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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
MARSH & MCLENNAN COMPANIES, INC.
1166 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036-2774
(212) 345-5000
COMMISSION FILE NUMBER 1-5998
STATE OF INCORPORATION: DELAWARE
I.R.S. EMPLOYER IDENTIFICATION NO. 36-2668272
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------- ---------------------------------------
Common Stock New York Stock Exchange
(par value $1.00 per share) Chicago Stock Exchange
Preferred Stock Purchase Rights Pacific Exchange
London Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/. No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of February 26, 1999, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $17,772,000,000.
As of February 26, 1999, there were outstanding 257,382,716 shares of common
stock, par value $1.00 per share, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
(ONLY TO THE EXTENT SET FORTH IN THE PART INDICATED)
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Parts I, II and
Annual Report to Stockholders for the year ended December 31, 1998........ IV
Notice of Annual Meeting of Stockholders and Proxy Statement dated
March 29, 1999.......................................................... Part III
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MARSH & MCLENNAN COMPANIES, INC.
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ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
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PART I
ITEM 1. BUSINESS.
Marsh & McLennan Companies, Inc. ("MMC"), 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 risk and
insurance services, investment management and consulting. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 27 through 35 of the Annual Report to Stockholders for the year ended
December 31, 1998 (the "1998 Annual Report"), which is incorporated herein by
reference, for a discussion of MMC's revenues and operating income by industry
segment for each of the last three fiscal years.
On September 4, 1998, MMC commenced a cash tender offer to acquire all of
the capital stock of Sedgwick Group plc ("Sedgwick") for a total cash
consideration of approximately $2.2 billion. The offer was declared
unconditional on November 3, 1998 and the compulsory acquisition of all
previously untendered Sedgwick shares was completed in February 1999. Sedgwick,
through its subsidiaries and affiliates, was one of the world's leading
insurance, reinsurance and consulting groups. It is anticipated that during 1999
the risk and insurance services business of Sedgwick will be combined with J&H
Marsh & McLennan and the employee benefits consulting business of Sedgwick Noble
Lowndes will be combined with that of William M. Mercer Companies LLC.
RISK AND INSURANCE SERVICES. MMC's risk and 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 provided by Marsh Inc. through its subsidiaries and affiliates
which include J&H Marsh & McLennan, Inc. and Sedgwick, each providing risk
management and insurance broking services, Guy Carpenter & Company, Inc., a
reinsurance intermediary, and Seabury & Smith, Inc., an insurance program
manager. In addition, Marsh & McLennan Capital, Inc. provides services
principally in connection with originating, structuring and managing insurance
and related industry investments.
MARSH INC. Marsh Inc., formed in connection with the planned integration of
J&H Marsh & McLennan, Inc. and Sedgwick, is a world leader in providing risk
management and insurance broking services. These services, carried on throughout
the world, are provided for a predominantly corporate clientele located in more
than 100 countries, primarily in North and South America, Europe and Asia
Pacific. Client companies are 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 professional, institutional and public entities
and individuals.
Such risk management and insurance broking services relate to 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 and risk transfer 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 worldwide, sometimes involving other intermediaries. Correspondent
relationships are maintained with unaffiliated firms in certain countries.
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Reinsurance broking services are provided to insurance and reinsurance risk
takers worldwide, principally by Guy Carpenter & Company, Inc. and its
subsidiaries and 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, including specialty
lines such as professional liability, medical malpractice, accident, life and
health. The intermediary assists the insurer by providing advice, placing
reinsurance coverage with reinsurance organizations located around the world,
placing risk-transfer financing with capital markets, 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 ago. The insurance company may seek
reinsurance or other risk-transfer financing on all or a portion 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, Inc. and its subsidiaries and 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 (both sponsored and non-sponsored) and their members,
principally 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 and wholesale broking services in
the United States and the United Kingdom for a broad range of products.
As part of the acquisition of Sedgwick, MMC acquired several insurance
companies that were in run-off and a Lloyd's members' agency.
MARSH & MCLENNAN CAPITAL, INC. Marsh & McLennan Capital, Inc. ("MMCAP")
provides services in connection with originating, structuring and managing
insurance and related industry investments. It is an advisor to The Trident
Partnership L.P., an independent private investment partnership formed in 1993
to make private equity investments in the global insurance and reinsurance
industry. MMCAP is also an advisor to Risk Capital Reinsurance Company, which
was formed in 1995 to provide reinsurance, both on a stand-alone basis and as
part of integrated capital solutions for insurance companies. MMCAP 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 Risk Capital Reinsurance Company. MMCAP 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 MMCAP. As a result
of the foregoing activities, subsidiaries and affiliates of MMC may have direct
or indirect investments in insurance and reinsurance companies, including
entities at Lloyd's, which are considered for client placements by MMC's
insurance and reinsurance brokerage businesses.
COMPENSATION FOR SERVICES. The revenue attributable to MMC's risk and
insurance services consists primarily of fees paid by clients; commissions and
fees paid by insurance and reinsurance companies; interest income on funds held
in a fiduciary capacity for others, such as premiums and claims proceeds;
placement services revenues or contingent fees earned from insurers; and
compensation for services provided in connection with the organization,
structuring and management of insurance and related industry investments,
including fees and dividends, as well as appreciation that has been realized on
sales of holdings in such entities.
Revenue generated by risk and insurance services is fundamentally derived
from the value of the service provided to clients and insurance markets, and is
affected by premium rate levels in the property and casualty insurance markets
and available insurance capacity, because compensation is frequently related to
the premiums paid by insureds. In many cases compensation may be negotiated in
advance based upon the estimated value of the services to be performed. Revenue
is also affected by fluctuations in the amount of risk retained by insurance and
reinsurance clients themselves and by insured values, the
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development of new products, markets and services, new and 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.
Revenue and fees also may be received from originating, structuring and
managing investments in insurers and related industry investments, and income
and proceeds also may be derived from investments made by MMC. Placement
services revenue and contingent fees 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 aggregate commissions paid by the
insurer for that business during specific periods, or the loss performance to
the insurer of that business.
Revenues vary from quarter to quarter as a result of the timing of policy
renewals, the net effect of new and lost business production and realizing on
investments, 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. In
some cases, compensation for brokerage or advisory services is paid directly as
a fee by the client. Occasionally, commissions are shared with other brokers
that have participated in placing insurance or servicing insureds.
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 MMC'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 vary from time to
time.
INVESTMENT MANAGEMENT. Investment management and related services are
provided by Putnam Investments, Inc. and its subsidiaries ("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.
INVESTMENT MANAGEMENT SERVICES. 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, and accounting and related services for a group of publicly-held
investment companies. As of December 31, 1998, there were 113 such funds (the
"Putnam Funds") registered under the Investment Company Act of 1940, including
16 closed-end investment companies whose shares are traded on various major
domestic stock exchanges. A number of the open-end funds serve as funding
vehicles 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 (both U.S. and non-U.S.)
and other domestic and foreign institutional accounts.
Substantially all of Putnam's assets under management are derived from U.S.
individuals and institutions. In recent years Putnam has been expanding its
international client base on a selective basis through joint ventures and the
development of products such as offshore funds. Many international markets are
well developed with many established investment management firms. It may be
difficult for Putnam to establish businesses whose profitability equals that of
its business in the U.S. where it is one of the market leaders. Putnam seeks to
manage the risks of international expansion by using joint ventures with
established firms in selected countries and otherwise carefully choosing which
markets to enter.
Assets managed by Putnam, on which management fees are based, were
approximately $294.4 billion and $235.1 billion as of December 31, 1998 and
1997, respectively. Mutual fund assets aggregated
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$221.5 billion at December 31, 1998 and $182.0 billion at December 31, 1997.
Assets under management at December 31, 1998 consisted of approximately 73%
equity securities and 27% fixed income products, invested both domestically and
globally.
Putnam's revenues are derived primarily from its investment management fees
received from the Putnam Funds and institutional accounts. Assets under
management and revenue levels are particularly 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 the prices of
stocks will have an effect on equity assets under management and may influence
the flow of monies to and from equity funds and accounts. Fluctuations in
interest rates and in the yield curve have a similar effect on fixed income
assets under management and may influence the flow of monies to and from
fixed-income funds and accounts. Putnam offers investment products that allow
investors to diversify between stocks and bonds, domestically and
internationally.
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 MMC. The
management of Putnam and the trustees of the 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.
In recent years U.S. securities markets, especially equity markets, have
risen substantially, in many cases to historical highs. This increase has
contributed significantly to the assets under management and, accordingly, to
increases in revenues. A substantial slowdown in the rise of markets or an
actual decrease in general market levels will reduce revenue growth or, in some
circumstances, could lead to a decline in revenue.
PUTNAM FIDUCIARY TRUST COMPANY. A Putnam subsidiary, Putnam Fiduciary Trust
Company, a Massachusetts trust company, serves as transfer agent, dividend
disbursing agent, registrar and custodian for the Putnam Funds and provides
custody 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 usually selected by the plan
sponsors and may include Putnam mutual funds and other Putnam managed products,
as well as employer stock and other non-Putnam investments.
PUTNAM MUTUAL FUNDS CORP. Putnam Mutual Funds Corp., a Putnam subsidiary,
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 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 only if the shares are redeemed
within a
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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 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 Putnam Mutual Funds Corp., 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 Mutual Funds Corp. as compensation for the costs of
distribution and other 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. The
Trustees also have the ability to reduce the level of 12b-1 fees paid by a fund
or to make other changes that would reduce the amount of 12b-1 fees received by
Putnam. Such changes could have a material adverse effect on Putnam.
Putnam provides investor services through three separate facilities in the
Boston area and has one of the largest image processing facilities in the world.
CONSULTING. Through Mercer Consulting Group, Inc., subsidiaries and
affiliates of MMC, separately and in collaboration, provide consulting services
to a predominantly corporate clientele from locations around the world, 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. Mercer Consulting Group, Inc. also provides
economic consulting and analysis.
William M. Mercer Companies LLC ("William M. Mercer"), through its
subsidiaries and affiliates including Sedgwick Noble Lowndes, provides
professional advice and services to corporate, government and institutional
clients from offices in more than 30 countries and territories, primarily in
North and South America, Western Europe, Asia, Australia and New Zealand.
Consultants help organizations 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. Through its investment
consultants, the firm assists trustees of pension funds and others in the
selection of investment managers and investment strategies. William M. Mercer
also advises investment managers on fund design and positioning. In certain
locations outside the United States, William M. Mercer advises individuals in
the investment and disposition of lump sum retirement benefits and other
retirement savings and provides related trustee services.
Mercer Management Consulting, Inc. 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 Management Consulting,
Inc. advises leading corporations on issues relating to brand, corporate
identity and image.
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National Economic Research Associates, Inc. ("NERA"), a firm of consulting
economists, serves law firms, corporations, trade associations and governmental
agencies, from offices in the United States, Australia, 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 Consulting Group's revenue is fees paid by
clients for advice and services. In addition, commission revenue is received
from insurance companies for the placement of individual and group insurance
contracts, primarily life, health and accident coverages. A relatively small
amount of revenue is derived from brokerage commissions in connection with a
registered securities broker dealer.
Revenue in the consulting business is fundamentally derived from the value
of the advice and services provided to clients. It 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 employee
demographics and in the management of large organizations.
REGULATION. The activities of MMC 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 MMC's
subsidiaries operate. These laws and regulations are primarily intended to
benefit clients.
MMC'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. MMC 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, MMC 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 MMC 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 MMC's risk and insurance services,
investment management or consulting activities can continue to be conducted in
any given jurisdiction as in the past.
RISK AND 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 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 MMC's risk and
insurance activities are governed by the rules of the Lloyd's insurance market
in London and self-regulatory organizations in the United Kingdom and in other
jurisdictions, as well as securities and futures licensing authorities. A few
jurisdictions issue licenses only to individual residents or locally-owned
business entities. In some of these jurisdictions, if MMC has no licensed
subsidiary, MMC 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.
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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 interest.
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 are material to
the consulting activities of MMC's subsidiaries in the aggregate nor apply to
that activity in general; however, the subject matter of certain consulting
services is subject to regulation. For example, employee benefit plans are
subject to various governmental regulations, and services related to brokerage
activities, trustee services, investment matters (including advice to
individuals on the investment of personal pension assets) and the placing of
individual and group insurance contracts subject MMC's subsidiaries to
insurance, investment or securities regulations and licensing in various
jurisdictions.
COMPETITIVE CONDITIONS. Principal methods of competition in risk and
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.
RISK AND INSURANCE SERVICES. The insurance and reinsurance broking services
business of MMC is believed to be among the largest of its type in the world.
MMC encounters strong competition in the risk and 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, the European Union and in other countries and regions, from
insurance and reinsurance companies that market and service their insurance
products without the assistance of brokers or agents and from other businesses,
including commercial and investment banks, accounting firms and consultants that
provide risk-related services and products.
Certain insureds and groups of insureds have established programs of self
insurance (including captive insurance companies), as a supplement or
alternative to third-party insurance, thereby reducing in some cases the need
for insurance placements. 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 Investments 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
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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 Consulting Group, 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, and financial services firms, some of which
provide administrative or consulting services as an adjunct to other primary
services.
SEGMENTATION OF ACTIVITY BY TYPE OF SERVICE AND GEOGRAPHIC AREA OF
OPERATION. Financial information relating to the types of services provided by
MMC and the geographic areas of its operations is incorporated herein by
reference to Note 16 of the Notes to Consolidated Financial Statements on pages
53 and 54 of the 1998 Annual Report. MMC's non-U.S. operations are subject to
the customary risks involved in doing business in other countries, including
currency fluctuations and exchange controls.
EMPLOYEES. As of December 31, 1998, MMC and its consolidated subsidiaries
employed about 54,300 people worldwide, of whom approximately 34,900 were
employed by subsidiaries providing risk and insurance services, approximately
5,300 were employed by subsidiaries providing investment management services,
approximately 13,700 were employed by subsidiaries providing consulting
services, and approximately 400 were employed by MMC.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS. This report and MMC's
financial statements and other documents incorporated herein by reference
contain certain statements relating to future results, which are forward-looking
statements as that term is defined in the Private Securities Litigation Reform
Act of 1995. Such statements may include, without limitation, discussions
concerning revenue and expense growth, cost savings and efficiencies expected
from the integration of Johnson & Higgins and Sedgwick Group plc, year 2000
remediation and testing of computer systems, market and industry conditions,
interest rates, foreign exchange rates, contingencies and matters relating to
MMC's operations and income taxes. Such forward-looking statements are based on
available current market and industry materials, expert's reports and opinions,
as well as management's expectations concerning future events impacting MMC.
Forward looking statements by their very nature involve risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by any forward looking statements contained or incorporated herein
include, in the case of MMC's risk and insurance services and consulting
businesses, the failure to successfully integrate the business of Johnson &
Higgins and Sedgwick Group plc (including the achievement of synergies and cost
reductions) or other adverse consequences from those transactions in the case of
MMC's risk and insurance service business, changes in competitive conditions, a
decrease in the premium rate levels in the global property and casualty
insurance markets, the impact of changes in insurance markets and natural
catastrophes; in the
8
<PAGE>
case of MMC's investment management business, changes in worldwide and national
equity and fixed income markets; and with respect to all of MMC's activities,
the failure of MMC and/or its significant business partners to be year 2000
compliant on a timely basis, changes in general worldwide and national economic
conditions, fluctuations in foreign currencies, actions of competitors or
regulators, changes in interest rates, developments relating to claims and
lawsuits, changes in the tax or accounting treatment of MMC's operations and the
impact of tax and other legislation and regulation in the jurisdictions in which
MMC operates. A description of certain of these factors is included elsewhere in
this Annual Report and are incorporated herein by reference.
ITEM 2. PROPERTIES.
MMC and four of its subsidiaries, as tenants in common, own a 56%
condominium interest in a 44-story building in New York City which serves as
their worldwide headquarters and have entered into a contract to purchase an
additional six floors, subject to certain regulatory and other conditions. If
there is a failure of any condition, seller has agreed to lease the space to
MMC.
The principal offices of MMC's risk and insurance services subsidiaries in
the UK are located on the eastern side of the City of London in The Sedgwick
Centre. This freehold building, owned by a subsidiary of MMC, comprises 360,000
square feet containing offices located around a central atrium, and ancillary
facilities including a shopping mall.
The remaining business activities of MMC and its subsidiaries are conducted
principally in leased office space in cities throughout the world. In general,
no difficulty is anticipated in negotiating renewals as leases expire or in
finding other satisfactory space if the premises become unavailable. From time
to time, MMC may have unused space and may seek to sublet such space to third
parties, depending upon the demands for office space in the locations involved.
On June 30, 1998, MMC sold a 37.58% condominium interest in a 40 story
building in New York City, which it had acquired in the business combination
with Johnson & Higgins.
ITEM 3. LEGAL PROCEEDINGS.
MMC and its subsidiaries are subject to various claims and lawsuits
consisting principally of alleged errors and omissions in connection with the
placement of insurance or reinsurance and in rendering investment and consulting
services. Some of these claims and lawsuits seek damages, including punitive
damages, in amounts which could, if assessed, be significant.
On November 24, 1997, an action captioned "AIENA, ET AL. V. OLSEN, ET AL."
("Aiena") was brought in the United States District Court for the Southern
District of New York by certain former directors of Johnson & Higgins ("J&H"),
which was acquired by MMC in March 1997, against twenty-four selling
shareholders of J&H, as well as J&H itself and MMC. The action essentially
challenges the allocation of the consideration paid in connection with MMC's
combination with J&H as between the defendants who were directors and
shareholders of J&H at the time of the transaction and the plaintiffs who were
former directors and shareholders of J&H. The complaint asserts, among others,
claims for breach of fiduciary duty, federal securities law violations, breach
of contract, and ERISA violations. Plaintiffs seek compensatory and punitive
damages. Two other former directors of J&H have commenced similar actions
(SEMPIER V. OLSEN ET AL.; and CLEMENTS V. OLSEN ET AL.), which are also pending
before the United States District Court for the Southern District of New York
and are contemplated to be heard together with the Aiena action.
In 1993, several years prior to the acquisition of J&H, the Equal Employment
Opportunity Commission ("EEOC") commenced a lawsuit against J&H in the United
States District Court for the Southern District of New York. The action alleges
that a mandatory retirement policy for directors then in effect at J&H violated
the federal Age Discrimination in Employment Act ("ADEA"). In 1995, the District
Court ruled in the EEOC's favor that the J&H mandatory retirement policy
violated the ADEA. The Court of
9
<PAGE>
Appeals for the Second Circuit affirmed that ruling in 1996. The EEOC seeks to
recover damages on behalf of certain former directors and a trial on the matter
of damages, unless the action is resolved, may be held later in 1999. Pursuant
to the Stock Purchase Agreement between MMC and J&H and the stockholders of J&H,
MMC will bear one-half of all damages and expenses in this action.
Sedgwick Group plc, since prior to its acquisition, has been engaged in a
review of previously undertaken personal pension plan business as required by
United Kingdom regulators to determine whether redress should be made to
customers. Settlements and related costs previously paid amount to $80 million
of which $30 million is due from insurers. The contingent exposure of Sedgwick
for pension redress and related costs as of Sedgwick's acquisition by MMC is
estimated to be $220 million. Sedgwick had recorded $150 million of reserves and
recognized approximately $70 million of insurance recoveries related to this
exposure.
Other present and former subsidiaries of MMC are engaged in a comparable
review of their personal pension plan businesses, although the extent of their
activity in this area, and consequently their financial exposure, was
proportionally much less than Sedgwick. The contingent exposure of the present
and former non-Sedgwick subsidiaries of MMC for pension redress and related
costs is estimated to be approximately $135 million. Approximately $100 million
of this amount is expected to be recovered from insurers and accounting reserves
have been provided for the remaining balance. Settlements and related costs
previously paid total approximately $15 million.
MMC's ultimate exposure from the United Kingdom's personal pension plan
review, as presently calculated and including Sedgwick, is subject to a number
of variable factors including, among others, equity markets, the rate of
response to the pension review mailings, the interest rate established quarterly
by the U.K. Pension Investment Authority for calculating compensation, and the
precise scope, duration, and methodology of the review as required by that
Authority.
On the basis of present information, anticipated insurance coverage and
advice received from counsel, it is the opinion of MMC's management that the
disposition or ultimate determination of these claims, lawsuits and proceedings
will not have a material adverse effect on MMC's consolidated results of
operations or its consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
10
<PAGE>
PART II
ITEM 5. MARKET FOR MMC'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market and dividend information regarding MMC's common stock on page 56 of
the 1998 Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data on page 57 of the 1998 Annual Report are
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information on pages 27 through 35 of the 1998 Annual Report is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information under the heading "Market Risk" on pages 33 and 34 of the 1998
Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements and the Report of Independent Auditors
thereto on pages 36 through 55 of the 1998 Annual Report and Selected Quarterly
Financial Data (Unaudited) on page 56 of the 1998 Annual Report are incorporated
herein by reference. Supplemental Notes to Consolidated Financial Statements are
included on page 18 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF MMC.
Information as to the directors of MMC is incorporated herein by reference
to the material under the heading "Directors" in the Notice of Annual Meeting of
Stockholders and Proxy Statement dated March 29, 1999 (the "1999 Proxy
Statement").
The executive officers of MMC as of March 24, 1999 are Messrs. Barham,
Borelli, Coster, Greenberg, Lasser, Sinnott, Smith and White-Cooper, with
respect to whom information is incorporated herein by reference to the 1999
Proxy Statement, and:
Francis N. Bonsignore, age 52, has been Senior Vice President--Human
Resources & Administration of MMC since 1990. Immediately prior thereto, he
was partner and National Director-- Human Resources for Price Waterhouse.
Gregory F. Van Gundy, age 53, is Secretary and General Counsel of MMC.
He joined MMC in 1974.
ITEM 11. EXECUTIVE COMPENSATION.
Information under the headings "Executive Compensation", "Compensation
Committee Report" and "Comparison of Cumulative Total Stockholder Return" in the
1999 Proxy Statement is incorporated herein by reference.
11
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information under the heading "Security Ownership" in the 1999 Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information under the headings "Employment Agreements" and "Transactions
with Management and Others; Other Information" in the 1999 Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
<TABLE>
<C> <S>
1. Consolidated Financial Statements (incorporated herein by reference to pages
36 through 54 of the 1998 Annual Report):
Consolidated Statements of Income for the three years ended December 31,
1998
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the three years ended December
31, 1998
Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1998
Notes to Consolidated Financial Statements
Report of Independent Auditors
Supplemental Notes to Consolidated Financial Statements
Report of Independent Auditors
Other:
Selected Quarterly Financial Data and Supplemental Information
(Unaudited) for the three years ended December 31, 1998 (incorporated
herein by reference to page 56 of the 1998 Annual Report)
Five-Year Statistical Summary of Operations (incorporated herein by
reference to page 57 of the 1998 Annual Report)
2. All required Financial Statement Schedules are included in the Consolidated
Financial Statements, the Notes to Consolidated Financial Statements or the
Supplemental Notes to Consolidated Financial Statements.
3. The following exhibits are filed as a part of this report:
(3.1) --the registrant's restated certificate of incorporation (incorporated by
reference to the registrant's Annual Report on Form 10-K for the year
ended December 31, 1997)
(3.2) --the registrant's by-laws
(10.1) --Stock Purchase Agreement, dated as of March 12, 1997, by and among the
registrant, Johnson & Higgins and the stockholders of Johnson & Higgins
(incorporated by reference to the registrant's Current Report on Form 8-K
dated March 14, 1997)
</TABLE>
12
<PAGE>
<TABLE>
<C> <S>
(10.2) --First Amendment to the Stock Purchase Agreement, dated as of March 27,
1997 by and among the registrant, Johnson & Higgins and the stockholders
of Johnson & Higgins (incorporated by reference to the registrant's
Current Report on Form 8-K dated April 7, 1997)
(10.3)* --Marsh & McLennan Companies, Inc. 1997 Senior Executive Incentive and Stock
Award Plan (incorporated by reference to the registrant's Annual Report on
Form 10-K for the year ended December 31, 1996)
(10.4)* --Marsh & McLennan Companies, Inc. Restricted Shares Voluntary Deferral
Program for U.S. Employees (incorporated by reference to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1995)
(10.5)* --Marsh & McLennan Companies Stock Investment Supplemental Plan
(incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1994)
(10.6)* --Amendment to Marsh & McLennan Companies Stock Investment Supplemental Plan
dated June 16, 1997 (incorporated by reference to the registrant's Annual
Report on Form 10-K for the year ended December 31, 1997)
(10.7)* --Marsh & McLennan Companies Special Severance Pay Plan (incorporated by
reference to the registrant's Annual Report on Form 10-K for the year
ended December 31, 1996)
(10.8)* --Putnam Investments, Inc. Executive Deferred Compensation Plan
(incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1994)
(10.9)* --Marsh & McLennan Companies Supplemental Retirement Plan (incorporated by
reference to the registrant's Annual Report on Form 10-K for the year
ended December 31, 1992)
(10.10)* --Marsh & McLennan Companies Senior Management Incentive Compensation Plan
(incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1994)
(10.11)* --Marsh & McLennan Companies, Inc. U.S. Employee 1998 Cash Bonus Award
Voluntary Deferral Plan
(10.12)* --Marsh & McLennan Companies, Inc. Canadian Employee 1998 Cash Bonus Award
Voluntary Deferral Plan
(10.13)* --Marsh & McLennan Companies, Inc. Directors Stock Compensation Plan (as
amended and restated 6/27/97) (incorporated by reference to the
registrant's Annual Report on Form 10-K for the year ended December 31,
1997)
(10.14)* --Employment Agreement between Jeffrey W. Greenberg and Marsh & McLennan
Capital, Inc. and related Guaranty of the registrant (incorporated by
reference to the registrant's Annual Report on Form 10-K for the year
ended December 31, 1995)
(10.15)* --Employment Agreement between Lawrence J. Lasser and Putnam Investments,
Inc. effective as of December 31, 1997 (incorporated by reference to the
registrant's Annual Report on Form 10-K for the year ended December 31,
1997)
(10.16)* --Marsh & McLennan Capital, Inc. Long Term Incentive Plan
</TABLE>
13
<PAGE>
<TABLE>
<C> <S>
(10.17)* --Letter Agreement with respect to the Employment Agreement between Jeffrey
W. Greenberg and Marsh & McLennan Capital, Inc. and related Guaranty of
the registrant
(13) --Annual Report to Stockholders for the year ended December 31, 1998, to be
deemed filed only with respect to those portions which are expressly
incorporated by reference
(21) --list of subsidiaries of the registrant (as of 2/28/99)
(23) --consent of independent auditors
(24) --powers of attorney
(27) --Financial Data Schedule (filed with SEC for EDGAR purposes only)
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) Two reports on Form 8-K were filed by the registrant in the fiscal
quarter ended December 31, 1998. On November 12, 1998 and December 23,
1998, respectively, the registrant filed a report on Form 8-K (i)
announcing that the tender offer to acquire all of the issued and
unissued share capital of Sedgwick Group plc ("Sedgwick") was declared
unconditional in all respects on November 3, 1998 and (ii) disclosing
certain historical financial statements for Sedgwick and pro forma
financial information for the registrant giving effect to the Sedgwick
acquisition.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
this 31st day of March, 1999 on its behalf by the undersigned, thereunto duly
authorized.
MARSH & MCLENNAN COMPANIES, INC.
By /s/ A.J.C. SMITH
-----------------------------------------
A.J.C. Smith
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated this 31st day of March, 1999.
<TABLE>
<S> <C>
/s/ A.J.C. SMITH *
- ------------------------------------------- -------------------------------------------
A.J.C. Smith Norman Barham
Director, Chairman of the Board and Director
Chief Executive Officer
/s/ FRANK J. BORELLI *
- ------------------------------------------- -------------------------------------------
Frank J. Borelli Lewis W. Bernard
Senior Vice President and Director
Chief Financial Officer, Director
/s/ DOUGLAS C. DAVIS *
- ------------------------------------------- -------------------------------------------
Douglas C. Davis Peter Coster
Vice President and Controller Director
(Chief Accounting Officer)
* *
- ------------------------------------------- -------------------------------------------
Robert F. Erburu David A. Olsen
Director Director
* *
- ------------------------------------------- -------------------------------------------
Jeffrey W. Greenberg John D. Ong
Director Director
* *
- ------------------------------------------- -------------------------------------------
Ray J. Groves George Putnam
Director Director
* *
- ------------------------------------------- -------------------------------------------
Stephen R. Hardis Saxon Riley
Director Director
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
* *
- ------------------------------------------- -------------------------------------------
Gwendolyn S. King Adele Smith Simmons
Director Director
* *
- ------------------------------------------- -------------------------------------------
The Rt. Hon. Lord Lang Of Monkton John T. Sinnott
Director Director
* *
- ------------------------------------------- -------------------------------------------
Lawrence J. Lasser Frank J. Tasco
Director Director
*
-------------------------------------------
W.R.P. White-Cooper
Director
</TABLE>
- ------------------------
* Gregory F. Van Gundy, pursuant to Powers of Attorney executed by each of the
individuals whose name is followed by an (*) and filed herewith, by signing
his name hereto does hereby sign and execute this Form 10-K of Marsh &
McLennan Companies, Inc. on behalf of such individual in the capacities in
which the names of each appear above.
/s/ GREGORY F. VAN GUNDY
---------------------------------------------
GREGORY F. VAN GUNDY
16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
Marsh & McLennan Companies, Inc.:
We have audited the consolidated balance sheets of Marsh & McLennan
Companies, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998, and have
issued our report thereon dated March 5, 1999; such financial statements and
report are included in your 1998 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the supplemental
notes to the consolidated financial statements (the "Supplemental Notes") listed
in Item 14. These Supplemental Notes are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such Supplemental Notes, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
March 5, 1999
17
<PAGE>
MARSH & MCLENNAN COMPANIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. INFORMATION CONCERNING MMC'S VALUATION ACCOUNTS FOLLOWS:
An analysis of the allowance for doubtful accounts for the three years ended
December 31, 1998 follows (in millions of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
----- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year.................................. $ 53 $ 43 $ 54
Provision charged to operations............................... 19 8 10
Accounts written-off, net of recoveries....................... (5) (4) (10)
Effect of exchange rate changes............................... 2 (1) 1
Other (A)..................................................... 29 7 (12)
--- --- ---
Balance at end of year........................................ $ 98 $ 53 $ 43
--- --- ---
--- --- ---
</TABLE>
- ------------------------
(A) Relates primarily to the acquisitions of Sedgwick and Johnson & Higgins in
1998 and 1997, respectively and the sale of Frizzell in 1996.
An analysis of the valuation allowance for certain foreign deferred tax
assets as of December 31, 1998, 1997 and 1996 follows (in millions of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
---- ----- ------
<S> <C> <C> <C>
Balance at beginning of year...................... -- $ 27 $ 25
Effect of exchange rate changes................... -- -- 2
Other............................................. -- (27)(A) --
---- ----- ------
Balance at end of year............................ $-- $-- $ 27(B)
---- ----- ------
---- ----- ------
</TABLE>
- ------------------------
(A) Reflects the write-off of the underlying tax assets, since it was determined
that MMC will not realize any future tax benefit.
(B) Included in other liabilities in the Consolidated Balance Sheets.
17. AN ANALYSIS OF INTANGIBLE ASSETS AT DECEMBER 31, 1998 AND 1997 FOLLOWS (IN
MILLIONS OF DOLLARS):
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Goodwill..................................... $ 4,965 $ 2,509
Other intangible assets...................... 141 105
---------- --------
Subtotal................................... 5,106 2,614
Less--accumulated amortization............... (280) (197)
---------- --------
Total.................................... $ 4,826(A) $ 2,417
---------- --------
---------- --------
</TABLE>
- ------------------------
(A) The increase from December 31, 1997 is primarily due to the acquisition of
Sedgwick ($2.0 billion).
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
(3.1) --the registrant's restated certificate of incorporation (incorporated by reference
to the registrant's Annual Report on Form 10-K for the year ended December 31,
1997)
(3.2) --the registrant's by-laws
(10.1) --Stock Purchase Agreement, dated as of March 12, 1997, by and among the registrant,
Johnson & Higgins and the stockholders of Johnson & Higgins (incorporated by
reference to the registrant's Current Report on Form 8-K dated March 14, 1997)
(10.2) --First Amendment to the Stock Purchase Agreement, dated as of March 27, 1997 by and
among the registrant, Johnson & Higgins and the stockholders of Johnson & Higgins
(incorporated by reference to the registrant's Current Report on Form 8-K dated
April 7, 1997)
(10.3)* --Marsh & McLennan Companies, Inc. 1997 Senior Executive Incentive and Stock Award
Plan (incorporated by reference to the registrant's Annual Report on Form 10-K for
the year ended December 31, 1996)
(10.4)* --Marsh & McLennan Companies, Inc. Restricted Shares Voluntary Deferral Program for
U.S. Employees (incorporated by reference to the registrant's Annual Report on
Form 10-K for the year ended December 31, 1995)
(10.5)* --Marsh & McLennan Companies Stock Investment Supplemental Plan(incorporated by
reference to the registrant's Annual Report on Form 10-K for the year ended
December 31, 1994)
(10.6)* --Amendment to the Marsh & McLennan Companies Stock Investment Supplemental Plan
dated June 16, 1997 (incorporated by reference to the registrant's Annual Report
on Form 10-K for the year ended December 31, 1997)
(10.7)* --Marsh & McLennan Companies Special Severance Pay Plan (incorporated by reference
to the registrant's Annual Report on Form 10-K for the year ended December 31,
1996)
(10.8)* --Putnam Investments, Inc. Executive Deferred Compensation Plan (incorporated by
reference to the registrant's Annual Report on Form 10-K for the year ended
December 31, 1994)
(10.9)* --Marsh & McLennan Companies Supplemental Retirement Plan (incorporated by reference
to the registrant's Annual Report on Form 10-K for the year ended December 31,
1992)
(10.10)* --Marsh & McLennan Companies Senior Management Incentive Compensation Plan
(incorporated by reference to the registrant's Annual Report on Form 10-K for the
year ended December 31, 1994)
(10.11)* --Marsh & McLennan Companies, Inc. U.S. Employee 1998 Cash Bonus Award Voluntary
Deferral Plan
(10.12)* --Marsh & McLennan Companies, Inc. Canadian Employee 1998 Cash Bonus Award Voluntary
Deferral Plan
(10.13)* --Marsh & McLennan Companies, Inc. Directors Stock Compensation Plan (as amended and
restated 6/27/97) (incorporated by reference to the registrant's Annual Report on
Form 10-K for the year ended December 31, 1997)
(10.14)* --Employment Agreement between Jeffrey W. Greenberg and Marsh & McLennan Capital
Inc. and related Guaranty of the registrant (incorporated by reference to the
registrant's Annual Report on Form 10-K for the year ended December 31, 1995)
</TABLE>
19
<PAGE>
<TABLE>
<C> <S>
(10.15)* --Employment Agreement between Lawrence J. Lasser and Putnam Investments, Inc.
effective as of December 31, 1997 (incorporated by reference to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1997)
(10.16)* --Marsh & McLennan Capital, Inc. Long Term Incentive Plan
(10.17)* --Letter Agreement with respect to the Employment Agreement between Jeffrey W.
Greenberg and Marsh & McLennan Capital, Inc. and related Guaranty of the
registrant
(13) --Annual Report to Stockholders for the year ended December 31, 1998, to be deemed
filed only with respect to those portions which are expressly incorporated by
reference
(21) --list of subsidiaries of the registrant (as of 2/28/99)
(23) --consent of independent auditors
(24) --powers of attorney
(27) --Financial Data Schedule (filed with SEC for EDGAR purposes only)
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
20
<PAGE>
Exhibit 3.2
BY-LAWS
OF
MARSH & McLENNAN COMPANIES, INC.
RESTATED AS LAST AMENDED
JANUARY 21, 1999
<PAGE>
I N D E X
- - - - -
Page Number
-----------
ARTICLE I
Offices............................................. 1
ARTICLE II
Meetings of the Stockholders........................ 1
ARTICLE III
Directors........................................... 9
ARTICLE IV
Officers............................................ 11
ARTICLE V
Committees.......................................... 15
ARTICLE VI
Indemnification..................................... 20
ARTICLE VII
Checks, Contracts, Other Instruments................ 26
ARTICLE VIII
Capital Stock....................................... 26
ARTICLE IX
Miscellaneous....................................... 29
ARTICLE X
Amendments.......................................... 30
<PAGE>
BY-LAWS
OF
MARSH & McLENNAN COMPANIES, INC.
ARTICLE I
Offices
The principal office of the Corporation in Delaware shall be at Corporation
Trust Center, 1209 Orange Street, in the City of Wilmington, County of New
Castle, in the State of Delaware, and The Corporation Trust Company shall be the
resident agent of the Corporation in charge thereof. The Corporation may also
have such other offices at such other places as the Board of Directors may from
time to time designate or the business of the Corporation may require.
ARTICLE II
Meetings of the Stockholders
SECTION 1. Place of Meetings. Meetings of the stockholders may be held at
such place as the Board of Directors may determine.
SECTION 2. Annual Meetings. The annual meeting of the stockholders shall be
held on the third Thursday of May in each year, or such other day in May as may
be determined from time to time by the Board of Directors, at such time and
place as the Board of Directors may designate. At said meeting the stockholders
shall elect a Board of Directors and transact any other business authorized or
required to be transacted by the stockholders.
<PAGE>
SECTION 3. Special Meetings. Special meetings of the stockholders, except
as otherwise provided by law, shall be called by the Chairman of the Board, or
whenever the Board of Directors shall so direct, the Secretary.
SECTION 4. Notice of Meetings. Except as otherwise provided by law, written
or printed notice stating the place, day and hour of the meeting, and in the
case of a special meeting the purpose or purposes for which the meeting is
called, shall be delivered personally or mailed, postage prepaid, at least ten
(10) days but not more than sixty (60) days before such meeting to each
stockholder at such address as appears on the stock books of the Corporation.
SECTION 5. Fixing of Record Date. In order to determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, and no more than sixty (60) days prior to any other
action.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close
<PAGE>
of business on the day next preceding the day on which notice of the meeting is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, and such date for any other
purpose shall be the date on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. Quorum. The holders of a majority of the stock issued and
outstanding present in person or represented by proxy shall be requisite and
shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by law, by the Restated
Certificate of Incorporation or by these by-laws. If, however, such majority
shall not be present or represented at any meeting of the stockholders, the
stockholders present in person or by proxy shall have power to adjourn the
meeting from time to time without notice other than announcement at the meeting
until the requisite amount of stock shall be represented. At such adjourned
meeting at which the requisite amount of stock shall be represented, any
business may be transacted which might have been transacted at the meeting as
originally called.
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SECTION 7. Voting. Each stockholder entitled to vote in accordance with the
terms of the Restated Certificate of Incorporation and in accordance with the
provisions of these by-laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder, but no
proxy shall be voted after three years from its date unless such proxy provides
for a longer period. The vote for directors and, upon demand of any stockholder,
the vote upon any question before the meeting shall be by ballot. All elections
of directors shall be decided by plurality vote; all other questions shall be
decided by a majority of the shares present in person or represented by proxy at
the meeting of stockholders and entitled to vote on the subject matter, except
as otherwise provided in the Restated Certificate of Incorporation or by law or
regulation.
SECTION 8. Inspectors of Election. All elections of directors and all votes
where a ballot is required shall be conducted by two inspectors of election who
shall be appointed by the Board of Directors; but in the absence of such
appointment by the Board of Directors, the Chairman of the meeting shall appoint
such inspectors who shall not be directors or candidates for the office of
director.
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SECTION 9. Voting List. The Secretary shall prepare and make, at least ten
days before every election of directors, a complete list of the stockholders
entitled to vote, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in his name. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 10. Stockholder Nominations of Directors. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors at a meeting of stockholders. Nominations of persons for
election to the Board of Directors of the Corporation may be made at a meeting
of stockholders by or at the direction of the Board of Directors, by any person
appointed by the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 10. Such nominations, other than
those made by or at the direction of the Board of Directors
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or by any person appointed by the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary, Marsh & McLennan Companies, Inc. To
be timely, a stockholder's notice shall be delivered to or mailed and received
at the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that the meeting is not to be held on the date set forth in Article II, Section
2 and less than 75 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 15th day
following the day on which such public disclosure was made. Such stockholder's
notice to the Secretary shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
person and (iv) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice (i) the name and record address of the
stockholder and (ii) the class and number of shares of capital stock of the
Corporation which are
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beneficially owned by the stockholder. The Corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to serve as a
director of the Corporation. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the procedures
set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 11. Advance Notice of Stockholder Proposed Business at Annual
Meetings. At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, otherwise properly brought before the meeting by or at the direction
of the Board of Directors, or otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary, Marsh &
McLennan Companies,
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Inc. To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation, not less than 60
days nor more than 90 days prior to the meeting; provided, however, that in the
event that the meeting is not to be held on the date set forth in Article II,
Section 2 and less than 75 days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 15th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the stockholder
proposing such business, (iii) the class and number of shares of capital stock
of the Corporation which are beneficially owned by the stockholder and (iv) any
material interest of the stockholder in such business.
Notwithstanding anything in these by-laws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 11; provided, however, that nothing in this
Section 11
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shall be deemed to preclude discussion by any stockholder of any business
properly brought before the annual meeting in accordance with said procedure.
The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
ARTICLE III
Directors
SECTION 1. Powers, Number, Tenure, Qualifications and Compensation. The
business and affairs of the Corporation shall be managed by its Board of
Directors which shall consist of the number of members set forth in Article
FIFTH of the Restated Certificate of Incorporation, none of whom need be
stockholders, but no person shall be eligible to be nominated or elected a
director of the Corporation who has attained the age of 72 years. In addition to
the powers and duties by these by-laws expressly conferred upon them, the Board
of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Restated Certificate of
Incorporation or by these by-laws directed or required to be
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exercised or done by the stockholders. The Board of Directors may provide for
compensation of directors who are not otherwise compensated by the Corporation
or any subsidiary thereof.
SECTION 2. Meetings and Notice. The Board shall, for the purposes of
organization, the election and appointment of officers and the transaction of
other business, hold a meeting as soon as convenient after the annual meeting of
stockholders. Regular meetings of the directors may be held without notice at
such places and times as shall be determined from time to time by resolution of
the directors. Special meetings of the Board may be called by the Chairman of
the Board on at least twenty-four (24) hours' notice to each director,
personally or by mail or by telegram or by telephone. Special meetings shall
also be called in like manner on the written request of any three (3) directors.
The attendance of a director at any meeting shall dispense with notice to him of
the meeting. Members of the Board of Directors may participate in a meeting of
the Board by means of conference telephone or similar communications equipment,
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this section shall constitute
presence in person at such meeting.
