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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number: 1-7933
Aon Corporation
(Exact Name of Registrant as Specified in its Charter)
____________________
DELAWARE
(State or Other Jurisdiction of 36-3051915
Incorporation or Organization) (I.R.S. Employer
123 NORTH WACKER DRIVE, Identification No.)
CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 701-3000
(Telephone Number)
--------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ----------------------
<S> <C>
Common Stock, $1 par value New York Stock Exchange*
8% Cumulative Perpetual Preferred Stock New York Stock Exchange
6 1/4% Cumulative Convertible Exchangeable New York Stock Exchange
Preferred Stock
6.875% Notes Due 1999 New York Stock Exchange
7.40% Notes Due 2002 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
*The Common Stock of the Registrant is also listed for trading on the Chicago
Stock Exchange and The International Stock Exchange London.
--------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements,
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 28, 1995 was $3,008,185,977.
Number of shares of $1.00 par value Common Stock outstanding as of February 28,
1995: 108,305,662.
Documents From Which Information Is Incorporated By Reference:
Annual Report to Stockholders of the Registrant for the Year 1994
(Parts I, II and IV)
Notice of Annual Meeting of Holders of Common Stock and
Series C Preferred
Stock and Proxy Statement for Annual Meeting of Stockholders on April 20, 1995
of the Registrant (Part III)
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PART I
ITEM 1. BUSINESS.
The Registrant is an insurance holding company. Incorporated in 1979, it
is the parent corporation of long established and more recently formed
companies. Rollins Hudig Hall Holdings b.v., the Registrant's principal
European commercial insurance brokerage subsidiary, traces its origin back to
1688. The Life Insurance Company of Virginia, another of Registrant's principal
subsidiaries, was incorporated in 1871. It, along with subsidiaries Combined
Insurance Company of America and Union Fidelity Life Insurance Company/1/ engage
in the marketing of life and accident and health insurance products. Virginia
Surety Company, Inc., Dearborn Insurance Company and London General Insurance
Company, Ltd., also subsidiaries, offer specialty property and casualty
insurance products. Aon Risk Services, Inc., Aon Specialty Group, Inc., Rollins
Hudig Hall Holdings b.v., Godwins International, Inc., Nicholson Leslie Group,
Limited and Rollins Hudig Hall Co., subsidiaries of Registrant's wholly-owned
subsidiary, Rollins Hudig Hall Group, Inc., provide reinsurance intermediary
services, benefits consulting and commercial insurance brokerage services.
The Registrant hereby incorporates by reference pages 15 through 19 and 21
through 25 of the Annual Report to Stockholders of the Registrant for the year
1994 ("Annual Report").
Competition and Industry Position
(1) INSURANCE BROKERAGE AND CONSULTING SERVICES
Rollins Hudig Hall Co. ("RHH"), Rollins Hudig Hall Holdings b.v. ("Hudig"),
Aon Risk Services, Inc. ("ARS"), Aon Specialty Group, Inc. ("ASG"), Godwins
International, Inc. ("Godwins") and Nicholson Leslie Group, Limited ("NL").
Rollins Hudig Hall Group, Inc., ("RHH Group"), is a holding company for the
Registrant's commercial brokerage and consulting operation. RHH Group is the
third largest brokerage and consulting services firm in the world. In early
1993, the Registrant completed the acquisition of the remaining outstanding
interest in its London-based wholesale broker, Nicholson Leslie Group, Limited
(formerly Nicholson Chamberlain Colls Limited.) The RHH Group companies have
offices around the world and employ more than 13,000 professionals and support
personnel who serve the diverse needs of the Registrant's growing multinational
client base.
RHH is ranked second among commercial insurance brokerage firms in the
United States in terms of gross revenues (Business Insurance, July 18, 1994).
Its subsidiaries operate in a highly competitive industry and compete with a
large number of insurance brokerage and agency firms as well as individual
brokers and agents and direct writers of insurance coverage. RHH subsidiaries
offer comprehensive services to clients which range from small businesses to
major corporations, including placement of all lines of insurance, actuarial
------------
/1/The Registrant's Union Fidelity Life Insurance Company subsidiary and its The
Credit Life Insurance Company subsidiary merged in 1993 and all lines of
business conducted by the separate companies prior to the merger are now
conducted by Union Fidelity Life Insurance Company.
2
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services, proprietary risk management information systems, captive management,
and risk management and loss control consulting. It has also developed certain
specialist niche areas such as marine, aviation, directors and officers
liability, financial institutions, construction, energy, public entities,
leisure, entertainment and fine art. Hudig traces its commercial broking roots
to 1688 and is one of the premier brokers in Continental Europe with some 70
European offices and approximately 2,100 employees. Hudig has subsidiaries in
more than thirty countries and, together with an unaffiliated English broker, is
part of a joint venture that owns a network of insurance broking offices in
Southeast Asia.
RHH and Hudig operate through subsidiaries with owned offices in North
America and Europe, as well as in the Far East, the Middle East, Central and
Latin America, and Australia. RHH is actively pursuing expansion in Latin
America and the far East. During 1994, Hudig subsidiaries opened offices in
Russia, Finland, Turkey, Portugal and Slovakia, and expanded its rapidly growing
European art brokerage business, operating under the name ArtScope, with
acquisitions of specialized art brokers in France and Germany. Together with its
Huntington T. Block operation in Washington, D.C. RHH is now one of the leading
art brokerage specialists in the world. RHH also acquired an Australian broker
specializing in group programs, making RHH one of the largest such brokers in
that part of the world.
ARS offers creative, flexible and economical solutions to clients requiring
alternative risk services. ARS subsidiaries, Aon Re Inc., formerly Aon
Reinsurance Agency, Inc. ("Aon Re") and Aon Risk Consultants, Inc., specialize
in providing reinsurance brokerage and consulting services. Aon Re ranked second
in 1993 among United States reinsurance intermediaries in terms of gross
revenues as published in Business Insurance (October 31, 1994).
Aon Re Worldwide, formed in 1993 to bring together all the reinsurance
operations of ARS, has become one of the top reinsurance intermediaries in the
world. The captive management and alternative market services in Europe were
combined under the name Aon Risk Services (Europe). In 1994, new offices were
opened in Luxembourg and The Netherlands. Agricultural Risk Management in
London, specializing in the evaluation of agricultural risk, was acquired in
early 1995. Through Aon Risk Consultants, ARS offers actuarial expertise,
catastrophe modeling and alternative risk financing products to the global
marketplace. SLE Worldwide is a leading managing general underwriter in the
sports, leisure and entertainment industries, both domestically and abroad.
ASG addresses the highly specialized product development, consulting and
administrative needs of associations, affinity groups and financial services
companies nationwide. ASG operating subsidiaries market and broker both the
primary and reinsurance risks of these programs. Go Pro, Inc. acts as an
underwriting manager for property and liability programs for government
entities, public officials, school boards and law enforcement agencies. Aon
Direct Group is ASG's direct marketer of specialty insurance products for
associations and affinity groups.
Media/Professional Insurance (M/PI), a division of Aon Direct Group, is one
of the largest providers of libel and other insurance to the broadcast and print
media in the United States. Its Bankers Insurance Service Corp. subsidiary is
an underwriting manager that serves the mortgage banking industry. Its
Scarborough & Co. subsidiary provides similar underwriting services to community
banks, mortgage and savings institutions.
ASG formed the Aon Alliance in 1993 to bring together expertise from
throughout the Registrant's operating subsidiaries to deliver value-added
service to the health-care industry, especially hospitals. The Aon Alliance
provides professional liability insurance, software systems, reinsurance,
benefits, risk management, claims investigation, workers' compensation, retail
brokerage services and underwriting management. As part of its overall health-
care strategy, ASG, in 1994, acquired OUM & Associates, an underwriting manager
and program administrator with a specialization in medical malpractice
coverages.
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Employee training has long been an area of expertise for Aon companies, and
the 1994 acquisition of Pecos River Learning Centers, Inc. extends that
expertise into a broad range of industries, including some of the largest
multinational corporations. Further, it builds upon a tradition of nationally
recognized customer-satisfaction consulting and training programs developed for
the automobile industry by Ryan Insurance Group, Inc. subsidiaries.
The Registrant serves the employee benefits needs of clients around the
world through subsidiaries of Godwins and through the European benefits
operations of Hudig. Godwins and its affiliated subsidiaries do business as
Godwins Booke and Dickenson ("GBD"), and serve the United States and Latin
America. GBD was formed after the July 1, 1993 merger with Booke & Company
Inc., an actuarial and employee benefits consulting firm.
In the United States, the benefits environment continues to change as
companies look for ways to manage their benefits costs while increasing the
choices offered to their employees. GBD, with its expertise in all areas of
benefits and compensation, and its access to the Registrant's other
subsidiaries, is well-positioned to serve this market. Existing business
continued to be influenced by a sluggish benefits consulting environment in the
United States. Benefits issues in foreign countries are becoming more
complicated, and Hudig and Godwins anticipates increased demand for their
services in these markets.
The late-1994 acquisition of HRStrategies Inc. marks an important expansion
for GBD. HRStrategies specializes in human resources strategy development,
employee selection, and identification and development of employee skill and
skills assessment systems. As employers contend with a steadily shrinking
skilled labor pool, the ability to identify, motivate and compensate the skilled
worker becomes increasingly important.
NL is a London based Lloyd's broker that was formed as a result of
Nicholson Chamberlain & Coll's 1993 acquisitions of the assets of Leslie &
Godwins and the remaining outstanding shares of Nicholson Chamberlain & Colls.
It places wholesale and reinsurance business in the London and international
markets, serving the needs of a wide range of clients around the world. A
significant majority of NL's revenue is derived from sources unaffiliated with
Aon.
During 1994, Aon acquired Lloyd's broker Jenner Fenton Slade Group Limited
(JFS), a premier energy insurance and reinsurance brokerage firm. The
acquisition of JFS expands the expertise of Aon in this important and growing
area. The energy brokerage operations of NL will be integrated into JFS.
(2) LIFE INSURANCE
The Life Insurance Company of Virginia ("LOV"), Combined Insurance Company
of America ("Combined Insurance"), Combined Life Insurance Company of New York
("CLICNY"), Globe Life Insurance Company ("Globe") and Union Fidelity Life
Insurance Company ("Union Fidelity").
The Registrant's life insurance subsidiaries are part of a highly
competitive industry. LOV is the Registrant's principal life company. LOV and
its broker-dealer subsidiary conducts operations through a combination of branch
offices, independent broker arrangements, national and regional stock brokerage
houses and financial institutions. Collectively, LOV operates through 150
career and independent agencies with approximately 386 field representatives and
has contracts with approximately 17,000 independent brokers. LOV also operates
through 159 national and regional stock brokerage houses and 7 financial
institutions and has contracts with some 17,000 stockbrokers and representatives
in financial institutions. LOV's franchise distribution system, the Forth
Financial Network, operates through 28 franchises supporting approximately 400
agents
4
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marketing capital accumulation and traditional life products underwritten by
LOV and unrelated insurers. Business written by LOV includes a complete
portfolio of regular ordinary life insurance, individual and group annuities,
group life and group disability, variable life, variable annuities and universal
life coverages. In 1993 (the most recent year for which comparative tables are
available), LOV ranked 50th in terms of total life premiums and annuity premiums
written. In terms of total ordinary life insurance in force, LOV ranked 71st.
Combined Insurance and its wholly-owned subsidiary, CLICNY (which operates
exclusively in the state of New York) market primarily whole life products
through direct sales career agents in the United States. Unit-linked products
are sold in the United Kingdom by Combined Life Assurance Company Limited, an
indirect, wholly owned subsidiary of the Registrant. Life insurance business is
conducted in 49 states, Canada, the United Kingdom, Ireland, Germany, Australia
and New Zealand, by the Registrant's life insurance subsidiaries. Combined
Insurance ranked among the top 100 life insurance companies in the United States
in terms of total life premiums in 1993.
Union Fidelity focuses on third-party and affinity clients in marketing
life products, while the Group Division of Combined Insurance concentrates on
the small-employer group market offering products underwritten by Combined
Insurance.
(3) ACCIDENT AND HEALTH INSURANCE
Combined Insurance, CLICNY, Union Fidelity, Ryan Insurance Group, Inc.
("Ryan"), Globe, and LOV.
Through its various operating subsidiaries, the Registrant's accident and
health operations serve individuals, businesses, affinity groups and
associations in North America, Europe and the Pacific. The accident and health
distribution network encompasses the agents of Combined Insurance, the direct-
response marketing capabilities of Union Fidelity, the agents and brokers of the
Group Division of Combined Insurance, and the automobile dealers and financial
institutions that market the products of Ryan.
Combined Insurance, the Registrant's principal accident and health insurer,
has a direct sales force of more than 9,000 career agents calling on individuals
to sell a broad spectrum of accident and health products. It is one of the few
companies with agents that call on customers every six months to renew and to
sell additional coverage. Combined Insurance offers a wide range of accident
only and sickness only insurance products including short term disability,
cancer aid, Medicare supplement and disability income coverage. Combined
Insurance's products are primarily fixed indemnity disability based, thereby not
subject to exposure to escalating medical costs. Combined Insurance offers a
simplified accident and sickness long-term disability policy. In 1993,
Combined Insurance was ranked among the top 10 companies in the United States
in terms of individual non-cancelable and guaranteed renewable accident and
health insurance premiums written and ranked 24th among all United States
companies in terms of total accident and health insurance premiums written.
Operating in the United States in the highly competitive direct response
marketing segment of the industry, Union Fidelity and the Group Division of
Combined Insurance serve different markets with different products. Through
emphasis on service to sponsored and affiliated groups, Union Fidelity continues
to capture a stable share of the direct response market.
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The Group Division of Combined Insurance operates in the small-group
market, with life, long-and short-term disability, and dental insurance products
sold through managing general agents, brokers and LOV's career agent system and
agents of endorsed companies. The group life and disability products are
underwritten by Combined Insurance and administered through the Trevose,
Pennsylvania facility. These products are generally targeted at businesses with
fewer than 500 lives. In particular, the Group Division of Combined Insurance
offers a portfolio of products designed for small companies desiring a flexible
benefits package for employees.
Ryan (with policies underwritten by Globe and Union Fidelity) is the
largest independent marketer of credit life and disability products sold through
automobile dealers. Union Fidelity sells short and long-term credit related
insurance products to qualified borrowers from financial institutions and
mortgage companies through a captive sales force and select brokers and general
agents. In terms of direct premiums written with respect to credit life
insurance, Globe ranked third among all companies in 1993. In January 1995,
Globe merged with Combined Insurance. Ryan subsidiaries operate in a highly
competitive industry, competing against numerous insurers and insurance agents
engaged in selling credit life and disability insurance, including some which
also provide finance and consulting services to automobile dealers. Ryan also
is in direct competition with lending institutions which operate on a national
basis, some of which have working arrangements with insurance companies writing
credit insurance. Substantially all of the credit insurance sold by Ryan
subsidiaries is generated through dealers or financial institutions who have no
legal obligation or commitment to continue as agents for Ryan and are free to
terminate such relationships and act as agents for, and place insurance with,
Ryan's competitors.
(4) SPECIALTY PROPERTY AND CASUALTY INSURANCE
Ryan, Virginia Surety Company, Inc. ("VSC"), London General Insurance
Company, Ltd. ("London General"), and Dearborn Insurance Company ("Dearborn").
The Registrant's specialty property and casualty insurance business,
conducted by subsidiaries VSC, Dearborn & London General, has traditionally been
composed primarily of extended warranty insurance products, professional
liability insurance coverages, workers' compensation and specialty financial
institution coverages. During 1994, VSC continued its withdrawal from the
direct risk-taking and underwriting of certain lines of property and casualty
business except extended warranty and the reinsurance of various liability
programs. VSC and London General continue to be the largest independent
providers of automobile extended warranties worldwide. Ryan's automobile
warranty products are sold in the United Kingdom, Ireland, France, the
Netherlands, Belgium and Spain.
During 1994, Aon Warranty Group was created to handle certain extended
warranty products on automobiles, electronic goods, personal computers and
appliances. In addition, the company acquired Independent Dealer Services Inc.
(IDS) of St. Louis, a major extended warranty marketing and administration
company for electronic goods, personal computers and appliances.
LICENSING AND REGULATION
Insurance companies must comply with laws and regulations of the
jurisdictions in which they do business. These laws and regulations are designed
to ensure financial solvency of insurance companies and to require fair and
adequate service and treatment for policyholders. They are enforced by the
states in the United States, by industry self-regulating agencies in the United
Kingdom, and by various regulatory agencies in other countries through the
granting and revoking of licenses to do business, licensing of agents,
monitoring of trade practices, policy form approval, minimum loss ratio
requirements, limits on premium and commission rates, and minimum reserve and
capital requirements. Compliance is monitored by the state insurance departments
through periodic regulatory reporting procedures and periodic
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examinations. The quarterly and annual financial reports to the regulators in
the United States utilize accounting principles which are different from the
generally accepted accounting principles used in stockholders' reports. The
statutory accounting principles, in keeping with the intent to assure the
protection of policyholders, are based, in general, on a liquidation concept
while generally accepted accounting principles are based on a going concern
concept.
The state insurance regulators are members of the National Association of
Insurance Commissioners ("NAIC"). This Association seeks to promote uniformity
of and to enhance the state regulation of insurance. Both the NAIC and the
individual states have significantly increased their focus on the solvency of
insurance companies. This focus is reflected in additional regulatory oversight
by the states and emphasis on the enactment or adoption of a series of NAIC
model laws and regulations designed to promote solvency. The increase in any
solvency related oversight by the states will not have any significant impact on
the insurance business of the Registrant.
In addition, the NAIC has developed a formula for analyzing insurers called
risk based capital ("RBC"). RBC is intended to establish "minimum" capital
threshold levels that vary with the size and mix of business of a company. It is
designed to identify companies with the capital levels that may require
regulatory attention. RBC does not have any significant impact on the insurance
business of the Registrant.
Insurance companies are generally not subject to any federal regulation of
their insurance business because of the existence of a federal law commonly
known as the McCarran-Ferguson Act. McCarran-Ferguson provides the insurance
industry with immunity from certain aspects of the federal anti-trust law and
exempts the business of insurance from federal regulation. In the past several
years there have been a number of recommendations that McCarran-Ferguson be
repealed entirely or modified to remove the industry's anti-trust exemption and
subject it to federal regulation. If McCarran-Ferguson were to be repealed or
modified, state regulation of the insurance business would continue. The result
could be an additional layer of federal regulation. The Registrant expects that
any repeal of anti-trust exemptions available to insurers under the McCarran-
Ferguson Act would not have a significant impact on its operations.
The state insurance holding company laws require prior notice to and
approval of the domestic state insurance department of intracorporate transfers
of assets within the holding company structure, including the payment of
dividends by insurance company subsidiaries. In addition, sales of credit
insurance by Ryan's agents and premium finance loans by Cananwill, Inc., an
indirect wholly-owned subsidiary of the Registrant, are subject to one or more
of truth-in-lending and credit regulations, insurance premium finance acts,
retail installment sales acts and other similar consumer legislation. Failure to
comply with such laws or regulations can result in the temporary suspension or
permanent loss of the right to engage in business in a particular jurisdiction
as well as other penalties.
Regulatory authorities in the states in which the operating subsidiaries of
RHH Group conduct business may require individual or company licensing to act as
brokers, agents, third party administrators, managing general agents,
reinsurance intermediaries or adjusters. Under the laws of most states,
regulatory authorities have relatively broad discretion with respect to
granting, renewing and revoking brokers' and agents' licenses to transact
business in the state. The manner of operating in particular states may vary
according to the licensing requirements of the particular state, which may
require, among other things, that a firm operate in the state through a local
corporation. In a few states, licenses are issued only to individual residents
or locally-owned business entities. In such cases, RHH Group subsidiaries have
arrangements with residents or business entities licensed to act in the state.
If their sales activities so require, employees of some of the Registrants
are registered with one of the Registrant's three broker-dealer subsidiaries.
These broker-dealers and employees registered therewith are subject to the
Securities Exchange Act of 1934, to rules and regulations promulgated thereunder
by the SEC and to state securities laws and regulations.
There continues to be activity in the area of health care reform at the
state levels in the United States. Numerous states have had legislation
introduced to reform the health care system and such legislation has passed in
several states. While it is impossible to forecast the precise nature of future
state health care changes, the Registrant does not expect a major impact on its
operations because of the
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supplemental nature of most of the policies issued by its insurance subsidiaries
and because the coverages are primarily purchased to provide financial
protection through loss of time or disability benefits. If health care reform
does not provide for a significant role for insurance companies currently
writing primary medical coverage, the Registrant expects that some of those
companies would increase their participation in other segments of the accident
and health insurance business, perhaps heightening the competition with Combined
Insurance. Combined Insurance and its subsidiaries currently operate
successfully in several foreign countries which have national health plans in
effect.
MORTGAGE LOAN AND REAL ESTATE INVESTMENTS
Mortgage loans and real estate investments held by the Registrants'
subsidiaries at December 31, 1994 were $567.5 million and $35.6 million,
respectively. Commercial mortgage loans represent over 98% of total mortgage
loans at December 31, 1994. Mortgage loans and real estate in the South
Atlantic region totalled $307.6 million and $26.8 million, respectively, at
December 31, 1994. The five states carrying the highest concentrations of these
mortgage loans and real estate investments are listed below by each category.
<TABLE>
<CAPTION>
(millions)
MORTGAGE LOANS 1994 1993 REAL ESTATE 1994 1993
----------------- ------ ------ -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Virginia $126.1 $131.8 Virginia $14.5 $12.2
Maryland 60.2 53.1 Florida 3.9 4.5
Florida 56.0 46.1 South Carolina 3.4 4.4
New Jersey 53.2 66.5 Georgia 2.9 3.0
California 36.3 41.5 New Jersey 2.9 0.1
</TABLE>
CAPITAL ACCUMULATION INVESTMENT TYPE CONTRACTS
The capital accumulation products sold by the Registrant's insurance
subsidiaries in 1994 and 1993 had the earned revenue composition presented in
the following table:
<TABLE>
<CAPTION>
(millions) 1994 1993
--------------------------- ---------------------------
PRODUCT TYPE EARNED REVENUE % OF TOTAL EARNED REVENUE % OF TOTAL
------------------------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Interest sensitive life $208.3 37.8% $207.7 38.0%
Unit-linked life 14.7 2.7% 14.6 2.7%
Annuities 213.9 38.8% 219.5 40.2%
Guaranteed
investment contracts 114.4 20.7% 104.4 19.1%
------ ----- ------ -----
Total: $551.3 100.0% $546.2 100.0%
====== ===== ====== =====
</TABLE>
Among these product types, those that are investment type contracts (as
defined by Statement of Financial Accounting Standards No. 97) are annuities
(approximately 87% are single premium deferred annuities) and guaranteed
investment contracts. Significant terms and conditions of these contracts are
described below.
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SINGLE PREMIUM DEFERRED ANNUITIES (SPDAS): The Registrant's insurance
subsidiaries had approximately $2 billion of SPDA reserves in force at December
31, 1994. SPDAs are single premium accumulation vehicles with one, three or
five year interest rate guarantees, after which declared one year guaranteed
renewal rates are set based on prevailing economic conditions. There is a
minimum guaranteed interest rate of 4% on most policies. Policies contain
decreasing surrender charges for either a five or seven year period, and contain
several guaranteed income options at maturity. Approximately 13% of the in
force SPDA policyholder funds have a bailout option where, if the declared
renewal interest rate is less than the initial rate, the policyowner may
surrender the policy without a surrender charge. The policyowner has a 30 to
60-day time period in which to exercise this option.
GUARANTEED INVESTMENT CONTRACTS (GICS): The Registrant's insurance
subsidiaries had approximately $1.6 billion in GIC contracts outstanding at
December 31, 1994. Of these, 65% are fixed rate contracts originally written
with a maturity from two to six years. The average maturity of the fixed rate
GIC pool was 2.4 years at December 31, 1994. Most of these contracts either
cannot be liquidated prior to maturity, or if they can be liquidated by the
contractholder, they are subject to a market value adjustment calculated to
provide a significant penalty to the contractholder. The remaining 35% of the
GICs are variable rate contracts which have rates that float monthly based on an
index relating to money market yields. These contracts have no fixed maturities
but may be liquidated in seven days to one year, depending on the contract, at
the contractholder's request. The Registrant's insurance subsidiaries may, at
their option, change the index, but if they do so, the contractholder would have
a right to liquidate the contract.
Most of the GICs are benefit sensitive to varying degrees. As of December
31, 1994, most GIC contracts were for the benefit of qualified retirement plans.
The terms of these investment type contracts are typical of similar products
sold by competitors.
CLIENTELE
No significant part of the Registrant's or its subsidiaries' business is
dependent upon a single client or on a few clients, the loss of any one of which
would have a material adverse effect on the Registrant.
EMPLOYEES
The Registrant's subsidiaries, at the end of 1994, had more than 18,000
salaried and hourly employees and approximately 9,000 sales representatives who
are generally compensated wholly or primarily by commission.
ITEM 2. PROPERTIES.
The Registrants' subsidiaries own and occupy office buildings in seven
states, Puerto Rico and certain foreign countries, and lease office space
elsewhere in the United States and in various foreign cities. Loss of the use
of any owned or leased property, while potentially disruptive, would have no
material impact on the Registrant.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant hereby incorporates by reference note 11 of the Notes to
Consolidated Financial Statements on page 48 of the Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Registrant are regularly elected by its Board of
Directors at the annual meeting of the Board which is held following each annual
meeting of the stockholders of the Registrant. The executive officers of the
Registrant were elected to their current positions on April 15, 1994 to serve
until the meeting of the Board following the annual meeting of stockholders on
April 20, 1995. Ages shown are as of March 15, 1995.
For information concerning certain executive officers of the Registrant,
see item 10, below. As of March 15, 1995, the following are also executive
officers of the Registrant as defined in Rule 16a-1(f):
10
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<TABLE>
<CAPTION>
HAS CONTINUOUSLY
SERVED AS AN
OFFICER
OF REGISTRANT OR
NAME, AGE, AND ONE OR
CURRENT OFFICE MORE OF ITS
OR PRINCIPAL SUBSIDIARIES BUSINESS EXPERIENCE
POSITION SINCE PAST 5 YEARS
--------------------------- ---------------- ---------------------------------------------------
<S> <C> <C>
Harvey N. Medvin, 58 1972 Mr. Medvin became Vice President and Chief
Executive Vice President, Financial Officer of the Registrant in
Chief Financial Officer 1982 and was elected to his current position in
and Treasurer 1987. He also serves as a Director or Officer of
certain of the Registrant's subsidiaries.
Daniel T. Cox, 49 1986 Mr. Cox was elected to his current position in 1991
Executive Vice President and has served as Chairman and Chief
Executive Officer of LOV since 1988 and of Union
Fidelity since 1989. Mr. Cox has headed the
Registrant's benefits consulting operation since
1987. He also serves as Director or
Officer of certain of the Registrant's subsidiaries.
Michael A. Conway, 48 1990 Mr. Conway was Vice President of Combined
Senior Vice President and Insurance from 1980 to 1984. Following other
Senior Investment Officer employment, Mr. Conway rejoined the Registrant
in 1990 as Senior Vice President of
Combined Insurance and was elected to his
current position in 1991. He also serves as
Director or Officer of certain of the
Registrant's subsidiaries.
</TABLE>
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Registrant's $1.00 par value common shares ("Common Shares") are traded
on the New York, Chicago and London stock exchanges. The Registrant hereby
incorporates by reference the "Dividends paid per share" and "Price range" data
on page 51 of the Annual Report.
The Registrant had approximately 14,000 holders of record of its Common
Shares as of February 28, 1995.
The Registrant hereby incorporates by reference note 7 of the Notes to
Consolidated Financial Statements on pages 43 and 44 of the Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
The Registrant hereby incorporates by reference the "Selected Financial
Data" table on page 50 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Registrant hereby incorporates by reference "Management's Analysis of
Operating Results and Financial Condition" on pages 27 through 32 of the Annual
Report.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant hereby incorporates by reference the following statements,
notes and data from the Annual Report.
<TABLE>
<CAPTION>
<S> <C>
Page(s)
-------
Consolidated Financial Statements................. 33-37
Notes to Consolidated Financial Statements........ 38-48
Report of Ernst & Young LLP, Independent Auditors. 49
Quarterly Financial Data.......................... 51
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant hereby incorporates by reference the information on pages 3
and 6 of the Notice of Annual Meeting of Holders of Common Stock and Series C
Preferred Stock and Proxy Statement For Annual Meeting of the Stockholders on
April 20, 1995, of the Registrant ("Proxy Statement") concerning the following
Directors of the Registrant, each of whom also serves as an executive officer of
the Registrant as defined in Rule 16a-1(f): Patrick G. Ryan and Raymond I.
Skilling. Information concerning additional executive officers of the
Registrant is contained in Part I hereof, pursuant to General Instruction G(3)
and Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant hereby incorporates by reference the information under the
headings "Executive Compensation," "Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year-End Option Values," "Option Grants in 1994 Fiscal Year" and
"Pension Plan Table" on pages 11 through 13 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Registrant hereby incorporates by reference the share ownership data
contained on pages 2, 7 and 8 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant hereby incorporates by reference the information under the
heading "Transactions with Management" on page 17 of the Proxy Statement.
13
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A)(1) AND (2). The Registrant has incorporated by reference from the Annual
Report (see Item 8) the following consolidated financial statements of the
Registrant and subsidiaries:
<TABLE>
<CAPTION>
ANNUAL
REPORT
PAGE(S)
-------
<S> <C>
Consolidated Statements of Income--Years Ended December 31, 1994, 1993
and 1992 33
Consolidated Statements of Financial Position--As of December 31, 1994
and 1993 34-35
Consolidated Statements of Stockholders' Equity--Years Ended December
31, 1994, 1993 and 1992 36
Consolidated Statements of Cash Flows--Years Ended December 31, 1994,
1993 and 1992 37
Notes to Consolidated Financial Statements 38-48
Report of Ernst & Young LLP, Independent Auditors 49
</TABLE>
Financial statement schedules of the Registrant and consolidated
subsidiaries not included in the Annual Report but filed herewith:
Consolidated Financial Statement Schedules--
Schedule
--------
Summary of Investments-Other than Investments in Related Parties I
Parent Company Condensed Financial Statements II
Supplementary Insurance Information III
Reinsurance IV
Valuation and Qualifying Accounts V
Schedule VI is omitted as it is immaterial
(A)(3). EXHIBITS
(a) Second Restated Certificate of Incorporation of the Registrant--
incorporated by reference to Exhibit 3(a) to the Registrant's Annual
Report to the Securities and Exchange Commission on Form 10-K for the
year ending December 31, 1991 (the "1991 Form 10-K").
(b) Certificate of Amendment of the Registrant's Second Restated
Certificate of Incorporation--incorporated by reference to Exhibit 3 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ending
March 31, 1994 (the "First Quarter 1994 Form 10-Q").
(c) Bylaws of the Registrant--incorporated by reference to Exhibit (d) to
the Registrant's Annual Report to the Securities and Exchange Commission
on Form 10-K for the year ending December 31, 1982 (the "1982 Form
10-K").
(d) Indenture dated September 15, 1992 between the Registrant and
Continental Bank Corporation (now known as Bank of America Illinois), as
Trustee--incorporated by reference to Exhibit 4(a) to the Registrant's
Current Report on Form 8-K dated September 23, 1992.
14
<PAGE>
(e) Resolutions establishing terms of 6.875% Notes Due 1999 and 7.40% Notes
Due 2002--incorporated by reference to Exhibit 4(d) to the Registrant's
Annual Report to the Securities and Exchange Commission on Form 10-K for
the year ending December 31, 1992.
(f) Resolutions establishing the terms of 6.70% Notes Due 2003 and 6.30%
Notes Due 2004--incorporated by reference to Exhibits 4(c) and 4(d) of
the Registrant's Annual Report to the Securities and Exchange Commission
on Form 10-K for the year ended December 31, 1993.
(g) Certificate of Designation for the Registrant's 8% Cumulative Perpetual
Preferred Stock, $1.00 par value--incorporated by reference to Exhibit
4(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1992 (the "Third Quarter 1992 Form 10-Q").
(h) Certificate of Designation for the Registrant's 6 1/4% Cumulative
Convertible Exchangeable Preferred Stock, $1.00 par value--incorporated
by reference to Exhibit 4(b) to the Third Quarter 1992 Form 10-Q.
(i) Certificate of Designation for the Registrant's Series C Cumulative
Preferred Stock--incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K dated February 9, 1994.
(j) Registration Rights Agreement dated November 2, 1992 by and between the
Registrant and Frank B. Hall & Co. Inc.--incorporated by reference to
exhibit 4(c) to the Third Quarter 1992 Form 10-Q.
(k) Registration rights agreement by and among the Registrant and certain
affiliates of Ryan Insurance Group, Inc. (including Patrick G. Ryan and
Andrew J. McKenna)--incorporated by reference to Exhibit (f) to the 1982
Form 10-K.
(l) Deferred Compensation Agreement by and among the Registrant and
Registrant's directors who are not salaried employees of Registrant or
Registrant's affiliates--incorporated by reference to Exhibit 10(i) to
the Registrant's Annual Report to the Securities and Exchange Commission
on Form 10-K for the year ending December 31, 1987 ("1987 Form 10-K").
(m) Amendment and Waiver Agreement dated as of November 4, 1991 among the
Registrant and each of Patrick G. Ryan, Shirley Ryan, Ryan Enterprises
Corporation and Harvey N. Medvin--incorporated by reference to Exhibit
10(j) to the 1991 Form 10-K.
(n) Statement regarding Computation of Per Share Earnings.
(o) Statement regarding Computation of Ratio of Earnings to Fixed Charges.
(p) Statement regarding Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
(q) Aon Corporation 1994 Amended and Restated Outside Director Stock Award
Plan--incorporated by reference to Exhibit 10(b) to the First Quarter
1994 Form 10-Q.
(r) Annual Report to Stockholders of the Registrant for the year ended
December 31, 1994 (for information, and not to be deemed filed, except
for those portions specifically incorporated by reference herein).
(s) List of subsidiaries of the Registrant.
(t) Consent of Ernst & Young LLP to the incorporation by reference into
Aon's Annual Report on Form 10-K of their report included in the 1994
Annual Report to Stockholders and into Aon's Registration Statement Nos.
2-79114, 2-82791, 33-27984, 33-42575, and 33-57562.
15
<PAGE>
(u) Annual Report to the Securities and Exchange Commission on Form 11-K
for the Aon Savings Plan for the year ended December 31, 1994--to be
filed by amendment as provided in Rule 15d-21(b).
(v) Executive Compensation Plans and Arrangements:
(A) Aon Stock Option Plan--incorporated by reference to Exhibit 10(a) of
the 1990 Form 10-K.
(B) First Amendment to Aon Stock Option Plan--incorporated by reference
to the Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q
for the quarter ending June 30, 1994 (the "Second Quarter 1994 Form
10-Q").
(C) Second Amendment to Aon Stock Option Plan--incorporated by reference
to Exhibit 10(c) to the Second Quarter 1994 Form 10-Q.
(D) 1994 Restatement of Aon Savings Plan.
(E) 1994 Restatement of Aon Employee Stock Ownership Plan.
(F) Ryan Insurance Group, Inc. Stock Option Plan together with Stock
Option Assumption Agreement providing for amendment of the plan--
incorporated by reference to Exhibit 4(b) to Registration Statement
No. 2-79114 on Form S-8.
(G) Aon Stock Award Plan, as amended--incorporated by reference to
Exhibit 10(a) to the First Quarter 1994 Form 10-Q.
