6
--------- --------- ---------
39.6 32.3 28.1
--------- --------- ---------
Year-end Assets $ 173.4 $ 125.7 $ 95.3
--------- --------- ---------
--------- --------- ---------
Average Assets $ 148.5 $ 109.2 $ 93.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
Assets under management are affected by fluctuations in domestic and
international bond and stock market prices, by the level of investments and
withdrawals for current and new fund shareholders and clients. They are also
affected by investment performance, service to clients, the development and
marketing of new investment products, the relative attractiveness of the
investment style under prevailing market conditions and changes in the
investment patterns of clients. Revenue levels are sensitive to all of the
factors above, but in particular to significant changes in bond and stock market
valuations.
Putnam provides individual and institutional investors with a broad range of
equity and fixed income investment products and services designed to meet
varying investment objectives and which affords its clients the opportunity to
allocate their investment resources among various alternative investment
products as changing worldwide economic and market conditions warrant. At the
end of 1996, assets held in equity securities represented 62% of assets under
management, compared with 51% in 1995, while investments in fixed income
products represented 38%, down from 49% last year.
CONSULTING
The Company provides consulting services to a predominantly corporate clientele
from locations around the world, primarily in the areas of human resources and
employee benefit programs, including retirement, health care, and compensation;
and general management consulting, which comprises strategy, operations and
marketing. The Company also provides economic consulting and analysis.
Revenue in the consulting business is affected by changes in clients' industries
including government regulation, as well as new products and services, the stage
of the economic cycle and broad trends in the management of large organizations.
S-21
<PAGE>
The following table summarizes the results of operations for the Company's
consulting segment for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
<CAPTION>
IN MILLIONS OF DOLLARS 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenue $ 1,159.2 $ 1,056.4 $ 933.1
--------- --------- ---------
Expense:
Operating Expenses 1,039.8 947.7 836.7
Unusual Charges 8.5 -- --
--------- --------- ---------
$ 1,048.3 $ 947.7 $ 836.7
--------- --------- ---------
Operating Income $ 110.9 $ 108.7 $ 96.4
--------- --------- ---------
--------- --------- ---------
Operating Income Margin 9.6% 10.3% 10.3%
--------- --------- ---------
--------- --------- ---------
</TABLE>
REVENUE
Consulting services revenue increased 10% in 1996. Retirement consulting
revenue, which represented 43% of the consulting segment, grew 9% in 1996
reflecting higher demand in the United States, Europe and Latin America. Revenue
rose 14% in the global compensation practice, 10% in health care consulting and
7% in general management consulting in 1996.
Revenue for consulting services increased 13% in 1995 as demand for services in
all major practices increased. After adjusting for the net impact of several
small acquisitions, revenue grew approximately 11%. Retirement consulting
revenue, which represented 44% of the consulting segment, grew 7% in 1995
reflecting higher demand in the United States, Continental Europe and Latin
America. Revenue increased 17% in the global compensation practice, 16% in
general management consulting and 10% in health care consulting in 1995.
EXPENSE
Consulting services operating expenses increased 10% in 1996 compared with 1995
primarily reflecting staff growth to support new business, higher incentive
compensation and normal salary progressions.
Expenses for the consulting segment increased 13% in 1995. Excluding the effect
of acquisitions, 1995 expenses increased approximately 11% reflecting staff
growth consistent with increased demand in general management and United States
retirement consulting as well as higher systems-related expenses associated with
initiatives to expand and increase the efficiency of services provided in the
United States.
UNUSUAL CHARGES
Pretax charges of $8.5 million were recorded in the consulting segment
reflecting a provision of approximately $6 million for office realignments and
consolidations and $2.5 million for a U.K. real estate matter. Excluding the
impact of the unusual charges, the operating income margin for consulting
services was 10.3%.
S-22
<PAGE>
The following table summarizes the results of operations for the Company's
consulting segment by geographic area for the years ended December 31, 1996,
1995 and 1994:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
<CAPTION>
IN MILLIONS OF DOLLARS 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
United States $ 707.2 $ 645.0 $ 586.4
Europe 264.8 240.6 197.3
Canada 101.6 90.4 78.4
Pacific Rim and Other 85.6 80.4 71.0
--------- --------- ---------
$ 1,159.2 $ 1,056.4 $ 933.1
--------- --------- ---------
--------- --------- ---------
Operating Income:
United States(a) $ 69.6 $ 60.4 $ 50.2
Europe(a) 24.2 33.9 30.1
Canada 15.5 11.5 11.7
Pacific Rim and Other 1.6 2.9 4.4
--------- --------- ---------
$ 110.9 $ 108.7 $ 96.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(a) Excluding the unusual charges in 1996, operating income would have been
$75.6 million in the United States, $26.7 million in Europe, and consulting in
total would have been $119.4 million.
European results for the consulting segment reflect the impact of investments
made in information technology, the expansion of retirement consulting, and
pressure in an expanding but competitive market for general management
consulting. Canadian results reflect improved market conditions coupled with
continued expense controls.
INTEREST
Interest income earned on corporate funds declined to $14.3 million in 1996
compared with $17.7 million in 1995 primarily due to generally lower yields
worldwide. Interest expense decreased to $61.6 million in 1996 from $62.8
million in 1995. This decline was due to lower average interest rates on
commercial paper borrowings. The average level of commercial paper borrowings
was slightly higher than 1995 principally due to the funding of Putnam's prepaid
dealer commissions and the cash outflows associated with the Company's share
repurchases, which was offset in large part by the cash proceeds realized on the
sale of Frizzell.
Interest income earned on corporate funds was $17.7 million in 1995 compared
with $11.8 million in 1994 primarily due to higher yields in North America and
the United Kingdom. Interest expense increased to $62.8 million in 1995 from
$50.6 million in 1994 due to an increase in commercial paper borrowings and
higher average interest rates on those borrowings. The higher level of
commercial paper borrowings primarily reflected the Company's share repurchase
program and its $40 million investment in Risk Capital Reinsurance Company.
INCOME TAXES
In the fourth quarter, the Company recorded a tax adjustment that reduced the
income tax provision by $40 million. The tax adjustment primarily relates to the
permanent deployment of funds outside the United States in a tax efficient
manner and favorable state and local tax developments in the U.S. Excluding the
tax adjustment, the Company's consolidated domestic and foreign tax rate was
37.25% of income before income taxes in 1996 compared with 38.0% in 1995, and
39.5% in 1994. The reductions in the 1996 and 1995 tax rates reflect the
continued implementation of tax minimization strategies primarily relating to
the Company's non-U.S. operations. The overall tax rates are higher than the
U.S. statutory rates primarily because of the impact of state and local income
taxes.
S-23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents aggregated $299.6 million at the end of
1996, a decrease of $28.5 million from the end of 1995.
OPERATING CASH FLOWS
The Company generated $316.5 million of cash from operations in 1996 compared
with $318.1 million in 1995. These amounts reflect the net income earned by the
Company in those years adjusted for non-cash charges and working capital
changes. Included in the cash flow from operations are the net cash requirements
of Putnam's prepaid dealer commissions, which amounted to $338.7 million in 1996
compared with $104.3 million in 1995. The current portion of these prepaid
dealer commissions, amounting to $222.8 million and $136.4 million at December
31, 1996 and 1995, respectively, is included in other current assets in the
Company's consolidated balance sheets. The long-term portion amounting to $676.6
million and $424.3 million at December 31, 1996 and 1995, respectively, is
included in other assets in the Company's consolidated balance sheets. The tax
benefit associated with these prepaid dealer commissions is recorded in deferred
taxes, the long-term portion of which is included in other liabilities in the
Company's consolidated balance sheets.