SECTION 3. Offices, Books, Place of Meeting. The Board of Directors may
have one or more offices and keep the books of the Corporation outside of
Delaware, and may hold its meetings at such places as it may from time to time
determine.
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SECTION 4. Quorum. At all meetings of the Board of Directors one-third
(1/3) of the total number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute or by the Restated Certificate of Incorporation or by these by-laws.
SECTION 5. Informal Action. The Board of Directors shall, except as
otherwise provided by law, have power to act in the following manner: A
resolution in writing, signed by all of the members of the Board of Directors
shall be deemed to be action by such Board to the effect therein expressed with
the same force and effect as if the same had been duly passed at a duly convened
meeting, and it shall be the duty of the Secretary of the Corporation to record
any such resolution in the minute book of the Corporation, under its proper
date.
ARTICLE IV
Officers
SECTION 1. Election. The Board of Directors shall elect officers of the
Corporation, including a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary, a Treasurer and a Controller.
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SECTION 2. Term and Removal. The officers of the Corporation designated in
SECTION 1 of this Article IV, shall hold office for one year and until their
respective successors are chosen and qualify in their stead. Any officer may be
removed at any time, with or without cause, by the Board of Directors. An
officer appointed by the Executive Committee may also be removed at any time,
with or without cause by said Committee.
SECTION 3. Chairman of the Board. The Chairman of the Board of Directors
shall be the Chief Executive Officer of the Corporation and, subject to the
control of the Board of Directors, and of the committees exercising functions of
the Board of Directors, shall have general supervision over the business and
property of the Corporation. He shall preside at all meetings of the
stockholders and of the Board of Directors. He shall review and recommend to the
Board of Directors both short-term objectives and long-term planning for the
business. He shall also preside at meetings of any committee of which he is a
member which is not attended by the chairman of such committee. He or his
delegate may vote on behalf of the Corporation the shares owned by the
Corporation in other corporations in such manner as they deem advisable unless
otherwise directed by the Board of Directors. He shall have full authority to
take other
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action on behalf of the Corporation in respect of shares of stock in other
corporations owned by the Corporation, directly or indirectly, including the
obtaining of information and reports.
SECTION 4. President. Subject to the control of the Board of Directors, and
of the committees exercising functions of the Board of Directors, the President
shall assist the Chairman of the Board in the performance of his general duties
and perform such other duties as may from time to time be assigned to him by the
Chairman of the Board.
SECTION 5. Vice Presidents. The Vice President shall have such powers,
duties, supplementary titles and other designations as the Board of Directors
may from time to time determine.
SECTION 6. Secretary. The Secretary shall attend all meetings of the
stockholders and the Board of Directors. He shall, at the invitation of the
chairman thereof, attend meetings of the committees elected by the Board or
established by these by-laws. He shall record all votes and minutes of all
proceedings which he attends and receive and maintain custody of all votes and
minutes of all such proceedings. Votes and minutes of meetings of the
Compensation and Audit Committees shall be recorded and maintained as each such
committee shall determine. The Secretary shall give or cause to be given notice
of meetings of the stockholders, Board of Directors, and, when instructed to do
so by the Chairman thereof, committees of the Board of
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Directors, and shall have such other powers and duties as may be prescribed by
appropriate authority. The Secretary shall keep in safe custody the seal of the
Corporation and shall affix the seal to any instrument requiring the same. The
Assistant Secretaries shall have such powers and perform such duties as may be
prescribed by appropriate authority.
SECTION 7. Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall deposit all monies and other valuable effects in
the name and to the credit of the Corporation in such depositaries as may be
designated by, or in accordance with general policies adopted by, the Board of
Directors or Executive Committee. He shall disburse the funds of the Corporation
as may be ordered by the Chairman, the chief financial officer, the Board of
Directors or the Executive Committee, taking proper vouchers for such
disbursements, and shall render to the Chairman, the chief financial officer and
the Board of Directors whenever they may require it, an account of all his
transactions as Treasurer. He shall have such powers and perform such duties as
shall be assigned to him by appropriate authority. The Assistant Treasurers
shall have such powers and perform such duties as may be prescribed by the chief
financial officer or the Treasurer.
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SECTION 8. Controller. The Controller shall be the chief accounting officer
of the Corporation. He shall keep or cause to be kept all books of account and
accounting records of the Corporation and shall render to the Chairman, the
chief financial officer and the Board of Directors whenever they may require it,
a report of the financial condition of the Corporation. He shall have such other
powers and duties as shall be assigned to him by appropriate authority. The
Assistant Controllers shall have such powers and perform such duties as may be
prescribed by the chief financial officer or the Controller.
SECTION 9. Bond. The Board of Directors may, or the Chairman may, require
any officers, agents or employees of the Corporation to furnish bonds
conditioned on the faithful performance of their respective duties with a surety
company satisfactory to the Board of Directors or the Chairman as surety. The
expenses of such bond shall be paid by the Corporation.
ARTICLE V
Committees
SECTION 1. Executive Committee. An Executive Committee, composed of the
Chairman of the Board and such other directors as the Board of Directors may
determine from time to time shall be elected by the Board of Directors. Except
as provided hereinafter or in resolutions of the Board of Directors, the
Executive Committee shall have, and may exercise when the
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Board of Directors is not in session, all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. The Executive Committee shall not, however, have power or
authority in reference to (a) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the provisions of the
General Corporation Law of Delaware to be submitted to stockholders for
approval, (b) adopting, amending or repealing the by-laws of the Corporation,
(c) electing or appointing the Chairman of the Board of the Corporation or (d)
declaring a dividend.
SECTION 2. Compensation Committee. A Compensation Committee, including a
chairman, having such number of directors as the Board of Directors shall
determine from time to time, shall be elected by the Board of Directors. No
member of the Compensation Committee while holding such office and within the
previous year shall, in addition to usual compensation as a director, receive or
be granted or be eligible for any award or any other benefit under any
compensation, stock option or other benefit plans that the committee may
supervise, administer, or review or while holding such office shall be a
full-time employee of the Corporation or any of its subsidiaries. The
Compensation Committee shall fix the compensation of the chief executive officer
of the Corporation and approve the compensation of senior
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executives of the Corporation or any of its subsidiaries designated under
procedures established by the Committee from time to time. The Compensation
Committee will approve, disapprove or modify the retention by the Corporation of
advisors or consultants on matters relating to the compensation of the chief
executive officer and senior executives of the Corporation. The Compensation
Committee shall also satisfy itself, if in its opinion circumstances make it
desirable to do so, that the general compensation policies and practices
followed by the Corporation and its subsidiaries are in the Corporation's best
interests. The Compensation Committee shall have such other duties as may be set
forth in the Corporation's compensation, stock option or other benefit plans as
they may exist from time to time, or otherwise as provided by the Board of
Directors. The Compensation Committee shall report to the Board at least
annually and whenever the Board may require respecting the discharge of the
committee's duties and responsibilities. The term "compensation" as used in this
Section shall mean salaries, bonuses, agreements to pay deferred compensation,
and discretionary benefits such as stock options, but shall not include payments
to or under any employee pension, retirement, profit sharing, stock investment,
or similar plan.
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SECTION 3. Audit Committee. An Audit Committee, including a chairman,
having such number of directors as the Board of Directors may determine from
time to time, shall be elected by the Board of Directors. The members of the
Audit Committee shall be elected by the Board of Directors from among the
members of the Board who are not officers or employees of the Corporation. The
Audit Committee shall meet at least annually with the Corporation's independent
public accountants, and at any time during the year when considered appropriate
by the independent public accountants or the committee. The committee shall
review the annual financial statements of the Corporation with the independent
public accountants and shall review the practices and procedures adopted by the
Corporation in the preparation of such financial statements. The Audit Committee
shall submit recommendations to the Board of Directors with respect to the
selection of independent public accountants to examine the Corporation's annual
financial statements and shall review the independent public accountant's annual
scope of audit. The Audit Committee shall, as it may deem appropriate from time
to time, report and make recommendations to the Board of Directors.
SECTION 4. Reports. The Executive Committee shall report to each regular
meeting and, if directed, to each special meeting of the Board of Directors all
action taken by such
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committee subsequent to the date of its last report, and other committees shall
report to the Board of Directors at least annually.
SECTION 5. Other Committees. The Board of Directors may appoint such other
committee or committees as it deems desirable.
SECTION 6. Election and Term. The Chairman and each member of every
committee shall be a member of and, except as provided in Section 7 of this
Article V, elected by the Board of Directors and shall serve until such person
shall cease to be a member of the Board of Directors or such person's membership
on the committee shall be terminated by the Board.
SECTION 7. Meetings, Quorum and Notice. The Chairman of any committee shall
be the presiding officer thereof. Any committee may meet at such time or times
on notice to all the members thereof by the Chairman or by a majority of the
members or by the Secretary of the Corporation and at such place or places as
such notice may specify. At least twenty-four (24) hours' notice of the meeting
shall be given but such notice may be waived. Such notice may be given by mail,
telegraph, telephone or personally. Each committee shall cause minutes to be
kept of its meetings which record all actions taken. Such minutes shall be
placed in the custody of the Secretary of the Corporation except that the
Compensation and Audit Committees shall each determine who shall maintain
custody of its minutes or
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portions thereof. Any committee may, except as otherwise provided by law, act in
its discretion by a resolution or resolutions in writing signed by all the
members of such committee with the same force and effect as if duly passed by a
duly convened meeting. Any such resolution or resolutions shall be recorded in
the minute book of the committee under the proper date thereof. Members of any
committee may also participate in a meeting of such committee by means of
conference telephone or similar communications equipment, by means of which all
persons participating in the meeting can hear each other and participation in
the meeting pursuant to this provision shall constitute presence in person at
such meeting. A majority of the members of each committee shall constitute a
quorum. In the absence or disqualification of a member of a committee, the
member or members present at any meeting and not disqualified from voting,
whether or not such members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
ARTICLE VI
Indemnification
SECTION 1. Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether
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civil, criminal, administrative or investigative (hereinafter, a "proceeding"),
by reason of the fact that, on or after May 21, 1987, he or she is serving or
had served as a director, officer or employee of the Corporation or, while
serving as such director, officer or employee, is serving or had served at the
request of the Corporation as a director, officer, employee or agent of, or in
any other capacity with respect to, another corporation or a partnership, joint
venture, trust or other entity or enterprise, including service with respect to
employee benefit plans (hereinafter, an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer
or employee of the Corporation, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by Delaware law, as the same exists
or may hereafter be changed or amended (but, in the case of any such change or
amendment, only to the extent that such change or amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts to be paid in
settlement) reasonably incurred or suffered by an indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer or employee of the Corporation and shall inure
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to the benefit of the indemnitee's heirs, executors and administrators;
provided, however, that except as provided in Section 3 of this Article with
respect to proceedings seeking to enforce rights to indemnification, the
Corporation shall indemnify an indemnitee in connection with a proceeding (or
part thereof) initiated by the indemnitee only if such proceeding (or part
thereof) was authorized by the board of directors of the Corporation. The right
to indemnification conferred in this Article shall be a contract right.
SECTION 2. Advancement of Expenses. An indemnitee who is a director or
officer of the Corporation, and any other indemnitee to the extent authorized
from time to time by the board of directors of the Corporation, shall have the
right to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition (hereinafter, an "advancement of
expenses"); provided, however, that, if the Delaware General Corporation Law
requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter, an "undertaking"), by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which
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there is no further right to appeal (hereinafter, a "final adjudication") that
such indemnitee is not entitled to be indemnified for such expenses under this
Article or otherwise.
SECTION 3. Right of Indemnitee to Bring Suit. If a claim under Section 1 or
Section 2 of this Article is not paid in full by the Corporation within sixty
days in the case of Section 1 and twenty days in the case of Section 2 after a
written claim has been received by the Corporation, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (other than a suit
brought by the indemnitee to enforce a right to an advancement of expenses), it
shall be a defense that, and (ii) any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a
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determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its board of
directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to the action. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article or otherwise shall be on the
Corporation.
SECTION 4. Indemnification of Agents of the Corporation. The Corporation
may, to the extent authorized from time to time by its board of directors, grant
rights to indemnification, and to be paid by the Corporation the expenses
incurred in defending any proceeding in advance of its final disposition, to any
agent of the Corporation to the fullest extent of the provisions of this Article
with respect to the indemnification of directors, officers and employees of the
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Corporation and advancement of expenses of directors and officers of the
Corporation.
SECTION 5. Non-Exclusivity of Rights. The right to indemnification and to
the advancement of expenses conferred in this Article shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Corporation's Restated Certificate of Incorporation, these by-laws,
any agreement, vote of stockholders or disinterested directors, or otherwise.
SECTION 6. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or of another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
SECTION 7. Survival of Prior Indemnification Provisions; Effect of
Subsequent Change on Existing Rights. Nothing contained in this Article shall be
construed as altering or eliminating the rights to indemnification existing, or
based upon service by an indemnitee, prior to May 21, 1987. Any repeal or
modification of this Article shall not adversely affect any right or protection
of a director, officer or employee of the Corporation existing at the time of
such repeal or modification.
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ARTICLE VII
Checks, Contracts, Other Instruments
SECTION 1. Documents, Instruments Not Requiring Seal. All checks, notes,
drafts, acceptances, bills of exchange, orders for the payment of money, and all
written contracts and instruments of every kind which do not require a seal
shall be signed by such officer or officers, or person or persons as these
by-laws, or the Board of Directors or Executive Committee by resolution, may
from time to time prescribe.
SECTION 2. Documents, Instruments Requiring Seal. All bonds, deeds,
mortgages, leases, written contracts and instruments of every kind which require
the corporate seal of the Corporation to be affixed thereto, shall be signed and
attested by such officer or officers as these by-laws, or the Board of Directors
or Executive Committee, by resolution, may from time to time prescribe.
ARTICLE VIII
Capital Stock
SECTION 1. Stock Certificates. The certificates for shares of the capital
stock of the Corporation shall be in such form, not inconsistent with the
Restated Certificate of Incorporation, as shall be approved by the Board of
Directors. Each certificate shall be signed by the Chairman of the Board of
Directors or a Vice President and also by the Secretary, an Assistant Secretary,
the Treasurer or an Assistant Treasurer,
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provided, however, that any such signature of an officer of the Corporation or
of the Transfer Agent, Assistant Transfer Agent, Registrar or Assistant
Registrar, or any of them, may be a facsimile. In case any officer or officers
who shall have signed, or whose facsimile signature or signatures shall have
been used on any such certificate or certificates shall cease to be such officer
or officers of the Corporation, whether because of death, resignation or
otherwise before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be used and delivered as though the officer or officers who
signed the said certificate or certificates or whose facsimile signature or
signatures shall have been used thereon had not ceased to be said officer or
officers of the Corporation. All certificates shall be consecutively numbered,
shall bear the corporate seal and the names and addresses of all persons owning
shares of capital stock of the Corporation with the number of shares owned by
each; and, the date or dates of issue of the shares of stock held by each shall
be entered in books kept for that purpose by the proper officers or agents of
the Corporation.
SECTION 2. Recognition of Holders of Record. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof, and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
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any other person, whether or not it has actual or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
SECTION 3. Lost Certificates. Except in cases of lost or destroyed
certificates, and in that case only after conforming to the requirements
hereinafter provided, no new certificates shall be issued until the former
certificate for the shares represented thereby shall have been surrendered and
cancelled. The Board of Directors may direct a new certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by
the Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate or certificates to
be lost or destroyed; and the Board of Directors may, in its discretion and as a
condition precedent to the issuance of any such new certificate or certificates,
require (i) that the owner of such lost or destroyed certificate or
certificates, or his legal representative give the Corporation and its transfer
agent or agents, registrar or registrars a bond in such form and amount as the
Board of Directors may direct as indemnity against any claim that may be made
against the Corporation and its transfer agent or agents, registrar or
registrars, or (ii) that the person requesting such new certificate or
certificates obtain a final order or decree of a court of competent jurisdiction
as to his right to receive such new certificate or certificates.
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<PAGE>
SECTION 4. Transfer of Shares. Shares of stock shall be transferred on the
books of the Corporation by the holder thereof or by his attorney thereunto duly
authorized upon the surrender and cancellation of certificates for a like number
of shares.
SECTION 5. Regulations Governing Transfer of Shares. The Board of Directors
may make such regulations as it may deem expedient concerning the issue,
transfer and registration of stock.
SECTION 6. Appointment of Transfer Agent, Registrar. The Board may appoint
a Transfer Agent or Transfer Agents and Registrar or Registrars for transfers
and may require all certificates to bear the signature of either or both.
ARTICLE IX
Miscellaneous
SECTION 1. Inspection of Books. The Board of Directors or the Executive
Committee shall determine from time to time whether and, if allowed, when and
under what conditions and regulations the accounts and books of the Corporation
(except such as may by statute be specifically open to inspection), or any of
them shall be open to the inspection of the stockholders, and the stockholders'
rights in this respect are and shall be restricted and limited accordingly.
-29-
<PAGE>
SECTION 2. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization, and the words
"Corporate Seal, Delaware".
SECTION 3. Fiscal Year. The fiscal year shall begin on the first day of
January of each year.
SECTION 4. Waiver of Notice. Whenever by statute, the provisions of the
Restated Certificate of Incorporation, or these by-laws, the stockholders, the
Board of Directors or any committee established by the Board of Directors in
accordance with these by-laws are authorized to take any action after notice,
such notice may be waived, in writing, before or after the holding of the
meeting at which such action is to be taken, by the person or persons entitled
to such notice or, in the case of a stockholder, by his attorney thereunto
authorized.
ARTICLE X
Amendments
SECTION 1. By Stockholders. These by-laws, or any of them, may be amended,
altered, changed, added to or repealed at any regular or special meeting of the
stockholders, by the affirmative vote of a majority of the shares of stock then
issued and outstanding.
SECTION 2. By the Board of Directors. The Board of Directors, by
affirmative vote of a majority of its members, may, at any regular or special
meeting, amend, alter, change, add to
-30-
<PAGE>
or repeal these by-laws, or any of them, but any by-laws made by the Directors
may be amended, altered, changed, added to or repealed by the stockholders.
-31-
<PAGE>
Exhibit 10.11
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
MARSH & McLENNAN COMPANIES, INC.
U.S. EMPLOYEE
1998 CASH BONUS AWARD VOLUNTARY DEFERRAL PLAN
---------------------------------------------
1. ELIGIBILITY
All active U.S. employees of Marsh & McLennan Companies, Inc. (the
"Corporation") and its subsidiaries who are designated as eligible for
participation in the MMC Partners Bonus Plan or a Local Bonus Plan, and
who are presently in salary grade 15 (or its equivalent) or above, may, at
management's discretion, be considered for participation in the Marsh &
McLennan Companies, Inc. U.S. Employee 1998 Cash Bonus Award Voluntary
Deferral Plan (the "1998 Plan"). Participants in the 1998 Plan may make
deferral elections pursuant to the rules outlined in Section 2 below.
2. PROGRAM RULES
Except as otherwise provided herein, the 1998 Plan shall be administered
by the Compensation Committee of the Board of Directors of the Corporation
(the "Committee"). The Committee shall have authority in its sole
discretion to interpret the 1998 Plan and make all determinations,
including the determination of bonus awards eligible to be deferred, with
respect to the 1998 Plan. All determinations made by the Committee shall
be final and binding. The Committee may delegate to any other individual
or entity the authority to perform any or all of the functions of the
Committee under the 1998 Plan, and references to the Committee shall be
deemed to include any such delegate. Exercise of deferral elections under
the 1998 Plan must be made in accordance with the following rules.
a. Rights to an Award and to a Deferral Election
The right to a deferral election applies only to the annual cash bonus
scheduled to be awarded in early 1999 in respect of 1998 services, the
payment of which bonus would normally be made by the end of the first
quarter of the 1999 calendar year. The granting of such an annual cash
bonus award is discretionary, and neither delivery of deferral
election materials nor an election to defer shall affect entitlement
to such an award. The right to a deferral election does not apply to
bonuses (including, but not limited to, bonuses pursuant to an
employment agreement, sign-on or guaranteed bonuses, commissions or
non-annual incentive payments) that are not awarded as part of an
annual cash bonus plan.
<PAGE>
b. Election Forms
In order to ensure that elections to defer bonus amounts are
effective under applicable tax laws, please complete and sign the
attached election form(s), and return them (postmarked or delivered)
no later than December 4, 1998. Form(s) should be returned, and any
questions should be directed, to:
William Palazzo
Manager, HR Systems and Administration
Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, NY 10036-2774
(212) 345-5663
c. Deferral Options
(i) Deferral Amount. An eligible employee may elect to defer a
portion of such employee's bonus award until January of a
specific year ("year certain") or until January of the year
following retirement in an amount represented by one of the
following two choices:
1. 25%, 50% or 75% of the employee's cash bonus award, subject
to a maximum limit established by the Committee, or
2. the lowest of 25%, 50% or 75% of the employee's cash bonus
award which results in a deferral of at least $10,000.
If the percentage selected times the amount of the cash bonus
award is less than $10,000, no deferral will be made or deducted
from the award.
(ii) 1998 Deferred Bonus Accounts. If a deferral election is made, deferrals may
be made into one or both of the two accounts which the Corporation shall make
available to the participating employee. The relevant portion of the award
deferral will be credited to the relevant account on the first business day
following the date on which the bonus payment would have been made had it not
been deferred. The available accounts for deferrals of bonuses (the "1998
Deferred Bonus Accounts") shall consist of (a) the 1998 Putnam Fund Account and
(b) the 1998 Corporation Stock Account. Amounts may not be transferred between
the 1998 Corporation Stock Account and either the 1998 Putnam Fund Account or
the "Putnam Transfer Fund Account" (as referred to in Section 2.e. below).
<PAGE>
d. 1998 Putnam Fund Account
(i) Account Valuation. The 1998 Putnam Fund Account is a bookkeeping
account, the value of which shall be based upon the performance
of selected funds of the Putnam mutual fund group. The
Corporation will determine, in its sole discretion, the funds of
the Putnam mutual fund group into which deferrals may be made.
Deferrals among selected funds comprising the 1998 Putnam Fund
Account must be made in multiples of 5% of the total amounts
deferred into the 1998 Putnam Fund Account. Deferred amounts will
be credited to the 1998 Putnam Fund Account with units each
reflecting one Class A share of the elected fund. Fractional
units will also be credited to such account, if applicable. The
number of such credited units will be determined by dividing the
value of the bonus award deferred into the elected fund by the
net asset value of such fund of the 1998 Putnam Fund Account as
of the close of business on the day on which such bonus payment
would have been made had it not been deferred. All dividends paid
with respect to an elected fund of a 1998 Putnam Fund Account
will be deemed to be immediately reinvested in such fund.
(ii) Fund Transfers. Amounts deferred into a 1998 Putnam Fund Account and the
Putnam Transfer Fund Account may be transferred between eligible funds of these
respective accounts (but not between the 1998 Putnam Fund Account and the Putnam
Transfer Fund Account) pursuant to an election which may be made daily. Such
election shall be effective, and the associated transfer shall be based upon the
net asset values of the applicable funds of the 1998 Putnam Fund Account or the
Putnam Transfer Fund Account, as of the close of business on the business day
the election is received by facsimile or mail, if received by 2:30 p.m. Eastern
Time of that day. If received later than 2:30 p.m., the election shall be
effective as of the close of business on the following business day.
e. Putnam Transfer Fund Account
By December 4, 1998, each individual with respect to whom there is
maintained an "Interest Factor Account" (established for deferrals of
all pre-1993 bonus awards), whether or not any such individual is
eligible for participation under Section 1 above, may make an
irrevocable election to transfer all (but not less than all) of such
participant's Interest Factor Account into a "Putnam Transfer Fund
Account", which election shall be effective, and which transfer shall
be based upon the net asset value of the selected funds of such Putnam
Transfer Fund Account, as of the close of business on the last trading
day in 1998.
<PAGE>
The Putnam Transfer Fund Account shall be administered in a manner
consistent with the administration of the 1998 Putnam Fund Account
pursuant to Section 2.d.(i) above. Distribution elections (including
the form of payment) otherwise in effect for the Interest Factor
Account shall remain in effect for amounts transferred to the Putnam
Transfer Fund Account.
f. 1998 Corporation Stock Account
(i) Account Valuation. The 1998 Corporation Stock Account is a bookkeeping
account, the value of which shall be based upon the performance of the common
stock of the Corporation. Amounts deferred into the 1998 Corporation Stock
Account will be credited to such account with units each reflecting one share of
common stock of the Corporation. Fractional units will also be credited to such
account, if applicable. The number of such credited units will be determined by
dividing the value of the bonus award deferred into the 1998 Corporation Stock
Account (plus the "supplemental amount" referred to in clause (ii) below) by the
closing price of the common stock of the Corporation on the New York Stock
Exchange on the day on which such bonus payment would have been made had it not
been deferred. Dividends paid on the common stock of the Corporation shall be
reflected in a participant's 1998 Corporation Stock Account by the crediting of
additional units in such account equal to the value of the dividend and based
upon the closing price of the common stock of the Corporation on the New York
Stock Exchange on the date such dividend is paid. Deferrals into the 1998
Corporation Stock Account must be deferred to a date not earlier than January 1,
2002.
(ii) Supplemental Amount. With respect to that portion of a bonus
award which a participating employee defers into the 1998
Corporation Stock Account, there shall be credited to such
participant's 1998 Corporation Stock Account an amount equal to
the amount deferred into such account plus an additional amount
equal to 15% of the amount so deferred (the "supplemental
amount"). The maximum percentage of any participating employee's
annual bonus award permitted to be deferred into the 1998
Corporation Stock Account (prior to giving effect to the
supplemental amount) is 50% of such award.
(iii) Stock Distributions. Distributions from the 1998 Corporation
Stock Account will be deposited automatically via book entry for
your personal account with the Corporation's stock transfer
agent. If you (or you and your spouse, as joint tenants) already
have such an account with the stock transfer agent, then the
shares will be deposited into that account. If you do not have
such an account, then one will be established in your name, and
the shares will be deposited in the account.
<PAGE>
g. Statement of Account
The Corporation shall provide periodically to each participant (but
not less frequently than once per calendar quarter) a statement
setting forth the balance to the credit of such participant in such
participant's 1998 Deferred Bonus Accounts and Putnam Transfer Fund
Account.
h. Irrevocability and Acceleration
Subject to the provisions of paragraphs i. (iii) and i. (vii) below,
all deferral elections made under the 1998 Plan are irrevocable.
However, the Committee may, in its sole discretion, and upon finding
that a participant has demonstrated severe financial hardship, direct
the acceleration of the payment of any or all deferred amounts then
credited to the participant's 1998 Deferred Bonus Accounts.
i. Payment of Deferred Amounts
(i) Year Certain Deferrals. If the participant remains employed until
the deferral year elected, all amounts relating to "year certain"
deferrals will be paid in a single distribution, less applicable
withholding taxes, in January of the deferral year elected, or
the participant may elect (at the time of the original deferral
election) to have distributions from the 1998 Corporation Stock
Account or the 1998 Putnam Fund Account, as the case may be, made
in up to fifteen (15) annual installments payable each January
commencing with the deferral year elected. Annual installments
will be paid in an amount, less applicable withholding taxes,
determined by multiplying (i) the balance of the 1998 Corporation
Stock Account or the 1998 Putnam Fund Account, as the case may
be, by (ii) a fraction, the numerator of which is 1 and the
denominator of which is a number equal to the remaining unpaid
annual installments.
(ii) Retirement Deferrals. For participants who retire, amounts
relating to deferrals until the year following retirement will be
paid in a single distribution in January of the year following
retirement, or the participant may elect (at the time of the
original deferral election) to have distributions from the 1998
Corporation Stock Account or 1998 Putnam Fund Account, as the
case may be, made in up to fifteen (15) annual installments
payable each January commencing with the year following
retirement. Annual installments will be paid in an amount, less
applicable withholding taxes, determined by multiplying (i) the
balance of the 1998 Corporation Stock Account or 1998 Putnam Fund
Account, as the case may be, by (ii) a fraction, the numerator of
which is 1 and the denominator of which is a number equal to the
remaining unpaid annual installments.
<PAGE>
(iii)Redeferral Election. Participants shall be permitted to delay the
beginning date of distribution and/or increase the number of
annual installments (up to the maximum number permitted under the
1998 Plan) for awards previously deferred or redeferred under the
1998 Plan, provided that the redeferral election must be made at
least one full calendar year prior to the beginning date of
distribution.
(iv) Termination of Employment Prior to End of Deferral Period.
Subject to the provisions of paragraph (vi) below, in the event
of termination of employment for any reason prior to completion
of the elected deferral period, all amounts then in the
participant's 1998 Deferred Bonus Accounts will be paid to the
participant (or the participant's designated beneficiary in the
event of death) in a single distribution, less applicable
withholding taxes, as soon as practicable after the end of the
quarter in which the termination occurred; provided, however,
that, subject to the provisions of paragraph (vi) below, upon a
participant's retirement or termination for total disability
prior to completion of the elected deferral period, all such
amounts shall be paid in January of the year following such
retirement or termination for total disability, as the case may
be.
(v) Death During Installment Period. If a participant dies after the
commencement of payments from his or her 1998 Deferred Bonus
Accounts, the designated beneficiary shall receive the remaining
installments over the elected installment period.
(vi) Special Rules Applicable to 1998 Corporation Stock Account. Notwithstanding
any provision in the 1998 Plan to the contrary (other than the second sentence
of Section 2.h. above), with respect to a participant's 1998 Corporation Stock
Account, in the event that prior to January 1, 2002, a participant's employment
terminates for total disability or retirement, all amounts in such account will
be paid to the participant, less applicable withholding taxes, in January of
2002. In the event that, prior to January 2002, a participant's employment
terminates on account of death, or a participant whose employment was earlier
terminated for total disability or retirement should die, the distribution rule
in paragraph (iv) above will apply. If, however, the termination of employment
prior to January 1, 2002 is on account of a reason other than death, total
disability or retirement, the participant will receive, as soon as practicable
following the end of the quarter in which the termination occurred, a single
distribution, less applicable withholding taxes, of (a) the balance of the
participant's 1998 Corporation Stock Account less (b) the portion of such
balance attributable to the supplemental amount (including earnings thereon),
which portion shall be forfeited in its entirety.
<PAGE>
For purposes of determining the portion of the balance of the
1998 Corporation Stock Account attributable to the supplemental
amount, the supplemental amount shall be increased or decreased
by the respective gain or loss in the 1998 Corporation Stock
Account attributable to such supplemental amount.
(vii) Acceleration of Distribution. A participant may elect to accelerate the
distribution of all or a portion of the 1998 Deferred Bonus Accounts for any
reason prior to the completion of the elected deferral period, subject to the
imposition of a significant penalty in accordance with applicable tax rules. The
penalty shall be an account forfeiture equal to (i) 6% of the amount that the
participant elects to have distributed from the 1998 Deferred Bonus Accounts and
(ii) 100% of any unvested supplemental amount as provided in Section 2(f)(ii)
above, including related earnings, that the participant elects to have
distributed from the 1998 Corporation Stock Account. Amounts distributed to the
participant will be subject to applicable tax withholding, but amounts forfeited
will not be subject to tax.
(viii) Change in Control. Notwithstanding any other provision in the
1998 Plan to the contrary, in the event of a "change in control"
of the Corporation, as defined in the Corporation's 1997 Senior
Executive Incentive and Stock Award Plan (the "1997 Senior
Executive Plan") and 1997 Employee Incentive and Stock Award Plan
(the "1997 Employee Plan"), all amounts credited to a
participant's 1998 Deferred Bonus Accounts as of the effective
date of such change in control will be distributed within five
days of such change in control as a lump sum cash payment, less
applicable withholding taxes.
(ix) Form of Payment. All payments in respect of the 1998 Putnam Fund
Account shall be made in cash and payments in respect of the 1998
Corporation Stock Account shall be made in shares of common stock
of the Corporation; provided, however, that in the event of a
change in control of the Corporation, payments from the 1998
Corporation Stock Account shall be made in cash based upon (A)
the highest price paid for shares of common stock of the
Corporation in connection with such change in control or (B) if
shares of common stock of the Corporation are not purchased or
exchanged in connection with such change in control, the closing
price of the common stock of the Corporation on the New York
Stock Exchange on the last trading day on the New York Stock
Exchange prior to the date of the change in control.
<PAGE>
j. Tax Treatment
Under present Federal income tax laws, no portion of the balance
credited to a participant's 1998 Deferred Bonus Accounts or Putnam
Transfer Fund Account will be includable in income for Federal income
tax purposes during the period of deferral. However, FICA tax
withholding is required currently on the cash bonus amount (excluding
any portion subject to a mandatory deferral) awarded to the
participant, and such withholding is required on the supplemental
amount in January of 2002. When any part of the 1998 Deferred Bonus
Accounts or Putnam Transfer Fund Account is actually paid to the
participant, such portion will be includable in income, and Federal,
state and local income tax withholding will apply. The Corporation may
make necessary arrangements in order to effectuate any such
withholding, including the mandatory withholding of shares of common
stock of the Corporation which would otherwise be distributed to a
participant.
k. Beneficiary Designation
Each participant shall have the right, at any time, to designate any
person or persons as beneficiary or beneficiaries (both principal and
contingent) to whom payment shall be made under the 1998 Plan and
every other Cash Bonus Award Voluntary Deferral Plan for which the
participant has or will have an account balance (collectively,
including the 1998 Plan, "the Plans"), in the event of death prior to
complete distribution to the participant of the amounts due under the
Plans. Any beneficiary designation may be changed by a participant by
the filing of such change in writing on a form prescribed by the
Corporation. The filing of a new beneficiary designation form will
cancel all beneficiary designations previously filed and apply to all
deferrals in the account. A beneficiary designation form is attached
for use by a participant who either does not have such form on file or
wishes to make a change in the beneficiary designation. Upon
completion of the attached form, it should be forwarded to William
Palazzo, at the address set forth in Section 2.b. above. If a
participant does not have a beneficiary designation in effect, or if
all designated beneficiaries predecease the participant, then any
amounts payable to the beneficiary shall be paid to the participant's
estate. The payment to the designated beneficiary or to the
participant's estate shall completely discharge the Corporation's
obligations under the Plans.
<PAGE>
l. Changes in Capitalization
If there is any change in the number or class of shares of common
stock of the Corporation through the declaration of stock dividend or
other extraordinary dividends, or recapitalization resulting in stock
splits, or combinations or exchanges of such shares or in the event of
similar corporate transactions, each participant's 1998 Corporation
Stock Account shall be equitably adjusted by the Committee to reflect
any such change in the number or class of issued shares of common
stock of the Corporation or to reflect such similar corporate
transaction.
3. AMENDMENT AND TERMINATION OF THE 1998 PLAN
The Committee may, at its discretion and at any time, amend the 1998 Plan
in whole or in part. The Committee may also terminate the 1998 Plan in its
entirety at any time and, upon any such termination, each participant shall
be paid in a single distribution, or over such period of time as determined
by the Committee (not to extend beyond the earlier of 15 years or the
elected deferral period), the then remaining balance in such participant's
1998 Deferred Bonus Accounts.
4. MISCELLANEOUS
a. A participant under the 1998 Plan is merely a general (not secured)
creditor, and nothing contained in the 1998 Plan shall create a trust
of any kind or a fiduciary relationship between the Corporation and
the participant or the participant's estate. Nothing contained herein
shall be construed as conferring upon the participant the right to
continued employment with the Corporation or its subsidiaries, or to a
cash bonus award. Except as otherwise provided by applicable law,
benefits payable under the 1998 Plan may not be assigned or
hypothecated, and no such benefits shall be subject to legal process
or attachment for the payment of any claim of any person entitled to
receive the same. The adoption of the 1998 Plan and any elections made
pursuant to the 1998 Plan are subject to approval of the 1998 Plan by
the Committee.
b. Participation in the 1998 Plan is subject to these terms and
conditions and to the terms and conditions of (i) the 1997 Senior
Executive Plan with respect to those participants hereunder who are
subject thereto and (ii) the 1997 Employee Plan with respect to all
other participants. Participation in the 1998 Plan shall constitute an
agreement by the participant to all such terms and conditions and to
the administrative regulations of the Committee.
<PAGE>
In the event of any inconsistency between these terms and conditions
and the provisions of the 1997 Senior Executive Plan or the 1997
Employee Plan, as applicable, the provisions of the latter shall
prevail. The 1997 Senior Executive Plan and the 1997 Employee Plan are
not subject to any of the provisions of the Employee Retirement Income
Security Act Of 1974.
c. Not more than seven million, five hundred thousand (7,500,000) shares
of the Corporation's common stock, plus such number of shares
remaining unused under pre-existing stock plans approved by the
Corporation's stockholders, may be issued under the 1997 Senior
Executive Plan.
d. Not more than eighteen million (18,000,000) shares of the
Corporation's common stock, plus such number of shares authorized and
reserved for awards pursuant to certain preexisting share resolutions
adopted by the Corporation's Board of Directors, may be issued under
the 1997 Employee Plan.
5. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report on Form 10-K of the Corporation for its last fiscal
year, the Corporation's Registration Statement on Form 8 dated February 3,
1987, describing Corporation common stock, including any amendment or
reports filed for the purpose of updating such description, and the
Corporation's Registration Statement on Form 8-A dated October 10, 1997,
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, which have been filed by the Corporation under
the Securities Exchange Act of 1934, as amended (the Exchange Act), are
incorporated by reference herein.
All documents subsequently filed by the Corporation pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, subsequent to the end of
the Corporation's last fiscal year and prior to the filing of a
post-effective amendment which indicates that all securities offered have
been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing of such documents.
Participants may receive without charge, upon written or oral request, a
copy of any of the documents incorporated herein by reference and any
other documents that constitute part of this Prospectus by contacting Mr.
William Palazzo, Manager, HR Systems and Administration as indicated
above.
<PAGE>
Exhibit 10.12
MARSH & McLENNAN COMPANIES, INC
CANADIAN EMPLOYEE
1998 CASH BONUS AWARD VOLUNTARY DEFERRAL PLAN
---------------------------------------------
1. ELIGIBILITY
All active Canadian employees of Marsh & McLennan Companies, Inc. (the
"Corporation") and its subsidiaries who are designated as eligible for
participation in the MMC Partners Bonus Plan or a Local Bonus Plan, and who are
presently in salary grade 15 (or its equivalent) or above, may, at management's
discretion, be considered for participation in the Marsh & McLennan Companies,
Inc. Canadian Employee 1998 Cash Bonus Award Voluntary Deferral Plan (the "1998
Plan"). Participants in the 1998 Plan may make deferral elections pursuant to
the rules outlined in Section 2 below.
2. PROGRAM RULES
Except as otherwise provided herein, the 1998 Plan shall be administered by the
Compensation Committee of the Board of Directors of the Corporation (the
"Committee"). The Committee shall have authority in its sole discretion to
interpret the 1998 Plan and make all determinations, including the determination
of bonus awards eligible to be deferred, with respect to the 1998 Plan. All
determinations made by the Committee shall be final and binding. The Committee
may delegate to any other individual or entity the authority to perform any or
all of the functions of the Committee under the 1998 Plan, and references to the
Committee shall be deemed to include any such delegate. Exercise of deferral
elections under the 1998 Plan must be made in accordance with the following
rules.
a. RIGHTS TO AN AWARD AND TO A DEFERRAL ELECTION
The right to a deferral election applies only to the annual cash bonus
scheduled to be awarded in early 1999 in respect of 1998 services, the
payment of which bonus would normally be made by the end of the first
quarter of the 1999 calendar year. The granting of such an annual cash
bonus award is discretionary, and neither delivery of deferral election
materials nor an election to defer shall affect entitlement to such an
award. The right to a deferral election does not apply to bonuses
(including, but not limited to, bonuses pursuant to an employment
agreement, sign-on or guaranteed bonuses, commissions or non-annual
incentive payments) that are not awarded as part of an annual cash bonus
plan.
<PAGE>
b. ELECTION FORMS
In order to ensure that elections to defer bonus amounts are effective
under applicable tax laws, please complete and sign the attached election
form(s), and return them (postmarked or delivered) no later than December
4, 1998. Form(s) should be returned, and any questions should be directed,
to:
William Palazzo
Manager, HR Systems and Administration
Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, NY 10036-2774
(212) 345-5663
c. DEFERRAL OPTIONS
(i) DEFERRAL AMOUNT. An eligible employee may elect to defer a portion of
such employee's bonus award in an amount represented by one of the
following two choices:
1. 25%, 50%, 75% or 100% of the employee's cash bonus award, subject
to a maximum limit established by the Committee, or
2. the lowest of 25%, 50%, 75% or 100% of the employee's cash bonus
award which results in a deferral of at least Canadian $10,000.
If the percentage selected times the amount of the cash bonus award is
less than Canadian $10,000, NO deferral will be made or deducted from the
award.
(ii) PERIOD OF DEFERRAL. The payment of a bonus award may be deferred to
January of 2000 or January 2001, as elected by the participant.
(iii) 1998 DEFERRED BONUS ACCOUNTS. If a deferral election is made,
deferrals may be made into one or both of the two accounts which the
Corporation shall make available to the participating employee. The
relevant portion of the award deferral will be credited to the
relevant account on the first business day following the date on which
the bonus payment would have been made had it not been deferred. The
available accounts for deferrals of bonuses (the "1998 Deferred Bonus
Accounts") shall consist of (a) the 1998 Putnam Fund Account and (b)
the 1998 Interest Equivalent Account. Amounts may not be transferred
between the 1998 Interest Equivalent Account and the 1998 Putnam Fund
Account.
<PAGE>
d. 1998 PUTNAM FUND ACCOUNT
(i) ACCOUNT VALUATION. The 1998 Putnam Fund account is a bookkeeping
account, the value of which shall be based upon the performance of selected
funds of the Putnam mutual fund group. The Corporation will determine, in
its sole discretion, the funds of the Putnam mutual fund group into which
deferrals may be made. Deferrals among selected funds comprising the 1998
Putnam Fund Account must be made in multiples of 5% of the total amounts
deferred into the 1998 Putnam Fund Account. Deferred amounts will be
credited to the 1998 Putnam Fund Account with units each reflecting one
Class A share of the elected fund. Fractional units will also be credited
to such account, if applicable. The number of such credited units will be
determined by dividing the value of the bonus award deferred into the
elected fund by the net asset value of such fund of the 1998 Putnam Fund
Account as of the close of business on the day on which such bonus payment
would have been made had it not been deferred. All dividends paid with
respect to an elected fund of a 1998 Putnam Fund Account will be deemed to
be immediately reinvested in such fund. All amounts credited to the 1998
Putnam Fund Account will be converted into U.S. dollars at the exchange
rate in effect as of the applicable date.