(H) First Amendment to the Aon Stock Award Plan--incorporated by
reference to Exhibit 10(b) to the Second Quarter 1994 Form 10-Q.
(I) Second Amendment to Aon Stock Award Plan--incorporated by reference
to Exhibit 10(d) to the Second Quarter 1994 Form 10-Q.
(J) 1994 Restatement of Aon Pension Plan.
(b) Reports on Form 8-K.
The Registrant filed no Current Reports on Form 8-K during the last quarter
of the Registrant's year ended December 31, 1994.
16
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 17TH DAY OF
MARCH, 1995.
Aon Corporation
By /s/PATRICK G. RYAN
--------------------------------
Patrick G. Ryan, Chairman, President
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/PATRICK G. RYAN Chairman, President, Chief March 17, 1995
------------------------ Executive Officer and Director
Patrick G. Ryan (Principal Executive Officer)
/s/DANIEL T. CARROLL Director March 17, 1995
------------------------
Daniel T. Carroll
/s/FRANKLIN A. COLE Director March 17, 1995
------------------------
Franklin A. Cole
/s/PERRY J. LEWIS Director March 17, 1995
------------------------
Perry J. Lewis
/s/JOAN D. MANLEY Director March 17, 1995
------------------------
Joan D. Manley
/s/ANDREW J. MCKENNA Director March 17, 1995
------------------------
Andrew J. McKenna
17
<PAGE>
/s/NEWTON N. MINOW Director March 17, 1995
------------------------
Newton N. Minow
/s/PEER PEDERSEN Director March 17, 1995
------------------------
Peer Pedersen
/s/DONALD S. PERKINS Director March 17, 1995
------------------------
Donald S. Perkins
/s/JOHN W. ROGERS, JR. Director March 17, 1995
------------------------
John W. Rogers, Jr.
/s/GEORGE A. SCHAEFER Director March 17, 1995
------------------------
George A. Schaefer
/s/RAYMOND I. SKILLING Director March 17, 1995
------------------------
Raymond I. Skilling
/s/JOHN E. SWEARINGEN Director March 17, 1995
------------------------
John E. Swearingen
/s/FRED L. TURNER Director March 17, 1995
------------------------
Fred L. Turner
/s/ARNOLD R. WEBER Director March 17, 1995
------------------------
Arnold R. Weber
/s/HARVEY N. MEDVIN Executive Vice President, March 17, 1995
----------------------- Chief Financial Officer and
Harvey N. Medvin Treasurer (Principal Financial
and Accounting Officer)
18
<PAGE>
SCHEDULE I
Aon Corporation and Subsidiaries
CONSOLIDATED SUMMARY OF INVESTMENTS - OTHER
THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
Amount shown
in Statement
(millions) Amortized Fair of Financial
Cost Value Position
--------- -------- ------------
<S> <C> <C> <C>
Fixed Maturities - held to maturity:
U.S. government and agencies................ $ 3.2 $ 3.3 $ 3.2
States and political subdivisions........... 2.4 2.5 2.4
Corporate securities........................ 833.7 784.4 833.7
Public utilities............................ 554.7 521.8 554.7
Mortgage-backed securities.................. 1,589.8 1,437.6 1,589.8
--------- -------- --------
TOTAL FIXED MATURITIES HELD
TO MATURITY............................. 2,983.8 2,749.6 2,983.8
--------- -------- --------
Fixed Maturities - available for sale:
U.S. government and agencies................ 188.9 187.2 187.2
States and political subdivisions........... 392.9 406.9 406.9
Debt securities of foreign governments
not classified as loans.................... 607.9 609.9 609.9
Corporate securities........................ 1,298.7 1,265.0 1,265.0
Public utilities............................ 282.4 269.8 269.8
Mortgage-backed securities.................. 1,478.3 1,358.0 1,358.0
Other fixed maturities...................... 68.7 63.5 63.5
--------- -------- --------
TOTAL FIXED MATURITIES AVAILABLE
FOR SALE................................ 4,317.8 4,160.3 4,160.3
--------- -------- --------
Equity securities - available for sale
Common stocks:
Public utilities............................ 91.7 81.4 81.4
Banks, trusts, and insurance companies...... 81.5 79.7 79.7
Industrial, miscellaneous, and all other.... 136.8 153.8 153.8
Nonredeemable preferred stocks.............. 679.7 624.4 624.4
--------- -------- --------
TOTAL EQUITY SECURITIES................... 989.7 $ 939.3 939.3
--------- -------- --------
Mortgage loans on real estate................. 597.2* 567.5*
Real estate - net of depreciation............. 35.6 35.6
Policy loans.................................. 214.9 214.9
Other long-term investments................... 104.6* 97.9*
Short-term investments........................ 783.2 783.2
--------- --------
TOTAL INVESTMENTS....................... $10,026.8 $9,782.5
========= ========
</TABLE>
*Differences between amortized cost and amounts shown in Statement of Financial
Position result from certain valuation allowances.
19
<PAGE>
SCHEDULE II
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
As of December 31
(millions) 1994 1993
-------- --------
<S> <C> <C>
ASSETS
Investments in subsidiaries............................... $3,024.7 $2,788.8
Notes receivable--subsidiaries............................ 468.3 451.6
Other assets.............................................. 8.6 34.1
-------- --------
Total Assets............................................ $3,501.6 $3,274.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Short-term borrowings .................................... $ 243.9 $ 168.6
6.3% long-term debt securities ........................... 99.7 --
7.4% long-term debt securities ........................... 99.8 99.8
6.875% long-term debt securities ......................... 99.8 99.7
6.7% long-term debt securities ........................... 149.6 149.6
7.5% long-term debt securities ........................... -- 124.9
Notes payable--other...................................... 22.0 22.5
Notes payable--subsidiaries .............................. 372.7 217.9
Debt guarantee of employee stock
ownership plan .......................................... 65.5 72.5
Accrued expenses and other liabilities.................... 41.2 31.2
-------- --------
Total Liabilities ...................................... 1,194.2 986.7
-------- --------
Redeemable Preferred Stock................................ 50.0 --
STOCKHOLDERS' EQUITY
Preferred stock .......................................... 11.1 13.8
Common stock ............................................. 110.6 70.0
Paid-in additional capital................................ 485.2 605.7
Net unrealized investment gains (losses) of subsidiaries.. (142.8) 50.3
Net foreign exchange losses of subsidiaries............... (19.7) (61.0)
Retained earnings......................................... 1,998.1 1,784.9
Less treasury stock at cost............................... (72.9) (69.3)
Less deferred compensation................................ (112.2) (106.6)
-------- --------
Total Stockholders' Equity ............................. 2,257.4 2,287.8
-------- --------
Total Liabilities and Stockholders' Equity.............. $3,501.6 $3,274.5
======== ========
</TABLE>
See notes to condensed financial statements.
20
<PAGE>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31
------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
(millions)
REVENUE
Dividends from subsidiaries.......................... $166.2 $248.7 $202.4
Other investment income.............................. 34.8 10.8 9.4
Realized investment losses........................... -- (2.1) --
------ ------ ------
Total Revenue...................................... 201.0 257.4 211.8
EXPENSES
Operating and administrative(1)...................... 2.3 4.7 (6.5)
Interest--subsidiaries............................... 12.2 5.2 5.9
Interest--other...................................... 45.1 41.3 35.4
------ ------ ------
Total Expenses..................................... 59.6 51.2 34.8
------ ----- ------
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES AND CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES..................... 141.4 206.2 177.0
Equity in undistributed income of subsidiaries......... 218.6 117.6 29.2
------ ------ ------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES..................... 360.0 323.8 206.2
Cumulative effect of changes in accounting principles. -- -- (79.6)
------ ------ ------
NET INCOME......................................... $360.0 $323.8 $126.6
====== ====== ======
</TABLE>
================================================================================
(1) Operating and administrative expenses include employee benefit plan credits
of $3.4 million and a tax credit of $9.3 million in 1992.
See notes to condensed financial statements.
21
<PAGE>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31
---------------------------
1994 1993 1992
------- ------- -------
(millions)
<S> <C> <C> <C>
Cash Flows From Operating Activities................ $ 164.1 $ 186.3 $ 178.7
Cash Flows From Investing Activities:
Sale or maturity of investments................... - - 0.2
Purchase of investments........................... - - (0.1)
Investments in subsidiaries....................... (31.3) (178.9) (105.3)
Notes receivable from subsidiaries................ (15.5) 34.8 (152.3)
------- ------- -------
Cash Used by Investing Activities............. (46.8) (144.1) (257.5)
------- ------- -------
Cash Flows From Financing Activities:
Treasury stock transactions - net................. (15.4) 11.4 6.9
Issuance of short-term borrowings - net........... 75.3 53.5 51.8
Issuance of notes payable to subsidiaries.......... 74.8 4.9 13.2
Issuance of long-term debt securities............. 99.7 149.6 199.5
Repayment of long-term debt securities............ (125.0) (100.0) (75.0)
Retirement of preferred stock..................... (58.3) (7.3) -
Cash dividends to stockholders.................... (162.3) (151.0) (119.5)
------- ------- -------
Cash Provided (Used) by Financing Activities.. (111.2) (38.9) 76.9
------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents.... 6.1 3.3 (1.9)
Cash and Cash Equivalents at Beginning of Year...... 3.3 - 1.9
------- ------- -------
Cash and Cash Equivalents at End of Year............ $ 9.4 $ 3.3 $ -
======= ======= =======
</TABLE>
See notes to condensed financial statements.
22
<PAGE>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) See notes to consolidated financial statements incorporated by reference
from the Annual Report.
(2) Payments made as assessments by state guaranty funds to cover losses to
policyholders of insurance companies under regulatory supervision for the
years ended December 31, 1994, 1993 and 1992 were $6.9 million, $5.8
million and $3.6 million, respectively. In addition, Aon's reserve for the
recognition of probable assessments for known industry insolvencies was
$9.9 million and $12.7 million at December 31, 1994 and 1993, respectively.
(3) Generally, the net assets of Aon's insurance subsidiaries available for
transfer to the parent company are limited to the amounts that the
insurance subsidiaries' statutory net assets exceed minimum statutory
capital requirements; however, payment of the amounts as dividends in
excess of $286 million may be subject to approval by regulatory
authorities.
(4) During 1993, Aon Corporation (Parent Company) reclassified $269 million of
investments in subsidiaries to notes receivable--subsidiaries related to
the finalization of the purchase price allocation for the 1992 acquisition
of certain assets and assumption of certain liabilities of Frank B. Hall,
Inc.
23
<PAGE>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATMENTS
(5) Below is a reconciliation of the combined statutory stockholders'
equity of Aon's insurance subsidiaries to the consolidated
stockholders' equity on a basis in accordance with generally accepted
accounting principles (GAAP):
<TABLE>
<CAPTION>
As of December 31, 1994 As of December 31, 1993
------------------------------------------- ---------------------------
Life/A&H P&C Combined Life/A&H P&C Combined
-------- ------ -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Statutory Stockholders' Equity $714.1 $284.0 $998.1 $561.3 $251.0 $812.3
Insurance business related adjustments:
Deferred policy acquisition costs 1,120.3 61.3 1,181.6 963.9 41.5 1,005.4
Cost of insurance purchased 109.1 - 109.1 94.7 - 94.7
Excess of cost over net assets purchased 148.4 - 148.4 153.5 - 153.5
Policy liabilities and reinsurance asset 131.3 - 131.3 112.1 - 112.1
Deferred income taxes (209.1) 42.5 (166.6) (227.6) 36.9 (190.7)
Investment valuation reserves 171.1 - 171.1 203.9 - 203.9
Unrealized capital (losses) (FAS 115) (158.0) - (158.0) - - -
------------------------------------------- ---------------------------
Subtotal $2,027.2 $387.8 2,415.0 $1,861.8 $329.4 2,191.2
========================= =================
Investment in other operations and other 609.7 597.6
-------- ---------
Investments in subsidiaries 3,024.7 2,788.8
Elimination of parent company contributions (767.3) (501.0)
-------- ---------
Consolidated Stockholders' Equity $2,257.4 $2,287.8
======== =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994 Year Ended December 31, 1993
---------------------------------- ----------------------------
Life/A&H P&C Combined Life/A&H P&C Combined
-------- ----- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Statutory Net Income * $271.9 $34.1 $306.0 $255.0 $62.1 $317.1
Insurance business related adjustments:
Deferred policy acquisition costs 337.7 76.8 414.5 269.6 56.3 325.9
Amortization of deferred policy acquisition costs (227.7) (48.5) (276.2) (204.1) (53.6) (257.7)
Amortization of cost of insurance purchased (13.9) - (13.9) (15.5) - (15.5)
Amortization of excess of cost over net assets purchased (4.8) - (4.8) (5.0) - (5.0)
Policy liabilities and reinsurance assets 19.2 - 19.2 10.5 - 10.5
Deferred income taxes (64.7) (6.9) (71.6) 26.3 2.7 29.0
Change in valuation reserves 26.6 - 26.6 (39.2) - (39.2)
Realized gain on transfer of subsidiary (89.4) - (89.4) (3.4) - (3.4)
Cumulative effect of postretirement benefits - - - - - -
---------------------------------- ----------------------------
Subtotal $255.0 $55.5 $310.3 $294.2 $67.5 $361.7
===================== =================
Investment in other operations and other 49.7 (37.9)
------ ------
Consolidated Net Income - GAAP Basis $360.0 $323.8
====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1992
----------------------------------
Life/A&H P&C Combined
-------- ----- --------
<S> <C> <C> <C>
Statutory Net Income * $187.0 $42.1 $229.1
Insurance business related adjustments:
Deferred policy acquisition costs 256.5 63.3 319.8
Amortization of deferred policy acquisition costs (195.0) (57.3) (252.3)
Amortization of cost of insurance purchased (20.5) - (20.5)
Amortization of excess of cost over net assets purchased (5.1) - (5.1)
Policy liabilities and reinsurance assets 47.8 - 47.8
Deferred income taxes (55.2) 2.0 (53.2)
Change in valuation reserves (16.6) - (16.6)
Realized gain on transfer of subsidiary - - -
Cumulative effect of postretirement benefits (30.0) - (30.0)
----------------------------------
Subtotal $168.9 $50.1 $219.0
=====================
Investment in other operations and other (92.4)
-------
Consolidated Net Income - GAAP Basis $126.6
=======
</TABLE>
* net of intercompany dividends
24
<PAGE>
SCHEDULE III
Aon Corporation and Subsidiaries
SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
Future
policy
benefits, Unearned Benefits, Amortization
Deferred losses, premiums Premium claims, of deferred
policy claims and other & policy Net Commissions, losses and policy Other
acquisition and loss policyholder fees investment fees settlement acquisition operating Premiums
costs (1) expenses (4) funds (4) revenue income (2) & other expenses (5) costs (1) expenses written (3)
(millions) ----------- ------------ ------------ -------- ---------- ----------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1994
Insurance
brokerage
and consulting
services...... $ -- $ -- $ -- $ -- $ 46.6 $1,375.5 $ -- $ -- $1,263.3 $ --
Life insurance. 583.7 1,206.1 5,785.6 454.5 477.8 14.6 608.2 98.2 127.3 325.2
A&H insurance.. 645.6 732.0 625.3 1,229.3 51.6 15.7 539.9 143.4 435.6 1,307.1
Specialty
property
and casualty.. 61.3 440.6 520.8 249.9 45.4 20.3 156.8 48.5 56.8 335.1
Corporate and
other......... -- -- -- -- 138.1 37.6 -- -- 141.3 --
-------- -------- -------- -------- ------ -------- -------- ------ -------- --------
Total........ $1,290.6 $2,378.7 $6,931.7 $1,933.7 $759.5 $1,463.7 $1,304.9 $290.1 $2,024.3 $1,967.4
======== ======== ======== ======== ====== ======== ======== ====== ======== ========
Year ended
December 31, 1993
Insurance
brokerage
and consulting
services...... $ -- $ -- $ -- $ -- $ 37.5 $1,177.5 $ -- $ -- $1,086.9 $ --
Life insurance. 508.6 1,221.5 5,448.4 432.1 490.9 12.1 609.1 90.7 128.9 279.0
A&H insurance.. 550.0 661.8 531.2 1,130.1 54.2 16.4 483.0 128.8 422.1 1,151.4
Specialty
property
and casualty.. 41.5 443.0 470.4 260.8 47.0 18.4 175.2 53.9 53.6 284.0
Corporate and
other......... -- -- -- -- 115.6 52.2 -- -- 133.5 --
-------- -------- -------- -------- ------ -------- -------- ------ -------- --------
Total........ $1,100.1 $2,326.3 $6,450.0 $1,823.0 $745.2 $1,276.6 $1,267.3 $273.4 $1,825.0 $1,714.4
======== ======== ======== ======== ====== ======== ======== ====== ======== ========
Year ended
December 31, 1992
Insurance
brokerage
and consulting
services...... $ -- $ -- $ -- $ -- $ 27.5 $ 699.2 $ -- $ -- $ 728.4 $ --
Life insurance. 454.9 1,184.7 4,863.9 426.4 489.6 11.5 616.1 89.7 140.8 306.0
A&H insurance.. 563.8 627.1 506.8 1,121.8 60.2 16.2 494.6 125.7 420.3 1,117.5
Specialty
property
and casualty.. 39.1 239.3 337.4 278.1 52.3 17.9 194.9 57.7 58.4 377.8
Corporate and
other......... -- -- -- -- 107.4 28.4 -- -- 119.4 --
-------- -------- -------- -------- ------ -------- -------- ------ -------- --------
Total........ $1,057.8 $2,051.1 $5,708.1 $1,826.3 $737.0 $773.2 $1,305.6 $273.1 $1,467.3 $1,801.3
======== ======== ======== ======== ====== ======== ======== ====== ======== ========
</TABLE>
----------------
(1) Includes cost of insurance purchased.
(2) The above results reflect allocations of investment income and certain
expense elements considered reasonable under the circumstances.
(3) Net of reinsurance ceded.
(4) Net of reinsurance ceded in 1992.
(5) Interest expense incurred on investment-type policies for the years ended
December 31, 1994, 1993 and 1992 amounted to $248.2 million, $248.5
million, and $256.3 million, respectively.
25
<PAGE>
SCHEDULE IV
Aon Corporation and Subsidiaries
REINSURANCE
<TABLE>
<CAPTION>
Year Ended December 31, 1994
-----------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance in force (1).............. $74,047.9 $25,109.7 $1,173.9 $50,112.1 2.3%
========= ========= ======== ========= ====
Premiums and policy fees
Life Insurance......................... $ 606.3 $ 161.1 $ 9.3 $ 454.5 2.0%
A&H Insurance.......................... 1,218.9 114.4 124.8 1,229.3 10.2
Specialty Property & Casualty (2)...... 309.9 139.1 79.1 249.9 31.7
--------- --------- -------- --------- ----
Total premiums and policy fees........... $ 2,135.1 $ 414.6 $ 213.2 $ 1,933.7 11.0%
========= ========= ======== ========= ====
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1993
-----------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance in force (1).............. $70,936.8 $24,800.0 $1,223.9 $47,360.7 2.6%
========= ========= ======== ========= ====
Premiums and policy fees
Life Insurance......................... $ 582.9 $ 159.4 $ 8.6 $ 432.1 2.0%
A&H Insurance.......................... 1,182.1 117.9 65.9 1,130.1 5.8
Specialty Property & Casualty (2)...... 281.6 130.7 109.9 260.8 42.1
--------- --------- -------- --------- ----
Total premiums and policy fees........... $ 2,046.6 $ 408.0 $ 184.4 $ 1,823.0 10.1%
========= ========= ======== ========= ====
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1992
-----------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance in force (1).............. $70,375.8 $23,231.3 $1,475.6 $48,620.1 3.0%
========= ========= ======== ========= ====
Premiums and policy fees
Life Insurance ........................ $ 559.7 $ 156.5 23.2 $ 426.4 5.4%
A&H Insurance.......................... 1,177.7 151.7 95.8 1,121.8 8.5
Specialty Property & Casualty (2)...... 274.7 105.9 $ 109.3 278.1 39.3
--------- --------- -------- --------- ----
Total premiums and policy fees........... $ 2,012.1 $ 414.1 $ 228.3 $ 1,826.3 12.5%
========= ========= ======== ========= ====
</TABLE>
(1) Includes credit life insurance.
(2) Includes mechanical repair insurance sold through automobile dealers,
appliance warranty insurance and property liability insurance.
26
<PAGE>
SCHEDULE V
Aon CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
(millions) Additions
-------------------------
Balance at Charged to Charged to Balance
beginning cost and other Deductions at end
Description of year expenses accounts (1) of year
----------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
----------------------------
Reserve for losses (2)
(deducted from mortgage loans on real estate) $42.0 $ - $(12.3) $ - $29.7
Reserve for losses
(deducted from long-term bonds) 11.7 - - (11.7) -
Reserve for losses (2)
(deducted from other long-term investments) 9.3 - (2.6) - 6.7
Allowance for doubtful accounts (3)
(deducted from insurance brokerage and consulting
services receivables) 41.2 7.0 1.3 (4.3) 45.2
Allowance for doubtful accounts (3)
(deducted from premiums and other) 3.1 1.4 - (1.3) 3.2
Year ended December 31, 1993
----------------------------
Reserve for losses (2)
(deducted from mortgage loans on real estate) $23.8 $ - $ 25.7 $ (7.5) $42.0
Reserve for losses (2)
(deducted from long-term bonds) - - 11.7 - 11.7
Reserve for losses (2)
(deducted from other long-term investments) - - 21.0 (11.7) 9.3
Allowance for doubtful accounts (3)
(deducted from insurance brokerage and consulting
services receivables) 34.6 2.3 6.4 (2.1) 41.2
Allowance for doubtful accounts (3)
(deducted from premiums and other) 5.0 1.4 - (3.3) 3.1
Year ended December 31, 1992
----------------------------
Reserve for losses (2)
(deducted from mortgage loans on real estate) $7.2 $ - $ 29.6 $(13.0) $23.8
Allowance for doubtful accounts
(deducted from insurance brokerage and consulting
services receivables) 4.2 9.4 22.4 (1.4) 34.6
Allowance for doubtful accounts (3)
(deducted from premiums and other) 6.9 2.5 0.5 (4.9) 5.0
</TABLE>
(1) Accounts deemed to be uncollectible.
(2) Amounts shown in additions charged to other accounts represent realized
investment losses.
(3) Amounts shown in additions charged to other accounts represent reserves
related to acquired business.
27
<PAGE>
Cross Reference Sheet, Pursuant
to General Instruction G(4)
<TABLE>
<CAPTION>
ITEM IN INCORPORATED BY
FORM 10-K REFERENCE TO
--------- ------------
<S> <C>
Part I
Item 1. Business Annual Report to Stockholders of the
Registrant for the Year 1994 ("Annual
Report") pages 15 through 19 and 21
through 25.
Item 3. Legal Proceedings Annual Report page 48 (note 11 of
Notes to Consolidated Financial
Statements).
Part II
Item 5. Market for the Registrant's Annual Report pages 43 and 44 (note 7
Common Stock and Related of Notes to Consolidated Financial
Security Holder Matters Statements) and page 51.
Item 6. Selected Financial Data Annual Report page 50.
Item 7. Management's Discussion and Annual Report pages 27 through 32.
Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements Annual Report pages 33 through 49 and 51.
and Supplementary Data
Part III
Item 10. Directors and Executive Notice of Annual Meeting of Holders
Officers of the Registrant of Common Stock and Series C
Preferred Stock and Proxy Statement
For Annual Meeting of Stockholders on
April 20, 1995 of the Registrant
("Proxy Statement") pages 3 and 6.
Item 11. Executive Compensation Proxy Statement pages 11 through 13.
Item 12. Security Ownership of Certain Proxy Statement pages 2, 7 and 8.
Beneficial Owners and Management
Item 13. Certain Relationships and Proxy Statement page 17.
Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Annual Report pages 33 through 49.
Schedules, and Reports on
Form 8-K
</TABLE>
(3) Articles of incorporation and bylaws:
28
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
------------- --------------
(a) Second Restated Certificate of Incorporation of the Registrant--
incorporated by reference to Exhibit 3(a) to the 1991 Form 10-K.
(b) Certificate of Amendment of the Registrant's Second Restated
Certificate of Incorporation - incorporated by reference to
Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ending March 31, 1994 (the "First Quarter 1994 Form
10-Q).
(c) Bylaws of the Registrant--incorporated by reference to Exhibit
(d) to the 1982 Form 10-K.
(d) Certificate of Designation for the Registrant's 8% Cumulative
Perpetual Preferred Stock, $1.00 par value -- incorporated by
reference to Exhibit 4(a) to the Registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 1992 (the "Third
Quarter 1992 Form 10-Q").
(e) Certificate of Designation for the Registrant's 6 1/4%
Cumulative Convertible Exchangeable Preferred Stock, $1.00 par
value -- incorporated by reference to Exhibit 4(b) to the Third
Quarter 1992 Form 10-Q.
(f) Certificate of Designation for the Registrant's Series C
Cumulative Preferred Stock - incorporated by reference to Exhibit
4.1 to the Registrant's Current Report on Form 8-K dated
February 9, 1994.
(4) Instruments defining the rights of security holders, including
indentures:
(a) Indenture dated September 15, 1992 between the Registrant and
Continental Bank Corporation (now known as Bank of America
Illinois), as Trustee--incorporated by reference to Exhibit 4(a)
of the Registrant's Current Report on Form 8-K dated
September 23, 1992.
(b) Resolutions establishing terms of 6.875% Notes Due 1999 and
7.40% Notes Due 2002 - incorporated by reference to Exhibit 4(d)
to the Registrant's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ending December 31, 1992.
(c) Resolutions establishing the terms of 6.70% Notes Due 2003
incorporated by reference to Exhibit 4(c) to the Registrant's
Annual Report to the Securities and Exchange Commission on Form
10-K for the year ending December 31, 1993 (the "1993 Form
10-K").
(d) Resolutions establishing the terms of 6.30% Notes Due 2004
incorporated by reference to Exhibit 4(d) to the 1993 Form 10-K.
29
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
------------- --------------
(10) Material Contracts:
(a) Aon Stock Option Plan-incorporated by reference to
Exhibit 10(a) to the 1990 Form 10-K.
(b) First Amendment to Aon Stock Option Plan -
incorporated by reference to the Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the
quarter ending June 30, 1994 (the "Second Quarter
1994 Form 10-Q").
(c) Second Amendment to Aon Stock Option Plan -
incorporated by reference to Exhibit 10(c) to the
Second Quarter 1994 Form 10-Q.
(d) Ryan Insurance Group, Inc. Stock Option Plan
together with Stock Option Assumption Agreement
providing for amendment of the plan--incorporated
by reference to Exhibit 4(b) to the Registration
Statement No. 2-79114 on Form S-8.
(e) Registration Rights Agreement by and among the
Registrant and certain affiliates of Ryan Insurance
Group, Inc. (including Patrick G. Ryan and Andrew J.
McKenna)--incorporated by reference to Exhibit (f)
to the 1982 Form 10-K.
(f) 1994 Restatement of Aon Savings Plan. 32
(g) 1994 Restatement of Aon Employee Stock Ownership Plan. 124
(h) 1994 Restatement of Aon Pension Plan. 192
(i) Deferred Compensation Agreement by and among
Registrant and Registrant's directors who are not
salaried employees of Registrant or Registrant's
affiliates--incorporated by reference to Exhibit
10(i) to the 1987 Form 10-K.
(j) Aon Stock Award Plan, as amended - incorporated by
reference to Exhibit 10(a) to the First Quarter 1994
Form 10-Q.
(k) Amendment and Waiver Agreement Dated as of November 4,
1991 among the Registrant and each of Patrick G.
Ryan, Shirley Ryan, Ryan Enterprises Corporation and
Harvey N. Medvin -- incorporated by reference to
Exhibit 10(j) to the 1991 Form 10-K.
(l) Registration Rights Agreement dated November 2, 1992
by and between the Registrant and Frank B. Hall & Co.
Inc. -- incorporated by reference to exhibit 4(c) to
the Third Quarter 1992 Form 10-Q.
30
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
------------- --------------
(m) Aon Corporation 1994 Amended and Restated Outside
Director Stock Award Plan - incorporated by
reference to Exhibit 10(b) to the First Quarter
1994 Form 10-Q.
(11) Statement regarding Computation of Per Share Earnings. 283
(12) Statements regarding Computation of Ratios.
(a) Statement regarding Computation of Ratio of Earnings
to Fixed Charges. 284
(b) Statement regarding Computation of Ratio of Earnings
to Combined Fixed Charges and Preferred Stock
Dividends. 285
(13) Annual Report of Stockholders of the Registrant for the
year ended December 31, 1994 (for information, and not
to be deemed filed, except for those portions specifically
incorporated by reference herein).
(21) List of subsidiaries of the Registrant. 286
(23) Consent of Ernst & Young LLP to the incorporation by
reference into Aon's Annual Report on Form 10-K of
their report included in the 1994 Annual Report to
Stockholders and into Aon's Registration Statement
Nos. 2-79114, 2-82791, 33-27984, 33-42575 and 33-57562. 297
(99) Annual Report to the Securities and Exchange Commission
on Form 11-K for the Aon Savings Plan for the year ended
December 31, 1994 -- to be filed by amendment as provided
in Rule 15d-21(b).
31
<PAGE>
Exhibit 10(F)
page 1 of 92
1994 RESTATEMENT OF
Aon SAVINGS PLAN
32
<PAGE>
Exhibit 10(F)
page 2 of 92
1994 Restatement of
Aon Savings Plan
-------------------
(Previously known as Combined International
Corporation Staff Employees' Saving Plan)
TABLE OF CONTENTS
SECTION 1 - DEFINITION OF TERMS............................................ 3
1.01 THE TERM "AFFILIATE"......................................... 3
1.02 THE TERM "ANNIVERSARY DATE".................................. 3
1.03 THE TERM "BASIC PAY DEFERRAL AMOUNT"......................... 3
1.04 THE TERM "BENEFICIARIES"..................................... 3
1.05 THE TERM "BOARD"............................................. 3
1.06 THE TERM "COMMITTEE"......................................... 3
1.07 THE TERM "COMPANY"........................................... 3
1.08 THE TERM "COMPENSATION"...................................... 3
1.09 THE "EFFECTIVE DATE"......................................... 4
1.10 THE TERM "EMPLOYEE".......................................... 4
1.11 THE TERM "ERISA"............................................. 5
1.12 THE TERM "HIGHLY COMPENSATED EMPLOYEE"....................... 5
1.13 THE TERM "HOURS OF SERVICE".................................. 6
1.14 THE TERM "INSTITUTIONAL TRUSTEE"............................. 7
1.15 THE TERM "IRC"............................................... 7
1.16 THE TERM "INVESTMENT FUNDS".................................. 7
1.17 THE TERM "LEASED EMPLOYEE"................................... 7
1.18 THE TERM "NORMAL RETIREMENT DATE"............................ 8
1.19 THE TERM "1-YEAR BREAK IN SERVICE"........................... 8
1.20 THE TERM "PARTICIPANT"....................................... 8
1.21 THE TERM "PLAN".............................................. 8
1.22 THE TERM "PLAN YEAR"......................................... 8
1.23 THE TERM "SERVICE"........................................... 8
1.24 THE TERM "SUBSIDIARY"........................................ 9
1.25 THE TERM "SUPPLEMENTAL PAY DEFERRAL AMOUNT".................. 9
1.26 THE TERM "TRUST"............................................. 9
1.27 THE TERM "TRUSTEE" OR "TRUSTEES"............................. 9
1.28 THE TERM "TRUST FUND"........................................ 9
1.29 THE TERM "UNITED STATES"..................................... 9
SECTION 2 - EMPLOYEES ENTITLED TO PARTICIPATE.............................. 10
2.01 CONDITIONS OF ELIGIBILITY.................................... 10
2.02 TERMINATION OF EMPLOYMENT.................................... 10
2.03 LEAVE OF ABSENCE............................................. 11
2.04 TRANSFER TO AN AFFILIATE..................................... 11
33
<PAGE>
Exhibit 10(F)
page 3 of 92
TABLE OF CONTENTS (continued)
2.05 TRANSFER TO A FOREIGN COUNTRY................................ 11
2.06 EMPLOYMENT IN BARGAINING UNIT................................ 11
SECTION 3 - CONTRIBUTIONS.................................................. 12
3.02 DATE OF CONTRIBUTION......................................... 13
3.03 BASIC PAY DEFERRAL AMOUNT.................................... 13
3.04 SUPPLEMENTAL PAY DEFERRAL AMOUNT............................. 13
3.05 VOLUNTARY CONTRIBUTIONS BY PARTICIPANTS...................... 13
3.06 RESTRICTIONS AND LIMITATIONS ON PAY DEFERRAL AMOUNTS......... 15
3.07 ADJUSTMENTS IN PAY DEFERRAL AMOUNTS.......................... 15
3.10 ROLLOVERS.................................................... 22
SECTION 4 - ALLOCATION OF TRUST FUNDS...................................... 23
4.01 COMPANY CONTRIBUTION ACCOUNT................................. 23
4.02 BASIC PAY DEFERRAL ACCOUNT................................... 23
4.03 SUPPLEMENTAL PAY DEFERRAL ACCOUNT............................ 24
4.04 VOLUNTARY CONTRIBUTION ACCOUNT............................... 24
4.05 RECORDS AND ACCOUNTING....................................... 24
4.06 DETERMINATION OF COMPENSATION................................ 25
4.07 DESIGNATION OF BENEFICIARY................................... 25
4.08 MERGERS AND TRANSFERS OF ASSETS AND LIABILITIES.............. 26
SECTION 5 - INVESTMENTS.................................................... 33
5.01 INVESTMENT FUNDS............................................. 33
5.02 INVESTMENT ELECTIONS......................................... 33
5.03 PASS-THROUGH VOTING, LIFE OF VIRGINIA SERIES FUND, INC....... 33
5.04 LACK OF VALID ELECTION....................................... 34
5.05 FUNDS FOR INVESTMENT......................................... 35
5.06 INVESTMENT OF THE SEPARATE FUNDS............................. 36
5.07 INVESTMENTS NOT ALLOCATED TO SEPARATE ACCOUNTS............... 37
SECTION 6 - PROVISIONS RELATING TO TRUSTEE................................. 38
6.01 APPOINTMENT OF TRUSTEES AND INSTITUTIONAL TRUSTEE............ 38
6.02 FEES AND EXPENSES OF TRUSTEE................................. 38
6.03 PAYMENT OF COSTS, FEES AND EXPENSES.......................... 38
6.04 UNCERTAIN DISTRIBUTION....................................... 38
6.05 LIABILITY.................................................... 38
6.06 LEGAL ACTION................................................. 39
6.07 MANNER OF ACTING............................................. 39
6.08 DUTIES OF INSTITUTIONAL TRUSTEE.............................. 39
34
<PAGE>
Exhibit 10(F)
page 4 of 92
TABLE OF CONTENTS (continued)
6.09 LIMITATION ON LIABILITY...................................... 39
6.10 INDEMNITY.................................................... 39
6.11 DISBURSEMENTS................................................ 40
6.12 REPORTS...................................................... 40
6.13 ADDITIONAL POWERS OF TRUSTEE................................. 40
6.14 INVESTMENT MANAGER........................................... 42
SECTION 7 - ADMINISTRATION OF THE PLAN..................................... 43
7.01 COMMITTEE.................................................... 43
7.02 DUTIES OF COMMITTEE.......................................... 43
7.03 CHAIRMAN AND SECRETARY....................................... 43
7.04 MEETINGS AND QUORUM.......................................... 43
7.05 ALLOCATION OF DUTIES......................................... 43
7.06 AON.......................................................... 44
7.07 RULES AND INTERPRETATION..................................... 44
7.08 LIMITATIONS ON LIABILITY..................................... 44
7.09 INDEMNITY.................................................... 44
7.10 IDENTITY..................................................... 45
SECTION 8 - DISPOSITION OF THE SEPARATE TRUST ACCOUNTS..................... 46
8.01 PARTICIPANT STILL EMPLOYED BY COMPANY AFTER RETIREMENT DATE.. 46
8.02 DISPOSITION AT OR AFTER RETIREMENT DATE OR IN CASE OF
PHYSICAL OR MENTAL DISABILITY................................ 46
8.03 DISPOSITION UPON THE DEATH OF A PARTICIPANT.................. 46
8.04 DISPOSITION UPON TERMINATION OF EMPLOYMENT BEFORE
REACHING RETIREMENT DATE..................................... 46
8.05 TERMINATION OF THE TRUST AND DISPOSITION
UPON SUCH TERMINATION........................................ 47
8.06 PAYMENT TO MINORS, ETC....................................... 48
8.07 HARDSHIP WITHDRAWALS......................................... 48
8.08 NET EARNINGS AND VALUATION ADJUSTMENT........................ 50
8.09 METHOD OF VALUING ASSETS..................................... 50
8.10 GENERAL PROVISIONS REGARDING PAYMENT OF BENEFITS............. 50
35
<PAGE>
Exhibit 10(F)
page 5 of 92
TABLE OF CONTENTS (continued)
SECTION 9 - PARTICIPANT'S NONFORFEITABLE INTEREST.................... 55
9.01 GENERAL RULE............................................ 55
9.02 SPECIAL RULES........................................... 55
9.03 RESTORATION OF FORFEITURES.............................. 56
9.04 APPLICATION OF OLD VESTING SCHEDULE..................... 57
SECTION 10 - SPENDTHRIFT TRUST........................................ 58
10.01 GENERAL................................................. 58
10.02 QUALIFIED DOMESTIC RELATIONS ORDER...................... 58
SECTION 11 - COMPANY TO HAVE NO INTEREST IN TRUST..................... 61
SECTION 12 - AMENDMENT AND SUSPENSION OF CONTRIBUTIONS................ 62
12.01 AMENDMENT OF THE AGREEMENT.............................. 62
12.02 SUSPENSION.............................................. 62
SECTION 13 - ADOPTION OF PLAN BY AFFILIATE............................ 63
13.01 ADOPTION OF PLAN........................................ 63
13.02 INTENTION OF PARTIES.................................... 63
13.03 TERMINATION OF STATUS OF SUBSIDIARY..................... 63
SECTION 14 - ERISA PROVISIONS......................................... 64
14.01 SERVICE FOR PREDECESSOR................................. 64
14.02 CONTROLLED GROUP........................................ 64
14.03 MERGER.................................................. 64
14.04 CLAIMS PROCEDURE........................................ 64
14.05 INVESTMENT IN DEPOSITS WITH CORPORATE FIDUCIARY......... 65
14.06 MAXIMUM ANNUAL ADDITION................................. 65
SECTION 15 - MISCELLANEOUS............................................ 70
15.01 VALIDITY OF CONTRACTS................................... 70
15.02 RELIANCE ON INFORMATION FURNISHED BY THE COMPANIES...... 70
15.03 INABILITY TO PERFORM.................................... 70
15.04 EXECUTION OF DOCUMENTS.................................. 70
15.05 NOTICE OF REQUIRED ACTION............................... 70
15.06 RELIANCE UPON COMMUNICATION............................. 71
15.07 DISCHARGE UPON PAYMENT.................................. 71
15.08 INSURER NOT PARTY TO AGREEMENT.......................... 71
36
<PAGE>
Exhibit 10(F)
page 6 of 92
TABLE OF CONTENTS (continued)
15.09 DISPOSITION OF SHARE OF MISSING PERSONS.................... 71
15.10 GENDER AND CASE............................................ 71
15.11 SECTION TITLE NOT PART OF AGREEMENT........................ 71
15.12 CONSTRUCTION............................................... 71
15.13 AGREEMENT BINDING ON ALL PARTIES........................... 72
SECTION 16 - PROVISIONS APPLICABLE IF PLAN BECOMES TOP-HEAVY............. 73
16.01 APPLICABILITY.............................................. 73
16.02 ADDITIONAL DEFINITIONS..................................... 73
16.03 SPECIAL RULES.............................................. 75
16.04 PARTICIPANT'S TOP-HEAVY ACCOUNT............................ 75
16.05 VESTING WITH RESPECT TO PARTICIPANTS' TOP-HEAVY ACCOUNTS... 76
16.06 MINIMUM CONTRIBUTION FOR NON-KEY EMPLOYEE.................. 76
16.07 MAXIMUM ANNUAL ADDITION.................................... 76
16.08 SIMPLIFIED EMPLOYEE PENSIONS............................... 77
16.09 CONTRIBUTIONS OR BENEFITS NOT TAKEN INTO ACCOUNT........... 77
SCHEDULE A -
SPECIAL PROVISIONS RELATING TO SERVICE............................ 79
SCHEDULE B -
SPECIAL PROVISIONS RELATED TO FORMER PARTICIPANTS
OF THE SAVINGS AND INVESTMENT PLAN FOR THE EMPLOYEES
OF FRANK B. HALL & CO. INC........................................ 82
SCHEDULE C -
SPECIAL PROVISIONS RELATED TO FORMER
PARTICIPANTS OF THE K&K INSURANCE GROUP, INC.
