-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WCftNiZnNmkZIZlMH5Gdpqj0ly/4s0wii6MP8EePZnkJsRdGO2BRQz6wBS0d0Wxw 35GOHIge+d/QjeUVBHwFwA== /in/edgar/work/20000814/0000062709-00-000017/0000062709-00-000017.txt : 20000921 0000062709-00-000017.hdr.sgml : 20000921 ACCESSION NUMBER: 0000062709-00-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARSH & MCLENNAN COMPANIES INC CENTRAL INDEX KEY: 0000062709 STANDARD INDUSTRIAL CLASSIFICATION: [6411 ] IRS NUMBER: 362668272 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05998 FILM NUMBER: 699577 BUSINESS ADDRESS: STREET 1: 2 LIBERTY SQU CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 8002251581 MAIL ADDRESS: STREET 1: 2 LIBERTY SQU STREET 2: MAILSTOP L5 CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: MARLENNAN CORP DATE OF NAME CHANGE: 19760505 10-Q 1 0001.txt 2ND QUARTER SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For quarter ended June 30, 2000 Marsh & McLennan Companies, Inc. 1166 Avenue of the Americas New York, New York 10036 (212) 345-5000 Commission file number 1-5998 State of Incorporation: Delaware I.R.S. Employer Identification No. 36-2668272 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 ___. As of July 31, 2000, there were outstanding 271,332,505 shares of common stock, par value $1.00 per share, of the registrant. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS Marsh & McLennan Companies, Inc. and its subsidiaries ("MMC") and its representatives may from time to time make written or verbal forward-looking statements, including statements contained in this report and other MMC filings with the Securities and Exchange Commission and in our reports to stockholders. Such statements are "forward-looking" statements as that term is defined in the Private Securities Litigation Reform Act of 1995 and may include, without limitation, discussions concerning revenue and expense growth, cost savings and efficiencies expected from the integration of Sedgwick Group plc, market and industry conditions, interest rates, foreign exchange rates, contingencies and matters relating to the operations and income taxes of MMC. Such forward-looking statements are based on available current market and industry materials, experts' 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 herein include, in the case of MMC's risk and insurance services and consulting businesses, the integration of the business of Sedgwick Group plc (including the achievement of synergies and cost reductions) or other adverse consequences from that transaction; 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 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, 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, lawsuits and contingencies, 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. PART I, FINANCIAL INFORMATION MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share figures) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Revenue $ 2,481 $ 2,245 $ 5,146 $ 4,596 Expense 1,975 1,898 4,028 3,730 ------- ------- ------- ------- Operating Income 506 347 1,118 866 Interest Income 6 4 11 11 Interest Expense (68) (55) (128) (115) ------- ------- ------- ------- Income Before Income Taxes 444 296 1,001 762 Income Taxes 168 119 388 306 ------- ------- ------- ------- Net Income $ 276 $ 177 $ 613 $ 456 ======= ======= ======= ======= Basic Net Income Per Share $ 1.02 $ .68 $ 2.28 $ 1.76 ======= ======= ======= ======= Diluted Net Income Per Share $ .96 $ .63 $ 2.15 $ 1.66 ======= ======= ======= ======= Average Number of Shares Outstanding - Basic 270 263 269 260 ======= ======= ======= ======= Average Number of Shares Outstanding - Diluted 283 272 281 269 ======= ======= ======= ======= Dividends Declared $ .50 $ .45 $ .95 $ .85 ======= ======= ======= ======= MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions of dollars) (Unaudited) June 30, December 31, 2000 1999 ---------- ----------- ASSETS Current assets: Cash and cash equivalents $ 439 $ 428 -------- -------- Receivables- Commissions and fees 2,282 1,949 Advanced premiums and claims 215 246 Other receivables 291 260 -------- -------- 2,788 2,455 Less-allowance for doubtful accounts (132) (132) -------- -------- Net receivables 2,656 2,323 -------- -------- Prepaid dealer commissions - current portion 361 326 Other current assets 239 206 -------- -------- Total current assets 3,695 3,283 Intangible assets 5,540 5,542 Fixed assets, net 1,339 1,314 (net of accumulated depreciation and amortization of $964 at June 30, 2000 and $898 at December 31, 1999) Prepaid dealer commissions 821 760 Long-term securities 618 611 Other assets 1,623 1,511 -------- -------- $ 13,636 $ 13,021 ======== ======== MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions of dollars) (Unaudited) June 30, December 31, 2000 1999 ---------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt $ 1,299 $ 1,131 Accounts payable and accrued liabilities 1,817 1,721 Accrued compensation and employee benefits 898 1,157 Accrued income taxes 176 188 Dividends payable 136 121 -------- -------- Total current liabilities 4,326 4,318 -------- -------- Fiduciary liabilities 3,962 3,333 Less - cash and investments held in a fiduciary capacity (3,962) (3,333) -------- -------- -- -- -------- -------- Long-term debt 2,349 2,357 -------- -------- Other liabilities 2,322 2,176 -------- -------- Commitments and contingencies -- -- -------- -------- Stockholders' equity: Preferred stock, $1 par value, authorized 6,000,000 shares, none issued -- -- Common stock, $1 par value, authorized 800,000,000 shares, issued 271,994,474 shares at June 30, 2000 and 268,695,790 at December 31, 1999 272 269 Additional paid-in capital 1,596 1,411 Retained earnings 3,031 2,674 Accumulated other comprehensive income (157) (75) -------- -------- 4,742 4,279 Less - treasury shares, at cost, 1,319,538 shares at June 30, 2000 and 1,669,993 shares at December 31, 1999 (103) (109) -------- -------- Total stockholders' equity 4,639 4,170 -------- -------- $ 13,636 $ 13,021 ======== ======== MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions of dollars) (Unaudited) Six Months Ended June 30, ------------------ 2000 1999 ------- ------- Operating cash flows: Net income $ 613 $ 456 Special charge -- 84 Integration payments (103) (93) Depreciation of fixed assets 112 109 Amortization of intangible assets 88 69 Provision for deferred income taxes 120 64 Other liabilities (66) 47 Prepaid dealer commissions (96) (6) Other, net (9) 16 Net