The increase in accrued compensation and employee benefits in 1996 principally
was caused by significantly higher incentive compensation levels consistent with
strong operating performance in the investment management segment. The Company
anticipates that internally generated funds will be sufficient to meet the
Company's foreseeable recurring cash requirements, including dividends, capital
expenditures and scheduled repayments of long-term debt.
FINANCING CASH FLOWS
Financing activities for the Company reduced cash by $325.0 million in 1996 and
by $92.8 million in 1995. Dividends paid by the Company amounted to $239.2
million in 1996 ($3.30 per share) and $217.0 million in 1995 ($2.975 per share).
The Company regularly purchases shares of its common stock to meet the
requirements of the various stock compensation and benefit programs. The Company
purchased 2.5 million shares in 1996 and 1.7 million shares in 1995. The Company
used the proceeds from the sale of Frizzell to complete its share repurchases
under the three million share authorization of September 1995.
During 1996, the Company executed a new revolving credit facility with several
banks to support its commercial paper borrowings and to fund other general
corporate requirements. This facility, which expires December 2001, provides
that the Company may borrow up to $750 million at market rates of interest which
may vary depending upon the level of borrowings and the Company's credit
ratings. Outstanding borrowings under the revolving credit facility at December
31, 1996 amounted to $250 million with varying dates of maturity through
December 1997. Borrowings under the revolving credit facility have been
classified as long-term debt based on the Company's intent and ability to
maintain or refinance these obligations on a long-term basis. The Company also
maintains other credit facilities, primarily related to operations located
outside the United States, aggregating $59.5 million as of December 31, 1996.
The Company has a fixed rate non-recourse mortgage note agreement due in 2009
amounting to $200 million, bearing an interest rate of 9.8%, in connection with
its 56% interest in its worldwide headquarters building. Also related to the
purchase and renovation of the building, the Company has an interest rate swap
that fixes the interest rate on $100 million of variable rate borrowings at
approximately 9.5% until February 1999.
INVESTING CASH FLOWS
Investing activities for the Company reduced cash by $13.8 million in 1996 and
by $198.1 million in 1995. As previously mentioned, the Company sold Frizzell in
June 1996. The net addition to cash resulting from the sale was $241.8 million.
The Company's capital expenditures, which amounted to $157.3 million in 1996 and
$136.9
S-24
<PAGE>
million in 1995, have primarily related to computer equipment purchases and the
refurbishing and modernizing of office facilities.
The Company has been instrumental in developing new sources of insurance
capacity. The Company, through MMRC, maintains a minority ownership interest in
various entities it assisted in organizing. Many of these investments have been
classified as securities available for sale and, as discussed more fully in Note
10 to the Company's consolidated financial statements, the aggregate fair value
of these holdings is included in long-term securities in the consolidated
balance sheets. The Company, through Marsh & McLennan Risk Capital Holdings,
expects to continue to manage and develop further these activities.
OTHER
The insurance coverage for potential liability resulting from alleged errors and
omissions in the professional services provided by the Company includes elements
of both risk retention and risk transfer. The Company believes it has adequately
reserved for the self-insurance contingencies. Payments related to the
respective self-insured layers are made as legal fees are incurred and claims
are resolved and generally extend over a considerable number of years. The
amounts paid in that regard vary in relation to the severity of the claims and
the number of claims active in any particular year. The long-term portion of
this liability is included in other liabilities in the Company's consolidated
balance sheets.
The Company's policy for funding its tax qualified U.S. defined benefit
retirement plan is to contribute amounts at least sufficient to meet the funding
requirements set forth in U.S. employee benefit and tax laws. As described more
fully in Note 5 to the Company's consolidated financial statements, the plan is
currently well funded; consequently, the Company has not been able to make a tax
deductible contribution since 1986. Because this situation is expected to
continue, a 1997 cash contribution is currently not anticipated. The related
long-term pension liability is included in other liabilities in the Company's
consolidated balance sheets.
The Company contributes to certain health care and life insurance benefits
provided to its retired employees. As described more fully in Note 5 to the
Company's consolidated financial statements, the cost of these postretirement
benefits for employees in the United States is accrued during the period up to
the date employees are eligible to retire, but is funded by the Company as
incurred. This postretirement liability is included in other liabilities in the
Company's consolidated balance sheets.
Cumulative translation adjustments, a component of stockholders' equity in the
Company's consolidated balance sheets, represent the cumulative effect of
translating the financial statements of the Company's international operations
from functional currencies to U.S. dollars.
SUBSEQUENT EVENTS
In January 1997, the Company purchased CECAR, an insurance broker in France, for
approximately $200 million.
S-25
<PAGE>
THE COMPANY
GENERAL
Marsh & McLennan Companies, Inc., a professional services organization with
origins dating from 1871 in the United States, is a holding company which,
through its subsidiaries and affiliates, provides clients with analysis, advice
and transactional capabilities in the fields of insurance and reinsurance
broking, investment management and consulting.
On March 27, 1997, the Company consummated a strategic business combination with
J&H. The business of J&H is described above in "Prospectus Supplement
Summary--The Business Combination with Johnson & Higgins--J&H Business."
A newly-formed subsidiary of the Company, known as J&H Marsh & McLennan, Inc.,
will be used to facilitate the integration and management of the respective
insurance services operations of the Company and J&H. A. Foster Higgins, a
subsidiary of J&H engaged in the employee benefits consulting business,
operationally will be combined with the similar business conducted by Mercer.
INSURANCE SERVICES
The Company's insurance services are provided by its subsidiaries and their
affiliates on a worldwide basis, as broker, agent or consultant for insureds,
insurance underwriters and other brokers. These services are principally
provided by MMI and Guy Carpenter, a reinsurance intermediary, and their
subsidiaries and affiliates. Seabury & Smith and its affiliates provide
insurance program management services involving a wide range of insurance and
related products for individuals and others through both sponsored and
non-sponsored affinity group programs primarily in the United States and Canada.
Marsh & McLennan Risk Capital Corp. ("M&M Risk Capital Corp.") provides services
principally in connection with originating, structuring and managing investments
in the insurance industry.
Risk management and insurance broking services, carried on throughout the world
principally by MMI and its affiliates, are provided for a predominantly
corporate clientele through offices in more than 80 countries, primarily in
North and South America, Europe and Asia Pacific. Clients are companies engaged
in a broad range of commercial activities, including general industries,
financial and professional services, aviation, marine, energy construction, land
transportation, healthcare and utility concerns. Clients also include various
government and related agencies, non-profit and other organizations, and
individuals.
Such risk management and insurance broking services involve various types of
property and liability loss exposures, including large and complex risks that
require access to world insurance markets. Services provided to clients include
insurance broking activities and professional counseling services on risk
management issues, including risk analysis, coverage requirements,
self-insurance (in which the insured retains a portion of its insurance risks),
and alternative insurance and risk financing methods, as well as claims
collection, injury management, loss prevention and other insurance related
services. Services also include organization and administrative services for
special purpose insurance companies and other risk assumption alternatives.
Insurance placement services include the placement of insurance coverages with
insurers world-wide, sometimes involving other intermediaries. Correspondent
relationships are maintained with unaffiliated firms in certain countries. In
January 1997, the Company acquired CECAR, a French insurance broker, resulting
in the Company becoming the largest insurance broker in France.
Reinsurance services are provided to insurance and reinsurance risk takers
worldwide, principally by Guy Carpenter and its affiliates, from offices
principally in North America and Europe. Such services primarily involve acting
as an intermediary for insurance and reinsurance organizations on all classes of
reinsurance. The intermediary assists the insurer by providing advice, placing
reinsurance coverage with reinsurance organizations located around the world,
and furnishing related services such as actuarial, financial and regulatory
consulting, portfolio analysis and catastrophe modeling. Claims services are
often performed for policies placed a number of years previously. The insurance
company may seek reinsurance or other risk-transfer financing on all or a
portion
S-26
<PAGE>
of the risks it insures. Intermediary services are also provided to reinsurance
companies, which may also seek reinsurance on the risks they have reinsured.