401(K) SALARY REDUCTION PLAN...................................... 84
SCHEDULE D -
SPECIAL PROVISIONS RELATED TO FORMER
PARTICIPANTS OF THE SALARY DEFERRAL
THRIFT PLAN FOR THE EMPLOYEES OF BOOKE & COMPANY.................. 85
37
<PAGE>
Exhibit 10(f)
Page 7 of 92
1994 RESTATEMENT OF
AON SAVINGS PLAN
----------------
(Previously known as Combined International Corporation
Staff Employees' Savings Plan)
WHEREAS, Rollins Burdick Hunter Co. entered into an agreement
establishing a profit- sharing plan and a trust pursuant to the plan for the
benefit of its employees and the employees of its subsidiaries which adopted the
plan, which agreement was known as the Rollins Burdick Hunter Co. Savings and
Investment Plan;
WHEREAS, effective July 1, 1984, Combined International Corporation, the
parent corporation of Rollins Burdick Hunter Co., adopted this profit-sharing
Plan and Trust agreement for the Staff Employees of Combined and of its various
other subsidiaries, amended and restated the Plan and Trust agreement, changed
the name of the Plan and Trust agreement to the Combined International
Corporation Staff Employees' Savings Plan, and made Combined the sponsor of the
Plan and Trust agreement;
WHEREAS, pursuant to said 1984 Restatement, assets and liabilities under
various plans within the Combined group for participants therein were
transferred to this Plan pursuant to IRC Sections 401(a)(12) and 414(l) and
Section 208 of ERISA, and pursuant to the provisions of such plans; and assets
and liabilities under various plans within the Aon group were likewise
transferred to the Plan pursuant the 1989 Restatement and subsequent amendments
in similar fashion;
WHEREAS, the Plan previously had been set forth in an instrument dated
July 1, 1984, and was amended five times after that last restatement thereof, on
July 20, 1984; December 13, 1984; again on December 13, 1984; November 15, 1985;
and on November
38
<PAGE>
Exhibit 10(f)
Page 8 of 92
20, 1987; and whereas the Plan was restated by a 1987 Restatement thereof on
November 20, 1987 which itself was amended one time on April 15, 1988;
WHEREAS, the Plan was again restated effective January 1, 1989 ("Second
Amendment to and 1989 Restatement of Aon Savings Plan") in order to comply with
the Tax Reform Act of 1986 and other later changes in the law and to change the
name of the Plan and Trust agreement to the Aon Savings Plan;
WHEREAS, AON CORPORATION (sometimes referred to herein as "Aon") now
wishes to amend and again restate the Plan and Trust agreement for the purpose
of complying with the Omnibus Budget Reconciliation Act of 1993 and other
changes in the law and to make certain other desirable changes therein,
including changes necessary for the Plan to constitute an ERISA 404(c) plan
wherein the fiduciaries may be relieved of liability for any losses which are
the direct and necessary result of investment instructions given by participants
and beneficiaries;
NOW, THEREFORE, pursuant to a resolution adopted by the Board of
Directors the Plan shall be and hereby is further amended and restated
effective as of January 1, 1994, except as otherwise indicated herein, as
follows:
39
<PAGE>
Exhibit 10(f)
Page 9 of 92
SECTION 1 - DEFINITION OF TERMS
Unless the context shall otherwise clearly indicate, the following terms
shall be construed as hereinafter defined:
1.01 THE TERM "AFFILIATE" shall refer to a substantially owned subsidiary or
sub-subsidiary of Aon that has not adopted the Plan herein set forth.
1.02 THE TERM "ANNIVERSARY DATE" shall refer to the last day of each Plan Year
during which this Agreement shall be in force and effect.
1.03 THE TERM "BASIC PAY DEFERRAL AMOUNT" shall refer to the amount by which a
Participant has elected to have his Compensation adjusted under Section
3.03.
1.04 THE TERM "BENEFICIARIES" shall refer to persons designated by the
Participant to receive his share of any property of the Trust in case of
the Participant's death.
1.05 THE TERM "BOARD" shall refer to the Board of Directors of Aon or any
committee of the Board of Directors delegated authority to act for the
whole Board in respect of matters relating to the Plan.
1.06 THE TERM "COMMITTEE" shall refer to the Committee appointed by the Board
pursuant to Section 7.01. The Committee is designated as the
administrator, plan administrator, and named fiduciary with respect to
the administration of the Plan (but not with respect to the control,
management and investment of the assets of the trust) for the purposes of
ERISA.
1.07 THE TERM "COMPANY" as used herein shall refer to Aon Corporation
(hereinafter referred to as "Aon" when referring only to Aon Corporation)
when applying the provisions of this Trust as its profit sharing plan for
its Employees. It shall refer to each "Subsidiary" when applying the
provisions of this Trust as the profit-sharing plan for the Employees of
such Subsidiary. The term "Companies" as used herein shall refer
collectively to Aon and all Subsidiaries and shall be applied as though
all of such Companies constituted a single employer.
1.08 THE TERM "COMPENSATION" shall mean the following types of earnings paid
to an Employee for his service on behalf of the Company subsequent to the
date he becomes a Participant, determined before excluding any reduction
described in Sections 3.03 and 3.04 or for cafeteria plans under Section
125 of the IRC, but excluding any such amounts paid to him in respect to
employment during which he is not permanently employed within the United
States or its possessions as set forth in Section 2.01(b):
(a) salary and fixed-based compensation including compensation for
overtime;
40
<PAGE>
Exhibit 10(f)
Page 10 of 92
(b) bonuses paid pursuant to periodic individual performance appraisals
and formal contractual bonus programs, but excluding other bonus and
miscellaneous income; and
(c) net commission, renewal and override compensation (but excluding
deferred commission payments).
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of
each Employee taken into account under the Plan shall not exceed the OBRA
'93 annual compensation limit. The OBRA '93 annual compensation limit is
$150,000, as adjusted by the commissioner of the Internal Revenue Service
for increases in the cost of living in accordance with Section
401(a)(17)(B) of the IRC. The cost-of-living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under section 401(a)(17) of the IRC shall
mean the OBRA '93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account
in determining an employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the
first day of the first plan year beginning on or after January 1, 1994,
the OBRA '93 annual compensation limit is $150,000.
In determining Compensation the rules of Section 1.12(d) shall apply
except the term "family" shall be limited to the Employee's spouse and to
any lineal descendants of the Employee who have not attained age 19
before the close of the year.
1.09 THE "EFFECTIVE DATE" of this Plan as restated shall be January 1, 1994 .
1.10 THE TERM "EMPLOYEE" shall refer to all employees of the Companies, except
those who are included in a unit of employees covered by a collective
bargaining agreement between employee representatives and one or more
employers, if retirement benefits were the subject of good faith
bargaining between such employee representatives and such employer or
employers.
41
<PAGE>
Exhibit 10(f)
Page 11 of 92
1.11 THE TERM "ERISA" refers to the Employee Retirement Income Security Act of
1974, as from time to time amended.
1.12 THE TERM "HIGHLY COMPENSATED EMPLOYEE" shall include an employee who
received compensation in excess of $75,000, received compensation in
excess of $50,000 and was in the top-paid group, or was an officer and
received compensation greater than $45,000 (all amounts as adjusted for
increases in the cost of living per Section 14.6), either (i) in the
current year while a member of the 100 employees paid the greatest
compensation or (ii) in the preceding year. The term "compensation"
means compensation under Section 14.06, and shall include reductions
described in Sections 3.03 and 3.04 or for cafeteria plans under Section
125 of the IRC. The following rules shall apply.
(a) Five-percent owner. Such term shall also include an employee who was
a five-percent owner (as defined at Section 16.02(b)) at any time
during either the preceding year or the current year.
(b) Top-paid group. The "top-paid group" is the group consisting of the
top 20 percent of employees ranked on the basis of compensation paid
during the year. For purposes of determining the number of employees
in the top-paid group (but not for purposes of identifying the
particular employees therein), or the number of officers taken into
account under Subsection (c), below, there shall be excluded those
employees who have not completed six months of service; employees who
normally work either less than 17 1/2 hours per week or not more than
six months during any year; employees who have not attained age 21;
and except to the extent provided in regulations, employees included
in a unit of employees covered by a collective bargaining agreement.
(c) Officers. The highest paid officer shall always be treated as a
Highly Compensated Employee; otherwise the number of officers so
treated shall not exceed the lesser of (i) 50 employees or (ii) the
greater of three employees or 10 percent of the employees.
(d) Family members. Any individual who is a member of the family (i.e.,
the spouse, and lineal ascendants or descendants and their spouses)
of a Highly Compensated Employee who is either a five-percent owner
or one of the ten most highly compensated employees shall not be
considered a separate employee and his compensation (and any
applicable contribution or benefit on behalf of such individual)
shall be treated as if it were paid to (or on behalf of) such Highly
Compensated Employee. This rule shall apply in determining the
compensation of (or any contributions or benefits on behalf of) any
employee for purposes of any Section of the IRC with respect to which
a Highly Compensated Employee is defined by reference to IRC Section
414(q) (the provisions of which are set forth in this Section),
except as provided in regulations and except in determining the
portion of the
42
<PAGE>
Exhibit 10(f)
Page 12 of 92
compensation of a Participant which is under the integration level
for purposes of IRC Section 401(l).
(e) Former employees. A former employee shall be treated as a Highly
Compensated Employee if he was a Highly Compensated Employee either
(i) when he separated from service or (ii) at any time after
attaining age 55.
(f) Nonresident Aliens. For purposes of this Section, employees who are
nonresident aliens and who receive no earned income (within the
meaning of Section 911(d)(2) of the IRC ) from the Company which
constitutes income from sources within the United States shall not be
treated as employees.
(g) Simplified Method for Determining Highly Compensated Employees. If
an election by the Company under this subsection applies to any year,
in determining whether an employee is a Highly Compensated Employee
for such year, the first sentence of this Section shall be applied by
substituting "$50,000" for "$75,000," and the $50,000 test for the
top-paid group shall not apply. Such election shall not apply to any
year unless at all times during such year, the Company maintained
significant business activities (and employed employees) in at least
2 significantly separate geographic areas, and the Company satisfies
such other conditions as the Secretary of the Treasury may prescribe.
(h) Coordination with Other Provisions. Section 14.02 shall be applied
before the application of this Section 1.12.
1.13 THE TERM "HOURS OF SERVICE" shall refer to the hours for which an Employee
is directly or indirectly paid or entitled to payment, for the performance
of duties or for a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated)
during the applicable computation period and such hours shall include any
hours for which back pay, irrespective of mitigation of damages, has
either been awarded or agreed to; provided, however, no more than 501
Hours of Service shall be credited on account of any single continuous
period during which an Employee performs no duties (whether or not such
period occurs in a single computation period). An Employee who enters
military service and again becomes actively employed upon separation from
such service shall be credited with Hours of Service in respect to his
period of military service only to the extent and for the purposes
required by federal law governing veterans' reemployment rights. Hours
shall not be credited for payments made or due under a plan maintained
solely for the purpose of complying with applicable workmen's
compensation, unemployment compensation, or disability insurance laws, or
for a payment which solely reimburses an Employee for medical or medically
related expenses incurred by the Employee. In those instances where
payroll or other Company records do not reflect the actual number of hours
worked by an Employee, such Employee shall be credited with 45 Hours of
Service for each calendar week that he would be required to be
43
<PAGE>
Exhibit 10(f)
Page 13 of 92
credited with at least one Hour of Service under the preceding portion of
this Section. This Section shall be applied, in respect to payments for
reasons other than the performance of duties and in respect to crediting
of Hours of Service to a particular computation period, in accordance with
the rules set forth in Labor Department Regulations Section 2530.200b-2(b)
and (c), which are incorporated herein by reference.
1.14 THE TERM "INSTITUTIONAL TRUSTEE" shall refer to the bank, or other
corporate trustee, duly appointed pursuant to Sections 5.05 and 6.01 of
this agreement and any amendment hereto. The Institutional Trustee is
designated as the named fiduciary with respect to the control, management
and investment of the assets of the Aon Stock Fund.
1.15 THE TERM "IRC" shall refer to the Internal Revenue Code of 1986 as from
time to time amended.
1.16 THE TERM "INVESTMENT FUNDS" shall refer to the funds available for
investment and established as described in Section 5.01
1.17 THE TERM "LEASED EMPLOYEE" shall refer to an individual, other than an
employee of the Employer or an affiliated employer (the "recipient
employer"), who, pursuant to an agreement between the recipient employer
and any other person (the "leasing organization") has performed services
for the recipient employer (or the recipient employer and related persons
determined in accordance with Section 414(n) of the IRC) on a
substantially full-time basis for a period of at least one year, and such
services are of a type historically performed by employment in the
business field of the recipient employer. Contributions or benefits
provided a Leased Employee by the leasing organization which are
attributable to services performed for the recipient employer shall be
treated as provided by the recipient employer. A leased employee shall
not be considered an employee of the recipient employer if:
(a) such individual is covered by a money purchase pension plan
providing:
(i) a nonintegrated employer contribution rate of at least ten
percent of compensation, but including amounts contributed
pursuant to a salary reduction agreement which are excludible
from the employee's gross income under Section 125, 402(e)(3),
402(h), or 403(b) of the IRC,
(ii) immediate participation, and
(iii) full and immediate vesting; and
(b) Leased Employees do not constitute more than 20% of the recipient
employer's non-highly compensated work force, as defined in Section
414(n)(5)(C)(ii) of the IRC.
44
<PAGE>
Exhibit 10(f)
Page 14 of 92
1.18 THE TERM "NORMAL RETIREMENT DATE" shall refer to a Participant's sixty-
fifth (65th) birthday.
1.19 THE TERM "L-YEAR BREAK IN SERVICE" shall refer to a 12-month consecutive
period, commencing with the termination of a Participant's employment as
an Employee of the Companies or an Affiliate, during which he has not
completed any Hours of Service as an Employee of the Companies or an
Affiliate. For purposes of this Section only, Service shall include up to
one year of Maternity or Paternity Leave; provided that the Trustees may
require the Participant to furnish such timely information as may
reasonably be required so as to establish that the absence from work is
for Maternity or Paternity Leave and to establish the number of days for
which there was such an absence. "Maternity or Paternity Leave" shall
mean an absence from work by reason of the pregnancy of the Participant,
by reason of the birth of a child of the Participant, by reason of
placement of a child with the Participant in connection with its adoption
by him or her, or for purposes of caring for such child for a period
beginning immediately following such birth or placement.
1.20 THE TERM "PARTICIPANT" shall refer to an Employee eligible under the terms
hereof to participate herein whose employment by the Companies has not
terminated. Where the context so requires, an individual for whose
benefit an account is being maintained under this Plan shall also be
deemed to be a Participant.
1.21 THE TERM "PLAN" shall refer to the Aon Savings Plan set forth in this
instrument, as the same may be amended from time to time.
1.22 THE TERM "PLAN YEAR" shall refer to the annual accounting period used by
the Trust ending on the last day of December of each year.
1.23 THE TERM "SERVICE" shall refer to the total period of time that an
individual has served as an Employee of the Companies (beginning on the
date an Employee first performs an Hour of Service and ending on the date
on which an Employee quits, retires, is discharged or dies), with the
following exceptions and modifications:
(a) In respect to an individual who is an Employee on January 1, 1975, or
becomes an Employee after January 1, 1975, any period of time
immediately preceding the date he became an Employee that he was
associated with the Companies as an independent field sales
representative shall be counted for the purpose of determining his
eligibility to participate hereunder pursuant to Section 2.01.
(b) For the purpose of determining the eligibility of an individual to
participate hereunder pursuant to Section 2.01, and his vested
interest pursuant to Section 9.02, service as an employee of an
Affiliate, or service as an employee in a bargaining unit for which
the individual will not be deemed to be an
45
<PAGE>
Exhibit 10(f)
Page 15 of 92
Employee under Section 1.10, shall be deemed to be Service as an
Employee of the Companies.
(c) If an Employee's employment with the Companies is terminated but he
is reemployed before he has incurred five 1-Year Breaks in Service,
the period commencing with the date his employment terminated and
ending with his reemployment date shall be counted as uninterrupted
Service and employment as an Employee of the Companies for the
purpose of determining his eligibility to participate hereunder
pursuant to Section 2.01; provided, that not more than 12 months of
such period shall count as uninterrupted Service for the purpose of
determining his vested interest pursuant to Section 9.02.
(d) For purposes of eligibility under Section 2.01, a year of Service
shall refer to a 12-consecutive month period beginning with his
employment commencement date (or reemployment commencement date) and
each anniversary of such date during which an Employee has 1,000
Hours of Service.
1.24 THE TERM "SUBSIDIARY" shall refer to such substantially owned subsidiary
or sub-subsidiary of Aon that has adopted the Plan herein set forth with
the approval of Aon.
1.25 THE TERM "SUPPLEMENTAL PAY DEFERRAL AMOUNT" shall refer to the additional
amount by which the Participant has elected to have his Compensation
further adjusted under Section 3.04; provided, that Participants may elect
a Supplemental Pay Deferral Amount only to the extent permitted by the
Board.
1.26 THE TERM "TRUST" shall refer to any trust established under this
Agreement, as such trusts may be amended.
1.27 THE TERM "TRUSTEE" OR "TRUSTEES" shall refer to the individual Trustees
herein originally named and the successors duly appointed or elected
pursuant to the provisions of this Agreement and any amendment hereto.
The Trustees are designated as the named fiduciary with respect to the
control, management and investment of the assets of the Trust, except for
assets of the Aon Stock Fund, for the purposes of ERISA.
1.28 THE TERM "TRUST FUND" shall refer to all the assets held under this Plan
regardless of the fund in which such assets are held.
1.29 THE TERM "UNITED STATES" for the purposes of this Plan shall include
possessions of the United States.
46
<PAGE>
Exhibit 10(f)
Page 16 of 92
SECTION 2 - EMPLOYEES ENTITLED TO PARTICIPATE
2.01 CONDITIONS OF ELIGIBILITY. Every Employee shall become a Participant as
of the first day of the first pay period succeeding the Employee's
compliance with the following three requirements:
(a) He must have completed one year of Service and attained the age of
21. In determining whether or not an Employee has completed the
required year of Service, there shall be disregarded, except as
provided in the next sentence, Service prior to any break in Service
equal to or more than the greater of five 1-Year Breaks in Service or
his prior completed years of Service. Once an Employee has completed
his required year of Service, subsequent breaks in Service shall not
affect the fact that this requirement has been completed;
(b) He must be employed within the United States or its possessions on a
permanent basis as determined under Section 2.05; and
(c) He must sign and deliver to the Committee an Agreement of
Participation, Designation of Beneficiary and Compensation Adjustment
Election in such form as may from time to time be prescribed by the
Committee.
The Committee shall notify all Employees who are eligible to participate
in this Trust and shall provide them with an Agreement of Participation,
Designation of Beneficiary and Compensation Adjustment Election. Any
Employee who does not elect to become a Participant as of the first date
on which he would otherwise be eligible, may become a Participant as of
the first day of any succeeding pay period if he is still eligible and
upon compliance with the provisions of this Section 2.01. Leased
Employees shall not be eligible to participate in the Plan.
2.02 TERMINATION OF EMPLOYMENT. Any Participant whose employment with the
Companies is terminated for any reason whatsoever, shall cease to be
eligible to participate hereunder, except to the extent he or his
beneficiary shall have the right to receive payments from his individual
accounts as provided in Section 8 hereof. Except as provided in Section
8.04, any Participant whose employment with the Companies is terminated
shall, in the event of his later reemployment, become a Participant on the
first day of the first pay period following his signing and delivery of
the documents referred to in Section 2.01(c). If a reemployed Employee,
by such action, again becomes a Participant in the Plan Year his
employment terminated, and he remains a Participant through the last day
of that Plan Year, he shall be entitled to share in the Companies'
contribution, and in the forfeitures, for that Plan Year in accordance
with Section 4.01(a). Any person who has ceased to be a Participant
hereunder by virtue of termination of his employment and for whom the
Trustee continues to hold a portion of his Participant's Basic
Contribution Account, Participant's Supplemental Contribution Account,
Participant's Voluntary Contribution Account or Company Contribution
47
<PAGE>
Exhibit 10(f)
Page 17 of 92
Account shall continue to share in net earnings and valuation adjustments
(as provided in Section 8.08 hereof) as though he were a Participant.
2.03 LEAVE OF ABSENCE. Any Participant obtaining a leave of absence from the
Company because of illness, disability (except permanent disability,
provision for which is made in Section 8.02 hereof) or national emergency
requiring governmental, military, or naval service subsequent to the
execution of this agreement or for any other reason, shall continue to
participate in this Trust and shall not be deemed to have his employment
terminated. The Companies agree to adopt a uniform policy with reference
to the granting of leaves of absence. Such policy shall be applied
without individual selection or discrimination in all cases involving the
same, or substantially the same, facts. The Companies shall provide the
Committee with all information with reference to leaves of absence. The
determination made by or caused to be made by the Companies shall be
conclusive and binding upon all persons having any interest in the Trust.
2.04 TRANSFER TO AN AFFILIATE. If a Participant is transferred to the
employment of an Affiliate, he shall be deemed to be on leave of absence
during such time as he is an Employee of the Affiliate.
2.05 TRANSFER TO A FOREIGN COUNTRY. The determination of when an Employee is
employed within the United States on a permanent basis, when a transfer
from the United States is or becomes permanent, and when a transfer to or
from the United States is temporary, shall be made by the Company and such
determination shall be conclusive and binding on all persons having any
interest in the Trust. If he is transferred from the United States on a
temporary basis, he shall be deemed to continue as being employed within
the United States on a permanent basis until such time as his transfer
becomes permanent.
2.06 EMPLOYMENT IN BARGAINING UNIT. An individual in a bargaining unit who is
not deemed to be an Employee by reason of Section 1.10 shall not be
eligible to participate hereunder and shall not be entitled to make
contributions hereunder. Notwithstanding the foregoing, his Service in
such bargaining unit shall be counted for the purpose of determining his
eligibility to participate pursuant to Section 2.01, and if a Participant
becomes ineligible to participate hereunder by reason of employment in
such bargaining unit, his Service in such bargaining unit shall be
counted for the purpose of determining his nonforfeitable interest under
Section 9.
48
<PAGE>
Exhibit 10(F)
Page 18 of 92
SECTION 3 - CONTRIBUTIONS
3.01 CONTRIBUTIONS BY COMPANIES.
(a) Aggregate Contribution. For the Plan Year ending December 31, 1989,
and for each Plan Year thereafter, the Companies, in total, shall pay
to the Trustee the amount set forth below. Except for contributions
under Items (i) and (ii), below, the payment shall be limited to the
total current pretax earnings or profits of the Companies and
Affiliates for that year (as shown on the Consolidated Statements of
Income for Aon and its subsidiaries reported in the Annual Report to
Shareholders of Aon as certified by a firm of Independent Public
Accountants). The preceding two sentences shall be subject to what is
stated in Section 3.01(c). The aggregate contribution of the
Companies for Staff Employees shall be an amount equal to the sum of
(i), (ii), and (iii) below.
(i) An amount equal to the Basic Pay Deferral Amounts applicable to
Participants employed by the Company during such Plan Year.
(ii) An amount equal to the Supplemental Pay Deferral Amounts
applicable to Participants employed by the Company during such
Plan Year.
(iii)An additional amount equal to one hundred percent (100%) of the
Basic Pay Deferral Amounts applicable to Participants who on the
last day of such Plan Year are employed by the Company and have
not completely discontinued their Basic Pay Deferral Amounts;
provided, that such contribution shall be made only on Basic Pay
Deferral Amounts of up to three percent (3%) of a Participant's
Compensation and shall not be made on additional Basic Pay
Deferral Amounts.
(b) Allocation and Possible Reduction of Aggregate Contribution. Each of
the Companies' share of the aggregate contribution described in
Section 3.01(a) shall be equal to the amount of such contribution as
will be allocated to the individual accounts of Participants who are
employed by it pursuant to Section 4.01(a). If, during any Plan Year,
any Participant is employed by more than one Company that has adopted
this Plan, the amount allocable to such Participant's account may be
allocated among such Companies in the proportion of Basic Pay
Deferral Amounts paid by each during the Plan Year in respect to
which the contribution is made.
(c) Maximum Contribution of Each Company. Except for contributions of Pay
Deferral Amounts under Sections 3.01(a)(i) and (ii), each Company
shall contribute no more than an amount equal to the lesser of its
current or
49
<PAGE>
Exhibit 10(F)
Page 19 of 92
accumulated earnings or profits or the maximum amount deductible under
the IRC for the year for which the contribution is made. If, because
of the aforesaid limitation, any Company is unable to make all or any
part of the contribution that would otherwise be due from it, the
amounts that would otherwise be allocated to the Participants (or the
affected group of Participants) employed by such Company, pursuant to
Section 4.01(a) hereof, shall be proportionately reduced; provided
that an additional contribution may be made by any Company to the
extent permitted by IRC Section 404(a)(3)(B).
3.02 DATE OF CONTRIBUTION. For the purposes of this Agreement, the date of
any Company contributions under Section 3.01(a)(i) or (ii) shall be as of
the last day of each month and they shall be remitted to the Trustees not
less frequently than quarterly. The date of any Company contribution
under Section 3.01(a)(iii) will be deemed to be the last day of the Plan
Year for which the contribution is made, even though received by the
Trustee at a later or earlier date.
3.03 BASIC PAY DEFERRAL AMOUNT. Except as provided in Section 8.04:
(a) Nonhighly Compensated Participants. Each Participant who was not a
Highly Compensated Employee as of the immediately preceding
Anniversary Date may elect to have his Compensation reduced by any
whole percentage of his Compensation (as defined in Section 1.08)
from two percent (2%) through ten percent (10%).
(b) Highly Compensated Participants. Each Participant who was a Highly
Compensated Employee as of the immediately preceding Anniversary Date
may elect to have his Compensation reduced by any whole percentage of
his Compensation (as defined in Section 1.08) from two percent (2%)
through six percent (6%).
The amount of such reduction in a Participant's Compensation is sometimes
referred to herein as the "Basic Pay Deferral Amount."
3.04 SUPPLEMENTAL PAY DEFERRAL AMOUNT. Each Participant who has elected a ten
percent (10%) reduction under Section 3.03(a) or a six percent (6%)
reduction under Section 3.03(b) may elect to have his Compensation
further reduced as provided in Section 1.25. The amount of such
reduction is sometimes herein referred to as the Supplemental Pay
Deferral Amount.
3.05 VOLUNTARY CONTRIBUTIONS BY PARTICIPANTS. Except as provided in Section
8.04, each Participant may, at his election, contribute to the Trustee
for each Plan Year, up to nine percent (9%) of his Compensation as
defined at Section 1.08 for the Plan Year. The contribution which a
Participant has elected to make shall be deducted by the Company from
each payment of Compensation made to such Participant at the time the
same is paid, and remitted directly by the Company
50
<PAGE>
Exhibit 10(F)
Page 20 of 92
to the Trustee on behalf of such Participant within three months after
the deduction is made. Contributions under this Section shall be subject
to the following restrictions and limitations:
(a) Change in Rate. A Participant may elect to change the rate of his
voluntary contributions by filing a written application with the
Committee, and such change shall be effective as soon as
administratively convenient thereafter.
(b) Discontinuance. A Participant may elect to discontinue making
voluntary contributions, but in such event he may not elect to again
make voluntary contributions in the same Plan Year.
(c) Full Percentage. Voluntary Contributions must be expressed as a full
percentage point of Compensation (i.e., 1%, 2%, 3%, 4%, 5%, 6%, 7%,
8%, or 9%).
(d) Withdrawals. A Participant may withdraw his own voluntary
contributions, or any part thereof, but only two such withdrawals
shall be permitted under this Section in any Plan Year. A withdrawal
under this Section shall not be considered an Application for
Benefits under Section 8.04, and the Company shall continue to make
the contributions required by Section 3.01. Any withdrawal shall be
for at least $1,000 or if less, the lesser of (1) the Participant's
actual unwithdrawn Voluntary Contributions, (2) the balance in his
Voluntary Contribution Account.
(e) Discretion. Voluntary contributions on or after January 1, 1987,
shall be allowable only at the discretion of the Board. Such
contributions may be allowed under the rules or limitations of
Sections 401(k) and (m) of the IRC, and may be made allowable for
only those Participants who are not Highly Compensated Employees.
Accordingly, the rules set forth above in this Section shall be for
guidance only and the rules and intent of Subsections (e) through (h)
shall be controlling.
(f) First Withdrawals. The first withdrawals shall be made from the
subaccount for contributions made prior to January 1, 1987, and
earnings thereon. Such withdrawals shall be limited to the amount of
such contributions. Upon all of such contributions having been
withdrawn and upon the Participant becoming 100% vested in his
Company Contribution Account, the earnings may at the discretion of
the Committee be transferred to the Participant's Company
Contribution Account.
(g) Post-86 Amounts. Withdrawals shall next be made from contributions
made on or after January 1, 1987, if any, and there shall be a
separate sub-account for these amounts. Allocation of any withdrawal
between contributions and earnings shall be made pursuant to IRC
Section 72(d) and (e) as amended from time to time, and regulations
and rulings thereunder.
51
<PAGE>
Exhibit 10(F)
Page 21 of 92
(h) Rollovers. Any separate sub-account for amounts previously rolled
over under Section 3.10 shall be transferred to a separate sub-
account in the Participant's Company Contribution Account and shall
be treated as one hundred percent (100%) vested.
3.06 RESTRICTIONS AND LIMITATIONS ON PAY DEFERRAL AMOUNTS. Pay Deferral
Amounts and Voluntary Contributions under Sections 3.03, 3.04 and 3.05
shall be subject to the following restrictions and limitations:
(a) A Participant may elect to change the rate of his Basic or
Supplemental Pay Deferral Amounts under Sections 3.03 and 3.04. Such
election shall become effective as soon as administratively
convenient after receipt thereof by the Committee.
(b) Pay Deferral Amounts must be expressed as a full percentage point of
Compensation.