changes in operating working capital other than cash and cash equivalents - Receivables (320) (264) Other current assets (2) 112 Accounts payable and accrued liabilities 179 (78) Accrued compensation and employee benefits (259) (82) Accrued income taxes 58 (14) Effect of exchange rate changes (3) (29) ------- ------- Net cash generated from operations 312 391 ------- ------- Financing cash flows: Net increase (decrease) in commercial paper 241 (1,359) Other borrowings 60 1,109 Other repayments (139) (36) Issuance of common stock 113 369 Dividends paid (241) (208) ------- ------- Net cash provided by (used for) financing activities 34 (125) ------- ------- Investing cash flows: Additions to fixed assets (184) (164) Acquisitions (34) (92) Other, net (107) (13) ------- ------- Net cash used for investing activities (325) (269) ------- ------- Effect of exchange rate changes on cash and cash equivalents (10) (8) ------- ------- Increase (decrease) in cash & cash equivalents 11 (11) Cash & cash equivalents at beginning of period 428 610 ------- ------- Cash & cash equivalents at end of period $ 439 $ 599 ======= ======= MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The consolidated financial statements included herein have been prepared by MMC pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although MMC believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in MMC's latest annual report on Form 10-K. The financial information contained herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the three-and six-month periods ended June 30, 2000 and 1999. 2. 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 $89 million and $83 million for the six months ended June 30, 2000 and 1999, respectively. Net uncollected premiums and claims and the related payables amounting to $11.7 billion at June 30, 2000 and $11.5 billion at December 31, 1999, are not included in the accompanying Consolidated Balance Sheets. 3. 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 granted 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 potentially issuable 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 for the three- and six-month periods ended June 30, 2000 and 1999. (In millions) ----------- Three Months Six Months Ended Ended June 30, June 30, ---------------- ---------------- 2000 1999 2000 1999 ------ ------ ------ ------ Net income $ 276 $ 177 $ 613 $ 456 Less: Potential minority interest associated with Putnam Equity Partnership Plan (4) (4) (9) (8) ----- ----- ----- ----- Net income for diluted earnings per share $ 272 $ 173 $ 604 $ 448 ===== ===== ===== ===== Basic weighted average common shares outstanding 270 263 269 260 Dilutive effect of stock options and stock units 13 9 12 9 ----- ----- ----- ----- Diluted weighted average common shares outstanding 283 272 281 269 ===== ===== ===== ===== 4. Comprehensive Income The components of comprehensive income for the six-month periods ended June 30, 2000 and 1999 are as follows: 2000 1999 ---- ---- Foreign currency translation adjustments $ (73) $(119) Unrealized securities holding gains (losses), net of income taxes 20 (82) Less: Reclassification adjustment for gains included in net income, net of income taxes (29) (12) ----- ----- Other comprehensive income (loss) (82) (213) Net income 613 456 ----- ----- Comprehensive income $ 531 $ 243 ===== ===== 5. Supplemental Disclosure to the Consolidated Statements of Cash Flows The following schedule provides additional information concerning acquisitions and interest and income taxes paid: Six Months Ended June 30, ------------------- (In millions of dollars) 2000 1999 - ------------------------ ---- ---- Purchase acquisitions: Assets acquired, excluding cash $ 126 $ 92 Liabilities assumed (80) -- Shares issued (12) -- ----- ----- Net cash outflow for acquisitions $ 34 $ 92 ===== ===== Interest paid $ 127 $ 101 Income taxes paid $ 175 $ 222 6. Income Taxes 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 Putnam. 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 the IRS continues to have the matter under consideration. 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. 7. Special Charge In the second quarter of 1999, MMC recorded a special charge of $84 million that reduced diluted net income per share by $0.19. This charge included $71 million of merger-related costs associated with the combination with Sedgwick and $13 million representing acquisition-related awards pertaining to the Sedgwick transaction. An additional special charge of $253 million was recorded in the fourth quarter of 1999 resulting in a combined special charge of $337 million representing $266 million of merger-related costs associated with the combination with Sedgwick and $71 million primarily from acquisition-related awards pertaining to the Sedgwick transaction. The $266 million of merger-related costs are discussed in detail in Note 8. 8. Acquisitions, Dispositions and Integration Costs Acquisitions: In May 2000, MMC acquired Delta Consulting Group, an industry leader in corporate organizational design and change management consulting. In July 1999, MMC acquired a minority ownership interest in Thomas H. Lee Partners, a private equity business. 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 was initially funded with commercial paper borrowings. In April 1999, MMC completed the sale of 4.1 million common shares, realizing approximately $300 million of net proceeds. In June 1999, MMC sold $600 million of 6.625% Senior Notes due 2004 and $400 million of 7.125% Senior Notes due 2009. The proceeds of these sales were used to repay a portion of the commercial paper borrowings. The business combination was accounted for using the purchase method of accounting. Accordingly, goodwill of approximately $2.8 billion resulting from the purchase price allocation is being amortized over 40 years. Assets acquired and liabilities assumed have been recorded at their estimated fair values. No intangible assets, other than goodwill, were acquired as part of the business combination with Sedgwick. Dispositions: As part of the combination with Sedgwick, MMC acquired several businesses that it intended to sell, including insurance underwriting operations already in run-off and consulting businesses not compatible with its existing operations. During 1999, MMC sold certain of these businesses for $85 million and the after tax gains from these sales of $16 million have been subtracted from the cost of the Sedgwick acquisition. During