(ii) FUND TRANSFERS. Amounts deferred into a 1998 Putnam Fund Account may
be transferred between eligible funds pursuant to an election which
may be made daily. Such election shall be effective, and the
associated transfer shall be based upon the net asset values of the
applicable funds of the 1998 Putnam Fund Account, as of the close of
business on the business day the election is received by facsimile or
mail, if received by 2:30 p.m. Eastern Time of that day. If received
later than 2:30 p.m., the election shall be effective as of the close
of business on the following business day.
e. 1998 INTEREST EQUIVALENT ACCOUNT
An "Interest Equivalent" shall be calculated and added to each 1998
Interest Equivalent Account as of the last day of each calendar quarter
based on the average principal balance in said account during said
calendar quarter and on the average of the 30-day Banker's Acceptance rate
of interest as published in the Toronto Globe & Mail during such calendar
quarter.
f. STATEMENT OF ACCOUNT
The Corporation shall provide periodically to each participant (but not
less frequently than once per calendar quarter) a statement setting forth
the balance to the credit of such participant in such participant's 1998
Deferred Bonus Accounts.
g. IRREVOCABILITY AND ACCELERATION
All deferral elections made under the 1998 Plan are irrevocable. However,
the Committee may, in its sole discretion, and upon finding that a
participant has demonstrated severe financial hardship, direct the
acceleration of the payment of any or all deferred amounts then credited to
the participant's 1998 Deferred Bonus Accounts.
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h. PAYMENT OF DEFERRED AMOUNTS
(i) DEFERRAL YEAR DISTRIBUTIONS. If the participant remains employed until
the deferral year elected, all amounts in the participant's 1998 Deferred
Bonus Accounts will be paid in a single distribution, less applicable
withholding taxes, in January of the deferral year elected.
(ii) TERMINATION OF EMPLOYMENT PRIOR TO END OF DEFERRAL PERIOD. In the
event of termination of employment for any reason prior to the completion
of the elected deferral period, all amounts then in the participant's 1998
Deferred Bonus Accounts will be paid to the participant (or the
participant's designated beneficiary in the event of death) in a single
distribution, less applicable withholding taxes, as soon as practicable
after the end of the quarter in which the termination occurred; PROVIDED,
HOWEVER, that upon a participant's retirement or termination for disability
prior to completion of the elected deferral period, all such amounts shall
be paid in a single distribution during January of the year following such
retirement or termination for disability, as the case may be.
(iii)CHANGE IN CONTROL. Notwithstanding any other provision in the 1998
Plan to the contrary, in the event of a "change in control" of the
Corporation, as defined in the Corporation's 1997 Employee Incentive and
Stock Award Plan, all amounts credited to a participant's 1998 Deferred
Bonus Accounts as of the effective date of such change in control will be
distributed within five days of such change in control as a single
distribution, less applicable withholding taxes.
(iv) FORM OF PAYMENT. All payments under the 1998 Plan shall be made in
cash in Canadian dollars converted, if necessary, at the exchange rate in
effect as of the applicable date.
i. TAX TREATMENT
Under present Canadian tax law, all amounts of an employee's bonus deferred
for a period not exceeding three years from the year in which the related
service was rendered, as well as any Interest Equivalent thereon, will be
exempt from Canadian taxation during the period of deferral. When any part
of the 1998 Deferred Bonus Accounts is actually paid to a participant,
taxable employment income will be incurred.
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j. BENEFICIARY DESIGNATION
Each participant shall have the right, at any time, to designate any person
or persons as beneficiary or beneficiaries (both principal and contingent)
to whom payment shall be made under the 1998 Plan and every other Cash
Bonus Award Voluntary Deferral Plan for which the participant has or will
have an account balance (collectively, including the 1998 Plan, the
"Plans"), in the event of death prior to complete distribution to the
participant of the amounts due under the Plans. Any beneficiary designation
may be changed by a participant by the filing of such change in writing on
a form prescribed by the Corporation. The filing of a new beneficiary
designation form will cancel all beneficiary designations previously filed
and apply to all deferrals in the account. A beneficiary designation form
is attached for use by a participant who either does not have such form on
file or wishes to make a change in the beneficiary designation. Upon
completion of the attached form, it should be forwarded to William Palazzo,
at the address set forth in Section 2.b. above. If a participant does not
have a beneficiary designation in effect, or if all designated
beneficiaries predecease the participant, then any amounts payable to the
beneficiary shall be paid to the participant's estate. The payment to the
designated beneficiary or to the participant's estate shall completely
discharge the Corporation's obligations under the Plans.
3. AMENDMENT AND TERMINATION OF THE 1998 PLAN
The Committee may, at its discretion and at any time, amend the 1998 Plan in
whole or in part. The Committee may also terminate the 1998 Plan in its entirety
at any time and, upon any such termination, each participant shall be paid in a
single distribution, or over such period of time as determined by the Committee
(provided such period of time falls within the restriction set forth in Section
2.c. (ii) above), the then remaining balance in such participant's 1998 Deferred
Bonus Accounts.
4. MISCELLANEOUS
A participant under the 1998 Plan is merely a general (not secured) creditor,
and nothing contained in the 1998 Plan shall create a trust of any kind or a
fiduciary relationship between the Corporation and the participant or the
participant's estate. Nothing contained herein shall be construed as conferring
upon the participant the right to continued employment with the Corporation or
its subsidiaries, or to a cash bonus award. Except as otherwise provided by
applicable law, benefits payable under the 1998 Plan may not be assigned or
hypothecated, and no such benefits shall be subject to legal process or
attachment for the payment of any claim of any person entitled to receive the
same. The adoption of the 1998 Plan and any elections made pursuant to the 1998
Plan are subject to approval of the 1998 Plan by the Committee.
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EXHIBIT 10.16
MARSH & MCLENNAN CAPITAL, INC.
LONG TERM INCENTIVE PLAN
I. STATEMENT OF PURPOSE
The purpose of the Marsh & McLennan Capital, Inc. Long Term Incentive
Plan (the "LTIP") is to attract, retain and motivate key employees and
consultants of Marsh & McLennan Capital, Inc. ("M&M Capital") and
affiliates of M&M Capital to originate, structure and manage insurance
and related industry investments by allowing them to participate in the
profitability of such investments.
II. CERTAIN DEFINITIONS
(a) CAUSE shall mean "Cause" as defined in a Participant's employment,
consulting or other written agreement with MMC or M&M Capital or,
in the absence of any such agreement, (1) the conviction for any
felony, (2) willful malfeasance or gross negligence in the
performance of duties, (3) misconduct that causes actual material
injury to MMC or any of its affiliates, or (4) prior to a Change
in Control of MMC or Change in Control of M&M Capital (in each
case, as defined in Paragraphs VI(b) and (c)), the continued and
substantial failure to perform duties consistent with a
Participant's position and responsibilities within 60 days after
notice of such failure being given.
(b) DISABILITY shall mean total disability as defined in a
Participant's employment, consulting or other written agreement
with MMC or M&M Capital or, in the absence of such an agreement,
as defined in the MMC benefits program.
(c) EXCEPTION GRANT PAYMENT shall mean an additional Grant Payment,
which is not otherwise provided for in the applicable Grant.
(d) GRANT shall mean the right to receive a payment of an amount
determined by reference to one or more Incentive Pools.
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(e) GRANT PAYMENT shall mean a payment made with respect to a Grant.
(f) GROSS PROFITS shall mean, with respect to each MMRCH Designated
Investment (as defined in ------------- Paragraph II(g)(2)(aa)),
the sum (whether positive or negative) of all: (1) pre-tax gains
realized upon the sale of such investment, (2) pre-tax
distributions of dividends, interest, or other distributions
(including break-up fees) received in respect of the investment,
(3) pre-tax losses realized upon the sale of such investment, and
(4) pre-tax write-downs of such investment (decreases in value
which have been determined to be other than temporary in
accordance with Generally Accepted Accounting Principles as
reflected in the consolidated financial statements of Marsh &
McLennan Risk Capital Holdings, Ltd. ("MMRCH")). In the event a
MMRCH Designated Investment is held indefinitely and determined to
be a strategic investment, as agreed upon by the LTIP Committee
and MMC, the applicable Valuation Date and Gross Profits shall be
determined, in good faith, by the LTIP Committee and MMC.
(g) INCENTIVE POOL shall mean the aggregate amounts realized in cash
and, accordingly, available for distribution as Grant Payments and
Exception Grant Payments to Participants, determined separately
solely for The Trident Partnership, L.P. ("Trident"), MMRCH and
Risk Capital Reinsurance Company ("RCRe"), as follows:
(1) Trident Incentive Pool - 50% of the Trident Carry for the
applicable Realization Period;
(2) MMRCH Incentive Pool - the sum of (aa) 50% of 20% (i.e.,
10%) of Gross Profits realized in cash by MMRCH during the
applicable Realization Period with respect to the
investments to be set forth in a schedule of the MMRCH
Incentive Pool, as amended from time to time (the "MMRCH
Designated Investments"); and (bb) 50% of pre-tax gains
realized by MMRCH for the applicable Realization
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Period from (i) the sale of shares of common stock, $.01
par value per share, of Risk Capital Holdings, Inc. ("Risk
Capital Holdings"), received upon the exercise of any Class
A or Class B warrants, in each case to be set forth in a
schedule of the MMRCH Incentive Pool, owned by MMRCH (the
cost basis of the Class B warrants shall be $ per share
plus the exercise price per share of such warrants) and
(ii) the sale of such Class A or Class B warrants; and
(3) RCRe Fee Incentive Pool - 50% of the excess of (A) fees
received by M&M Capital during the applicable Realization
Period pursuant to the Investment Advisory Agreement dated
September 19, 1995, between RCRe and M&M Capital (the "7.5%
Fees"), with respect to investments made during the term of
such agreement, to be set forth in a schedule of the RCRe
Fee Incentive Pool, as amended from time to time (the "RCRe
Designated Investments"), over (B) any amounts payable to
Robert Clements with respect to 1998 and 2000 with respect
to such 7.5% Fees under the Amended and Restated Employment
Agreement, effective as of December 31, 1993, between M&M
Capital and Robert Clements, as such agreement may be
amended from time to time.
The computation of amounts available for distribution with respect
to an Incentive Pool as of the applicable Realization Date (or
Valuation Date, if earlier) shall be made available by M&M Capital
to MMC for review and, if deemed appropriate, confirmation by
MMC's independent auditors.
(h) LTIP COMMITTEE shall mean a committee with authority to administer
the LTIP, initially comprised of the following individuals:
Jeffrey W. Greenberg, Robert Clements, Stephen Friedman and
Charles A. Davis. The appointment of any additional or successor
members to the LTIP Committee shall be subject to approval by the
MMC Compensation Committee. Notwithstanding the foregoing, the
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MMC Compensation Committee shall serve as the LTIP Committee with
respect to employees or consultants of M&M Capital who either (1)
are members of the MMC Partners Group or (2) are or were members
of the LTIP Committee. In the event of a deadlock on any matter
submitted to the LTIP Committee, the composition of the LTIP
Committee will be expanded (solely for purposes of resolving such
matter) by the appointment of an additional member selected by
MMC.
(i) MMC shall mean Marsh & McLennan Companies, Inc.
(j) MMC COMPENSATION COMMITTEE shall mean the Compensation Committee
of the Board of Directors of MMC.
(k) MMC PARTNERS GROUP shall mean the Partners Group of MMC, as then
constituted.
(l) PARTICIPANT shall mean an employee or consultant of M&M Capital
selected by the LTIP Committee for participation in the LTIP.
(m) REALIZATION DATE shall mean the end of each calendar quarter
during which there occurred an increase in amounts realized in
cash with respect to (or, in the discretion of the LTIP Committee,
otherwise distributable from) an Incentive Pool, or any earlier
date selected by the LTIP Committee within such calendar quarter.
(n) REALIZATION PERIOD shall mean a period commencing on the later of
the next preceding Realization Date, and, with respect to the
Trident Incentive Pool, the date of formation of Trident (i.e.,
11/93); with respect to the MMRCH Incentive Pool, the date
indicated on the schedule of the MMRCH Incentive Pool with respect
to the applicable MMRCH Designated Investment or the date of
formation of Risk Capital Holdings (i.e., 3/95), as applicable;
and with respect to the RCRe Fee Incentive Pool, the date
indicated on the schedule of the RCRe Fee Incentive Pool with
respect to the applicable RCRe Designated Investment,
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and ending on any Realization Date or Valuation Date, as
applicable.
(o) RETIREMENT shall mean "Retirement" as defined in a Participant's
employment, consulting or other written agreement with MMC or M&M
Capital or, in the absence of such an agreement, a termination of
a Participant's employment or service following the date the
Participant attains age 65 or higher with five or more years of
service with MMC or any of its affiliates or, subject to approval
by the board of directors of M&M Capital, an earlier termination
of employment.
(p) TRIDENT CARRY shall mean the sum of:
(1) the advisor's fee received by M&M Capital from Trident; and
(2) special limited partner distributions to MMRCH (after
giving effect to any repayment to Trident resulting from a
"clawback").
(q) VALUATION DATE with respect to an investment shall mean the
earliest of (1) with respect to a MMRCH Designated Investment
only, the tenth anniversary of the date such investment was
originally made, (2) the fifth anniversary of the date of
termination of M&M Capital as investment advisor with respect to
such investment, or (3) the fifth anniversary of the date of
termination of the LTIP.
III. GRANTS
(a) The original Grant (the "Original Grant") to each Participant
shall be determined by reference to some or all of the following:
a subset of the Trident Incentive Pool, which for this purpose may
also include limited partner distributions to MMRCH in excess of
the cumulative preferential return, determined pursuant to the
applicable agreement (after giving effect to any repayment to
Trident resulting from a "clawback") (a "Trident Pool Subset"),
certain MMRCH Designated Investments, and certain RCRe Designated
Investments, in each case stated as a percent-
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age (the "Individual Carry Percentage"). Each Participant may be
awarded additional Grants with respect to existing Incentive Pools
or new investments in such Incentive Pools.
(b) The sum of all Grant Payments and Exception Grant Payments with
respect to the Grants relating to a particular Incentive Pool
shall not exceed the aggregate amount available for distribution
with respect to such Incentive Pool.
(c) Unless otherwise provided in a Participant's employment,
consulting or other written agreement with MMC or M&M Capital,
Grants shall vest in accordance with a vesting schedule set forth
in the applicable Grant, and Grant Payments shall be made in
accordance with a Grant Payment schedule set forth in the
applicable Grant. Unless otherwise provided in a Participant's
employment, consulting or other written agreement with MMC or M&M
Capital, the vesting and Grant Payment schedule with respect to
the Original Grants is set forth in Exhibit A.
(d) In the event a Participant incurs an income tax liability relating
to a Grant upon a Realization Date (or Valuation Date, if earlier)
and the related Grant Payment is not then due to be made to the
Participant, the LTIP Committee may authorize prepayment of a
portion of such Grant Payment equal to the income tax liability.
The amount of any such prepayment shall be subtracted from the
Grant Payment when made or, if the Grant is forfeited and no such
Grant Payment is due, the prepayment shall be repaid by the
Participant upon the Participant's termination of employment.
(e) After the date of a Grant, the terms of the Grant shall not be
amended adversely for any Participant.
IV. GRANT PAYMENTS AND EXCEPTION GRANT PAYMENTS
(a) Grant Payments shall be made to Participants as set forth in this
Paragraph IV, except as
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otherwise provided in a Participant's employment, consulting or
other written agreement with MMC or M&M Capital, or as otherwise
determined by the LTIP Committee.
(b) Grant Payments shall be made, subject to the applicable vesting
and Grant Payment schedule, as soon as reasonably practicable
after the end of each calendar quarter in which a Realization Date
or Valuation Date occurs. A Participant's Grant Payment with
respect to a Realization Date (or Valuation Date, if earlier)
shall be determined by the LTIP Committee. With respect to an
Original Grant, a Participant's Grant Payments (in all cases
subject to the applicable vesting and Grant Payment schedule and
to the limitations of Paragraph III.(b)) shall not be less than
the Grant Payments determined as follows:
(1) With respect to the Trident Incentive Pool, the Grant
Payment shall not be less than the product of the
Participant's Individual Carry Percentage with respect to
the applicable Trident Pool Subset, and such Trident Pool
Subset;
(2) With respect to the MMRCH Incentive Pool, the Grant Payment
shall not be less than the total of the products of (aa)
the Participant's Individual Carry Percentage with respect
to each applicable MMRCH Designated Investment, and (bb)
the portion of the MMRCH Incentive Pool relating to such
MMRCH Designated Investment; and
(3) With respect to the RCRe Fee Incentive Pool, the Grant
Payment shall not be less than the total of the products of
(aa) the Participant's Individual Carry Percentage with
respect to each applicable RCRe Designated Investment, and
(bb) the portion of the RCRe Fee Incentive Pool relating to
such RCRe Designated Investment.
(c) The LTIP Committee may authorize Exception Grant Payments to
Participants with respect
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to Grants, subject to the limitation set forth in Paragraph
III(b).
(d) In the event that, upon a Realization Date or Valuation Date,
after the distribution of all applicable Grant Payments and
Exception Grant Payments, there remains an amount available for
distribution with respect to the applicable Incentive Pool, the
unallocated balance shall remain in a reserve account (the
"Reserve Account") with respect to such Incentive Pool, to be
distributed from time to time, in whole or in part, at the
discretion of the LTIP Committee. Notwithstanding the foregoing,
any amounts forfeited by a Participant who is or was a member of
the MMC Partners Group shall not be redistributed without the
approval of the MMC Compensation Committee if such redistribution
would result in a material change to the remaining Participants'
distributions, as determined by the MMC Compensation Committee.
(e) All Grant Payments and Exception Grant Payments shall be made in
cash, unless otherwise determined by the LTIP Committee with the
approval of MMC.
V. TERMINATION OF EMPLOYMENT
(a) Termination of employment and service provisions shall apply as
set forth in this Paragraph V, except as otherwise provided in a
Participant's employment, consulting or other written agreement
with MMC or M&M Capital, or as otherwise determined at the time of
Grant by the LTIP Committee.
(b) If a Participant's employment or service is terminated for Cause
as defined in Paragraph II(a)(1), (2) or (3) (or for actions,
other than those described in Paragraph II(a)(4), which constitute
Cause pursuant to the Participant's employment, consulting or
other written agreement with MMC or M&M Capital) the Participant's
Grants shall be forfeited (regardless of whether the Grants are
vested or unvested) and the value of the related Individual Carry
Percentages of each Incentive Pool shall be returned to the
applicable In-
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centive Pool. If a Participant's employment or service is
terminated for Cause as defined in Paragraph II(a)(4), (or for
actions described in Paragraph II(a)(4) which constitute Cause
pursuant to the Participant's employment, consulting or other
written agreement with MMC or M&M Capital), any unvested portion
of the Participant's Grants shall be forfeited and the value of
the related Individual Carry Percentages of each Incentive Pool
shall be returned to the applicable Incentive Pool, and Grant
Payments with respect to any vested but unpaid portion of the
Grants shall be made to the Participant as soon as practicable
following such termination. Such Grant Payments shall be
determined by calculating each Incentive Pool based upon the
carrying value, as reported in the most recent quarterly financial
statements, of the investments in such Incentive Pool as of the
Participant's date of termination.
(c) If a Participant's employment or service terminates without Cause
for any reason except death, Disability or Retirement, any
unvested portion of the Participant's Grants shall be forfeited
and the value of the related Individual Carry Percentages of each
Incentive Pool shall be returned to the applicable Incentive Pool,
and Grant Payments with respect to any vested but unpaid portion
of the Grants shall be made in accordance with the applicable
Grant Payment schedule.
(d) If a Participant's employment or service terminates because of
death, Disability or Retirement, Grant Payments with respect to
any unvested portion of the Participant's Grants shall become
fully vested, and shall be made in accordance with the applicable
Grant Payment schedule.
(e) For purposes of vesting only, a Participant's employment or
service shall not be deemed to have terminated as long as the
Participant is employed by, or renders services to, MMC or any of
its affiliates; in such cases, the Participant's Grants shall
continue to vest, subject to the limitations set forth in
Paragraphs V(f) and (g). Upon the subsequent
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termination of such Participant's employment or service with MMC
or any of its affiliates, the provisions of Paragraphs V(b), (c)
or (d) (as applicable) shall apply.
(f) With respect to each Incentive Pool except the Trident Incentive
Pool, in no case shall a Grant Payment be made to a Participant
with respect to an investment made following the date of
termination of the Participant's employment or service with M&M
Capital, and in no case shall a Grant Payment with respect to a
Participant's Grant be reduced because of the performance of an
investment made following the date of termination of the
Participant's employment or service with M&M Capital.
(g) With respect to the Trident Incentive Pool, the sum of the Grant
Payments made to any Participant shall not exceed an amount
reflecting a portion of the Participant's Grant, such portion
being equal to (i) the portion of the Grant that is vested,
multiplied by, (ii) a fraction, the numerator of which is the
aggregate value (determined on the cost basis) of funds invested
(including amounts drawn down or committed) by Trident prior to
the date of the termination of the Participant's employment or
service with M&M Capital and the denominator of which is $667
million, the aggregate value (determined on the cost basis) of
funds authorized for investment by Trident.
VI. CHANGE IN CONTROL
(a) Notwithstanding anything herein to the contrary, upon a Change in
Control of MMC or Change in Control of M&M Capital: (1) any
unvested Grants shall become fully vested as of the date of such
change in control, (2) Grant Payments shall be based upon the
appraised market value of the investments in each applicable
Incentive Pool as of such date, and such payments shall be made to
the Participants as soon as practicable following such date, (3)
the outstanding balance in each Reserve Account as of such date
shall be distributed to the Participants ratably (as determined by
the LTIP Committee at its discretion) as Grant Payments or
Exception Grant
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Payments, and (4) the LTIP shall continue thereafter at the
discretion of the LTIP Committee.
(b) For purposes of the LTIP, a "Change in Control of MMC" shall have
occurred if:
(1) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (other than MMC, any trustee or other
fiduciary holding securities under an employee benefit plan
of MMC or any corporation owned, directly or indirectly, by
the stockholders of MMC in substantially the same
proportions as their ownership of stock of MMC), is or
becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of MMC representing 50% or more of the combined
voting power of MMC's then outstanding voting securities;
(2) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of
Directors of MMC, and any new director (other than a
director designated by a person who has entered into an
agreement with MMC to effect a transaction described in
clause (1), (3), or (4) of this Paragraph VI(b)) whose
election by the Board of Directors of MMC or nomination for
election by MMC's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved, cease for any reason to constitute
at least a majority thereof;
(3) the stockholders of MMC approve a merger or consolidation
of MMC with any other corporation, other than (A) a merger
or consolidation which would result in the voting
securities of MMC outstanding immediately prior thereto
continuing to
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represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent
entity) 50% or more of the combined voting power of the
voting securities of MMC or such surviving or parent entity
outstanding immediately after such merger or consolidation
or (B) a merger or consolidation effected to implement a
recapitalization of MMC (or similar transaction) in which
no "person" (as hereinabove defined) acquired 50% or more
of the combined voting power of MMC's then outstanding
securities; or
(4) the stockholders of MMC approve a plan of complete
liquidation of MMC or an agreement for the sale or
disposition by MMC of all or substantially all of MMC's
assets (or any transaction having a similar effect).
(c) For purposes of the LTIP, a "Change in Control of M&M Capital"
shall have occurred if MMC no longer owns (directly or indirectly)
at least 50% of the value and voting power of M&M Capital.
VII. ADMINISTRATION
(a) The LTIP Committee shall have the authority in its sole
discretion, subject to and not inconsistent with the express
provisions of the LTIP, to administer the LTIP and to exercise all
the powers and authorities either specifically granted to it under
the LTIP or necessary or advisable in the administration of the
LTIP, including, without limitation, the authority to make Grants;
to determine the persons to whom Grants shall be made; to
determine the size of Grants to be made, and the terms and
conditions relating to any Grant including vesting; to determine
whether, to what extent, and under what circumstances a Grant may
be settled, cancelled, forfeited or surrendered; to determine and
make Grant Payments and Exception Grant Payments; to construe and
interpret the LTIP and any Grant; and to prescribe, amend and
rescind rules and regulations relating to the LTIP.
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(b) No member of the LTIP Committee shall be liable for any action
taken or determination made in good faith with respect to the LTIP
or any Grant hereunder.
VIII. OTHER
(a) COMPLIANCE WITH LEGAL REQUIREMENTS. Awarding Grants, making Grant
Payments and Exception Grant Payments, and any other terms
pursuant to the LTIP shall be subject to applicable Federal and
state laws, rules and regulations, and approvals by any regulatory
or governmental agency as may be required.
(b) GOVERNING LAW. The LTIP and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State
of New York, without giving effect to the conflict of laws
principles thereof.
(c) EFFECTIVE DATE. The effective date of the LTIP shall be December
31, 1998.
(d) PARTICIPANT RIGHTS. No Participant shall have any claim to receive
any Grant (other than the Original Grant) under the LTIP, and
there is no obligation for uniformity of treatment with respect to
Participants.
(e) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Nothing in the LTIP
or in any Grant shall confer upon any Participant the right to
continue in the employ or service of M&M Capital, MMC or an
affiliate of MMC, interfere with or limit in any way the right of
M&M Capital, MMC or an affiliate of MMC to terminate any
Participant's employment or service, or entitle any Participant to
remuneration or benefits not set forth in the LTIP.
(f) NONTRANSFERABILITY. Grants shall not be transferable by a
Participant except by will or the laws of descent and
distribution.
(g) BENEFICIARY DESIGNATION. Using the beneficiary designation form
set forth in Exhibit B, a Participant shall have the right, at any
time, to designate any person or persons as beneficiary or
beneficiaries (both principal
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and contingent) to whom payment shall be made in the event of the
Participant's death prior to the complete distribution to the
Participant of the amounts due under the LTIP. Upon completion of
the form, it should be submitted to the LTIP Committee. A
Participant may change a beneficiary designation by completing a
new form and submitting it to the LTIP Committee. A new
beneficiary designation shall cancel any prior beneficiary
designation. If a Participant does not have a beneficiary
designation in effect, or if all designated beneficiaries
predecease the Participant, then any amounts otherwise payable to
a beneficiary shall be paid to the Participant's estate. The
payment to a designated beneficiary or to the Participant's estate
shall completely discharge M&M Capital's obligations under the
LTIP.
(h) AMENDMENT; TERMINATION. The Board of Directors of M&M Capital
shall, with the consent of MMC, have the right to alter, amend,
suspend and terminate the LTIP, provided that, without the written
consent of the Participant, no such alteration, amendment,
suspension or termination shall adversely affect the terms and
conditions of any Grant theretofore made to such Participant under
the LTIP.
14
<PAGE>
Exhibit 10.17
MARSH & MCLENNAN COMPANIES, INC.
March 25, 1999
Mr. Jeffrey W. Greenberg
950 Park Avenue
New York, New York 10028
Dear Jeff:
On January 21, 1999, you were appointed President of Marsh & McLennan Companies,
Inc. (the "Company") and it was announced in a Company press release that you
will succeed A.J.C. Smith as Chief Executive Officer by the end of 1999. In
consideration of that appointment and subject to the provisions of this letter,
the employment agreement dated October 1, 1995 (the "Employment Agreement")
between you and Marsh & McLennan Risk Capital Corp., now Marsh & McLennan
Capital, Inc. ("Capital"), is terminated retroactive to January 21, 1999. This
letter describes the new status of your employment with Marsh & McLennan
Companies, Inc., namely:
o Your future compensation in all respects will be determined by the
Compensation Committee of the Board of Directors of the Company.
o Your new status and the termination of the Employment Agreement
will not in any way affect or reduce any rights you may have under
any compensation plan, program or award of the Company, including
without limitation any stock option award, restricted stock award,
restricted stock unit award, deferred compensation award
(including without limitation the deferred compensation award
described in Section 5(c) of the Employment Agreement) or bonus
award you have been granted. For purposes of the foregoing plans,
programs and awards, your employment by the Company shall be
treated as a continuation of your employment by Capital, and any
termination of your employment with the Company shall be treated
as a termination of your employment with Capital.
o In connection with any stock option or other award previously made
to you, or any exercise thereof, you shall not be required to
execute any non-competition agreement, and any non-competition or
non-solicitation agreement previously executed by you shall be
null and void. However, you will be required, in connection with
any exercise of a stock option, to execute the Company's standard
form of non-solicitation agreement (a copy of which is attached as
Exhibit A).
<PAGE>
In the event that a "Change in the Control of the Parent," as
defined in the Employment Agreement, occurs before the date on
which A.J.C. Smith resigns or otherwise terminates his position as
Chief Executive Officer of the Company, and if, on or after the
date of such Change in Control, your employment is terminated by
the Company without Cause (as defined in the Employment
Agreement), or if you resign within 60 days after the date of such
Change in Control, you will be entitled to receive all of the
compensation and benefits described in Section 7(e) of the
Employment Agreement as if that agreement were in effect on the
date of such termination. In addition,
- You will be entitled to any payments which would be
required under Section 8 of the Employment Agreement
to the extent those provisions are applicable.
- The provisions of Section 9 of your Employment
Agreement will also apply, so that you will not be
required to mitigate damages after termination of
your employment, except as specifically set forth in
Section 9.
o This letter will not affect your right to receive payments
according to the terms of any existing carried interest programs
or agreement, including without limitation the provisions relating
to the Trident Performance Payment in Section 5(f) of the
Employment Agreement, subject to the terms of any applicable award
letters which were issued to you in connection therewith. It is,
however, anticipated that new arrangements with respect to carried
interest programs and agreements will shortly be documented by the
Company as previously approved by the Compensation Committee of
the Board of Directors, and when documented, the new arrangements
shall supersede and replace in all respects your rights under any
existing carried interest programs or agreements.
If this letter corresponds with your understanding, please indicate your
agreement by signing your name in the space indicated below.
Very truly yours,
MARSH & McLENNAN COMPANIES, INC.
By:
-------------------------------------
A.J.C. Smith, Chairman
- -------------------------
Jeffrey W. Greenberg
Date:____________________
-2-
<PAGE>
MMC
MARSH & MCLENNAN COMPANIES
Annual Report 1998
[FRONT COVER: PAINTING OF GALLERY WITH VIEWS OF MODERN ROME]
<PAGE>
MMC is a global professional services firm with annual revenues exceeding $7
billion. It is the parent company of Marsh Inc., the world's leading risk and
insurance services firm; Putnam Investments, one of the largest investment
management companies in the United States; and Mercer Consulting Group, a major
global provider of consulting services. More than 50,000 employees provide
analysis, advice and transactional capabilities to clients in over 100
countries.
<PAGE>
Financial Highlights
================================================================================
For the Three Years Ended December 31, 1998 1997 1996
(in millions, except per share figures)
- --------------------------------------------------------------------------------
Revenue $7,190 $6,009 $4,404
Income Before Income Taxes(1) $1,305 $ 715 $ 668
Net Income(1) $ 796 $ 434 $ 459
Stockholders' Equity $3,659 $3,233 $1,889
- --------------------------------------------------------------------------------
Diluted Net Income Per Share (1) $ 2.98 $ 1.73 $ 2.08
Dividends Paid Per Share $ 1.46 $ 1.26 $ 1.11
Year-end Stock Price $58.44 $49.71 $34.67
================================================================================
(1) MMC's 1997 operating results include the impact of a special charge
principally resulting from the combination with Johnson & Higgins.
[The following tables were represented as bar charts in the printed material.]
- --------------------- -------------------
Year-end Year-end
Market Capitalization Share Price
(in billions)
- --------------------- -------------------
Compound Compound
Annual Growth 28% Annual Growth 22%
- --------------------- -------------------
94 $ 5.8 94 26.42
95 6.5 95 29.58
96 7.5 96 34.67
97 13.0 97 49.71
98 15.4 98 58.44
<PAGE>
Dear Shareholder
MMC had an outstanding 1998. We solidified our long-term leadership in risk and
insurance services with the strategic acquisition of Sedgwick Group, the largest
European-based insurance broker; continued to expand our investment management
business; and strengthened our position as a leading global provider of
consulting services.
MMC's revenues for the year rose 20 percent to $7.2 billion from $6.0 billion in
1997. Net income grew 34 percent to $796 million and earnings per share
increased 26 percent to $2.98, compared with $592 million and $2.36,
respectively, excluding special charges in 1997.
These strong financial results reflect the excellent performance of all our
business segments, and I am pleased to report that we see significant potential
for continuing to increase earnings. In each of our businesses, we are
consolidating our position as provider of choice. As a global firm, we have the
resources and perspective to invest the assets of our institutional clients and
mutual fund shareholders successfully and to work with clients to find solutions
to their problems and respond to the increasingly more complex risks that
affect their operations worldwide.
The leadership of MMC will be crucial in the years ahead. The Company is made
stronger by the appointment of Jeffrey W. Greenberg, who was elected president
in January 1999 and will succeed me as chief executive by the end of this year.
Jeff is a respected and experienced professional whose reputation as an
innovator was most recently evident in his work as chairman of Marsh & McLennan
Capital, our private equity investment subsidiary. This, in addition to his
earlier experience as a senior executive of American International Group and at
Marsh & McLennan, where he began his professional career in 1976, will serve him
well as he assumes his new responsibilities. I am certain that his exceptional
talents and professional standards will be an asset to MMC for many years to
come.
----------
2
<PAGE>
MMC's financial performance produced excellent results for its shareholders.
During the year, we split our stock three-for-two and increased our quarterly
dividend 20 percent, continuing our record of increasing total annual dividends
paid to shareholders each year since we went public in 1962. The total return on
our common stock including dividends was 21 percent in 1998.
Our investment management business, Putnam Investments, had another superb year.
It is one of the leading money managers in the United States and its growth
continues to exceed that of the industry. Despite market volatility, Putnam
reported remarkable earnings growth, margin improvement and high levels of new
institutional and mutual fund sales. For the year, revenues grew 22 percent,
operating income climbed 46 percent and assets under management rose 25 percent
to $294 billion. Mutual fund assets increased 22 percent to $221 billion,
supported by investor preference for Putnam's breadth of products and
disciplined investment style, as well as the company's strong marketing and
sales efforts and award-winning investor services. Institutional assets rose to
$73 billion, up 37 percent from 1997, reflecting robust growth in both the
defined benefit and defined contribution plan business where Putnam excels,
based on its product range, investment skills and client service.
For 1998, our risk and insurance services revenues reached $3.4 billion, an
increase of 20 percent from 1997. Our businesses produced solid organic revenue
growth and have sound prospects for increased earnings. In early 1999, we
created a new holding company for our risk and insurance services business,
Marsh Inc. This company reflects the integration of the three respected
traditions of Marsh & McLennan, Johnson & Higgins and Sedgwick, which we
acquired late in 1998. Sedgwick not only increased the presence of our risk and
insurance services business worldwide, but that of our consulting business as
well. Our cultures, areas of specialization and work-quality standards are
similar, so we are able to combine capabilities with Sedgwick quickly, to
deliver significant advantages to our clients. We expect Sedgwick to be
accretive to earnings in 2000 based on the significant operating efficiencies
and consolidation savings we will achieve.
[Photograph of A.J.C. Smith]
A.J.C. Smith
----------
3
<PAGE>
Marsh & McLennan Capital, our private equity investment firm, also had a very
good year as it continued to organize and invest in insurance and related
industries. It is forming Trident II, a fund expected to exceed $1 billion in
capital commitments from investors for global opportunities in insurance,
reinsurance and other financial services companies.
Mercer Consulting Group achieved its financial goal of double-digit revenue
growth and margin improvement. Revenues for 1998 were $1.5 billion, up 15
percent over the prior year. Human resource consulting, where Mercer is the
global leader, grew 11 percent, with excellent results for all practices. The
compensation consulting area was reinforced by the addition of KPMG Peat
Marwick's U.S. compensation practice and Control Resources Group, an
international firm with particular strength in Asia and Europe. The management
consulting business made progress in a very receptive market, capturing large
new assignments in the United States and around the world. It expanded its
European presence by acquiring one of Germany's top management consulting firms,
Dr. Seebauer & Partner.
MMC elected several new members to the Board of Directors in 1998. We welcomed
Saxon Riley and Rob White-Cooper, former chairman and chief executive officer,
respectively, of Sedgwick, as well as three outside directors: Stephen R.
Hardis, Gwendolyn S. King and John D. Ong. Richard S. Hickok and Richard M.
Morrow retired from the Board. Richard H. Blum, vice chairman for Marsh Inc.,
who led Guy Carpenter & Company from 1984 to 1996, also retired. Dick made many
important contributions to the firm over his long career, including his recent
work on the integration of Johnson & Higgins. We are pleased that he will
continue to serve in a consulting role.
As we look to 1999 and beyond, MMC has never been stronger. Over the past few
years, we have strengthened our position in each of our business sectors, made
strategic acquisitions and delivered excellent performance. In the pages
following, the heads of our operating companies respond to questions about their
firms' prospects.
MMC's continued success depends on the intelligence and dedication of the men
and women who carry out our goals each day. We appreciate their efforts and our
shareholders' support as we build the premier professional services firm.
/s/ A.J.C. Smith
A.J.C. Smith
Chairman and Chief Executive Officer
March 5, 1999
----------
4
<PAGE>
Performance Over Time
Building on our history of innovation and leadership, MMC is today a $7 billion
professional services firm with risk and insurance services, investment
management and consulting companies that lead their respective industries. This
unique mix is attractive to clients and investors alike, providing depth of
specialist expertise and a source of diversified earnings, which have
contributed to our excellent long-term performance. The leaders of our operating
companies discuss achievements and opportunities for the future.
----------
5
<PAGE>
================================================================================
RISK AND INSURANCE SERVICES
Marsh Inc. has grown and prospered by responding quickly and effectively to
changing market conditions and offering increasingly wide-ranging service and
advice to its clients. The company's leadership has been reinforced by the
recent combination with two of the best-known companies in risk and insurance
services. John T. Sinnott, chairman and chief executive officer, shares his
thoughts on recent developments and future prospects.
================================================================================
[Pages 6-7: Painting of the Rialto Bridge, Venice]
<PAGE>
Please update us on the integration of Johnson & Higgins.
Our firms are fully integrated and I'm pleased to report that the results have
exceeded our expectations. Johnson & Higgins had an excellent reputation and was
a quality firm. The many compatibilities and complements that we saw in the
joining together of our organizations have now been realized.
Quantitatively, you can look at the high levels of client and staff retentions
and net new business. We achieved remarkable consolidation savings in 1998, and
our 1999 results should reflect additional benefits from the merger. This
combination has permanently strengthened our company's earnings power.
Qualitatively, we have created one organization that draws on the best practices
and talents of each firm. I believe our company has the greatest expertise and
knowledge in our industry, which in turn will benefit all of our clients.
How does the acquisition of Sedgwick strengthen the risk and insurance services
business?
We feel the acquisition of Sedgwick is an excellent fit, both strategically and
operationally. It was the largest European-based insurance broker with about
$1.2 billion in annual risk and insurance services revenues. Our merger combines
compatible resources, talented professionals and our excellent reputations to
significantly enhance both our client service capabilities and potential for
growth.
Sedgwick expands our coverage geographically. In the United Kingdom, Sedgwick's
strong direct insurance broking business and London market operations
complement Marsh's existing position. We expect to integrate our operations in
the United Kingdom in much the same way that we so successfully integrated
Johnson & Higgins' operations in the United States. Sedgwick also augments our
operations in Continental Europe and Asia Pacific, especially in Australia and
New Zealand.
Guy Carpenter & Company, our reinsurance unit, benefits from the Sedgwick
acquisition on a worldwide basis. In the United States, we have greater
representation in national accounts and facultative reinsurance. Our London
practice has been expanded and Far East business has also been enhanced.
Sedgwick has operated in some U.S. cities where Marsh did not have a presence.
And while Sedgwick has served a full range of clients, it has a particularly
strong base of mid-sized customers, which will reinforce the excellent inroads
we made in this market following the Johnson & Higgins merger. Seabury & Smith's
program management business will be enhanced by the addition of Sedgwick, as
will our specialty practices. Sedgwick also has an excellent claims man-
[The following table was represented as a bar chart in the printed material.]
---------------------
Revenue
(in billions)
---------------------
Compound
Annual Growth 15%
---------------------
94 $1.9
95 2.0
96 1.9
97 2.8
98 3.4
----------
8
<PAGE>
agement business, which will add to our capabilities in the United States. We
will add to our client base as well as achieve operational efficiencies.
Finally, we also expect to realize significant consolidation savings from the
merger, which will be accretive to our earnings beginning in 2000.
What are the prospects for growth in risk and insurance services?
There are significant engines of growth for our industry and, in particular, for
our firm. Few organizations--in any industry--can deliver the breadth and scope
of our services. Over the last 20 years, we have carefully built a worldwide
organization and invested in resources and specializations that are available on
a global basis. Our specialist practices, which are organized by industry, type
of risk exposure and client-service style, are designed to handle each client's
unique insurance needs. This strategy has consistently strengthened client
service and contributed to our revenue growth. It should continue to do so,
particularly as risks become more complex.
The opportunities for long-term growth worldwide are exciting. In Europe,
economic trends of market liberalization, privatization and unification all
signal the need for our services. There is also increased awareness of and
exposure to product, professional and environmental liabilities, which pose
serious threats to commercial clients' earnings.
We are also well positioned in Latin America. In spite of the recent turmoil in
its financial markets, this region has had some of the fastest growing
economies and highest growth rates in property and casualty insurance products
and services for the past decade.
We remain optimistic about the opportunities in Asia Pacific and anticipate that
these markets will welcome providers who specialize in advice and services that
are critical to asset protection.
[Architectural Drawing]
There have been a number of recent innovations that have expanded the company's
approach to risk. Please comment.
In 1998, we had an unprecedented year of new service and product offerings. Our
clients are facing risks that are growing not only in number but also in
complexity. Working together as partners, we have helped them create new ways to
manage and transfer risk, including capital market solutions, which supplement
traditional insurance and reinsurance programs. As an example, our new
investment banking unit, Marsh & McLennan Securities, worked with our broking
specialists in London and Bermuda to arrange a pioneering program for an
international aircraft manufacturer that limits the client's liabilities arising
from the leasing of aircraft it produces. Another
----------
9
<PAGE>
breakthrough program protects a major newspaper against increases in the price
of newsprint.
We have also created innovative programs that protect and enhance a client's
earnings stream. These include environmental policies, tax-opinion guarantees,
insurance alternatives to credit lines, coverages that facilitate mergers and
acquisitions and other financially oriented products. We recently introduced a
unique employment practices liability program specifically designed to protect
large organizations against the sharp increase in employee lawsuits. In
addition, we are applying a comprehensive approach to risks, bundling a wide
range of property and liability exposures within a single, multiyear financing
solution. This benefits our clients by reducing the cost of the total program
and simplifying administration.
Traditionally, companies have looked at financial, strategic, operational and
hazard risks separately. More and more, we are seeing a blending of disparate
risks. We help our clients combine traditional hazard protection with coverage
against financial risks, such as fluctuations in interest and currency rates.