(c) A Supplemental Pay Deferral Amount may not be in effect in respect to
any period of time in respect to which a Basic Deferral Amount of six
percent (6%) or more of Compensation in the case of a Highly
Compensated Employee and ten percent (10%) or more in the case of a
Participant who is not a Highly Compensated Employee is not in
effect.
(d) No Compensation reduction election under Section 3.03 or 3.04 shall
apply to a terminated or retired Participant in respect to any
Compensation paid to him (whether in the form of severance pay or
otherwise) subsequent to the Valuation Date used to determine the
balances of his separate accounts for the purpose of making the final
distribution to him.
3.07 ADJUSTMENTS IN PAY DEFERRAL AMOUNTS. It is intended that the cash or
deferred arrangement under Section 3.01(a)(i) and (ii) shall comply with
the excess deferral limitations ($7,000 for 1987 and adjusted for cost of
living) and the excess contribution limitations set forth in Sections
402(g) and 401(k) of the IRC and the regulations and rulings construing
Sections 402(g) and 401(k) of the IRC. Accordingly, the following
limitations are placed upon the Basic Pay Deferral Amount and
Supplemental Pay Deferral Amount a Participant may elect under Section
3.03 and 3.04.
(a) Reductions During Plan Year. If it appears prior to the end of a Plan
Year that the required limitations will not be complied with, the
administrator may reduce the future Basic Pay Deferral Amount or the
future Supplemental Pay Deferral Amount of any Participant (and
therefore the amount of Compensation reduction) in accordance with
the following rules.
(i) Reductions shall be made first so as to avoid excess deferrals
under Section 402(g) of the IRC. This reduction shall apply for
the calendar
52
<PAGE>
Exhibit 10(F)
Page 22 of 92
year beginning January 1, 1987, and calendar years thereafter in
respect to all Participants except as provided in (c), below.
(ii) Reductions shall be made next so as to avoid excess
contributions under Section 401(k) of the IRC. This reduction
shall apply for the Plan Year beginning January 1, 1987, and all
Plan Years thereafter but only in respect to those Participants
who are Highly Compensated Employees.
(iii) Reductions under Paragraph (ii) shall first be made in all
Supplemental Pay Deferral Amounts before any reductions are made
in any Basic Pay Deferral Amount.
(iv) Reductions under Paragraph (ii) shall be made in such manner
that no Highly Compensated Employee's Supplemental Pay Deferral
Amount (or, if necessary, Basic Pay Deferral Amount) expressed
as a percentage of Compensation will exceed that of any other
Highly Compensated Employee whose Supplemental or Basic Pay
Deferral Amount is reduced.
(b) Reductions after End of Plan Year. If it appears after the end of a
Plan Year that the required limitations have not been complied with,
the administrator shall make reductions in the Basic Pay Deferral
Amount or the Supplemental Pay Deferral Amount of any Participant in
accordance with the following rules.
(i) Reductions shall first be made at least to the extent necessary
to comply with the applicable excess deferral limitations
($7,000 for 1987 and adjusted for cost of living increases) and
then to the extent necessary to comply with the excess
contribution limitations. Any distribution made so as to comply
with the excess deferral limitations shall continue to be
treated, with respect to each Highly Compensated Employee, as a
Company contribution in figuring whether the actual deferral
percentage test at Section 3.09(b) has been met.
(ii) Reductions so as to avoid excess contributions under Section
401(k) of the IRC shall be made only in respect to those
Participants who are Highly Compensated Employees.
(iii) Reductions under Paragraph (ii) shall first be made in all
Supplemental Pay Deferral Amounts before any reductions are made
to any Basic Pay Deferral Amount.
(iv) Reductions under Paragraph (ii) shall be made in such manner
that no Highly Compensated Employee's Supplemental Pay Deferral
Amount (or, if necessary, Basic Pay Deferral Amount) expressed
as a
53
<PAGE>
Exhibit 10(F)
Page 23 of 92
percentage of Compensation will exceed that of any other Highly
Compensated Employee whose Supplemental or Basic Pay Deferral
Amount is reduced.
(v) The amount of any reduction in a Participant's Basic Pay
Deferral Amount or Supplemental Pay Deferral Amount shall be
distributed to the Participant, except that to the extent
permitted in rules and regulations under the IRC, the
Participant may be allowed or required by the administrator to
have excess contributions (other than QMACs and QNCs, defined in
Section 3.09 (d) below, and after adjustment for withholding
taxes) recharacterized as employee contributions and transferred
to the Participant's Voluntary Contribution Account. Such
recharacterization shall be made and the Participant shall be
properly notified thereof on or before two and one-half months
after the close of the Plan Year.
(vi) The amount by which any Participant's Supplemental Pay Deferral
Amount is reduced shall be charged against his Supplemental Pay
Deferral Account.
(vii) The amount by which any Participant's Basic Pay Deferral Amount
is reduced shall be charged against his Basic Pay Deferral
Account.
(c) No Responsibility for Excess Deferrals. The amount of elective
deferrals under all plans of the Company shall not exceed the amount
of the limitation in effect under Section 402(g) of the IRC, as
amended from time to time. Primary responsibility for avoiding excess
deferrals under Section 402(g) of the IRC shall be upon the
Participant and not upon the Company or the Committee. The Participant
must notify the Committee in writing if (i) elective deferrals are
being made on his behalf under IRC Section 402(g)(3) by any employer
which is not within the Aon Group, or (ii) his taxable year is a year
other than the calendar year.
3.08 ADJUSTMENTS IN COMPANY MATCHING CONTRIBUTIONS AND IN PARTICIPANT
CONTRIBUTIONS. It is intended that Company matching contributions under
Section 3.01(a)(iii) and Participant contributions under Section 3.05
shall comply with the excess aggregate contribution limitations set forth
in Section 401(m) of the IRC and the rules and regulations construing
Section 401(m) of the IRC. Accordingly, the following limitations are
placed upon Company matching contributions and Participant contributions
under Sections 3.01(a)(iii) and 3.05.
(a) Reductions During Plan Year. If it appears prior to the end of a Plan
Year that the contribution percentage limitation will not be complied
with, the administrator may reduce the future matching Company
contributions or the future Participant contributions of any
Participant in accordance with the following rules.
54
<PAGE>
Exhibit 10(f)
Page 24 of 92
(i) Reductions shall be made only in respect to those
Participants who are Highly Compensated Employees.
(ii) Reductions shall first be made in all Participant
contributions before any reductions are made in any matching
Company contributions, including return of Participant
contributions made earlier in the Plan Year.
(iii) Reductions shall be made in such manner that no Highly
Compensated Employee's percentage limitation will exceed that
of any other Highly Compensated Employee whose matching
Company contribution or Participant contribution is reduced.
(b) Reductions after End of Plan Year. If it appears after the end of a
Plan Year that the required contribution percentage limitation has
not been complied with, or will not be complied with if any matching
contribution otherwise required under Section 3.01(a)(iii) is made,
the administrator shall make reductions in the matching Company
contribution or Participant contribution of any Participant in
accordance with the following rules.
(i) Reductions shall be made only in respect to those
Participants who are Highly Compensated Employees.
(ii) Reductions shall first be made at least to the extent
necessary to comply with the applicable contribution
percentage limitation.
(iii) Reductions shall first be made in all Participant
contributions before any reductions are made to any matching
Company contribution.
(iv) Reductions shall be made in such manner that no Highly
Compensated Employee's percentage limitation will exceed that
of any other Highly Compensated Employee whose matching
Company contribution or Participant contribution is reduced.
(v) The amount by which any Participant's matching Company
contribution is reduced shall be charged against his Company
Contribution Account. The nonforfeitable vested portion, if
any, shall be distributed to the Participant. The
forfeitable portion shall be reallocated, or, to the extent
not prohibited under the rules and regulations of the IRC,
may at the discretion of the Committee not be contributed by
the Company.
(vi) The amount by which any Participant's own contribution is
reduced shall be charged against his Voluntary Contribution
Account.
55
<PAGE>
Exhibit 10(f)
Page 25 of 92
(vii) Forfeitures of excess aggregate contributions may not be
allocated to Participants whose contributions are reduced
under Paragraph (v) or (vi), above.
3.09 SPECIAL RULES. For purposes of Sections 3.07 and 3.08 the following
special rules shall apply.
(a) The term "Compensation" shall mean compensation as defined under
Section 414(s) of the IRC; provided, the applicable period for
purposes of Section 414(s) shall be the Plan Year. Such
compensation shall be measured only during the portion of the Plan
Year during which the Employee is eligible to Participate in the
Plan and determined before excluding any reduction described in
Sections 3.03 or 3.04, or for cafeteria plans under Section 125 of
the IRC. Any elective contribution must relate to compensation that
either (i) would have been received by the Employee during the Plan
Year but for the Employee's election to defer, or (ii) is
attributable to services performed in the Plan Year and which would
otherwise have been received by the Employee within two and one-half
(2 1/2) months after the close of the Plan Year. To the extent
permissible under rules and regulations construing Section 414(s),
the term shall have the same meaning as under Section 1.08.
(b) The actual deferral percentage of Pay Deferral Amounts, as adjusted
under Section 3.07, of Highly Compensated Employees shall not be
more than the larger of (i) 125% of such percentage for other
Participants or, (ii) as the Alternative Limitation, twice such
percentage but not more than two percentage points more, all
calculations to be made to the nearest one-hundredth of 1% of the
Employee's Compensation. A similar limitation shall apply to the
average contribution percentage of Company matching contributions
and Participant contributions, as adjusted under Section 3.08, of
Highly Compensated Employees.
(c) Any income allocable or attributable to any amounts distributed or
reallocated under Sections 3.07 or 3.08 shall also be distributed or
reallocated, pursuant to rules and regulations promulgated under
Sections 401(k), 401(m) and 402(g) of the IRC. The amount of such
distributed income shall generally be total income for the Plan Year
under Section 8.08 for the Participant's account, times the excess
amount divided by the Participant's total account balance in that
account; provided, that in the event of a loss the distribution or
reallocation shall not be less than the amount of such excess except
as allowed under rules and regulations of the IRC. Income for any
period of time after the end of the Plan Year and before the
distribution date may be calculated as determined by the Committee,
as determined by the Committee, under either the fractional method
(described in the prior sentence for actual income during the Plan
Year), under the safe harbor using 10% per calendar month of the
prior year's income, or under any other method allowed under rules
and regulations of the IRC.
56
<PAGE>
Exhibit 10(f)
page 26 of 92
(i) The following rules shall be applied to prevent the multiple use
of the Alternative Limitation (as defined Section 1.402(m)-2 of
the regulations promulgated under the IRC) with respect to any
plan year. If multiple use of the alternative limitation occurs,
and the sum of the ADP and ACP of affected Highly Compensated
Employees subject to either or both tests exceeds the aggregate
limit, then the ACP of those Highly Compensated Employees will
be reduced (beginning with the Highly Compensated Employee whose
ACP is the highest) so that the limit is not exceeded. The
amount by which each Highly Compensated Employee's contribution
percentage amount is reduced shall be treated as an excess
aggregate contribution. The ADP and ACP of the Highly
Compensated Employees are determined after any correction
required to meet the ADP and ACP tests. Multiple use of the
alternative limitation does not occur if both the ADP and ACP of
the eligible Highly Compensated Employees do not exceed 1.25
multiplied by the ADP and ACP of the group of non-highly
compensated employees.
(d) The Company may elect, subject to the IRC rules and regulations:
(i) To the extent necessary in meeting the actual deferral
percentage test under Subsection (b), above, as applied to Pay
Deferral Amounts under Section 3.07, to elect to include
matching Company contributions and nonelective Company
contributions which meet the Plan distribution and 100% vesting
rules for Pay Deferral Amounts as provided in IRC regulations
and thus constitute qualified matching contributions ("QMACs")
and qualified nonelective contributions ("QNCs"). Such matching
and nonelective contributions must meet the general
nondiscrimination requirements of the IRC under Section
401(a)(4) as regards Highly Compensated Employees both after
including and after excluding any QMAC or QNC portion thereof,
and any QMAC or QNC portion may not be taken into account in
determining whether any other contributions or benefits provided
under the Plan generally discriminate as regards Highly
Compensated Employees. Any QMACs so taken into account may be
taken into account again under Paragraph (ii), below, as
appropriate.
(ii) To the extent necessary in meeting the average contribution
percentage test under Subsection (b), above as applied to
Company matching contributions and to Participant contributions
under Section 3.08, to include Pay Deferral Amounts, plus QNCs
which meet the Plan distribution and 100% vesting rules for Pay
Deferral Amounts, subject to the rules under Paragraph (i),
above, as applicable under IRC rules and regulations.
(iii) As permitted under Paragraphs (i) and (ii), above, to make an
additional QNC on behalf of each Participant who is not a Highly
57
<PAGE>
Exhibit 10(f)
page 27 of 92
Compensated Employee. Such contribution may be, but need not be,
a uniform percentage of Compensation for each such Participant
and shall be allocated to his appropriate account or sub-account
within the time period required by any applicable law or
regulations. A Participant may not elect to receive any portion
of such additional contribution as current Compensation. In lieu
of making all or a portion of the additional QNC described in
this Paragraph (iii), the Company may elect to have matching
contributions under Section 3.01(a)(iii) on behalf of
Participants who are not Highly Compensated Employees, be QMACs.
Any such QNC or QMAC shall be allocated each such Participant's
appropriate account or sub-account, and shall be separately
accounted for.
(e) Three correction rules shall apply as set forth below:
(i) The Committee may designate whether excess contributions under
Section 3.07 or excess aggregate contributions under Section
3.08 are attributable to Pay Deferral Amounts, QNCs, QMACs,
Participant contributions, qualified nonelective contributions,
or Company matching contributions. Any such ordering must be
used consistently and shall be subject to the ordering rule of
Paragraph (2).
(ii) The general rule for the order in which amounts are to be
distributed is:
(A) excess deferrals under Section 402(g) of the IRC.
(B) excess contributions under Section 401(k) of the IRC.
(C) excess aggregate contributions under Section 401(m) of the
IRC.
(iii) QNCs, QMACs, the recharacterization method, the corrective
distribution method, or a combination of these methods may be
used to avoid or correct excess contributions or excess
aggregate contributions.
(f) Any distribution or forfeiture under Section 3.07 or 3.08, including
income thereon under Section 3.09(c), shall, insofar as
administratively convenient, be made or reallocated before the close
of the first two and one-half (2-1/2) months of the following Plan
Year, and shall in all events be distributed or forfeited no later
than the last day of such Plan Year. QMACs and QNCs properly taken
into account may permit avoidance of excess contributions or excess
aggregate contributions even if such contributions are made after the
close of such two and one-half (2-1/2) month period.
58
<PAGE>
Exhibit 10(f)
page 28 of 92
3.10 ROLLOVERS. Any amount that is an eligible rollover distribution within
the meaning of Section 402(c)(4) of the Code may be contributed to this
Plan by the Employee on or before the 60th day following the receipt by
the Employee of such distribution from an employee's trust, annuity
plan, individual retirement account, or individual retirement annuity
described above. Alternatively, an eligible rollover distribution may
be transferred at the direction of the Employee directly to the Trustee
from any plan, account or annuity described above.
59
<PAGE>
Exhibit 10(f)
Page 29 of 92
SECTION 4 - ALLOCATION OF TRUST FUNDS
4.01 COMPANY CONTRIBUTION ACCOUNT AND ALLOCATION OF FORFEITURE. The Committee
shall maintain a separate account in the name of each Participant, to be
known as the "Company Contribution Account", and the Committee shall post
to such account of each Participant on whose behalf a Company
contribution under Section 3.01(a)(iii) is made the following:
(a) His share of additional Company contributions for the Plan Year,
described in Section 3.01(a)(iii), plus his share of forfeitures from
accounts of terminated Participants, which shall be allocated to the
account of each Participant in the ratio that his Basic Pay Deferral
Amount of up to three percent (3%) of his Compensation bears to such
Basic Pay Deferral Amounts of all Participants employed on the last
day of the Plan Year.
For the purpose of applying the above formula, allocations shall be made
as if there were no reduction in the contribution of any Company under
Section 3.01(c). However, where for a Plan Year the contribution of any
Company is reduced under Section 3.01(c), the Company Contribution
Accounts of the Participants in the Service of such company involved as
of December 31 of that year shall share in the reduction of the
contribution of such Company on the basis of the above formula applied to
them only.
(b) Any additions or deductions arising out of net earnings and valuation
adjustments resulting from the operation of Section 8.08 of this
Agreement.
(c) Any forfeitures chargeable to his account, interim net earnings and
valuation adjustments resulting from the operation of Section 8.08 of
this Trust Agreement and any withdrawals or other payments chargeable
to his account.
4.02 BASIC PAY DEFERRAL ACCOUNT. The Committee shall also maintain a separate
account in the name of each Participant, to be known as the "Basic Pay
Deferral Account", and the Committee shall post to such account of each
Participant the following:
(a) His share of Company contributions described in Section 3.01(a)(i),
which shall be equal to his Basic Pay Deferral Amount.
(b) Any additions or deductions arising out of net earnings and valuation
adjustments resulting from the operation of Section 8.08 of this
Agreement.
(c) Any interim net earnings and valuation adjustments resulting from the
operation of Section 8.08 of this Trust Agreement and any withdrawals
or other payments chargeable to his account.
60
<PAGE>
Exhibit 10(f)
Page 30 of 92
4.03 SUPPLEMENTAL PAY DEFERRAL ACCOUNT. The Committee shall also maintain a
separate account in the name of each Participant, to be known as the
"Supplemental Pay Deferral Account", and the Committee shall post to such
account of each Participant the following:
(a) His share of Company contributions described in Section 3.01(a)(ii),
which shall be equal to his Supplemental Pay Deferral Amount.
(b) Any additions or deductions arising out of net earnings and valuation
adjustments resulting from the operation of Section 8.08 of this
Agreement.
(c) Any interim net earnings and valuation adjustments resulting from the
operation of Section 8.08 of this Trust Agreement and any withdrawals
or other payments chargeable to his account.
4.04 VOLUNTARY CONTRIBUTION ACCOUNT. The Committee shall also maintain an
account in the name of each Participant to be known as the "Voluntary
Contribution Account", which shall be divided into two sub-accounts for
contributions and earnings thereon made (i) before and (ii) on or after
January 1, 1987. The Committee shall post to such account for each
Participant the following:
(a) All voluntary contributions made by such Participant pursuant to
Section 3.05;
(b) Any additions or deductions arising out of the net earnings and
valuation adjustment resulting from the operation of Section 8.08 of
this Agreement;
(c) Any interim net earnings and valuation adjustments resulting from the
operation of Section 8.08 of this Trust Agreement and withdrawals or
other payments chargeable to such account.
(d) The amount from each Participant's former mandatory contribution
account pursuant to Section 4.08.
For the purpose of applying the above formula, allocations shall be made
as if there were no reduction in the contribution of any Company under
Section 3.01(c). However, where for a Plan Year the contribution of any
Company is reduced under Section 3.01(c), the Company Contribution
Accounts of the Participants in the Service of such Company involved as
of December 31 of that year shall share in the reduction of the
contribution of such Company on the basis of the above formula applied to
them only.
4.05 RECORDS AND ACCOUNTING. Books of account, forms, and accounting methods
used in the administration of the Plan shall be subject in all respects
to the supervision of the Committee, and if at any time the Committee
shall determine that the accounting methods are not fair and equitable to
all Participants, the Committee shall have the right to make whatever
adjustments are necessary in the accounting
61
<PAGE>
Exhibit 10(f)
Page 31 of 92
methods to carry out this Agreement. In the event an erroneous amount is
posted to a Participant's account for any year, the Committee may, at the
time such error is discovered, correct such error by making such
adjustments in allocating contributions, forfeitures, and earning and
valuation adjustments as they may deem fair and equitable, without the
necessity of making retroactive adjustments in the accounts of
Participants. The Committee shall furnish each Participant a record of
his account.
4.06 DETERMINATION OF COMPENSATION. The Companies shall furnish to the
Committee information as to the Compensation and contributions of a
Participant for each Plan Year, and, for the purposes of this Agreement,
the Committee shall accept such information furnished by the Companies as
correct, and the amount of the Compensation and contributions as so
certified to the Committee by the Companies shall be binding and
conclusive on all persons whomsoever, unless a Participant files a
written objection with the Committee as to the Compensation or
contributions so certified within thirty (30) days from the date he has
been notified thereof.
4.07 DESIGNATION OF BENEFICIARY.
(a) Each Participant shall have the right to designate the Beneficiary or
Beneficiaries who are entitled to receive any amount or benefit in
case of the Participant's death and shall have the right at any time
prior to final distribution of his accounts to change the Beneficiary
or Beneficiaries theretofore designated by him by filing a new
designation; provided, that such Beneficiary shall be deemed to be
the surviving spouse of such Participant unless a spousal consent
under Subsection (b) has been signed by the surviving spouse. Each
such new designation shall completely revoke all designations
previously filed by the same Participant. All designations shall be
in writing and filed with the Committee and may be included in the
Agreement of Participation and Designation of Beneficiary, or in such
other form or forms as the Committee shall require. The Trustee, at
the direction of the Committee, shall make settlement hereunder at
the time of the Participant's death with such Beneficiary or
Beneficiaries as shall be designated by said Participant during his
lifetime.
(b) Any designation of a Beneficiary other than his spouse by the
Participant shall not take effect unless the spouse consents to such
designation. Such consent must acknowledge the effect of the
designation, shall be a consent to a specific Beneficiary and to a
specific form of benefit, and be witnessed by a Plan representative
or a notary public. Any consent shall be effective only as to such
spouse. Such designation of a Beneficiary shall take effect without
the spousal consent only if it is established to the satisfaction of
a Plan representative that the consent may not be obtained because
there is no spouse, because the spouse cannot be located, or because
of such other circumstances as the Secretary of the Treasury may by
regulations prescribe.
62
<PAGE>
Exhibit 10(f)
Page 32 of 92
4.08 MERGERS AND TRANSFERS OF ASSETS AND LIABILITIES. Effective as of the
dates set forth below, the following mergers and transfers of assets and
liabilities have taken place, pursuant to this section and to amendments
to the plans set forth below.
(a) Effective July 1, 1984, assets and liabilities for staff employees
under the Combined Profit Sharing Plan were transferred to the
Combined International Corporation Staff Employees' Profit Sharing
Plan ("Combined Staff PST"), and to this Plan. Assets and liabilities
from the mandatory and voluntary contribution accounts of staff
employees therein were transferred to their respective participant's
voluntary contribution accounts in this Plan, and assets and
liabilities from their Company contribution accounts therein were
transferred to their respective Company Contribution Accounts in the
Combined PST. Assets and liabilities from the accounts of accident
and health insurance agents and of life insurance agents in the
Combined Profit Sharing Plan remained in such plan, which was renamed
the Combined International Corporation Field Sales Agents' Profit
Sharing Plan.
(b) Effective July 1, 1984, the Ryan Insurance Group, Inc. Profit
Sharing Plan was similarly merged into the Combined Staff PST, and
into this Plan, with assets and liabilities from the participants,
voluntary contribution accounts therein being transferred to their
respective participant's voluntary contribution accounts in this plan
and the company contribution accounts therein being transferred to
their respective company contribution accounts in the Combined Staff
PST.
(c) Effective July 1, 1984, the Union Fidelity Life Insurance Corporation
Profit-Sharing Trust Agreement was similarly merged into the Combined
Staff PST with assets and liabilities from the company contribution
accounts therein being transferred to the participant's respective
company contribution accounts in the Combined Staff PST.
(d) Effective July 1, 1984, Participants under the above plans became
Participants in the Combined Staff PST and were given up to five
years of benefit credit under the Combined International Corporation
Pension Plan, but were not allowed to elect Basic Pay Deferral
Amounts until they satisfied the eligibility requirements of section
2.01.
(e) Effective January 1, 1989, assets and liabilities for employees under
the Miller, Mason & Dickenson, Inc. Employee Stock Ownership Plan
were transferred to this Plan. Assets and liabilities from the
voluntary contribution accounts of employees therein were transferred
to their respective Participant's Voluntary Contribution Accounts in
this Plan, and assets and liabilities from their employer
contribution accounts therein were transferred to their respective
Company Contribution Accounts in this Plan.
63
<PAGE>
Exhibit 10(f)
Page 33 of 92
(f) Effective January 1, 1989, assets and liabilities for staff employees
under the Aon Profit Sharing Plan (formerly the Combined Staff PST)
were transferred to this Plan. Such assets and liabilities from their
company contribution accounts therein were transferred to their
respective Company Contribution Accounts in this Plan.
(g) Effective January 1, 1989, Combined Insurance Field Sales Agents'
Profit Sharing Plan (formerly the Combined Profit Sharing Plan) was
similarly merged into this Plan with assets and liabilities from the
participants' voluntary contribution accounts therein being
transferred to their respective Participant's Voluntary Contribution
Accounts in this Plan, the company contribution accounts therein
being transferred to their respective Company Contribution Accounts
in this Plan, and their pay deferral accounts therein being
transferred to the Basic and Supplemental Pay Deferral Accounts in
this Plan.
(h) Participants under the above plans immediately became Participants in
this Plan and were allowed to elect Basic Pay Deferral Amounts
whether or not they satisfied the eligibility requirements of Section
2.01.
(i) Hall Plan. Effective January 1, 1993, the assets and liabilities of
the Savings and Investment Plan for the Employees of Frank B. Hall &
Co. Inc. ("Hall Plan") were transferred to this Plan. The following
special provisions apply, effective as of January 1, 1993, to any
Employee who was employed by Frank B. Hall & Co. Inc., or any of its
subsidiaries, on November 1, 1992, and who was employed by the
Company on and after November 2, 1992 ("Former Hall Employee"):
(i) Participation. Notwithstanding the provisions of Section 2 of
this Plan ("Employees Entitled to Participate"), a Former Hall
Employee who was a participant in the Hall Plan on December 31,
1992, became a Participant in this Plan on January 1, 1993,
following compliance with the requirements of Section 2.01(c)
of this Plan. A Former Hall Employee who was not a Participant
in the Hall Plan on December 31, 1992, shall become a
Participant in this Plan in accordance with Section 2.01 of
this Plan on the earlier of:
(A) attainment of age 45; or
(B) satisfaction of all the requirements of Section 2.01 of
this Plan.
(ii) Service. For purposes of satisfying Section 2.01, a Former Hall
Employee who was not a participant in the Hall Plan on December
31, 1992, shall receive credit for periods of Service with both
Hall and the Company and:
64
<PAGE>
Exhibit 10(f)
Page 34 of 92
(A) shall be credited with the number of full years of Service
computed under the elapsed-time provisions of the Hall Plan
as of December 31, 1992; and
(B) shall be credited with 45 Hours of Service for any calendar
week for which the Employee would be required to be credited
with at least one Hour of Service under Section 1.13;
provided, however, that this paragraph (B) shall apply only
to any fractional part of the 12-month period which begins
on the Employee's date of hire.
(iii) Vesting. For purposes of satisfying Section 9.01 of this Plan
(relating to vesting), service for Hall shall be considered
Service for the Company. In the case of a Participant who has
five consecutive One-Year Breaks-in-Service, Service, after such
Break-in-Service, shall not be taken into account for the
purpose of determining his nonforfeitable interest in his
Accounts before such Break-in-Service. In addition, with
respect to a Participant who was a participant in the Hall Plan
on December 31, 1992, any period of time credited for vesting
under the Hall Plan as of December 31, 1992, shall be taken into
account under this Plan.
(iv) Account Balance. The value of the account of each Participant
who was a participant in the Hall Plan on December 31, 1992,
shall be determined as of December 31, 1992, and that balance
shall be transferred to the trust of this Plan on January 1,
1993, and shall constitute (in addition to any existing Account
balance in the Plan), the balance in the Account of such
Participant as of January 1, 1993.
(v) Other Provisions. The provisions of this Plan which shall be
applicable to the Hall Plan prior to January 1, 1993, and their
retroactive effective dates, are as specified on Schedule B,
which is attached and made a part of this Plan.
(vi) Benefit Options. Benefit options under the Hall Plan which
shall continue to apply to accrued benefits are set forth in
Schedule B. To the extent such accrued benefits are accounted
for separately, any amount withdrawn under the terms of the Plan
shall be charged first to the account maintained for such
accrued benefits.
(j) K&K Plan. Effective August 1, 1993, the assets and liabilities of the
K&K Insurance Group Inc. 401(k) Salary Reduction Plan ("K&K Plan")
were transferred to this Plan. The following special provisions
apply, effective as of August 1, 1993, to any Employee ("Former K&K
Employee") who was employed by K&K Insurance Group, Inc., K&K
Specialties, Inc. National Sports Underwriters, Inc., or American
Insurance Brokers, Inc. (collectively, "K&K") on July 31, 1993:
65
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Exhibit 10(f)
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(i) Participation. Notwithstanding the provisions of Section 2 of
this Plan ("Employees Entitled to Participate"), a Former K&K
Employee who was a participant in the K&K Plan on July 31, 1993,
became a Participant in this Plan on August 1, 1993, following
compliance with the requirements of Section 2.01(c) of this
Plan. A Former K&K Employee described above who was not a
Participant in the K&K Plan on July 31, 1993, shall become a
Participant in this Plan in accordance with Section 2.01 of this
Plan upon satisfaction of the requirements of Section 2.01 of
this Plan.
(ii) Service. For purposes of satisfying Section 2.01, a Former K&K
Employee who was not a participant in the K&K Plan on July 31,
1993, shall receive credit for Hours of Service performed for
K&K as if they were hours of service performed for the Company.
(iii) Vesting at Age 62. Any Employee who was a participant in the
K&K Plan with three years of service under the K&K Plan as of
July 31, 1993, shall be fully vested in his account balance upon
attainment of age 62.
(iv) Vesting. For purposes of satisfying Section 9.01 of this Plan
(relating to vesting), service for K&K shall be considered
Service for the Company. In the case of a Participant who has
five consecutive One-Year Breaks-in-Service, Service, after such
Break-in-Service, shall not be taken into account for the
purpose of determining his nonforfeitable interest in his
Accounts before such Break-in-Service. In addition, with
respect to a Participant who was a participant in the K&K Plan
on July 31, 1993, the following shall apply: notwithstanding
the provisions of Section 9.01 of this Plan, a Participant who
was a participant in the K&K Plan on July 31, 1993, shall be
credited with:
(A) years of Service equal to his number of years of service
for vesting purposes under the K&K Plan as of December 31,
1992;
(B) in respect of calendar year 1993, the greater of the
Participant's service under the elapsed time method
beginning January 1, 1993, or his period of service for
vesting purposes as of July 31, 1993, under terms of the
K&K Plan; and
(C) the Participant's Service under the elapsed-time method on
and after January 1, 1994.
(v) Valuation. The balance in the account of each Participant who
was a participant in the K&K Plan on July 31, 1993, shall
constitute the balance in the account of such Participant as of
August 1, 1993.
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Exhibit 10(f)
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(vi) Separate Accounting. Gains, losses, withdrawals, contributions,
forfeitures and other credits or charges attributable to
benefits accrued by Participants under the terms of the K&K Plan
as of July 31, 1993, shall be accounted for separately. Benefit
options under the K&K Plan which shall continue to apply to such
accrued benefits are set forth in Schedule C. Any amount
withdrawn under the terms of the Plan shall be charged first to
the account maintained for such accrued benefits.
(k) Booke Plan. Effective July 1, 1993, the assets and liabilities of
the Salary Deferral Thrift Plan for the Employees of Booke and Company
("Booke Plan") shall be transferred to this Plan. The following
special provisions apply, effective as of July 1, 1993, to any
Employee ("Former Booke Employee") who was employed by Booke and
Company ("Booke") on June 30, 1993:
(i) Participation. Notwithstanding the provisions of Section 2 of
this Plan ("Employees Entitled to Participate"), a Former Booke
Employee who was a participant in the Booke Plan on June 30,
1993, became a Participant in this Plan on July 1, 1993,
following compliance with the requirements of Section 2.01(c) of
this Plan. An Employee described above who was not a
participant in the Booke Plan on June 30, 1993, shall become a
Participant in this Plan following compliance with the
requirements of Section 2.01(a), (b) and (c).
(ii) Service. For purposes of satisfying Section 2.01 (relating to
service requirements for eligibility), hours of service
performed for Booke shall be considered hours of service
performed for the Company.
(iii) Vesting. Notwithstanding the provisions of Section 9.01 of the
Plan (relating to vesting), the nonforfeitable interest in the
Company Contribution Account of an individual:
(A) who was a participant in the Booke Plan on June 30, 1993;
(B) who was an employee of Booke on June 30, 1993, and who,
effective July 1, 1993, met the requirements of subsections
(a), (b) and (c) of Section 2.01; or
(C) who terminated employment with Booke but is employed by the
Company before incurring five consecutive One-Year Breaks-
in-Service shall not be less than the percentage set forth
below that corresponds to years of Service:
Percent Vested
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Exhibit 10(f)
Page 37 of 92
Years of Completed Service in Company Contributions
-------------------------- ------------------------
less than 3 years 50%
3 years 60%
4 years 80%
5 years 100%
The vested percentage of any individual who was an employee
of Booke on June 30, 1993, and who is not described under
(A), (B) or (C) shall be determined under Section 9.01. The
vested percentage of any individual who is eligible to elect
and has elected early retirement under the Booke Plan shall
be 100 percent.
(iv) Years of Service. For purposes of satisfying Section 9.01 and
Section 4.08(k)(iii) as set forth above, service for Booke shall
be considered Service for the Company. In the case of a
Participant who has five consecutive One-Year Breaks-in-Service,
Service, after such Break-in-Service, shall not be taken into
account for the purpose of determining his nonforfeitable
interest in his Accounts before such Break-in-Service. In
addition, notwithstanding the provisions of Section 9.01 of this
Plan, individuals described in 4.08(k)(3)(iii), (B) and (C)
shall be credited with:
(A) an elapsed-time period for vesting purposes equal to the
number of years of service for vesting purposes under the
Booke Plan as of December 31, 1992;
(B) in respect of calendar year 1993, the greater of the
Participant's years of service under the elapsed-time method
beginning January 1, 1993, or his period of service for
vesting purposes under the Booke Plan as of June 30, 1993;
and
(C) the Participant's Service under the elapsed-time method on
and after January 1, 1994.
(v) Valuation. The value of the account of each Participant who was
a participant in the Booke Plan on June 30, 1993, shall be
determined as of June 30, 1993; the balance shall be transferred
to the trust of this Plan on July 1, 1993; and that balance
shall constitute the balance in the Account of such Participant
as of July 1, 1993.
(vi) Separate Accounting. Gains, losses, withdrawals, contributions,
forfeitures and other credits or charges attributable to
benefits accrued by Participant under the terms of the Booke
Plan as of June 30, 1993, shall be accounted for separately.
Benefit options
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Exhibit 10(f)
Page 38 of 92
under the Booke Plan which shall continue to apply to such
accrued benefits are set forth in Schedule D.
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Exhibit 10(f)
Page 39 of 92
SECTION 5 - INVESTMENTS
5.01 INVESTMENT FUNDS. Except as otherwise hereinafter provided, deposits to
the Plan and earnings thereon shall be invested as directed by each
Participant or Beneficiary of a deceased Participant in one or more of
the Investment Funds which have been selected by the Trustees.
Investment Funds, except to the extent required under the terms of this
Plan, may be added or terminated from time to time at the option of the
Trustees.
5.02 INVESTMENT ELECTIONS. Each Participant shall, upon becoming a
Participant, and from time to time thereafter, instruct the Trustees as
to his investment selections and shall receive written confirmation of
same.
