EXHIBIT 10.16
MARSH & MCLENNAN CAPITAL, INC.
LONG TERM INCENTIVE PLAN
I. STATEMENT OF PURPOSE
The purpose of the Marsh & McLennan Capital, Inc. Long Term Incentive
Plan (the "LTIP") is to attract, retain and motivate key employees and
consultants of Marsh & McLennan Capital, Inc. ("M&M Capital") and
affiliates of M&M Capital to originate, structure and manage insurance
and related industry investments by allowing them to participate in the
profitability of such investments.
II. CERTAIN DEFINITIONS
(a) CAUSE shall mean "Cause" as defined in a Participant's employment,
consulting or other written agreement with MMC or M&M Capital or,
in the absence of any such agreement, (1) the conviction for any
felony, (2) willful malfeasance or gross negligence in the
performance of duties, (3) misconduct that causes actual material
injury to MMC or any of its affiliates, or (4) prior to a Change
in Control of MMC or Change in Control of M&M Capital (in each
case, as defined in Paragraphs VI(b) and (c)), the continued and
substantial failure to perform duties consistent with a
Participant's position and responsibilities within 60 days after
notice of such failure being given.
(b) DISABILITY shall mean total disability as defined in a
Participant's employment, consulting or other written agreement
with MMC or M&M Capital or, in the absence of such an agreement,
as defined in the MMC benefits program.
(c) EXCEPTION GRANT PAYMENT shall mean an additional Grant Payment,
which is not otherwise provided for in the applicable Grant.
(d) GRANT shall mean the right to receive a payment of an amount
determined by reference to one or more Incentive Pools.
(e) GRANT PAYMENT shall mean a payment made with respect to a Grant.
(f) GROSS PROFITS shall mean, with respect to each MMRCH Designated
Investment (as defined in ------------- Paragraph II(g)(2)(aa)),
the sum (whether positive or negative) of all: (1) pre-tax gains
realized upon the sale of such investment, (2) pre-tax
distributions of dividends, interest, or other distributions
(including break-up fees) received in respect of the investment,
(3) pre-tax losses realized upon the sale of such investment, and
(4) pre-tax write-downs of such investment (decreases in value
which have been determined to be other than temporary in
accordance with Generally Accepted Accounting Principles as
reflected in the consolidated financial statements of Marsh &
McLennan Risk Capital Holdings, Ltd. ("MMRCH")). In the event a
MMRCH Designated Investment is held indefinitely and determined to
be a strategic investment, as agreed upon by the LTIP Committee
and MMC, the applicable Valuation Date and Gross Profits shall be
determined, in good faith, by the LTIP Committee and MMC.
(g) INCENTIVE POOL shall mean the aggregate amounts realized in cash
and, accordingly, available for distribution as Grant Payments and
Exception Grant Payments to Participants, determined separately
solely for The Trident Partnership, L.P. ("Trident"), MMRCH and
Risk Capital Reinsurance Company ("RCRe"), as follows:
(1) Trident Incentive Pool - 50% of the Trident Carry for the
applicable Realization Period;
(2) MMRCH Incentive Pool - the sum of (aa) 50% of 20% (i.e.,
10%) of Gross Profits realized in cash by MMRCH during the
applicable Realization Period with respect to the
investments to be set forth in a schedule of the MMRCH
Incentive Pool, as amended from time to time (the "MMRCH
Designated Investments"); and (bb) 50% of pre-tax gains
realized by MMRCH for the applicable Realization
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Period from (i) the sale of shares of common stock, $.01
par value per share, of Risk Capital Holdings, Inc. ("Risk
Capital Holdings"), received upon the exercise of any Class
A or Class B warrants, in each case to be set forth in a
schedule of the MMRCH Incentive Pool, owned by MMRCH (the
cost basis of the Class B warrants shall be $ per share
plus the exercise price per share of such warrants) and
(ii) the sale of such Class A or Class B warrants; and
(3) RCRe Fee Incentive Pool - 50% of the excess of (A) fees
received by M&M Capital during the applicable Realization
Period pursuant to the Investment Advisory Agreement dated
September 19, 1995, between RCRe and M&M Capital (the "7.5%
Fees"), with respect to investments made during the term of
such agreement, to be set forth in a schedule of the RCRe
Fee Incentive Pool, as amended from time to time (the "RCRe
Designated Investments"), over (B) any amounts payable to
Robert Clements with respect to 1998 and 2000 with respect
to such 7.5% Fees under the Amended and Restated Employment
Agreement, effective as of December 31, 1993, between M&M
Capital and Robert Clements, as such agreement may be
amended from time to time.