Combining all of a company's exposures in a comprehensive approach may produce
lower costs and better risk management over time. Our Enterprise Risk Management
initiative draws on the expertise of other colleagues within MMC in consulting
and investment management, and this unique combination of resources helps us to
identify and address the range of exposures that major organizations
increasingly face today.
[The following was represented as a pie chart in the printed material.]
1998 Operating Income
by Geographic Region
$613 million
I: United States 55%
II: Europe 30%
III: Canada 6%
IV: Latin America 5%
V: Asia Pacific/Other 4%
What is the function of Marsh & McLennan Capital in the company's risk and
insurance services activities?
This operation is a continuation and broadening of our market-making role that
began decades ago. Its combination of expertise in insurance and finance has
enabled us to take advantage of capital from different funding alternatives.
This activity was heightened during the mid-1980s, when we established ACE and
EXEL, when clients weren't able to find coverage at any price.
More recently, we have expanded this role by investing in funds to capitalize
the insurance industry. In 1994, we launched Trident, an investment fund with
approximately $660 million in capital commitments from investors for the global
insurance and reinsurance markets. As a follow-up to this extremely successful
undertaking, we are forming Trident II, a fund expected to exceed $1 billion.
Marsh & McLennan Capital keeps us at the forefront of financial developments in
insurance. Its results have been excellent. Over time, we have built up
effectively and carefully a private equity business that reaps financial rewards
for our shareholders. Marsh & McLennan Capital's access to MMC's global network
of professionals provides it with a significant competitive advantage over other
similar private equity investors in identifying attractive investment
opportunities.
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10
<PAGE>
Please comment on the role technology will play in Marsh's future.
Technology mobilizes our global expertise and enables us to improve the quality
of our services to clients. Our communications and database networks connect our
professionals with one another and our clients, which fosters teamwork and
provides access to a wealth of capabilities and information. For example, we
have created an Internet-based tool that clients can access to stay current on
all the elements involved in a complex risk management program. Clients can also
tap into databases that provide information on a wide range of business,
financial and risk subjects, such as the insurance and regulatory environments
worldwide.
On the transactional side, we are implementing technology that will vastly
improve the collection and analysis of pricing and coverage information in the
global markets. It will produce substantial efficiencies and enhance accuracy by
substituting electronic processes for the current paper-based methods of
conducting insurance transactions. It also gives us improved data handling and
retrieval capabilities as well as the ability to conduct more specific research
on behalf of our clients.
How do you manage your business in an environment of premium rate reductions?
For many of our professionals, the current down cycle in insurance rates is the
only environment that they have ever known. Plentiful capacity and expanded
terms and conditions have characterized the U.S. marketplace for 12 years and
more recently have been evident in the world's insurance markets. This has
created a very competitive market with lower pricing for the transfer of
commercial risk.
We've learned to prosper in any environment by constantly examining the way we
do business and by making sure that we are at the forefront of industry
practices. We emphasize efficiency and are reaping the benefits of expanding
geographically. All this positions us to grow profitably as demand for our
expertise expands in the world's major economies, as well as in developing
countries.
[Architectural Drawing]
----------
11
<PAGE>
================================================================================
INVESTMENT MANAGEMENT
Putnam Investments has been transformed over the last decade, emerging from a
group of small to medium-sized firms to hold a commanding presence in investment
management. It is today one of the largest and fastest growing money management
firms in the United States and is turning its sights globally. Prospects for
continued growth are superb, supported by demographic trends throughout the
world and investors' growing preference for Putnam's products and services.
Lawrence J. Lasser, president and chief executive officer, discusses the
company's near- and long-term outlook.
================================================================================
[Pages 12-13: Painting of the Arrival of Aeneas at Carthage]
<PAGE>
How would you characterize Putnam's growth and transformation over the last
several years?
No matter the measurement period--from 1970, when MMC acquired Putnam and assets
were less than $2 billion, or five years ago, when assets were $90
billion--Putnam has experienced strong, even unimaginable, growth. We have
emerged from a largely undifferentiated group of small to medium-sized
competitors to become an industry leader with $294 billion in assets under
management.
To attain this success, we transformed Putnam. We instilled an aggressive,
entrepreneurial can-do culture, with an emphasis on profitable growth. Our
paramount interest is not in growing the top line or becoming the largest
firm--we have aimed to be the best, most profitable company. In addition, we've
attempted to manage our growth in terms of asset quality. By that, I mean our
goal is not merely to gain new business, but profitable, high value-added
business.
In 1998, how has Putnam been affected by the market's volatility?
Historically, the stock market's average annual growth has been 8 percent to 10
percent. In the period from 1995 to 1998, growth exceeded 20 percent for each of
those years, which is unprecedented in terms of both its level and duration. An
adjustment would seem to be inevitable--unless the rules of the history of the
stock market, going back 150 years, suddenly were no longer to apply.
A principal driver of both Putnam's and the industry's growth has been the
market. If it is down, then the main generator of Putnam's revenue and profit
growth is absent. If the market rises, all firms gain, but not equally. We have
succeeded in outdistancing our competitors to the degree that Putnam's marketing
and sales in mutual funds, robust defined benefit business, highly competitive
defined contribution business and international initiatives have been able to
win market share. Putnam's investment-style breadth and above average investment
performance also contributed to our growth.
[Architectural Drawing]
Will the market's return to more normal levels affect Putnam adversely?
Putnam's growth rate, which exceeded 30 percent over the last five years, would
slow, but our business initiatives--in marketing, sales, distribution, new
product and global business development--show no signs of losing momentum. And
the need for our services should not lessen either. Institutional clients are
required to maintain and fund defined benefit programs on behalf of their
employees. Individual customers' retirement aspirations have not changed as a
consequence of market turns. The number
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14
<PAGE>
of baby boomers moving into retirement and requiring money management expertise
will not decline.
Remember that the world's stock markets are replete with innovative companies
managed by smart, entrepreneurial people who are prepared to adapt to and
exploit change. It is up to us to continue to find and invest in those
companies. If we deliver competitive performance, we will get our share of
business. If we continue to deliver superior performance, we will get more than
our share and in that way cushion any market reversal.
[The following table was represented as a bar chart in the printed material.]
---------------------
Operating Income
(in millions)
---------------------
Compound
Annual Growth 34%
---------------------
94 208
95 244
96 338
97 463
98 677
Please comment on Putnam's long-term growth outlook.
Barring any prolonged market downturn, the scenario for Putnam is very positive.
The emphasis on retirement planning and the establishment of mutual funds as the
preferred savings vehicle in an increasingly savings-oriented society will
continue to support Putnam's U.S. growth. Further, non-U.S. markets that share
demographic, sociological and economic wealth factors represent a new and
largely untapped source of business for a globally focused, U.S.-based money
manager like Putnam.
The inherent economics of the investment management business are excellent,
where Putnam has been a major factor as measured by its size, breadth, prestige
and asset quality. Fundamental demand for and acceptance of the products and
services of the industry, and of Putnam in particular, has never been stronger
or more widespread. Individuals' need for advice in making financial decisions
should continue to grow as their portfolios increase in size and investment
options multiply. And their need for a disciplined investment management style
that they can count on will intensify. Our professional staff is of the highest
caliber, and the diversity of our asset classes and distribution channels gives
us great flexibility and coverage.
Would you describe the distinguishing characteristics of Putnam's money
management philosophy.
Putnam has built a balanced business by having a presence in all sectors of
money management across the entire investment spectrum for individual and
institutional investors. We manage equity and fixed income, domestic and global,
aggressive and conservative products. We place great importance on delivering
consistent and competitive returns for clients through disciplined investment
strategies and by strictly adhering to our investment-style guidelines. A
globally integrated investment process also distinguishes Putnam, assuring
better communication and knowledge sharing in a
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15
<PAGE>
team environment. Putnam, in fact, was the first firm to make the transition to
a team management approach in the mid-1980s, breaking away from the star system
of portfolio managers that has traditionally dominated investment management.
While we depend on enormously skilled and gifted individuals, the team process
allows us to capture the best aspects of individual thinking and collective
judgments.
Please discuss the role technology has played in Putnam's development.
We have benefited from the power of the computer combined with quantitative
techniques to support the management of money. For example, technology enables
us to screen and test portfolios and to forecast performance by substituting one
variable for another. More important, it allows us to measure risk and to gauge
what can be earned in relation to the risk taken. This, in turn, has encouraged
more specific client mandates.
Technology has revolutionized the service side of Putnam's business for both our
individual mutual fund and institutional investors. We recognized early on that
beyond excellent investment results, our shareholders, plan sponsors and the
intermediaries who distribute our funds want outstanding service. Our solution
was to create a "factory" whose product would be superior, almost flawless,
service. Putnam's three major service centers in the Boston suburbs--Andover,
Quincy and Franklin--each required a high capital investment; they are staffed
with dedicated, carefully trained and supervised people and utilize an enormous
amount of technology to provide client-focused service.
We have been standard setters in our industry, achieving a series of firsts in
using new technology to deliver excellent service. Putnam has been acknowledged
for its leadership, having won for the second straight year the prestigious
Dalbar "triple crown" award for service to mutual fund investors, variable
annuity clients and financial advisors. Putnam was the only company to be
recognized for outstanding service in all three categories.
Putnam is one of the first major mutual fund companies to be Year 2000
compliant--one year early. We began to eliminate potential problems starting in
early 1995, adjusting hundreds of programs and working with business partners,
suppliers and clients to ensure that data from outside the company were
acceptable. By year-end 1998, we had already used our upgraded systems to
produce shareholder statements. Our internal teams will continue to conduct
tests throughout 1999 to ensure we are prepared for the turn of the century.
[The following was represented as a pie chart in the printed material.]
Year-end
1998 Assets
Under Management
$294 billion
I: Funds Retail 66%
II: Defined Benefit 22%
III: Defined
Contribution 12%
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16
<PAGE>
What is the position of Putnam's international business?
Putnam began investing internationally more than 25 years ago on behalf of U.S.
clients. The aggregate assets we invest internationally today are about $35
billion.
Over the last four years, we have worked to attract assets from non-U.S. sources
and have been extremely successful through our activities in Japan and Italy. In
1997, we established a very effective joint venture with Nippon Life Insurance
Company, one of the world's largest life insurance companies with a commanding
position in the Japanese pension market, to manage money for its institutional
clients. We recently strengthened that alliance by taking a stake in Nippon's
mutual fund affiliate and are working together to develop a retail mutual fund
business in Japan. In 1995, we entered into a joint venture with an Italian
financial services organization to develop, manage and distribute mutual funds
in Italy. That relationship has also been very profitable. We now manage $3
billion and our partner has expanded its distribution network by a factor of
three or four.
In the next five years, our goal is to derive about one-fifth of our total
assets from sources outside the United States. A confluence of factors should
help us to achieve this. The shift from government-sponsored pension plans to
more individual responsibility for retirement financing; the deregulation of
banking and financial services enabling foreign participation; the lack of
investment management capabilities in many countries; the growing awareness of
investment products such as mutual funds--all of these represent enormous
long-term global opportunities for select U.S. money managers such as Putnam.
Based upon the depth of our investment management skills and resources and, in
particular, our strength in investor services and knowledge of distribution,
Putnam should become a major global player as we apply our expertise abroad.
[Architectural Drawing]
How would you like Putnam to be perceived by your current and prospective
customers?
Putnam has gained prominence in the investment management industry as measured
by its size, reputation for excellence, professionalism and uncompromising
integrity. Most important, we have grown by keeping our organization centered
on--and responsive to--the needs of our clients. Beyond these attributes, I
would hope we are recognized for our dedication to the very serious business of
delivering investment performance that benefits people's lives. We help our
customers--and we have more than 10 million individual mutual fund
shareholders--finance their retirements and their children's educations, buy
homes and build financial wealth. We are very aware of our responsibilities and
consider ourselves fortunate to do such important work.
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17
<PAGE>
================================================================================
CONSULTING
A number of trends have come together in the 1990s--demographic, geographic and
economic--fueling the demand by organizations for high value-added human
resource and management consulting advice worldwide. Mercer Consulting Group is
a major global provider of consulting services; it has continued to strengthen
and expand its areas of expertise and the geographies in which it operates to
position itself as a market leader. Peter Coster, president, addresses Mercer's
prospects for growth.
================================================================================
[Pages 18-19: Painting of Rome with the Bridge and Castel St. Angelo by the
Tiber.]
<PAGE>
Please update us on Mercer Consulting Group's recent performance and tell us how
it fits the company's historical growth pattern.
We had an outstanding year in 1998. Revenues increased 15 percent and operating
earnings grew 36 percent. Looking back over the past five years, our compound
earnings growth rate is 20 percent.
Our recent record is quite consistent with what we have achieved long term. When
MMC separated its consulting business from insurance broking in 1975, the Mercer
name was unknown outside of Canada, and the business consisted largely of
benefits advice in North America. Over the intervening period, Mercer has
established itself as a broad-based human resource consulting firm with a
leadership position in every major market in the world, and we have added
outstanding capabilities in the areas of business strategy, economic and
corporate image consulting. Since 1975, revenues and earnings have grown at
compound annual rates of 16 percent and 13 percent, respectively.
Our reputation for thought leadership and top quality advice has never been
higher, and we continue to attract the most talented people to come work for us.
Not surprisingly, this leads to an impressive number of major new client
relationships.
What is driving the growth?
The consulting industry benefits from a number of broad economic and social
trends--rapid change, global competition, deregulation, technical complexity and
the increasing size of many organizations--all of which drive demand for
objective, third-party expertise. We also see attractive opportunities for
consulting as governments, employers and individuals react and adjust to the
increasing burden of state-provided benefits. Part of the opportunity lies in
the retirement area, where governments are struggling to provide for the future
security of state-funded retirement programs in the face of developments that
are leading to fewer tax-paying workers supporting more and more retirees. One
leading alternative is increased dependence on the private sector and
individuals, which represents opportunities for Mercer. Also, we are finding
that the knowledge we have gained on health care cost control in the United
States is equally valuable in countries where health care is still largely a
governmental responsibility.
Within this broad framework, Mercer's success is linked to our people and our
ideas. I believe we have the best.
Our access to capital as part of MMC is also a major advantage. In contrast to
many competitors, our network of global locations is wholly owned, which is a
big plus in terms of knowledge sharing, level of service and our ability to
order client priorities.
[The following table was represented as a bar chart in the printed material.]
---------------------
Operating Income
(in millions)
---------------------
Compound
Annual Growth 20%
---------------------
94 96.4
95 108.7
96 119.4
97 148.4
98 201.8
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20
<PAGE>
How do acquisitions fit Mercer's growth strategy?
We don't make acquisitions with the objective of gaining market share. We make
acquisitions to build critical mass where we need it and to secure new customer
segments and capabilities where we have gaps. They enable us to achieve a
position that accelerates our rate of organic growth.
From a practice standpoint, our recent acquisition activity has been focused on
high value-added sectors, such as executive compensation, investment consulting
and management consulting. Geographically, we have concentrated on East Asia,
Latin America and Continental Europe. In late 1997, for example, Mercer
Management Consulting acquired Corporate Decisions, Inc., a strategy consulting
firm that is prominent for its advice on building shareholder value. The
acquisition of KPMG's U.S. compensation practice in 1998 brings us a number of
nationally prominent consultants as well as a new stream of consulting
opportunities through KPMG. The addition of Corporate Resources Group, a
compensation consulting and human resource data firm with particular strength in
Asia and Europe, also strengthens our compensation area. Eager & Associates,
which advises investment managers in fund design, product positioning and
product development, enhances our investment-related consulting. And Dr.
Seebauer & Partner, one of Germany's top management consulting firms with
specialization in the financial services industry, is an important addition to
our European presence.
[The following was represented as a pie chart in the printed material.]
1998 Revenue
by Practice
$1.5 billion
I: Pension &
Retirement 41%
II: Management
Consulting 17%
III: Health Care 17%
IV: Compensation &
Communication 12%
V: Other Human Resource
Consulting 8%
VI: Economic 5%
Would you discuss the impact of the Foster Higgins integration and what you
anticipate for Sedgwick Noble Lowndes.
We integrated Foster Higgins into our organization quickly and have achieved
significant consolidation savings, which have contributed to MMC's overall
growth and bottom line. We plan to do the same with Sedgwick Noble Lowndes.
The insurance broking side of MMC, through the Johnson & Higgins and Sedgwick
acquisitions, strategically drove both of these transactions, which brought a
lot of talented people and excellent client relationships to Mercer. This is
especially the case for Sedgwick Noble Lowndes, which has been one of Mercer's
largest and most highly regarded competitors in human resource consulting in the
United Kingdom, Ireland, Australia and Continental Europe.
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21
<PAGE>
Please comment on Mercer's businesses outside of the human resource consulting
arena.
Mercer Management Consulting is a major player in strategy consulting and its
prospects for growth are excellent. It has developed the intellectual capital
for helping clients grow and maximize shareholder value. Mercer's book, The
Profit Zone, was named one of the ten best business books of 1998 by Business
Week, and a new book, Profit Patterns, is slated to appear in the spring of
1999. The marketplace reception for these insights has been excellent. Still,
Mercer Management Consulting is a relative newcomer in a market dominated by
firms founded decades ago; it will take a while to achieve market leadership.
Our plans embrace organic growth, selective acquisition, market-leading
intellectual capital and top quality work, and 1998 marked another year of solid
progress. Demand for the services of National Economic Research Associates, the
leading firm of consulting economists, is also strong, including large
assignments in Asia and Latin America relating to deregulation and
privatization. Lippincott & Margulies, the leading consultant to major companies
on issues of corporate image, has grown significantly.
Where do you see your best growth opportunities?
Wherever we look in the world, companies are under increasing pressure to be
more profitable, and Mercer Consulting Group is ideally positioned to help them.
We continue to see the major English-speaking countries as excellent markets,
and we are also looking to Asia, Europe and Latin America to fuel growth in the
longer term. In Europe in particular, we believe the adoption of the euro will
trigger changes that will greatly increase the demand for business consulting
services of all types. Privatization has also brought formerly government-owned
and -operated enterprises into the competitive mix, which continues to generate
significant consulting opportunities.
In terms of practice areas, we expect to see a growing convergence of human
resource and traditional management consulting. Of all the strategic changes
initiated by companies, a large percentage never achieve full potential because
their people strategies are not aligned with their business strategies. Our
studies show that mobilizing the organization behind change is the most
important element in business success--more important even than understanding
the market or competition or economics. We believe Mercer is the best qualified
of all consulting firms to combine human resource and strategy consulting to
bring value to our clients' bottom lines.
[Architectural Drawing]
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22
<PAGE>
[Architectural Drawing]
Are you working on other internal synergies?
One of our most important goals presently is to strengthen our global client
management process to ensure that we respond to multicountry client issues with
the right teams and the right mix of practice expertise. The combinations of
Daimler-Chrysler, BP-Amoco and Deutsche Bank-Bankers Trust are standout examples
of the ways in which business is becoming ever larger and more global. One way
this affects Mercer is that greater numbers of clients are interested in global
approaches to human resource issues that are fair and equitable across national
borders despite the different social, economic and regulatory environments.
While Mercer continues to have many excellent clients whose businesses are local
or regional only, our work is increasingly for multinational organizations, and
we need to improve continuously how we use our network of offices to serve them.
Looking to 1999 and beyond, what are Mercer's prospects?
Our near-term financial objectives are to continue our double-digit growth and
to further improve profit margins. In this context, a priority is to improve the
profitability of the newly acquired Sedgwick Noble Lowndes business.
As to the long term, we are positioned strongly in large and growing markets,
and the economic trends favor our business. Mercer has name recognition and an
excellent reputation, which we expect to reinforce and enhance. The future looks
good.
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23
<PAGE>
================================================================================
MMC WORLDWIDE
RISK AND INSURANCE SERVICES
Marsh Inc. is the world's leading risk and insurance services firm. Insurance
broking is generally conducted under various forms of the Marsh name and
includes the total range of services to identify, value, control, transfer and
finance risk. Worldwide reinsurance broking advice and services for insurance
and reinsurance companies are provided through Guy Carpenter & Company, Inc. The
company structures and places reinsurance coverage and other risk-transfer
financing with reinsurance firms and capital markets worldwide. Insurance
program management services in the United States and Canada are provided through
Seabury & Smith, Inc., which designs, markets and administers specialized
insurance programs. The company also provides underwriting management services
in North America and the United Kingdom to insurers, primarily for professional
liability coverages.
Marsh & McLennan Capital, Inc. originates, structures and manages
insurance-related private equity investments on a global basis.
INVESTMENT MANAGEMENT
Putnam Investments, Inc., one of the oldest and largest money management
organizations in the United States, offers a full range of both equity and fixed
income products, invested domestically and globally, for individual and
institutional investors. Putnam, which manages more than 110 mutual funds, has
over 900 institutional clients and 10 million individual shareholder accounts.
It had $294 billion in assets under management at year-end 1998.
CONSULTING
Mercer Consulting Group, Inc., one of the largest consulting firms in the world,
provides advice and services to organizations. William M. Mercer Companies LLC
is a market leader in human resource, employee benefit and compensation
consulting. Mercer Management Consulting, Inc. is a leader in helping
enterprises achieve sustained shareholder value growth through the development
and implementation of innovative business designs. National Economic Research
Associates, Inc. (NERA), the leading firm of consulting economists, specializes
in providing solutions to problems involving competition, regulation, finance
and public policy.
================================================================================
[Pages 24-25: Painting of Gallery with Views of Modern Rome]
<PAGE>
Financial Contents
27 Management's Discussion and Analysis
of Financial Condition and Results of Operations
36 Consolidated Statements of Income
37 Consolidated Balance Sheets
38 Consolidated Statements of Cash Flows
39 Consolidated Statements of Stockholders' Equity
and Comprehensive Income
40 Notes to Consolidated Financial Statements
55 Report of Management
55 Report of Independent Auditors
56 Selected Quarterly Financial Data
and Supplemental Information (Unaudited)
57 Five-Year Statistical Summary of Operations
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26
<PAGE>
Marsh & McLennan Companies, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Marsh & McLennan Companies, Inc. and Subsidiaries ("MMC") is a professional
services firm providing risk and insurance services, investment management and
consulting. More than 50,000 employees worldwide provide analysis, advice and
transactional capabilities to clients in over 100 countries.
MMC is organized in three principal business segments based on the services that
each provides. Segment performance is evaluated based on operating income, which
is after deductions for directly related expenses but before special charges.
The accounting policies of the segments are identical to those used for the
consolidated financial statements, described in Note 1 to the consolidated
financial statements.
This management's discussion and analysis of financial condition and results of
operations contains certain statements relating to future results which are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. See "Cautionary Language Regarding
Forward-Looking Information" on the inside back cover page of this annual
report.
The consolidated results of operations follow:
================================================================================
(In millions, except per share figures) 1998 1997 1996
- --------------------------------------------------------------------------------
Revenue:
Risk and Insurance Services $ 3,351 $ 2,789 $ 1,907
Investment Management 2,296 1,882 1,338
Consulting 1,543 1,338 1,159
- --------------------------------------------------------------------------------
7,190 6,009 4,404
- --------------------------------------------------------------------------------
Expense:
Compensation and Benefits 3,565 3,044 2,204
Other Operating Expenses 2,209 1,923 1,425
Special Charges/(Credits), net (4) 244 60
- --------------------------------------------------------------------------------
5,770 5,211 3,689
- --------------------------------------------------------------------------------
Operating Income $ 1,420 $ 798 $ 715
================================================================================
Net Income $ 796 $ 434 $ 459
================================================================================
Net Income Per Share:
Basic(a) $ 3.11 $ 1.77 $ 2.11
================================================================================
Diluted(a) $ 2.98 $ 1.73 $ 2.08
================================================================================
Average Number of
Shares Outstanding:
Basic(a) 256 245 217
================================================================================
Diluted(a) 264 251 221
================================================================================
(a) Information for 1997 and 1996 has been restated to reflect the
three-for-two stock distribution in the form of a stock dividend issued on
June 26, 1998.
During the third quarter of 1998, MMC announced its offer to acquire Sedgwick
Group plc ("Sedgwick"), a London-based holding company of one of the world's
leading insurance and reinsurance broking and consulting groups, for total cash
consideration of approximately $2.2 billion. On November 3, 1998, MMC announced
that all conditions of the merger had been satisfied. On November 16, 1998, MMC
remitted approximately $1.9 billion to the United Kingdom receiving agent for
immediate distribution to Sedgwick security holders who had tendered outstanding
ordinary shares and convertible bonds representing 87.6% and 97.5% of such
securities, respectively. The compulsory acquisition of all previously
untendered Sedgwick shares was completed in February 1999. MMC has reflected the
acquisition of Sedgwick in its results of operations beginning in November 1998.
In 1997, the results of operations reflected MMC's business combination with
Johnson & Higgins ("J&H"), completed on March 27, 1997 beginning with the second
quarter of 1997.
In 1998, revenue, derived mainly from commissions and fees, rose 20% from 1997
due, in part, to the impact of the J&H transaction, which was not reflected in
the results of operations in the first quarter of 1997, as well as the
acquisition of Sedgwick in November 1998. Excluding acquisitions and
dispositions, revenue grew approximately 11% over 1997. This growth was driven
by a 22% increase in revenue in the investment management segment as average
assets under management in 1998 were substantially higher than 1997. Risk and
insurance services revenue grew 5% for the year reflecting net new business
development partially offset by premium rate declines. Also, the consulting
segment experienced 12% growth in revenue due to an increased level of services
provided in all lines of business.
In 1997, revenue rose 36% from 1996 primarily reflecting the impact of the
combination with J&H and the acquisition of Compagnie Europeenne De Courtage
d'Assurances et de Reassurances ("CECAR") in January 1997. Excluding
acquisitions and dispositions, revenue grew approximately 14% over 1996,
principally due to a 41% increase in the investment management segment
attributable to higher assets under management. In addition, an increased level
of services provided in the retirement consulting area contributed to a 10%
growth in revenue from MMC's consulting segment.
In 1998, expenses increased 11% over 1997 primarily reflecting higher
compensation and client service related costs in the investment management and
consulting segments to support a higher volume of business in 1998. The expense
growth in 1998 also reflects one additional quarter of J&H operating expenses in
1998 as compared with 1997 as well as the acquisition of Sedgwick in November
1998. These increases were offset, in part, by approximately $75 million of net
integration savings associated with the combination with J&H and the
year-over-year impact of the $244 million of special charges recorded in 1997.
Of the $75 million net integration savings achieved in 1998, approximately $55
million was realized by risk and insurance services, approximately $15 million
by consulting and approximately $5 million by corporate.
Expenses increased 41% in 1997 compared with 1996, primarily due to the
combination with J&H, the acquisition of CECAR, and special
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27
<PAGE>
charges totaling $244 million. The special charges for 1997 included $168
million of merger costs predominantly related to the combination with J&H, a
charge of $61 million related to lease abandonment costs associated with the
consolidation of various London operations along with costs to abandon and
redevelop MMC's London building and $15 million for the disposal of certain EDP
assets, which were written-off in 1997. These charges are explained, in more
detail, under the caption Special Charges in this Management's Discussion and
Analysis.
Excluding acquisitions, dispositions, and the special charges, expenses grew 12%
in 1997 mostly as a result of staff growth in the investment management and
consulting segments as well as higher incentive compensation levels in the
investment management segment commensurate with very strong operating
performance. Client service related costs for investment management also
increased resulting from the higher level of business activity.
Net income for 1996 included a tax adjustment that reduced the income tax
provision by $40 million. The tax adjustment primarily related 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 net special charges increased earnings per share in 1996 by $.01
for the year.
Effective January 1, 1998, MMC adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which was
effective for fiscal years beginning after December 15, 1997. As described more
fully in Note 3 to the consolidated financial statements, SFAS No. 130
established standards for reporting and displaying comprehensive income and its
components; such comprehensive income information is included in Note 3 to the
consolidated financial statements.
In 1998, MMC adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," which was effective for fiscal years beginning after
December 15, 1997. The required segment disclosure is provided in Note 16 to the
consolidated financial statements.
In February 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." The new standard did not change the measurement or recognition of
those plans, but revised pension and other postretirement benefit plan
disclosures. MMC adopted SFAS No. 132 in fiscal 1998 and the required disclosure
is provided in Note 6 to the consolidated financial statements.
In 1998, MMC adopted the American Institute of Certified Public Accountants
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This statement provided guidance on
accounting for the costs of internal use software and is effective for fiscal
years beginning after December 15, 1998, with earlier adoption encouraged.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard, which establishes new
accounting and reporting requirements for derivative instruments, is effective
for fiscal years beginning after June 15, 1999. MMC does not expect the adoption
of this standard to have a material impact on its results of operations or
consolidated financial condition.
Risk and Insurance Services
The operations within this segment provide risk and insurance services to
insureds, insurance underwriters and other brokers. J&H Marsh & McLennan, Inc.
is a world leader in providing risk management and insurance broking services.
Guy Carpenter & Co. provides reinsurance broking services to insurance and
reinsurance risk takers worldwide and Seabury & Smith provides insurance program
management services to individuals, businesses and their employees, and
associations and other affinity groups and their members. In addition, Marsh &
McLennan Capital provides services principally in connection with originating,
structuring and managing insurance and related industry investments. The
recently acquired Sedgwick operations are being integrated into the various
businesses noted above.
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 global insurance markets. Services include
insurance broking and risk transfer activities and professional consulting
services on risk management issues, including risk analysis, coverage
requirements, self insurance and alternative insurance and risk financing
methods, as well as claims collection, injury management and loss prevention.
Insurance placement services include the placement of insurance coverages with
insurers worldwide, sometimes involving other intermediaries.
Reinsurance broking 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, placing risk
transfer financing with capital markets, 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.
The insurance program management operation primarily designs, places and
administers life, health, accident, disability, automobile, homeowners and
professional liability and other insurance programs usually 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, principally for professional liability coverages.
MMC has been instrumental in the formation of several substantial insurance and
reinsurance entities. Marsh & McLennan Capital is also an adviser 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.
Revenue attributable to the risk and insurance services segment consists
primarily of fees paid by clients; commissions and fees paid by insurance and
reinsurance companies; interest income on funds held in a fiduciary capacity for
others, such as premiums and claims proceeds; and placement services revenues
earned from insurance carriers. Through Marsh & McLennan Capital, MMC receives
compensation in various forms including fees and dividends,
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28
<PAGE>
as well as appreciation that has been realized on sales of MMC's holdings in
insurance and related industry entities.
Revenue generated by risk and insurance services is fundamentally derived from
the value of services provided to clients and markets, and is affected by
premium rate levels in the property and casualty insurance markets and available
insurance capacity because 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, new and lost business,
merging of clients and the volume of business from new and existing clients, as
well as by interest rates for fiduciary funds. 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
aggregate commissions paid by the insurer for that book during specific periods,
or the loss performance to the insurer of that business.
The results of operations for the risk and insurance services segment are
presented below:
================================================================================
(In millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Revenue $3,351 $2,789 $1,907
Expense(a) 2,738 2,293 1,544
- --------------------------------------------------------------------------------
Operating Income $ 613 $ 496 $ 363
================================================================================
Operating Income Margin 18.3% 17.8% 19.0%
================================================================================
(a) Excluding special charges, which are detailed below.
Revenue
Revenue for the risk and insurance services segment grew 20% over 1997 primarily
due to the fact that 1998 was the first full year of combined operations after
the merger with J&H, whereas 1997 had only three quarters. Furthermore, the
Sedgwick acquisition was completed late in the fourth quarter of 1998, adding
somewhat to revenue growth in 1998. Excluding acquisitions and dispositions,
risk and insurance services revenue rose approximately 5%. Insurance broking
revenue, which represented 74% of risk and insurance services, grew 5%
reflecting net new business development partially offset by continued premium
rate declines in virtually all lines of coverage. The increased level of net new
business development was primarily concentrated in the United States and the
United Kingdom. Revenues from reinsurance broking and insurance program
management increased by 5% and 6%, respectively, in 1998.
In 1997, risk and insurance services revenue increased 46% primarily due to the
J&H transaction, the acquisitions of CECAR, a French insurance and reinsurance
broking operation, and the acquisition of Albert H. Wohlers & Co., a U.S.-based
insurance program management operation offset, in part, by the year-over-year
impact of the sale of Frizzell in 1996. Excluding the effect of acquisitions and
dispositions, risk and insurance services revenue grew 4% in 1997, as revenue
rose 3% in insurance broking and 6% in insurance program management while
reinsurance broking fell 2% in 1997 from 1996 levels. The increase in insurance
broking revenue, which represented 76% of risk and insurance services revenue in
1997, primarily reflected net new business development partially offset by
declines in commercial property and casualty premium rates.
Expense
Risk and insurance services expenses increased 19%, largely attributable to the
business combination with J&H, which was effective as of the end of the first
quarter of 1997 resulting in 1998 having one additional quarter of expense, and
the acquisition of Sedgwick in November 1998. Excluding acquisitions and
dispositions, expenses increased approximately 2% from 1997 reflecting salary
progressions for continuing staff and higher technology and systems spending.
The increases in spending were offset by the realization of approximately $55
million of net integration savings related to the J&H transaction.
In 1997, risk and insurance services expenses increased 48% primarily due to the
impact of acquisitions. Excluding acquisitions and dispositions, expenses
increased approximately 1% from 1996.
Investment Management
The operations within the investment management segment provide services
primarily under the "Putnam" name. The services, which are performed principally
in the United States, include securities investment advisory and management
services consisting of investment research and management, and 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 vehicles 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 (both U.S. and non-U.S.) and other
domestic and foreign institutional accounts. Putnam serves as transfer agent,
dividend disbursing agent, registrar and custodian for the Putnam Funds and
provides custody services to several external clients. In addition, Putnam
provides administrative and trustee (or custodial) 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 directly to certain large
401(k) plans and other institutional accounts. Shares of 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.
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.
Putnam's revenue is derived primarily from investment management and 12b-1 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. The 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
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29
<PAGE>
conditions and other relevant factors. Putnam also receives compensation for
providing certain shareholder and custody services.
The results of operations for the investment management segment are presented
below:
================================================================================
(In millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Revenue $2,296 $1,882 $1,338
Expense 1,619 1,419 1,000
- --------------------------------------------------------------------------------
Operating Income $ 677 $ 463 $ 338
================================================================================
Operating Income Margin 29.5% 24.6% 25.3%
================================================================================
Revenue
Putnam's revenue increased 22% in 1998 reflecting significant growth in the
level of average assets under management on which management fees are earned.
Assets under management aggregated $294 billion at December 31, 1998 compared
with $235 billion at December 31, 1997 reflecting $28 billion of net new sales
of mutual funds and net additional investments by institutional accounts, as
well as a $31 billion growth in market value related to an increase in
securities market levels during the year.
Putnam's revenue increased 41% in 1997 reflecting record growth in the level of
average assets under management. Net new sales of mutual funds and net
additional investments by institutional accounts amounted to $33 billion while
higher securities markets contributed $29 billion to the growth in assets under
management.
Expense
Putnam's expenses increased 14% in 1998 primarily reflecting increased client
service-related costs, including the amortization of deferred commissions,
resulting from the higher level of business activity as well as increased
incentive compensation.
In 1997, Putnam's expenses increased 42% reflecting the effect of staff growth
to support new business, increased incentive compensation levels commensurate
with very strong operating performance and increased client service-related
costs, including a new service center, resulting from the higher level of
business activity.
Year-end and average assets under management are presented below:
================================================================================
(In billions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Mutual Funds:
Domestic Equity $153 $119 $ 80
Taxable Bond 38 36 30
Tax-Free Income 16 16 16
International Equity 14 11 8
- --------------------------------------------------------------------------------
221 182 134
- --------------------------------------------------------------------------------
Institutional Accounts:
Fixed Income 25 22 19
Domestic Equity 32 21 14
International Equity 16 10 6
- --------------------------------------------------------------------------------
73 53 39
- --------------------------------------------------------------------------------
Year-end Assets $294 $235 $173
================================================================================
Average Assets $264 $206 $149
================================================================================
Assets under management and revenue levels are particularly 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. 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 1998, assets held in equity securities represented 73% of assets
under management, compared with 69% in 1997 and 62% in 1996, while investments
in fixed income products represented 27%, compared with 31% last year and 38% in
1996.
Consulting
Through Mercer Consulting Group, Inc., the operations within this segment
provide consulting services to a predominantly corporate clientele from
locations around the world, 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.
Economic consulting and analysis services are also provided.
William M. Mercer provides professional advice and services to corporate,
government and institutional clients worldwide. Consultants help organizations
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.
Mercer Management Consulting, Inc. 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.
National Economic Research Associates, Inc. ("NERA"), a firm of consulting
economists, serves law firms, corporations, trade associations and governmental
agencies. NERA provides research and analysis of economic and financial issues
arising in litigation, regulation, public policy and management.
The major component of Mercer Consulting Group's revenue is fees paid by clients
for advice and services. In addition, commission revenue is received from
insurance companies for the placement of individual and group insurance
contracts, primarily life, health and accident coverages. A relatively small
amount of revenue is derived from brokerage commissions in connection with a
registered securities broker dealer.
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<PAGE>
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 employee demographics and in the
management of large organizations.
The results of operations for the consulting segment are presented below:
================================================================================
(In millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Revenue $1,543 $1,338 $1,159
Expense(a) 1,341 1,190 1,040
- --------------------------------------------------------------------------------
Operating Income $ 202 $ 148 $ 119
================================================================================
Operating Income Margin 13.1% 11.1% 10.3%
================================================================================
(a) Excluding special charges, which are detailed below.
Revenue
Consulting services revenue increased 15% in 1998 reflecting an increase in the
level of services provided as well as the impact of the combination with J&H,
the Sedgwick acquisition and several small acquisitions. Partially offsetting
these increases was the impact of a transfer of certain business lines to
Automatic Data Processing ("ADP"), as part of a strategic alliance, in October
1997. Excluding acquisitions and dispositions, consulting's revenue increased
approximately 12% in 1998. Retirement consulting revenue, which represented 41%
of the consulting segment, grew 11% over 1997 principally due to a higher level
of services provided. In addition, revenue rose 22% in the economic consulting
practice, 18% in global compensation consulting, 8% in health care consulting
and 6% in general management consulting due to a higher volume of business in
these practice lines in 1998.
In 1997, consulting services revenue increased 15% reflecting the J&H
combination as well as an increase in the level of services provided partially
offset by the business transfer to ADP. Adjusting for the impact of acquisitions
and dispositions, consulting's revenue increased approximately 10% in 1997.
Retirement consulting revenue, which represented 43% of the consulting segment,
grew 10% over 1996 reflecting higher worldwide request for services. In
addition, revenue rose 24% in the global compensation practice, 8% in general
management consulting and 1% in health care consulting in 1997.
Expense
Consulting services expenses increased 13% in 1998. Excluding acquisitions and
dispositions, expenses increased approximately 9% reflecting the effect of staff
growth to support new business, higher incentive compensation commensurate with
strong operating performance along with compensation expense increases. These
increases were partially offset by approximately $15 million of realized net
integration savings related to the J&H transaction.
Consulting services expenses increased 14% in 1997. Excluding acquisitions and
dispositions, expenses increased approximately 9% reflecting salary
progressions, the impact of staff growth to support new business and investments
in information technology systems and networks.
Special Charges, net
In 1996, MMC recorded, among others, a $17 million special charge for costs
associated with restructuring certain elements of its insurance and reinsurance
back-office operations in London. MMC was committed to implementing this plan;
however, within three months of its approval, J&H was acquired. Consequently,
the plan was temporarily suspended in order to evaluate it in light of the J&H
transaction and its U.K. operation. In the fall of 1997, it was determined that
the plan could proceed and negotiations were finalized to lease office space to
house the back office group which would enable MMC to achieve the planned
economies. After a build-out of the space, the group moved into their new
location in the summer of 1998. Before the staff reduction portion of the plan
could be implemented, the acquisition of Sedgwick was announced and the plans
needed to be evaluated again in light of this potential change in circumstances,
which would occur only if the governmental approvals were secured and no other
suitor out-bid MMC's offer. The acquisition of Sedgwick became unconditional in
the fourth quarter of 1998 and, with Sedgwick's substantial presence in the
U.K., it was determined that the remaining staff reduction plan could no longer
be executed. As a result, the remaining reserve of $15 million was reversed in
1998. While MMC still intends to complete a staff reduction plan, the
acquisition of Sedgwick will require a total reassessment of the individuals and
the severance benefits to be offered and the accrual for such charges will be
recorded when all of the appropriate requirements are met. Partially offsetting
this credit in 1998 is an $11 million charge associated with acquisition related
stock unit awards issued to certain senior employees of Sedgwick in 1998.
The $244 million of special charges for 1997 included $168 million of merger
costs predominantly related to the combination with J&H, a charge of $61 million
related to lease abandonment costs associated with the consolidation of various
London operations along with costs to abandon and redevelop MMC's London
building and $15 million for the disposal of certain EDP assets, which were
written-off in 1997. Of the total $244 million of special charges, $224 million
was applicable to risk and insurance services, $17 million related to consulting
and $3 million was recorded in general corporate. The net impact of the special
charges was $158 million after tax, or $.63 per diluted share.
The $168 million of merger costs, which related to employees and offices of MMC,
included personnel-related expenses principally involving severance and related
benefits associated with the reduction of approximately 1,300 positions
worldwide ($117 million), costs related to the planned consolidations of
approximately 30 offices ($38 million) and other integration costs ($13
million). In addition, $143 million of merger costs for planned reductions of
over 900 positions and consolidations of approximately 50 offices of J&H were
allocated to the cost of the acquisition. The utilization of these charges is
summarized in Note 4 to the consolidated financial statements. In 1998, the
actions contemplated by these plans were substantially completed and the
remaining actions are expected to be completed in early 1999.
Of the combined merger-related costs totaling $311 million, cash payments of
approximately $86 million and $122 million were made in 1997 and 1998,
respectively. Estimated cash payments of
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31
<PAGE>
approximately $40 million are expected to be made in 1999. Some accruals,
primarily representing future rent under noncancelable leases (net of
anticipated sublease income), and salary continuance arrangements, primarily in
Canada and the Netherlands, are expected to be paid out over several years.
Management believes the gross annual savings associated with the J&H integration
should approximate $200 million when it is completed by the end of 1999, most of
which will result from reduced compensation and benefits expense reflecting the
elimination of approximately 2,200 positions and lower facilities costs
reflecting the consolidation of approximately 80 offices, primarily in the
United States. Net annual savings are expected to be approximately $125 million
for the full year 1999 after giving effect to incremental goodwill amortization.
Net savings of approximately $75 million were realized in 1998.