(a) The Participant may select one or more Investment Funds in which to
invest deposits and earnings thereon, and may invest these amounts in
such multiples as have been established by the Trustees. The
investment selection of the Participant shall apply uniformly to all
the Participant's accounts.
(b) Contributions made by or on behalf of a Participant shall continue to
be invested in the manner selected by the Participant until a new
designation has been received and confirmed in writing by the
Trustees, and such change shall be effective pursuant to rules and
regulations promulgated by the Company.
(c) The Trustees shall be obligated to comply with instructions given to
the Trustees pursuant to this Section 5.02 (except as otherwise
provided under Department of Labor Regulations (S) 2550.404(c)-
1(b)(2)(ii)(B) and (d)(2)(ii)).
(d) The Committee shall be obligated to ensure that each Participant (or
Beneficiary) is provided or can obtain sufficient information
concerning investment selections under the Plan as is described under
Department of Labor Regulations (S) 2550.404(c)-1(b)(2)(i)(B).
5.03 PASS-THROUGH VOTING, LIFE OF VIRGINIA SERIES FUND, INC. The following
rules shall apply to shares of Life of Virginia Series Fund, Inc. (the
"Fund"):
(a) Each Participant (or Beneficiary) shall have the right to direct the
Trustee as to the manner in which Fund shares allocated to his
accounts are to be voted on each matter requiring a shareholder vote.
Shares shall be voted on a portfolio or aggregate basis, as
determined by the Fund.
(b) Before each vote, the Trustees shall cause to be furnished to each
Participant (or Beneficiary) a copy of the proxy solicitation
material, together with a form
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Exhibit 10(f)
Page 40 of 92
requesting confidential direction as to how the shares allocated to
his accounts are to be voted by the Trustees.
(c) Upon timely receipt of directions, the Trustees shall vote the shares
(including fractional shares) of stock allocated to such
Participant's (or Beneficiary's) accounts as directed by the
Participant (or Beneficiary). Each Participant (or Beneficiary) who
timely directs voting of Fund stock on an aggregate (or portfolio)
basis shall also direct the vote of a portion of the shares of Fund
(or shares of the portfolio, if applicable) for which signed voting
directions are not timely received. Each such Participant (or
Beneficiary) shall be entitled to direct the voting of that number of
the undirected shares resulting from multiplying the total number of
undirected shares (on an aggregate or portfolio basis, as shall be
determined by the Fund) by a fraction, the numerator of which is the
total number of shares allocated to that Participant's accounts and
the denominator of which is the total number of shares of all
participants who timely direct the voting of Fund shares.
(d) Each Participant (or Beneficiary) may direct the Trustees as to how
to respond to an exchange offer with respect to Fund shares allocated
to his accounts. The Trustees shall use their best efforts to timely
distribute or cause to be distributed to each Participant (or
Beneficiary) such information as will be distributed to stockholders
of the Fund in connection with any exchange offer. Upon timely
receipt of written instructions as to the tendering or exchanging of
Fund stock, the Trustees shall act as instructed with respect to
shares of Fund stock allocated to such Participant's (or
Beneficiary's) accounts. If the Trustees do not receive timely
written instructions from a Participant (or Beneficiary) as to the
manner in which to respond to such exchange offer, the Trustees shall
not exchange any Fund shares with respect to which such Participant
(or Beneficiary) has the right of direction.
(e) The Participants' individual instructions are to be given to the
Trustees or the Trustees' designee, and such person shall not divulge
the Participant's directions to any person. Instructions so received
shall be held in strict confidence and shall not be divulged or
released to any person except as may be required to vote at the
shareholders' meeting, or as required by federal or state laws not
preempted by ERISA. The Trustees shall be responsible for monitoring
compliance with confidentiality procedures.
(f) Each Participant (or Beneficiary) shall be considered a "named
fiduciary" under section 402(a)(2) of ERISA with respect to all
voting directions.
5.04 LACK OF VALID ELECTION. If a valid election under Section 5.02 is not
made but the Participant or Beneficiary of a deceased Participant has
made a valid prior election, then all amounts shall remain in their
present fund. If a Participant, or
71
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Exhibit 10(f)
Page 41 of 92
Beneficiary of a deceased Participant, has not made a valid election and
no prior valid election is in effect, then all amounts in respect to
which a valid election has never been made shall be invested in a money
market fund, or as otherwise directed by the Trustees.
5.05 FUNDS FOR INVESTMENT. The Trustees shall determine, from time to time,
the Investment Funds available to Participants, except that there shall
be established under this Plan an Investment Fund holding exclusively
shares of the common stock of Aon Corporation, except as provided under
subsection (a) of this Section 5.05, to be called the Aon Stock Fund.
The trustee of the Aon Stock Fund shall be the Institutional Trustee.
(a) A portion of the Aon Stock Fund may also be invested in short-term
United States Government obligations, other short-term obligations
guaranteed by the United States Government, commercial paper, or
money market funds for qualified employee benefit trusts while
awaiting investment in Employer stock, or to provide sufficient
liquidity to satisfy Participants' request for withdrawals and
distributions.
(b) The following provisions shall apply with respect to voting shares of
Aon common stock:
(i) Each Participant (or Beneficiary) shall have the right to direct
the Institutional Trustee as to the manner in which shares of
Aon common stock allocated to his accounts are to be voted on
each matter brought before an annual or special stockholders'
meeting of Aon.
(ii) Before each such meeting of stockholders, the Institutional
Trustee, or Aon, upon written notice to the Institutional
Trustee, shall cause to be furnished to each Participant (or
Beneficiary) a copy of the proxy solicitation material, together
with a form requesting confidential direction as to how the
shares of Aon common stock allocated to such Participant's
accounts are to be voted by the Institutional Trustee.
(iii) Upon timely receipt of such directions, the Institutional
Trustee shall vote the shares (including fractional shares) of
Aon common stock allocated to such Participant's accounts on
each matter as directed by the Participant. Each Participant
(or Beneficiary) who timely directs voting of Aon common stock
shall also direct the vote of a portion of the shares of Aon
common stock for which signed voting directions are not timely
received. Each such Participant (or Beneficiary) shall be
entitled to direct the voting of that number of the undirected
shares resulting from multiplying the total number of
undirected shares by a fraction, the numerator of which is the
total number of
72
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Exhibit 10(f)
Page 42 of 92
shares allocated to that Participant's accounts and the
denominator of which is the total number of shares of all
Participants who timely direct the voting of Aon common stock.
(iv) The Participants' individual instructions are to be given to the
Institutional Trustee, or to any other person who is not the
Company, a subsidiary, or an employee, officer, or director
thereof and such person shall not divulge the Participant's
directions to any person. Instructions so received shall be
held in strict confidence and shall not be divulged or released
to any person except as may be required to vote at the
shareholders' meeting, or as required by federal or state laws
not preempted by ERISA.
(v) Each Participant (or Beneficiary) may direct the Institutional
Trustee as to how to respond to a tender or exchange offer with
respect to shares of Aon common stock allocated to his accounts.
The Institutional Trustee or Aon, upon written notice to the
Institutional Trustee, shall use its best efforts to timely
distribute or cause to be distributed to each Participant (or
Beneficiary) such information as will be distributed to
stockholders of the Company in connection with any such tender
or exchange offer. Upon timely receipt of written instructions
as to the tendering or exchanging of Aon common stock, the
Institutional Trustee shall act as instructed with respect to
shares of Aon common stock allocated to such Participant's (or
Beneficiary's) accounts. If the Institutional Trustee does not
receive timely written instructions from a Participant (or
Beneficiary) as to the manner in which to respond to such a
tender or exchange offer, the Institutional Trustee shall not
tender or exchange any shares of Aon common stock with respect
to which such Participant )or Beneficiary) has the right of
direction. The participants' individual instructions shall be
given to the Institutional Trustee or to any other person who
is not the Company, a subsidiary, or an employee, officer or
director thereof and such person shall not divulge any
Participant's directions to any person, except as required by
federal or state law not preempted by ERISA.
(vi) Each Participant (or Beneficiary) shall be considered a "named
fiduciary" under section 402(a)(2) of ERISA with respect to all
voting directions.
(c) The Institutional Trustee shall be responsible for monitoring and
safeguarding the confidentiality of information relating to the
purchase, sale, and holding and exercise of voting and similar rights
of Participants.
5.06 INVESTMENT OF THE SEPARATE FUNDS. Except with respect to the Aon Stock
Fund, the Trustees shall have full power and authority to receive,
collect, receipt for,
73
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Exhibit 10(f)
Page 43 of 92
hold, manage, and care for all amounts held, paid and contributed to each
of the separate funds described in Section 5.02, and the proceeds thereof
and the income and profits therefrom, as a single fund, and to invest and
reinvest the same as provided in Section 5.02, provided that all
investments shall comply with the requirements of Section 404 of ERISA.
Also except with respect to the Aon Stock Fund the Trustees are further
authorized and empowered to sell, exchange, convert, or transfer any
property of the Trust; to sell covered stock options; to retain
uninvested for such time as the Trustee deems for the best interest of
the Trust any cash held in any separate fund; to exercise or dispose of
all rights accruing to the holders of any securities; to join in, by
deposit, pledge, or otherwise, any plan of reorganization or other means
of protecting and dealing with securities; and to compromise, adjust, and
settle, all claims of or against said Trust at such amounts and upon such
terms as the Trustee deems advisable.
Powers of the Institutional Trustee are as set forth in the agreement
between the Company and the Institutional Trustee.
5.07 INVESTMENTS NOT ALLOCATED TO SEPARATE ACCOUNTS. All right, title, and
interest in and to the assets and investments held in each separate fund
shall be vested in, and reside exclusively in, the Trustee or the
Institutional Trustee, as applicable, and no Participant shall have any
right, title, or interest in or to the assets or investments of any fund
except to have the same held, invested, and applied in accordance with
the provisions of this agreement. The maintenance of separate accounts
for each Participant, as heretofore provided, shall not require the
allocation of or segregation of assets to each such account, but the
creation of such accounts is primarily for accounting purposes and
designed to reflect the dollar interest of each such account in the
separate funds.
74
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Exhibit 10(f)
Page 44 of 92
SECTION 6 - PROVISIONS RELATING TO TRUSTEE
6.01 APPOINTMENT OF TRUSTEES AND INSTITUTIONAL TRUSTEE. There shall at all
times be one or more individual Trustees and an Institutional Trustee
acting hereunder. Such individual Trustees and the Institutional Trustee
shall be appointed by the Board. The Board shall have the right at any
time, and from time to time, to remove any individual Trustee or the
Institutional Trustee. Each individual Trustee and the Institutional
Trustee shall serve until 60 days after the earlier of (a) the day notice
of resignation is given to the Board (or its representative); or (b) the
day notice of removal by the Board (or its representative) is given to
the Trustee or Institutional Trustee. By mutual agreement, the 60-day
notice may be waived. In the event of the death, resignation, or removal
of an individual Trustee or the Institutional Trustee acting hereunder,
the Board shall appoint a successor to fill the vacancy, and such
successor, upon accepting appointment by an instrument in writing
delivered to the Board (or its representative) shall, without further
action, become vested with all the estate, rights, powers, discretions
and duties of the predecessor.
6.02 FEES AND EXPENSES OF TRUSTEE. The Trustee shall be paid such reasonable
compensation as shall from time to time be agreed upon by Aon and the
Trustee except that no person so serving shall be entitled to receive
compensation where he receives fulltime pay from the Companies. The
Trustee, in addition, shall be reimbursed for any reasonable expenses,
including reasonable counsel fees and investment manager fees, incurred
by it in the administration of the Trust.
6.03 PAYMENT OF COSTS, FEES AND EXPENSES. Expenses arising from the
administration, management and operation of the Plan and the funds
described in Section 5.02, including compensation payable to the Trustee
or Institutional Trustee, shall be payable from the fund to which such
expenses relate or to which such expenses or a portion thereof are fairly
allocable. In construing the foregoing, the following shall be
understood: (1) expenses incurred in connection with transactions
involving the purchase or sale of investments shall be added to the cost
of such investment or deducted from the sale price thereof as the case
may be; and (2) nothing contained herein shall preclude the Companies, by
agreement or otherwise, from paying expenses not attributable to them
hereunder.
6.04 UNCERTAIN DISTRIBUTION. In the event any question or dispute shall arise
as to the proper person or persons to whom any payment shall be made, the
Trustee may withhold such payment until a determination of such question
or dispute shall have been made, or the Trustee shall have been
adequately indemnified against loss to its satisfaction.
6.05 LIABILITY. No Trustee shall ever be liable for any act or default by any
predecessor Trustee, nor shall any successor Trustee or Trustees acting
hereunder be under any duty to examine into or take any action with
reference to the accounts of any
75
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Exhibit 10(f)
Page 45 of 92
prior Trustee heretofore acting hereunder. All contributions and other
monies received by the Trustee shall be held for the exclusive benefit of
the Participants and their Beneficiaries and for the payment of such
administrative expenses as may be provided for hereunder. The Trustee
shall be accountable for all such contributions and other monies, but
shall have no duty to determine that the amounts of the contributions
comply with the provisions of the Plan.
6.06 LEGAL ACTION. The Trustee shall at no time be obliged to institute any
legal action or to become a party to any legal action unless it shall
have been indemnified to its satisfaction for any fees, costs, and
expenses to be incurred in connection therewith.
6.07 MANNER OF ACTING. The duties of the Institutional Trustee shall be as
set forth in Section 6.08. In all other matters, all decisions by the
Trustees pertaining to the management of the Trust and their duties and
powers, shall be made by the decision of the majority of the Trustees,
and the action of the majority of the Trustees shall be binding upon all
of the Trustees and have the same effect as an action, or decision, of
all the Trustees.
6.08 DUTIES OF INSTITUTIONAL TRUSTEE. The Institutional Trustee of the Aon
Stock Fund shall be responsible for performing one or more of the duties
and powers prescribed to the Institutional Trustee under this agreement
solely with respect to the Aon Stock Fund, and under any other agreement
between the Company and the Institutional Trustee. Such other agreement
shall be in writing and shall be signed by and on behalf of the Company
and the Institutional Trustee. In the event of a conflict between this
agreement and such other agreement, the term of such other agreement
shall control.
The Trustees shall be responsible for performing the duties and powers
prescribed to the Trustees under this Section 6, with respect to all
other assets of the Trust.
6.09 LIMITATION ON LIABILITY. To the extent permitted by law, each person
serving as a Trustee without compensation shall be relieved and released
from all personal liability by reason of any act or failure to act on his
part, except to the extent such act or failure to act was a result of
fraud or gross negligence.
6.10 INDEMNITY. Each person serving as a Trustee without compensation (and
their respective assigns, heirs, executors and administrators) shall be
entitled to be indemnified by Aon against all costs and expenses
reasonably incurred by or imposed upon him in connection with or
resulting from any action, suit or proceeding or threat thereof, to which
he may be made a party by reason of his serving as a Trustee, except in
relation to matters as to which a recovery shall be had against him by
reason of his having been finally adjudged in such action, suit or
proceeding to have committed a fraudulent act or omission. The foregoing
right to indemnity shall include reimbursement of the costs and expenses
paid in
76
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Exhibit 10(f)
Page 46 of 92
settling any such action, suit or proceeding or threat thereof when it
appears to Aon that the Trustee did not commit a fraudulent act or
omission.
6.11 DISBURSEMENTS. The Trustee shall make such disbursements or payments from
the Investment Funds as described in Section 5.02 as may be directed by
the Committee. Any such directions shall be in writing and signed by a
member of the Committee or the Secretary of the Committee. The Trustee
shall have no duty or obligation to inquire into the propriety of any
payment directed by the Committee but may conclusively presume that the
payment is authorized by the terms of the Plan; however, this Section
shall in no event be construed as granting the Committee any authority to
manage, control, or invest the assets of the Trust but is intended solely
to facilitate the administration of the Plan by the Committee.
6.12 REPORTS. The Trustee shall maintain accurate and detailed records and
accounts of all investments, receipts, disbursements and other
transactions hereunder, and all accounts, books and records relating
thereto shall be open at all reasonable times to inspection and audit by
any person or persons designated by Aon or the Committee. Within sixty
(60) days following the close of each Plan Year (or following the close
of such other periods as may be agreed upon by the Trustee and Aon) the
Trustee shall file with Aon a written account setting forth a description
of all securities and other property purchased and sold, all receipts,
disbursements and other transactions affected by it during such period,
and listing the securities and other property held by it at the end of
such period, at their cost and fair market values. Aon may approve such
accounting by written notice of approval delivered to the Trustee or by
failure to express objection to such accounting in writing delivered to
the Trustees within eight (8) months from the date upon which the
accounting was delivered to Aon. Upon receipt of a written approval of
the accounting, or upon the passage of said period of time within which
objections may be filed, without written objections having been delivered
to the Trustee, such accounting shall be deemed to be approved, and the
Trustee shall be released and discharged as to all items, matters and
things set forth in such accounting as if such accounting had been
settled and allowed by a decree of a court of competent jurisdiction in
any action or proceeding in which the Trustee, Aon, and all persons
having or claiming to have any interest in the Trust Fund or under the
Plan, were parties. The Trustee, nevertheless, shall have the right to
have its accounts settled by judicial proceedings if it so elects, in
which event only the Trustee and Aon shall be necessary parties. Nothing
contained in this paragraph shall relieve the Trustee from any
responsibility or duty under ERISA and any subsequent amendment thereto.
6.13 ADDITIONAL POWERS OF TRUSTEE. The Trustee shall have exclusive authority
and discretion to manage and control all of the assets of the Plan
except for the assets of the Aon Stock Fund. Pursuant thereto, and in
addition to the other powers granted by this Agreement, the Trustee shall
be authorized and empowered, except with respect to the Aon Stock Fund:
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Exhibit 10(f)
Page 47 of 92
(a) To sell, exchange, convey, transfer, or otherwise dispose of any property
held by it, by private contract or at public auction, and no person dealing
with the Trustee shall be bound to see to the application of the purchase money
or to inquire into the validity, expediency, or propriety of any such sale or
other disposition;
(b) To make, execute, acknowledge, and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be
necessary or appropriate to carry out the powers herein granted;
(c) To register any investment held for an Investment Fund in its own
name or in the name of a nominee and to hold any investment in bearer
form, but the books and records of the Trustee shall at all times
show that all such investments are part of the Trust Fund;
(d) To manage, administer, operate, lease for any number of years,
develop, improve, repair, alter, demolish, mortgage, pledge, grant
options with respect to, or otherwise deal with any real property or
interest therein at any time held by it;
(e) To employ suitable agents and persons to render it services and
advice in connection with its responsibilities and to pay their
reasonable expenses and compensation;
(f) To settle, compromise, or submit to arbitration, any claims, debts,
or damages, due or owing to or from the Trust, to commence or defend
suits or legal proceedings and to represent the Trust in all suits or
legal proceedings;
(g) To enter into any covenants or agreements binding the Trust with
regard to any securities or other property held by it as Trustee; and
(h) To borrow or raise monies for the purposes of the Trust and for any
such so borrowed to issue its promissory note as Trustee and to
secure the repayment thereof by pledging all or any part of the
assets of the Trust, but nothing herein contained shall obligate the
Trustee to render itself liable individually for the amount of any
such borrowing; and no person loaning money to the Trustee shall be
bound to see to the application of the money loaned or to inquire
into the validity, expediency, or propriety of any such borrowing.
6.14 INVESTMENT MANAGER. The Trustees or the Company may delegate the
investment powers granted to the Trustee by this Plan to an investment
manager provided such investment manager meets all the requirements set
forth in Section 3(38) of ERISA. In the event of the delegation of their
investment powers as above provided, the Trustees shall have no duty or
obligation to supervise or control in any way the investments made and
shall in no way be liable or responsible on account
78
<PAGE>
Exhibit 10(f)
Page 48 of 92
of any investments made or retained by the investment manager, whether or
not such investments are authorized by this Plan, or for any acts or
omissions of the investment manager. Such delegation may apply to any
part or all of the Investment Funds.
79
<PAGE>
Exhibit 10(f)
Page 49 of 92
SECTION 7 - ADMINISTRATION OF THE PLAN
7.01 COMMITTEE. The Board shall appoint a Committee consisting of not less
than three (3) nor more than seven (7) members. Any person appointed a
member of the Committee shall signify his acceptance by filing written
acceptance with the Board. The members of the Committee shall serve
without compensation for their services. The term of the members of the
Committee shall commence with the date of their appointment and continue
at the convenience of the Board. Any member of the Committee may resign
by delivering his written resignation to the Board, and such resignation
shall become effective at delivery or at any later date specified
therein.
7.02 DUTIES OF COMMITTEE. The Committee shall have those duties prescribed to
it elsewhere in this Agreement, and shall be responsible for the general
administration of the Plan except where duties in connection with such
general administration have been prescribed to others under this
Agreement. The Committee shall not incur expenses on behalf of the Plan
or Trust except with the consent of Aon.
7.03 CHAIRMAN AND SECRETARY. The members of the Committee shall elect a
chairman from their number, and a secretary who may be but need not be
one of the members of the Committee.
7.04 MEETINGS AND QUORUM. The Committee shall hold meetings upon such notice,
at such place or places, and at such time or times as it may from time to
time determine. A majority of the members of the Committee at the time
in office shall constitute a quorum for the transaction of business. All
resolutions or other actions taken by the Committee at any meeting shall
be by the vote of a majority of the members of the Committee present at
the meeting. Actions may be taken by the Committee without a meeting
where such actions are consented to in writing by the entire Committee.
7.05 ALLOCATION OF DUTIES. The Committee, by its action, may allocate its
fiduciary responsibilities among its members, and may designate persons
other than its members to carry out its fiduciary responsibilities. The
Committee, individual members of the Committee allocated specific
fiduciary responsibilities, and persons other than members of the
Committee designated to carry out specific fiduciary responsibilities,
may employ one or more persons to render advice with respect to their
responsibilities. If the Committee has allocated a specific fiduciary
responsibility among its members, or has designated persons other than
its members to carry out a specific fiduciary responsibility, it shall do
the following things: (1) it shall make as a condition of such allocation
or designation the fact that the Committee may terminate the allocation
or designation at will; and (2) it shall report such allocation or
designation to the Executive Committee of Aon
80
<PAGE>
Exhibit 10(f)
Page 50 of 92
who by its action, or by action of the Board, may order that such
allocation or designation be terminated in which case it shall be done as
soon as practicable.
7.06 Aon. Aon shall have the responsibility for hiring personnel in
connection with the administration of the Plan (who shall be employees of
Aon), and persons to perform services in connection with the
administration of the Plan on an ad hoc basis, as may be required to
carry out the provisions of the Plan. In accordance with the exercise of
such responsibility, Aon may employ a manager for the Plan, clerical
help, accountants, investment consultants, management consultants, public
relations consultants, attorneys (who may be counsel for Aon) and other
individuals as may be necessary.
7.07 RULES AND INTERPRETATION. The Committee may, from time to time,
establish rules and procedures for administration of the Plan not
inconsistent with the Plan's provisions, and administer the Plan in
accordance with such provisions and such rules and procedures. The
Committee shall have the exclusive right and discretionary authority to
construe the terms and provisions of the Plan, including without
limitation, the power to construe or interpret disputed, ambiguous or
uncertain terms, and such other powers as may be necessary to carry out
the provisions of the Plan. The Committee shall also have the
discretionary authority to determine all questions relating to the
eligibility of Employees to participate in the benefits of the Plan and
the amount of such benefits, and resolve all questions pertaining to the
administration, interpretation and application of the Plan provisions.
Actions taken in good faith by the Company, the Committee or an Employer
shall be conclusive and binding on all interested parties as to all
questions of interpretation and application under this Plan and as to all
other matters arising out of the administration thereof, and shall be
given the maximum possible deference allowed by the law.
7.08 LIMITATIONS ON LIABILITY. To the extent permitted by law, each member of
the Committee, and each employee of the Company who is involved in the
administration of the Plan, shall be relieved and released from all
personal liability by reasons of any act or failure to act on his part
with respect to the administration of the Plan, except to the extent such
act or failure to act was a result of fraud or gross negligence.
7.09 INDEMNITY. Each person named in Section 7.08 (and his respective assigns,
heirs, executors and administrators) shall be entitled to be indemnified
by Aon against all costs and expenses reasonably incurred by or imposed
upon him in connection with or resulting from any action, suit or
proceeding or threat thereof, to which he may be made a party by reason
of his being involved in the administration of the Plan, except in
relation to matters as to which a recovery shall be had against him by
reason of his having been finally adjudged in such action, suit or
proceeding to have committed a fraudulent act or omission. The foregoing
right to indemnity shall include reimbursement of the costs and expenses
paid in
81
<PAGE>
Exhibit 10(f)
Page 51 of 92
settling any such action, suit or proceeding or threat thereof when it
appears to Aon that the person did not commit a fraudulent act or
omission.
7.10 IDENTITY. The Committee shall have authority to determine the identity of
the distributees, and in so doing, to act upon such information as, on
reasonable inquiry, it may deem reliable with respect to heirship,
relationship, survivorship, or any other fact relative to the
distributees; the Committee may rely upon any affidavit, certificate,
letter, or other paper or document reasonably believed by it to be
genuine, and upon any evidence reasonably believed by it to be
sufficient; and shall be protected and saved harmless in all payments
required to be made hereunder, if made in good faith and without actual
notice or knowledge of the changed condition or status of any person
receiving payments upon a condition.
82
<PAGE>
Exhibit 10(f)
Page 52 of 92
SECTION 8 - DISPOSITION OF THE SEPARATE TRUST ACCOUNTS
8.01 PARTICIPANT STILL EMPLOYED BY COMPANY AFTER RETIREMENT DATE. A
Participant shall have a 100% vested interest in his Company Contribution
Account when he attains his Normal Retirement Date. If he continues in
active employment, no distribution shall be made to such Participant
(except pursuant to Section 8.07) until he retires or is retired from
active employment and the Committee is so advised, and he shall continue
to participate in this Trust.
8.02 DISPOSITION AT OR AFTER RETIREMENT DATE OR IN CASE OF PHYSICAL OR MENTAL
DISABILITY. In the event that at or after his Normal Retirement Date a
Participant shall resign or be released from employment from the
Companies, or in the event that the employment of any Participant shall,
at any time, either before or after Normal Retirement Date, be terminated
because of permanent physical or mental disability, then the Committee
shall direct the Trustee to distribute the Participant's entire
individual accounts to such Participant, without regard to the provisions
for vesting as set forth in Section 9, in one or more of the ways
described in Section 8.10. Permanent physical or mental disability means
a physical or mental disability or illness which, in the opinion of a
physician approved by the Committee, renders the Participant permanently
incapable of performing the duties he was performing for the Companies
when such disability began.
8.03 DISPOSITION UPON THE DEATH OF A PARTICIPANT. The Committee, upon the
death of a Participant, whether before or after retirement, shall direct
the Trustee to distribute the Participant's individual accounts, without
regard to the provisions for vesting as set forth in Section 9, to such
Participant's Beneficiary in one or more of the ways described in Section
8.10. If the Participant has not named a Beneficiary, or if no
Beneficiary is living at the death of the Participant, such accounts
shall be paid over in one sum to the executor or administrator of the
estate of such deceased Participant; provided, that if in such situations
the Participant's spouse survives him then such surviving spouse shall be
the Beneficiary. In the event the Beneficiary dies subsequent to the
death of the Participant but prior to the distribution of the entire
accounts to the Beneficiary, the balance of the accounts shall forthwith
be paid over and delivered to the executor or administrator of the estate
of the deceased Beneficiary.
8.04 DISPOSITION UPON TERMINATION OF EMPLOYMENT BEFORE REACHING RETIREMENT
DATE. If a Participant shall withdraw from the employ of the Companies
prior to attaining his Normal Retirement Date, whether because of
resignation or discharge, or any reason other than permanent disability,
provision for which is made in Section 8.02, the Committee shall direct
the Trustee to pay to such Participant his vested interest in his
individual accounts, as provided in Section 9, in one or more of the ways
described in Section 8.10. If prior to incurring a 1-Year Break in
Service such terminated Participant shall file with the Committee
83
<PAGE>
Exhibit 10(f)
Page 53 of 92
an application for the payment of benefits which has been approved by the
Committee and distributions pursuant thereto have commenced, and if prior
to incurring such 1-Year Break in Service he shall be reemployed by one
of the companies, he shall not share in the Companies' contribution or
forfeitures for the Plan Year in which the withdrawal occurred (this
assumes he reentered employment in the same year as the withdrawal
occurred) and he shall not be entitled to make contributions, or to have
contributions made on his behalf, under Section 3.03, 3.04 or 3.05 in
respect to his Compensation for the 12 month period following the month
in which his application is filed or following the month of termination
of his employment, whichever shall occur later and, accordingly, shall
not share in Companies' contributions and forfeitures on the basis of the
contribution which would otherwise have been made on his behalf under
Section 3.03 during this period.
8.05 TERMINATION OF THE TRUST AND DISPOSITION UPON SUCH TERMINATION. Unless
otherwise terminated as hereinafter provided in Paragraphs (a), (b), (c),
or (d), of this Section 8.05, this Trust and Plan shall continue in
perpetuity or for such time as may be necessary to accomplish the purpose
for which it is created. This Trust and Plan shall terminate in respect
to a Company upon the happening of any of the following events, but shall
continue as a liquidation trust until final distribution of all assets.
(a) Election by Aon. Aon, by appropriate resolutions by its Board, may
elect to terminate this Trust and Plan as to any Company or all
Companies.
(b) Bankruptcy. In the event a Company at any time shall be adjudicated
bankrupt or insolvent.
(c) Dissolution. In the event a Company at any time shall be legally
dissolved.
(d) Merger or Consolidation. In the event of the merger or consolidation
of a Company in and with another corporation or an association and
such other corporation or association shall not agree to continue
this Trust, with proper agreement with the Trustee and Committee;
provided, however, in the event of dissolution, merger or
consolidation of a Company, provision may be made by the successor or
successors, whether it be an individual, firm, or corporation, for
continuing this Trust and Plan, and such successor or successors
shall be substituted for its predecessor hereunder, in which event
the Trust and Plan shall continue in full force and effect in respect
to such successor.
If this Trust and Plan shall be terminated upon the happening of any of
the events specified in Paragraphs (a), (b), (c), or (d) of this Section
8.05, and in accordance with Section 401(k)(10(A)(i) of the IRC, the
Committee shall direct the Trustee to distribute the value of the
affected Participants' entire accounts to such Participants in the manner
provided in Section 8.10. Upon the completion of all payments to everyone
entitled thereto, this Trust and Plan shall finally cease
84
<PAGE>
Exhibit 10(f)
Page 54 of 92
and terminate in respect to the Company and Participants affected
thereby. Upon the termination of the Trust and Plan in respect to any
Company, any unallocated contributions, forfeitures, or earnings and
valuation adjustments shall be allocated to the accounts of the affected
Participants in a fair and equitable manner as determined by the
Committee. In the event of any action by or in respect to any Company
resulting in the termination of the Trust and Plan pursuant to this
Section 8.05, this Trust and Plan shall only terminate in respect to such
Company but not in respect to any other Companies which have adopted the
Plan, it being understood that the Trust and Plan shall continue in full
force and effect as to any such other Companies.
8.06 PAYMENT TO MINORS, ETC. In case any payment hereunder becomes payable to
a minor, person under legal disability, or person who by reason of
physical or mental disability, although not adjudicated incompetent, is
in the opinion of the Committee unable to administer properly such
payment, then the same may be paid out by the Trustee for the benefit of
such person in any of the following ways as the Committee, in its sole
and uncontrolled discretion, shall determine:
(a) directly to such person; or
(b) to the legally appointed guardian or conservator of such person; or
(c) to some near relative of such person for the support, maintenance,
and education of such person;
(d) by the Trustee using such amounts directly for the benefit of such
person.
The payment and acceptance of any money or property in settlement of a
participation under this Section 8.06 shall constitute a complete
acquittance and discharge of all liability of the Trustee with respect to
such participation.
8.07 HARDSHIP WITHDRAWALS. Hardship withdrawals may be made from the accounts
of a Participant under the circumstances and subject to the limitations
set forth in this Section.
(a) A Condition of Hardship. For the purposes of this Section, a hardship
shall mean financial needs of a Participant which are immediate and
heavy and which cannot be satisfied by the Participant from other
reasonably available resources. For example, an immediate and heavy
financial need shall be deemed to exist if funds are needed for one
of the following reasons: Expenses incurred or necessary for medical
care (as defined in Section 213(d) of the IRC) of the participant,
the participant's spouse, children, or dependents (as defined in
Section 152 of the IRC); costs directly related to the purchase
(excluding mortgage payments) of a principal residence for the
participant; payment of tuition and related educational fees for the
next 12 months of post-secondary eduction for the participant, the
participant's
85
<PAGE>
Exhibit 10(f)
Page 55 of 92
spouse, children, or dependents; the need to prevent the eviction of
the participant from or a foreclosure on the mortgage of, the
participant's principal residence; or the need to meet funeral
expenses of a family member.
(b) Request for Payment. In case of a condition of hardship, a
Participant may request in writing to the Committee payment from his
Participant's Pay Deferral Accounts (other than contributions to his
Basic Pay Deferral Account for the current Plan Year) and Voluntary
Contribution Account, plus an amount equal to 50% of the vested
portion of the balance in his Company Contribution Account, of such
amount as is necessary to meet the immediate and heavy financial need
created by the hardship and not reasonably available from other
resources. Such request shall be in writing and shall set forth all
the applicable facts.
(c) Objective Standards. Subject to the approval of the Committee, there
shall be paid to such Participant such portion, or all, of his
request for payment hereunder as the Committee determines is
necessary to alleviate such hardship. Consent to the withdrawal shall
be given by the Committee if the Committee finds an immediate and
heavy financial need and that the distribution is necessary in light
of the standards set forth in the regulations and rulings of the
Secretary of the Treasury or his delegate.
(d) Order of Payment. Payments to a Participant under this section
shall be charged to his accounts in the following order:
Participant's Voluntary Contribution Account (in the order described
under Section 3.05), Participant's Supplemental Pay Deferral Account,
Participant's Basic Pay Deferral Account (other than contributions to
that account for the current Plan Year), Company Contribution
Account.
(e) Limitation on Withdrawals.
(i) In no event shall the total of the amounts paid to a
Participant under this Section exceed the balance in his
Participant's Accounts (less his contributions to his Basic
Pay Deferral Account during the current Plan Year) plus fifty
percent (50%) of the vested portion of his "Adjusted Company
Contribution Account" less the prior withdrawals referred to
in the following sentence. For the purpose of the preceding
sentence, a Participant's "Adjusted Company Contribution
Account" shall be deemed to be the balance in his Company
Contribution Account plus all prior withdrawals from such
account plus all prior withdrawals from such accounts under
the merged plans (as described in Section 4.08).
(ii) For Plan Years beginning on or after January 1, 1989, a
distribution for financial hardship shall not be made of
either earnings subsequent
86
<PAGE>
Exhibit 10(f)
Page 56 of 92
to December 31, 1988, on Pay Deferral Amounts or, to the extent
required under regulations of the IRC, any matching or
nonelective Company contributions treated as Pay Deferral
Amounts under Section 3.09(e).
(f) Withdrawals After Termination of Employment. A withdrawal under this
Section shall not be treated as a withdrawal under Section 8.04.
8.08 NET EARNINGS AND VALUATION ADJUSTMENT. Net earnings and valuation
adjustments shall be made to the accounts of each Participant as set
forth herein or under such separate agreement between the Company and the
Institutional Trustee. As of the last day of each calendar month, the
Committee shall ascertain the net Gain or net Loss of each of the funds
described in Section 5. Gain shall include profits actually realized and
received and income earned plus any net increase in the fair market value
of all of the assets of the fund since the date of their last valuation.