Seabury & Smith and its affiliates provide insurance program management services
(including the design, placement and administration of life, health, accident,
disability, automobile, homeowners, professional liability and other insurance,
and related products) primarily on a group marketing basis to individuals,
businesses and their employees, and associations and other affinity groups and
their members in the United States and Canada. It provides underwriting
management services to insurers in the United States, Canada and the United
Kingdom, primarily for professional liability coverages. Frizzell and its
subsidiaries, which provided insurance program management, personal financial
planning and consumer finance services in the United Kingdom, were sold in 1996.
M&M Risk Capital Corp. provides services in connection with originating,
structuring and managing investments in the insurance industry. It is an advisor
to The Trident Partnership L.P., an independent private investment partnership
formed in 1994 to make private equity investments in the global insurance and
reinsurance industry. M&M Risk Capital Corp. is also an advisor to Risk Capital
Reinsurance Company (a subsidiary of Risk Capital Holdings, Inc., a publicly
held corporation), which is based in the United States and was formed in 1995 to
provide traditional and other kinds of reinsurance, both on a stand-alone basis
and as part of integrated capital solutions for insurance companies. M&M Risk
Capital Corp. and its predecessor operations were instrumental in the formation
of several substantial insurance and reinsurance entities, including A.C.E.
Insurance Company, Ltd., X.L. Insurance Company, Ltd. and Mid Ocean Reinsurance
Company Ltd. M&M Risk Capital Corp. also advises its immediate parent company,
Marsh & McLennan Risk Capital Holdings, Ltd., regarding the latter's ownership
holdings in certain insurance and reinsurance entities and funds, primarily ones
initiated by M&M Risk Capital Corp. As a result of the foregoing activities,
subsidiaries and affiliates of the Company may have direct or indirect
investments in insurance and reinsurance companies, including entities at
Lloyd's, which are considered for client placements by the Company's insurance
and reinsurance brokerage businesses.
The revenue attributable to the Company's insurance services consists primarily
of fees paid by clients; commissions and fees paid by insurance and reinsurance
companies; interest income on premiums, and in certain cases on claims,
collected and not yet remitted to insurers, reinsurers or clients, such funds
being held in a fiduciary capacity; and compensation for services provided in
connection with the formation and capitalization of various insurers and
reinsurers, including fees, royalties and dividends, as well as appreciation
that has been realized on sales of holdings in such entities.
Revenue generated by insurance services is affected by premium rate levels in
the property and casualty insurance markets and available insurance capacity, as
compensation is frequently related to the premiums paid by insureds. Revenue is
also affected by fluctuations in the amount of risk retained by insurance and
reinsurance clients themselves and by insured values, the development of new
products, markets and services, lost business, merging of clients (including
insurance companies that are clients in the reinsurance intermediary business)
and the volume of business from new and existing clients, as well as by interest
rates for fiduciary funds. In many cases compensation may be negotiated in
advance with certain clients on an annual basis based upon the estimated value
of the services to be performed. Revenue and fees also may be received from
originating, structuring and managing investments in insurers, and income and
proceeds also may be derived from investments made by the Company. Revenues vary
from quarter to quarter as a result of the timing of policy renewals and the net
effect of new and lost business production, whereas expenses tend to be more
uniform throughout the year.
Commission rates vary in amount depending upon the type of insurance or
reinsurance coverage provided, the particular insurer or reinsurer, and the
capacity in which the broker acts, in addition to negotiations with clients.
Occasionally, commissions are shared with other brokers that have participated
in placing insurance or servicing insureds. Placement services revenue includes
payments or allowances by insurance companies based upon such factors as the
overall volume of business placed by the broker with that insurer, the loss
performance to the
S-27
<PAGE>
insurer of that business or the aggregate commissions paid by the insurer for
that book during specific periods. In some cases, compensation for brokerage or
advisory services is paid directly as a fee by the client.
The investment of fiduciary funds is governed by the applicable laws or
regulations of insurance authorities of the states in the United States and in
other jurisdictions in which the Company's subsidiaries do business. These laws
and regulations typically limit the type of investments that may be made with
such funds. The general amount of funds invested and interest rates may vary
from time to time.
INVESTMENT MANAGEMENT
Investment management and related services are provided by Putnam. Putnam has
been engaged in the investment management business since 1937, with its
principal offices in Boston, Massachusetts. Putnam also has offices in London
and Tokyo. Putnam provides individual and institutional investors with a broad
range of equity and fixed income investment products and services designed to
meet varying investment objectives and which afford its clients the opportunity
to allocate their investment resources among various alternative investment
products as changing worldwide economic and market conditions warrant.
Putnam's investment management services, which are performed principally in the
United States, include securities investment advisory and management services
consisting of investment research and management, accounting and related
services for a group of publicly-held investment companies. As of December 31,
1996, there were 99 Putnam Funds registered under the Investment Company Act of
1940, including 17 closed-end investment companies whose shares are traded on
various major domestic stock exchanges. A number of the open-end funds serve as
funding media for variable insurance contracts. Investment management services
are also provided to corporate profit sharing and pension funds, state and other
governmental and public employee retirement funds, university endowment funds,
charitable foundations, collective investment vehicles and other domestic and
foreign institutional accounts.
Assets managed by Putnam, on which management fees are based, were approximately
$173.4 billion and $125.7 billion as of December 31, 1996 and 1995,
respectively. Mutual fund assets aggregated $133.8 billion at December 31, 1996
and $93.4 billion at December 31, 1995. Assets under management at December 31,
1996 consisted of approximately 62% equity securities and 38% fixed income
products, invested both domestically and globally.
Putnam's revenues are derived primarily from its investment management fees.
Assets under management and revenue levels are affected by fluctuations in
domestic and international bond and stock market prices, and by the level of
investments and withdrawals for current and new fund shareholders and clients.
They are also affected by investment performance, service to clients, the
development and marketing of new investment products, the relative
attractiveness of the investment style under prevailing market conditions and
changes in the investment patterns of clients. Fluctuations in interest rates
and in the yield curve will have an effect on fixed income assets under
management and may influence the flow of monies to and from fixed-income funds
and accounts. Fluctuations in the prices of stocks have a similar effect on
equity assets under management and may influence the flow of monies to and from
equity funds and accounts.
The investment management services provided to the Putnam Funds and
institutional accounts are performed pursuant to advisory contracts which
provide for a fee payable to the Putnam company that manages the account. The
amount of the fee varies depending on the individual mutual fund or account and
is usually based upon a sliding scale in relation to the level of assets under
management and, in certain instances, is also based on investment performance.
Such contracts automatically terminate in the event of their "assignment",
generally may be terminated by either party without penalty and, as to contracts
with the Putnam Funds, continue in effect only so long as approved, at least
annually, by their shareholders or by the Putnam Funds' trustees, including a
majority who are not affiliated with Putnam. "Assignment" includes any direct or
indirect transfer of a controlling block of voting stock in Putnam or the
Company. Management of Putnam and the trustees of the Putnam Funds regularly
review the fund fee structure in light of fund performance, the level and range
of services provided, industry conditions and other relevant factors.