The computation of amounts available for distribution with respect
to an Incentive Pool as of the applicable Realization Date (or
Valuation Date, if earlier) shall be made available by M&M Capital
to MMC for review and, if deemed appropriate, confirmation by
MMC's independent auditors.
(h) LTIP COMMITTEE shall mean a committee with authority to administer
the LTIP, initially comprised of the following individuals:
Jeffrey W. Greenberg, Robert Clements, Stephen Friedman and
Charles A. Davis. The appointment of any additional or successor
members to the LTIP Committee shall be subject to approval by the
MMC Compensation Committee. Notwithstanding the foregoing, the
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MMC Compensation Committee shall serve as the LTIP Committee with
respect to employees or consultants of M&M Capital who either (1)
are members of the MMC Partners Group or (2) are or were members
of the LTIP Committee. In the event of a deadlock on any matter
submitted to the LTIP Committee, the composition of the LTIP
Committee will be expanded (solely for purposes of resolving such
matter) by the appointment of an additional member selected by
MMC.
(i) MMC shall mean Marsh & McLennan Companies, Inc.
(j) MMC COMPENSATION COMMITTEE shall mean the Compensation Committee
of the Board of Directors of MMC.
(k) MMC PARTNERS GROUP shall mean the Partners Group of MMC, as then
constituted.
(l) PARTICIPANT shall mean an employee or consultant of M&M Capital
selected by the LTIP Committee for participation in the LTIP.
(m) REALIZATION DATE shall mean the end of each calendar quarter
during which there occurred an increase in amounts realized in
cash with respect to (or, in the discretion of the LTIP Committee,
otherwise distributable from) an Incentive Pool, or any earlier
date selected by the LTIP Committee within such calendar quarter.
(n) REALIZATION PERIOD shall mean a period commencing on the later of
the next preceding Realization Date, and, with respect to the
Trident Incentive Pool, the date of formation of Trident (i.e.,
11/93); with respect to the MMRCH Incentive Pool, the date
indicated on the schedule of the MMRCH Incentive Pool with respect
to the applicable MMRCH Designated Investment or the date of
formation of Risk Capital Holdings (i.e., 3/95), as applicable;
and with respect to the RCRe Fee Incentive Pool, the date
indicated on the schedule of the RCRe Fee Incentive Pool with
respect to the applicable RCRe Designated Investment,
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and ending on any Realization Date or Valuation Date, as
applicable.
(o) RETIREMENT shall mean "Retirement" as defined in a Participant's
employment, consulting or other written agreement with MMC or M&M
Capital or, in the absence of such an agreement, a termination of
a Participant's employment or service following the date the
Participant attains age 65 or higher with five or more years of
service with MMC or any of its affiliates or, subject to approval
by the board of directors of M&M Capital, an earlier termination
of employment.
(p) TRIDENT CARRY shall mean the sum of:
(1) the advisor's fee received by M&M Capital from Trident; and
(2) special limited partner distributions to MMRCH (after
giving effect to any repayment to Trident resulting from a
"clawback").
(q) VALUATION DATE with respect to an investment shall mean the
earliest of (1) with respect to a MMRCH Designated Investment
only, the tenth anniversary of the date such investment was
originally made, (2) the fifth anniversary of the date of
termination of M&M Capital as investment advisor with respect to
such investment, or (3) the fifth anniversary of the date of
termination of the LTIP.
III. GRANTS
(a) The original Grant (the "Original Grant") to each Participant
shall be determined by reference to some or all of the following:
a subset of the Trident Incentive Pool, which for this purpose may
also include limited partner distributions to MMRCH in excess of
the cumulative preferential return, determined pursuant to the
applicable agreement (after giving effect to any repayment to
Trident resulting from a "clawback") (a "Trident Pool Subset"),
certain MMRCH Designated Investments, and certain RCRe Designated
Investments, in each case stated as a percent-
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age (the "Individual Carry Percentage"). Each Participant may be
awarded additional Grants with respect to existing Incentive Pools
or new investments in such Incentive Pools.
(b) The sum of all Grant Payments and Exception Grant Payments with
respect to the Grants relating to a particular Incentive Pool
shall not exceed the aggregate amount available for distribution
with respect to such Incentive Pool.