the first quarter of 2000, MMC sold another of these businesses for $33 million which approximated its carrying value. The net liabilities of businesses to be disposed are reflected at their estimated realizable value of $120 million and $101 million at June 30, 2000 and December 31, 1999, respectively, and are included in accounts payable and accrued liabilities in the Consolidated Balance Sheet. Integration Costs: In 1999, as part of the integration of Sedgwick, MMC adopted a plan to reduce staff and consolidate duplicative offices. The estimated cost of this plan relating to employees and offices of Sedgwick ("Sedgwick Plan") amounted to $285 million and was included in the cost of the acquisition. Merger-related costs for employees and offices of MMC ("MMC Plan") amounted to $266 million and were recorded as part of a 1999 special charge. The utilization of these charges is summarized as follows: Utilized in Balance Initial Utilized Six Mos. June 30, (In millions of dollars) Balance in 1999 2000 2000 --------- -------- ----------- -------- Sedgwick Plan: Termination payments to employees $ 183 $ (93) $ (34) $ 56 Other employee-related costs 5 (2) -- 3 Future rent under noncancelable leases 48 (8) (7) 33 Leasehold termination costs 49 (10) (8) 31 ------- ------- ------- ------- $ 285 $ (113) $ (49) $ 123 ======= ======= ======= ======= Number of employee terminations 2,400 (1,700) (300) 400 Number of office consolidations 125 (50) (55) 20 Utilized in Balance Initial Utilized Six Mos. June 30, (In millions of dollars) Balance in 1999 2000 2000 --------- -------- ----------- -------- MMC Plan: Termination payments to employees $ 194 $ (74) $ (45) $ 75 Future rent under noncancelable leases 31 (5) (3) 23 Leasehold termination costs 16 (3) (6) 7 Other integration-related costs 25 (25) -- -- ------- ------- ------- ------- $ 266 $ (107) $ (54) $ 105 ======= ======= ======= ======= Number of employee terminations 2,100 (1,300) (300) 500 Number of office consolidations 50 (20) (20) 10 The other integration-related costs primarily consist of consulting fees and system conversion costs incurred in 1999 as a result of the restructuring and merging of MMC and Sedgwick operations. As of June 30, 2000, the actions contemplated by this plan were in progress and are expected to be completed by the end of 2000. Some accruals, primarily future rent under noncancelable leases (net of anticipated sublease income), are expected to be paid over several years. 9. 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. Three actions were filed in the United States District Court for the Southern District of New York by former directors of Johnson & Higgins ("J&H"), which was acquired by MMC in 1997, against twenty-four selling shareholders of J&H, as well as J&H itself and MMC. These actions essentially challenge 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 former directors assert, among others, claims for breach of fiduciary duty, federal securities law violations, breach of contract, and ERISA violations. Plaintiffs seek compensatory and punitive damages. On October 12, 1999, the Court dismissed MMC entirely from these cases and dismissed certain (but not all) of the claims brought against J&H. The principal surviving claims asserted against J&H in these cases include a claim under the federal securities laws and a claim for breach of ERISA. In December 1999, two additional cases were filed by two former directors of J&H and have been assigned to the judge hearing the other three cases. These two additional cases raise substantially similar issues as the three previous actions. 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. As of June 30, 2000, settlements and related costs previously paid amount to approximately $155 million of which approximately $30 million is due from or has been paid by insurers. The contingent exposure of Sedgwick for pension redress and related costs is estimated to be $320 million. Sedgwick has recorded $160 million of reserves and recognized approximately $160 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 $145 million. Approximately $140 million of this amount is expected to be recovered from insurers and accounting reserves have been provided for the remaining balance. As of June 30, 2000, settlements and related costs previously paid total approximately $40 million. MMC's ultimate exposure from the United Kingdom's Personal Investment Authority review, as presently calculated and including Sedgwick, is subject to a number of variable factors including, among others, the interest rate established quarterly by the U.K. Personal Investment Authority for calculating compensation, equity markets, 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 businesses that were already in run-off. Sedgwick had issued guarantees with respect to certain liabilities 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. 10. Common Stock In April 1999, MMC completed the sale of 4.1 million common shares realizing approximately $300 million of net proceeds. 11. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard (as amended by SFAS No. 138), which establishes new accounting and reporting requirements for derivative instruments, is effective (as amended by SFAS No. 137) for fiscal years beginning after June 15, 2000. MMC does not expect the adoption of this standard will have a material impact on its results of operations or consolidated financial position. MMC has reviewed the provisions of SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" and has determined that it is in compliance with its provisions. 12. Reclassifications Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. 13. Segment Information 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 and program services 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 as well as institutional clients. 