S-28
<PAGE>
Putnam Fiduciary Trust Company, a Massachusetts trust company, serves as
transfer agent, dividend disbursing agent, registrar and custodian for the
Putnam Funds and provides one or more of such services to several external
clients. Putnam Fiduciary Trust Company receives compensation from the Putnam
Funds for such services pursuant to written agreements which may be terminated
by either party on 90 days' notice, and for providing custody services pursuant
to written agreements which may be terminated by either party on 30 days'
notice. These contracts generally provide for compensation on the basis of
several factors which vary with the type of service being provided. In addition,
Putnam Fiduciary Trust Company provides administrative and trustee (or
custodian) services for employee benefit plans (in particular 401(k) plans),
IRA's and other clients for which it receives compensation pursuant to service
and trust or custodian contracts. In the case of employee benefit plans,
investment options are selected by the plan sponsors and include Putnam mutual
funds and other Putnam managed products, as well as employer stock and other
non-Putnam investments. In some instances, The Putnam Advisory Company, Inc.
acts as investment manager for a plan's fixed income portfolio and receives
compensation for such investment management services pursuant to an investment
management agreement.
Putnam Mutual Funds Corp. acts as principal underwriter of the shares of the
open-end Putnam Funds, selling primarily through independent broker/dealers,
financial planners and financial institutions, including banks, and also
directly to certain large 401(k) plans and other institutional accounts. Shares
of the open-end funds are generally sold at their respective net asset value per
share plus a sales charge, which varies depending on the individual fund and the
amount purchased. In some cases the sales charge is assessed if the shares are
redeemed within a stated time period. In accordance with certain terms and
conditions described in the prospectuses for such funds, certain investors are
eligible to purchase shares at net asset value or at reduced sales charges, and
investors may generally exchange their shares of a fund at net asset value for
shares of another Putnam Fund when they believe such an investment decision is
appropriate without the payment of additional sales charges.
Commissions to selling dealers are typically paid at the time of the purchase as
a percentage of the amount invested. Essentially all Putnam Funds are available
with a contingent deferred sales charge in lieu of a front-end load. The related
prepaid dealer commissions initially paid by Putnam to broker/dealers for
distributing such funds are recovered through charges and fees received over a
number of years.
Nearly all of the open-end Putnam Funds have adopted distribution plans pursuant
to Rule 12b-1 under the Investment Company Act of 1940 under which the Putnam
Funds make payments to a Putnam subsidiary to cover costs relating to
distribution of the Putnam Funds and services provided to shareholders. These
payments enable the Putnam subsidiary to pay service fees and other continuing
compensation to firms that provide services to Putnam Fund shareholders and
distribute shares of the Putnam Funds. Some Rule 12b-1 fees are retained by the
Putnam subsidiary as compensation for the costs of services provided by Putnam
to shareholders and for commissions advanced by Putnam at the point of sale (and
recovered through fees received over time) to firms that distribute shares of
the Putnam Funds. These distribution plans, and payments made by the Putnam
Funds thereunder, are subject to annual renewal by the trustees of the Putnam
Funds and to termination by vote of the shareholders of the Putnam Funds or by
vote of a majority of the Putnam Funds' trustees who are not affiliated with
Putnam. Failure of the Trustees to approve continuation of the Rule 12b-1 plans
for Class B (deferred sales charge) shares would have a material adverse effect
on Putnam.
CONSULTING
Through Mercer Consulting Group, Inc., subsidiaries and affiliates of the
Company, separately and in collaboration, provide consulting services to a
predominantly corporate clientele from locations around the world, primarily in
the areas of human resources and employee benefit programs, including
retirement, health care and compensation; and general management consulting,
which comprises strategy, operations and marketing. The Company also provides
economic consulting and analysis.
William M. Mercer Companies, Inc. ("William M. Mercer") provides professional
advice and services to corporate, government and institutional clients from
offices in approximately 27 countries and territories, primarily in North and
South America, Western Europe, East Asia, Australia and New Zealand. Consultants
help organizations
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<PAGE>
design, implement, administer and communicate retirement, compensation and other
human resource programs, and provide other types of actuarial advice. In
addition, William M. Mercer advises the management of health care providers on
various business issues, including operational reengineering, improving clinical
effectiveness and establishing strategic partnerships. Through its investment
consultants, William M. Mercer assists trustees of pension funds and others in
the selection of investment managers and investment strategies.
Mercer provides advice and assistance on issues of business strategy, primarily
to large corporations in North America, Europe and Asia. Consultants help senior
executives more fully understand the behavior of their customers, optimize the
economics of their business, and structure their organizations, processes and
systems to achieve their strategic goals. In addition, under the Lippincott &
Margulies name, Mercer provides consulting services relating to brand and
corporate identity and image.
National Economic Research Associates, Inc. ("NERA"), a firm of consulting
economists, provides advice to law firms, corporations, trade associations and
governmental agencies, from offices in the United States, England and Spain.
NERA provides research and analysis of economic and financial issues arising in
litigation, regulation, public policy and management.
The major component of Mercer's revenue is fees paid by clients for advice. In
addition, commission revenue is received from insurance companies for the
placement of individual and group insurance contracts, primarily life, health
and accident coverages. Also, in the 401(k) record keeping business, 12(b)(1)
fees are received from mutual funds for which record keeping services are
provided.
Revenue in the consulting business is affected by changes in clients'
industries, including government regulation, as well as new products and
services, the stage of the economic cycle and broad trends in the management of
large organizations.
REGULATION
The activities of the Company are subject to licensing requirements and
extensive regulation under the laws of the United States and its various states,
territories and possessions, as well as laws of other countries in which the
Company's subsidiaries operate. These laws and regulations are primarily
intended to benefit clients.
The Company's three business segments depend on the validity of, and continued
good standing under, the licenses and approvals pursuant to which they operate,
as well as compliance with pertinent regulations. The Company therefore devotes
significant effort toward maintaining its licenses and to ensuring compliance
with a diverse and complex regulatory structure.
In all jurisdictions the applicable laws and regulations are subject to
amendment or interpretation by regulatory authorities. Generally, such
authorities are vested with relatively broad discretion to grant, renew and
revoke licenses and approvals, and to implement regulations. Licenses may be
denied or revoked for various reasons, including the violation of such
regulations, conviction of crimes and the like. Possible sanctions which may be
imposed include the suspension of individual employees, limitations on engaging
in a particular business for specified periods of time, revocation of licenses,
censures and fines. In some instances, the Company follows practices based on
its interpretations, or those generally followed by the industry, of laws or
regulations, which may prove to be different from those of regulatory
authorities. Accordingly, the possibility exists that the Company may be
precluded or temporarily suspended from carrying on some or all of its
activities or otherwise fined or penalized in a given jurisdiction.
No assurances can be given that the Company's insurance, investment management
or consulting activities can continue to be conducted in any given jurisdiction
as in the past.
INSURANCE SERVICES
While the laws and regulations vary among jurisdictions, every state of the
United States and most foreign jurisdictions require an insurance broker or
agent (and in some cases a reinsurance broker or intermediary) or
S-30
<PAGE>
insurance consultant, managing general agent or third party administrator to
have an individual and/or company license from a governmental agency or
self-regulatory organization. In addition, certain of the Company's insurance
activities are governed by the rules of the Lloyd's insurance market in London
and self-regulatory organizations in other jurisdictions. A few jurisdictions
issue licenses only to individual residents or locally-owned business entities.
In some of these jurisdictions, if the Company has no licensed subsidiary, the
Company may maintain arrangements with residents or business entities licensed
to act in such jurisdiction. Also, in some jurisdictions, various insurance
related taxes may also be due either by clients directly or from the broker. In
the latter case, the broker customarily looks to the client for payment.
INVESTMENT MANAGEMENT
Putnam's securities investment management activities are subject to regulation
in the United States by the Securities and Exchange Commission, and other
federal, state and self regulatory authorities, as well as in certain other
countries in which it does business. Putnam's officers, directors and employees
may from time to time own securities which are also held by the Putnam Funds or
institutional accounts. Putnam's internal policies with respect to individual
investments require prior clearance and reporting of transactions and restrict
certain transactions so as to reduce the possibility of conflicts of interests.