(c) Unless otherwise provided in a Participant's employment,
consulting or other written agreement with MMC or M&M Capital,
Grants shall vest in accordance with a vesting schedule set forth
in the applicable Grant, and Grant Payments shall be made in
accordance with a Grant Payment schedule set forth in the
applicable Grant. Unless otherwise provided in a Participant's
employment, consulting or other written agreement with MMC or M&M
Capital, the vesting and Grant Payment schedule with respect to
the Original Grants is set forth in Exhibit A.
(d) In the event a Participant incurs an income tax liability relating
to a Grant upon a Realization Date (or Valuation Date, if earlier)
and the related Grant Payment is not then due to be made to the
Participant, the LTIP Committee may authorize prepayment of a
portion of such Grant Payment equal to the income tax liability.
The amount of any such prepayment shall be subtracted from the
Grant Payment when made or, if the Grant is forfeited and no such
Grant Payment is due, the prepayment shall be repaid by the
Participant upon the Participant's termination of employment.
(e) After the date of a Grant, the terms of the Grant shall not be
amended adversely for any Participant.
IV. GRANT PAYMENTS AND EXCEPTION GRANT PAYMENTS
(a) Grant Payments shall be made to Participants as set forth in this
Paragraph IV, except as
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otherwise provided in a Participant's employment, consulting or
other written agreement with MMC or M&M Capital, or as otherwise
determined by the LTIP Committee.
(b) Grant Payments shall be made, subject to the applicable vesting
and Grant Payment schedule, as soon as reasonably practicable
after the end of each calendar quarter in which a Realization Date
or Valuation Date occurs. A Participant's Grant Payment with
respect to a Realization Date (or Valuation Date, if earlier)
shall be determined by the LTIP Committee. With respect to an
Original Grant, a Participant's Grant Payments (in all cases
subject to the applicable vesting and Grant Payment schedule and
to the limitations of Paragraph III.(b)) shall not be less than
the Grant Payments determined as follows:
(1) With respect to the Trident Incentive Pool, the Grant
Payment shall not be less than the product of the
Participant's Individual Carry Percentage with respect to
the applicable Trident Pool Subset, and such Trident Pool
Subset;
(2) With respect to the MMRCH Incentive Pool, the Grant Payment
shall not be less than the total of the products of (aa)
the Participant's Individual Carry Percentage with respect
to each applicable MMRCH Designated Investment, and (bb)
the portion of the MMRCH Incentive Pool relating to such
MMRCH Designated Investment; and
(3) With respect to the RCRe Fee Incentive Pool, the Grant
Payment shall not be less than the total of the products of
(aa) the Participant's Individual Carry Percentage with
respect to each applicable RCRe Designated Investment, and
(bb) the portion of the RCRe Fee Incentive Pool relating to
such RCRe Designated Investment.
(c) The LTIP Committee may authorize Exception Grant Payments to
Participants with respect
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to Grants, subject to the limitation set forth in Paragraph
III(b).
(d) In the event that, upon a Realization Date or Valuation Date,
after the distribution of all applicable Grant Payments and
Exception Grant Payments, there remains an amount available for
distribution with respect to the applicable Incentive Pool, the
unallocated balance shall remain in a reserve account (the
"Reserve Account") with respect to such Incentive Pool, to be
distributed from time to time, in whole or in part, at the
discretion of the LTIP Committee. Notwithstanding the foregoing,
any amounts forfeited by a Participant who is or was a member of
the MMC Partners Group shall not be redistributed without the
approval of the MMC Compensation Committee if such redistribution
would result in a material change to the remaining Participants'
distributions, as determined by the MMC Compensation Committee.
(e) All Grant Payments and Exception Grant Payments shall be made in
cash, unless otherwise determined by the LTIP Committee with the
approval of MMC.
V. TERMINATION OF EMPLOYMENT
(a) Termination of employment and service provisions shall apply as
set forth in this Paragraph V, except as otherwise provided in a
Participant's employment, consulting or other written agreement
with MMC or M&M Capital, or as otherwise determined at the time of
Grant by the LTIP Committee.