During 1996, MMC completed the sale of Frizzell for approximately $290 million
which resulted in a $33 million pretax gain. In addition, pretax charges
aggregating $93 million were recorded representing a provision of approximately
$34 million principally for London real estate consolidations; $27 million
primarily for severance and related benefits associated with the planned
reduction of over 600 employees relating to restructuring certain elements of
MMC's insurance and reinsurance back-office operations in London and several
office closings; $17 million for goodwill write-offs; and $15 million related to
the Lloyd's Reconstruction and Renewal Plan. The net impact of the gain on sale,
the special charges and the 1996 tax adjustment discussed in Note 5 increased
diluted net income per share by $.01 for the year.
The London insurance and reinsurance operations were restructured because there
were duplicative back office groups performing similar functions which could be
consolidated into shared services departments at an estimated annual savings of
between $20 and $25 million. Of the net $60 million special charge, $49 million
was applicable to risk and insurance services, $9 million related to consulting
and $2 million was recorded in general corporate.
Of the total charge of $93 million, $25 million of assets were written-off and
cash payments of $20 million were made during 1997. During 1998, an additional
$6 million of payments were made and $15 million of the reserve was reversed as
part of the 1998 net special credit described above. The remaining balance of
$27 million relates primarily to the London real estate reserve and it is
expected to be paid out over several years. Estimated cash payments of
approximately $7 million are expected to be made in 1999.
During 1997, MMC continued the evaluation of its London real estate issues and
in the fourth quarter recorded an additional special charge of $61 million
relating to the further consolidation of offices and the razing and
redevelopment of its London building.
The above actions did not result in any meaningful disruptions of MMC's
operations.
MMC is currently in the process of completing its integration plans associated
with the acquisition of Sedgwick. This initiative will result in a special
charge that will be recorded in 1999. Since this process has not been finalized,
the amount of the special charge cannot be quantified at this time. However, MMC
expects to achieve gross synergy savings of approximately $200 million
associated with the integration of Sedgwick and net annual savings should be
similar to that achieved as part of the J&H integration.
Interest
Interest income earned on corporate funds increased to $25 million in 1998 from
$24 million in 1997. Interest expense increased to $140 million in 1998 from
$107 million in 1997 primarily due to interest expense associated with the
incremental debt incurred in November 1998 to finance the Sedgwick acquisition
as well as the additional quarter of interest expense in 1998 related to
increased bank borrowings associated with the J&H transaction.
Interest income earned on corporate funds increased to $24 million in 1997
compared with $14 million in 1996 due, in large part, to the J&H combination.
Interest expense increased to $107 million in 1997 from $61 million in 1996 as a
result of increased bank borrowings used to finance the acquisitions of J&H and
CECAR as well as the assumption of J&H's long-term debt.
Income Taxes
MMC's consolidated tax rate was 39.00% of income before income taxes in 1998
compared with 39.30% in 1997. In 1997, excluding the tax effect of the special
charges, the underlying rate was 38.25%. In 1996, the underlying tax rate was
37.25% (prior to the tax adjustment described below). Comparing the underlying
tax rates, the increase in the tax rate was largely attributable to the
nondeductibility of goodwill associated with the J&H acquisition and other
acquisitions. The overall tax rates are higher than the U.S. federal statutory
rate primarily because of provisions for state and local income taxes.
In 1996, MMC recorded a tax adjustment that reduced the income tax provision by
$40 million. The tax adjustment primarily related 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.
Liquidity and Capital Resources
MMC's cash and cash equivalents aggregated $610 million at the end of 1998, an
increase of $186 million from the end of 1997.
Operating Cash Flows
MMC generated $1.1 billion of cash from operations in 1998 compared with $415
million in 1997. These amounts reflect the net income earned by MMC 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 $75 million in 1998 compared with $140
million in 1997. The tax benefit associated with these prepaid dealer
commissions is recorded as a deferred tax liability.
As further explained in Note 15 to the consolidated financial statements,
certain present and former English subsidiaries are under review by the Personal
Investment Authority concerning the disclosure and advice given to clients
regarding certain private pension transactions. The contingent exposure for
pension redress and related cost is estimated to be approximately $355 million
of which $170 million is expected to be recovered from insurers. Approximately
two-thirds of the contingent exposure is associated
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<PAGE>
with the recently completed Sedgwick acquisition while the balance is associated
with other current and former subsidiaries of MMC. All amounts in excess of
anticipated insurance recoveries have been reserved for in the accompanying
balance sheet. Although the timing and amount of payments relating to the
pension review process cannot be predicted with certainty, it may be that MMC
will temporarily fund such payments by drawing upon its existing credit lines.
Financing Cash Flows
As previously mentioned, during the fourth quarter, MMC acquired Sedgwick, a
London-based holding company of one of the world's leading insurance and
reinsurance broking and consulting groups, for total cash consideration of
(pound)1.25 billion or approximately $2.2 billion. MMC has initially financed
the transaction with commercial paper that has been supported by a committed
bank facility comprising 19 banks and led by J. P. Morgan. MMC intends to
finalize a permanent financing arrangement, consisting of a combination of
long-term debt and equity, during 1999.
MMC completed its business combination with J&H, a leading insurance broker, on
March 27, 1997 for total consideration of approximately $1.8 billion.
Approximately one-third of the total consideration was cash and two-thirds MMC's
common stock. MMC also purchased CECAR for approximately $200 million during
January 1997. The cash portion of these transactions is being financed with bank
borrowings.
Financing activities for MMC used cash of $366 million in 1998 and contributed
cash of $399 million in 1997. Dividends paid by MMC amounted to $375 million in
1998 ($1.46 per share) and $306 million in 1997 ($1.26 per share). MMC
periodically purchases shares of its common stock to meet the requirements of
the various stock compensation and benefit programs. MMC purchased 4.1 million
shares in 1998 and 3.7 million shares in 1996.
MMC, in connection with the Sedgwick transaction, assumed debt amounting to $108
million at December 31, 1998. This debt consists of $60 million of 7.68% Senior
Loan notes, $36 million related to capital leases and $12 million of other
borrowings.
During 1997, MMC executed a revolving credit facility with several banks to
support its commercial paper borrowings and to fund other general corporate
requirements. This noncancelable facility, which expires June 2002, provides
that MMC may borrow up to $1.2 billion at market rates of interest which may
vary depending upon the level of usage of the facility and MMC's credit ratings.
Outstanding borrowings under revolving credit facilities at December 31, 1998
and 1997 amounted to $583 million and $709 million, respectively. Borrowings
under revolving credit facilities have been classified as long-term debt based
on MMC's intent and ability to maintain or refinance these obligations on a
long-term basis. MMC also maintains other credit facilities with various banks,
primarily related to operations located outside the United States, aggregating
$553 million as of December 31, 1998. MMC has borrowed $25 million under these
facilities at December 31, 1998 and has included $15 million of these borrowings
in long-term debt in the Consolidated Balance Sheet.
MMC has a fixed rate non-recourse mortgage note agreement due in 2009 amounting
to $200 million, at an interest rate of 9.8%, in connection with its interest in
its worldwide headquarters building. Also related to the purchase and renovation
of the building, MMC has an interest rate swap that fixes the interest rate at
approximately 9.5% on $100 million of variable rate borrowings. This swap
expired in February 1999.
During 1997, in connection with the J&H transaction, MMC assumed a note payable
due 2012 which has an outstanding balance of $86 million at December 31, 1998.
Interest on this debt is fixed at 8.62%.
Investing Cash Flows
Investing activities for MMC reduced cash by $587 million in 1998 and by $676
million in 1997. In 1998, cash used for acquisition activity, related to several
insurance and reinsurance broking, insurance program management and consulting
businesses, was $302 million. In 1997, cash used for acquisition activity,
primarily related to J&H and CECAR, was $473 million. MMC's capital
expenditures, which amounted to $297 million in 1998 and $202 million in 1997
have primarily related to computer equipment purchases and the refurbishing and
modernizing of office facilities.
Market Risk
Certain of MMC's recorded revenues, expenses, assets and liabilities are exposed
to the impact of interest rate changes and fluctuations in foreign currency
exchange rates. MMC manages its net exposure to interest rate changes by
utilizing a mixture of variable and fixed rate borrowings to finance MMC's asset
base. Interest rate swaps are utilized on a very limited basis. MMC does not
enter into foreign currency or interest rate transactions for trading or other
speculative purposes.
MMC had the following investments and debt instruments subject to variable
interest rates:
================================================================================
Year Ended December 31,
(In millions of dollars) 1998
- --------------------------------------------------------------------------------
Cash and cash equivalents invested in certificates of
deposit and time deposits $ 520
Fiduciary cash and investments $3,257
Variable rate debt outstanding $3,396
Interest rate swaps $ 140
================================================================================
MMC's results of operations are affected by changes in short-term interest rates
and their impact on the above-noted items. Based on the above balances, if
short-term interest rates increase by 25 basis points, annual interest income
would increase by approximately $9 million; however, this would be partially
offset by an $8 million increase in interest expense resulting in a net increase
to income before income taxes of $1 million.
The translated values of revenue and expense from MMC's international risk and
insurance services and consulting operations are subject to fluctuations due to
changes in currency exchange rates. However, the net impact of these
fluctuations on MMC's results of operations or cash flows has not been material.
Forward contracts and options are periodically utilized by MMC to limit foreign
currency exchange rate exposure on net income and cash flows for specific,
clearly defined transactions arising in the ordinary course of its business. At
December 31, 1998, MMC primarily had open forward exchange contracts to both
sell U.S. dollars for sterling and purchase U.S. dollars for sterling
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<PAGE>
for underlying principal amounts of $28 million and $70 million, respectively.
These contracts were entered into by Sedgwick principally to hedge both firm
commitments and anticipated transactions.
Year 2000 Issue
MMC is in the final stages of updating its systems in preparation for the Year
2000. For this purpose, the term "systems" includes computer equipment and
software that are commonly thought of as information technology ("IT") systems
including accounting, data processing, telephone and other miscellaneous
systems, as well as non-information technology ("non-IT") systems, such as
embedded technology in MMC's facilities and equipment.
In connection with this project, which began in 1995, MMC and each of its
operating segments has undertaken a five-step process consisting of (1) taking
an inventory of all technical areas, including hardware, software (application
and system), data, third-party services and infrastructure that could
potentially be affected by the Year 2000 issue, (2) assessing the scope and
severity of the issue, (3) performing necessary remediation, (4)
testing/implementation and (5) preparing contingency plans for internal and
external failures. Steering committees have been established comprising
executive level management in each operating segment, and at the MMC level. The
Audit Committee of MMC's Board of Directors is regularly updated on the status
of MMC's Year 2000 efforts.
Each operating segment has already enhanced or replaced a number of systems to
ensure their Year 2000 readiness. At this time, all of MMC's operating segments
are predominantly in the testing/implementation phase of the process for mission
critical IT and non-IT systems.
A detailed review and evaluation of Sedgwick's Year 2000 plans has also been
conducted. That review determined that the approach adopted by Sedgwick was
broadly consistent with MMC's. In January 1999, the individual components of the
Sedgwick plans were incorporated into the Year 2000 project plans of the
existing operating segments with which they will be aligned. As a result of the
integration analysis, it is anticipated that Sedgwick's pre-existing plans will
be carried out to completion or, where appropriate, Sedgwick's non-compliant
systems will be replaced by MMC's compliant systems. The incremental costs of
the Sedgwick plans are included in the amounts shown below.
The total cost of the Year 2000 project is estimated to be $65 million. Of the
total cost, $22 million is anticipated to be incurred in 1999, $26 million was
expensed during 1998 and $17 million prior to 1998. Such costs do not include
expenses incurred in replacing systems and applications in the ordinary course
which have the effect of making such systems and applications Year 2000
compliant, but which were not incurred for that specific purpose. Costs of
modifying computer software for Year 2000 conversion are being charged to
expense as they are incurred and are funded from operating cash flows. No
projects have been deferred or canceled as a result of Year 2000 efforts. In
1998, Year 2000 expenses represented approximately 5% of MMC's overall
information technology budget. Future costs associated with addressing this
issue are not expected to have a material adverse impact on MMC's financial
position or results of operations.
MMC expects that all of its mission critical IT and non-IT systems, including
those associated with supporting the Sedgwick operations, will be Year 2000
compliant by mid-1999. Non-mission critical IT and non-IT systems that could
impact MMC's ability to serve clients and conduct business beyond January 1,
2000 have been assessed and are expected to be Year 2000 ready before the end of
1999. MMC recognizes that there may be some non-mission critical IT and non-IT
systems utilized for internal purposes that may not be compliant by the end of
1999. It is expected that these systems will be replaced or phased out of use.
In addition, MMC is continuing its inquiries as to the state of readiness of its
significant third party relationships including clients and vendors. This
process has included a review of third parties' Year 2000 readiness and the
incorporation of certain third party dependencies into MMC's test plans.
Although MMC is unable to verify the Year 2000 readiness of third parties, where
MMC has been unable to validate the status of a third party, but has received
information such that the timing or status of that third party's Year 2000
project does not align with its own, if significant, that supplier has or will
be replaced. For example, J&H Marsh & McLennan is notifying clients when
responses are not received from insurance companies.
The individual operating segments of MMC are currently in the process of
analyzing the operational problems and costs (including loss of revenues) that
would be reasonably likely to result from MMC's failure or the failure of
certain third parties to complete efforts necessary to achieve Year 2000
readiness on a timely basis. For internal systems, although our expectation is
that no significant disruption will occur, MMC's 1999 test plans and contingency
processes have been designed to address such a risk. For third party risks,
every effort is being made to assess and test those risks. For example, Putnam
is actively involved in industry-wide Year 2000 testing. In July 1998, Putnam
participated in the "Street-wide Test" carried out under the auspices of the
Securities Industry Association. Putnam will participate in all future testing,
which will include the simulation of a trading cycle from order entry to
settlement in a Year 2000 environment.
MMC is in the process of completing a contingency plan for dealing with the most
reasonably likely worst case scenarios presented by the Year 2000 problem. This
process has been based, in part, upon MMC's existing disaster recovery process.
These analyses and contingency plans will be completed during 1999. While MMC
expects its Year 2000 efforts to reduce the scope and likelihood of potential
Year 2000 failures, due to the overall uncertainty of the effect of a potential
failure in Year 2000 readiness, particularly with respect to MMC's business
partners or the communities in which MMC operates, MMC is unable specifically to
determine whether any particular failure or groups of failures will have a
material adverse impact on MMC.
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<PAGE>
Other
MMC has been instrumental in developing new sources of insurance capacity. MMC,
through Marsh & McLennan Capital, maintains ownership interest in various
entities it assisted in organizing. These investments have been classified as
available for sale securities and, as discussed more fully in Note 11 to the
consolidated financial statements, the aggregate fair value of these holdings is
included in long-term securities in the Consolidated Balance Sheets. Marsh &
McLennan Capital expects to continue to manage and develop further these
activities.
The insurance coverage for potential liability resulting from alleged errors and
omissions in the professional services provided by MMC includes elements of both
risk retention and risk transfer. MMC 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 Consolidated Balance Sheets.
MMC'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 illustrated more fully in
Note 6 to the consolidated financial statements, the plan has been and continues
to be well funded; consequently, MMC has not been able to make a tax deductible
contribution since 1986. Because this situation is expected to continue, a 1999
cash contribution is currently not anticipated.
MMC contributes to certain health care and life insurance benefits provided to
its retired employees. 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 MMC as incurred. This postretirement
liability is included in other liabilities in the Consolidated Balance Sheets.
In September 1997, Putnam adopted the Putnam Investments, Inc. Equity
Partnership Plan ("Plan") pursuant to which Putnam is authorized to grant or
sell to certain key employees of Putnam or its subsidiaries restricted shares of
a new class of common stock of Putnam ("Class B Common Stock") and options to
acquire the Class B Common Stock. Such awards or options generally vest over a
four-year period. Holders of Putnam Class B shares are not entitled to vote and
have no rights to convert their shares into any other securities of Putnam.
However, in the event of certain change in control events, Class B shares will
be converted into Class A Common Stock on a share for share basis. Awards of
restricted stock and/or options may be made under the Plan with respect to a
maximum of 12,000,000 shares of Class B Common Stock, which would represent
approximately 12% of the outstanding shares on a fully diluted basis. Through
December 31, 1998, Putnam has made awards pursuant to the Plan with respect to
approximately 7,660,000 shares of Class B Common Stock, including 3,830,000
shares of restricted stock and 3,830,000 shares subject to options. The purpose
of the Plan is to foster and promote the long-term success of Putnam and to
increase shareholder value by enabling Putnam to attract and retain the services
of an outstanding management team and professional staff. Pursuant to an
executive compensation agreement, Putnam has also awarded 300,000 restricted
stock units and 325,000 options related to Class B Common Stock to a key
executive of Putnam.
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<PAGE>
Marsh & McLennan Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
For the Three Years Ended December 31, 1998
(In millions, except per share figures) 1998 1997 1996
- --------------------------------------------------------------------------------
Revenue $ 7,190 $ 6,009 $ 4,404
Expense 5,770 5,211 3,689
- --------------------------------------------------------------------------------
Operating income 1,420 798 715
Interest income 25 24 14
Interest expense (140) (107) (61)
- --------------------------------------------------------------------------------
Income before income taxes 1,305 715 668
Income taxes 509 281 209
- --------------------------------------------------------------------------------
Net income $ 796 $ 434 $ 459
================================================================================
Basic net income per share $3.11 $1.77 $2.11
================================================================================
Diluted net income per share $2.98 $1.73 $2.08
================================================================================
Average number of shares outstanding -- Basic 256 245 217
================================================================================
Average number of shares outstanding -- Diluted 264 251 221
================================================================================
The accompanying notes are an integral part of these consolidated statements.
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<PAGE>
Marsh & McLennan Companies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
====================================================================================================================================
December 31, 1998 and 1997
(In millions of dollars) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (including interest-bearing amounts
of $520 in 1998 and $378 in 1997) $ 610 $ 424
- ------------------------------------------------------------------------------------------------------------------------------------
Receivables--
Commissions and fees 1,584 1,296
Advanced premiums and claims 129 95
Other 294 160
- ------------------------------------------------------------------------------------------------------------------------------------
2,007 1,551
Less -- allowance for doubtful accounts (98) (53)
- ------------------------------------------------------------------------------------------------------------------------------------
Net receivables 1,909 1,498
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid dealer commissions -- current portion 315 283
Deferred tax assets 76 166
Other current assets 335 196
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 3,245 2,567
Long-term securities 828 720
Fixed assets, net 1,287 957
Intangible assets 4,826 2,417
Prepaid dealer commissions 799 756
Other assets 886 495
- ------------------------------------------------------------------------------------------------------------------------------------
$ 11,871 $ 7,912
====================================================================================================================================
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 2,234 $ 237
Accounts payable and accrued liabilities 1,438 1,223
Accrued compensation and employee benefits 841 564
Accrued income taxes 385 234
Dividends payable 104 85
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 5,002 2,343
- ------------------------------------------------------------------------------------------------------------------------------------
Fiduciary liabilities 3,257 2,282
Less -- cash and investments held in a fiduciary capacity (3,257) (2,282)
- ------------------------------------------------------------------------------------------------------------------------------------
-- --
Long-term debt 1,590 1,240
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities 1,620 1,096
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $1 par value, authorized 6,000,000 shares, none issued -- --
Common stock, $1 par value, authorized 400,000,000 shares,
issued 258,867,125 shares in 1998 and 258,586,766 shares in 1997 259 172
Additional paid-in capital 889 994
Retained earnings 2,412 2,010
Accumulated other comprehensive income 206 167
- ------------------------------------------------------------------------------------------------------------------------------------
3,766 3,343
Less -- treasury shares, at cost 1,956,825 shares in 1998 and 3,661,256 shares in 1997 (107) (110)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,659 3,233
- ------------------------------------------------------------------------------------------------------------------------------------
$ 11,871 $ 7,912
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
----------
37
<PAGE>
Marsh & McLennan Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
====================================================================================================================================
For the Three Years Ended December 31, 1998
(In millions of dollars) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating cash flows:
Net income $ 796 $ 434 $ 459
Gain on sale of businesses -- (13) (33)
Special charges (credits) (4) 244 93
Depreciation of fixed assets 169 149 119
Amortization of intangible assets 82 50 21
Provision (benefit) for deferred income taxes 79 (139) (21)
Prepaid dealer commissions (75) (140) (339)
Other liabilities 18 22 19
Other, net (23) (1) (11)
Net changes in operating working capital other than cash and cash equivalents --
Receivables (171) (155) (95)
Other current assets 63 (3) (61)
Accrued compensation and employee benefits 175 160 137
Accounts payable and accrued liabilities (121) (111) (21)
Accrued income taxes 147 (79) 29
Effect of exchange rate changes (2) (3) 21
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash generated from operations 1,133 415 317
- ------------------------------------------------------------------------------------------------------------------------------------
Financing cash flows:
Net increase (decrease) in commercial paper 425 (161) (165)
Other borrowings 52 2,358 255
Repayments of other borrowings (411) (1,702) (91)
Purchase of treasury shares (242) -- (230)
Issuance of common stock 185 210 143
Dividends paid (375) (306) (239)
Other, net -- -- 2
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (366) 399 (325)
- ------------------------------------------------------------------------------------------------------------------------------------
Investing cash flows:
Additions to fixed assets (297) (202) (157)
Net cash proceeds from sale of businesses -- 54 242
Acquisitions (302) (473) (7)
Other, net 12 (55) (92)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (587) (676) (14)
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 6 (14) (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 186 124 (28)
Cash and cash equivalents at beginning of year 424 300 328
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 610 $ 424 $ 300
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
----------
38
<PAGE>
Marsh & McLennan Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
====================================================================================================================================
For the Three Years Ended December 31, 1998
(In millions of dollars, except per share figures) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance, beginning of year $ 172 $ 77 $ 77
Acquisitions -- 9 --
Common stock split 87 86 --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 259 $ 172 $ 77
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year $ 994 $ 148 $ 155
Acquisitions -- 908 --
Common stock split (87) (86) --
Exercise of stock options and related tax benefits (11) 15 (10)
Issuance of shares under compensation plans and related tax benefits 7 10 8
Issuance of shares under employee stock purchase plans and related tax benefits (14) (1) (5)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 889 $ 994 $ 148
- ------------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year $ 2,010 $ 1,902 $ 1,689
Net income 796(a) 434(a) 459(a)
Cash dividends declared -- (per share amounts:
$1.53 in 1998, $1.29 in 1997 and $1.14 in 1996) (394) (326) (246)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 2,412 $ 2,010 $ 1,902
- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year $ 167 $ 145 $ 62
Foreign currency translation adjustments 18(b) (66)(b) 11(b)
Unrealized securities holding gains, net of reclassification adjustments 45(c) 88(c) 72(c)
Minimum pension liability adjustment (24)(d) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 206 $ 167 $ 145
- ------------------------------------------------------------------------------------------------------------------------------------
TREASURY SHARES
Balance, beginning of year $ (110) $ (383) $ (317)
Acquisitions -- 47 --
Purchase of treasury shares (242) -- (230)
Exercise of stock options 97 147 95
Issuance of shares under compensation plans 29 15 10
Issuance of shares under employee stock purchase plans 119 64 59
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ (107) $ (110) $ (383)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 3,659 $ 3,233 $ 1,889
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME (a+b+c+d) $ 835 $ 456 $ 542
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
----------
39
<PAGE>
Marsh & McLennan Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of Marsh & McLennan Companies, Inc. and all its
subsidiaries ("MMC"). Various subsidiaries and affiliates have transactions with
each other in the ordinary course of business. All significant intercompany
accounts and transactions have been eliminated.
Fiduciary Assets and Liabilities: In its capacity as an insurance broker or
agent, MMC collects premiums from insureds and, after deducting its commissions,
remits the premiums to the respective insurance underwriters; MMC also collects
claims or refunds from underwriters on behalf of insureds. Unremitted insurance
premiums and claims are held in a fiduciary capacity. Interest income on these
fiduciary funds, included in revenue, amounted to $137 million in 1998, $111
million in 1997 and $94 million in 1996.
Net uncollected premiums and claims and the related payables, amounting to $10.0
billion at December 31, 1998 and $5.2 billion at December 31, 1997, are not
included in the accompanying Consolidated Balance Sheets.
In certain instances, MMC advances premiums, refunds or claims to insurance
underwriters or insureds prior to collection. These advances are made from
corporate funds and are reflected in the accompanying Consolidated Balance
Sheets as receivables.
Revenue: Revenue includes insurance commissions, fees for services rendered,
placement services revenue earned from insurance carriers, compensation for
services provided in connection with the formation or capitalization of various
insurers and reinsurers and related firms, including gains from sales of
interests in such entities, commissions on the sale of mutual fund shares and
interest income on fiduciary funds. Insurance commissions generally are recorded
as of the effective date of the applicable policies or, in certain cases
(primarily in MMC's reinsurance and London market operations), as of the
effective date or billing date, whichever is later. Fees for services rendered
are recorded as earned. Sales of mutual fund shares are recorded on a settlement
date basis and commissions thereon are recorded on a trade date basis, in
accordance with industry practice.
Cash and Cash Equivalents: Cash and cash equivalents primarily consist of
certificates of deposit and time deposits, generally with original maturities of
three months or less.
Fixed Assets, Depreciation and Amortization: Fixed assets are stated at cost
less accumulated depreciation and amortization. Expenditures for improvements
are capitalized. Upon sale or retirement, the cost and related accumulated
depreciation and amortization are removed from the accounts and the resulting
gain or loss, if any, is reflected in income. Expenditures for maintenance and
repairs are charged to operations as incurred.
Depreciation of buildings, building improvements, furniture and equipment is
provided on a straight-line basis over the estimated useful lives of these
assets. Leasehold improvements are amortized on a straight-line basis over the
periods covered by the applicable leases or the estimated useful life of the
improvement, whichever is less.
The components of fixed assets are as follows:
================================================================================
December 31, 1998 and 1997
(In millions of dollars) 1998 1997
- --------------------------------------------------------------------------------
Land and buildings $ 628 $ 471
Furniture and equipment 1,011 878
Leasehold and building improvements 468 406
- --------------------------------------------------------------------------------
2,107 1,755
Less -- accumulated depreciation
and amortization (820) (798)
- --------------------------------------------------------------------------------
$ 1,287 $ 957
================================================================================
Intangible Assets: Acquisition costs in excess of the fair value of net assets
acquired are amortized on a straight-line basis over periods up to 40 years.
Other intangible assets are amortized on a straight-line basis over their
estimated lives. MMC periodically assesses the recoverability of intangible
assets by comparing expected undiscounted future cash flows from the underlying
business operation with recorded intangible asset balances. If such assessments
indicate that the undiscounted future cash flows are not sufficient to recover
the related carrying value, the assets are adjusted to fair values.
Prepaid Dealer Commissions: Essentially all of the mutual funds marketed by
MMC's investment management segment are also made available with a contingent
deferred sales charge in lieu of a front end load. The related commissions,
initially paid by MMC to broker/dealers for distributing the funds, are
recovered through charges and fees received over a number of years. The prepaid
dealer commissions are generally amortized over a six year period.
Capitalized Software Costs: MMC capitalizes certain costs to develop, purchase
or modify software for the internal use of MMC in accordance with American
Institute of Certified Public Accountants Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which was adopted in 1998. These costs are amortized on a
straight-line basis not to exceed five years. Unamortized computer software
costs amounting to $110 million and $53 million at December 31, 1998 and 1997,
respectively, are included in other assets in the Consolidated Balance Sheets.
Income Taxes: Income taxes provided reflect the current and deferred tax
consequences of events that have been recognized in MMC's financial statements
or tax returns. U.S. Federal income taxes are provided on unremitted foreign
earnings except those that are considered permanently reinvested, which at
December 31, 1998 amounted to approximately $500 million. However, if these
earnings were not considered permanently reinvested, the incremental tax
liability which otherwise might be due upon distribution, net of foreign tax
credits, would be approximately $60 million.
Risk Management Instruments: Net amounts received or paid under interest rate
swaps and foreign exchange contracts are included in the Consolidated Statements
of Income as incurred.
----------
40
<PAGE>
Concentrations of Credit Risk: Financial instruments which potentially subject
MMC to concentrations of credit risk consist primarily of cash and cash
equivalents and commissions receivable. MMC maintains a policy providing for the
diversification of cash and cash equivalents and places its investments in an
extensive number of high quality financial institutions to limit the amount of
credit risk exposure. Concentrations of credit risk with respect to receivables
are limited due to the large number of clients and markets in which MMC does
business, as well as the dispersion across many geographic areas.
Per Share Data: Basic net income per share is calculated by dividing net income
by the average number of shares of MMC's common stock outstanding. Diluted net
income per share is calculated by reducing net income for the potential minority
interest associated with unvested shares under the Putnam Equity Partnership
Plan. This result is then divided by the average common shares outstanding which
have been adjusted for the dilutive effect of potential common shares.
The following reconciles net income to net income for diluted earnings per share
and basic weighted average common shares outstanding to diluted weighted average
common shares outstanding:
<TABLE>
<CAPTION>
====================================================================================================================================
For the Three Years Ended December 31, 1998
(In millions) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 796 $ 434 $ 459
Less: Potential minority interest associated with Putnam Equity Partnership Plan (10) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income for diluted earnings per share $ 786 $ 434 $ 459
====================================================================================================================================
Basic weighted average common shares outstanding 256 245 217
Dilutive effect of stock options 8 6 4
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average common shares outstanding 264 251 221
====================================================================================================================================
</TABLE>
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements: In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
standard, which establishes new accounting and reporting requirements for
derivative instruments, is effective for fiscal years beginning after June 15,
1999. MMC does not expect the adoption of this standard to have a material
impact on its results of operations or consolidated financial condition.
Reclassifications: Certain reclassifications have been made to the prior year
amounts to conform to the current year presentation.
2 Supplemental Disclosure to the Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
The following schedule provides additional information concerning acquisitions
and interest and income taxes paid:
================================================================================
For the Three Years Ended December 31, 1998
(In millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Purchase acquisitions:
Assets acquired, excluding cash $ 3,345 $ 2,832 $ 10
Liabilities assumed (852) (1,165) (3)
Issuance of debt and other obligations (2,191) (221) --
Shares issued -- (973) --
- --------------------------------------------------------------------------------
Net cash outflow for acquisitions $ 302 $ 473 $ 7
================================================================================
Interest paid $ 164 $ 92 $ 60
Income taxes paid $ 305 $ 471 $ 200
================================================================================
----------
41
<PAGE>
3 Comprehensive Income
- --------------------------------------------------------------------------------
Effective January 1, 1998, MMC adopted SFAS No. 130, "Reporting Comprehensive
Income," which requires the reporting and display of comprehensive income and
its components. The adoption of SFAS No. 130 had no impact on MMC's results of
operations or consolidated financial condition. Net unrealized gains and losses
on MMC's available for sale securities as well as foreign exchange gains or
losses, which prior to adoption were reported separately in stockholders'
equity, are now included in other comprehensive income. Prior year consolidated
financial statements have been reclassified to conform to the requirements of
SFAS No. 130.
The components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
For the Three Years Ended December 31, 1998
(In millions of dollars) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency translation adjustments $ 18 $ (66) $ 11
Unrealized securities holding gains, net of income taxes of $39, $60 and $45 in 1998, 1997 and 1996 71 111 83
Less: Reclassification adjustment for gains included in net income, net of income taxes of $14, $13
and $6 in 1998, 1997 and 1996 (26) (23) (11)
Minimum pension liability adjustment, net of income taxes of $16 (24) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 39 $ 22 $ 83
====================================================================================================================================
</TABLE>
The components of accumulated other comprehensive income are as follows:
================================================================================
December 31, 1998 and 1997
(In millions of dollars) 1998 1997
- --------------------------------------------------------------------------------
Foreign currency translation adjustments $(124) $(142)
Unrealized securities holding gains 354 309
Minimum pension liability adjustment (24) --
- --------------------------------------------------------------------------------
$ 206 $ 167
================================================================================
4 Acquisitions and Dispositions
- --------------------------------------------------------------------------------
Acquisitions: In the fourth quarter of 1998, MMC consummated a business
combination with Sedgwick Group plc ("Sedgwick"), a London-based holding company
of one of the world's leading insurance and reinsurance broking and consulting
groups, for total cash consideration of approximately $2.2 billion, which has
been initially funded with commercial paper borrowings. The business combination
is being accounted for using the purchase method of accounting. Accordingly,
goodwill of approximately $2.0 billion resulting from the preliminary purchase
price allocation is being amortized over 40 years. Assets acquired and
liabilities assumed have been recorded at their estimated fair values and are
subject to adjustment when purchase accounting is finalized in 1999.
In March 1997, MMC consummated a business combination with Johnson & Higgins
("J&H"), a privately-held risk and insurance services and employee benefit
consulting firm. MMC agreed to pay total consideration of approximately $1.8
billion consisting of $600 million in cash and approximately $1.2 billion or
29.4 million shares (adjusted to reflect subsequent stock splits) of MMC's
common stock. Approximately $1.3 billion was paid at closing or shortly
thereafter and approximately $500 million is being paid in annual installments
over the four years following the closing. The business combination is being
accounted for using the purchase method of accounting. Accordingly, goodwill of
approximately $1.7 billion which resulted from the purchase price allocation is
being amortized over 40 years. In arriving at fair value, MMC discounted the
market value of the $1.2 billion stock issuance by $120 million reflecting
certain transfer restrictions associated with the shares issued. MMC allocated
the cost of the acquisition to assets acquired and liabilities assumed based on
its estimate of fair values. No intangible assets, other than goodwill, were
acquired as part of the business combination with J&H.
An agreed upon number of shares issued in connection with the J&H transaction
carry restrictions and, consequently, cannot be sold in the first and second
years following the closing. In addition, approximately 2.4 million of the 29.4
million shares of common stock were placed in escrow for a period of up to two
years in order to secure indemnification obligations with respect to
representations and warranties.
The following unaudited pro forma summary presents the consolidated results of
operations of MMC as if the Sedgwick business combination had occurred on
January 1, 1997 and as if the J&H combination had occurred on January 1, 1996.
The pro forma results are shown for illustrative purposes only and do not
purport to be
----------
42
<PAGE>
indicative of the results which would have been reported if the business
combinations had occurred on the dates indicated or which may occur in the
future. The pro forma information reflected below includes the impact of pretax
special charges in 1998 of $201 million recorded by Sedgwick prior to its being
acquired by MMC, primarily related to pension redress issues discussed in Note
15, and pretax special charges recorded by MMC of $244 million in 1997 and $60
million in 1996 discussed in Note 12.
================================================================================
Year Ended December 31,
(In millions of dollars, except per share figures) 1998 1997 1996
- --------------------------------------------------------------------------------
Revenue $ 8,646 $ 7,902 $ 5,552
Net Income 641 427 482
Basic net income per share 2.42 1.63 1.96
Diluted net income per share 2.31 1.60 1.93
================================================================================
During 1998, MMC also acquired or increased its interest in several other
insurance and reinsurance broking, insurance program management, and consulting
businesses for a total cost of $413 million in transactions accounted for as
purchases. The cost of these acquisitions exceeded the fair value of net assets
acquired by $422 million.
During 1997, MMC also acquired or increased its interest in several other
insurance and reinsurance broking and consulting businesses for a total cost of
$285 million in transactions accounted for as purchases. The cost of these
acquisitions exceeded the fair value of net assets acquired by $317 million. In
addition, MMC issued approximately 1.4 million shares of common stock (adjusted
to reflect subsequent stock splits) in connection with the acquisition of an
insurance program management business accounted for as a pooling of interests.
During 1996, MMC acquired an insurance broking business and various other
insurance and reinsurance broking assets for a total cost of $13 million in
transactions accounted for as purchases. The cost of these acquisitions exceeded
the fair value of net assets acquired by $8 million.
Dispositions: As part of the combination with Sedgwick, MMC acquired several
insurance underwriting companies that were already in run-off along with
consulting businesses not compatible with its existing operations. MMC intends
to sell these operations in the near future and accordingly, $84 million of net
assets of these businesses at December 31, 1998 are included in other current
assets in the Consolidated Balance Sheet as assets to be sold. The net assets at
December 31, 1998 are stated at their estimated realizable value.
During 1997, MMC sold an insurance program management business and a consulting
operation for $54 million and recognized pretax gains of $13 million.
During 1996, MMC sold The Frizzell Group Limited ("Frizzell") for approximately
$290 million and recognized a pretax gain of $33 million.
In 1997, as part of the integration of J&H, MMC adopted plans to consolidate
duplicative offices and reduce staff. The estimated cost of the plans relating
to employees and offices of J&H ("J&H Plan") amounted to $143 million and was
allocated to the cost of the acquisition. Merger related costs for employees and
offices of MMC ("MMC Plan") amounted to $168 million and were recorded as part
of a special charge in 1997.
The $143 million allocated to the cost of the J&H acquisition included $69
million of costs principally related to the planned consolidations of
approximately 50 offices and $74 million for employee related costs, primarily
severance and related benefits associated with the reduction of over 900
positions worldwide. The $168 million recorded as part of the MMC special charge
included $117 million of severance and related benefits associated with the
reduction of approximately 1,300 positions worldwide; $38 million of costs
principally related to the planned consolidations of approximately 30 offices;
and $13 million for other integration related costs. The office consolidation
costs primarily represent future rent under noncancelable leases (net of
anticipated sublease income) and lease termination payments.
<PAGE>
The utilization of the charges is summarized as follows:
================================================================================
Balance
Initial Utilized Utilized Dec. 31,
(In millions of dollars) Balance in 1997 in 1998 1998
- --------------------------------------------------------------------------------
J&H Plan:
Termination payments to
employees $ 70 $ (17) $ (37) $ 16
Other employee related costs 4 (2) (1) 1
Future rent under
noncancelable leases 45 (1) (5) 39
Leasehold termination costs 24 (4) (13) 7
- --------------------------------------------------------------------------------
$ 143 $ (24) $ (56) $ 63
================================================================================
Number of employee
terminations 900 (600) (250) 50
Number of office
consolidations 50 (10) (35) 5
================================================================================
MMC Plan:
Termination payments to
employees $ 117 $ (44) $ (58) $ 15
Future rent under
noncancelable leases 21 (2) (4) 15
Leasehold termination costs 17 (10) (2) 5
Other integration related costs 13 (6) (2) 5
- --------------------------------------------------------------------------------
$ 168 $ (62) $ (66) $ 40
================================================================================
Number of employee
terminations 1,300 (800) (450) 50
Number of office
consolidations 30 (10) (17) 3
================================================================================
In January 1999, the final group of nearly 100 employees who were determined to
be redundant under the Plans were severed from employment with MMC. The
remaining real estate actions are expected to be completed during 1999. The
remaining balances, primarily representing future rent under noncancelable
leases and salary continuance arrangements, primarily in Canada and the
Netherlands, are expected to be paid out over several years.
----------
43
<PAGE>
5 Income Taxes
- --------------------------------------------------------------------------------
Income before income taxes shown below is based on the geographic location to
which such income is attributable. Although income taxes related to such income
may be assessed in more than one jurisdiction, the income tax provision
corresponds to the geographic location of the income.
================================================================================
For the Three Years Ended December 31, 1998
(In millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Income before income taxes:
U.S $ 897 $ 510 $ 437
Other 408 205 231
- --------------------------------------------------------------------------------
$ 1,305 $ 715 $ 668
================================================================================
Income taxes:
Current--
U.S. Federal $ 284 $ 218 $ 94
Other national governments 89 141 97
U.S. state and local 57 61 39
- --------------------------------------------------------------------------------
430 420 230
- --------------------------------------------------------------------------------
Deferred--
U.S. Federal 30 (55) 48
Other national governments 49 (71) (40)
U.S. state and local -- (13) (29)
- --------------------------------------------------------------------------------
79 (139) (21)
- --------------------------------------------------------------------------------
Total income taxes $ 509 $ 281 $ 209
================================================================================
The significant components of deferred income tax assets and liabilities and
their balance sheet classifications are as follows:
================================================================================
December 31, 1998 and 1997
(In millions of dollars) 1998 1997
- --------------------------------------------------------------------------------
Deferred tax assets:
Accrued expenses not currently deductible $ 752 $ 616
Accrued retirement benefits 137 117
Differences related to non-U.S. operations 215 119
Depreciation and amortization -- 11
Other 18 15
- --------------------------------------------------------------------------------
$ 1,122 $ 878
================================================================================
Deferred tax liabilities:
Depreciation and amortization $ 43 $ --
Prepaid dealer commissions 401 376
Safe harbor leasing 10 14
Unbilled revenue 14 18
Unrealized securities holding gains 192 167
Differences related to non-U.S. operations 71 36
Other 56 18
- --------------------------------------------------------------------------------
$ 787 $ 629
================================================================================
Balance sheet classifications:
Current assets $ 76 $ 166
Other assets 359 181
Accrued income taxes (100) (98)
================================================================================
<PAGE>
A reconciliation from the U.S. Federal statutory income tax rate to MMC's
effective income tax rate is as follows:
================================================================================
For the Three Years Ended
December 31, 1998 1998 1997 1996
- --------------------------------------------------------------------------------
U.S. Federal statutory rate 35.00% 35.00% 35.00%
U.S. state and local income taxes--
net of U.S. Federal income
tax benefit 2.90 4.40 3.90
Differences related to non-U.S
operations (.40) (.20) (1.25)
Tax adjustment -- -- (6.00)
Other 1.50 .10 (.40)
- --------------------------------------------------------------------------------
Effective tax rate 39.00% 39.30% 31.25%
================================================================================
During 1996, MMC recorded a tax adjustment that reduced the income tax provision
by $40 million. The tax adjustment primarily related to the permanent deployment
of funds outside of the United States in a tax efficient manner and favorable
state and local tax developments in the U.S.
In 1997, MMC received a Notice of Proposed Adjustment from a local field office
of the Internal Revenue Service ("IRS") challenging its tax treatment related to
12b-1 fees paid by the Putnam Funds. The notice reflected the preliminary
thinking of the IRS field office and did not constitute a formal assertion of
liability by the IRS. The notice in question asserts a position contrary to the
position enunciated in an IRS 1993 Technical Advice Memorandum. The IRS field
office withdrew the Notice of Proposed Adjustment and submitted the matter to
the national office of the IRS for consideration in a request for technical
advice. Consequently, the issue is under consideration by the IRS. MMC believes
its tax treatment of these fees is consistent with current industry practice and
applicable requirements of the Internal Revenue Code and previously issued IRS
technical advice.
Taxing authorities periodically challenge positions taken by MMC on its tax
returns. On the basis of present information and advice received from counsel,
it is the opinion of MMC's management that any assessments resulting from
current tax audits will not have a material adverse effect on MMC's consolidated
results of operations or its consolidated financial position.
----------
44
<PAGE>
6 Retirement Benefits
- --------------------------------------------------------------------------------
In 1998, MMC adopted SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits." The new standard does not change the measurement
or recognition of those plans, but revises disclosures about pensions and other
postretirement benefit plans. Restatement of disclosures for the prior year has
been made for comparative purposes.