To the extent that existing or future regulations affecting the sale of Putnam
Fund shares or other investment products or their investment strategies cause or
contribute to reduced sales of Putnam Fund shares or investment products or
impair the investment performance of the Putnam Funds or such other investment
products, Putnam's aggregate assets under management and its revenues might be
adversely affected. Changes in regulations affecting the free movement of
international currencies might also adversely affect Putnam.
CONSULTING
No licensing or other regulatory requirements material in the aggregate to the
consulting activities of the Company's subsidiaries apply to that activity in
general; however, the subject matter of certain consulting services may result
in regulation. For example, employee benefit plans are subject to various
governmental regulations, and services related to investment matters or the
placing of individual and group insurance contracts subject the Company's
subsidiaries to insurance or investment and securities regulations and licensing
in various jurisdictions.
COMPETITIVE CONDITIONS
Principal methods of competition in insurance services and consulting include
the quality and types of services and products that a broker or consultant
provides its clients and their cost. Putnam competes with other providers of
investment products and services primarily on the basis of the range of
investment products offered, the investment performance of such products, as
well as the manner in which such products are distributed, and the scope and
quality of the shareholder and other services provided. Sales of Putnam Fund
shares are also influenced by general securities market conditions, government
regulations, global economic conditions and advertising and sales promotional
efforts.
All these businesses also encounter strong competition from both public
corporations and private firms in attracting and retaining qualified employees.
INSURANCE SERVICES
The insurance and reinsurance broking services business of the Company is
believed to be among the largest of its type in the world.
The Company encounters strong competition in the insurance services business
from other insurance brokerage firms which also operate on a nationwide or
worldwide basis, from a large number of regional and local firms in the United
States and in other countries, from insurance and reinsurance companies that
market and service their
S-31
<PAGE>
insurance products without the assistance of brokers or agents and from other
financial services businesses, including commercial and investment banks that
provide risk-related services and products.
Certain insureds and groups of insureds have established programs of self
insurance, as a supplement or alternative to third-party insurance, thereby
reducing in some cases the need for insurance placement services. There are also
many other providers of insurance program management services, including many
insurance companies, and many other organizations seeking to structure and
manage investments in the insurance industry.
INVESTMENT MANAGEMENT
Putnam is one of the largest investment management firms in the United States.
The investment management business is highly competitive. In addition to
competition from firms already in the investment management business, including
commercial banks, stock brokerage and investment banking firms, and insurance
companies, there is competition from other firms offering financial services and
other investment alternatives.
Many securities dealers, whose large retail distribution systems play an
important role in the sale of shares in the Putnam Funds, also sponsor competing
proprietary mutual funds. To the extent that such securities dealers value the
ability to offer customers a broad selection of investment alternatives, they
will continue to sell independent funds, notwithstanding the availability of
proprietary products. However, to the extent that these firms limit or restrict
the sale of Putnam Fund shares through their brokerage systems in favor of their
proprietary mutual funds, assets under management might decline and Putnam's
revenues might be adversely affected. In addition, a number of mutual fund
sponsors presently market their funds to the general public without sales
charges. Certain firms also offer passively managed funds such as index funds to
the general public.
CONSULTING
Mercer, one of the largest global consulting firms, is a leader in many of its
businesses. William M. Mercer is the world's largest human resources consulting
organization. Mercer Management Consulting is a leader in strategy consulting.
NERA is a leading firm of consulting economists.
William M. Mercer, Mercer Management Consulting and NERA compete with other
privately held and publicly held worldwide and national consulting companies, as
well as regional and local firms. Competitors include independent consulting
firms as well as consulting organizations affiliated with accounting firms,
information systems providers, investment management organizations and other
financial services firms, some of which emphasize administrative or consulting
services related to other services, including the management of 401(k) plan
funds, the design of information and other technology systems, and
administrative functions outsourced by corporations.
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<PAGE>
SELLING STOCKHOLDERS
Selling Stockholders, consisting of 85 Former J&H Stockholders and Retirees, are
offering hereby 3,087,134 shares of Common Stock in the aggregate, which
constituted approximately 3.9% of the issued and outstanding Common Stock on
March 31, 1997. On such date such Selling Stockholders beneficially owned
approximately 6,958,000 shares of Common Stock in the aggregate, which
constituted approximately 8.7% of the issued and outstanding Common Stock on
such date. The number of shares of Common Stock beneficially owned and offered
hereby by each Selling Stockholder constituted less than 0.5% of the issued and
outstanding Common Stock on March 31, 1997. The Selling Stockholders include
David A. Olsen, Richard A. Nielsen and Norman Barham, who are expected to join
the Board of Directors of the Company, and who are offering hereby 109,975,
100,614 and 66,109 shares of Common Stock, respectively, which constitute all of
the Common Stock beneficially owned and eligible for sale by each of them on the
date hereof. See "Selling Stockholders" in the accompanying Prospectus. Prior to
the Closing of the Transaction, each of the Former J&H Stockholders was a
director or managing principal, as well as an employee, of J&H.
S-33
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions in an Underwriting Agreement dated
the date of this Prospectus Supplement, (the "Underwriting Agreement"), the
Underwriters named below, for whom J.P. Morgan Securities Inc. and Morgan
Stanley & Co. Incorporated are acting as Lead Managers, have severally agreed to
purchase and the Selling Stockholders have severally agreed to sell to them, the
respective number of shares of Common Stock set forth opposite their names
below.
<TABLE>
<CAPTION>
---------
<S> <C>
NUMBER OF
SHARES
---------
UNDERWRITERS
J.P. Morgan Securities Inc....................................................... 926,141
Morgan Stanley & Co. Incorporated................................................ 926,141
Donaldson, Lufkin & Jenrette Securities Corporation.............................. 401,326
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................................ 277,842
PaineWebber Incorporated......................................................... 277,842
Smith Barney Inc................................................................. 277,842
---------
Total 3,087,134
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and certain other conditions. Under the terms
and conditions of the Underwriting Agreement, the Underwriters are obligated to
take and pay for all such shares of Common Stock, if any are taken.
The Underwriters propose initially to offer such shares of Common Stock directly
to the public at the public offering price set forth on the cover page of this
Prospectus Supplement and to certain dealers at such price less a concession of
$2.15 per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share to certain other dealers. After the
shares of Common Stock are released for sale to the public, the offering price
and such concessions may be changed.
The Company has agreed not to offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of any Common Stock, or any securities
convertible into or exercisable or exchangeable for Common Stock, or file any
registration statement under the Securities Act with respect to the Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock for a period of 90 days after the date of this Prospectus Supplement
without the prior written consent of J.P. Morgan Securities Inc., except in
connection with acquisitions, employee benefit plans and stock options and
certain other limited exceptions. The Selling Stockholders have agreed not to
offer, sell, contract to sell or otherwise dispose of any Common Stock, or any
securities convertible into, or exercisable or exchangeable for, Common Stock or
enter into any hedging or other transaction that involves a short sale of such
securities or that involves the purchase of any option or other agreement that
is likely to result in the other party to such transaction engaging in such
short sales or transactions having a similar effect for a period of 90 days
after the date of this Prospectus Supplement without the prior written consent
of J.P. Morgan Securities Inc.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may over-allot in connection with the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for,
and purchase, shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the Common Stock in the Offering if the syndicate repurchases previously
distributed Common Stock in syndicate covering
S-34
<PAGE>
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock above
independent Market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
Certain of the Underwriters have provided from time to time, and are expected to
provide in the future, investment banking and other financial services to the
Company and certain of their affiliates have engaged and may in the future
engage in commercial transactions in the ordinary course of business with the
Company.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York. Certain legal matters will be
passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York.
Certain legal matters will be passed upon for the Selling Stockholders by
Sullivan & Cromwell, New York, New York.
S-35
<PAGE>
PROSPECTUS
MARSH & MCLENNAN COMPANIES, INC.