(b) If a Participant's employment or service is terminated for Cause
as defined in Paragraph II(a)(1), (2) or (3) (or for actions,
other than those described in Paragraph II(a)(4), which constitute
Cause pursuant to the Participant's employment, consulting or
other written agreement with MMC or M&M Capital) the Participant's
Grants shall be forfeited (regardless of whether the Grants are
vested or unvested) and the value of the related Individual Carry
Percentages of each Incentive Pool shall be returned to the
applicable In-
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centive Pool. If a Participant's employment or service is
terminated for Cause as defined in Paragraph II(a)(4), (or for
actions described in Paragraph II(a)(4) which constitute Cause
pursuant to the Participant's employment, consulting or other
written agreement with MMC or M&M Capital), any unvested portion
of the Participant's Grants shall be forfeited and the value of
the related Individual Carry Percentages of each Incentive Pool
shall be returned to the applicable Incentive Pool, and Grant
Payments with respect to any vested but unpaid portion of the
Grants shall be made to the Participant as soon as practicable
following such termination. Such Grant Payments shall be
determined by calculating each Incentive Pool based upon the
carrying value, as reported in the most recent quarterly financial
statements, of the investments in such Incentive Pool as of the
Participant's date of termination.
(c) If a Participant's employment or service terminates without Cause
for any reason except death, Disability or Retirement, any
unvested portion of the Participant's Grants shall be forfeited
and the value of the related Individual Carry Percentages of each
Incentive Pool shall be returned to the applicable Incentive Pool,
and Grant Payments with respect to any vested but unpaid portion
of the Grants shall be made in accordance with the applicable
Grant Payment schedule.
(d) If a Participant's employment or service terminates because of
death, Disability or Retirement, Grant Payments with respect to
any unvested portion of the Participant's Grants shall become
fully vested, and shall be made in accordance with the applicable
Grant Payment schedule.
(e) For purposes of vesting only, a Participant's employment or
service shall not be deemed to have terminated as long as the
Participant is employed by, or renders services to, MMC or any of
its affiliates; in such cases, the Participant's Grants shall
continue to vest, subject to the limitations set forth in
Paragraphs V(f) and (g). Upon the subsequent
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termination of such Participant's employment or service with MMC
or any of its affiliates, the provisions of Paragraphs V(b), (c)
or (d) (as applicable) shall apply.
(f) With respect to each Incentive Pool except the Trident Incentive
Pool, in no case shall a Grant Payment be made to a Participant
with respect to an investment made following the date of
termination of the Participant's employment or service with M&M
Capital, and in no case shall a Grant Payment with respect to a
Participant's Grant be reduced because of the performance of an
investment made following the date of termination of the
Participant's employment or service with M&M Capital.
(g) With respect to the Trident Incentive Pool, the sum of the Grant
Payments made to any Participant shall not exceed an amount
reflecting a portion of the Participant's Grant, such portion
being equal to (i) the portion of the Grant that is vested,
multiplied by, (ii) a fraction, the numerator of which is the
aggregate value (determined on the cost basis) of funds invested
(including amounts drawn down or committed) by Trident prior to
the date of the termination of the Participant's employment or
service with M&M Capital and the denominator of which is $667
million, the aggregate value (determined on the cost basis) of
funds authorized for investment by Trident.
VI. CHANGE IN CONTROL
(a) Notwithstanding anything herein to the contrary, upon a Change in
Control of MMC or Change in Control of M&M Capital: (1) any
unvested Grants shall become fully vested as of the date of such
change in control, (2) Grant Payments shall be based upon the
appraised market value of the investments in each applicable
Incentive Pool as of such date, and such payments shall be made to
the Participants as soon as practicable following such date, (3)
the outstanding balance in each Reserve Account as of such date
shall be distributed to the Participants ratably (as determined by
the LTIP Committee at its discretion) as Grant Payments or
Exception Grant
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Payments, and (4) the LTIP shall continue thereafter at the
discretion of the LTIP Committee.