Losses shall include expenses and losses actually incurred and paid plus
any net decrease in the fair market value of all of the assets of the
fund since the date of their last valuation. The net Gain or net Loss of
each Fund for the period shall then be allocated to or charged against
the account or accounts of each Participant representing his interest in
the fund in the proportion which the balance in his account or accounts
(reduced by any amounts paid to him during the year) shall bear to the
total of the balances in the accounts of all Participants representing an
interest in the fund (reduced by any amounts paid to all of them during
the year). The allocation provided for in the preceding sentence shall
be made before the allocation of the contributions of the Company, the
Subsidiaries and the Participants for the period and before the
allocations of any forfeitures for the period.
8.09 METHOD OF VALUING ASSETS. Valuation adjustments under Section 8.08 shall
be based on the fair market value of the assets held by the Trustees and
the Trustees shall adopt accepted valuation and accounting methods in
determining fair market value.
8.10 GENERAL PROVISIONS REGARDING PAYMENT OF BENEFITS. If the person entitled
to receive benefits pursuant to this Section 8 is a terminated or retired
Participant or Beneficiary of a deceased Participant, the following shall
apply:
(a) He shall receive benefits in a lump sum or in equal periodic
installments which at his discretion may be increased or accelerated
or otherwise adjusted. Payment shall be made in a lump sum if the
initial amount thereof is $5,000 or less; provided, that no
distribution shall be made without the consent of the Participant if
the amount thereof exceeds $3,500. If a distribution is one to which
Sections 401(a)(11) and 417 of the IRC do not apply, such
distribution may commence less than 30 days after the notice required
under section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that:
87
<PAGE>
Exhibit 10(f)
Page 57 of 92
(i) the Committee clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or
not to elect a distribution (and, if applicable, a particular
distribution option), and
(ii) the Participant, after receiving the notice, affirmatively
elects a distribution.
(b) If he is a terminated or retired Participant, payment of benefits to
him shall commence not later than the 60th day after the later of the
close of the Plan Year in which his employment terminated or he
attains his Normal Retirement Date; or if he is a Beneficiary of a
deceased Participant, payment of benefits to him shall commence not
later than the 60th day after the Plan Year in which the Participant
of whom he is Beneficiary dies. Notwithstanding the preceding
sentence, if he is a terminated or retired Participant, he shall have
the right to have his benefits commence at a date later than
described herein, but not beyond April 1st of the calendar year
following the calendar year in which he attains age 70 1/2.
(c) The Participant shall decide the method or methods to be used for
paying him benefits, and, subject to what is stated in (b) above,
when payment of benefits to him shall commence. He shall be given the
opportunity to inform the Committee what his preferences are
regarding the method or methods to be used for paying him benefits,
and when payment of benefits to him shall commence.
(d) If he is to receive payment of benefits in the form of periodic
installments, such payments shall be made not less frequently than
annually and shall be over a period of up to ten years but not to
exceed the Participant's life expectancy or, if applicable, the
combined life expectancy of the Participant and his Designated
Beneficiary.
(e) If he is a terminated Participant as described in Section 8.04,
payment of benefits to him shall not commence until he has a 1-Year
Break in Service except that the Committee shall commence payment to
him sooner, as soon as administratively convenient, if he so
requests.
(f) Where distribution of the Participant's interest has begun under
Section 8.10(b) and the Participant dies before his entire interest
has been distributed to him, the remaining portion of such interest
will be distributed at least as rapidly as under the method of
distribution being used under Section 8.10(b) as of the date of his
death.
(g) If a Participant dies before the distribution of his interest has
begun under Section 8.10(b) the entire interest of the Participant
will be distributed within five years after his death except as
described below:
88
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Exhibit 10(f)
Page 58 of 92
(i) If any portion of the Participant's interest is payable to (or
for the benefit of) a Designated Beneficiary such portion will
be distributed over the life of such Designated Beneficiary (or
over a period not extending beyond the life expectancy of such
Beneficiary), and such distributions begin not later than one
year after the date of the Participant's death (or such later
date as the Secretary of the Treasury may prescribe), then for
purposes of this Subsection such portion shall be treated as
distributed on the date when such distributions began.
(ii) If such Designated Beneficiary is the surviving spouse of the
Participant, distributions need not begin until the date on
which the Participant would have attained age 70 1/2. If the
surviving spouse dies before distributions to her begin,
Section 8.10(g) shall be applied as if the surviving spouse
were the Participant. Any amount paid to a child shall be
treated as if it had been paid to the surviving spouse if such
amount will become payable to the surviving spouse upon such
child reaching majority (or other designated event permitted
under IRC regulations).
(h) The term "Designated Beneficiary" means any individual designated as
a Beneficiary by the Participant.
(i) Notwithstanding the provisions of Subsection (b) hereof, distribution
to a Participant who has terminated his service, or who is a 5% owner
(as defined in Section 16.02(b)) at any time during the 5-Plan-Year
period ending in the calendar year in which he attains age 70-1/2
shall commence not later than the 1st day of April of the calendar
year following the calendar year in which he attains age 70-1/2. If a
Participant who has not terminated his service subsequently becomes a
5% owner after the calendar year in which he attains age 70-1/2, then
distribution shall commence by April 1st of the calendar year
following the Plan Year during which he became a 5% owner. Effective
January 1, 1989, distribution to a Participant shall commence by
April 1st of the calendar year following the calendar year in which
he attains age 70 1/2, without regard to whether he has terminated
his service; provided, that this rule shall not apply to a
Participant age 70-1/2 or over on January 1, 1988 unless he has been
a 5% owner at any time during the Plan Year ending during the
calendar year when he attained age 66-1/2 or any subsequent Plan
Year, nor shall it apply to any benefits with respect to which a
designation is in effect as described in Section 8.10(j).
(j) The foregoing provisions of this Section 8.10, other than the right
of a Participant to elect his own optional forms of benefit as may be
applicable, shall not apply to distributions under a plan of
distribution designated by a Participant in writing prior to January
1, 1984, which was permissible under the provisions of this Plan as
in effect prior to the 1984 Restatement of the Plan.
89
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Exhibit 10(f)
Page 59 of 92
(k) If the Beneficiary of the Participant is not his spouse the form of
distribution must be one whereunder the present value of the retirement
benefit payments projected to be made to the Participant, while living,
is more than 50 percent of the present value of the total payments
projected to be made to the Participant and the Participant's
Beneficiary; provided, that this requirement shall be interpreted so as
to comply with the incidental benefit rule of the IRC and the rules and
regulations thereunder.
(l) In lieu of making payments directly from a terminated, deceased, or
retired Participant's separate accounts, the Committee may, in their
sole discretion, invest all or a portion of such Participant's separate
accounts in one or more annuity contracts and assign such contract or
contracts to such Participant or his Beneficiary or cause payments to
be made pursuant to the terms of such contract or contracts to such
Participant or his Beneficiary in such manner as the Committee deem
advisable. Before assigning any contract to a terminated or retired
Participant or Beneficiary, the Committee shall cause such contract to
be made non-assignable by the assignee. Any contract shall be issued on
a unisex basis and all the terms and conditions under any such
contract, including benefits, premiums, options, loan values and cash
surrender values, shall be the same for both male and female.
(m) Distribution to a Participant (or his Beneficiary) whose vested
interest in his Accounts has a fair market value of $3,500 or less
based on the Plan's last valuation shall be made as soon as
administratively convenient.
(n) Except as provided in regulations, the provisions of IRC Section
401(a)(9) are hereby incorporated by reference to the extent not set
forth in this Section.
8.11 ELIGIBLE ROLLOVER DISTRIBUTIONS. Effective with respect to distributions
made on or after January 1, 1993, a distributee may elect, at the time and
in the manner prescribed by the plan administrator, to have any portion of
an Eligible Rollover Distribution paid directly to an Eligible Retirement
Plan specified by the distributee in a Direct Rollover. For purposes of
this Section 8.11:
(a) An "Eligible Rollover Distribution" is any distribution of all or any
portion of the balance to the credit of the distributee, except that an
Eligible Rollover Distribution does not include: any distribution that
is one of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent
such distribution is required under Section 401(a)(9) of the IRC; and
the portion of any distribution that is not includable in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
90
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Exhibit 10(f)
Page 60 of 92
(b) An "Eligible Retirement Plan" is an individual retirement account
described in Section 408(a) of the IRC, an individual retirement
annuity described in Section 408(b) of the IRC, an annuity plan
described in Section 403(a) of the IRC, or a qualified trust described
in Section 401(a) of the IRC, that accepts the distributee's Eligible
Rollover Distribution. In the case of an Eligible Rollover Distribution
to the surviving spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
(c) A "Distributee" is an employee or former employee, the employee's or
former employee's surviving spouse and the employee's or former
employee's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section 414(p) of the
IRC.
(d) A "Direct Rollover" is a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee.
91
<PAGE>
Exhibit 10(F)
page 61 of 92
SECTION 9--PARTICIPANT'S NONFORFEITABLE INTEREST
9.01 GENERAL RULE. A Participant's nonforfeitable (vested) interest prior to
his Normal Retirement Date shall be an amount equal to the balance of his
Participant's Voluntary Contribution Account, plus the balance of his
Participant's Basic and Supplemental Pay Deferral Accounts, plus the
percentage of the balance of his Company Contribution Account applicable
to his number of Years of Participation as follows:
Completed Years of Participation Nonforfeitable Interest
-------------------------------- -----------------------
Less than 1 year None
1 Year 20%
2 Years 40%
3 Years 60%
4 Years 80%
5 Years 100%
For the purpose of computing the balance of the Company Contribution
Account of a Participant with less than a 100% vested interest, any
amounts previously paid out pursuant to Section 8.07 shall be credited
back to such Account and then charged against such Participant. Upon the
termination, or a partial termination, of this Plan, except as provided
in Section 11, or upon complete discontinuance of contributions thereto
by any Company, each affected Participant's interest in his separate
accounts shall become one hundred percent (100%) nonforfeitable.
9.02 SPECIAL RULES. In applying the provisions of Section 9.01, Years of
Participation shall refer to the total years of Service of an Employee
with the following exceptions and modifications:
(a) Subject to the provisions of (c) of this Section, an Employee's
Service shall be deemed to commence on the January first following
the date his actual employment commenced, except that if a prior
Participant is reemployed and again becomes a Participant in the year
of his reemployment pursuant to Section 2.02 his Service shall be
deemed to have commenced on January first of the year of his
reemployment.
(b) If an Employee's employment is terminated during any calendar year,
he shall receive no credit for any Service during such calendar year
(unless the rule set forth in Section 1.23(c) applies).
(c) In the case of an Employee who has five 1-Year Breaks in Service,
Service, after such Break in Service, shall not be taken into account
for the purpose of determining his nonforfeitable interest in his
Company Contribution Account before such Break in Service. As
provided at Sections 2.02 and 4.01,
92
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Exhibit 10(F)
page 62 of 92
any nonforfeitable vested interest of a Participant in the balance of
his Company Contribution Account at the time of such Breaks in
Service shall be separately accounted for thereafter as one hundred
percent (100%) nonforfeitable.
(d) In the case of a Participant who becomes an independent field sales
representative for the Companies (and thereby ceases to be an
Employee) any period of time that he is acting in such capacity and
during which his accounts are not distributed to him (except for
hardship distribution under Section 8.07) shall be deemed to be
Service.
(e) Any period of time taken into account under the Combined Profit
Sharing Plan, the Ryan Insurance Group, Inc. Profit Sharing Plan, or
the Union Fidelity Life Insurance Company Profit-Sharing Plan as of
the date of merger of the first two of those plans into this Plan
shall be taken into account under this Plan, and a similar rule shall
apply as to the Aon Profit Sharing Plan, the Combined Insurance Field
Sales Agents' Plan and the Miller, Mason & Dickenson, Inc. Employee
Stock Ownership Plan being merged into this Plan as of January 1,
1989.
(f) If the Plan becomes a Top-Heavy Plan and subsequently ceases to be
such, the vesting schedule in Section 16.05 shall continue to apply
in determining the vested interest of any Participant who had at
least five years of Service as of December 31 in the last Plan Year
of topheaviness. For other Participants, said schedule shall apply
only to their Top-Heavy Account as of such December 31.
(g) A Participant's account shall be one hundred percent (100%) vested
and nonforfeitable when he attains age 55 and completes five Years of
Participation and such date shall be regarded as his early retirement
date.
9.03 RESTORATION OF FORFEITURES. Forfeitures from a terminated Participant's
Company Contribution Account shall be charged to his account upon
termination of his employment; provided, that no forfeiture shall be
incurred by a Participant reemployed before the next following
Anniversary Date if he does not receive a distribution under Section 8.04
by reason of such reemployment and if no administrative inconvenience as
to such forfeitable amount would thereby be suffered by the Committee.
If any terminated Participant who has suffered a forfeiture becomes
reemployed before he has incurred five consecutive 1-Year Breaks in
Service, upon his earning a year of Service after his rehire his Company
Contribution Account shall be reconstituted by crediting thereto an
amount equal to the amount forfeited, which amount shall be deducted from
forfeitures during the Plan Year in which his Company Contribution
Account is reconstituted. To the extent forfeitures for such year are
not adequate for such purpose, such amount as may be necessary to
reconstitute his Company Contribution Account shall be deducted pro rata
from the assets of those funds earning a net Gain
93
<PAGE>
Exhibit 10(F)
page 63 of 92
pursuant to the earnings and valuation adjustment under Section 8.08, and
if there are no net Gains then such amount shall be deducted from Company
contributions for the year. As an alternative to either of the sources
set forth in the preceding sentence, at the discretion of the Company
such amount may be contributed by the Company as a special contribution
and credited to such account. In the event the employment of a rehired
Participant whose account has been reconstituted is again terminated
before he has acquired a one hundred percent (100%) vested interest, any
prior distribution made to him on account of his prior termination of
employment shall be taken into consideration in computing his vested
interest at the time of his later termination of employment.
9.04 APPLICATION OF OLD VESTING SCHEDULE. Each Employee who has three or more
years of Service on December 31, 1988, and who earns one Hour of Service
after such date, shall have his vested interest determined under the
provisions of this Plan as in effect on December 31, 1988, or under the
terms of any merged plan under Section 4.08 of which he was a
Participant, if such determination will result in increasing the
percentage of his vested interest.
94
<PAGE>
Exhibit 10(f)
Page 64 of 92
SECTION 10 - SPENDTHRIFT TRUST
10.01 GENERAL. No Participant or Beneficiary shall have any right or power to
transfer, assign, anticipate, mortgage, pledge or otherwise encumber his
interest in the Trust established by this Agreement, or his rights to
receive payments or benefits from the Trust and neither such interest nor
rights nor any assets of the Trust shall be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by any Participant or Beneficiary nor to transferability
by operation of law in the event of bankruptcy, insolvency or otherwise;
provided, that this limitation shall not apply to a Qualified Domestic
Relations Order ("QDRO") under IRC Section 401(a)(13) as amended from time
to time.
10.02 QUALIFIED DOMESTIC RELATIONS ORDER. For purposes of this Section, a QDRO
shall mean a domestic relations order which relates to alimony, child
support or marital property rights and which has been determined by the
Company to meet the requirements of IRC Section 414(p) as amended from
time to time. The following rules shall apply to the rights and
obligations of the spouse of a Participant (the "Non-Participant Spouse")
under a QDRO and under a domestic relations order not yet determined to be
a QDRO.
(a) These rules shall apply prior to determination by the Company that
the domestic relations order is a QDRO, and shall apply thereafter as
applicable:
(i) As soon as administratively feasible after receipt of a domestic
relations order, those funds which could go to the Non-
Participant Spouse, if she (or he) is later determined by the
Company to be entitled to these, will be put into a separate
account. These funds will be invested in the money market fund,
except as otherwise may be directed by the Trustees, until the
Non-Participant Spouse decides how to invest the funds and the
Company is afforded reasonable time to honor the investment
decision. The Non-Participant Spouse may be allowed to begin
making investment decisions even though the order is eventually
determined not to be a QDRO.
(ii) The Non-Participant Spouse will share in any intervening gains
(or losses) enjoyed (or suffered) by the Participant in his
accounts between the time the Company is notified of the
domestic relations order and the time a transfer of funds to the
separate account of the Non-Participant Spouse can be
accomplished.
(iii) An account or account balances may be segregated for the Non-
Participant Spouse even though the Participant is not yet
eligible to have funds distributed to him. The funds of the
Non-Participant
95
<PAGE>
Exhibit 10(f)
Page 65 of 92
Spouse may be accounted for separately without the necessity for
an escrow.
(iv) Once the Non-Participant Spouse does reach an investment
decision, she (or he) will be entitled to invest her (or his)
account balance among the same Investment Funds as are available
to the Participant for investment.
(v) The Non-Participant Spouse may elect a Beneficiary for her (or
his) account balances under the QDRO. If a property settlement
agreement is involved or some other court decree which is not a
final divorce so that the individuals remain married, the
Participant shall be treated as the death Beneficiary of the
Non-Participant Spouse, just as the Non-Participant Spouse will
be for the Participant, unless the QDRO provides otherwise. If
the QDRO provides that the Non-Participant Spouse is to be no
longer regarded as the Participant's spouse, then the preceding
sentence shall not apply.
(vi) Upon written notification from either the Participant or Non-
Participant Spouse that a QDRO is forthcoming, no distribution
of benefits or hardship withdrawals will be made to the
Participant until a final determination has been made as to the
qualified status of any domestic relations order received within
the 90-day period following the date the Company sends the Aon
QDRO Procedures to the parties. If no domestic relations order
is received by the Company within that 90 day period, a
distribution or hardship withdrawal may be made to the
Participant.
(b) These rules shall apply once the domestic relations order has been
determined to be a QDRO:
(i) The Non-Participant Spouse may withdraw all of her (or his)
account balances at any time, without regard to whether the
Participant has attained his (or her) earliest retirement age
under the Plan. Any benefits distributed under this rule may be
taken out only in a single sum and may not be taken out
periodically.
(ii) The Non-Participant Spouse may also be allowed to take a partial
withdrawal of her (or his) account balances, but only in the
event of a hardship in situations where the Participant could
get a hardship distribution prior to separation from service.
The test for a hardship will be whether the Non-Participant
Spouse is suffering a hardship and not the Participant. The
same rules applicable for a partial withdrawal for hardship will
be imposed on the Non-Participant Spouse as upon the
Participant. Any such partial distribution will be made pro
rata from all of the accounts or sub-accounts of the Non-
96
<PAGE>
Exhibit 10(f)
Page 66 of 92
Participant Spouse, including a pro rata portion of any
nontaxable return of funds in the Participant's voluntary
contribution account, if any.
(iii) If the amount to be distributed to the Non-Participant Spouse
is less than $3,500, such amount will be paid out only in a lump
sum and may be distributed without the consent of the Non-
Participant Spouse or of the Participant.
(iv) A distribution otherwise permissible may be made to the spouse
without regard to whether the limitations on a distribution
under IRC Section 401(a) or 401(k) are met.
(c) It is the intent of Subsections (a) and (b) that the rules set forth
therein shall be subject to, and shall be interpreted in light of, the
requirements for a QDRO under the IRC and under regulations and
rulings of the Secretary of the Treasury or his delegate.
(d) Subsections (a) and (b) shall also apply to a child or other
dependent of the Participant as appropriate.
(e) This Section shall be incorporated into procedures in compliance with
IRC Section 414(p) and adopted by the Committee by resolution.
97
<PAGE>
Exhibit 10(f)
Page 67 of 92
SECTION 11 - COMPANY TO HAVE NO INTEREST IN TRUST
The Company shall in no event, either directly or indirectly, receive
any refund of contributions made to the Trust, nor directly or indirectly
participate in the distribution, or receive the benefits of the assets or funds
comprising the trust estate. Upon transfer to the Trustee, all responsibilities
of the Company for each contribution shall cease, and the Company shall have no
responsibilities for the acts of the Trustee or Committee. Notwithstanding the
first sentence of this Section, a refund may be made to a Company, subject to
the limitations imposed by Rev. Rul. 77-200, if a contribution is made by a
mistake of fact or a deduction for federal income taxes is disallowed for any
portion of a contribution and the mistaken contribution or the nondeductible
portion of the contribution is returned one year after payment of the mistaken
contribution or within one year after the disallowance of the deduction.
98
<PAGE>
Exhibit 10(f)
Page 68 of 92
SECTION 12 - AMENDMENT AND SUSPENSION OF CONTRIBUTIONS
12.01 AMENDMENT OF THE AGREEMENT. Aon reserves the right, by action of the
Board, to amend this Agreement at any time, and from time to time,
including the right to change the provisions for each Company's
contributions. No amendment shall vest in the Companies any right, title
or interest in and to the Trust Fund, or any part thereof, or cause them
to be used or diverted to, purposes other than for the exclusive benefit
of Participants and beneficiaries. The amendment of this Agreement shall
not require the approval or ratification of the stockholders of Aon, or
any Subsidiary, nor of the Trustee, Committee, Participants or
Beneficiaries, or any of them; however, no amendment shall change the
rights, duties, or responsibilities of the Trustee without its written
consent. Except as may be necessary to qualify this Trust, or to continue
the qualification of the Trust under Section 401 of the IRC, or any
successor to such section, no amendment shall adversely affect vested
rights of any Participant hereunder.
12.02 SUSPENSION. Aon reserves the right, by action of the Board, to suspend
Aon's or any Subsidiary's contributions under Section 3.01(a)(iii) for any
Plan Year, but not exceeding two successive Plan Years, without
terminating the Plan and Trust or discontinuing contributions permanently,
by providing written notice of such action of the Board to the Committee
and Trustee not later than sixty (60) days prior to the end of such Plan
Year, in which event the Company or Companies affected shall not be
obliged to make any contribution to the Company Fund for the period of
such suspension. The Committee upon receiving notice of such suspension
shall immediately notify the affected Participants.
99
<PAGE>
Exhibit 10(f)
Page 69 of 92
SECTION 13 - ADOPTION OF PLAN BY AFFILIATE
13.01 ADOPTION OF PLAN. Any Affiliate, by proper resolutions adopted by its
Board, or by an adoption agreement executed by a principal executive
officer, may become a party to this Agreement by adopting this Trust as a
profit sharing plan for its Employees. A certified copy of such
resolutions shall be delivered to the Committee and Trustee.
13.02 INTENTION OF PARTIES. Except as provided herein, it is the intention of
the parties hereto that the Employees of Aon and the Employees of any
Subsidiary that adopts this Trust shall receive the same benefits as they
would receive if Aon and such Subsidiaries were one corporate entity and
this Plan were the plan of such entity, and the provisions of this
Agreement shall be interpreted in accordance with this intent.
13.03 TERMINATION OF STATUS OF SUBSIDIARY. In the event any Subsidiary adopting
this Plan at any time does not meet the requirements herein set forth for
a Subsidiary, such company shall nevertheless be considered as continuing
its status as a Subsidiary unless Aon files with the Trustee and Committee
a resolution adopted by its Board electing to discontinue such Company's
participation hereunder. Such resolution shall be considered as an
election to terminate such Company's participation in this Trust under the
provisions of Section 8.05(a).
100
<PAGE>
Exhibit 10(f)
page 70 of 92
SECTION 14 - ERISA PROVISIONS
14.01 SERVICE FOR PREDECESSOR. To the extent required by regulations that may
be prescribed by the Secretary of the Treasury or his delegate, service
for a predecessor shall be treated as Service for the Companies.
14.02 CONTROLLED GROUP. To the extent required by IRC Section 414(b), (c),
(m), (n) and (o) all employees of the entities described therein shall be
treated as employed by a single employer.
14.03 MERGER. This Plan shall not be merged or consolidated with any other
plan (or the assets held under this Plan shall not be transferred to any
other plan), unless each Participant under the plan, if the plan then
terminated, would receive a benefit equal to or greater than the benefit
he would have been entitled to receive before the merger, consolidation,
or transfer (if the plan had then terminated).
14.04 CLAIMS PROCEDURE. Pursuant to Section 503 of ERISA the following claims
procedure is established.
(a) A timely written application for benefits shall be filed with the
Committee on a form prescribed by it.
(b) If a claim is denied, in whole or in part, written notice of such
denial shall be furnished to the applicant setting forth, in a manner
calculated to be understood by him, the following:
(i) The specific reason or reasons for the denial;
(ii) A specific reference to pertinent Plan provisions on which the
denial is based;
(iii) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary;
(iv) An explanation of the Plan's claim review procedure.
(c) An applicant whose claim has been denied in whole or in part (or his
duly authorized representative) may appeal such denial to the
Committee by making a written request for a review and may review
pertinent documents and submit issues and comments in writing. A
written request for review must be filed within sixty (60) days of
the date an applicant has been notified of the denial or partial
denial of his claim.
101
<PAGE>
Exhibit 10(f)
Page 71 of 92
(d) The decision on review shall be made promptly, shall be in writing,
and shall include specific reasons for the decision, written in a
manner calculated to be understood by the applicant, and specific
references to the pertinent Plan provisions on which the decision is
based.
14.05 INVESTMENT IN DEPOSITS WITH CORPORATE FIDUCIARY. In the event a
corporate fiduciary is appointed, such fiduciary may invest all or a part
of the Plan's assets in deposits, which bear a reasonable rate of
interest, in an account maintained in its own banking department, to the
extent such investment is permitted by Section 408(b) ERISA, and to the
extent otherwise permitted under Section 5.05.
14.06 MAXIMUM ANNUAL ADDITION.
(a) In no event shall the annual addition (as hereinafter defined) to a
Participant's separate accounts with respect to any Plan Year exceed
the lesser of
(i) $30,000 (or, if greater, one-fourth of the defined benefit
plan dollar limitation under Section 415(b) of the IRC), or
(ii) Twenty-five percent (25%) of the Participant's total
compensation.
(b) The term "annual addition" means the sum for any Plan Year of
(i) his share of Company contributions, plus
(ii) the amount of his contributions under Section 3.05 made on or
after January 1, 1987, plus
(iii) his share of forfeitures, plus
(iv) for purposes of Section 14.06(a)(i) only, amounts allocated
to a separate account for the Participant to provide medical
benefits after retirement, whether under a pension or annuity
plan or a welfare benefit fund, pursuant to Sections 401(h),
415(c)(2), 415(l) and 419A(d)(2) of the IRC.
(c) In the event a Participant herein also participates in any stock
bonus plan maintained by the Company or a member of a controlled
group (as defined in Section 14.02) the maximum annual addition
computed pursuant to subsection (a) hereof may be reduced (except as
IRC Section 415(c)(6) may apply) by the amount of employer
contributions and forfeitures allocated to the Participant in such
other plan; provided, that if the Participant also participates in
another profit sharing plan, then the maximum annual addition
hereunder may be reduced prior to the maximum annual addition under
such plan; employee contributions made by the Participant to such
other plans
102
<PAGE>
Exhibit 10(f)
Page 72 of 92
shall be included in computing his annual addition pursuant to
subsection (b)(ii) hereof; and compensation received from a member
of a controlled group shall be included in total compensation.
(d) In the event a Participant herein is a Participant at any time in a
defined benefit plan maintained by the Company or a member of a
controlled group, the sum of the defined benefit plan fraction and
the defined contribution plan fraction for any Plan Year shall not
exceed 1.0 but such limitation may be applied to first reduce
benefits under the defined benefit before being applied to reduce
benefits under this Plan. For this purpose the defined benefit plan
fraction for any Plan Year is:
Projected annual benefit of the Participant under
the plan (determined as of the close of the year)
--------------------------------------------------
Lesser of: (a) 1.25 multiplied by the dollar
limitation in effect for such year ($90,000 for
Plan Year beginning in 1983) or (b) 1.4 multiplied
by the percentage limitation with respect to such
individual under the plan for such year (100% of
his average total compensation for his high 3
Years).
The defined contribution plan fraction for any Plan Year is:
Sum of the annual additions to the Participant's
account as of the close of the year
--------------------------------------------------
Sum of the lesser of the following amounts
determined for such year and for each prior year
of service with the employer: (a) 1.25 multiplied
by the dollar limitation in effect for each such
year ($30,000 for Plan Year beginning in 1983) or
(b) 1.4 multiplied by the percentage limitation
with respect to such individual under the Plan for
each such year (25% of his total compensation).
(e) At the election of the plan administrator, in determining the
defined contribution plan fraction under Subsection (d), above, with
respect to any Plan Year ending after December 31, 1982, the
denominator of the fraction with respect to each Participant for all
years ending before January 1, 1983, shall be an amount equal to the
product of such denominator under the law in effect for the year
ending in 1982 multiplied by the transition fraction. The transition
fraction means a fraction whose numerator is 35% of the compensation
of the Participant for the year ending in 1981 (limited to
103
<PAGE>
Exhibit 10(f)
Page 73 of 92
$51,875) and whose denominator is 25% of such compensation (but not
more than $41,500).
(f) Provided the Plan satisfied the requirements of IRC Section 415 for
the last year beginning before January 1, 1983, and pursuant to
regulations prescribed by the Secretary of the Treasury or his
delegate, the numerator of the defined contribution plan fraction at
Subsection (d) may be reduced so that the sum of the defined
contribution plan fraction and the defined benefit plan fraction
does not exceed 1.0 for such year.
(g) In the case of an individual who is a participant before January 1,
1983, in a defined benefit plan which is in existence on July 1,
1982, and with respect to which the requirements of Section 415 of
the IRC have been met for all years, if such individual's current
accrued benefit under such plan exceeds the limitation of subsection
(b) of Section 415, then (in the case of such plan) for purposes of
such IRC Section 415(b), and also for purposes of IRC Section 415(e)
as provided under Subsections (d) through (f) hereof, the limitation
of such IRC Section 415(b) with respect to such individual shall be
equal to such current accrued benefit. The term "current accrued
benefit" means the individuals accrued benefit (at the close of the
last year beginning before January 1, 1983) when expressed as an
annual benefit (within the meaning of Section 415(b)(2) of the IRC
as in effect before the amendments made by the Tax Equity and Fiscal
Responsibility Act of 1982). For purposes of determining the amount
of any individuals current accrued benefit, (I) no change in the
terms and conditions of the plan after July 1, 1982, and (II) no
cost-of-living adjustment occurring after July 1, 1982, shall be
taken into account.
(h) In the event the amount of the annual addition for a Participant
exceeds the limitation of this Section 14.06, the Trustees shall
forthwith reduce the amount of the annual addition to the
limitations of Section 14.06 by first refunding any contributions of
the Participant for such Plan Year to the extent includable in the
computation of the annual addition; second, if necessary, by
reducing his share of the Company's contribution for such Plan Year,
the amount of such reduction to be applied as a reduction of the
Company's contribution for such Plan Year. Any remaining excess
contributions, plus forfeitures, shall be reallocated among the
other Participants. If after such adjustments there still remains
an excess, such amounts from such Participants so affected shall be
held unallocated in a suspense account and all amounts in the
suspense account shall be allocated and reallocated to Participant's
accounts (subject to the limitations of Section 415 of the IRC)
before any contributions by the Company or by the Participants may
be made for the limitation year during which such suspense accounts
are in existence.
104
<PAGE>
Exhibit 10(f)
Page 74 of 92
(i) In determining under which plan the contributions or other annual
additions, or benefits, of a Participant should be reduced under
this Section, the intent is that the order of reduction set forth
herein in for purposes of guidance only and not obligatory, and that
such order of reduction as to one Participant may be different from
another Participant, so as to afford maximum flexibility to the Plan
in avoiding a violation of the provisions of Section 415 of the IRC.
(j) If the Plan satisfied the applicable requirements of Section 415 of
the IRC as in effect for all years beginning before January 1, 1987,
an amount shall be subtracted from the numerator of the defined
contribution plan fraction (not exceeding such numerator) as
prescribed by the Secretary of the Treasury so that the sum of the
defined benefit plan fraction and defined contribution plan fraction
computed under Section 415(e)(1) of the IRC does not exceed 1.0 for
such year.
(k) (i) Compensation shall include the following items:
(A) The Participant's wages, salaries, fees for professional
service and other amounts received for personal services
actually rendered in the course of employment with an
employer maintaining the plan (including but not limited
to, commissions paid salesmen, compensation for services
on the basis of a percentage of profits, commissions on
insurance premiums, tips and bonuses).
(B) For purposes of the prior sentence, earned income from
sources outside the United States.
(C) Amounts described in IRC Sections 104(a)(3), 105(a) and
105(h), but only to the extent that these amounts are
includable in the gross income of the Employee.
(D) Amounts described in IRC Section 105(d), whether or not
these amounts are excludable from the gross income of
the Employee under that section.
(E) Amounts paid or reimbursed by the Employer for moving
expenses incurred by an Employee, but only to the extent
that these amounts are not deductible by the Employee
under IRC Section 217.
(F) The value of a non-qualified stock option granted to an
Employee by the employer, but only to the extent that
the value of the option is includable in the gross
income of the Employee for the taxable year in which
granted.
105
<PAGE>
Exhibit 10(f)
Page 75 of 92
(G) The amount includable in the gross income of an Employee
upon making the election described in IRC Section 83(b).
(ii) Compensation shall not include the following items:
(A) Contributions made by the Employer to a plan of deferred
compensation to the extent that, before the application
of the IRC Section 415 limitations to that plan, the
contributions are not includable in the gross income of
the employee for the taxable year in which contributed.
In addition, Employer contributions made on behalf of an
Employee to a simplified employee pension described in
IRC Section 408(k) are not considered as compensation
for the taxable year in which contributed to the extent
such contributions are deductible by the Employee under
IRC Section 219(b)(7). Additionally, any distributions
from a plan of deferred compensation are not considered
as compensation for IRC Section 415 purposes, regardless
of whether such amounts are includable in the gross
income of the Employee when distributed. However, any
amounts received by an Employee pursuant to an unfunded
non-qualified plan may be considered as compensation for
IRC Section 415 purposes in the year such amounts are
includable in the gross income of the Employee.
(B) Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by an Employee either becomes freely transferable
or is no longer subject to a substantial risk of
forfeiture (see IRC Section 83 and the regulations
thereunder).
(C) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option.
(D) Other amounts which receive special tax benefits, such
as premiums for group term life insurance (but only to
the extent that the premiums are not includable in the
gross income of the Employee), or contributions made by
an Employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract
described in Section 403(b) (whether or not the
contributions are excludable from the gross income of
the Employee).
106
<PAGE>
Exhibit 10(f)
Page 76 of 92
(iii) Except as provided in regulations, the provisions of IRC
Section 415 are hereby incorporated by reference to the
extent not set forth in this Section.
107
<PAGE>
Exhibit 10(F)
Page 77 of 92
SECTION 15 - MISCELLANEOUS
15.01 VALIDITY OF CONTRACTS. Neither the Companies, the Committee nor the
Trustee shall be responsible under any circumstances for the validity of
any annuity contracts issued pursuant to the provisions of this
Agreement, nor for the failure on the part of any insurer to make any
payment or to provide for benefits under any such contract issued by it,
nor for the action of any person or persons which may render such
contracts null and void or unenforceable, either in whole or in part.
15.02 RELIANCE ON INFORMATION FURNISHED BY THE COMPANIES. Any information
furnished by the Companies to the Committee or Trustee, such as
Compensation or contributions of Participants, the proper amount of the
Companies' contribution, the status of individuals as Employees of the
Companies, or otherwise, and any other information which may be furnished
by the Companies to the Committee or Trustee, shall be accepted by the
Committee and Trustee as being true and correct, and the Committee or
Trustee shall incur no liability in relying on such information. In no
event shall the Trustee or Committee have any right to request or demand
an audit, investigation, or disclosure of the Companies' books or
records.