3,438,360 SHARES OF COMMON STOCK
This Prospectus relates to the offering from time to time of up to 3,438,360
shares of Common Stock, par value $1.00 per share (the "Common Stock"), of Marsh
& McLennan Companies, Inc., a Delaware corporation (the "Company"), by certain
stockholders of the Company (the "Selling Stockholders"). The Common Stock
offered hereby was issued as partial consideration to the Selling Stockholders
in connection with the Company's business combination with Johnson & Higgins, a
New Jersey corporation. See "Selling Stockholders." The Company will not receive
any proceeds from the sale of the Common Stock offered hereby.
The Selling Stockholders directly, or through agents, dealers or underwriters
designated from time to time, may sell the Common Stock offered hereby from time
to time on terms to be determined at the time of sale. To the extent required,
the number of shares of Common Stock to be sold, purchase price, public offering
price, the names of the Selling Stockholders, the names of any such agent,
dealer or underwriter, and any applicable commission or discount with respect to
a particular offering will be set forth in an accompanying Prospectus
Supplement. The aggregate proceeds to the Selling Stockholders from the sale of
the Common Stock offered hereby will be the purchase price thereof less the
aggregate agents' commissions and underwriters' discounts, if any, and other
expenses of distribution not borne by the Company. The Company has agreed to pay
certain expenses of the offering contemplated hereby. See "Plan of
Distribution."
The Selling Stockholders and any dealers, agents or underwriters that
participate with any Selling Stockholder in the distribution of Common Stock may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), and any commission received by them and any
profit from the resale of Common Stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for a description of information regarding indemnification
arrangements.
The Common Stock is listed on the New York Stock Exchange (the "NYSE"), the
Chicago Stock Exchange, the Pacific Stock Exchange and the London Stock Exchange
under the trading symbol "MMC."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 5, 1997
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR DEEMED INCORPORATED BY
REFERENCE HEREIN, AND ANY INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN OR
THEREIN MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY
ANY AGENT, DEALER OR UNDERWRITER. THIS PROSPECTUS AND ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE COMMON STOCK IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
No action has been or will be taken in any jurisdiction by the Company or any
Selling Stockholder that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus or any accompanying Prospectus
Supplement in any jurisdiction where action for that purpose is required, other
than in the United States. Persons into whose possession this Prospectus or any
accompanying Prospectus Supplement comes are required by the Company and the
Selling Stockholders to inform themselves about and to observe any restrictions
as to the offering of the Common Stock and the distribution of this Prospectus
and any accompanying Prospectus Supplement.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.......................... 3
Incorporation of Certain Documents by
Reference.................................... 3
The Company.................................... 4
Use of Proceeds................................ 4
<CAPTION>
PAGE
<S> <C>
Selling Stockholders........................... 4
Description of Capital Stock................... 5
Plan of Distribution........................... 8
Legal Matters.................................. 9
Experts........................................ 9
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
This Prospectus constitutes part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
(the "Commission") under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus does not contain all information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Reference is made to the
Registration Statement and to the exhibits thereto for further information with
respect to the Company and the Common Stock offered hereby.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
information may also be accessed electronically by means of the Commission's
home page on the Internet (http://www.sec.gov.). In addition, such reports,
proxy statements and other information concerning the Company can be inspected
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005, the Chicago Stock Exchange, 440 South LaSalle Street, Chicago,
Illinois 60605, and the Pacific Stock Exchange, 301 Pine Street, San Francisco,
California 94104.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
(1) The Company's Annual Report on Form 10-K for the year ended December 31,
1996 (including pages 23 through 49 of the Company's 1996 Annual Report to
Stockholders);
(2) The Company's Current Reports on Form 8-K, filed with the Commission on
March 14, 1997 and April 7, 1997, relating to the business combination with
Johnson & Higgins;
(3) The Company's Registration Statement on Form 8-B, dated May 22, 1969,
describing the Common Stock, including any amendment or reports filed for
the purpose of updating such description; and
(4) The Company's Registration Statement on Form 8-A, dated September 21,
1987, as amended by Amendments on Form 8, dated September 18, 1990 and
February 19, 1991, describing the Preferred Stock Purchase Rights attached
to the Common Stock, including any further amendment or reports filed for
the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the offering of the Common Stock offered hereby shall be deemed
to be incorporated by reference into this Prospectus and to be a part of this
Prospectus from the date of filing of such document. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other
3
<PAGE>
document referred to herein do not purport to be complete, and where reference
is made to the particular provisions of such contract or other document, such
provisions are qualified in all respects by reference to all of the provisions
of such contract or other document. The Company will provide without charge to
any person to whom this Prospectus is delivered, on the written or oral request
of such person, a copy of any or all of the foregoing documents incorporated by
reference herein (other than exhibits not specifically incorporated by reference
into the texts of such documents). Requests for such documents should be
directed to: Corporate Development, Marsh & McLennan Companies, Inc., 1166
Avenue of the Americas, New York, New York 10036. Telephone requests may be
directed to Corporate Development at (212) 345-5475.
THE COMPANY
Marsh & McLennan Companies, Inc., a professional services organization with
origins dating from 1871 in the United States, is a holding company which,
through its subsidiaries and affiliates, provides clients with analysis, advice
and transactional capabilities in the fields of insurance and reinsurance
broking, investment management and consulting.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common Stock
offered hereby, all of the net proceeds of which will be received by the Selling
Stockholders.
SELLING STOCKHOLDERS
GENERAL
On March 27, 1997, the Company consummated a business combination (the
"Transaction") with Johnson & Higgins ("J&H"). In connection with the
Transaction, the Company issued and delivered approximately 5.47 million shares
of Common Stock to the Sellers (as defined below) as payment in part for the
sale by the Sellers of their shares of common stock of J&H to the Company, in
each case upon the terms set forth in the Stock Purchase Agreement, dated as of
March 12, 1997 and amended as of March 27, 1997, among J&H, the stockholders of
J&H listed on Annex A thereto (the "Sellers") and the Company. The Company also
issued and delivered approximately 1.61 million shares of its Common Stock to
certain living, former directors, and the estates of certain deceased, former
directors, of J&H (the "Retirees") with whom it entered into certain Retiree
Agreements. The Company entered into a Registration Rights Agreement, dated as
of March 12, 1997 and amended as of March 27, 1997, with the Sellers (the
"Registration Rights Agreement"), for their own benefit and the benefit of
holders from time to time of the Common Stock originally issued to the Sellers
and Retirees in connection with the Transaction (the "RRA Common Stock").
The Selling Stockholders consist of Sellers and Retirees who are entitled,
pursuant to the Registration Rights Agreement, to offer under this Prospectus
RRA Common Stock that is not subject to the contractual transfer restrictions
described below ("Freely Registrable RRA Common Stock").
IDENTITY OF SELLING STOCKHOLDERS AND THEIR BENEFICIAL OWNERSHIP OF COMMON STOCK
There are 94 Selling Stockholders who, in the aggregate, beneficially owned
approximately 7,088,000 shares of Common Stock on March 31, 1997 (which
constituted approximately 8.8% of the issued and outstanding Common Stock on
such date) and are offering hereby up to 3,438,360 such shares. Each Selling
Stockholder is a Seller or a Retiree and the number of shares of Common Stock
beneficially owned and offered hereby by each Selling Stockholder constituted
less than 0.5% of the issued and outstanding Common Stock on March 31, 1997.
Additional information about the Selling Stockholders participating in a
particular offering may be set forth in a Prospectus Supplement.
4
<PAGE>
THE REGISTRATION RIGHTS AGREEMENT
SHELF REGISTRATION. The Company has agreed in the Registration Rights
Agreement to file the registration statement of which this Prospectus forms a
part, to use its best efforts to cause such registration statement to be
declared effective under the Securities Act as soon as possible after its
initial filing date and to keep it continuously effective in order to permit
this Prospectus to be usable at all times during the period ending on the second
anniversary of the date on which such registration statement becomes effective
or such shorter period that will terminate when the RRA Common Stock is publicly
sold (the "Effectiveness Period").