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. Selected information about MMC's operating segments for the six-month periods ended June 30, 2000 and 1999 follow: (In millions of dollars) Revenue Segment from External Operating Customers Income ------------- --------- 2000- Risk and Insurance Services $2,449 (a) $ 528 Investment Management 1,639 518 Consulting 1,058 149 ------ ------ $5,146 $1,195 ====== ====== 1999- Risk and Insurance Services $2,348 (a) $ 465 Investment Management 1,290 420 Consulting 958 120 ------ ------ $4,596 $1,005 ====== ====== (a) Includes interest income on fiduciary funds ($89 million in 2000 and $83 million in 1999). A reconciliation of the total segment operating income to income before income taxes in the consolidated financial statements is as follows: 2000 1999 ------- ------- Total segment operating income $ 1,195 $ 1,005 Severance and related benefits (Note 7) -- (71) Acquisition - related charges (Note 7) -- (13) Corporate expense (64) (53) Minority interest (13) (2) ------- ------- Operating income 1,118 866 Interest income 11 11 Interest expense (128) (115) ------- ------- Total income before income taxes $ 1,001 $ 762 ======= ======= Marsh & McLennan Companies, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Second Quarter and Six Months Ended June 30, 2000 General Marsh & McLennan Companies, Inc. and Subsidiaries ("MMC") is a professional services firm. MMC subsidiaries include Marsh, 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 worldwide provide analysis, advice and transactional capabilities to clients in over 100 countries. MMC operates in three principal business segments based on the services provided. Segment performance is evaluated based on operating income, which is after deductions for directly related expenses but before special charges. 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 "Information Concerning Forward-Looking Statements" on page one of this filing. This Form 10-Q should be read in conjunction with MMC's latest annual report on Form 10-K. The consolidated results of operations follow: - -------------------------------------------------------------------------------- Second Quarter Six Months ----------------- ------------------ (In millions of dollars) 2000 1999 2000 1999 - -------------------------------------------------------------------------------- Revenue: Risk and Insurance Services $1,155 $1,092 $2,449 $2,348 Investment Management 788 661 1,639 1,290 Consulting 538 492 1,058 958 ------ ------ ------ ------ 2,481 2,245 5,146 4,596 ------ ------ ------ ------ Expense: Compensation and Benefits 1,211 1,126 2,515 2,295 Amortization of Intangibles 44 34 88 69 Other Operating Expenses 720 654 1,425 1,282 Special Charge -- 84 -- 84 ------ ------ ------ ------ 1,975 1,898 4,028 3,730 ------ ------ ------ ------ Operating Income $ 506 $ 347 $1,118 $ 866 ====== ====== ====== ====== Operating Income Margin 20.4% 15.5% 21.7% 18.8% ====== ====== ====== ====== - -------------------------------------------------------------------------------- Revenue, derived mainly from commissions and fees, rose 11% from the second quarter of 1999 and grew 12% for the six months. This performance was principally driven by a higher volume of business in the investment management and consulting segments. Excluding the impact of acquisitions and the effect of foreign exchange, revenue on a consolidated basis grew approximately 12% over the second quarter of 1999. Revenue increased 19% in the investment management segment as average assets under management increased significantly over the prior year. Consulting revenue grew 12% for the quarter due to a higher volume of business in all practice lines. Also, the risk and insurance services segment experienced underlying revenue growth of approximately 8% primarily due to net new business development. For the six months, consolidated revenue, excluding acquisitions and the effect of foreign exchange, rose approximately 14%. Operating expenses increased 4% from the second quarter of 1999 and grew 8% for the six months. Excluding acquisitions, the effect of foreign exchange and the impact of the 1999 special charge relating to costs resulting from the Sedgwick Group plc ("Sedgwick") integration process, expenses rose 10% in the second quarter of 2000 primarily due to costs associated with staff growth and higher incentive compensation levels in the investment management and consulting segments commensurate with strong operating performance. Partially offsetting these increases was the realization of net integration savings related to the Sedgwick transaction. For the six months, expenses rose approximately 11%, excluding acquisitions, the effect of foreign exchange and the impact of the 1999 special charge. Management believes the net annual savings associated with the Sedgwick integration should approach $160 million when it is completed. Of the $160 million of net savings, approximately $30 million was realized in 1999. Approximately two-thirds of the remaining estimated annual savings is expected to be realized in 2000 with the remainder expected to be realized in 2001. Through the first six months of 2000, MMC is on pace to achieve the expected level of savings. MMC recorded a special charge of $337 million in 1999, which included $266 million of Sedgwick merger-related costs associated with employees and offices of MMC. Of the total charge, $84 million was recorded in the second quarter and the balance was recorded in the fourth quarter. In addition to the special charge, $285 million of costs for planned reductions of employees and offices of Sedgwick were included in the cost of the acquisition. The utilization of the charges is summarized in Note 8 to the consolidated financial statements in this Form 10-Q filing. At June 30, 2000, the actions contemplated by the integration plan were in progress and are expected to be completed by the end of 2000. Of the combined merger-related costs totaling $551 million, cash payments of approximately $220 million were made in 1999 and $103 million were made in the first six months of 2000. Additional cash payments of approximately $100 million are expected to be made over the remainder of 2000. Some accruals, primarily representing future rent under noncancellable leases (net of anticipated sublease income), are expected to be paid out over several years. Cash outlays are expected to be funded through operating cash flows. Risk and Insurance Services - -------------------------------------------------------------------------------- Second Quarter Six Months ------------------ ------------------- (In millions of dollars) 2000 1999 2000 1999 - -------------------------------------------------------------------------------- Revenue $1,155 $1,092 $2,449 $2,348 Expense (a) 951 921 1,921 1,883 ------ ------ ------ ------ Operating Income $ 204 $ 171 $ 528 $ 465 ====== ====== ====== ====== Operating Income Margin 17.7% 15.6% 21.6% 19.8% ====== ====== ====== ====== - -------------------------------------------------------------------------------- (a) Excluding 1999 