The following schedules provide information concerning MMC's U.S. defined
benefit pension plans and postretirement benefit plans:
<TABLE>
<CAPTION>
====================================================================================================================================
U.S. Pension U.S. Postretirement
Benefits Benefits
December 31, 1998 and 1997 --------------------------------------------------------------
(In millions of dollars) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 1,434 $ 798 $ 175 $ 88
Service cost 46 39 3 4
Interest cost 104 90 10 10
Actuarial (gain) loss 87 107 (6) 13
Acquisitions 365 464 6 66
Benefits paid (82) (64) (5) (6)
Plan amendments 2 -- (18) --
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 1,956 1,434 165 175
- ------------------------------------------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year 1,651 947 -- --
Actual return on plan assets 256 272 -- --
Acquisitions 392 399 -- --
Employer contributions 19 97 5 6
Benefits paid (82) (64) (5) (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 2,236 1,651 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Funded status 280 217 (165) (175)
Unrecognized net actuarial gain (245) (216) (7) (1)
Unrecognized prior service cost (credit) 10 15 (14) --
Unrecognized transition amount (28) (33) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset (liability) recognized $ 17 $ (17) $ (186) $ (176)
====================================================================================================================================
Amounts recognized in Balance Sheet consist of:
Prepaid benefit cost $ 144 $ 111 $ -- $ --
Accrued benefit liability (161) (128) (186) (176)
Intangible asset 10 -- -- --
Accumulated other comprehensive income 24 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset (liability) recognized $ 17 $ (17) $ (186) $ (176)
====================================================================================================================================
</TABLE>
The weighted average actuarial assumptions utilized in determining the above
amounts for the U.S. defined benefit and other postretirement benefit plans as
of the end of the year were as follows:
================================================================================
U.S. Pension U.S. Postretirement
Benefits Benefits
-------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
Weighted average assumptions:
Discount rate 7.0% 7.25% 7.0% 7.25%
Expected return on plan assets 10.0% 10.0% -- --
Rate of compensation increase 4.0% 4.0% -- --
================================================================================
The increases in benefit obligation and plan assets relating to acquisitions
pertain to MMC's acquisitions of Sedgwick (and the current terms of its plans)
and J&H in 1998 and 1997, respectively. In 1998, the discount rate used to value
the liabilities of the U.S. defined benefit pension plans and postretirement
benefit plans was decreased to reflect current interest rates of high quality
fixed income debt securities.
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the U.S. pension plans with accumulated benefit obligations
in excess of plan assets were $279 million, $247 million and $114 million,
respectively, as of December 31, 1998 and $239 million, $206 million and $99
million, respectively, as of December 31, 1997.
----------
45
<PAGE>
The components of the net periodic benefit cost for the U.S. defined benefit and
other postretirement benefit plans are as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
U.S. Pension Benefits U.S. Postretirement Benefits
For the Three Years Ended December 31, 1998 -----------------------------------------------------------------------
(In millions of dollars) 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 46 $ 39 $ 28 $ 3 $ 4 $ 2
Interest cost 104 90 60 10 10 6
Expected return on plan assets (146) (115) (81) -- -- --
Amortization of prior service cost (credit) 7 7 7 (2) -- --
Amortization of transition asset (4) (4) (4) -- -- --
Recognized actuarial (gain) loss 5 (5) (6) -- (1) (1)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 12 $ 12 $ 4 $ 11 $ 13 $ 7
====================================================================================================================================
</TABLE>
The assumed health care cost trend rate was approximately 9% in 1998, gradually
declining to 4% in the year 2041. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plans. A
one-percentage-point change in assumed health care cost trend rates would have
the following effects (in millions of dollars):
<TABLE>
<CAPTION>
====================================================================================================================================
1-Percentage- 1-Percentage-
Point Increase Point Decrease
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ 2 $ (2)
Effect on postretirement benefit obligation $ 17 $(15)
====================================================================================================================================
</TABLE>
The following schedules provide information on MMC's significant non-U.S.
defined benefit pension plans:
================================================================================
Non-U.S. Pension Benefits
December 31, 1998 and 1997 --------------------------
(In millions of dollars) 1998 1997
- --------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 900 $ 724
Service cost 48 41
Interest cost 66 62
Employee contributions 10 10
Actuarial loss 209 10
Acquisitions 1,503 109
Benefits paid (48) (44)
Foreign currency changes (9) (23)
Plan amendments 1 11
- --------------------------------------------------------------------------------
Benefit obligation at end of year 2,680 900
- --------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year 1,202 948
Actual return on plan assets 172 172
Acquisitions 1,385 128
Company contributions 15 11
Employee contributions 10 10
Benefits paid (48) (44)
Foreign currency changes (15) (23)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year 2,721 1,202
- --------------------------------------------------------------------------------
Funded status 41 302
Unrecognized net actuarial gain (35) (170)
Unrecognized prior service cost 8 8
Unrecognized net asset (12) (18)
- --------------------------------------------------------------------------------
Net asset recognized $ 2 $ 122
================================================================================
Amounts recognized in Balance Sheet consist of:
Prepaid benefit cost $ 143 $ 140
Accrued benefit liability (141) (18)
- --------------------------------------------------------------------------------
Net asset recognized $ 2 $ 122
================================================================================
Weighted average assumptions:
Discount rate 5.9% 7.6%
Expected return on plan assets 8.9% 9.1%
Rate of compensation increase 4.2% 5.4%
================================================================================
The increases in benefit obligation and plan assets relating to acquisitions
pertain primarily to MMC's acquisitions of Sedgwick and J&H in 1998 and 1997,
respectively. In 1998, the discount rates used to value the liabilities of the
non-U.S. plans were decreased to reflect current worldwide interest rates.
Assumptions, including projected compensation increases and potential cost of
living adjustments for retirees, were also revised to reflect current
expectations as to future levels of inflation.
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the non-U.S. pension plans with accumulated benefit
obligations in excess of plan assets were $1.55 billion, $1.52 billion and $1.40
billion, respectively, as of December 31, 1998 and $41 million, $33 million and
$14 million, respectively, as of December 31, 1997. The increase in the pension
obligation and related assets in 1998 was due principally to the Sedgwick
acquisition.
The components of the net periodic benefit cost for the non-U.S. defined benefit
pension plans are as follows:
================================================================================
For the Three Years Non-U.S. Pension Benefits
Ended December 31, 1998 ---------------------------
(In millions of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Service cost $ 48 $ 41 $ 32
Interest cost 66 62 51
Expected return on plan assets (98) (90) (75)
Amortization of prior service cost 1 -- --
Amortization of transition asset (6) (6) (6)
- --------------------------------------------------------------------------------
$ 11 $ 7 $ 2
================================================================================
Contribution Plans: MMC maintains certain defined contribution plans for its
employees, including the Marsh & McLennan Companies Stock Investment Plan
("SIP"), the Putnam Investments, Inc. Profit Sharing Retirement Plan (the
"Putnam Plan") and the Johnson & Higgins Cash Accumulation Plan ("J&H Plan").
Under these plans, eligible employees may contribute a percentage of their base
salary, subject to certain limitations. For the SIP and the J&H Plan, MMC
matches a portion of the employees' contributions, while under the Putnam Plan
the contributions are at the discretion of MMC subject to IRS limitations. The
cost of these defined contribution plans was $62 million, $55 million and $40
million for 1998, 1997 and 1996, respectively.
----------
46
<PAGE>
7 Stock Benefit Plans
- --------------------------------------------------------------------------------
As provided under SFAS No. 123, "Accounting for Stock-Based Compensation," MMC
has elected to continue to account for stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and has provided the required additional pro forma
disclosures.
In accordance with the intrinsic value method allowed by APB 25, no compensation
cost has been recognized in the Consolidated Statements of Income for MMC's
stock option and stock purchase plans and the stock options awarded under the
Putnam Investments, Inc. Equity Partnership Plan. Had compensation cost for
MMC's stock-based compensation plans been determined consistent with the fair
value method prescribed by SFAS No. 123, MMC's net income and net income per
share for 1998, 1997 and 1996 would have been reduced to the pro forma amounts
indicated in the table below.
The fair value of each of MMC's option grants included in pro forma net income
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 1998, 1997
and 1996, respectively; dividend yield of 3.0% in 1998 and 1997 and 3.5% in
1996; expected volatility of 18.9% in 1998, 17.5% in 1997 and 14.0% in 1996;
risk-free interest rate of 5.6% in 1998, 6.5% in 1997 and 6.0% in 1996; and an
expected life of five years. The compensation cost as generated by the
Black-Scholes model may not be indicative of the future benefit, if any, that
may be received by the option holder. The weighted average fair value of options
granted during the years ended December 31, 1998, 1997 and 1996 was $11.65,
$8.47 and $4.90 per share, respectively.
================================================================================
(In millions of dollars,
except per share figures) 1998 1997 1996
- --------------------------------------------------------------------------------
Net Income:
As reported $ 796 $ 434 $ 459
Pro forma $ 762 $ 414 $ 448
Net Income Per Share:
Basic:
As reported $3.11 $1.77 $2.11
Pro forma $2.98 $1.69 $2.06
Diluted:
As reported $2.98 $1.73 $2.08
Pro forma $2.85 $1.65 $2.03
================================================================================
The pro forma information reflected above may not be representative of the
amounts to be expected in future years as the fair value method of accounting
contained in SFAS No. 123 has not been applied to options granted prior to
January 1995.
Incentive and Stock Award Plans: During 1997, MMC adopted the Marsh & McLennan
Companies, Inc. 1997 Employee Incentive and Stock Award Plan (the "Employee
Plan") and the Marsh & McLennan Companies, Inc. 1997 Senior Executive Incentive
and Stock Award Plan (the "Executive Plan"). The Employee and Executive Plans
(the "1997 Plans") replace the 1992 Incentive and Stock Award Plan (the "1992
Plan"). The types of awards permitted under these Plans include stock options,
restricted stock, stock bonus units, restricted and deferred stock units payable
in MMC common stock or cash, and other stock-based and performance-based awards.
The Compensation Committee of the Board of Directors (the "Compensation
Committee") determines, at its discretion, which affiliates may participate in
the plans, which eligible employees will receive awards, the types of awards to
be received and the terms and conditions thereof. The right of an employee to
receive an award may be subject to performance conditions as specified by the
Compensation Committee. The 1997 Plans contain provisions which, in the event of
a change in control of MMC, may accelerate the vesting of the awards. Awards
relating to not more than 18,000,000 shares of common stock may be made over the
life of the Employee Plan plus shares remaining unused under pre-existing
approved stock plans. Awards relating to not more than 7,500,000 shares of
common stock may be made over the life of the Executive Plan plus shares
remaining unused under pre-existing approved stock plans. There were 24,506,619
and 31,203,936 shares available for awards under the 1997 Plans and prior plans
at December 31, 1998 and 1997, respectively.
Stock Options: Options granted under the 1997 Plans may be designated as
incentive stock options or as non-qualified stock options. The Compensation
Committee shall determine the terms and conditions of the option, including the
time or times at which an option may be exercised, the methods by which such
exercise price may be paid and the form of such payment. Except under certain
limited circumstances, no stock option may be granted with an exercise price of
less than the fair market value of the stock at the time the stock option is
granted.
----------
47
<PAGE>
Stock option transactions under the 1997 Plans and prior plans are as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
1998 1997 1996
---------------------------- --------------------------- ---------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period 24,332,522 $31.18 25,666,431 $28.11 26,162,385 $26.88
Granted 6,115,165 $60.19 5,166,120 $41.39 4,122,180 $31.70
Exercised (3,427,830) $26.63 (5,865,160) $26.59 (3,861,090) $23.55
Forfeited (527,037) $38.76 (634,869) $31.99 (757,044) $28.50
---------- ---------- ----------
Balance at end of period 26,492,820 $38.27 24,332,522 $31.18 25,666,431 $28.11
====================================================================================================================================
Options exercisable at year-end 14,587,332 $30.01 14,706,623 $28.17 16,468,995 $27.12
====================================================================================================================================
</TABLE>
The following table summarizes information about stock options at December 31,
1998:
<TABLE>
<CAPTION>
====================================================================================================================================
Options Outstanding Options Exercisable
------------------------------------------------------- ------------------------------------
Weighted Average
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$16.46-26.44 5,981,218 3.6 years $25.82 5,344,951 $25.77
$26.94-33.35 9,818,089 5.2 years $31.06 8,000,598 $30.93
$35.25-60.59 10,693,513 8.7 years $51.85 1,241,783 $42.35
---------- ----------
$16.46-60.59 26,492,820 6.3 years $38.27 14,587,332 $30.01
====================================================================================================================================
</TABLE>
Restricted Stock: Restricted shares of MMC's common stock may be awarded and
shall be subject to such restrictions on transferability and other restrictions,
if any, as the Compensation Committee may impose. The Compensation Committee may
also determine when and under what circumstances the restrictions may lapse and
whether the participant shall have the rights of a stockholder, including,
without limitation, the right to vote and receive dividends. Unless the
Compensation Committee determines otherwise, restricted stock that is still
subject to restrictions shall be forfeited upon termination of employment.
There were 124,350, 135,000 and 158,400 restricted shares granted in 1998, 1997
and 1996, respectively. MMC recorded compensation expense of $7 million in 1998
and $6 million in 1997 and 1996, related to these shares. Shares that have been
granted generally become unrestricted at the earlier of: (1) January 1 of the
eleventh year following the grant or (2) the later of the recipient's normal or
actual retirement date.
Restricted Stock Units: Restricted stock units, payable in stock or cash, may be
awarded under the Plans. The Compensation Committee shall determine the
restrictions on such units, when the restrictions shall lapse, when the units
shall vest and be paid, and upon what terms the units shall be forfeited.
There were 94,902, 98,856 and 119,277 restricted stock units awarded during
1998, 1997 and 1996, respectively. MMC recorded compensation expense of $6
million, $4 million and $5 million in 1998, 1997 and 1996, respectively, related
to restricted stock units.
Deferred Stock Units: Deferred stock units, payable in stock or cash, may be
awarded under the Plans. The Compensation Committee shall determine the
restrictions on such units, when the restrictions shall lapse, when the units
shall vest and be paid, and upon what terms the units shall be forfeited.
There were 557,542 and 445,833 deferred stock units awarded during 1998 and
1997, respectively. MMC recorded compensation expense of $20 million and $6
million in 1998 and 1997, respectively, related to deferred stock units. The
1998 expense includes an $11 million charge associated with acquisition related
stock unit awards issued to certain senior employees of Sedgwick (see Note 12).
Putnam Investments, Inc. Equity Partnership Plan: In September 1997, Putnam
adopted the Putnam Investments, Inc. Equity Partnership Plan (the "Equity Plan")
pursuant to which Putnam is authorized to grant or sell to certain key employees
of Putnam or its subsidiaries restricted shares of a new class of common stock
of Putnam ("Class B Common Stock") and options to acquire the Class B Common
Stock. Such awards or options generally vest over a four-year period. Holders of
Putnam Class B shares are not entitled to vote and have no rights to convert
their shares into any other securities of Putnam. However, in the event of
certain change in control events, Class B shares will be converted into Class A
common stock on a share for share basis. Awards of restricted stock and/or
options may be made under the Equity Plan with respect to a maximum of
12,000,000 shares of Class B Common Stock which would represent approximately
12% of the outstanding shares on a fully diluted basis. In 1998, Putnam made
awards pursuant to the Equity Plan with respect to approximately 3,660,000
shares of Class B Common Stock, including 1,830,000 shares of restricted stock
with a value of $94 million and 1,830,000 shares subject to options. In 1997,
Putnam made awards with respect to approximately 4,000,000 shares of Class B
Common Stock, including 2,000,000 shares of restricted stock with a value of $83
million and 2,000,000 shares subject to options. There were approximately
4,774,000 shares available for grant related to the Equity Plan at December 31,
1998.
Pursuant to an executive compensation agreement, Putnam has also awarded 300,000
restricted stock units with a value of $14 million and 325,000 options related
to Class B Common Stock to a key executive of Putnam.
The fair value of each option grant included in the pro forma net income is
estimated on the date of grant using the Black-Scholes
----------
48
<PAGE>
option-pricing model with the following weighted average assumptions used for
grants in 1998 and 1997: dividend yield of 5.0% for 1998 and 1997; expected
volatility of 28.3% in 1998 and 26.4% in 1997; risk-free interest rate of 5.6%
in 1998 and 6.1% in 1997; and an expected life of five years. The compensation
cost as generated by the Black-Scholes model may not be indicative of the future
benefit, if any, that may be received by the option holder. The weighted average
fair value of each Class B option was $10.42 in 1998 and $8.30 in 1997.
Stock Purchase Plans: In May 1994, MMC's stockholders approved an employee stock
purchase plan (the "1994 Plan") to replace the 1990 Employee Stock Purchase Plan
which terminated on September 30, 1994 following its fourth annual offering.
Under these plans, eligible employees may purchase shares of MMC's common stock,
subject to certain limitations, at prices not less than 85% of the lesser of the
fair market value of the stock at the beginning or end of any offering period.
Under the 1994 Plan, no more than 12,000,000 shares of MMC's common stock plus
the remaining unissued shares in the 1990 Plan may be sold. Employees purchased
1,932,060, 1,855,500 and 1,959,000 shares in 1998, 1997 and 1996, respectively.
At December 31, 1998, 5,500,440 shares were available for issuance under the
1994 Plan. During 1995, MMC's Board of Directors approved the Marsh & McLennan
Companies Stock Purchase Plan for International Employees (the "International
Plan") which is similar to the 1994 Plan. Under the International Plan, no more
than 1,500,000 shares of MMC's common stock may be sold. Employees purchased
238,854, 211,500 and 15,000 shares in 1998, 1997 and 1996, respectively. At
December 31, 1998, 1,034,646 shares were available for issuance under the
International Plan. The fair value of each employee purchase right granted under
these Stock Purchase Plans is included in the pro forma net income for 1998,
1997 and 1996 and was estimated using the Black-Scholes model with the following
assumptions: dividend yield of 3.0% for 1998 and 1997 and 3.5% for 1996;
expected life of one year; expected volatility of 18.9% for 1998, 17.5% for 1997
and 14.0% for 1996; and risk-free interest rate of 4.4% for 1998, 5.5% for 1997
and 5.6% for 1996. The weighted average fair value of each purchase right
granted in 1998, 1997 and 1996 was $10.61, $10.96 and $6.38, respectively.
8 Long-term Obligations
- --------------------------------------------------------------------------------
MMC leases office facilities, equipment and automobiles under noncancelable
operating leases. These leases expire on varying dates; in some instances
contain renewal and expansion options; do not restrict the payment of dividends
or the incurrence of debt or additional lease obligations; and contain no
significant purchase options. In addition to the base rental costs, occupancy
lease agreements generally provide for rent escalations resulting from increased
assessments for real estate taxes and other charges. Approximately 95% of MMC's
lease obligations are for the use of office space.
At December 31, 1998, the aggregate future minimum rental commitments under all
noncancelable operating lease agreements are as follows:
================================================================================
For the Years Ending Gross Rentals Net
December 31, Rental from Rental
(In millions of dollars) Commitments Subleases Commitments
- --------------------------------------------------------------------------------
1999 $ 310 $ 12 $ 298
2000 263 9 254
2001 211 6 205
2002 163 4 159
2003 129 3 126
Subsequent years 570 15 555
- --------------------------------------------------------------------------------
$1,646 $ 49 $1,597
================================================================================
The accompanying Consolidated Statements of Income include net rental costs of
$313 million, $265 million and $217 million for 1998, 1997 and 1996,
respectively, after deducting rentals from subleases ($7 million in 1998 and
1997 and $8 million in 1996).
<PAGE>
MMC has entered into agreements with various service companies to outsource
certain information systems activities and responsibilities. Under these
agreements, MMC is required to pay minimum annual service charges. Additional
fees may be payable depending upon the volume of transactions processed with all
future payments subject to increases for inflation. At December 31, 1998, the
aggregate fixed future minimum commitments under these agreements are as
follows:
================================================================================
Future
For the Years Ending December 31, Minimum
(In millions of dollars) Commitments
- --------------------------------------------------------------------------------
1999 $ 68
2000 56
2001 35
2002 28
2003 25
Subsequent years 20
- --------------------------------------------------------------------------------
$232
================================================================================
9 Short-term Debt
- --------------------------------------------------------------------------------
MMC's outstanding short-term debt is as follows:
================================================================================
December 31, 1998 and 1997
(In millions of dollars) 1998 1997
- --------------------------------------------------------------------------------
Commercial paper $2,213 $ 230
Bank loans 10 --
Current portion of long-term debt 11 7
- --------------------------------------------------------------------------------
$2,234 $ 237
================================================================================
The weighted average interest rates on outstanding commercial paper borrowings
at December 31, 1998 and 1997 are 5.3% and 6.1%, respectively.
During 1998, MMC executed an additional revolving credit facility with several
banks to support its commercial paper borrowings made to initially finance its
acquisition of Sedgwick. This facility, which expires in August 1999, provides
that MMC may borrow up to $2.25 billion at market rates of interest which may
vary depending upon the level of usage of the facility and MMC's credit ratings.
MMC maintains credit facilities with various banks, primarily related to
operations located outside the United States, aggregating $553 million at
December 31, 1998. MMC has borrowed $25 million under these facilities and has
included $15 million of these borrowings in Long-term Debt.
----------
49
<PAGE>
10 Long-term Debt
- --------------------------------------------------------------------------------
MMC's outstanding long-term debt is as follows:
================================================================================
December 31, 1998 and 1997
(In millions of dollars) 1998 1997
- --------------------------------------------------------------------------------
Commercial paper $ 600 $ --
Revolving credit facility 583 709
Mortgage -- 9.8% due 2009 200 200
Notes payable -- due 2012 86 111
Notes payable -- 7.68% due 2006 60 --
Bank borrowings -- 184
Other 72 43
- --------------------------------------------------------------------------------
1,601 1,247
Less current portion 11 7
- --------------------------------------------------------------------------------
$1,590 $1,240
================================================================================
Commercial paper borrowings of $600 million at December 31, 1998 have been
classified as long-term debt based on MMC's intent and ability to maintain or
refinance these obligations on a long-term basis.
During 1997, MMC executed a revolving credit facility with several banks to
support its commercial paper borrowings and to fund other general corporate
requirements. This noncancelable facility, which expires in June 2002, provides
that MMC may borrow up to $1.2 billion at market rates of interest which may
vary depending upon the level of usage of the facility and MMC's credit ratings.
Commitment fees of 7 basis points are payable on any unused portion. The
facility requires MMC to maintain consolidated net worth of at least $1.7
billion and contains other restrictions relating to consolidations, mergers and
the sale or pledging of assets.
Outstanding borrowings at December 31, 1998 under this revolving credit facility
amounted to $583 million and have been classified as long-term debt based on
MMC's intent and ability to maintain or refinance these obligations on a
long-term basis. The weighted average interest rate associated with these
borrowings was 5.6% and 6.0% at December 31, 1998 and 1997, respectively.
MMC 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
interest in its worldwide headquarters building. In the event the mortgage is
foreclosed following a default, MMC would be entitled to remain in the space and
would be obligated to pay rent sufficient to cover interest on the notes or,
starting in 1999, at fair market value if greater.
MMC has an interest rate swap which was entered into as part of the acquisition
and renovation of MMC's worldwide headquarters which fixes the interest rate at
approximately 9.5% on $100 million of variable rate borrowings. This swap
expired in February 1999. The weighted average interest rate received on this
swap at December 31, 1998, 1997 and 1996 was 5.7%, 5.8% and 5.7%, respectively.
The difference between the fixed rate and the weighted average rate is included
in interest expense in the Consolidated Statements of Income.
MMC has a note payable due 2012, the outstanding balance of which was $86
million and $111 million at December 31, 1998 and 1997, respectively. Interest
on this debt is fixed at 8.62%. The decrease from 1997 reflects MMC's repayment
of the variable rate portion of the note.
In connection with the Sedgwick transaction, MMC assumed debt amounting to $108
million at December 31, 1998. This debt consists of $60 million of 7.68% Senior
Loan Notes, $36 million related to capital leases and $12 million of other
borrowings.
Scheduled repayments of long-term debt in 1999 and in the four succeeding years
are $11 million, $21 million, $9 million, $1.2 billion and $6 million,
respectively.
11 Financial Instruments
- --------------------------------------------------------------------------------
The estimated fair value of MMC's significant financial instruments is provided
below. Certain estimates and judgments were required to develop the fair value
amounts. The fair value amounts shown below are not necessarily indicative of
the amounts that MMC would realize upon disposition nor do they indicate MMC's
intent or ability to dispose of the financial instrument.
================================================================================
1998 1997
---------------------------------------
December 31, 1998 and 1997 Carrying Fair Carrying Fair
(In millions of dollars) Amount Value Amount Value
- --------------------------------------------------------------------------------
Nonderivatives:
Cash and cash equivalents $ 610 $ 610 $ 424 $ 424
Long-term securities 828 828 720 720
Short-term debt 2,234 2,234 237 237
Long-term debt 1,590 1,665 1,240 1,313
Derivatives:
Other assets (liabilities):
Interest rate swaps -- 4 -- (5)
Forward exchange contracts -- 1 -- --
================================================================================
Cash and Cash Equivalents: The estimated fair value of MMC's cash and cash
equivalents approximates their carrying value.
Long-term Securities: Long-term securities primarily consist of available for
sale securities recorded at quoted market prices. MMC also has certain
additional long-term securities, for which there are no readily available market
prices, amounting to $82 million and $73 million at December 31, 1998 and 1997,
respectively, which are carried on a cost basis. Based on present information,
MMC believes that the cost of these investments approximates their fair value.
Short-term and Long-term Debt: The fair value of MMC's short-term debt, which
consists primarily of commercial paper borrowings, approximates its carrying
value. The estimated fair value of MMC's long-term debt is based on discounted
future cash flows using current interest rates available for debt with similar
terms and remaining maturities. The estimated fair value of borrowings under the
revolving credit facility approximates the carrying value.
----------
50
<PAGE>
Interest Rate Swaps: Historically, MMC has managed its net exposure to interest
rate changes by utilizing a mixture of variable and fixed rate borrowings to
finance MMC's asset base. Interest rate swaps have been utilized on a limited
basis to convert variable rate borrowings into fixed rate borrowings. Sedgwick
has utilized interest rate swaps to manage its exposure to interest rate
movements on its cash and investments as well as its interest expense on
borrowings. MMC does not utilize financial instruments for trading or other
speculative purposes. The counterparties to these contracts are major financial
institutions. Management believes that risk of loss is remote and in any event
would be immaterial.
The fair value of these interest rate swaps are the estimated amounts that MMC
would pay to terminate the agreements at the reporting date, taking into account
the current interest rate environment. Amounts currently due to or from interest
rate swap counterparties are recorded in interest expense in the period in which
they accrue.
A summary of MMC's interest rate swaps as of December 31, 1998 and 1997 is as
follows:
================================================================================
Weighted Average
Interest Rates
Notional Termination ------------------
(In millions of dollars) Amount Dates Receive Pay
- --------------------------------------------------------------------------------
1998 --
Receive fixed --
pay variable $599 1999-2003 6.8% 5.9%
Receive variable --
pay fixed $140 1999-2005 5.7% 8.4%
1997 --
Receive variable --
pay fixed $142 1999-2005 5.8% 8.4%
================================================================================
Forward Exchange Contracts: At December 31, 1998, MMC primarily had open forward
exchange contracts to both sell U.S. dollars for sterling and purchase U.S.
dollars for sterling for underlying principal amounts of $28 million and $70
million, respectively. These contracts were entered into by Sedgwick principally
to hedge both firm commitments and anticipated transactions.
Unrealized Securities Holding Gains: MMC has classified as available for sale
primarily equity securities having an aggregate fair value of $746 million and
$647 million at December 31, 1998 and 1997, respectively. Gross unrealized
gains, amounting to $546 million and $476 million at December 31, 1998 and 1997,
respectively, have been excluded from earnings and reported as accumulated other
comprehensive income which is a component of stockholders' equity, net of
deferred income taxes.
Proceeds from the sale of available for sale securities for the years ended
December 31, 1998, 1997 and 1996 were $62 million, $69 million and $28 million,
respectively. Gross realized gains on available for sale securities sold during
1998, 1997 and 1996 amounted to $40 million, $36 million and $17 million,
respectively. The cost of securities sold is determined using the average cost
method for equity securities.
A portion of insurance fiduciary funds which MMC holds to satisfy fiduciary
obligations are invested in high quality debt securities which are generally
held to maturity. The difference between cost and fair value of these
investments is not material.
12 Special Charges/Credits
- --------------------------------------------------------------------------------
During 1998, MMC recorded a special charge of $11 million representing
acquisition related stock unit awards issued to certain senior employees of
Sedgwick. In addition, as further explained below, a reserve related to a 1996
provision for restructuring of approximately $15 million was reversed in 1998.
The resulting net special credit of $4 million increased diluted net income per
share by $.01 for the year.
During 1997, MMC recorded special charges totaling $244 million. The net impact
of the special charges on diluted net income per share was $.63 for the year.
These charges included $168 million of merger costs predominantly related to the
combination with J&H, a charge of $61 million related to London real estate, and
$15 million for the disposal of certain EDP assets which were written-off in
1997. The merger costs are discussed in detail in Note 4. The $61 million charge
for London real estate included $35 million associated with a plan to abandon
and demolish a company-owned building and $26 million of lease abandonment costs
(net of anticipated sublease income) relating to vacating several leased
locations. Payments and write-offs associated with this reserve began in 1998
and are expected to continue for several years. The remaining London real estate
reserve is $25 million at December 31, 1998.
During 1996, MMC completed the sale of Frizzell for approximately $290 million
which resulted in a $33 million pretax gain. In addition, pretax charges
aggregating $93 million were also recorded. The net impact of these special
charges and the 1996 tax adjustment discussed in Note 5 increased diluted net
income per share by $.01 for the year. These charges included a provision of $34
million primarily for London real estate representing lease abandonment costs
for certain leased locations (net of anticipated sublease income); $27 million
primarily for severance and related benefits associated with the planned
reduction of over 600 employees relating to restructuring certain elements of
MMC's insurance and reinsurance back office operations in London and several
office closings; $17 million for goodwill write-offs; and $15 million related to
the Lloyd's Reconstruction and Renewal Plan.
----------
51
<PAGE>
The utilization of the 1996 special charges is summarized as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
Balance
Initial Non-Cash Payments Amount December 31,
(In millions of dollars) Balance Charges Made Reversed 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate consolidations $34 $ (8) $ (2) $ -- $24
Staff reductions and office closings 27 -- (12) (15) --
Goodwill write-offs 17 (17) -- -- --
Lloyd's Reconstruction and Renewal Plan 15 -- (12) -- 3
- ------------------------------------------------------------------------------------------------------------------------------------
$93 $(25) $(26) $(15) $27
====================================================================================================================================
</TABLE>
The London real estate and staff reduction plans were expected to commence in
1997 and continue through 1998; however, execution of these plans was delayed as
a result of the J&H acquisition and put under review. After further evaluation,
management still was committed to carrying out these plans and in the fall of
1997 leased space in the East India Dock section of London to begin the
consolidation of its back office operations. The leased space was built out and
then occupied during the summer of 1998. However, with the acquisition of
Sedgwick in the fourth quarter of 1998, management concluded that the remaining
staff reduction plan to reorganize the London back office could no longer be
executed and, therefore, the remaining severance accrual of $15 million was
reversed. The remaining balance, primarily representing future rent under
noncancelable leases, is expected to be paid out over several years.
13 Common Stock
- --------------------------------------------------------------------------------
On May 20, 1998, the Board of Directors authorized a three-for-two stock
distribution of MMC's common stock, which was issued as a stock dividend on June
26, 1998.
On May 21, 1997, the Board of Directors authorized a two-for-one stock
distribution of MMC's common stock, which was issued as a stock dividend on June
27, 1997.
All references to per share amounts have been restated for these stock
distributions.
14 Stockholder Rights Plan
- --------------------------------------------------------------------------------
On September 18, 1997, MMC's Board of Directors approved the extension of the
benefits afforded by MMC's existing rights plan by adopting a new stockholder
rights plan. Under the new plan, Rights to purchase stock, at a rate of one
Right for each common share held, were distributed to shareholders of record on
September 29, 1997 and automatically attach to shares acquired thereafter. Under
the plan, the Rights generally become exercisable after a person or group (i)
acquires 15% or more of MMC's outstanding common stock or (ii) commences a
tender offer that would result in such a person or group owning 15% or more of
MMC's common stock. When the Rights first become exercisable, a holder will be
entitled to buy from MMC a unit consisting of one two-hundredth of a share of
Series A Junior Participating Preferred Stock of MMC at a purchase price of
$260. Alternatively, if any person acquires 15% or more of MMC's common stock
except pursuant to an offer for all shares at a price which is fair and not
inadequate or if a 15% holder acquires MMC by means of a reverse merger in which
MMC and its stock survive, each Right not owned by a 15% or more shareholder
would become exercisable for common stock of MMC (or in certain circumstances,
other consideration) having a market value equal to twice the exercise price of
the Right. The Rights expire on September 29, 2007, except as otherwise provided
in the plan.
----------
52
<PAGE>
15 Claims, Lawsuits and Other Contingencies
- --------------------------------------------------------------------------------
MMC and its subsidiaries are subject to various claims, lawsuits and proceedings
consisting principally of alleged errors and omissions in connection with the
placement of insurance or reinsurance and in rendering investment and consulting
services. Some of these matters seek damages, including punitive damages, in
amounts which could, if assessed, be significant.
On November 24, 1997, an action captioned "Aiena et al. vs. Olsen et al."
("Aiena") was brought in the United States District Court for the Southern
District of New York by certain former directors of J&H, which was acquired by
MMC in March 1997, against twenty-four selling shareholders of J&H, as well as
J&H itself and MMC. The action essentially challenges the allocation of the
consideration paid in connection with MMC's combination with J&H as between the
defendants who were directors and shareholders of J&H at the time of the
transaction and the plaintiffs who were former directors and shareholders of
J&H. The complaint asserts, among others, claims for breach of fiduciary duty,
federal securities law violations, breach of contract, and ERISA violations.
Plaintiffs seek compensatory and punitive damages. Two other former directors of
J&H have commenced similar actions (Sempier v. Olsen et al.; and Clements v.
Olsen et al.), which are also pending before the United States District Court
for the Southern District of New York and are contemplated to be heard together
with the Aiena action.
In 1993, several years prior to the acquisition of J&H, the Equal Employment
Opportunity Commission ("EEOC") commenced a lawsuit against J&H in the United
States District Court for the Southern District of New York. The action alleges
that a mandatory retirement policy for directors then in effect at J&H violated
the federal Age Discrimination in Employment Act ("ADEA"). In 1995, the District
Court ruled in the EEOC's favor that the J&H mandatory retirement policy
violated the ADEA. The Court of Appeals for the Second Circuit affirmed that
ruling in 1996. The EEOC seeks to recover damages on behalf of certain former
directors and a trial on the matter of damages, unless the action is resolved,
may be held later in 1999. Pursuant to the Stock Purchase Agreement between MMC
and J&H and the stockholders of J&H, MMC will bear one-half of all damages and
expenses in this action.
Sedgwick Group plc, since prior to its acquisition, has been engaged in a review
of previously undertaken personal pension plan business as required by United
Kingdom regulators to determine whether redress should be made to customers.
Settlements and related costs previously paid amount to $80 million of which $30
million is due from insurers. The contingent exposure of Sedgwick for pension
redress and related costs as of Sedgwick's acquisition by MMC is estimated to be
$220 million. Sedgwick had recorded $150 million of reserves and recognized
approximately $70 million of insurance recoveries related to this exposure.
Other present and former subsidiaries of MMC are engaged in a comparable review
of their personal pension plan businesses, although the extent of their activity
in this area, and consequently their financial exposure, was proportionally much
less than Sedgwick. The contingent exposure of the present and former
non-Sedgwick subsidiaries of MMC for pension redress and related costs is
estimated to be approximately $135 million. Approximately $100 million of this
amount is expected to be recovered from insurers and accounting reserves have
been provided for the remaining balance. Settlements and related costs
previously paid total approximately $15 million.
MMC's ultimate exposure from the United Kingdom's personal pension plan review,
as presently calculated and including Sedgwick, is subject to a number of
variable factors including, among others, equity markets, the rate of response
to the pension review mailings, the interest rate established quarterly by the
U.K. Pension Investment Authority for calculating compensation, and the precise
scope, duration, and methodology of the review as required by that Authority.
As part of the combination with Sedgwick, MMC acquired several insurance
underwriting companies that were already in run-off. MMC intends to sell these
operations in the near future. Sedgwick had given guarantees with respect to
certain liabilities relating to some of these operations.
On the basis of present information, anticipated insurance coverage and advice
received from counsel, it is the opinion of MMC's management that the
disposition or ultimate determination of these claims, lawsuits, proceedings or
guarantees will not have a material adverse effect on MMC's consolidated results
of operations or its consolidated financial position.
<PAGE>
16 Segment Information
- --------------------------------------------------------------------------------
MMC has adopted SFAS No. 131 "Disclosures About Segments of an Enterprise and
Related Information" effective with the 1998 year-end. Prior year information
has been restated to conform with the current year presentation.
MMC, a professional services firm, is organized based on the different services
that it offers. Under this organizational structure, MMC operates in three
principal business segments: risk and insurance services, investment management,
and consulting. The risk and insurance services segment provides insurance
broking, reinsurance broking and insurance program management for business,
professional, institutional and public-entity clients. It also provides services
principally in connection with originating, structuring and managing insurance
and related industry investments. The investment management segment primarily
provides securities investment advisory and management services and
administrative services for a group of publicly held investment companies. The
consulting segment provides advice and services to the managements of
organizations primarily in the areas of human resources and employee benefit
programs, general management consulting, and economic consulting and analysis.
MMC evaluates segment performance based on operating income, which is after
deductions for directly related expenses but before special charges. The
accounting policies of the segments are the same as those used for the
consolidated financial statements, described in Note 1. Revenues are attributed
to geographic areas on the basis of where the services are performed.
----------
53
<PAGE>
Selected information about MMC's operating segments and geographic areas of
operation follow:
<TABLE>
<CAPTION>
====================================================================================================================================
For the Three Years Ended Revenue Segment
December 31, 1998 from External Operating Total Depreciation and Capital
(In millions of dollars) Customers Income Assets Amortization Expenditures
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998--
Risk and Insurance Services $ 3,351(a) $ 613 $ 8,084 $ 163 $ 216
Investment Management 2,296 677 1,437 45 38
Consulting 1,543 202 1,490 38 40
- ------------------------------------------------------------------------------------------------------------------------------------
$ 7,190 $ 1,492 $ 11,011 $ 246 $ 294
====================================================================================================================================
1997--
Risk and Insurance Services $ 2,789(a) $ 496 $ 5,231 $ 126 $ 87
Investment Management 1,882 463 1,163 37 81
Consulting 1,338 148 909 32 32
- ------------------------------------------------------------------------------------------------------------------------------------
$ 6,009 $ 1,107 $ 7,303 $ 195 $ 200
====================================================================================================================================
1996--
Risk and Insurance Services $ 1,907(a) $ 363 $ 3,039 $ 82 $ 67
Investment Management 1,338 338 1,010 27 52
Consulting 1,159 119 652 27 33
- ------------------------------------------------------------------------------------------------------------------------------------
$ 4,404 $ 820 $ 4,701 $ 136 $ 152
====================================================================================================================================
</TABLE>
A reconciliation of the totals for the operating segments to the applicable line
items in the consolidated financial statements is as follows:
================================================================================
1998 1997 1996
- --------------------------------------------------------------------------------
Income Before Income Taxes:
Total segment operating income $ 1,492 $ 1,107 $ 820
Special (charges) credits
(see Note 12) 4 (244) (93)
Gain on sale of Frizzell
(see Note 12) -- -- 33
Corporate (76) (65) (45)
- --------------------------------------------------------------------------------
Operating income 1,420 798 715
Interest income 25 24 14
Interest expense (140) (107) (61)
- --------------------------------------------------------------------------------
Total income before income taxes $ 1,305 $ 715 $ 668
================================================================================
===============================================================================
Total
Operating Adjustments/ Total
Segments Corporate Eliminations Consolidated
- --------------------------------------------------------------------------------
Other Significant Items:
1998 --
Total assets $11,011 $ 5,983(b) $(5,123)(c) $11,871
Depreciation and
amortization 246 5 -- 251
Capital expenditures 294 3 -- 297
1997 --
Total assets 7,303 4,681(b) (4,072)(c) 7,912
Depreciation and
amortization 195 4 -- 199
Capital expenditures 200 2 -- 202
1996 --
Total assets 4,701 2,982(b) (3,138)(c) 4,545
Depreciation and
amortization 136 4 -- 140
Capital expenditures 152 5 -- 157
================================================================================
Information by geographic area is as follows:
================================================================================
Revenue
from External Fixed
Customers Assets
- --------------------------------------------------------------------------------
Geographic Area:
1998 --
United States $5,235 $ 720
United Kingdom 820 413
Continental Europe 551 85
Other 584 69
- --------------------------------------------------------------------------------
$7,190 $1,287
================================================================================
1997 --
United States $4,316 $ 702
United Kingdom 657 136
Continental Europe 564 56
Other 472 63
- --------------------------------------------------------------------------------
$6,009 $ 957
================================================================================
1996 --
United States $3,064 $ 573
United Kingdom 595 120
Continental Europe 372 35
Other 373 42
- --------------------------------------------------------------------------------
$4,404 $ 770
================================================================================
(a) Includes interest income on fiduciary funds ($137 million in 1998, $111
million in 1997, and $94 million in 1996).
(b) Corporate assets primarily include investments in consolidated
subsidiaries, intercompany receivables, unallocated goodwill, and a
portion of MMC's headquarters building.
(c) Primarily represents the elimination of investments in consolidated
subsidiaries and intercompany balances.
----------
54
<PAGE>
Report of Management
- --------------------------------------------------------------------------------
The management of Marsh & McLennan Companies, Inc. has prepared and is
responsible for the accompanying financial statements and other related
financial information contained in this annual report. MMC's financial
statements were prepared in accordance with generally accepted accounting
principles, applying certain estimates and informed judgments as required.
Deloitte & Touche LLP, independent auditors, have audited the financial
statements and have issued their report thereon.
MMC maintains a system of internal accounting controls designed to provide
reasonable assurance that transactions are executed in accordance with
management's authorization, that assets are safeguarded and that proper
financial records are maintained. Key elements of MMC's internal controls
include securing the services of qualified personnel and proper segregation of
duties. Internal auditors monitor the control system by examining financial
reports, by testing the accuracy of transactions, and by otherwise obtaining
assurance that the system is operating in accordance with MMC's objectives.