(b) For purposes of the LTIP, a "Change in Control of MMC" shall have
occurred if:
(1) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (other than MMC, any trustee or other
fiduciary holding securities under an employee benefit plan
of MMC or any corporation owned, directly or indirectly, by
the stockholders of MMC in substantially the same
proportions as their ownership of stock of MMC), is or
becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of MMC representing 50% or more of the combined
voting power of MMC's then outstanding voting securities;
(2) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of
Directors of MMC, and any new director (other than a
director designated by a person who has entered into an
agreement with MMC to effect a transaction described in
clause (1), (3), or (4) of this Paragraph VI(b)) whose
election by the Board of Directors of MMC or nomination for
election by MMC's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved, cease for any reason to constitute
at least a majority thereof;
(3) the stockholders of MMC approve a merger or consolidation
of MMC with any other corporation, other than (A) a merger
or consolidation which would result in the voting
securities of MMC outstanding immediately prior thereto
continuing to
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represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent
entity) 50% or more of the combined voting power of the
voting securities of MMC or such surviving or parent entity
outstanding immediately after such merger or consolidation
or (B) a merger or consolidation effected to implement a
recapitalization of MMC (or similar transaction) in which
no "person" (as hereinabove defined) acquired 50% or more
of the combined voting power of MMC's then outstanding
securities; or
(4) the stockholders of MMC approve a plan of complete
liquidation of MMC or an agreement for the sale or
disposition by MMC of all or substantially all of MMC's
assets (or any transaction having a similar effect).
(c) For purposes of the LTIP, a "Change in Control of M&M Capital"
shall have occurred if MMC no longer owns (directly or indirectly)
at least 50% of the value and voting power of M&M Capital.
VII. ADMINISTRATION
(a) The LTIP Committee shall have the authority in its sole
discretion, subject to and not inconsistent with the express
provisions of the LTIP, to administer the LTIP and to exercise all
the powers and authorities either specifically granted to it under
the LTIP or necessary or advisable in the administration of the
LTIP, including, without limitation, the authority to make Grants;
to determine the persons to whom Grants shall be made; to
determine the size of Grants to be made, and the terms and
conditions relating to any Grant including vesting; to determine
whether, to what extent, and under what circumstances a Grant may
be settled, cancelled, forfeited or surrendered; to determine and
make Grant Payments and Exception Grant Payments; to construe and
interpret the LTIP and any Grant; and to prescribe, amend and
rescind rules and regulations relating to the LTIP.
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(b) No member of the LTIP Committee shall be liable for any action
taken or determination made in good faith with respect to the LTIP
or any Grant hereunder.
VIII. OTHER
(a) COMPLIANCE WITH LEGAL REQUIREMENTS. Awarding Grants, making Grant
Payments and Exception Grant Payments, and any other terms
pursuant to the LTIP shall be subject to applicable Federal and
state laws, rules and regulations, and approvals by any regulatory
or governmental agency as may be required.
(b) GOVERNING LAW. The LTIP and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State
of New York, without giving effect to the conflict of laws
principles thereof.
(c) EFFECTIVE DATE. The effective date of the LTIP shall be December
31, 1998.
(d) PARTICIPANT RIGHTS. No Participant shall have any claim to receive
any Grant (other than the Original Grant) under the LTIP, and
there is no obligation for uniformity of treatment with respect to
Participants.
(e) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Nothing in the LTIP
or in any Grant shall confer upon any Participant the right to
continue in the employ or service of M&M Capital, MMC or an
affiliate of MMC, interfere with or limit in any way the right of
M&M Capital, MMC or an affiliate of MMC to terminate any
Participant's employment or service, or entitle any Participant to
remuneration or benefits not set forth in the LTIP.
(f) NONTRANSFERABILITY. Grants shall not be transferable by a
Participant except by will or the laws of descent and
distribution.
(g) BENEFICIARY DESIGNATION. Using the beneficiary designation form
set forth in Exhibit B, a Participant shall have the right, at any
time, to designate any person or persons as beneficiary or
beneficiaries (both principal
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and contingent) to whom payment shall be made in the event of the
Participant's death prior to the complete distribution to the
Participant of the amounts due under the LTIP. Upon completion of
the form, it should be submitted to the LTIP Committee. A
Participant may change a beneficiary designation by completing a
new form and submitting it to the LTIP Committee. A new
beneficiary designation shall cancel any prior beneficiary
designation. If a Participant does not have a beneficiary
designation in effect, or if all designated beneficiaries
predecease the Participant, then any amounts otherwise payable to
a beneficiary shall be paid to the Participant's estate. The
payment to a designated beneficiary or to the Participant's estate
shall completely discharge M&M Capital's obligations under the
LTIP.
(h) AMENDMENT; TERMINATION. The Board of Directors of M&M Capital
shall, with the consent of MMC, have the right to alter, amend,
suspend and terminate the LTIP, provided that, without the written
consent of the Participant, no such alteration, amendment,
suspension or termination shall adversely affect the terms and
conditions of any Grant theretofore made to such Participant under
the LTIP.
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