special charge. Revenue Revenue for the risk and insurance services segment grew 6% over the second quarter of 1999. Excluding acquisitions, rationalized Sedgwick business and the effect of foreign exchange, revenue for risk and insurance services operations rose approximately 8% primarily reflecting the effect of net new business development and higher fiduciary interest income partially offset by lower revenue from MMC Capital. Each of the major operations within this segment experienced underlying revenue growth of at least 7%. Excluding acquisitions, rationalized Sedgwick business and the effect of foreign exchange, risk and insurance services revenue rose approximately 7% during the first half of 2000. Trends within the underlying marketplace indicate that U.S. commercial insurance premium rates began to increase during the second quarter. Expense Risk and insurance services expenses increased 3% for the second quarter and 2% for the first six months of 2000. Excluding acquisitions and the effect of foreign exchange, expenses increased approximately 4% from the second quarter of 1999 primarily reflecting costs associated with a higher volume of business, partially offset by the realization of net integration savings related to the Sedgwick transaction. For the six months, expenses for risk and insurance services, excluding acquisitions and the effect of foreign exchange, rose approximately 2%. Investment Management - -------------------------------------------------------------------------------- Second Quarter Six Months ------------------ ------------------- (In millions of dollars) 2000 1999 2000 1999 - -------------------------------------------------------------------------------- Revenue $ 788 $ 661 $1,639 $1,290 Expense 532 441 1,121 870 ------ ------ ------ ------ Operating Income $ 256 $ 220 $ 518 $ 420 ====== ====== ====== ====== Operating Income Margin 32.5% 33.2% 31.6% 32.5% ====== ====== ====== ====== - -------------------------------------------------------------------------------- Revenue Putnam's revenue increased 19% compared with the second quarter of 1999 and 27% for the six months, reflecting strong growth in the level of average assets under management on which management fees are earned. Assets under management aggregated $407 billion at June 30, 2000 compared with $325 billion at June 30, 1999 and $422 billion at March 31, 2000. The decrease from the end of the first quarter reflects $8 billion of net new fund sales and additional institutional investments plus $1 billion of reinvested dividends, offset by a $24 billion decrease resulting from a decrease in equity market levels during the quarter. Expense Expenses grew 21% in the second quarter of 2000 and 29% for the six months, primarily reflecting higher incentive compensation commensurate with strong operating performance and the increased amortization of deferred commissions from increased sales and redemptions. In addition, the first half of 2000 included goodwill amortization arising from the July 1999 investment in Thomas H. Lee Partners ("THL"). Quarter-end assets under management by business line and average assets in total for the second quarter are presented below: - -------------------------------------------------------------------------------- (In billions of dollars) 2000 1999 - -------------------------------------------------------------------------------- Domestic Retail Mutual Funds $245 $204 Domestic Defined Benefit 70 58 Domestic Defined Contribution 62 44 International 30 19 ---- ---- Quarter-end Assets $407 $325 ==== ==== Average Assets $394 $315 ==== ==== - -------------------------------------------------------------------------------- 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. In recent years, U.S. equity markets have generally risen substantially, in many cases to historical highs. This increase has contributed significantly to the assets under management and, accordingly, to increases in revenue. 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. Items affecting revenue include, but are not limited to, 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 the second quarter, assets held in equity securities represented 84% of assets under management, compared with 77% in 1999, while investments in fixed income products represented 16%, compared with 23% last year. Consulting - -------------------------------------------------------------------------------- Second Quarter Six Months ------------------ ------------------ (In millions of dollars) 2000 1999 2000 1999 - -------------------------------------------------------------------------------- Revenue $ 538 $ 492 $1,058 $ 958 Expense (a) 452 420 909 838 ------ ------ ------ ------ Operating Income $ 86 $ 72 $ 149 $ 120 ====== ====== ====== ====== Operating Income Margin 15.9% 14.7% 14.0 % 12.5% ====== ====== ====== ====== - -------------------------------------------------------------------------------- (a) Excluding 1999 special charge. Revenue Consulting revenue increased 9% in 2000 compared with the second quarter of 1999 reflecting an increase in the level of services provided. Excluding the impact of acquisitions and the effect of foreign exchange, consulting revenue increased approximately 12% in the second quarter of 2000. Retirement consulting revenue, which represented 41% of the consulting segment, grew 11% in the second quarter primarily due to a higher amount of services provided. In addition, revenue rose 19% in general management consulting, 14% in compensation consulting, 9% in economic consulting and 7% in health care consulting due to a higher volume of business as well as rate increases in these practice lines during the second quarter of 2000. Excluding the impact of acquisitions and the effect of foreign exchange, revenue increased approximately 12% for the six months. Expense Consulting expenses increased 8% for the second quarter and six months of 2000. Excluding the impact of acquisitions and the effect of foreign exchange, expenses increased approximately 10% for the second quarter and approximately 10% for the six months reflecting the effect of staff growth to support new business and higher incentive compensation commensurate with strong operating performance. These increases were partially offset by realized consolidation savings related to the Sedgwick transaction. Corporate Expenses Corporate expenses increased to $33 million in the second quarter of 2000 from $30 million in 1999 and to $64 million