The Audit Committee of the Board of Directors is composed entirely of outside
directors and is responsible for recommending to the Board the independent
auditors to be engaged to audit MMC's financial statements, subject to
stockholder ratification. In addition, the Audit Committee meets periodically
with internal auditors and the independent auditors, both with and without
management, to discuss MMC's internal accounting controls, financial reporting
and other related matters. The internal auditors and independent auditors have
full and unrestricted access to the Audit Committee.
/s/ Frank J. Borelli
Frank J. Borelli
Senior Vice President and
Chief Financial Officer
March 5, 1999
Report of Independent Auditors
- --------------------------------------------------------------------------------
The Board of Directors and Stockholders of
Marsh & McLennan Companies, Inc.:
We have audited the accompanying consolidated balance sheets of Marsh & McLennan
Companies, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Marsh & McLennan Companies, Inc.
and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
March 5, 1999
----------
55
<PAGE>
Marsh & McLennan Companies, Inc. and Subsidiaries
SELECTED QUARTERLY FINANCIAL DATA AND
SUPPLEMENTAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
====================================================================================================================================
Net Income (Loss)
Net Per Share(a) Dividends Stock
(In millions of dollars, Operating Income --------------- Paid Per Price Range
except per share figures) Revenue Income (Loss) Basic Diluted Share High-Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
First quarter $ 1,776 $ 404 $ 231 $ .90 $ .87 $ .33 $61.67-46.38
Second quarter 1,750 346 193 .75 .72 .33 $63.25-54.83
Third quarter 1,719 335 186 .73 .69 .40 $64.31-46.13
Fourth quarter 1,945 335 186 .73 .70 .40 $61.94-43.38
- ------------------------------------------------------------------------------------------------------------------------------------
$ 7,190 $ 1,420 $ 796 $3.11 $2.98 $1.46 $64.31-43.38
====================================================================================================================================
1997:
First quarter $ 1,295 $ 277 $ 164 $ .75 $ .73 $ .30 $43.21-34.21
Second quarter 1,540 262 145 .57 .56 .30 $50.17-37.71
Third quarter 1,548 249 140 .55 .54 .33 $53.17-45.50
Fourth quarter 1,626 10 (15) (.05) (.05) .33 $53.33-44.00
- ------------------------------------------------------------------------------------------------------------------------------------
$ 6,009 $ 798 $ 434 $1.77 $1.73 $1.26 $53.33-34.21
====================================================================================================================================
1996:
First quarter $ 1,123 $ 243 $ 143 $ .65 $ .65 $ .27 $33.88-28.08
Second quarter 1,098 193 115 .53 .51 .27 $32.54-29.67
Third quarter 1,057 174 103 .48 .47 .27 $33.00-29.33
Fourth quarter 1,126 105 98 .45 .45 .30 $38.29-31.83
- ------------------------------------------------------------------------------------------------------------------------------------
$ 4,404 $ 715 $ 459 $2.11 $2.08 $1.11 $38.29-28.08
====================================================================================================================================
</TABLE>
(a) Net income per share is computed independently for each of the periods
presented. Accordingly, the sum of the quarterly net income per share
amounts exceeds the total for the year in 1997.
All per share amounts have been restated for a three-for-two stock distribution
of MMC's common stock, which was issued as a stock dividend on June 26, 1998.
MMC's common stock (ticker symbol:MMC) is traded on the New York, Chicago,
Pacific and London stock exchanges. As of February 26, 1999, there were 26,100
stockholders of record.
----------
56
<PAGE>
Marsh & McLennan Companies, Inc. and Subsidiaries
FIVE-YEAR STATISTICAL SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
====================================================================================================================================
Compound
For the Five Years Ended December 31, 1998 Growth Rate
(In millions of dollars, except per share figures) 1998 1997(b) 1996(d) 1995 1994 1993-1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Risk and Insurance Services $ 3,351 $2,789 $1,907 $1,964 $1,887 13%
Investment Management 2,296 1,882 1,338 917 747 32%
Consulting 1,543 1,338 1,159 1,056 933 13%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenue 7,190 6,009 4,404 3,937 3,567 17%
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Compensation and benefits 3,561 3,044 2,204 1,949 1,740 17%
Other operating expenses 2,209 2,167 1,485 1,293 1,157 17%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expenses 5,770 5,211 3,689 3,242 2,897 17%
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income 1,420 798(c) 715(e) 695 670 19%
Interest Income 25 24 14 18 12
Interest Expense (140) (107) (61) (63) (51)
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes and Cumulative
Effect of Accounting Changes 1,305 715 668 650 631 19%
Income Taxes 509 281 209(f) 247 249
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Cumulative Effect of Accounting Changes $ 796 $ 434 $ 459 $ 403 $ 382 19%
====================================================================================================================================
Net Income $ 796 $ 434 $ 459 $ 403 $ 372(g) 19%
====================================================================================================================================
Basic Net Income Per Share Information:
Income Before Cumulative Effect of Accounting Changes $3.11 $1.77 $2.11 $1.84 $1.73 16%
Net Income Per Share $3.11 $1.77 $2.11 $1.84 $1.68(g) 16%
Average Number of Shares Outstanding 256 245 217 219 221
====================================================================================================================================
Diluted Net Income Per Share Information:
Income Before Cumulative Effect of Accounting Changes $2.98 $1.73 $2.08 $1.82 $1.71 15%
Net Income Per Share $2.98 $1.73 $2.08 $1.82 $1.67(g) 15%
Average Number of Shares Outstanding 264 251 221 221 223
====================================================================================================================================
Dividends Paid Per Share $1.46 $1.26 $1.11 $ .99 $ .93 10%
Return on Average Stockholders' Equity 23% 17% 26% 26% 26%
Year-end Financial Position:
Working capital $(1,757)(a) $ 224 $ 192 $ 110 $ 54
Total assets $11,871 $7,912 $4,545 $4,330 $3,831
Long-term debt $ 1,590 $1,240 $ 458 $ 411 $ 409
Stockholders' equity $ 3,659 $3,233 $1,889 $1,666 $1,461
Total shares outstanding (excluding treasury shares) 257 255 217 218 220
Other Information:
Number of employees 54,300 36,400 27,000 27,200 26,100
Stock price ranges--
U.S. exchanges--High $64.31 $53.33 $38.29 $30.04 $29.59
--Low $43.38 $34.21 $28.08 $25.37 $23.75
London Stock Exchange--High (Pd.)38.78 (Pd.)32.71 (Pd.)22.78 (Pd.)19.50 (Pd.)19.65
--Low (Pd.)25.59 (Pd.)20.37 (Pd.)18.29 (Pd.)15.96 (Pd.)15.11
Price/earnings multiple 19.6 28.7 16.7 16.3 15.9
====================================================================================================================================
</TABLE>
(a) Includes $2.2 billion of commercial paper borrowings made to initially
finance the acquisition of Sedgwick.
(b) Includes the operating results of Johnson & Higgins, an insurance broking
and consulting services firm, acquired in March 1997 and CECAR, a French
insurance services firm.
(c) Includes a special charge of $244 million.
(d) The Frizzell Group Limited was sold in June 1996.
(e) Includes net special charges of $93 million partially offset by a $33
million gain on the sale of Frizzell.
(f) Includes a tax adjustment that reduced income taxes by $40 million.
(g) Reflects the adoption, effective January 1, 1994, of SFAS No. 112,
"Employers' Accounting for Postretirement Benefits."
See Management's Discussion and Analysis of Financial Condition and Results of
Operations for discussion of significant items affecting the results of
operations in 1998 and 1997.
----------
57
<PAGE>
BOARD OF DIRECTORS AND CORPORATE OFFICERS
BOARD OF DIRECTORS
A.J.C. Smith
Chairman and Chief Executive Officer
Jeffrey W. Greenberg
President
Norman Barham
Vice Chairman, Marsh Inc.
Lewis W. Bernard
Chairman, Classroom, Inc.
Former Chief Administrative
and Financial Officer,
Morgan Stanley & Co., Inc.
Frank J. Borelli
Senior Vice President and
Chief Financial Officer
Peter Coster
President,
Mercer Consulting Group, Inc.
Robert F. Erburu
Former Chairman,
The Times Mirror Company
Ray J. Groves
Chairman, Legg Mason
Merchant Banking, Inc.
Former Chairman, Ernst & Young
Stephen R. Hardis
Chairman, Eaton Corporation
Gwendolyn S. King
Former Senior Vice President,
PECO Energy
The Rt. Hon. Lord Lang of Monkton
Former British Secretary of State
for Trade & Industry
Lawrence J. Lasser
President and Chief Executive Officer,
Putnam Investments, Inc.
David A. Olsen
Former Chairman, Johnson & Higgins
John D. Ong
Chairman Emeritus,
The BFGoodrich Company
George Putnam
Chairman, The Putnam Funds
Saxon Riley
Former Chairman, Sedgwick Group
Adele Smith Simmons
President,
John D. and Catherine T. MacArthur Foundation
John T. Sinnott
Chairman and Chief Executive Officer,
Marsh Inc.
Frank J. Tasco
Former Chairman, MMC
W.R.P. White-Cooper
Chairman and
Chief Executive Officer-International, Marsh Inc.
ADVISORY DIRECTORS
Richard E. Heckert
Former Chairman,
E.I. du Pont de Nemours and Company
Richard S. Hickok
Former Chairman,
KMG Main Hurdman
Dean R. McKay
Former Senior Vice President,
IBM Corporation
Richard M. Morrow
Former Chairman, Amoco Corporation
Arthur C. Nielsen, Jr.
Former Chairman, A.C. Nielsen Company
John M. Regan, Jr.
Former Chairman, MMC
R. J. Ventres
Former Chairman, Borden, Inc.
COMMITTEES OF THE BOARD
Audit
The Rt. Hon. Lord Lang of Monkton, Chairman
Stephen R. Hardis
Gwendolyn S. King
John D. Ong
Adele Smith Simmons
Frank J. Tasco
Compensation
Lewis W. Bernard, Chairman
Robert F. Erburu
Ray J. Groves
Executive
A.J.C. Smith, Chairman
Lewis W. Bernard
Ray J. Groves
Adele Smith Simmons
Frank J. Tasco
OTHER CORPORATE OFFICERS
Francis N. Bonsignore
Senior Vice President,
Human Resources and Administration
Gregory F. Van Gundy
General Counsel and Secretary
INTERNATIONAL ADVISORY BOARD
Abdlatif Y. Al-Hamad (Middle East)
Chairman, Arab Fund for Economic
and Social Development
Raymond Barre (France)
Deputy, National Assembly
Former Prime Minister
Mathis Cabiallavetta (Switzerland)
Former Chairman, UBS AG
John R. Evans (Canada)
Chairman, Torstar Corporation
Oscar Fanjul (Spain)
Honorary Chairman, Repsol
Toyoo Gyohten (Japan)
President, Institute for
International Monetary Affairs
Former Chairman, The Bank of Tokyo
Erno Kemenes (Eastern Europe)
Former Minister of Economics, Hungary
Walther Leisler Kiep (Germany)
International Advisory Board Chairman
Former General Partner,
Gradmann & Holler
Marcilio Marques Moreira (Brazil)
Senior International Advisor,
Merrill Lynch
Former Ambassador of Brazil
to the United States
Paul F. Oreffice (United States)
Former Chairman
and Chief Executive Officer,
The Dow Chemical Company
Saxon Riley (United Kingdom)
Director, MMC
Jesus Silva-Herzog (Mexico)
Institute for Monetary Affairs
Former Ambassador of Mexico
to the United States
Wei Ming Yi (China)
Chairman, International
Advisory Council
China International Trust and Investment Corporation
----------
58
<PAGE>
================================================================================
SHAREHOLDER INFORMATION
Annual Meeting
The 1999 annual meeting of shareholders will be held at 10 a.m., Thursday, May
20, in the 2nd floor auditorium of the McGraw-Hill Building, 1221 Avenue of the
Americas, New York City. At the time of the mailing of this annual report, the
notice of the annual meeting and proxy statement, together with a proxy card, is
scheduled to be sent to each shareholder.
Anticipated 1999 Dividend Payment Dates
February 12 (paid), May 14, August 13, November 15
Financial and Investor Information
Shareholders and prospective investors inquiring about reinvestment and payment
of dividends, consolidation of accounts, changes of registration and stock
certificate holdings should contact:
The Bank of New York
Shareholder Relations Department
P.O. Box 11258
Church Street Station
New York, NY 10286
Telephone: (800) 457-8968
(212) 815-2560
Certificates for transfer and address changes should be sent to:
The Bank of New York
Receive and Deliver Department
P.O. Box 11002
Church Street Station
New York, NY 10286
The Bank of New York
c/o Computershare Services
Registrar's Department
P.O. Box 82, Caxton House
Redcliffe Way, Bristol BS99 7NH
England
Telephone: 117-9306666
The Bank of New York's Web site:
http://stock.bankofny.com
E-mail inquiries:
[email protected]
Copies of our annual and quarterly reports, and Forms 10-K and 10-Q, may be
obtained by contacting:
Corporate Development
Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, NY 10036
Telephone: (212) 345-5475
MMC's Web site: www.marshmac.com
Stock Listings
MMC's common stock (ticker symbol: MMC) is listed on the New York, Chicago,
Pacific and London stock exchanges.
- --------------------------------------------------------------------------------
Cautionary Language
Regarding Forward-Looking Information
This annual report to shareholders contains forward-looking statements, which by
their nature involve risks and uncertainties. Please refer to Marsh & McLennan
Companies' 1998 Annual Report on Form 10-K for "Information Concerning
Forward-Looking Statements" and a description of certain factors that may cause
actual results to differ from goals referred to herein or contemplated by such
statements.
- --------------------------------------------------------------------------------
Art Credits:
Pages 6-7:
"The Rialto Bridge,Venice" by Canaletto
Christie's Images Ltd; Bridgeman Art Library
Pages 12-13:
"The Arrival of Aeneas at Carthage" attributed to Monsu` Desiderio
(C) Christie's Images Ltd, 1999
Pages 18-19:
"A View of Rome with the Bridge and Castel St. Angelo
by the Tiber" by Gaspar van Wittel
Roy Miles Esq.; Bridgeman Art Library
Cover and Pages 24-25:
"Gallery with Views of Modern Rome" by Giovanni Paolo Pannini
Louvre; Bridgeman Art Library; RMN
================================================================================
Designed and Produced by Taylor & Ives, Inc., NYC
<PAGE>
Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, NY 10036
(212) 345-5000
www.marshmac.com
[BACK COVER: PAINTING OF GALLERY WITH VIEWS OF MODERN ROME]
<PAGE>
Exhibit 21
SUBSIDIARIES OF
MARSH & MCLENNAN COMPANIES, INC. (DELAWARE)
<TABLE>
<CAPTION>
Where Percent Owned
Name Incorporated by Parent
---- ------------ ---------
<S> <C> <C>
*Marsh & McLennan Real Estate Advisors, Inc. Delaware 100%
MMC Realty, Inc. New York 100%
*Omega Indemnity (Bermuda) Limited Bermuda 100%
*Epsilon Insurance Company, Ltd. Cayman Islands 100%
*Marsh Inc. Delaware 100%
*J&H Marsh & McLennan, Inc. Delaware 100%
J&H Marsh & McLennan of Alabama, Inc. Alabama 100%
J&H Marsh & McLennan of Alaska, Inc. Alaska 100%
J&H Marsh & McLennan of Arkansas, Inc. Arkansas 100%
J&H Marsh & McLennan of Connecticut, Inc. Connecticut 100%
Marsh & McLennan Financial Markets, Inc. Delaware 100%
Marsh & McLennan GbR Holdings, Inc. Delaware 100%
Marsh & McLennan Pallas Holdings, Inc. Delaware 100%
Marsh & McLennan Pallas Holdings GmbH Germany 100%
Gradmann & Holler GbR Germany 98%
Pallas Gradmann & Holler do Brasil Corretores de Seguros Ltda. Brazil 100%
Assivalo Comercial E Representacoes Ltda Brazil 30%
Triad Services, Inc. Delaware 100%
Marsh & McLennan Agency, Incorporated District of Columbia 100%
J&H Marsh & McLennan of Idaho, Inc. Idaho 100%
J&H Marsh & McLennan of Illinois, Inc. Illinois 100%
J&H Marsh & McLennan of Indiana, Inc. Indiana 100%
J&H Marsh & McLennan of Kentucky, Inc. Kentucky 100%
J&H Marsh & McLennan of Louisiana, Inc. Louisiana 100%
J&H Marsh & McLennan of Maine, Inc. Maine 100%
J&H Marsh & McLennan of Massachusetts, Inc. Massachusetts 100%
J&H Marsh & McLennan of Michigan, Inc. Michigan 100%
J&H Marsh & McLennan of Mississippi, Inc. Mississippi 100%
J&H Marsh & McLennan of Nevada, Inc. Nevada 100%
J&H Marsh & McLennan of Ohio, Inc. Ohio 100%
J&H Marsh & McLennan of Oklahoma, Inc. Oklahoma 100%
J&H Marsh & McLennan of Pennsylvania, Inc. Pennsylvania 100%
Marsh & McLennan of Puerto Rico, Inc. Puerto Rico 100%
J&H Marsh & McLennan of Rhode Island, Inc. Rhode Island 100%
J&H Marsh & McLennan, Inc. Texas
J&H Marsh & McLennan of Texas Inc. Texas 100%
J&H Marsh & McLennan of Utah, Inc. Utah 100%
J&H Marsh & McLennan of Virginia, Inc. Virginia 100%
J&H Marsh & McLennan of West Virginia, Inc. West Virginia 100%
J&H Marsh & McLennan International, Inc. Wisconsin 100%
</TABLE>
<PAGE>
J&H Marsh & McLennan, Inc. (cont.)
<TABLE>
<S> <C> <C>
J&H Marsh & McLennan Global Broking, Inc. Illinois 100%
J&H Marsh & McLennan Global Broking (Bermuda) Ltd. Bermuda 100%
J&H Bowring (Bermuda) Investments Ltd. Bermuda 100%
J&H Marsh & McLennan Global Broking, Inc. Connecticut 100%
J&H Marsh & McLennan Global Broking, Inc. Missouri 100%
J&H Marsh & McLennan Global Broking, Inc. New Jersey 100%
J&H Marsh & McLennan Intermediaries, Inc. New York 100%
Marsh & McLennan Global Broking, Inc. Texas 100%
Marsh & McLennan Global Broking (Dublin) Ltd. Ireland 100%
JHM Holdings, Inc. New York 100%
Marsh & McLennan Properties, Inc. Delaware 100%
Marsh & McLennan Properties (Bermuda) Ltd. Bermuda 100%
Marsh & McLennan Holdings, Inc. Delaware 100%
Marsh & McLennan (Korea) Ltd. Korea 100%
Marsh & McLennan (Malaysia) SDN BHD Malaysia 100%
Marsh & McLennan Argentina SA Asesores de Seguros Argentina 86%
Ayling & Barrios SA Argentina
Marsh & McLennan Argentina SA Corredores de Reaseguros Argentina 86%
Marsh & McLennan Argentina SA Risk Management Consultants Argentina 100%
J&H Marsh & McLennan Pty. Ltd. Australia 100%
Marsh & McLennan Global Broking Pty. Ltd. Australia 100%
Marsh & McLennan (PNG) Pty. Ltd. Papua New Guinea 100%
Kila Marsh & McLennan Limited Papua New Guinea 52%
Fenchurch Insurance Brokers Pty. Limited Australia 100%
Marsh & McLennan (SA) Pty. Ltd. Australia 100%
Marsh & McLennan (WA) Pty. Ltd. Australia 100%
Marsh & McLennan (WA Division) Pty. Ltd. Australia 100%
Marsh & McLennan Agencies Pty. Ltd. Australia 100%
Marsh & McLennan Captive Management Services Pty. Ltd. Australia 100%
Marsh & McLennan Versicherungs-Service GmbH Austria 100%
Marsh & McLennan Management Services (Barbados), Ltd. Barbados 100%
Henrijean, S.A Belgium 47%
Marsh & McLennan Europe S.A Belgium 100%
Marsh & McLennan Management Services (Bermuda) Limited Bermuda 100%
Transglobe Management (Bermuda) Ltd. Bermuda 100%
Marsh & McLennan (Cayman Islands) Ltd. Cayman Islands 100%
Marsh & McLennan Management Services (L) Ltd. Labuan 100%
Tudor, Marsh & McLennan Corretores de Seguros Ltda Brazil 100%
</TABLE>
- 2 -
<PAGE>
J&H Marsh & McLennan, Inc. (cont.)
<TABLE>
<S> <C> <C>
J&H Marsh & McLennan Ltd. Canada 100%
D.G. Watt & Associates Ltd. Canada 100%
Charbonneau, Dulude & Associes (1985) Limitee/Charbonneau,
Dulude & Associates (1985) Limited Canada 100%
M&M Insurance Management Canada Ltd. British Columbia 100%
Marshcan Insurance Brokers Limited Canada 100%
Irish & Maulson Limited Ontario 100%
Pratte-Morrissette, Inc. Quebec 100%
Schatz Insurance Agencies, Inc. Saskatchewan 100%
Marsh & McLennan (SASK) Ltd. Saskatchewan 100%
Claro J&H Marsh & McLennan S.A. Corredores De Seguros Chile 100%
Claro Marsh & McLennan Consultores en Recursos Humanos, Ltda Chile 100%
Marsh & McLennan Denmark A/S Denmark 100%
Marsh & McLennan Norway A.S Norway 100%
Marsh & McLennan Sweden AB Sweden 100%
Marsh & McLennan Companies GmbH Germany 100%
Marsh & McLennan Companies Beteiligungsgesellschaft II GmbH Germany 100%
Gradmann & Holler, K.G Germany 100%
Erwin Warnecke GmbH Germany 100%
Gradmann & Holler GmbH Germany 89.1%
RMB-Risk Management Beratungs-GmbH Germany 100%
Wolf & Hasselmann GmbH Germany 100%
Gradmann & Holler-William M. Mercer GmbH Germany 90%
VW-Versicherungsvermittlungs-GmbH Germany 33.3%
VVG Gradmann & Holler Versicherungs-Vermittlungs-GmbH Germany 24%
Airport Asserkuranz Vermittlungs GmbH Germany 50%
GMFS Versicherungs-Vermittlungs GmbH Germany 49%
Sudzucker Versicherungsvermittlungs GmbH Germany 49%
Senator Assercuranz Contor GmbH Germany 49%
Gradman & Holler Kiefhaber GmbH Germany 100%
Gradman & Holler AG Switzerland 100%
Bau Asserkuranz Vermittlungs GmbH Germany 45%
Westfalia Asserkuranz Versicherungsvermittlungs GmbH Germany 33%
Gradmann & Holler Kiefhaber GmbH Germany 100%
Gradmann & Holler AG Switzerland 100%
Marsh & McLennan-Hellas-L.L.C Greece 100%
Marsh & McLennan Limited Hong Kong 100%
J&H Marsh & McLennan Budapest Insurance Brokers & Consultants Ltd. Hungary 100%
Marsh & McLennan Management Services (Dublin) Limited Ireland 100%
J&H Marsh & McLennan Italia, S.P.A Italy 100%
J&H Marsh & McLennan Japan Ltd. Japan 100%
Marsh & McLennan Co. Inc. Liberia 100%
</TABLE>
- 3 -
<PAGE>
J&H Marsh & McLennan, Inc. (cont.)
<TABLE>
<S> <C> <C>
Marsh & McLennan Luxembourg, S.A Luxembourg 100%
Marsh & McLennan Insurance Management Services, S.A Luxembourg 100%
S.P.K. Bowring Marsh & McLennan Sdn. Bhd Malaysia 30%
Organizacion Brockman y Schuh, S.A. de C.V Mexico 20%
Servicios Actuariales, S.A. de C.V Mexico 82%
Compensacion Tecnica Consultores, S.A. de C.V Mexico 50%
Servicios Actuariales Guatemala, S.A Guatemalan 50%
Bysap Servicios Administrativos, S.A. de C.V Mexico 99%
Professional Indemnity Re, Ltd. Bermuda 100%
Consultores en Garantias, S.A. de C.V Mexico 99%
Border Insurance Services, Inc. California 100%
Travelgold Mexico, S.A. de C.V Mexico 50%
Grupo Medicos, S.A. de C.V Mexico 25%
Brockman y Schuh Marsh & McLennan Agente de Seguros
y de Fianzas, S.A. de C.V Mexico 20%
Inverbys, S.A. de C.V Mexico 1%
Administradora de Inmuebles Fin, S.A. de C.V Mexico 20%
ByS Servicios Especiales, Agente de Seguros, S.A. de C.V Mexico 45.5%
Reinmex, Intermediario de Reaseguros, S.A. de C.V Mexico 51%
Guy Carpenter Reinmex Corredores de Reaseguros Limitada Columbian 87.5%
Reinmex Florida, Inc. Florida 100%
Corredores Internacionales de Reaseguros S.A Mexico 60%
Marsh & McLennan Polska Sp.zO.O Poland 100%
Marsh & McLennan Romania SRL Romania 100%
Marsh & McLennan Management Services (S) Pte. Ltd. Singapore 100%
Marsh & McLennan Bowring Pte. Ltd. Singapore 100%
Marsh & McLennan Slovakia s.r.o Slovakia 100%
Marsh & McLennan Correduria de Reaseguros S.A Spain 100%
Marsh & McLennan Espana, S.A., Correduria de Seguros Spain 60%
Marsh Privat AIE Spain 50%
J&H Marsh & McLennan AG Switzerland 100%
Marsh & McLennan (Thai) Company Ltd. Thailand 49%
San J&H Marsh & McLennan Turkey 100%
J&H Marsh & McLennan International Broking Holdings, Limited United Kingdom 100%
Insurance Brokers of Nigeria Ltd. Nigeria 40%
</TABLE>
- 4 -
<PAGE>
J&H Marsh & McLennan, Inc. (cont.)
<TABLE>
<S> <C> <C>
Marsh & McLennan Bowring Marine & Energy Group Ltd. United Kingdom 100%
Marsh & McLennan Limited United Kingdom 100%
J&H Marsh & McLennan Management (USVI) Ltd. Virgin Islands 100%
Marsh & McLennan, Incorporated Virgin Islands 100%
Muir Beddall (Zimbabwe) Limited Zimbabwe 100%
C.T. Bowring and Associates (Private) Limited Zimbabwe 28.82%
Jay R. Corp. New York 100%
Casualty Insurance Company Services, Inc. California 100%
Johnson & Higgins Agency of Korea, Ltd. Korea 100%
J&H Marsh & McLennan (Colombia) Ltda Colombia 100%
Johnson & Higgins Securities, Inc. Montana 100%
Retach Corporation Delaware 100%
Shipowners of Claims Bureau, Inc. New York 100%
Caribbean Marine Associates, Inc. Florida 100%
Pacific Marine Associates, Inc. California 100%
Johnson & Higgins (USVI) Ltd. Virgin Islands 100%
J&H Marsh & McLennan Intermediaries of Washington, Inc. Washington 100%
Healthcare Risk Management Services, Inc. Washington 100%
Espana Uno, Inc. Delaware 100%
Espana Dos, Inc. Delaware 100%
Espana Tres, Inc. Delaware 100%
Espana Cuatro, Inc. Delaware 100%
Espana Cinco, Inc. Delaware 100%
Espana Seis, Inc. Delaware 100%
Espana Siete, Inc. Delaware 100%
Espana Ocho, Inc. Delaware 100%
J&H Interests New York 100%
Henry Ward Johnson & Company Insurance Services, Inc. California 100%
Johnson & Higgins/Kirke-Van Orsdel, Inc. Delaware 100%
Johnson & Higgins Willis Faber Holdings, Inc. New York 50%
J&H Marsh & McLennan Management, Inc. New York 100%
New, S.A Peru 100%
Willcox, Barringer & Co. (California) Inc. California 100%
Willcox Johnson & Higgins Asia, Pte. Ltd. Singapore 100%
Johnson & Higgins Willis Faber (U.S.A.) Inc. New York 100%
SBI Reinsurance Company, Ltd. Bermuda 100%
Interco, S.A 100%
Wilson McBride, Inc. Ohio **
AM-Grip, Inc. Texas **
Johnson & Higgins W.F. Ltd. Canada 100%
Worldwide Energy Insurance Services, Inc. 100%
Transbrasil Ltda Brazil 50%
Johnson & Higgins Holdings B.V Netherlands 100%
J&H Unison Holdings B.V Netherlands 50%
Max Mattheissen Holdings A.B Sweden 100%
Unison Belgium Belgium 100%
Mees & Zoonen Marsh & McLennan B.V Netherlands 100%
R. Mees & Zoonen Assurante B.V Netherlands 100%
</TABLE>
- 5 -
<PAGE>
J&H Marsh & McLennan, Inc. (cont.)
<TABLE>
<S> <C> <C>
Unison Management (Scandinavia) AB Scandinavia 50%
Albert Willcox & Co. De Venezuela, CA Venezuela 100%
Foster Higgins (Far East) Limited Hong Kong 100%
Intercontinental De Reaseguros, S.A
Inversiones Orquidea, S.A Colombia 82%
J&H Aviation Plc United Kingdom 100%
Johnson & Higgins Aviation Pty. Ltd. Australia 100%
J&H Marsh & McLennan Managment (Barbados) Limited Barbados 100%
J&H Intermediaries (Barbados) Limited Barbados 100%
Johnson & Higgins (Bermuda) Limited Bermuda 100%
Unison Management (Bermuda) Ltd. Bermuda 100%
Johnson & Higgins of (Cayman Islands) Ltd. Cayman Islands 100%
IMC (Turks & Caicos) Limited Cayman Islands 100%
Johnson & Higgins Intermediaries (Cayman) Ltd. Cayman Islands 100%
Victoria Hall Company Limited Bermuda 20%
Johnson & Higgins of (Chile) Limitada Chile 100%
Johnson & Higgins Mediservice - Administradora De Planos De Saude Ltda Brazil 80%
Albert Willcox & Co. of Canada Ltd. Canada 100%
Dupuis, Parizeau, Tremblay, Inc. Canada 100%
Les Conseillers Dpt. Inc. Canada 100%
Johnson & Higgins Corretores De Seguros Ltda Brazil 100%
Johnson & Higgins (H.K.) Limited Hong Kong 100%
Johnson & Higgins (Peru) S.A. Corredores De Seguro Peru 100%
J&H Marsh & McLennan Pte Singapore 100%
Johnson & Higgins PB Co., Ltd. Singapore 40%
Johnson & Higgins Risk Management Services (S) Pte. Ltd. Singapore 100%
Johnson & Higgins Consulting S.r.L Italy 100%
Unison Consultants Europe Belgium 96%
J&H Employee Benefit S.p.A Italy 100%
Mednorte Internacional - Sociedade Mediadora De Seguros, Limitada 100%
Johnson & HIggins Sociadad Anonima 100%
Johnson & Higgins (Uruguay) Inc. Uruguay 100%
Llenrup Participaues S.C. Ltda Brazil 100%
Sersur Brazil 100%
Unison Management Luxembourg, S.A Luxembourg 23%
Willcox Phillippines Inc. Phillippines 40%
Johnson & Higgins Managment Services, Ltd. Bermuda 100%
Inter-Ocean Management (Cayman) Limited Cayman Islands 100%
Johnson & Higgins Luxembourg, S.A Luxembourg 100%
Transglobal (Guernsey) Ltd. Guernsey 100%
Unison Management (Dublin) Limited Ireland 100%
Vista Insurance Company, Ltd. Bermuda 100%
Mactras (Bermuda) Limited Bermuda 100%
Gem Insurance Company Limited Bermuda 100%
Uniservice Insurance Service Limited Bermuda 100%
H.I. Group - Johnson & Higgins Phillippines, Inc. Phillippines 70%
JHINDAH (Asia) Limited Indonesia 50%
</TABLE>
- 6 -
<PAGE>
J&H Marsh & McLennan, Inc. (cont.)
<TABLE>
<S> <C> <C>
Guy Carpenter & Company, Inc. Delaware 100%
The Carpenter Management Corporation Delaware 100%
Paul Napolitan, Inc. Delaware 100%
Paul Napolitan Canada, Inc. Canada 100%
Sellon Associates, Inc. New York 100%
Balis & Co., Inc. Pennsylvania 100%
Philadelphia Insurance Management Company Delaware 100%
Guy Carpenter Broking, Inc. Delaware 100%
Market Street Underwriters, Inc. Delaware 100%
MMSC Holdings, Inc. Delaware 100%
Marsh & McLennan Securities Corporation Delaware 100%
Intermediary Systems Limited Delaware 100%
Triad Underwriting Management Agency, Inc. Delaware 100%
Guy Carpenter Advisors, Inc. Delaware 100%
Inter-Americas Insurance Services, Inc. California 51%
Guy Carpenter & Company, S.A Argentina 100%
Normandy Reinsurance Company Limited Bermuda 100%
Guy Carpenter & Company, S.A Belgium 100%
American Overseas Management Corporation (Canada) Canada 100%
Guy Carpenter & Company (Canada) Limited Canada 100%
Guy Carpenter & Company, A/S Denmark 100%
Guy Carpenter & Company GmbH Germany 60%
Guy Carpenter & Company (Asia) Limited Hong Kong 100%
Guy Carpenter Italia, S.R.L Italy 100%
Guy Carpenter y Cia (Mexico) S.A. de C.V Mexico 100%
Guy Carpenter & Company (S) Pte. Ltd. Singapore 100%
Guy Carpenter & Company (Stockholm) AB Sweden 100%
Bennich Reinsurance Management AB Sweden 100%
Guy Carpenter (U.K.) Ltd. United Kingdom 100%
Intermediary Systems Ltd. United Kingdom
Geological Information Services United Kingdom
Marsh & McLennan Risk Capital Holdings, Ltd. Delaware 100%
Marsh & McLennan Capital, Inc. Delaware 100%
Marsh & McLennan GPI, Inc. Delaware 100%
Marsh & McLennan LP II, Inc. Delaware 100%
MMRCH LLC Delaware 30%
MMRC LLC Delaware 30%
The ARC Group LLC Delaware 33%
Terra Nova (Bermuda) Holdings Ltd. Bermuda 9.9%
VIC Corporation Maine 51%
</TABLE>
- 7 -
<PAGE>
J&H Marsh & McLennan, Inc. (cont.)
<TABLE>
<S> <C> <C>
J&H Marsh & McLennan (Holdings) Ltd. United Kingdom 100%
Marsh & McLennan Management Services (Guernsey) Limited Guernsey 100%
J&H Marsh & McLennan (IOM) Ltd. Isle of Man 100%
Marsh & McLennan Management Services (Isle of Man) Ltd. Isle of Man 100%
J&H Marsh & McLennan Financial Services Ltd. United Kingdom 100%
J&H Marsh & McLennan (UK) Limited United Kingdom 100%
Marsh & McLennan Services Ltd. United Kingdom 100%
Marsh & McLennan Holdings Ltd. United Kingdom 100%
Marsh & McLennan Nederland B.V Netherlands 100%
Marsh & McLennan s.r.o Czech Republic 100%
Marsh & McLennan Lda Portugal 100%
Marsh & McLennan Bowring Ltd. United Kingdom 100%
Bowring Risk Management Ltd. United Kingdom 100%
Bowring Professional Indemnity Scotland Ltd. Scotland 100%
Microsafe Ltd. United Kingdom 100%
Ulster Insurance Services Ltd. N. Ireland 100%
RIAS Insurance Services Ltd. Scotland 100%
Bowring Limited United Kingdom 100%
RIC Management Services Ltd. Ireland 100%
Insurance Management Services Ltd. Ireland 100%
Marsh & McLennan Ireland Ltd. Ireland 100%
C. T. Bowring Ireland Ltd. Ireland 100%
Mathews Mulcahy & Sutherland Ltd. Ireland 100%
Surveyors Insurance Brokers Ltd. United Kingdom 50%
Marsh & McLennan Ltd. New Zealand 100%
Reinsurances New Zealand Ltd. New Zealand 100%
Risk Management Ltd. New Zealand 100%
Marsh & McLennan Ltd. Fiji 90%
Reinsurances (Pacific) Ltd. Fiji 100%
Marsh & McLennan France SA France 100%
Mercer-Faugere & Jutheau SA France 100%
Compagnie Europeenne De Courtage d'Assurances et de Reassurances France 100%
Franchelli & Louvet S.A France 100%
Franchelli & Louvet Services France 100%
Cecar Reassurances France 100%
Cecar PRB France 95%
Consultants en Assurance, Prevoyance, Assistance France 80%
Ratio France 100%
Prevoyance Retraite International Management France 56%
Office des Assures France 55%
Energie Courtage France 55%
Societe d'Assurance et de Participation Guian S.A France 24%
Societe d'Assistance a la Gestion et a L'Ingeniere des Risques France 100%
Societe Bargheon France 100%
Elysees Prevoyance Gestion France 80%
Cecar Assurances & Finances France 50%
</TABLE>
- 8 -
<PAGE>
Marsh & McLennan France SA (cont'd)
Compagnie Europeenne De Courtage d'Assurances et de Reassurances (cont'd)
<TABLE>
<S> <C> <C>
Cecar Deutschland Deutschland 100%
Cecar Belgium Belgium 100%
Ibercecar Spain 82.5%
AB-Ibercecar Spain 64%
Sasia Spain 100%
Comesa Spain 100%
Cecar Portugal Portugal 70%
Cecar Austria Austria 52%
Cecar Hungaria Hungarian 100%
Risiko Services (Czech Republic) Czech Republic 100%
Italcecar Italy 51.4%
Cecar Turkiye Turkey 51%
Cecar Argentina Argentina 100%
Cecar Brasil Brazil 71.5%
Cecar Inchcape Asia Hong Kong 50%
Cecar Tunisie Tunisia 49%
Cecar & Jutheau, S.A France 100%
Faugere & Jutheau Bermuda Bermuda 100%
Assureurs Conseils Tchadiens (S.A.R.L.) Chad 83%
Assureur Conseil de Djibouti- Faugere & Jutheau et Cie SARL Djibouti 75%
Ancien Cabinet Pierre de Kerpezdron (S.A.) France 100%
SNC P. Deleplanque France 100%
Boistel S.A France 100%
Bureau Gogioso Eyssautier S.A France 100%
Eyssautier Flepp Malatier & Pages S.A France 100%
Boistel Eyssautier S.A France 100%
Omnium d'Assurances Maritimes France 100%
Astramar S.A France 100%
Cires SARL France 100%
Sogescor SARL France 100%
Gatier S.A Switzerland 100%
Assurances Maritimes Eyssautier Malatier Inter SARL France 100%
Ivoiriennes Assurances Conseil Ivory Coast 100%
Societe Internationale de Courtage d'Assurances
et de Reassurances-F&J (SARL) Burkina Faso 30%
Socodel-Paris S.A France 100%
Union Francaise de Reassurances (S.A.) France 100%
Guy Carpenter & Cia, S.A. - 34 Spain 81.08%
William M. Mercer-Faugere & Jutheau (S.A.R.L.) France 100%
Societe d'Etude et de Gestion et de Conseil en Assurance SA Senegal 39.25%
</TABLE>
- 9 -
<PAGE>
<TABLE>
<S> <C> <C>
Mercer Consulting Group, Inc. Delaware 100%
National Economic Research Associates, Inc. California 100%
National Economic Research Associates, Inc. Delaware 100%
Mercer Management Consulting, Inc. Delaware 100%
Corporate Decisions, Inc. 100%
Decision Research Corporation Massachusetts 100%
LAR/Decision Research Corporation New York 100%
Lippincott & Margulies, Inc. New York 100%
Mercer Management Consulting, Ltd. Bermuda 100%
Marketing/Innovation/Development pour l'industrie-MID, S.A France 100%
Mercer Management Consulting GmbH Germany 100%
Mercer Consulting Group Verwaltungs GmbH Germany 100%
Dr. Seebauer & Partner GmbH - Management Consulting
Group & Co. KG Germany 100%
UBM Consultoria Internacional S/C Ltda Brazil 30%
UBM Consulting France International Management Consultants France 100%
Mercer Management Consulting Limited Switzerland 100%
Mercer Management Consulting S.L Spain 100%
Mercer Management Consulting SNC France 100%
Mercer Management Consulting Portugal 100%
Mercer Consulting Services S.A Switzerland 100%
Mercer MN Ltda Brazil 100%
Mercer MW Corredore de Seguro Brazil 100%
William M. Mercer Companies LLC Delaware 100%
William M. Mercer Holdings, Inc. Delaware 100%
William M. Mercer Holdings Canada, Inc. Delaware 100%
William M. Mercer Pty. Ltd. Australia 100%
Superfund Nominees Pty. Ltd. Australia 100%
William M. Mercer S.A Belgium 100%
William M. Mercer Limited Canada 50%
Mercer Management Consulting Limited Canada 100%
Societe Conseil Mercer Limitee Quebec 100%
Mercer Limited Ireland 100%
P.I.C. Advisory Services Limited Ireland 100%
P.I.C. Management Services Limited Ireland 100%
Mercer Fraser P.I.C. Trustees Limited Ireland 100%
William M. Mercer Limited of Japan Japan 100%
William M. Mercer (Korea) Co., Ltd. Korea 100%
William M. Mercer Limited Hong Kong 100%
William M. Mercer Pte. Ltd. Singapore 100%
William M. Mercer (Malaysia) Sdn. Bhd Malaysia 100%
William M. Mercer Zainal Fraser Sdn. Bhd Malaysia 70%
Mercer C & B Servicios, S.A. de C.V Mexico 100%
Mercer C & B S.A. de C.V Mexico 100%
William M. Mercer Agente de Seguros S.A. de C.V Mexico 100%
</TABLE>
- 10 -
<PAGE>
Mercer Consulting Group, Inc. (cont.)
William M. Mercer Companies LLC (cont.)
William M. Mercer Holdings, Inc. (cont.)