UNDERWRITTEN OFFERING. The holders of 33% or more of the Freely Registrable RRA
Common Stock also have the right, subject to certain conditions, to cause the
Company to cooperate with up to two underwritten offerings for which it receives
requests during the Effectiveness Period.
TRANSFER RESTRICTIONS. Each Seller who is bound by the Registration Rights
Agreement has agreed with the Company not to sell or otherwise transfer (a)
during the period from the date of the closing of the Transaction to the first
anniversary thereof, more than one-third of the number of shares of common stock
he or she received as a Seller under the Stock Purchase Agreement at such
closing; and (b) during the period from the date of such closing to the second
anniversary thereof, more than two-thirds of the number of shares of common
stock he or she received as a Seller under the Stock Purchase Agreement at such
closing.
In addition, each Seller and Retiree who is bound by the Registration Rights
Agreement and does not participate in an underwritten offering pursuant thereto
has agreed with the Company to execute and deliver such reasonable and customary
lock-up agreements that the managing underwriters for such offering may advise
are necessary to facilitate it and that do not restrict dispositions of such
Seller's or Retiree's Common Stock for longer than 90 days.
The Retirees received RRA Common Stock that is not subject to contractual
transfer restrictions against resale other than the lock-up restriction
described above.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 206,000,000 shares of capital
stock, 200,000,000 of such shares being Common Stock, and 6,000,000 shares being
preferred stock, par value $1.00 per share ("Preferred Stock"). No shares of
Preferred Stock were issued or outstanding as of May 5, 1997.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held on all
matters to be voted upon by the stockholders of the Company. The holders of
outstanding shares of Common Stock, subject to any preferences that may be
applicable to any outstanding series of Preferred Stock, are entitled to receive
ratably such dividends out of assets legally available therefor at such times
and in such amounts as the Board of Directors may from time to time determine.
Upon liquidation or dissolution of the Company, the holders of the Common Stock
will be entitled to share ratably in the assets of the Company legally available
for distribution to stockholders after payment of liabilities and subject to the
prior rights of any holders of any Preferred Stock then outstanding. Holders of
the Common Stock generally have no conversion, sinking fund, redemption,
preemptive or subscription rights. In addition, the Common Stock does not have
cumulative voting rights. Shares of the Common Stock are not subject to further
calls or assessments by the Company.
PREFERRED STOCK
The Company is authorized to issue 6,000,000 shares of Preferred Stock, none of
which currently is issued or outstanding. The Board of Directors of the Company
has the authority, without further action by the stockholders, to issue shares
of Preferred Stock in one or more series and to fix the number of shares,
dividend rights, conversion rights, voting rights, redemption rights,
liquidation preferences, sinking funds, and any other rights, preferences,
privileges and restrictions applicable to each such series of Preferred Stock.
The holders of Preferred
5
<PAGE>
Stock will have the right to vote separately as a class on any proposal
involving fundamental changes in the rights of holders of such Preferred Stock
pursuant to the Delaware General Corporation Law (the "DGCL").
In connection with the Company's Stockholder Rights Plan (the "Rights Plan"),
the Board of Directors has authorized the issuance of up to 2,000,000 shares of
Series A Junior Participating Preferred Stock ("Series A Preferred Stock") upon
exercise of preferred stock purchase rights issued under the Rights Plan.
Reference is hereby made to the Company's Registration Statement on Form 8-A,
dated September 21, 1987, as amended by Amendments on Form 8, dated September
18, 1990 and February 19, 1991, which is incorporated by reference herein, for a
description of the preferred stock purchase rights attached to the Common Stock
and for a copy of the form of the Certificate of Designation that sets forth the
rights and preferences of the Series A Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION AND
BY-LAWS AND THE DELAWARE GENERAL CORPORATION LAW
CLASSIFIED BOARD OF DIRECTORS. The Company's Restated Certificate of
Incorporation (the "Certificate of Incorporation") provides for a Board of
Directors divided into three classes, each class to consist as nearly as
possible of one-third of the directors. Each director serves for a term of three
years and until his or her successor is elected and qualified. Pursuant to the
Certificate of Incorporation, the number of directors of the Company will be
fixed from time to time by the Board of Directors.
REMOVAL OF DIRECTORS BY STOCKHOLDERS. The DGCL provides that members of a
classified board of directors may only be removed for cause by the affirmative
vote of the holders of a majority of the outstanding shares of capital stock of
the Company entitled to vote on the election of such directors.
STOCKHOLDER NOMINATION OF DIRECTORS. The Company's Restated By-laws (the
"By-laws") provide that written notice must be given of any stockholder
nomination of a director not less than sixty nor more than ninety days prior to
the date of the meeting at which directors are to be elected; provided, that if
the date for such meeting is not the date set forth in the By-laws and less than
seventy five days' notice or prior public disclosure of the date for such
meeting is given to stockholders, then notice by a stockholder shall be timely
if received by the Company no later than fifteen days following the date such
public disclosure was made.
NO ACTION BY WRITTEN CONSENT. The Certificate of Incorporation provides that
stockholders of the Company may not act by written consent and may only act at
duly called meetings of such stockholders.
INTERESTED STOCKHOLDER PROVISION. Article EIGHTH of the Certificate of
Incorporation provides for higher stockholder voting requirements for certain
transactions (such as business combinations) with or otherwise involving an
Interested Stockholder (as defined below). Such a transaction requires the
approval of the holders of a majority of the Company's outstanding voting power,
voting together as a single class (but excluding any voting stock owned by an
Interested Stockholder), unless such transaction is approved by a majority of
Disinterested Directors (as defined below), in which case the voting
requirements of the DGCL, the Certificate of Incorporation and the Company's
By-laws otherwise applicable govern. Article EIGHTH does not alter the
additional requirements regarding class votes available to holders of Preferred
Stock, if any, which arise under the DGCL and the Certificate of Incorporation.
Transactions covered by Article EIGHTH include mergers of the Company or any of
its subsidiaries with an Interested Stockholder, sales of all or any substantial
part of the assets of the Company and its subsidiaries to an Interested
Stockholder, the issuance or delivery of any securities of the Company or any of
its subsidiaries to an Interested Stockholder, any loan, advance or guarantee,
pledge or other financial assistance provided by the Company or any of its
subsidiaries to the Interested Stockholder, any voluntary dissolution or
liquidation of the Company or amendment to the Company's By-laws, a
reclassification of securities or recapitalization of the Company or other
transaction (if such reclassification, recapitalization or other transaction
results in the Interested Stockholder increasing its proportionate share of any
class of the Company's capital stock) or any agreement, contract, or other
arrangement to do any of the foregoing.
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An "Interested Stockholder" is defined in Article EIGHTH as any other
corporation, person, or entity which (i) beneficially owns or controls, directly
or indirectly, 10% or more of the voting stock of the Company (or has announced
a plan or intention to acquire such securities), and any affiliate or associate
of such corporation, person, or entity or (ii) is an affiliate or associate of
the Company and at any time within two-years prior to the date in question was
the beneficial owner of 10% or more of the voting stock of the Company.
Specifically excluded from the definition of Interested Stockholder are (i) the
Company and any of its subsidiaries, and (ii) any profit-sharing, employee stock
ownership or other employee benefit plan of the Company or any subsidiary, or
trustees or fiduciaries for such.
A "Disinterested Director" is defined in Article EIGHTH as a director who is not
an affiliate, associate, representative, agent or employee of an Interested
Stockholder, and who was a member of the Board of Directors prior to the time
that the Interested Stockholder involved in the transaction being considered
became an Interested Stockholder, and any successor to a Disinterested Director,
while such successor is a member of the Board of Directors, who is not an
affiliate, associate, representative, agent or employee of an Interested
Stockholder and who was nominated by a majority of the Disinterested Directors.