for the first half of the year from $53 million for the same period in 1999. The increase was due, in part, to costs associated with new corporate initiatives including MMC Enterprise Risk, as well as nonrecurring consulting fees related to the integration of Sedgwick. MMC Enterprise Risk focuses on MMC's growing activities in responding on an integrated basis to the various risks faced by corporations. Interest Interest income earned on corporate funds was $6 million in the second quarter of 2000 compared with $4 million in 1999. For the six months, interest income of $11 million was unchanged from the prior year. Interest expense increased to $68 million in the second quarter of 2000 from $55 million in 1999 and increased to $128 million for the six months ended June 30, 2000 from $115 million in 1999. The increase in interest expense for the quarter and six months is primarily due to higher average interest rates in 2000 compared with 1999. Income Taxes MMC's consolidated tax rate was 37.8% of income before income taxes in the second quarter and 38.8% for the first half of 2000, compared with 40% in the second quarter and first half of 1999. The reduction in the tax rate primarily reflects the implementation of tax efficient structures relating to MMC's non-U.S. operations. The overall tax rates are higher than the U.S. Federal statutory rate primarily because of provisions for state and local income taxes. Liquidity and Capital Resources MMC's cash and cash equivalents aggregated $439 million on June 30, 2000, an increase of $11 million from the end of 1999. Included in the cash flows from operations are the net cash requirements related to integration payments. Cash outlays of $103 million and $93 million were made in the first half of 2000 and 1999, respectively. Cash flows from operations also include the net cash flows associated with Putnam's prepaid dealer commissions, which amounted to a $96 million cash outflow for the six months compared with a $6 million outflow during the same period of 1999. During the first half of 2000, net commercial paper borrowings increased $241 million and other borrowings increased $60 million. From time to time, MMC may repurchase shares of its common stock principally to fund the needs of its employee benefit and other plans. MMC's capital expenditures, which amounted to $184 million in the first six months of 2000 and $164 million during the same period last year primarily relate to computer equipment purchases and the refurbishing and modernizing of office facilities. MMC has committed to potential future investments of approximately $700 million in connection with the formation of THL, MMC Capital's Trident II Fund, and other MMC Capital investments. MMC expects to fund these commitments, in part, with sales proceeds from existing investments. These commitments will be funded over the next several years if certain investment levels and performance targets are met. As further explained in Note 9 to the consolidated financial statements, the disclosure and advice given to clients regarding certain personal pension transactions by certain present and former subsidiaries in the United Kingdom are under review by the U.K. Personal Investment Authority. The contingent exposure for pension redress and related cost is presently estimated to be approximately $465 million of which $300 million is expected to be recovered from insurers. Approximately two-thirds of the contingent exposure is associated with the Sedgwick acquisition while the balance is associated with other current and former subsidiaries of MMC. Such amounts in excess of anticipated insurance recoveries have been provided for in the accompanying financial statements. The timing of payments relating to the pension review process cannot be predicted with certainty. Approximately $35 million was paid during the six months ended June 30, 2000 and it is anticipated that approximately $100 million will be paid in the second half of 2000. Market Risk Certain of MMC's 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 used on a very limited basis and are with counterparties of high creditworthiness. MMC does not enter into foreign currency or interest rate transactions for trading or other speculative purposes. 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. Other In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard (as amended by SFAS 138), which establishes new accounting and reporting requirements for derivative instruments, is effective (as amended by SFAS No. 137) for fiscal years beginning after June 15, 2000. MMC does not expect the adoption of this standard will have a material impact on its results of operations or consolidated financial condition. MMC has reviewed the provisions of SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" and has determined that it is in compliance with its provisions. PART II, OTHER INFORMATION MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES INFORMATION REQUIRED FOR FORM 10-Q QUARTERLY REPORT JUNE 30, 2000 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 3. MMC's bylaws. 10. Consulting Agreement between A.J.C. Smith and MMC effective as of June 1, 2000. 12. Statement Re: Computation of Ratio of Earnings to Fixed Charges. 27. Financial Data Schedule. (b) Reports on Form 8-K. None. MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, MMC has duly caused this report to be signed this 14th day of August, 2000 on its behalf by the undersigned, thereunto duly authorized and in the capacity indicated. MARSH & McLENNAN COMPANIES, INC. /s/ Sandra S. Wijnberg ----------------------------------- Senior Vice President and Chief Financial Officer EX-3.(II) 2 0002.txt MMC'S BY-LAWS BY-LAWS ------- OF -- MARSH & McLENNAN COMPANIES, INC. -------------------------------- RESTATED AS LAST AMENDED ------------------------ MAY 18, 2000 ------------ 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............................................ 12 ARTICLE V Committees.......................................... 15 ARTICLE VI Indemnification..................................... 20 ARTICLE VII Checks, Contracts, Other Instruments................ 25 ARTICLE VIII Capital Stock....................................... 26 ARTICLE IX Miscellaneous....................................... 29 ARTICLE X Amendments.......................................... 30 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. 