15.03 INABILITY TO PERFORM. Neither the Companies, the Committee nor the
Trustee shall be responsible for any inability to perform, or delay in
performing, any act occasioned by any restriction or provision of any
annuity contract, or imposed by any insurer, or by any other person, or
by law, and in the event any such inability or delay shall be so
occasioned, then that act which can be performed shall be performed by
the Companies, the Committee, or the Trustee which, in the sole
discretion of the Committee, most completely carries out the intention
and purpose of this Trust. All parties to this Trust or in any way
interested therein shall be bound by any act so performed under such
conditions.
15.04 EXECUTION OF DOCUMENTS. All parties to this Trust or claiming any
interest hereunder expressly agree to perform any and all acts, and to
execute any and all documents and papers which at any time may be
necessary or desirable for carrying out any of the provisions of this
Trust.
15.05 NOTICE OF REQUIRED ACTION. In any case in which the Companies, the
Trustee, the Committee or the insurer shall be directed to take any
action upon the occurrence of any event, they, or any one or more of
them, shall be under no obligation or liability to take such action
unless and until notice, proper and satisfactory to them, shall first
have been received of the occurrence of such event. For the purposes of
this Section 15.05, a certificate in writing signed by any officer of Aon
and delivered to the Trustee, the Committee or the insurer, or a
certificate in writing from the Trustee to the insurer as to the
occurrence or happening of any event, shall constitute conclusive
evidence of such occurrence
108
<PAGE>
Exhibit 10(F)
Page 78 of 92
or happening, and the Trustee, the Committee and the insurer,
respectively, shall be fully protected and discharged from all liability
whatsoever in accepting and relying on such certificate. No insurer
shall be required to go back of any action of the Trustee, and no insurer
shall be responsible to see that any action of the Trustee is authorized
by the terms of this Agreement.
15.06 RELIANCE UPON COMMUNICATION. Neither the Companies, the Committee, nor
the Trustee shall incur any liability in acting upon any notice, request,
signed letter, telegram, or other paper or documents reasonably believed
by them or any one of them to be genuine and to be signed or sent by the
proper person.
15.07 DISCHARGE UPON PAYMENT. The payment and acceptance of any money or
property in a settlement of any participation under this Trust shall
constitute a complete acquittance and discharge of full liability of the
Trustee with respect to such participation. An insurer shall be fully
discharged from any and all liability for any amount paid to the Trustee,
the Participant, or any Beneficiary, or to any other person or persons in
accordance with the written directions of the Trustee, and the Trustee
and the insurer, respectively, shall be under no obligation or duty to
see to the distribution or further application of any monies so paid.
Any change made or action taken by the insurer upon the written
directions of the Trustee shall fully discharge the insurer from all
liability with respect thereto.
15.08 INSURER NOT PARTY TO AGREEMENT. No insurer shall be deemed a party to
this Agreement for any purpose.
15.09 DISPOSITION OF SHARE OF MISSING PERSONS. In the event the Committee is
unable to make payment of any benefit payable under this Plan because of
inability to find the person to whom payment is due and such inability
continues for a period of two years, the benefit shall be forfeited;
provided, however, if a claim is subsequently made for such benefit by
the person entitled thereto, such benefit shall be reinstated. This
Section 15.09 shall have no application to any payments that an insurer
is required to make by the terms of its contract to anyone other than the
Trustee.
15.10 GENDER AND CASE. Where used in this Agreement, words in the masculine
shall be read and construed as in the feminine, and words in the singular
shall be read and construed as though used in the plural in all cases
where such constructions would so apply.
15.11 SECTION TITLE NOT PART OF AGREEMENT. The section and subsection
designations and titles are included solely for convenience and shall, in
no event, be construed to affect or modify any of the provisions of this
Agreement or be construed as a part thereof.
15.12 CONSTRUCTION. It is intended that this Plan and the Trust Agreement
which is a part thereof shall comply with the provisions of ERISA,
constitute a qualified
109
<PAGE>
Exhibit 10(F)
Page 79 of 92
profit-sharing plan and trust with a cash or deferred arrangement under
the provisions of Section 401(a) of the IRC and be operated in a manner
so as not to discriminate in favor of Highly Compensated Employees.
Accordingly, the provisions of this Plan and the Trust Agreement shall be
construed and applied in a manner consistent with such intent. However,
to the extent not superseded by ERISA, this plan and the Trust Agreement
which is a part thereof, shall be construed and enforced in accordance
with the laws of the State of Illinois.
15.13 AGREEMENT BINDING ON ALL PARTIES. This Agreement shall be binding upon
the heirs, executors, administrators, successors, and assigns of any and
all parties hereto, present and future.
110
<PAGE>
Exhibit 10(F)
Page 80 of 92
SECTION 16 - PROVISIONS APPLICABLE IF PLAN BECOMES TOP-HEAVY
16.01 APPLICABILITY. The provisions of this Section 16 shall be applicable
during any Plan Year only if the Plan was a Top-Heavy Plan or was part of
a Top-Heavy Group on the Determination Date, and in such case shall
override and supersede all other provisions in this Plan to the contrary;
provided, that these provisions shall not apply to a Plan which is not
itself a Top-Heavy Plan and which was included in an Aggregation Group
under the second sentence of Section 16.02(f); provided further, that, to
the extent permitted by law, Section 16.06 shall not apply to any
Employee who has received the minimum benefit for the Plan Year as
required under the Top-Heavy rules from any defined benefit plan of the
Company.
16.02 ADDITIONAL DEFINITIONS:
(a) Key Employee. The term "Key Employee" shall refer to any Employee
who, at any time during the Plan Year or any of the four preceding
Plan years, is
(i) an officer of the Company, excluding any Employee whose
Compensation is less than 150 percent (150%) of the maximum
dollar limitation in Section 14.06(a)(i),
(ii) one of the ten Employees owning (or considered as owning within
the meaning of Section 318 of the IRC but substituting 5% for
50% in IRC Section 318(a)(2)(C)] the largest interests in the
Company; excluding any Employee whose Compensation is less than
the maximum dollar limitation in Section 14.06(a)(i),
(iii) a Five Percent Owner of the Company, or
(iv) a One Percent Owner of the Company having an annual compensation
from the Company of more than $150,000.
The term shall also include beneficiaries of a Key Employee. For
purposes of clause (i), no more than 50 Employees (or, if less, the
greater of 3 or 10% of the Employees) shall be treated as officers, and
the officers taken into account shall be the officers with the highest
compensation. For purposes of clause (ii), if two Employees have the
same interest in the Company, the Employee having greater annual
Compensation from the Company shall be treated as having a larger
interest. For this purposes of clauses (ii), (iii) and (iv), the
aggregation rules of subsections (b), (c) and (m) of Section 414 of the
IRC (pertaining to employees of a controlled group of corporations, of
partnerships and proprietorships under common control, and of an
affiliated service group) shall not apply.
111
<PAGE>
Exhibit 10(F)
Page 81 of 92
(b) Five Percent Owners. The term "Five Percent Owner" shall mean any
person who owns [or is considered as owning within the meaning of
Section 318 of the IRC but substituting 5% for 50% in Section
318(a)(2)(C)] more than five percent of the outstanding stock of the
Company or stock possessing more than five percent of the total
combined voting power of all stock of the Company.
(c) One Percent Owners. The term "One Percent Owner" means any person who
owns [or is considered as owning within the meaning of Section 318 of
the IRC but substituting 5% for 50% in Section 318(a)(2)(C)] more
than one percent of the outstanding stock of the Company or stock
possessing more than one percent of the total combined voting power
of all stock of the Company.
(d) Non-Key Employee. The Term "Non-Key Employee" shall refer to any
Participant who is not a Key Employee.
(e) Top-Heavy Plan. A Plan is a "Top-Heavy" Plan if, as of the
Determination Date, the aggregate of the accounts of Key Employees
under the Plan exceed 60% of the aggregate of the accounts of all
Employees under the Plan; or if it is required to be included in an
Aggregation Group and such Aggregation Group is a Top-Heavy Group;
provided, that the Plan shall not be a Top-Heavy Plan if the Plan is
part of an Aggregation Group which is not a Top-Heavy Group.
(f) Aggregation Group. The term "Aggregation Group" means (i) each plan
of the Company in which a Key Employee is a Participant and (ii) each
other plan of the Company which enables any plan described in (i) to
meet the discrimination requirements of Section 401(a)(4) of the IRC
or the minimum participation standards of Section 410 of the IRC. In
addition, at the option of the Company, it may include any other plan
of the Company if the Group would continue to meet the requirements
of Sections 401(a)(4) and 410 of the IRC with such other plan being
taken into account.
(g) Top-Heavy Group. An Aggregation Group is a "Top-Heavy Group" if, as
of the Determination Date, (i) the present value of the cumulative
accrued benefits for Key Employees under all defined benefit plans
included in such group, plus (ii) the aggregate of the accounts for
Key Employees under all defined contribution plans included in such
Group, exceeds (3) sixty percent (60%) of a similar sum determined
for all Employees.
(h) Employee. The term "Employee" shall include the Beneficiaries of such
Employee.
112
<PAGE>
Exhibit 10(F)
Page 82 of 92
(i) Determination Date. The term "Determination Date" shall mean, with
respect to any Plan Year, the last day of the preceding Plan Year.
All required valuations shall be made as of the Determination Date.
(j) Compensation. The term "Compensation" shall mean total compensation
but shall not include annual compensation in excess of $200,000 (as
adjusted for cost-of-living increases by the Secretary or his
delegate at the same time and in the same manner as the dollar amount
under Section 14.06). Effective January 1, 1989, this Section
17.02(j) shall no longer apply.
16.03 SPECIAL RULES. In determining whether the Plan is a Top-Heavy Plan or
part of a Top-Heavy Group, the following rules shall apply.
(a) Except to the extent provided in regulations issued by the Secretary
of the Treasury, any rollover contribution (or similar transfer)
initiated by an Employee from a plan not maintained by the Company
and made after December 31, 1983, to a plan shall not be taken into
account with respect to the transferee plan.
(b) if any individual is a Non-Key Employee with respect to the Plan for
any Plan Year, but such individual was a Key Employee with respect to
the Plan for any prior Plan Year, any accrued benefit for such
Employee (and the account of such Employee) shall not be taken into
account for purposes of Sections 16.02(e) and (g).
(c) To the extent provided in regulations issued by the Secretary of the
Treasury, the Top-Heavy rules of this Section shall be applied on the
basis of any year specified in such regulations in lieu of Plan
Years.
(d) In determining present values and account balances under Sections
16.02(e) and (g), all distributions made with respect to any Employee
during the 5-year period ending on the Determination Date shall be
added back and included therein. The preceding sentence shall also
apply to distributions under a terminated plan which if it had not
been terminated would have been required to be included in an
Aggregation Group.
(e) In determining the account of any Participant under 16.02(e)
or (g), amounts attributable to deductible employee
contributions shall not be considered.
(f) If any individual has not performed services for any employer
maintaining this Plan at any time during the 5 year period ending on
the Determination Date, any accrued benefit for such individual and
his accounts shall not be taken into account.
113
<PAGE>
Exhibit 10(F)
Page 83 of 92
16.04 PARTICIPANT'S TOP-HEAVY ACCOUNT. An additional separate account shall be
established for each Participant to be known as the Participant's Top-
Heavy Account to which shall be posted his share of Company's
contributions, forfeitures and net earnings and valuation adjustments for
each Plan Year to which Section 16 is applicable. His share of the
Company's contributions, forfeitures and net earnings and valuation
adjustments that have been posted to his Company Contribution Account
pursuant to Section 4.02 for all prior Plan Years shall be transferred to
his Top-Heavy Account.
16.05 VESTING WITH RESPECT TO PARTICIPANTS' TOP-HEAVY ACCOUNTS. In lieu of the
vesting schedule set forth in Section 9.01(a), a Participant, provided he
earns at least one Hour of Service after the Plan has become Top-Heavy,
shall vest in his Top Heavy Account according to the following schedule:
Completed Years of Service Non-Forfeitable %
Less than 3 -0-
3 100%
provided, that a Participant's nonforfeitable (vested) interest in his
Top-Heavy Account, as regards funds transferred from his Company
Contribution Account for prior years as set forth in Section 16.04, shall
not be reduced from his nonforfeitable interest therein under Section
9.01.
16.06 MINIMUM CONTRIBUTION FOR NON-KEY EMPLOYEE. The Company's contribution
and forfeitures allocated to the Top-Heavy Account for each Plan Year for
each Non-Key Employee shall not be less than three percent (3%) of his
compensation as defined at IRC Section 416(c)(2)(A), except that said
percentage shall not be more than the highest percentage at which Company
contributions plus forfeitures are made for any Key Employee. The
percentage for each Key Employee shall be determined by dividing the
amount of his share of the Company's contribution plus forfeitures by the
amount of so much of his Compensation as does not exceed $200,000. For
this purpose, all defined contribution plans required to be included in
an Aggregation Group shall be treated as one plan. The foregoing
exception to the three percent (3%) provision shall not apply if the Plan
is required to be included in an Aggregation Group wherein the Plan
enables a defined benefit plan required to be included in such Group to
meet the requirements of Sections 401(a)(4) and 410 of the IRC pertaining
to discrimination and minimum participation. The minimum contribution
rules of this Section 16.06 may be satisfied by taking into account
Company contributions attributable to a salary reduction or similar
arrangement. The allocation provisions contained in Section 4 of this
Plan shall be modified as may be necessary to comply with the provisions
of this Section 16.06 and the Company may, but shall not be required to,
increase Company contributions so no Participant will incur a reduction
of benefits by reason of the operation of this Section 16.06.
114
<PAGE>
Exhibit 10(F)
Page 84 of 92
16.07 MAXIMUM ANNUAL ADDITION. The limitations of Section 14.06 shall be
applied by substituting 1.0 for 1.25 where it appears in Section 14.06(d)
in the denominators of the defined benefit plan fraction and the defined
contribution plan fraction. The preceding sentence shall not apply if
(a) The minimum contribution requirements of Section 16.06 would be met
if 4% were substituted for 3%, and
(b) The Plan would not be a Top-Heavy Plan or part of a Top-Heavy Group
if 90% were substituted for 60% in Sections 16.02(e) and (g).
The application of the first sentence of this Section 16-07 shall be
suspended with respect to any Participant so long as there are no (i)
Company contributions, forfeitures or voluntary nondeductible
contributions allocated to such Participant or (ii) accruals for such
Participant under the defined benefit plan. If the first sentence of
this Section 16.07 is applicable, Section 14.06(e) shall be applied by
substituting $41,500 for $51,875.
16.08 SIMPLIFIED EMPLOYEE PENSIONS. For purposes of Section 16, a Simplified
Employee Pension shall be treated as a defined contribution plan. At the
Company's election, the aggregate Company contributions to a Simplified
Employee Pension may be taken into account in lieu of the aggregate of
the accounts of the Employees for the purpose of determining whether the
Plan is a Top-Heavy Plan or is part of a Top-Heavy Group pursuant to
Section 16.02(e) and (g).
16.09 CONTRIBUTIONS OR BENEFITS NOT TAKEN INTO ACCOUNT. The Plan must meet the
requirements of Section 16.05 and Section 16.06 without taking into
account (i) contributions or benefits under Chapter 2 of the IRC
(relating to tax on self-employment income); (ii) Chapter 21 of the IRC
(relating to Federal Insurance Contributions Act; (iii) Title II of the
Social Security Act; or (iv) any other federal or state law.
115
<PAGE>
Exhibit 10(f)
Page 85 of 92
SCHEDULE A
SPECIAL PROVISIONS
RELATING TO SERVICE
This Schedule A contains special rules regarding the granting of past service
credit for eligibility (Section 2), vesting (Section 9) and allocation of
employer contributions (Section 4) with respect to certain Employees of the
Company acquired through corporate acquisition.
<TABLE>
<CAPTION>
EMPLOYEE CATEGORY PLAN PROVISIONS CREDITED SERVICE
----------------- --------------- ----------------
<S> <C> <C>
(1) Employed by Frank B. Years of service for From employment
Hall & Co. Inc., or any eligibility commencement date with
of its subsidiaries or Hall, with entry at plan
affiliates ("Hall") on merger.
November 1, 1992, and
employed by the Years of service for From employment
Company on or after vesting commencement date above.
November 2, 1992.
Allocation of Compensation determined
Company for periods of Plan
contributions participation only.
---------------------------
(2) Employed by K&K Years of service for From employment
Insurance Group, Inc., eligibility commencement date with
K&K Specialties, Inc., K&K, with entry at plan
National Sports merger.
Underwriters Inc., or
American Insurance Years of service for From employment
Brokers, Inc. ("K&K") vesting commencement date above.
on July 31, 1993.
Allocation of Compensation determined
Company for periods of Plan
contributions participation only.
</TABLE>
116
<PAGE>
Exhibit 10(f)
Page 86 of 92
<TABLE>
<S> <C> <C>
(3) Employed by Booke Years of service for From employment
and Company or an eligibility commencement date with
affiliate ("Booke") on Booke, with entry at plan
June 30, 1993, and merger.
employed by the
Company on July 1, Years of service for From employment
1993. vesting commencement date above.
Allocation of Compensation determined
Company for periods of Plan
contributions participation only.
--------------------------
(4) Employed by Albert G. Years of service for From employment
Ruben & Co., Inc., eligibility commencement date with
Albert G. Ruben & Co. Ruben, with entry
(New York), Inc., or September 1, 1993.
Bachrach Insurance
Services, Inc. Years of service for From employment
("Ruben"), on vesting commencement date above
August 31, 1993, and and in accordance with
employed by the Section 9.02.
Company on
September 1, 1993. Allocation of Compensation determined
Company for periods of Plan
contributions participation only.
--------------------------
(5) Employed by Insurance Years of service for From employment
Broker Service, Inc. on eligibility commencement date with
May 4, 1993, and Insurance Broker Service,
employed by the Inc., with entry August 1,
Company on May 5, 1993.
1993.
Years of service for From employment
vesting commencement date above
and in accordance with
Section 9.02.
Allocation of Compensation determined
Company for periods of Plan
contributions participation only.
</TABLE>
117
<PAGE>
Exhibit 10(f)
Page 87 of 92
<TABLE>
<S> <C> <C>
(6) Employed by National Years of service for From employment commencement
Benefit Corporation on eligibility date with National Benefit
May 19, 1993, and employed Corporation, with entry
by the Company on May 20, date May 20, 1993.
1993.
Years of service for From employment commencement
vesting date above and in accordance
with Section 9.02.
Allocation of Company Compensation determined
contributions for periods of Plan
participation only.
-------------------------------
(7) Employed by Bryson Years of service for From employment
Associates, Inc. on eligibility commencement date with
May 16, 1993, and Bryson Associates, Inc., with
employed by the entry June 5, 1993.
Company on May 17,
1993. Years of service for From employment
vesting commencement date above
and in accordance with
Section 9.02.
Allocation of Compensation determined
Company for periods of Plan
contributions participation only.
</TABLE>
118
<PAGE>
Exhibit 10(f)
Page 88 of 92
SCHEDULE B
SPECIAL PROVISIONS
RELATED TO FORMER PARTICIPANTS OF THE
SAVINGS AND INVESTMENT PLAN FOR THE EMPLOYEES OF
FRANK B. HALL & CO. INC.
A. Additional Provisions Effective January 1, 1993. As set forth in paragraph
(6) of Section 4.08(i) of this Plan, the following provisions of the Savings
and Investment Plan for the Employees of Frank B. Hall & Co. Inc. ("Hall
Plan") shall survive the merger of the Hall Plan into this Plan and continue
to apply, effective January 1, 1993, in addition to the rules of this Plan,
to benefits accrued by Hall Plan participants under the terms of the Hall
Plan and under the terms of this Plan. Specifically, the following
provisions of the Hall Plan -- in regard to benefit entitlement, payment
scheduling, timing of payments, commencement of benefits and election rights
-- shall be retained with respect to all accrued benefits of former
participants in the Hall Plan and earnings and losses thereon:
(a) Section 8.2 (regarding distributions upon the participant's death,
including provision of qualified pre-retirement survivor's
annuity).
(b) Section 8.3 (regarding options for annuity distribution upon
termination of employment on or after age 55).
(c) Section 8.4 (regarding lump-sum distributions and distributions of
qualified joint and survivor annuities). Distributions requested
in Hall stock shall be made in stock of Reliance Group Holdings,
Inc. ("RGH Stock") and shall not exceed the amount of the
Participant's account invested in RGH Stock.
(d) Sections 9.1.3, 9.1.4, and 9.1.5 (regarding in-service withdrawals
without a showing of hardship). Section 9.1.5 shall survive only
with respect to rollover contributions.
(e) Section 9.6.5 (regarding reduction of account balance in the event
of loan default).
In addition, such other provisions of the Hall Plan shall survive as may be
required under Section 411(d)(6) of the Code. The provisions listed above
are attached to this Schedule B as exhibits.
B. Provisions of the Aon Savings Plan Applicable to the Hall Plan and
Effective Retroactively. The following provisions of this Plan are hereby
incorporated into the Hall Plan effective as of the dates indicated:
119
<PAGE>
Exhibit 10(f)
Page 89 of 92
(a) Section 1.12 (regarding the term "Highly Compensated Employee").
Effective January 1, 1989.
(b) Section 3.09 (regarding the average deferral percentage test ("ADP
Test") and the average contributions percentage test ("ACP
Test")). The terms "Basic Contributions" and "Supplemental
Before-Tax Contributions" shall be substituted for the term "Pay
Deferral Amounts" and the terms "Employer Contributions" and
"Supplemental After-Tax Contributions shall be substituted for the
term "Company Matching Contributions." The ADP Test shall be
effective for plan years beginning January 1, 1986; the ACP Test
shall be effective for plan years beginning January 1, 1989. In
addition, Section 3.07(B)(5) (regarding distributions of excess
contributions) shall apply to Basic Contributions and Supplemental
Before-Tax Contributions, and Section 3.08(B)(5) (regarding
distributions of excess aggregate contributions) shall apply to
Employer Contributions and Supplemental After-Tax Contributions.
(c) Section 8.07(a) (regarding needs that are deemed immediate and
heavy financial needs). Funeral expenses are not necessarily a
deemed immediate and heavy financial need.
(d) Section 8.10(i) (regarding required beginning date for plan
distributions). Effective January 1, 1989.
(e) Section 8.10(k) (regarding minimum distribution incidental benefit
requirements). Effective January 1, 1989.
(f) Section 9.01 (regarding computation of a Participant's
nonforfeitable interest). Effective January 1, 1989, the table in
Section 9.01 of this Plan shall be substituted for the table in
Section 7.3.3(a) of the Hall Plan.
(g) Section 14.06(b) (regarding the definition of annual additions).
Effective January 1, 1987.
120
<PAGE>
Exhibit 10(f)
Page 90 of 92
SCHEDULE C
SPECIAL PROVISIONS
RELATED TO FORMER PARTICIPANTS OF THE
K&K INSURANCE GROUP, INC.
401(K) SALARY REDUCTION PLAN
Additional Provisions Effective August 1, 1993. As set forth in paragraph
(6) of Section 4.08(j) of this Plan, the following provisions of the K&K
Insurance Group, Inc., 401(k) Salary Reduction Plan ("K&K Plan") shall
survive the merger of the K&K Plan into this Plan and continue to apply,
effective August 1, 1993, in addition to the rules of this Plan, to benefits
accrued under the K&K Plan as of July 31, 1993. Specifically, the following
provisions of the K&K Plan -- in regard to benefit entitlement, payment
scheduling, timing of payments, commencement of benefits and election rights
-- shall survive and be retained with respect to benefits accrued under the
K&K Plan as of July 31, 1993, and earnings and losses thereon:
(a) Sections 3.04 and 4.13 (regarding distribution of voluntary
contributions and distributions of elective deferrals and
qualified nonelective contributions upon attainment of age 59 1/2
and before separation from service).
(b) Section 8.08 (regarding availability of optional forms of
benefits).
(c) Section 9.02 (regarding availability of qualified joint and
survivor annuity).
(d) Section 9.03 (regarding availability of qualified pre-retirement
survivor annuity).
(e) Section 11.07 (regarding restoration of account balance upon
repayment).
(f) Section 11.08 (regarding disposition of account balance upon
termination of the Plan).
In addition, such other provisions of the K&K Plan shall survive as may be
required under Section 411(d)(6) of the Code. The provisions listed above
are attached to this Schedule C as exhibits.
121
<PAGE>
Exhibit 10(f)
Page 91 of 92
SCHEDULE D
SPECIAL PROVISIONS
RELATED TO FORMER PARTICIPANTS OF THE
SALARY DEFERRAL THRIFT PLAN
FOR THE EMPLOYEES OF BOOKE & COMPANY
Additional Provisions Effective July 1, 1993. As set forth in paragraph (6)
of Section 4.08(k) of this Plan, the following provisions of the Salary
Deferral Thrift Plan for the Employees of Booke & Company ("Booke Plan")
shall survive the merger of the Booke Plan into this Plan and apply,
effective July 1, 1993, in addition to the rules of this Plan, to benefits
accrued under the Booke Plan as of June 30, 1993. Specifically, the
following provisions of the Booke Plan -- in regard to benefit entitlement,
payment scheduling, timing of payments, commencement of benefits and election
rights -- shall survive and be retained with respect to benefits accrued
under the Booke Plan as of June 30, 1993, and earnings and losses thereon:
(a) Section 5.4 (regarding optional methods of settlement).
(b) Section 8.1 (regarding withdrawal of employee voluntary
contributions and rollover contributions).
(c) Section 8.2 (regarding withdrawal of employer contributions).
(d) Section 8.3 (regarding withdrawal of employee deferrals upon
attainment of age 59 1/2).
(e) Section 8.5(b)(10) (regarding reduction of account balance in the
event of loan default).
In addition, such other provisions of the Booke Plan shall survive as may be
required under Section 411(d)(6) of the Code. The provisions listed above
are attached to this Schedule D as exhibits.
122
<PAGE>
Exhibit 10(f)
Page 92 of 92
IN WITNESS WHEREOF, Aon Corporation and the Trustees have signed this amendment
and restatement of the Aon Savings Plan, effective as of January 1, 1994.
Aon Corporation
By: /Daniel T. Cox/ 12/16/94
------------------------ --------
Daniel T. Cox Date
Executive Vice President
/Mark B. Burka/ 12/19/94
------------------------ --------
Mark B. Burka Date
Trustee
/Michael A. Conway/ 12/19/94
------------------------ --------
Michael A. Conway Date
Trustee
/Lawrence R. Miller/ 12/19/94
------------------------ --------
Lawrence R. Miller Date
Trustee
/J. Garnett Nelson/ 12/22/94
------------------------ --------
J. Garnett Nelson Date
Trustee
123
<PAGE>
Exhibit 10(g)
Page 1 of 68
---------------------------
| |
| 1994 RESTATEMENT OF |
| Aon EMPLOYEE STOCK |
| OWNERSHIP PLAN |
| |
---------------------------
124
<PAGE>
Exhibit 10(g)
Page 2 of 68
1994 Restatement of
Aon Employee Stock Ownership Plan
(Previously known as Combined International Corporation Stock Ownership Plan)
TABLE OF CONTENTS
SECTION 1 - DEFINITION OF TERMS..................................... 3
1.01 Acquisition Loan........................................... 3
1.02 Affiliate.................................................. 3
1.03 Anniversary Date........................................... 3
1.04 Beneficiaries.............................................. 3
1.05 Board...................................................... 3
1.06 Committee.................................................. 3
1.07 Company.................................................... 3
1.08 Compensation............................................... 3
1.09 Effective Date............................................. 4
1.10 Employee................................................... 4
1.11 Employer Securities........................................ 5
1.12 ESOP Fund.................................................. 5
1.13 ERISA...................................................... 5
1.14 Financed Shares............................................ 5
1.15 General Fund............................................... 5
1.16 Highly Compensated Employee................................ 5
1.17 The term "Leased Employee"................................. 7
1.18 Hours of Service........................................... 7
1.19 IRC........................................................ 8
1.20 Normal Retirement Date..................................... 8
1.21 1-Year Break in Service.................................... 8
1.22 Participant................................................ 8
1.23 Plan....................................................... 8
1.24 Plan Year.................................................. 8
1.25 Service.................................................... 8
1.26 Stock Fund................................................. 9
1.27 Subsidiary................................................. 9
1.28 Trustee.................................................... 9
1.29 United States.............................................. 10
1.30 Valuation Date............................................. 10
1.31 Value...................................................... 10
SECTION 2 - EMPLOYEES ENTITLED TO PARTICIPATE....................... 11
2.01 Conditions of Eligibility.................................. 11
2.02 Termination of Employment.................................. 11
2.03 Leave of Absence........................................... 12
2.04 Transfer to an Affiliate................................... 12
2.05 Transfer to a Foreign Country.............................. 12
2.06 Employment in Bargaining Unit.............................. 12
2.07 Ineligible Persons......................................... 12
SECTION 3 - CONTRIBUTIONS........................................... 14
125
<PAGE>
Exhibit 10(g)
Page 3 of 68
TABLE OF CONTENTS (continued)
3.01 Contributions by Companies................................. 14
3.02 Date of Contribution....................................... 15
3.03 Form of Contribution....................................... 15
3.04 Combined Life Insurance Company of New York................ 15
SECTION 4 - ALLOCATION OF TRUST FUNDS............................... 16
4.01 ESOP Account............................................... 16
4.02 Stock Sub-Account.......................................... 16
4.03 General Sub-Account........................................ 17
4.04 Records and Accounting..................................... 17
4.05 Designation of Beneficiary................................. 17
4.06 Allocations of Dividends on Employer Securities............ 18
4.07 Allocation of Financed Shares.............................. 20
4.08 Allocation of Purchased Employer Securities Other
Than Financed Shares....................................... 20
4.09 Determination of Compensation.............................. 20
SECTION 5 - INVESTMENTS............................................. 21
5.01 Primary Purpose............................................ 21
5.02 Investment of the Stock Fund............................... 21
5.03 Investment of the General Fund............................. 21
5.04 Investments Not Allocated to Separate Accounts............. 21
5.05 Purchase or Sale of Contributed Employer Securities........ 22
5.06 Acquisition Loans.......................................... 22
5.07 Diversification of Investments by Qualified
Participants............................................... 23
SECTION 6 - PROVISIONS RELATING TO TRUSTEE.......................... 25
6.01 Appointment of Trustee and Successors...................... 25
6.02 Fees and Expenses of Trustee............................... 25
6.03 Payment of Costs, Fees, and Expenses....................... 25
6.04 Uncertain Distribution..................................... 25
6.05 Liability.................................................. 25
6.06 Legal Action............................................... 26
6.07 Manner of Action........................................... 26
6.08 Allocation of Duties....................................... 26
6.09 Limitation on Liability.................................... 26
6.10 Indemnity.................................................. 26
6.11 Disbursements.............................................. 26
6.12 Reports.................................................... 27
6.13 Additional Powers of Trustee............................... 27
6.14 Investment Manager......................................... 28
126
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Exhibit 10(g)
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TABLE OF CONTENTS (continued)
SECTION 7 - ADMINISTRATION OF THE PLAN.............................. 29
7.01 Committee.................................................. 29
7.02 Duties of Committee........................................ 29
7.03 Chairman and Secretary..................................... 29
7.04 Meetings and Quorum........................................ 29
7.05 Allocation of Duties....................................... 29
7.06 Aon........................................................ 30
7.07 Rules and Interpretation................................... 30
7.08 Limitations on Liability................................... 30
7.09 Indemnity.................................................. 30
7.10 Identity................................................... 31
7.11 Voting of Employer Securities.............................. 31
7.12 Rights on Tender or Exchange Offer......................... 32
SECTION 8 - DISPOSITION OF THE SEPARATE TRUST ACCOUNTS.............. 33
8.01 Participant Still Employed by Company After
Retirement Date............................................ 33
8.02 Disposition at or After Retirement Date or
in Case of Physical or Mental Disability................... 33
8.03 Disposition Upon the Death of a Participant................ 33
8.04 Disposition Upon Termination of Employment
Before Reaching Retirement Date............................ 33
8.05 Termination of the Trust and Disposition Upon
Such Termination........................................... 34
8.06 Payment to Minors, etc..................................... 35
8.07 Net Earnings and Valuation Adjustment...................... 35
8.08 Method of Valuing Assets................................... 36
8.09 General Provisions Governing Distributions................. 36
8.10 Eligible Rollover Distributions............................ 38
SECTION 9 - PARTICIPANT'S NONFORFEITABLE INTEREST................... 39
9.01 General Rule............................................... 39
9.02 Special Rules.............................................. 39
9.03 Restoration of Forfeitures................................. 40
SECTION 10 - SPENDTHRIFT TRUST...................................... 41
10.01 General.................................................... 41
10.02 Qualified Domestic Relations Order......................... 41
SECTION 11 - COMPANY TO HAVE NO INTEREST IN TRUST................... 43
SECTION 12 - AMENDMENT AND SUSPENSION OF CONTRIBUTIONS.............. 44
12.01 Amendment of the Agreement................................. 44
12.02 Suspension................................................. 44
127
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Exhibit 10(g)
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TABLE OF CONTENTS (continued)
SECTION 13 - ADOPTION OF PLAN BY AFFILIATE.......................... 45
13.01 Adoption of Plan........................................... 45
13.02 Intention of Parties....................................... 45
13.03 Termination of Status of Subsidiary........................ 45
SECTION 14 - ERISA PROVISIONS....................................... 46
14.01 Service for Predecessor.................................... 46
14.02 Controlled Group........................................... 46
14.03 Merger..................................................... 46
14.04 Claims Procedure........................................... 46
14.05 Investment in Deposits with Corporate Fiduciary............ 47
14.06 Maximum Annual Addition.................................... 47
SECTION 15 - MISCELLANEOUS.......................................... 53
15.01 Reliance on Information Furnished by the Companies......... 53
15.02 Inability to Perform....................................... 53
15.03 Execution of Documents..................................... 53
15.04 Notice of Required Action.................................. 53
15.05 Reliance Upon Communication................................ 53
15.06 Discharge Upon Payment..................................... 54
15.07 Disposition of Share of Missing Persons.................... 54
15.08 Gender and Case............................................ 54
15.09 Section Title Not Part of Agreement........................ 54
15.10 Construction............................................... 54
15.11 Agreement Binding on All Parties........................... 54
SECTION 16 - PROVISIONS APPLICABLE IF PLAN BECOMES TOP-HEAVY........ 55
16.02 Additional Definitions:.................................... 55
16.03 Special Rules.............................................. 57
16.04 Participant's Top-Heavy Account............................ 57
16.05 Vesting with Respect to Participants' Top-Heavy Accounts... 58
16.06 Minimum Contribution for Non-Key Employees................. 58
16.07 Maximum Annual Addition.................................... 58
16.08 Simplified Employee Pensions............................... 59
16.09 Contributions or Benefits Not Taken Into Account........... 59
SCHEDULE A - SPECIAL PROVISIONS RELATING TO SERVICE................. 60
128
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Exhibit 10(g)
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1994 RESTATEMENT OF
Aon EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, effective January 1, 1983, Combined International Corporation, a
corporation organized and existing under the laws of the State of Delaware,
adopted the Combined International Corporation Stock Ownership Plan in order to
provide its employees with the opportunity to acquire common stock ownership in
Combined International Corporation under a stock bonus plan which constituted a
tax credit stock ownership plan designed to invest primarily in Employer
Securities and otherwise meeting the requirements of Sections 44G and 409A of
the Internal Revenue Code of 1954; and
WHEREAS, the Company previously amended said Plan three times on December
13, 1984; again on December 13, 1984; and on November 15, 1985;
WHEREAS, the Company has changed its name from Combined International
Corporation to Aon Corporation (sometimes referred to herein as "Aon");
WHEREAS, the Company previously amended and restated the Plan ("Fourth
Amendment to and 1989 Restatement of Aon Employee Stock Ownership Plan") for the
purpose of complying with the Tax Reform Act of 1986, to change the Plan to a
qualified employees' stock bonus plan qualified under Section 401(a) of the IRC
and an employee stock ownership plan under Section 4975(e) of the IRC and
Section 407(d) of ERISA for the exclusive benefit of such employees, and to
change the name of this Plan and Trust Agreement to the Aon Employee Stock
Ownership Plan, pursuant to the Company's change of name to Aon Corporation from
Combined International Corporation and subsequently amended such 1989
Restatement twice effective January 1, 1989, and twice January 1, 1993;
WHEREAS, Aon now wishes to amend and again restate the Plan for the purpose
of complying with the Omnibus Budget Reconciliation Act of 1993 and to make
certain other desirable changes therein;
129
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Exhibit 10(g)
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NOW, THEREFORE, pursuant to a resolution adopted by the Board of Aon
Corporation said Plan shall be and hereby is further amended and restated
effective as of January 1, 1994, except as otherwise indicated herein, as
follows:
130
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Exhibit 10(g)
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SECTION 1 - DEFINITION OF TERMS
Unless the context shall otherwise clearly indicate, the following terms
shall be construed as hereinafter defined:
1.01 ACQUISITION LOAN shall refer to a loan (or other extension of credit)
used by the Plan to finance the acquisition of Employer Securities,
which loan may constitute an extension of credit to the Plan from a
party in interest (as defined in ERISA), or may be guaranteed by a party
in interest. See Section 5.06.