<TABLE>
<S> <C> <C>
William M. Mercer Ten Pas B.V Netherlands 100%
WMM Haneveld Investment Consulting B.V Netherlands 100%
Reitmulders & Partners B.V Netherlands 100%
William M. Mercer Services B.V Netherlands 100%
William M. Mercer Limited New Zealand 100%
William M. Mercer, S.A Switzerland 100%
William M. Mercer Limited United Kingdom 100%
William M. Mercer Fraser (Irish Pensioneer Trustees) Limited Ireland 100%
William M. Mercer Srl Italy 100%
William M. Mercer Fraser Pension Fund Trustees Limited United Kingdom 100%
Duncan C. Fraser & Co. United Kingdom 100%
William M. Mercer Fraser Computer Services Limited United Kingdom 100%
Mercer Management Consulting, Limited United Kingdom 100%
MF Trustees Limited United Kingdom 100%
William M. Mercer Fraser Pension Fund Trustees Limited United Kingdom 100%
William M. Mercer (Isle of Man) Limited Isle of Man 100%
Pensioneer Trustees (Leeds) Limited England 100%
William M. Mercer Lda Portugal 100%
William M. Mercer Fraser Limited United Kingdom 100%
MPA (International) Limited United Kingdom 100%
Pension Trustees Limited United Kingdom 100%
Pensioneer Trustees Limited United Kingdom 100%
Pensioneer Trustees (London) Limited United Kingdom 100%
Southampton Place Trustee Co. Ltd. United Kingdom 100%
William M. Mercer, Incorporated Delaware 100%
WMM Services, Inc. Delaware 100%
William M. Mercer Securities Corp. Delaware 100%
National Medical Audit California 100%
Hansen International Limited Delaware 100%
William M. Mercer of Indiana, Incorporated Indiana 100%
William M. Mercer Investment Consulting, Inc. Kentucky 100%
William M. Mercer of Kentucky, Inc. Kentucky 100%
William M. Mercer, Incorporated Louisiana 100%
William M. Mercer, Incorporated Massachusetts 100%
William M. Mercer of Michigan, Incorporated Michigan 100%
William M. Mercer, Incorporated Nevada 100%
William M. Mercer, Incorporated Ohio 100%
William M. Mercer, Incorporated Oklahoma 100%
William M. Mercer of Texas, Inc. Texas 100%
William M. Mercer of Virginia, Incorporated Virginia 100%
OCR Ltd. Australia 100%
MPA Superannuation Services Limited Australia 100%
MPA Superfund Nominees Pty. Limited Australia 100%
</TABLE>
- 11 -
<PAGE>
Mercer Consulting Group, Inc. (cont.)
William M. Mercer Companies LLC (cont.)
William M. Mercer, Incorporated (cont.)
<TABLE>
<S> <C> <C>
Mercer R.H. SARL France 100%
William M. Mercer-MPA Limited Hong Kong 100%
William M. Mercer Philippines, Incorporated Philippines 100%
William M. Mercer, Incorporated Puerto Rico 100%
William M. Mercer S.A Argentina 100%
William M. Mercer S.A. Asesores de Seguros Argentina 100%
William M. Mercer Comercio Consultoria e Servicos Ltda Brazil 100%
William M. Mercer Consultoria Ltda Brazil 33.3%
Grupo Assistencial De Economia E Financas Tudor S/C Ltda. Brazil 33%
William M. Mercer, S.A Belgium 100%
William M. Mercer Limitada Chile 100%
William M. Mercer Claro Corredores de Seguros Chile 100%
William M. Mercer A/S Denmark 60%
William M. Mercer A.B Sweden 100%
William M. Mercer Broking (Taiwan) Ltd. Taiwan 100%
William M. Mercer Consulting (Taiwan) Ltd. Taiwan 100%
Seabury & Smith, Inc. Delaware 100%
Seabury & Smith of Arkansas, Inc. Arkansas 100%
Appleby & Sterling Agency, Inc. Delaware 100%
J&H Marsh & McLennan Private Client Services, Inc. Delaware 100%
J&H Marsh & McLennan Financial Services, Inc. New York 100%
J&H Marsh & McLennan Financial Services, Inc. Indiana 100%
J&H Marsh & McLennan Financial Insurance Services of Massachusetts, Inc. Massachusetts 100%
J&H Marsh & McLennan Financial Services of Texas, Inc. Texas 100%
Albert H. Wohlers & Co. Illinois 100%
Smith-Sternau Organization, Inc. Delaware 100%
The Schinnerer Group, Inc. Delaware 100%
Victor O. Schinnerer & Company, Inc. Delaware 100%
Victor O. Schinnerer of Illinois, Inc. Illinois 100%
Victor O. Schinnerer & Company, Inc. Ohio 100%
Encon Holdings, Inc. Texas 100%
Panhandle Insurance Agency, Inc. Texas 100%
Encon Underwriting Agency, Inc. Texas 100%
Encon Holdings, Inc. Ontario 100%
Encon Insurance Managers Inc. Canada 100%
Encon Management Services, Inc. Canada 100%
Encon Reinsurance Managers Inc. Canada 100%
Encon Title Insurance Managers Inc. Canada 100%
Victor O. Schinnerer & Company Ltd. United Kingdom 100%
Encon Underwriting Limited United Kingdom 100%
Admiral Holdings Limited United Kingdom 100%
Admiral Underwriting Agencies Limited United Kingdom 100%
Admiral Ireland Limited Ireland 100%
Admiral Underwriting Agencies (Ireland) Ltd. Ireland 100%
</TABLE>
- 12 -
<PAGE>
Seabury & Smith, Inc. (cont'd)
<TABLE>
<S> <C> <C>
Seabury & Smith of Georgia, Inc. Georgia 100%
M. A. Gesner of Illinois, Inc. Illinois 100%
Seabury & Smith of Illinois, Inc. Illinois 100%
Seabury & Smith, Inc. Indiana 100%
Seabury & Smith, Inc. Kentucky 100%
Seabury & Smith, Inc. Louisiana 100%
Seabury & Smith, Inc. Massachusetts 100%
Seabury & Smith, Inc. Michigan 100%
Seabury & Smith, Inc. Nevada 100%
Seabury & Smith Agency, Inc. Ohio 100%
Seabury & Smith, Inc. Oklahoma 100%
Seabury & Smith, Inc. Texas 100%
Seabury & Smith, Inc. Virginia 100%
Seabury & Smith Limited Ontario 100%
G. E. Freeman Insurance Agency Limited Ontario 100%
Seabury & Smith Limited United Kingdom 100%
Putnam Investments, Inc. Massachusetts 100%
Putnam Investment Management, Inc. Massachusetts 100%
Putnam Future Advisors, Inc. Massachusetts 100%
Putnam Fiduciary Trust Company Massachusetts 100%
Putnam Investor Services, Inc. Massachusetts 100%
Putnam Mutual Funds Corp. Massachusetts 100%
Putnam Insurance Agency, Inc. Massachusetts 100%
The Putnam Advisory Company, Inc. Massachusetts 100%
Putnam Europe Ltd. United Kingdom 100%
The Putnam Corporation Massachusetts 100%
Pan Agora Asset Management Delaware 50%
Pan Agora Management, Ltd. United Kingdom 50%
Putnam Rhumbline Corporation Massachusetts 100%
Primary Funds Service Corp. Delaware 51%
Putnam Overseas Institutional Management Company Ltd. Bahamas 100%
Putnam International Distributors, Ltd. Cayman Islands 100%
Putnam Deutschland GmbH Germany 100%
Putnam International Advisory Company, S.A Luxembourg 100%
NKK-Putnam Management, S.A Luxembourg 100%
Putnam International Growth Management S.A Luxembourg 100%
Putnam Luxembourg S.A Luxembourg 100%
Putnam Management (Luxembourg), S.A Luxembourg 100%
</TABLE>
- 13 -
<PAGE>
<TABLE>
<S> <C> <C>
Sedgwick Group plc United Kingdom 100%
Crown Court Trust Limited United Kingdom 100%
Sedgwick Lamda Limited United Kingdom 100%
Sedgwick Europe Risk Services Limited United Kingdom 100%
Sedgwick Analysis Services Limited United Kingdom 100%
Americas Insurance Services Limited United Kingdom 100%
Sedgwick Theta Limited United Kingdom 100%
Sedgwick Group Nominees Limited United Kingdom 100%
Sedgwick Group Development Limited United Kingdom 100%
Blackwood, Scott & Company Limited United Kingdom 100%
Bland Welch & Company Limited United Kingdom 100%
Sedgwick Lark Limited United Kingdom 100%
Ross Collins Holdings Limited United Kingdom 100%
Hobson, Allfrey & Wheeler Limited United Kingdom 100%
JWP Overseas Holdings Limited United Kingdom 100%
Sedgwick Consulting Group Limited United Kingdom 100%
Sedgwick Overseas Limited United Kingdom 100%
Sedgwick Finance plc United Kingdom 100%
Rivers Group Limited United Kingdom 100%
Exmoor Management Company Limited Bermuda 100%
River Thames Insurance Company Limited United Kingdom 98.74%
R.W. Gibbon & Son (Underwriting Agencies) Limited United Kingdom 100%
Regis Agencies Limited United Kingdom 100%
Bevington Vaizey & Foster Limited United Kingdom 100%
Rhone Limited United Kingdom 100%
Sedgwick Management Services (London) Limited United Kingdom 100%
Sedgwick Management Services (Guernsey) Limited Guernsey 100%
Sedgwick Management Services
(Singapore) Pte Limited Singapore 100%
Sedgwick Omega Limited United Kingdom 100%
Sedgwick Epsilon Limited United Kingdom 100%
Sedgwick Eta Limited United Kingdom 100%
Sedgwick Russia Limited United Kingdom 100%
Lloyd George Insurance Services Limited United Kingdom 95%
Sedgwick Delta Limited United Kingdom 100%
Sedgwick Far East Limited United Kingdom 100%
Sedgwick Kazakhstan Limited United Kingdom 100%
Sedgwick Ukraine Limited United Kingdom 100%
Wigham Poland (Hellas) Limited United Kingdom 5%
Sedgwick Japan Limited United Kingdom 100%
B.K. Thomas & Partners Limited United Kingdom 100%
B.K. Thomas & Partners (General) Limited United Kingdom 100%
Sedgwick Turkey Limited United Kingdom 100%
Sedgwick Azeri Limited United Kingdom 100%
Sedgwick OS Limited United Kingdom 100%
Whitechapel Corporate Services Limited United Kingdom 100%
SG Services Limited United Kingdom 100%
Sedgwick International Broking Services Limited United Kingdom 100%
Sedgwick Global Limited United Kingdom 100%
Sedgwick Computer & Network
Service Company Limited United Kingdom 100%
Sedgwick Credit Limited United Kingdom 100%
Sedgwick Europe Risk Solutions Limited United Kingdom 100%
ReSolutions International Limited United Kingdom 100%
Sedgwick Energy Limited United Kingdom 100%
Aldgate Insurance Brokers (Marine) Limited United Kingdom 100%
Sedgwick UK Risk Services Limited United Kingdom 100%
Sedgwick Bankrisk Limited United Kingdom 100%
E.W. Payne & Co. (Marine) Limited United Kingdom 100%
Sedgwick Aviation Limited United Kingdom 100%
</TABLE>
- 14 -
<PAGE>
<TABLE>
<S> <C> <C>
Sedgwick Energy & Marine Limited United Kingdom 100%
Price Forbes Limited United Kingdom 100%
Sedgwick Georgia Limited United Kingdom 100%
Sedgwick Special Risks Limited United Kingdom 100%
Reclaim Limited United Kingdom 100%
Sedgwick Limited United Kingdom 100%
Sedgwick Northern Ireland Risk Services Limited Northern Ireland 100%
The Sedgwick Information Exchange Limited United Kingdom 100%
Sedgwick Agency Services Limited United Kingdom 100%
Wigham Poland Limited United Kingdom 100%
Wigham Poland Aviation Limited United Kingdom 100%
Wigham Poland Professional
Indemnity Limited United Kingdom 100%
Wigham Poland Reinsurance Brokers Limited United Kingdom 100%
Wigham Poland Scotland Limited United Kingdom 100%
Wigham Poland Marine Limited United Kingdom 100%
Anthony Lumsden & Company Limited United Kingdom 100%
Anthony Lumsden Group Limited United Kingdom 100%
Anthony Lumsden & Co (Pte) Limited Singapore 100%
Sedgwick Reinsurance Services Limited United Kingdom 100%
Sedgwick Credit Europe Limited United Kingdom 100%
Marine Risk Management Services Limited United Kingdom 100%
Sedgwick UK Risk Services Limited United Kingdom 100%
Roger Lark & Sedgwick (Partnership) United Kingdom 30%
RL & S Limited United Kingdom 100%
Roger Lark & Sedgwick Limited United Kingdom 14%
Racal Insurance Services Limited United Kingdom 50%
Richard Sparrow Holdings Limited United Kingdom 100%
Richard Sparrow and Company Limited United Kingdom 100%
Richard Sparrow and Company (International
Non Marine) Limited United Kingdom 100%
Sedgwick Georgia Limited United Kingdom 100%
Grupo Internacional de Reaseguro
Intermediario de Reaseguro, S.A. de C.V Mexico 10%
Sedgwick Group Properties & Services Limited United Kingdom 100%
Avongrove Limited United Kingdom 99.6%
Matchgrange Holdings Limited United Kingdom 100%
Matchgrange Limited United Kingdom 100%
Sedgwick Alpha Limited United Kingdom 100%
Sedgwick Noble Lowndes Group Limited United Kingdom 100%
Sedgwick Noble Lowndes (UK) Limited United Kingdom 100%
Sedgwick Financial Services Limited United Kingdom 100%
Sedgwick Actuarial Services Limited United Kingdom 100%
Sedgwick Trustees Limited United Kingdom 100%
Sedgwick Affinity Group Services Limited United Kingdom 100%
The Financial & Insurance
Advice Centre Limited United Kingdom 100%
Sedgwick Noble Lowndes Limited United Kingdom 100%
English Pension Trustees Limited United Kingdom 100%
Sedgwick Noble Lowndes Trust
Corporation Limited United Kingdom 100%
Sedgwick Noble Lowndes
Actuarial Services Limited United Kingdom 100%
Advantage Independent Limited United Kingdom 100%
Advantage Advisors Services Limited United Kingdom 100%
Flexifund Limited United Kingdom 100%
Sedgwick Northern Ireland Limited Northern Ireland 100%
Noble Lowndes Pensions Limited United Kingdom 100%
Noble Lowndes Personal Financial
Services Limited United Kingdom 100%
</TABLE>
- 15 -
<PAGE>
<TABLE>
<S> <C> <C>
Noble Lowndes Settlement
Trustees Limited United Kingdom 100%
Sedgwick Ulster Pension
Trustees Limited Northern Ireland 100%
Lowndes (N.I.) Limited Northern Ireland 100%
Scotttish Pension Trustees Limited United Kingdom 100%
Settlement Trustees Limited United Kingdom 100%
Combined Actuarial Performance
Services Limited United Kingdom 25%
Sedgwick Noble Lowndes (Europe) Limited United Kingdom 100%
Sedgwick Financial Services
(Deutschland) GmbH Germany 25%
Sedgwick Noble Lowndes GmbH Germany 75%
Sedgwick Investment Services Limited United Kingdom 100%
Chancery Eastcheap Limited United Kingdom 100%
Chancery Aldgate Limited United Kingdom 100%
The International Employer Limited United Kingdom 100%
TIE Systems Limited United Kingdom 100%
Health Care Management Limited United Kingdom 100%
Allied Medical Assurance Services Limited United Kingdom 100%
Healthcare Agencies Limited United Kingdom 100%
Sedgwick Wiggmoore Communications Limited United Kingdom 100%
Sedgwick Noble Lowndes Occupational
Health Limited United Kingdom 100%
Sedgwick Noble Lowndes Occupational
Health (Midlands) Limited United Kingdom 100%
Sedgwick Noble Lowndes Healthcare Limited United Kingdom 100%
Medisure Marketing and Management Limited United Kingdom 100%
Affinity Groups Advantage Limited United Kingdom 100%
Sedgwick Oakwood Lloyd's Underwriting Agents Limited United Kingdom 100%
Exford One Limited United Kingdom 100%
Names Taxation Service Limited United Kingdom 100%
Sedgwick Taxation Consultants Limited United Kingdom 100%
Standon Underwriting Management Limited United Kingdom 99.96%
Winsford One Limited United Kingdom 100%
Sedgwick Corporate Capital Services Limited United Kingdom 100%
Sedgwick Group Pension Scheme Trustee Limited United Kingdom 100%
Sedgwick Global Reinsurance Services Limited United Kingdom 100%
Incorporated Names Advisers Limited United Kingdom 100%
E.W. Payne (UK) Limited United Kingdom 100%
Sedgwick Insurance Strategy Group Limited United Kingdom 100%
Sedgwick Insurance Strategy Limited United Kingdom 100%
Aldgate Actuarial Services Limited United Kingdom 100%
Euings (London) Limited United Kingdom 100%
Sedgwick Reinsurance Brokers Limited United Kingdom 100%
Aldgate US Investments United Kingdom 100%
Digitsuper Limited United Kingdom 100%
Cruiselook Limited United Kingdom 100%
Sedgwick Guernsey Limited Guernsey100%
Sedgwick Group Inc. USA 100%
Sedgwick, Inc. (Delaware) USA 100%
Regency International Limited Bermuda 100%
Sedgwick James of Puerto Rico, Inc. Puerto Rico 100%
Stephen F. Beard, Inc. Puerto Rico 100%
Sedgwick Limited Taiwan 100%
Sedgwick Asia Pacific Private Limited Singapore 100%
Sedgwick of the Carolinas, Inc. USA 100%
Sedgwick International Risk Management, Inc. USA 100%
Sedgwick U.S. Holdings, Inc. USA 100%
Mariners Insurance Agency, Inc. USA 100%
</TABLE>
- 16 -
<PAGE>
<TABLE>
<S> <C> <C>
Maritime Adjusters, Inc. USA 100%
Sedgwick of Mississippi, Inc. Mississippi 100%
Sedgwick, Inc. USA 100%
Sedgwick Energy (Insurance Services) Inc. USA 100%
Members Insurance Club Agency, Inc. USA 100%
Sedgwick Investments, Inc. USA 100%
Sedgwick of New Jersey, Inc. New Jersey 100%
Sedgwick of New Mexico, Inc. New Mexico 100%
Sedgwick of Wisconsin, Inc. Wisconsin 100%
Sedgwick Benefits, Inc. USA 100%
Unused Subsidiary, Inc. USA 100%
Sedgwick of Tennessee, Inc. Tennessee 100%
Sedgwick of Tennessee Agency, Inc. Tennessee 100%
Countryside, Inc. USA 50.38%
Sedgwick Louisiana Holdings, Inc. Louisiana 100%
Sedgwick of New Orleans, Inc. New Orleans 100%
Members Insurance Club Agency, Inc. USA 100%
Sedgwick of Alabama, Inc. Alabama 100%
Sedgwick of Alabama Agency, Inc. Alabama 100%
Sedgwick of Pennsylvania, Inc. Pennsylvania 100%
Route 413 Associates, Inc. USA 100%
Sedgwick U.S. Holdings, Inc. USA 100%
Sedgwick of Arizona, Inc. Arizona 100%
Sedgwick of Arkansas, Inc. Arkansas 100%
Sedgwick of Colorado, Inc. Colorado 100%
Sedgwick of Florida, Inc. Florida 100%
Sedgwick of Georgia, Inc. Georgia 100%
Sedgwick of Idaho, Inc. Kansas 100%
Sedgwick of Kentucky, Inc. Kentucky 100%
Sedgwick Risk Services of Maine, Inc. Maine 100%
Sedgwick of Maryland, Inc. Maryland 100%
Sedgwick of Michigan, Inc. Michigan 100%
Sedgwick of Minnesota, Inc. Minnesota 100%
Sedgwick of Missouri, Inc. Missouri 100%
Sedgwick of Montana, Inc. Montana 100%
Sedgwick of Nebraska, Inc. Nebraska 100%
Sedgwick of New England, Inc. New England 100%
Sedgwick of New Hampshire, Inc. New Hampshire 100%
Sedgwick of Oklahoma, Inc. Oklahoma 100%
Sedgwick of Oregon, Inc. Oregon 100%
Sedgwick of Texas, Inc. Texas 100%
Sedgwick of Utah, Inc. Utah 100%
Sedgwick Management Services
(U.S.) Limited USA 100%
Sedgwick of Virginia, Inc. Virginia 100%
Sedgwick of Washington, Inc. Washington 100%
Sedgwick Managing General
Agency, Inc. USA 100%
Sedgwick Noble Lowndes North
America, Inc. USA 100%
Galbraith & Green, Inc. of Ohio USA 100%
Paladin Reinsurance Corporation USA 20%
S.J. Petrakis Insurance Services, Inc. USA 100%
Sedgwick of California, Inc. California 100%
APRIMAN, Inc. USA 100%
Sedgwick of Connecticut, Inc. Connecticut 100%
Sedgwick of Illinois, Inc. Illinois 100%
Sedgwick Claims Management
Services, Inc. USA 100%
SCMS Administrative
</TABLE>
- 17 -
<PAGE>
<TABLE>
<S> <C> <C>
Services, Inc. USA 100%
Sedgwick of New York, Inc. New York 100%
Sedgwick of Nevada, Inc. Nevada 100%
CVA Consultants, Inc. USA 100%
Don A. Harris & Associates, Inc. USA 100%
Sedgwick of Ohio, Inc. Ohio 100%
Sedgwick Life and Benefits, Inc. USA 100%
Southern Marine & Aviation Underwriters, Inc. USA 100%
Americas Insurance Company USA 100%
Americas Surplus Lines Insurance Company USA 100%
Southern Marine and Aviation, Inc. USA 100%
Sedgwick International Marketing Services Inc. USA 100%
Unused Subsidiary, Inc. USA 100%
Syndicate and Corporate Management Services, Inc. USA 100%
Crump Group, Inc. USA 100%
Crump Insurance Services of Houston, Inc. Texas 100%
Crump E & S of California Insurance
Services, Inc. California 100%
Crump Insurance Services Northwest, Inc. USA 100%
Crump E & S of Sacramento Insurance
Services, Inc. California 100%
Crump Insurance Services of Atlanta, Inc. Georgia 100%
Crump of New York, Inc. New York 90%
Crump Insurance Services of Texas, Inc. Texas 100%
Crump Insurance Services of Illinois, Inc.I llinois 100%
Crump E & S of San Francisco
Insurance Services, Inc. California 100%
Crump Insurance Services of Boston, Inc. Massachusetts 100%
Crump Insurance Services of Florida, Inc. Florida 100%
Crump Insurance Services of
Memphis, Inc. Tennessee 100%
Crump Financial Services, Inc. USA 100%
Crump Insurance Services, Inc. USA 100%
Crump Insurance Services of
Colorado, Inc. Colorado 100%
Sedgwick Financial Services Inc. USA 100%
Sedgwick Re Holdings, Inc. USA 100%
Claims, Inc. USA 100%
Sedgwick Re Inc. of Dallas Texas 100%
Sedgwick Diversified Programs, Inc. USA 100%
Sedgwick Re, Inc. USA 100%
Sedgwick Re Insurance Strategy, Inc. USA 100%
Reinsurance Solutions International, L.L.C.USA 50%
Sedgwick Lane Financial L.L.C USA 80%
Syndicate & Corporate Management Services Limited Bermuda 100%
Overseas Reinsurance Corporation Limited Bermuda 100%
Alcombe One Limited United Kingdom 100%
Oakwood Underwriting Agencies Limited United Kingdom 100%
Sedgwick Overseas Investments Limited United Kingdom 100%
Sedgwick Overseas Group Limited United Kingdom 100%
Sedgwick Asia Pacific Limited Australia 100%
Sedgwick Internationaal BV Netherlands 100%
Sedgwick Management Services (Antigua) Limited Antigua 100%
Sedgwick Group (Australia) Pty Limited Australia 100%
Sedgwick (Holdings) Pty Limited Australia 100%
Bland Payne (South Aust.) Pty Limited Australia 100%
Sedgwick Limited Australia 100%
Adam and Adam (Aust.) Pty Limited Australia 100%
Sedgwick Insurance Agencies Pty Limited Australia 100%
Sedgwick Re Asia Pacific Limited Australia 100%
</TABLE>
- 18 -
<PAGE>
<TABLE>
<S> <C> <C>
Sedgwick Corporate and Employee
Benefits Limited Australia 100%
Price Forbes Australia Limited Australia 100%
Australian Commercial Insurance
Agencies Limited Australia 100%
Technical Insurance Management
Services Pty Limited Australia 100%
Sedgwick Superannuation Pty Limited Australia 100%
Sedgwick Noble Lowndes Asia
Pacific Limited Australia 100%
Sedgwick Noble Lowndes Limited Australia 100%
Sedgwick Noble Lowndes
Actuarial Limited Australia 100%
Sedgwick Noble Lowndes
Group Limited Australia 100%
Noble Lowndes (PNG) Limited Papua New Guinea 100%
Cullen Egan Dell Limited Australia 100%
Sedgwick Noble Lowndes
Accounting Pty Limited Australia 100%
McPhee Andrewartha
CED Pty Limited Australia 50%
Sedgwick Noble Lowndes
Financial Planning Limited Australia 100%
Sedgwick Noble Lowndes
Trusteeship Services Limited Australia 100%
Sedgwick Noble Lowndes
Superannuation Services Limited Australia 51%
Sedgwick Versicherungsmakler Gesellschaft m.b.H Austria 100%
MVM Versicherungsberatungs Gesellschaft m.b.H. Austria 100%
Sedgwick Argentina SA Argentina 49%
Marinaro Dundas SA Uruguay 49%
Marinaro Dundas SA Argentina 100%
Admiseg SA Asesora y Productora
de Seguros Argentina 100%
Sedgwick (Deutschland) GmbH Germany 100%
Sedgwick Noble Lowndes GmbH Germany 100%
Neuburger Noble Lowndes GmbH Germany 50%
Sedgwick Verwaltungs-GmbH Germany 100%
Sedgwick Consulting GmbH Germany 100%
Sedgwick International Broking Services GmbH Germany 100%
Sedgwick GmbH & Co Germany 100%
Buir-Bliesheimer Versicherungsservice GmbH Germany 49%
Hamm Versicherungsmakler GmbH Germany 100%
MVM Versicherungsmakler AG Switzerland 49%
Sedgwick (Continental) SA Switzerland 100%
Sedgwick AG Switzerland 100%
Sedgwick (Isle of Man) Limited Isle of Man 100%
Sedgwick Management Services
(Isle of Man) Limited Isle of Man 100%
Whitechapel Corporate Services Limited Isle of Man 100%
Whitechapel Insurance Services
Limited Isle of Man 100%
Whitechapel New Company Limited Isle of Man 100%
Whitechapel Financial Services Limited Isle of Man 100%
Sedgwick Management Services (Jersey) Limited Jersey 100%
Sedgwick S.A.-N.V Belgium 99.6%
Sedgwick S.A Luxembourg 100%
Sedgwick Management Services
(Luxembourg) SA Luxembourg 100%
</TABLE>
- 19 -
<PAGE>
<TABLE>
<S> <C> <C>
Thilly Van Eessel NV-SA Belgium 100%
Continental Insurance & Reinsurance
Agency SA Belgium 100%
Thilly Van Eessel L.-C. SA Belgium 100%
Cecode SA Belgium 100%
European Professional Indemnity Mutual Belgium 100%
Thilly Reinsurance Services SA Belgium 100%
Sedgwick Europe Benefit Consultants BV Netherlands 100%
Sedgwick Noble Lowndes S.A.-N.V Belgium 100%
Sedgwick Noble Lowndes S.A Spain 100%
Portominas-Administracao e Corretagem de Seguros Ltda Brazil 100%
Shariffuddin-Sedgwick (B) Sendiran Berhad Brunei 45%
Sedgwick Holdings (Netherlands) BV Netherlands 100%
Sedgwick Management Services (Curacao) N.V. N. Antilles 100%
Sedgwick Nederland BV Netherlands 100%
P.T. Sedgwick Dharmala Indonesia 55%
Verenigde Reassurantie Makelaars BV Netherlands 100%
Schlencker BV Netherlands 100%
Sedgwick BV Netherlands 100%
"Praevenio" Technische Verzekeringen BV Netherlands 100%
O.W.J. Schlencker Assuradeuren BV Netherlands 100%
Singel Reinsurance Underwriting BV Netherlands 100%
NV Algemene Verzekering
Maatschappij "De Zee" Netherlands 100%
Pontier & Karreman BV Netherlands 100%
Sedgwick European Risk Services BV Netherlands 100%
Sedgwick Noble Lowndes B.V Netherlands 100%
Sedgwick Noble Lowndes Insurance
Division BV Netherlands 100%
Sedgwick Financial Services Consulting
Division BV Netherlands 100%
Nikols Sedgwick B.V Netherlands 100%
Sedgwick Group (Netherlands) BV Netherlands 100%
Cullen Egan Dell (NZ) Limited New Zealand 100%
Sedgwick Bergvall Holdings AS Norway 100%
Sedgwick Energy A/S Norway 100%
Sedgwick Bergvall AS Norway 100%
Sedgwick Norge AS Norway 100%
Sedgwick Bergvall AB Sweden 100%
Sedgwick Bergvall Inc. USA 100%
Sedgwick (PNG) Pty Limited Papua New Guinea 100%
Sedgwick Kassman Pty Limited Papua New Guinea 49%
Sedgwick Corretores de Seguros, Ltda Portugal 60%
Sedgwick - Resseguros e Consultores de Seguros, Ltda Portugal 60%
Sedgwick Correduria de Seguros, SA Spain 100%
Sedgwick Holdings (S.A.) (Proprietary) Limited South Africa 100%
Ginsburg Malan & Carsons Consultants and
Actuaries (Pty) Limited South Africa 50%
Superflex Limited South Africa 100%
Ginsburg Malan & Carsons Consultants and
Actuaries (Pretoria) Pty) Limited South Africa 100%
Ginsburg Malan & Carsons Consultants and
Actuaries (Durban) (Pty) Limited South Africa 100%
Ginsburg Malan & Carsons Consultants and
Actuaries (Cape) (Pty) Limited South Africa 100%
Ginsburg Malan & Carsons Consultants and
Actuaries (Johannesburg) (Pty) Limited South Africa 100%
Ginsburg Malan & Carsons Actuaries (Pty) Limited South Africa 100%
Ginsburg Malan & Carsons Healthcare
Services (Pty) Limited South Africa 100%
</TABLE>
- 20 -
<PAGE>
<TABLE>
<S> <C> <C>
Sedgwick Noble Lowndes & Ginsburg
Systems (SA) (Pty) Limited South Africa 100%
Ginsburg Malan & Carsons Consultants and
Actuaries (Swaziland) (Pty) Limited Swaziland 100%
Ginsburg Malan & Carsons Actuaries
(Namibia) (Pty) Limited Namibia 100%
Puno Employee Benefit Consultants (Pty) Limited South Africa 100%
Ginsburg Malan & Carsons Investment
Services (Pty) Limited South Africa 100%
Pencon Holdings (Pty) Limited Namibia 33.33%
United Pension Administrators of
Namibia (Pty) Limited Namibia 100%
Benchmark Advisors (Pty) Limited South Africa 33.33%
Professional Risk Services (Proprietary) Limited South Africa 70%
Professional Risk Consultants (Proprietary) Limited South Africa 70%
Sedgwick Holdings (Namibia) (Pty) Limited Namibia 100%
Sedgwick Sweden AB Sweden 100%
Sedgwick Risk Services AB Sweden 100%
Sedgwick Dineen Group Limited Ireland 100%
Sedgwick Dineen Ireland Limited Ireland 100%
Sedgwick Dineen Trustees Limited Ireland 100%
Sedgwick Dineen Consulting Group Limited Ireland 100%
Sedgwick Dineen Employee Benefits Limited Ireland 100%
Sedgwick Dineen Personal Financial
Management Limited Ireland 100%
M.B. Fitzpatrick Limited Ireland 100%
Irish Pensions Trust Limited Ireland 100%
Payment Protection Services Limited Ireland 100%
IPT Actuarial Services Limited Ireland 100%
Sedgwick Noble Lowndes Limited Ireland 100%
Irish Pension Trustees Limited Ireland 100%
Combined Performance Measurement
Services Limited Ireland 50%
Sedgwick Dineen Limited Ireland 100%
Sedgwick Zeta Limited United Kingdom 100%
Sedgwick Claims Management
Services Limited Ireland 100%
Sedgwick Risk Consulting Limited Ireland 100%
Legal & Commercial Insurances Limited Ireland 100%
Gaelarachas Teoranta Ireland 50%
Sedgwick Management Services
(Ireland) Limited Ireland 100%
Lowndes Limited Ireland 100%
Sedgwick S.p.A Italy 100%
M.V.M. Italia S.r.l. Broker di Assicurazione Italy 100%
Sedgwick Thai Limited Thailand 50%
All Asia Sedgwick Insurance Brokers Corporation Philippines 51%
Sedgwick Group (Canada) Inc. Canada 100%
Crump Euings, Inc. Canada 100%
Sedgwick Limited Canada 100%
Lamarre, Caty, Houle Ltee Canada 100%
Guy Bergeron & Associes Inc. Canada 100%
Sedgwick Management Services
(Canada) Limited Canada 100%
B.V. Armstrong Consulting Limited Canada 100%
John Phillip Green Insurance Brokers Corp. Canada 100%
PlanDirect Insurance Services Inc. Canada 100%
Sedgwick Reinsurance Intermediaries
(Canada) Limited Canada 100%
</TABLE>
- 21 -
<PAGE>
<TABLE>
<S> <C> <C>
Sedgwick Claims Management Services
(Canada) Limited Canada 100%
Sedgwick Insurance and Risk Management
Consultants (China) Limited China 100%
Sedgwick Polska sp. z o.o Poland 100%
Sedgwick a.s Czech Republic 100%
Sedgwick Slovakia a.s Slovakia 80%
Sedgwick Holding A/S Denmark 100%
Sedgwick A/S Denmark 100%
E. Dahl-Jorgensen & Co A/S Denmark 100%
Sedgwick Oy Finland 100%
Cofast - EBC SA France 100%
Sedgwick SA France 100%
Societe Francaise de Courtage d'Assurance de Risques
Petroliers et d'Energie SA France 100%
PRIESTIM SCI France 95%
Cabinet Billet et Cie SA France 100%
ARC Sud-Quest SA France 100%
Sedgwick Noble Lowndes Conseil SA France 100%
CEGAM France 100%
Sedgwick Noble Lowndes Data Consulting Limited Hungary 82.56%
Sedgwick Parekh Health Management
(Private) Limited India 80%
Lynch Insurance Brokers Limited Barbados 30%
Sedgwick Management Services (Barbados) Limited Barbados 33.33%
Media Reinsurance Corporation Barbados 25%
Sedgwick Kft Hungary 100%
James Wigham Poland International Limited United Kingdom 100%
Wigham Poland Australia Pty Limited Australia 100%
Wigham Poland (Hellas) Limited Greece 95%
Wigham Poland Reinsurance Brokers Hellas Limited Greece 100%
Sepakat James Insurance Brokers Sdn Bhd Malaysia 30%
Sedgwick Gamma Limited United Kingdom 100%
Sedgwick Group (Bermuda) Limited Bermuda 100%
Sedgwick (Bermuda) Limited Bermuda 100%
Sedgwick Noble Lowndes Limited Hong Kong 100%
Cumberland Brokerage Limited Bermuda 100%
Monalsa Assessoria Economico Financiera Ltda Brazil 100%
SCIB (Bermuda) Limited Bermuda 100%
Sedgwick Limited Hong Kong 100%
Sedgwick Hung Kai Insurance & Risk
Management Consultants Limited Hong Kong 50%
Sedgwick Construction Asia Limited Hong Kong 100%
Antah Sedgwick Insurance Brokers Sdn Bhd Malaysia30%
Sedgwick Private Limited Singapore 100%
Sedgwick Re Asia Pacific (Consultants)
Pte Limited Singapore 100%
Aldgate Investments Limited Bermuda 100%
Yarmouth Insurance Limited Bermuda 100%
Sedgwick Management Services (Bermuda) Limited Bermuda 100%
Sedgwick Management Services
(Cayman) Limited Cayman Isles 100%
Ace Holding Inc. British Virgin Isles 32.63%
Sedgwick Insurance Brokers (Pty) Limited Botswana 95%
Penguin Investments (Pty) Limited Botswana 100%
Sedgwick Comercial Ltda Brazil 100%
Sedgwick Brasil Administradora e Coretora de
Seguros Ltda Brazil 100%
Sedgwick Payne Brasil Resseguros Ltda Brazil 100%
Excess Corredores de Reaseguros S/A Chile 100%
</TABLE>
- 22 -
<PAGE>
<TABLE>
<S> <C> <C>
Andueza y Compania Corredores de Seguros SA Chile 80%
Inversiones Andueza y Sedgwick SA Chile 60%
Sedgwick Consulting Group (Chile) SA Chile 100%
Andueza y Sedgwick, Corredores de Seguros SA Chile 100%
Andueza y Sedgwick, Agentes de Mutuos
Hipotecarios SA Chile 100%
Probenefits Sedgwick Noble Lowndes Chile SA Chile 60%
Tattersall Andueza & Sedgwick Corredores
de Seguros Chile 45%
Sedgwick Colombia Holdings S.A Colombia 51%
Sedgwick Centurion Corredores de Seguros Ltda Colombia 100%
Administradora Centurion Ltda Colombia 100%
Salud Centurion Ltda Colombia 100%
Sedgwick Corredores de Reaseguros Ltda Colombia 100%
Artemis Securities Limited Guernsey 100%
Sedgwick Brimex (Guernsey) Limited Guernsey 100%
Sedgwick Brimex Romania SRL Romania 99%
Sedgwick Kenya Insurance Brokers Limited Kenya 40%
Sedgwick Group (NZ) Limited New Zealand 100%
Sedgwick Limited New Zealand 100%
Sedgwick Re Limited New Zealand 100%
Sedgwick (Fiji) Limited Fiji 100%
Sedgwick Noble Lowndes (NZ) Limited New Zealand 100%
Sedgwick Professional Services Limited New Zealand 100%
SEDFEMA Insurance Brokers Inc. Philippines 100%
Sedgwick Korea Limited South Korea 100%
Sedgwick Venezuela Corredores de Reaseguros, CA Venezuela 100%
Sedgwick Group (Zimbabwe) Limited Zimbabwe 100%
Sedgwick Holdings (Private) Limited Zimbabwe 50%
Sedgwick Insurance Brokers (Private) Limited Zimbabwe 100%
Sedgwick Management Services
(Private) Limited Zimbabwe 100%
Sedgwick Risk Management and
Consultancy (Private) Limited Zimbabwe 100%
</TABLE>
- 23 -
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the previously filed
Registration Statements of Marsh & McLennan Companies, Inc. on Form S-8
(Registration Statement File Nos. 2-58660, 2-65096, 2-82938, 33-21566,
33-32880, 33-48803, 33-48804, 33-48807, 33-54349, 33-59603, 33-63389,
333-35739, 333-35741, 333-29627 and 333-51141) and, the previously filed
Registration Statements on Form S-3 (Registration Statement Nos. 333-25069,
333-28201, 333-41021, 333-48707 and 333-67543) of our reports dated March 5,
1999 appearing in, and incorporated by reference in, this Annual Report on
Form 10-K of Marsh & McLennan Companies, Inc. for the year ended December 31,
1998.
/s/ Deloitte & Touche LLP
New York, New York
March 26, 1999
<PAGE>
Exhibit 24
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a
Delaware corporation (the "Company"), does hereby constitute and appoint any one
of A. J. C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van
Gundy to be the undersigned's agent and attorney-in-fact, each with the power to
act fully hereunder without the other and with full power of substitution to act
in the name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Norman Barham
----------------------------
Norman Barham
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities and
Exchange Commission on behalf of the Company an Annual Report on Form 10-K
for the year ended December 31, 1998, any registration statements for the
registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such Annual
Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Lewis W. Bernard
------------------------------
Lewis W. Bernard
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Frank J. Borelli
---------------------------------
Frank J. Borelli
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Peter Coster
-----------------------------
Peter Coster
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Robert F. Erburu
-------------------------------
Robert F. Erburu
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Jeffrey W. Greenberg
-------------------------------
Jeffrey W. Greenberg
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Ray J. Groves
-------------------------------
Ray J. Groves
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Stephen R. Hardis
---------------------------------
Stephen R. Hardis
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Gwendolyn S. King
---------------------------------
Gwendolyn S. King
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ The Rt. Hon. Lord Lang of Monkton
------------------------------------------
The Rt. Hon. Lord Lang of Monkton
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Lawrence J. Lasser
--------------------------------
Lawrence J. Lasser
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ David A. Olsen
-------------------------------
David A. Olsen
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ John D. Ong
---------------------------
John D. Ong
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ George Putnam
------------------------------
George Putnam
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Saxon Riley
------------------------------
Saxon Riley
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Adele Smith Simmons
---------------------------------
Adele Smith Simmons
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ John T. Sinnott
------------------------------
John T. Sinnott
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ A. J. C. Smith
-----------------------------
A. J. C. Smith
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ Frank J. Tasco
---------------------------
Frank J. Tasco
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Marsh & McLennan Companies, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint any one of A. J.
C. Smith, Jeffrey W. Greenberg, Frank J. Borelli and Gregory F. Van Gundy to be
the undersigned's agent and attorney-in-fact, each with the power to act fully
hereunder without the other and with full power of substitution to act in the
name and on behalf of the undersigned:
To sign or to transmit electronically in the name and on behalf of the
undersigned, as a Director of the Company, and file with the Securities
and Exchange Commission on behalf of the Company an Annual Report on Form
10-K for the year ended December 31, 1998, any registration statements for
the registration of the Company's common stock and related interests to be
issued pursuant to the Company's duly adopted employee benefit,
compensation and stock plans, any registration statements for the
registration of the Company's common stock for issuance in connection with
acquisitions or for resale by the holders thereof who acquired or will
acquire such stock in connection with past or future acquisitions, and any
amendments or supplements to such Annual Report on Form 10-K and such
registration statements; and
To execute and deliver, either through a paper filing or electronically,
any agreements, instruments, certificates or other documents which they
shall deem necessary or proper in connection with the filing of such
Annual Report on Form 10-K, registration statements and prospectuses and
amendments or supplements thereto and generally to act for and in the name
of the undersigned with respect to such filings as fully as could the
undersigned if then personally present and acting.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
effective the 18th day of March, 1999.
/s/ W.R.P. White-Cooper
-------------------------------
W.R.P. White-Cooper
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated Marsh & McLennan Companies, Inc. and subsidiaries December 31, 1998
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 610,000,000
<SECURITIES> 0
<RECEIVABLES> 2,007,000,000
<ALLOWANCES> 98,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,245,000,000
<PP&E> 2,107,000,000
<DEPRECIATION> 820,000,000
<TOTAL-ASSETS> 11,871,000,000
<CURRENT-LIABILITIES> 5,002,000,000
<BONDS> 1,590,000,000
0
0
<COMMON> 259,000,000
<OTHER-SE> 3,400,000,000
<TOTAL-LIABILITY-AND-EQUITY> 11,871,000,000
<SALES> 0
<TOTAL-REVENUES> 7,190,000,000
<CGS> 0
<TOTAL-COSTS> 5,770,000,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 19,000,000
<INTEREST-EXPENSE> 140,000,000
<INCOME-PRETAX> 1,305,000,000
<INCOME-TAX> 509,000,000
<INCOME-CONTINUING> 796,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 796,000,000
<EPS-PRIMARY> 3.11
<EPS-DILUTED> 2.98
</TABLE>