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 of business on the day next preceding the day on which notice of the meeting isgiven or, if notice is waived, at the close of business on the day nextpreceding the day on which the meeting is held, and such date for any otherpurpose shall be the date on which the Board of Directors adopts the resolutionrelating 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. 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. 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 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, in the case of an Annual Meeting of Stockholders, not less than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the Stockholder in order 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 of the date of the annual meeting was made, whichever first occurs; and in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the 15th day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election 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 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 broughtbefore 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, 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 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order 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 of the date of the annual meeting 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 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 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. 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, one or more Vice Chairmen, one or more Vice Presidents, a Secretary, a Treasurer and a Controller. SECTION 2. Term and Removal. Each officer of the Corporation designated in SECTION 1 of this Article IV shall hold office until such officer's successor is elected and qualified or until such officer's earlier resignation or removal. Any officer may be removed at any time, with or without cause, by the Board of Directors. Any officer who may be elected or 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. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board shall review and recommend to the Board of Directors both short-term objectives and long-term planning for the business. The Chairman of the Board shall also preside at meetings of any committee of which the Chairman of the Board is a member which is not attended by the chairman of such committee. The Chairman of the Board or an appointed delegate may take any action on behalf of the Corporation with respect to the shares owned by the Corporation in other corporations in such manner as they deem advisable unless otherwise directed by the Board of Directors. The Chairman of the Board shall have full authority to take other 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. Vice Chairman. A Vice Chairman shall, subject to the control of the Board of Directors and of the committees exercising functions of the Board of Directors, perform such duties as may from time to time be assigned to the Vice Chairman by the Chairman. A Vice Chairman shall also preside at all meetings of the stockholders and of the Board of Directors not attended by the Chairman of the Board. If two or more Vice Chairmen hold office concurrently, the Vice Chairman who shall preside at a meeting of the Stockholders or the Board of Directors not attended by the Chairman of the Board shall be determined in the order of their election. SECTION 5. Vice Presidents. A 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. The Secretary shall, at the invitation of the chairman thereof, attend meetings of the committees elected by the Board or established by these by-laws. The Secretary shall record all votes and minutes of all proceedings which the Secretary 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 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 such powers and perform such duties as are usually incident to the office of Treasurer or which may be assigned to the Treasurer by the Board of Directors or other 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. SECTION 8. Controller. The Controller shall be the chief accounting officer of the Corporation. The Controller 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. The Controller 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 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 any 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. Each member of the Compensation Committee should be a "non-employee director" within the meaning of Rule 16b-(3) of the Securities Exchange Act of 1934 and an outside director for purposes of Section 162(m) of the Internal Revenue Code. The Compensation Committee shall fix the compensation of the chief executive officer of the Corporation and approve the compensation of senior 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 and 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. 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 Audit Committee shall have such duties as may be set forth in the Corporation's Audit Committee Charter as it may exist from time to time, or as otherwise provided by the Board of Directors. 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 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 appoinsuch 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, electronic media, 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 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 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 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 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 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 theCorporation. 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 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. 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, 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 issued 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 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. 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. 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 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. EX-10 3 0003.txt CONSULTING AGREEMENT BETWEEN A.J.C. SMITH AND MMC As of June 1, 2000 Mr. A. J. C. Smith 630 Park Avenue New York, NY 10021 Dear Ian: The purpose of this letter agreement is to set forth the arrangements that you and Jeff Greenberg have agreed to regarding your services as a consultant to Marsh & McLennan Companies, Inc. (the "Company") and certain other matters. 