Article EIGHTH may not be altered, amended, or repealed without the affirmative
vote of the holders of a majority of the Company's outstanding voting power,
voting together as a single class (but excluding any voting stock owned by an
Interested Stockholder), except if recommended by a majority of Disinterested
Directors, in which case the voting requirements of the DGCL, the Certificate of
Incorporation and the Company's By-laws otherwise applicable govern.
DELAWARE BUSINESS COMBINATION STATUTE. The Company is subject to Section 203 of
the DGCL ("Section 203"), which restricts certain transactions and business
combinations between a corporation and an "interested stockholder" (which is
generally defined by Section 203 to be a person owning 15% or more of the
corporation's outstanding voting stock) for a period of three years from the
date the stockholder becomes an interested stockholder. Subject to certain
exceptions, unless the transaction is approved by the Board of Directors and the
holders of at least two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder), Section 203
prohibits significant business transactions such as a merger with, disposition
of significant assets to or receipt of disproportionate financial benefits by
the interested stockholder, or any other transaction that would increase the
interested stockholder's proportionate ownership of any class or series of the
Company's capital stock. The statutory ban does not apply if: (i) prior to the
time that any stockholder became an interested stockholder, the Board of
Directors approved either the business combination or the transaction in which
such stockholder became an interested stockholder, or (b) upon consummation of
the transaction in which any stockholder becomes an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans).
DIRECTORS' LIABILITY
The Certificate of Incorporation provides that the Board of Directors may
eliminate in certain circumstances the liability of directors of the Company for
monetary damages for breach of their fiduciary duty of care as directors. This
provision does not abrogate the director's duty of care, nor does it eliminate
the liability of a director (i) for a breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions by the director
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under section 174 of the DGCL (relating to the declaration of
dividends and purchase or redemption of shares in violation of the DGCL), and
(iv) for transactions from which the director derived an improper personal
benefit.
The Certificate of Incorporation also provides for indemnification of directors
and officers to the fullest extent authorized by Delaware law.
TRANSFER AGENT AND REGISTRAR
Harris Trust Company of New York acts as transfer agent and registrar for the
Common Stock.
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PLAN OF DISTRIBUTION
The Selling Stockholders may sell the Common Stock being offered hereby directly
to other purchasers, or to or through underwriters, dealers or agents. To the
extent required, a Prospectus Supplement with respect to the Common Stock will
set forth the terms of the offering of the Common Stock, including the name(s)
of any underwriters, dealers or agents, the name(s) of the Selling Stockholders,
the number of shares of Common Stock to be sold, the price of the offered Common
Stock, any underwriting discounts or other items constituting underwriters'
compensation and any discounts or concessions allowed or reallowed or paid to
dealers.
The Common Stock offered hereby may be sold from time to time directly by the
Selling Stockholders or, alternatively, through underwriters, broker-dealers or
agents. Such Common Stock may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale or at negotiated prices. Such sales may be
effected in transactions (which may involve crosses or block transactions) (i)
on any national securities exchange or quotation service on which the Common
Stock may be listed or quoted at the time of sale, (ii) in the over-the-counter
market, (iii) in transactions otherwise than on such exchanges or services or in
the over-the-counter market or (iv) through the writing of options. In
connection with sales of the Common Stock offered hereby or otherwise, the
Selling Stockholders may enter into hedging transactions with broker-dealers,
which may in turn engage in short sales of such Common Stock in the course of
hedging the positions they assume. The Selling Stockholders may also sell the
Common Stock offered hereby short and deliver such Common Stock to close out
such short positions, or loan or pledge such Common Stock to broker-dealers that
in turn may sell such securities. The Common Stock offered hereby also may be
sold pursuant to Rule 144 under the Securities Act.
Any Selling Stockholder and any such underwriters, brokers, dealers or agents,
upon effecting the sale of the Common Stock, may be deemed "underwriters" as
that term is defined by the Securities Act.
The underwriter or underwriters with respect to a particular underwritten
offering of Common Stock will be named in the Prospectus Supplement relating to
such offering, and if an underwriting syndicate is used, the managing
underwriter or underwriters will be set forth on the cover of such Prospectus
Supplement. Unless otherwise set forth in the Prospectus Supplement, the
obligations of the underwriters to purchase the Common Stock will be subject to
certain conditions precedent and the underwriters will be obligated to purchase
all the Common Stock if any is purchased. Any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
If a dealer is utilized in the sale of any Common Stock in respect of which this
Prospectus is delivered, the Selling Stockholders may sell such Common Stock to
the dealer, as principal. The dealer may then resell such Common Stock to the
public at varying prices to be determined by such dealer at the time of resale.
To the extent required, the name of the dealer and the terms of the transaction
will be set forth in the Prospectus Supplement relating thereto.
In connection with the sale of the Common Stock offered hereby, underwriters or
agents may receive compensation from the Company, the Selling Stockholders or
from purchasers of such Common Stock for whom they may act as agents in the form
of discounts, concessions, or commissions. Underwriters, agents, and dealers
participating in the distribution of the Common Stock may be deemed to be
underwriters, and any such compensation received by them and any profit on the
resale of Common Stock by them may be deemed to be underwriting discounts or
commissions under the Securities Act.
The Common Stock is listed on the NYSE, the Pacific Stock Exchange, the Chicago
Stock Exchange and the London Stock Exchange. Any underwriters to whom Common
Stock is sold by the Selling Stockholders for public offering and sale may make
a market in such Common Stock, but such underwriters will not be obligated to do
so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for any Common
Stock.
The Selling Stockholders, agents, dealers, and underwriters may be entitled
under the Registration Rights Agreement or other agreements entered into with
the Company to indemnification by the Company against certain civil
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liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments that the Selling Stockholders, agents, dealers, or
underwriters may be required to make with respect thereto. Underwriters,
dealers, or agents and their associates may be customers of, engage in
transactions with and perform services for, the Company in the ordinary course
of business.
The Company has agreed to pay certain expenses in connection with the offering
contemplated hereby, including (i) registration and filing fees, (ii) fees and
expenses of providing certain information to the Sellers, (iii) fees and
expenses of compliance with securities or blue sky laws and (iv) fees and
expenses of preparing and delivering certificates representing the Common Stock.
In addition to such expenses, the Company has agreed to pay certain other
expenses customarily borne by issuers in the event of an underwritten offering
of Common Stock conducted pursuant to the Registration Rights Agreement,
including: (i) printing expenses, (ii) fees and disbursements of counsel for the
Company and its independent public accountants, and (iii) reasonable fees and
expenses of one counsel for the Selling Stockholders. The Selling Stockholders
participating in any underwritten offering shall be responsible for any
underwriting discounts and commissions and fees and, subject to clause (iii)
immediately above, expenses of their own counsel. Any Selling Stockholder may
agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the Common Stock against certain liabilities,
including liabilities arising under the Securities Act. The Company and the
Selling Stockholders have agreed to indemnify each other and certain other
persons against certain liabilities in connection with the offering of the
Common Stock including liabilities arising under the Securities Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements and supplemental notes of the Company and
its subsidiaries as of December 31, 1996 and 1995 and for each of the years in
the three year period ended December 31, 1996, included and incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated by reference into this Prospectus, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of J&H and its subsidiaries as of and for
the year ended December 31, 1996, included in the Company's Current Report on
Form 8-K filed with the Commission on April 7, 1997, and incorporated by
reference into this Prospectus, have been incorporated herein in reliance upon
the report of Arthur Andersen LLP, independent public accountants, included in
such Form 8-K and incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
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