1. Term. The Company agrees to engage you as a consultant for the period commencing as of June 1, 2000 through May 31, 2001 at which time the Company and you may consider the continuation of this arrangement or its amendment. In this role, you will be referred to as Senior Advisor. 2. Duties. From time to time during the Term, as and when requested by Jeff Greenberg, or as otherwise authorized by him, you will provide advisory and consultative services for or on behalf of the Company or its affiliates on subjects, projects and special assignments, subject to your reasonable convenience and other personal and business activities. You will continue as Chairman of the Company's International Advisory Board and serve in your current term as a Trustee of various Putnam Funds. It is anticipated that your services will be required for at least two-thirds of your time during the Term. This engagement is not exclusive, but you agree to consult with the Company before accepting other professional commitments, including commercial enterprise board of director seats. The consulting and advisory services to be performed by you shall be as an independent contractor, not as an employee of the Company, and may be performed on or off the Company's premises, at your discretion. You will be provided with office space and secretarial support on the 44th floor at 1166 Avenue of the Americas, as well as use of a company-provided car and driver as you may require to perform your duties in this role. You will not have any authority to bind the Company. You shall not be entitled to any employee benefits in this role, and the Company will not exercise any control or direction regarding your performance of the above-described services but will require that the results achieved be acceptable. A. J. C. Smith Page Two 3. Payment for Services. As consideration for your consulting services hereunder, the Company will pay you an annual fee of $1,250,000 in equal monthly installments in arrears. If you are unable to perform the services called for herein for any part of the Term, your fee will be prorated. You will not be entitled to any remuneration other than as described herein and as a Director of the Company. You accept full and complete responsibility for meeting all tax requirements and paying all income and self-employment taxes that may be required or due for payments received from the Company under the terms and conditions of this agreement. The Company will reimburse you for the reasonable, ordinary and necessary expenses incurred by you in the performance of your consulting services upon the submission of reports and documentation in accordance with the Company's procedures. You will be eligible to participate in the Executive Financial Services Program through the year 2001. With respect to your company-provided personal automobile, we agree to consider an appropriate transfer of ownership to you at the end of the Term or at a future date if the Term is extended. 4. Prohibition of Disclosure of Information. You recognize and acknowledge that the confidential or proprietary information of the Company and its affiliates are valuable, special and unique assets of the Company's business. You will not, during or after the Term, in whole or in part, disclose such secrets or confidential proprietary information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall you make use of any such property for your own purposes or for the benefit of any person, firm, corporation or other entity (except the Company and its affiliates) under any circumstances, during or after the Term. If the foregoing is acceptable, kindly execute the enclosed copy of this letter and return it to me. Very truly yours, MARSH & McLENNAN COMPANIES, INC. By: __________________________________ Francis N. Bonsignore AGREED TO AND ACCEPTED: By:___________________________ A. J. C. Smith Date cc: Jeffrey W. Greenberg Gregory Van Gundy EX-12 4 0004.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12.1 Marsh & McLennan Companies, Inc. and Subsidiaries Ratio of Earnings to Fixed Charges (In millions, except ratios) - -------------------------------------------------------------------------------- Six Months Years Ended December 31, Ended June 30, ------------------------------------------ 2000 1999 (1) 1998 1997 (2) 1996 1995 - -------------------------------------------------------------------------------- Earnings - -------- Income before income taxes $1,001 $1,247 $1,305 $ 715 $ 668 $ 650 Interest expense 128 233 140 107 61 63 Portion of rents representative of the interest factor 60 121 104 88 72 73 Amortization of capitalized interest 0 1 1 1 1 1 - -------------------------------------------------------------------------------- $1,189 $1,602 $1,550 $ 911 $ 802 $ 787 ================================================================================ Fixed Charges - ------------- Interest expense $ 128 $ 233 $ 140 $ 107 $ 61 $ 63 Portion of rents representative of the interest factor 60 121 104 88 72 73 - -------------------------------------------------------------------------------- $ 188 $ 354 $ 244 $ 195 $ 133 $ 136 ================================================================================ Ratio of Earnings to Fixed Charges 6.3 4.5 6.4 4.7 6.0 5.8 (1) For the year ended December 31, 1999, income before income taxes included a $337 million special charge related to the acquisition and integration of Sedgwick. Excluding that charge, the ratio of earnings to fixed charges would have been 5.5. (2) For the year ended December 31, 1997, income before income taxes included a $244 million special charge related to the Johnson & Higgins integration, London real estate and the disposal of certain assets. Excluding that charge, the ratio of earnings to fixed charges would have been 5.9. EX-27 5 0005.txt FDS --
5 This schedule contains summary financial information extracted from the consolidated Marsh & McLennan Companies, Inc. and subsidiaries June 30, 2000 financial statements and is qualified in its entirety by reference to such financial statements. 6-MOS JUN-30-2000 JUN-30-2000 439,000,000 0 2,788,000,000 (132,000,000) 0 3,695,000,000 2,303,000,000 964,000,000 13,636,000,000 4,326,000,000 2,349,000,000 0 0 272,000,000 4,367,000,000 13,636,000,000 0 5,146,000,000 0 4,028,000,000 0 2,100,000 128,000,000 1,001,000,000 388,000,000 613,000,000 0 0 0 613,000,000 2.28 2.15
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