1.02 AFFILIATE shall refer to a Subsidiary of Aon that has not adopted the
Plan herein set forth.
1.03 ANNIVERSARY DATE shall refer to the last day of each Plan Year during
which this Agreement shall be in force and effect.
1.04 BENEFICIARIES shall refer to persons designated by the Participant to
receive his share of any property of the Trust in case of the
Participant's death.
1.05 BOARD shall refer to the Board of Directors of Aon or any committee of
the Board of Directors delegated authority to act for the whole Board in
respect of matters relating to the Plan.
1.06 COMMITTEE shall refer to the Committee appointed by the Board pursuant
to Section 7.01. The Committee is designated as the administrator, plan
administrator, and named fiduciary with respect to the administration of
the Plan (but not with respect to the control, management and investment
of the assets of the trust) for the purposes of ERISA.
1.07 COMPANY as used herein shall refer to Aon Corporation (hereinafter
referred to as "Aon") when applying the provisions of this Plan as its
stock bonus plan for its Employees. It shall refer to each "Subsidiary"
when applying the provisions of this Trust as the stock bonus plan for
the Employees of such Subsidiary. The term "Companies" as used herein
shall refer collectively to Aon and all Subsidiaries and shall be
applied as though all of such Companies constituted a single employer.
1.08 COMPENSATION shall refer to the following types of earnings paid to an
Employee for his service on behalf of the Company subsequent to the date
he becomes a Participant, determined before excluding any reduction
described in Sections 3.03 and 3.04 or for cafeteria plans under Section
125 of the IRC, but excluding any such amounts paid to him in respect to
employment during which he is not permanently employed within the United
States or its possessions as set forth in Section 2.01(b):
131
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Exhibit 10(g)
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(a) salary and fixed-based compensation including compensation for
overtime;
(b) bonuses paid pursuant to periodic individual performance appraisals
and formal contractual bonus programs, but excluding other bonus and
miscellaneous income; and
(c) net commission, renewal and override compensation (but excluding
deferred commission payments).
In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the Plan to the contrary,
for Plan Years beginning on or after January 1, 1994, the annual
Compensation of each Employee taken into account under the Plan
shall not exceed the OBRA '93 annual compensation limit. The OBRA
'93 annual compensation limit is $150,000, as adjusted by the
commissioner of the Internal Revenue Service for increases in the
cost of living in accordance with Section 401(a)(17)(B) of the IRC.
The cost-of-living adjustment in effect for a calendar year applies
to any period, not exceeding 12 months, over which compensation is
determined (determination period) beginning in such calendar year.
If a determination period consists of fewer than 12 months, the OBRA
'93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination
period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference
in this Plan to the limitation under section 401(a)(17) of the IRC
shall mean the OBRA '93 annual compensation limit set forth in this
provision.
If Compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the
current Plan Year, the Compensation for that prior determination
period is subject to the OBRA '93 annual compensation limit in
effect for that prior determination period. For this purpose, for
determination periods beginning before the first day of the first
plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
1.09 EFFECTIVE DATE of this Plan as restated shall be January 1, 1994.
1.10 EMPLOYEE shall refer to all employees of the Companies, except those who
are
(a) included in a unit of employees covered by a collective bargaining
agreement between employee representatives and one or more
employers, if retirement benefits were the subject of good faith
bargaining between such employee representatives and such employer
or employers; or
132
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Exhibit 10(g)
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(b) Combination, ordinary and regional representatives and managers as
those terms were defined under the Retirement Plan for Employers of
the Life Insurance Company of Virginia and Designated Subsidiaries
and Designated Affiliates.
1.11 EMPLOYER SECURITIES shall refer to common stock issued by Aon
Corporation which is readily tradeable on the New York Stock Exchange.
1.12 ESOP FUND shall refer to all the assets held under this Plan in both the
Stock Fund and the General Fund.
1.13 ERISA refers to the Employee Retirement Income Security Act of 1974, as
from time to time amended.
1.14 FINANCED SHARES shall mean shares of Employer Securities acquired by the
Trust with the proceeds of an Acquisition Loan.
1.15 GENERAL FUND shall refer to the separate fund maintained under this Plan
consisting of assets other than those Employer Securities which are part
of the Stock Fund, including cash dividends, stock rights and stock
warrants received with regard to all Employer Securities in the ESOP
Fund. Where the content so indicates, the term shall also refer to the
assets held in the General Fund.
1.16 HIGHLY COMPENSATED EMPLOYEE shall include an employee who received
compensation in excess of $75,000, received compensation in excess of
$50,000 and was in the top paid group, or was an officer and received
compensation greater than $45,000 (all amounts as adjusted for increases
in the cost of living per Section 14.06), either (i) in the current year
while a member of the 100 employees paid the greatest compensation or
(ii) in the preceding year. The term "compensation" means compensation
under Section 14.06, and shall include reductions for pay deferral
amounts under Section 401(k) of the IRC or for cafeteria plans under
Section 125 of the IRC. The following rules shall apply.
(a) FIVE-PERCENT OWNER. Such term shall also include an employee who
was a five-percent owner (as defined at Section 16.02(b)) at any
time during either the preceding year or the current year.
(b) TOP-PAID GROUP. The "top-paid group" is the group consisting of the
top 20 percent of employees ranked on the basis of compensation paid
during the year. For purposes of determining the number of
employees in the top-paid group (but not for purposes of identifying
the particular employees therein), or the number of officers taken
into account under Subsection (c), below, there shall be excluded
those employees who have not completed six months of service;
employees who normally work either less than 17 1/2 hours per week
or not more than six months during any year; employees who have not
attained age 21; and except to the extent provided in
133
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Exhibit 10(g)
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regulations, employees included in a unit of employees covered by a
collective bargaining agreement.
(c) OFFICERS. The highest paid officer shall always be treated as a
Highly Compensated Employee; otherwise the number of officers so
treated shall not exceed the lesser of (i) 50 employees or (ii) the
greater of three employees or 10 percent of the employees.
(d) FAMILY MEMBERS. Any individual who is a member of the family (i.e.,
the spouse, and lineal ascendants or descendants and their spouses)
of a Highly Compensated Employee who is either a five-percent owner
or one of the ten most highly compensated employees shall not be
considered a separate employee and his (or her) compensation (and
any applicable contribution or benefit on behalf of such individual)
shall be treated as if it were paid to (or on behalf of) such Highly
Compensated Employee. This rule shall apply in determining the
compensation of (or any contributions or benefits on behalf of) any
employee for purposes of any Section of the IRC with respect to
which a Highly Compensated Employee is defined by reference to IRC
Section 414(q) (the provisions of which are set forth in this
Section), except as provided in regulations and except in
determining the portion of the compensation of a Participant which
is under the integration level for purposes of IRC Section 401 (1).
(e) FORMER EMPLOYEES. A former employee shall be treated as a Highly
Compensated Employee if he was a Highly Compensated Employee either
(i) when he separated from service or (ii) at any time after
attaining age 55.
(f) NONRESIDENT ALIENS. For purposes of this Section, employees who are
nonresident aliens and who receive no earned income (within the
meaning of Section 911(d)(2) of the IRC) from the Company which
constitutes income from sources within the United States shall not
be treated as employees.
(g) SIMPLIFIED METHOD FOR DETERMINING HIGHLY COMPENSATED EMPLOYEES. If
an election by the Company under this Subsection applies to any
year, in determining whether an employee is a Highly Compensated
Employee for such year the first sentence of this Section shall be
applied by substituting "$50,000" for "$75,000" and the $50,000 test
for the top-paid group shall not apply. Such election shall not
apply to any year unless at all times during such year, the Company
maintained significant business activities (and employed employees)
in at least 2 significantly separate geographic areas, and the
Company satisfies such other conditions as the Secretary of the
Treasury may prescribe.
(h) COORDINATION WITH OTHER PROVISIONS. Section 14.02 shall be applied
before the application of this Section 1.16.
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Exhibit 10(g)
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1.17 THE TERM "LEASED EMPLOYEE" shall refer to an individual, other than an
employee of the Employer or an affiliated employer (the "recipient
employer"), who, pursuant to an agreement between the recipient employer
and any other person (the "leasing organization") has performed services
for the recipient employer (or the recipient employer and related
persons determined in accordance with Section 414(n) of the IRC) on a
substantially full-time basis for a period of at least one year, and
such services are of a type historically performed by employment in the
business field of the recipient employer. Contributions or benefits
provided a Leased Employee by the leasing organization which are
attributable to services performed for the recipient employer shall be
treated as provided by the recipient employer. A leased employee shall
not be considered an employee of the recipient employer if:
(a) such individual is covered by a money purchase pension plan
providing:
(i) a nonintegrated employer contribution rate of at least ten
percent of compensation, but including amounts contributed
pursuant to a salary reduction agreement which are excludible
from the employee's gross income under Section 125, 402(e)(3),
402(h), or 403(b) of the IRC,
(ii) immediate participation, and
(iii) full and immediate vesting; and
(b) Leased Employees do not constitute more than 20% of the recipient
employer's non-highly compensated work force, as defined in Section
414(n)(5)(C)(ii) of the IRC.
1.18 HOURS OF SERVICE shall refer to the hours for which an Employee is
directly or indirectly paid or entitled to payment, for the performance
of duties or for a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated)
during the applicable computation period and such hours shall include any
hours for which back pay, irrespective of mitigation of damages, has
either been awarded or agreed to; provided, however, no more than 501
Hours of Service shall be credited on account of any single continuous
period during which an Employee performs no duties (whether or not such
period occurs in a single computation period). An Employee who enters
military service and again becomes actively employed upon separation from
such service shall be credited with Hours of Service in respect to his
period of military service only to the extent and for the purposes
required by federal law governing veterans' reemployment rights. Hours
shall not be credited for payments made or due under a plan maintained
solely for the purpose of complying with applicable workmen's
compensation, unemployment compensation, or disability insurance laws, or
for a payment which solely reimburses an Employee for medical or
medically related expenses incurred by the Employee. In those instances
where payroll or other Company records do not reflect the actual
135
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Exhibit 10(g)
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number of hours worked by an Employee, such Employee shall be credited
with 45 Hours of Service for each calendar week that he would be required
to be credited with at least one Hour of Service under the preceding
portion of this Section. This Section shall be applied, in respect to
payments for reasons other than the performance of duties and in respect
to crediting of Hours of Service to a particular computation period, in
accordance with the rules set forth in Labor Department Regulations
Section 2530.200b-2(b) and (c), which are incorporated herein by
reference.
1.19 IRC shall refer to the Internal Revenue Code of 1986 as from time to time
amended.
1.20 NORMAL RETIREMENT DATE shall refer to a Participant's sixty-fifth (65th)
birthday.
1.21 1-YEAR BREAK IN SERVICE shall refer to a 12-month consecutive period,
commencing with the termination of a Participant's employment as an
Employee of the Companies or an Affiliate, during which he has not
completed any Hours of Service as an Employee of the Companies or an
Affiliate. For purposes of this Section only, Service shall include up
to one year of Maternity or Paternity Leave; provided, however, that the
Trustees may require the Participant to furnish such timely information
as may reasonably be required so as to establish that the absence from
work is for Maternity or Paternity Leave and to establish the number of
days for which there was such an absence. "Maternity or Paternity Leave"
shall mean an absence from work by reason of the pregnancy of the
Participant, by reason of the birth of a child of the Participant, by
reason of placement of a child with the Participant in connection with
its adoption by him or her, or for purposed of caring for such child for
a period beginning immediately following such birth or placement.
1.22 PARTICIPANT shall refer to an Employee eligible under the terms hereof to
participate herein whose employment by the Companies has not terminated.
Where the context so requires, an individual for whose benefit an account
is being maintained under this Plan shall also be deemed to be a
Participant.
1.23 PLAN shall refer to the Aon Employee Stock Ownership Plan set forth in
this instrument, as the same may be amended from time to time.
1.24 PLAN YEAR shall refer to the annual accounting period used by the Trust
ending on the last day of December of each year.
1.25 SERVICE shall refer to the total period of time that an individual has
served as an Employee of the Companies (beginning on the date an Employee
first performs an Hour of Service and ending on the date on which an
Employee quits, retires, is discharged or dies), with the following
exceptions and modifications:
136
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Exhibit 10(g)
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(a) In respect to an individual who is an Employee on January 1, 1983, or
who becomes an Employee after January 1, 1983, or who becomes an
Employee after January 1, 1983, any period of time immediately
preceding the date he became an Employee that he was associated with
the Companies as an independent accident and health insurance or life
insurance representative shall be counted for the purpose of
determining his eligibility to participate hereunder pursuant to
Section 2.01.
(b) For the purpose of determining the eligibility of an individual to
participate hereunder pursuant to Section 2.01, and his vested
interest pursuant to Section 9.02, service as an employee of an
Affiliate, or service as an employee in a bargaining unit for which
the individual will not be deemed to be an Employee under Section
1.10, shall be deemed to be Service as an Employee of the Companies.
(c) If an Employee's employment with the Companies is terminated but he
is reemployed before he has incurred five 1-Year Breaks in Service,
the period commencing with the date his employment terminated and
ending with his reemployment date shall be counted as uninterrupted
service and employment as an Employee of the Companies for the
purpose of determining his eligibility to participate hereunder
pursuant to Section 2.01; provided, however, that not more than 12
months of such period shall count as uninterrupted Service for the
purpose of determining his vested interest pursuant to Section 9.02.
(d) For purposes of eligibility under Section 2.01, a year of Service
shall refer to a 12-consecutive month period beginning with his
employment commencement date (or reemployment commencement date) and
each anniversary of such date during which an Employee has 1,000
Hours of Service.
1.26 STOCK FUND shall refer to the separate fund maintained under this Plan
consisting of Employer Securities. Where the content so indicates, the
term shall also refer to the Employer Securities held in the Stock Fund.
1.27 SUBSIDIARY shall refer to such substantially owned subsidiary or
subsidiary of Aon that has adopted the Plan herein set forth with the
approval of Aon.
1.28 TRUSTEE shall refer to the Trustee herein originally named and its
successor duly appointed or elected pursuant to the provisions of this
Agreement and any amendment hereto. The Trustee is designated as the
named fiduciary with respect to the control, management and investment of
the assets of the Trust for the purposes of ERISA. If there is more than
one individual or one or more individuals and a bank acting as Trustees
hereunder, the term "Trustee" shall refer to each Trustee or to the
Trustees collectively, as the context may require.
137
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Exhibit 10(g)
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1.29 UNITED STATES for the purposes of this Plan shall include possessions of
the United States.
1.30 VALUATION DATE shall refer to the last business day of each calendar
month.
1.31 VALUE shall refer to the value of Employer Securities. The value of
Employer Securities on any particular date shall be the mean of the
opening and closing prices of Employer Securities on the New York Stock
Exchange on such date and if such date was not a business day of the New
York Stock Exchange then on the last day prior to such day which was a
business day of the Exchange.
138
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Exhibit 10(g)
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SECTION 2 - EMPLOYEES ENTITLED TO PARTICIPATE
2.01 CONDITIONS OF ELIGIBILITY. Every Employee shall become a Participant as
of the first day of the first pay period succeeding the Employee's
compliance with the following three requirements:
(a) He must have completed one year of Service and attained the age of
21. In determining whether or not an Employee has completed the
required year or years of Service, there shall be disregarded, except
as provided in the next sentence, Service prior to any break in
Service equal to or more than the greater of five 1-year Breaks in
Service or his prior completed years of Service. Once an Employee has
completed one year of Service, subsequent breaks in Service shall not
affect the fact that this requirement has been completed;
(b) He must be employed within the United States or its possessions on a
permanent basis as determined under Section 2.05; and
(c) He must sign and deliver to the Committee a Designation of
Beneficiary in such form as may from time to time be prescribed by
the Committee.
The Committee shall notify all Employees who are eligible to participate
in this Trust and shall provide them with a Designation of Beneficiary.
Any Employee who does not become a Participant as of the first date on
which he would otherwise be eligible, because of employment in a foreign
country under Section 2.05, shall become a Participant as of the first
day of any succeeding pay period upon compliance with the provisions of
this Section 2.01.
2.02 TERMINATION OF EMPLOYMENT. Any Participant whose employment with the
Companies is terminated for any reason whatsoever, shall cease to be
eligible to participate hereunder, except to the extent he or his
beneficiary shall have the right to receive payments from his individual
accounts as provided in Section 8 hereof. Except as provided in Section
8.04, any Participant whose employment with the Companies is terminated
shall, in the event of his later reemployment, become a Participant on
the first day of the next day period. If a reemployed Employee, by such
action, again becomes a Participant in the Plan Year his employment
terminated, and he remains a Participant through the last day of that
Plan Year, he shall be entitled to share in the Companies' contribution,
and the forfeitures, for that Plan Year in accordance with Section
4.02(a). Any person who has ceased to be a Participant hereunder by
virtue of termination of his employment and for whom the Trustee
continues to hold a portion of his account shall continue to share in net
earnings and valuation adjustments (as provided in Section 8.07 hereof)
as though he were a Participant.
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Exhibit 10(g)
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2.03 LEAVE OF ABSENCE. Any Participant obtaining a leave of absence from the
Company because of illness, disability (except permanent disability,
provision for which is made in Section 8.02 hereof) or national emergency
requiring governmental, military, or naval service subsequent to the
execution of this agreement or for any other reason, shall continue to
participate in this Trust and shall not be deemed to have his employment
terminated. The Companies agree to adopt a uniform policy with reference
to the granting of leaves of absence. Such policy shall be applied
without individual selection or discrimination in all cases involving the
same, or substantially the same, facts. The Companies shall provide the
Committee with all information with reference to leaves of absence. The
determination made by or caused to be made by the Companies shall be
conclusive and binding upon all persons having any interest in the Trust.
2.04 TRANSFER TO AN AFFILIATE. If a Participant is transferred to the
employment of an Affiliate, he shall be deemed to be on leave of absence
during such time as he is an Employee of the Affiliate.
2.05 TRANSFER TO A FOREIGN COUNTRY. The determination of when an Employee is
employed within the United States on a permanent basis, when a transfer
from the United States is or becomes permanent, and when a transfer to or
from the United States is temporary, shall be made by the Company and
such determination shall be conclusive and binding on all persons having
any interest in the Trust. If he is transferred from the United States
on a temporary basis, he shall be deemed to continue as being employed
within the United States on a permanent basis until such time as his
transfer becomes permanent.
2.06 EMPLOYMENT IN BARGAINING UNIT. An individual in a bargaining unit who is
not deemed to be an Employee by reason of Section 1.10 shall not be
eligible to participate hereunder and shall not be entitled to make
contributions hereunder. Notwithstanding the foregoing, his Service in
such bargaining unit shall be counted for the purpose of determining his
eligibility to participate pursuant to Section 2.01, and if a Participant
becomes ineligible to participate hereunder by reason of employment in
such bargaining unit, his Service in such bargaining unit shall be
counted for the purpose of determining his nonforfeitable interest under
Section 9.
2.07 INELIGIBLE PERSONS. Notwithstanding the foregoing provisions of this
Section 2, no portion of the assets of the Plan attributable to (or
allocable in lieu of) Employer Securities acquired by the Plan in a sale
to which IRC Section 1042 or IRC Section 2057 applies may accrue (or be
allocated directly or indirectly under any Plan of the Companies) for the
benefit of the following persons during the 10-year non-allocation period
at IRC Section 409(n)(3)(C):
(a) Any shareholder of the Company of any decedent of the executor who
has made the election permitted under Section 1042 or a qualified
sale under Section 2057 of the IRC,
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Exhibit 10(g)
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(b) Any person who is related (within the meaning of Section 267(b) of
the IRC) to such shareholder or the decedent, other than lineal
descendants whose aggregate amount allocated during the non-
allocation period does not exceed more than five percent of the
Company securities held by the Plan which are attributable to a sale
within Section 1042 of the IRC by a person related to such
descendants, pursuant to Section 409(h)(3)(A) of the IRC, or
(c) Any person who owns (after application of Section 318 of the IRC
without regard to the employee trust exception under Section
318(a)(2)(B)(i)) more than 25% of any class (or the value of any
class) of outstanding Company stock (within the meaning of Section
409(1) of the IRC) within the one-year period ending on the date of
sale.
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Exhibit 10(g)
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SECTION 3 - CONTRIBUTIONS
3.01 CONTRIBUTIONS BY COMPANIES.
(a) AGGREGATE CONTRIBUTION. For the Plan Year ending December 31, 1989,
and for each Plan Year thereafter, the Companies, in total, shall pay
to the Trustee the amount set forth below. The aggregate contribution
of the Companies for Employees shall be an amount equal to the sum of
(i), and (ii) below, for Participants with 1,000 Hours of Service
(including annualized service) employed by the Company on the last
day of the Plan Year.
(i) Such amount as may be determined at the discretion of the Board.
The portion of the contribution made on behalf of each group of
employees need not be pro rata but may be based upon such factor
as the Board shall deem relevant, including geographical
location, job description or earnings, as the Board in its sole
discretion shall decide; provided, that any such group shall be
selected in a manner that does not discriminate in favor of
Highly Compensated Employees.
(ii) In addition to the amounts contributed under (i) above, any
additional amount as may be needed (after taking into account
dividends under Section 4.06(d)) to provide the Trustees with
sufficient funds to pay any maturing obligations under
Acquisition Loans.
(iii) If contributions under (i) are not pro rata, then allocations,
contributions, and other calculations (other than forfeitures)
under the Plan may be adjusted to take this factor into account.
(b) ALLOCATION AND POSSIBLE REDUCTION OF AGGREGATE CONTRIBUTION. Each of
the Companies' share of the aggregate contribution describes in
Section 3.01(a) shall be equal to the amount of such contribution as
will be allocated to the individual accounts of Participants who are
employed by it pursuant to Section 4.02 (a). If, during any Plan
Year, any Participant is employed by more than one Company that has
adopted this Plan, the amount allocable to such Participant's account
may be allocated among such Companies in the proportion of
Compensation paid by each during the Plan Year in respect to which
the contribution is made. The Trustee shall be under no duty or
obligation to inquire into the correctness of the amount of the
contribution nor shall the Trustee be obligated to institute any
legal action to compel the Company to make any contribution.
3.02 DATE OF CONTRIBUTION. For the purposes of this Agreement, the date of
any contribution will be deemed to be the last day of the Plan Year for
which the contribution is made, even though received by the Trustee at a
later or earlier date.
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Exhibit 10(g)
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3.03 FORM OF CONTRIBUTION. The contribution of a Company shall be made in the
form of Employer Securities having a Value equal to the amount set forth
at Section 3.01, or in the form of cash including a check. Any
contribution made in the form of cash may be used to acquire Employer
Securities or to make payments on Acquisition Loans.
3.04 COMBINED LIFE INSURANCE COMPANY OF NEW YORK. The contribution of
Combined Life Insurance Company of New York shall take into account the
contribution of such Subsidiary under the Aon Savings Plan, as amended
from time to time, as may be required under relevant Federal and State
laws.
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Exhibit 10(g)
Page 21 of 68
SECTION 4 - ALLOCATION OF TRUST FUNDS
4.01 ESOP ACCOUNT. The Committee shall maintain a separate account in the
name of each Participant to be known as the Participant's "ESOP Account."
A Participant's ESOP Account shall consist of the sum of two sub-
accounts, his "Stock Sub-Account" under Section 4.02 and his "General
Sub-Account" under Section 4.03.
4.02 STOCK SUB-ACCOUNT. The Committee shall maintain a separate sub-account
in the name of each Participant, to be known as his "Stock Sub-Account."
The Committee shall post to such sub-account for each Participant the
following:
(a) For each Participant who has earned 1,000 Hours of Service (including
annualized service) for the Plan Year and who is employed by the
Company on the last day of such Plan Year, his share of Employer
Securities contributed, acquired or released under Sections 3.01 and
3.03 and forfeitures from the Stock Sub-Accounts. The Stock Sub-
Account of each Participant whose Compensation is taken into account
under Section 3.01 in figuring the amount of the contribution by the
Company shall receive a portion of such Employer Securities in
proportion to the ratio of the Compensation of the Participant for
the Plan Year to the aggregate Compensation of all Participants. For
these purposes, Compensation shall mean Compensation earned during
periods of Plan participation. Such share shall include fractional
shares, calculated based upon using four(4) decimal places.
(b) As of each Valuation Date any additions or deductions arising out of
net earnings and valuation adjustments resulting from the operation
of Section 8.07 of this Trust Agreement.
(c) As of each Valuation Date, any additions arising out of transfers of
Employer Securities from the General Fund resulting from the
operation of Section 5.05 of this Trust Agreement.
(d) Any withdrawals or other payments chargeable to such sub-account.
(e) As of each Valuation Date, each Participant's share of Employer
Securities released pursuant to payment of Acquisition Loans from
dividends under Section 4.06 and from Company contributions and
earnings thereon in the General Fund; provided, however, that
Employer Securities released per application of dividends shall be
allocated as provided under Section 4.06 and shares released per
application of prior Company contributions and earnings thereon shall
be accounted for as provided in the formula at Section 5.05.
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Exhibit 10(g)
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4.03 GENERAL SUB-ACCOUNT. The Committee shall also maintain a separate sub-
account in the name of each Participant, to be known as his "General Sub-
Account," and the Committee shall post to such sub-account of each
Participant the following:
(a) For each Participant who has earned 1,000 Hours of Service (including
annualized service) for the Plan Year and who is employed by the
Company on the last day of such Plan Year, his share of any cash
contribution not used to acquire Employer Securities under Section
3.03 prior to allocation hereunder. Such contribution and forfeitures
from the General Sub-Accounts shall be allocated among the
Participants in the same manner as Employer Securities under Section
4.02(a).
(b) As of each Valuation Date, any additions or deductions arising out of
net earnings and valuation adjustments resulting from the operation
of Section 8.07 of this Trust Agreement.
(c) As of each Valuation Date, any deductions arising out of transfers of
Employer Securities to the Stock Fund resulting from the operation of
Section 5.05 of this Trust Agreement.
(d) Any withdrawals or other payments chargeable to such sub-account.
4.04 RECORDS AND ACCOUNTING. Books of account, forms, and accounting methods
used in the administration of the ESOP Fund shall be subject in all
respects to the supervision of the Committee, and if at any time the
Committee shall determine that the accounting methods are not fair and
equitable to all Participants, the Committee shall have the right to make
whatever adjustments are necessary in the accounting methods to carry out
this Agreement. Employer Securities shall be accounted for separately
from other contributions to the Trust. In the event an erroneous amount
is posted to a Participant's account for any year, the Committee may, at
the time such error is discovered, correct such error by making such
adjustments in allocating contributions, forfeitures and earning and
valuation adjustments as they may deem fair and equitable, without the
necessity of making retroactive adjustments in the accounts of
Participants. The Committee shall furnish each Participant a record of
his account which shall include the number of Employer Securities,
including fractional shares, allocated to his Stock Sub-Account.
4.05 DESIGNATION OF BENEFICIARY.
(a) Each Participant shall have the right to designate the Beneficiary or
Beneficiaries who are entitled to receive any amount or benefit in
case of the Participant's death and shall have the right at any time
prior to final distribution of his accounts to change the Beneficiary
of Beneficiaries theretofore designated by him by filing a new
designation; provided, however, that such Beneficiary shall be deemed
to be the surviving spouse of such
145
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Exhibit 10(g)
Page 23 of 68
Participant unless a spousal consent under Subsection 4.05(b) has
been signed by the surviving spouse. Each such new designation shall
completely revoke all designations previously filed by the same
Participant. All designations shall be in writing and filed with the
Committee and may be included in the Designation of Beneficiary, or
in such other form or forms as the Committee shall require. The
Trustee, at the discretion of the Committee, shall make settlement
hereunder at the time of the Participant's death with such
Beneficiary of Beneficiaries as shall be designated by said
Participant.
(b) Any designation of a Beneficiary other than his spouse by the
Participant shall not take effect unless the spouse consents to such
designation. Such consent must acknowledge the effect of such
designation, shall be a consent to a specific Beneficiary and to a
specific form of benefit, and be witnessed by a Plan representative
or a notary public. Any consent shall be effective only as to such
spouse. Such designation of a Beneficiary shall take effect without
the spousal consent only if it is established to the satisfaction of
a Plan representative that the consent may not be obtained because
there is no spouse, because the spouse cannot be located, or because
of such other circumstances as the Secretary of the Treasury may by
regulations prescribe.
4.06 ALLOCATIONS OF DIVIDENDS ON EMPLOYER SECURITIES.
(a) CASH DIVIDENDS. Except as provided in Subsection (d), dividends
received from the Company in cash shall be deposited in the General
Fund and credited to the General Sub-Accounts of the Participants to
the extent applicable to the share allocated to their respective
Stock Sub-Accounts, and, to the extent applicable to shares held in
the General Fund or the Financed Shares held in the suspense account
in the Stock Fund, such dividends shall be credited as income of the
General Fund.
(b) STOCK DIVIDENDS. Stock dividends attributable to Employer Securities
held in the General Fund or in the suspense account in the Stock Fund
shall be deposited in the General Fund and credited as income of the
General Fund. Stock dividends attributable to Employer Securities
held in the Stock Fund and allocated to the Participants' Stock Sub-
Accounts shall be deposited in the Stock Fund and allocated to the
Participants' Stock Sub-Accounts in proportion to the shares held in
each Sub-Account.
(c) DISTRIBUTION TO PARTICIPANTS. Any cash dividends received by the Plan
on shares of Employer Securities allocated to Participants' Stock
Sub-Accounts may be paid currently (or within ninety (90) days after
the close of the Plan Year in which paid) in cash to such
Participants (who are still employees) or their Beneficiaries on a
nondiscriminatory basis, as determined by the Trustees. Such
distribution of cash dividends to Participants may be limited to
shares of Employer Securities which are then vested (under Section 9)
or
146
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Exhibit 10(g)
Page 24 to 68
may be applicable to all shares allocated to their respective Stock
Sub-Accounts, as determined by the Committee.
(d) LOAN PAYMENTS. Dividends may be used to make payments on Acquisition
Loans, at the discretion of the Company, to the extent that a
deduction is allowable therefor under Section 404(k) of the IRC as
amended from time to time. Financed Shares in the suspense account
which are released pursuant to dividends on Employer Securities being
used to make payments on Acquisition Loans shall be allocated as
follows:
(i) For dividends on allocated Employer Securities in the Stock
Fund, an amount of released shares equal in fair market value
to the amount of such dividends shall be allocated to the
respective Stock Sub-Accounts of those Participants upon whose
allocated shares the dividends were paid.
(ii) For dividends on unallocated Employer Securities in the
suspense account, the released shares shall be allocated to the
Stock Sub-Accounts of Participants pursuant to their relative
Compensation in the same manner as under Section 4.02(a).
(iii) For dividends on Employer Securities in the General Fund, the
released shares shall be allocated in the same manner as under
Paragraph (i).
(iv) Released shares under Paragraph (i), to the extent they exceed
the amount of such dividends in fair market value, shall be
allocated as under Paragraph (ii); provided, however, that if
such shares are less in fair market value than the amount of
the dividends on allocated Employer Securities used to make
payments on Acquisition Loans, the balance of the released
shares allocable to the Stock Fund under Paragraph (i) shall be
allocated first from shares released under Paragraph (ii) and
then if necessary under Paragraph (iii). Any remaining shares
needed in order to comply with Paragraph (i) shall be acquired
with assets in the General Fund.
(v) Shares released due to payments on Acquisition Loans financed
by dividends under Paragraphs (ii) and (iii) declared during
the first six months of the Plan Year shall be allocated to the
Stock Sub-Accounts of Participants employed by the Company on
the last day of the prior Plan Year. Shares released due to
payments on Acquisition Loans financed by other dividends under
Paragraphs (i), (ii) and (iii) declared during the Plan Year
shall be allocated to the Stock Sub-Accounts of Participants
employed by the Company on the last day of the current Plan
Year.
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Exhibit 10(g)
Page 25 of 68
4.07 ALLOCATION OF FINANCED SHARES. Financed Shares shall initially be
credited to a suspense account in the Stock Fund and shall be allocated
to the Stock Sub-Accounts of Participants only as released upon payment
of Acquisition Loans. The number of Financed Shares to be released for
each Plan Year shall be based upon a ratio approved in regulations and
rulings issued by the Secretary of the Treasury or his delegate. The
shares so released shall be allocated to the Participants' Stock Sub-
Accounts as provided at Sections 4.02(a), 4.06(d) and 5.05.
4.08 ALLOCATION OF PURCHASED EMPLOYER SECURITIES OTHER THAN FINANCED SHARES.
The Trustees may purchase Employer Securities using funds of the General
Fund in which case such shall be considered an investment of the General
Fund. The Trustees from time to time may, at their discretion, allocate
some or all of the shares of Employer Securities held in the General Fund
to the Participants. In the event of any such allocation, the shares so
allocated shall be transferred from the General Fund to the Stock Fund
and allocated to the Participants' Stock Sub-Accounts in proportion to
their respective General Sub-Account balances at the time.
4.09 DETERMINATION OF COMPENSATION. The Company shall furnish to the Trustees
information as to the Compensation of a Participant for each Plan Year,
and, for the purposes of this agreement, the Trustees shall accept such
information furnished by the Company as correct, and the amount of the
Compensation as so certified to the Trustees by the Company shall be
binding and conclusive on all persons whomsoever, unless a Participant
files a written objection with the Trustees to the Compensation so
certified within thirty (30) days from the date he has been notified
thereof.
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Exhibit 10(g)
Page 26 of 68
SECTION 5 - INVESTMENTS
5.01 PRIMARY PURPOSE. This Plan is designed to invest primarily in Employer
Securities under Sections 4975(e) of the IRC and Section 407(d) of ERISA.
Investment by the Trustees of the Stock Fund and of the General Fund
shall be made pursuant to such primary purpose set forth in the preceding
sentence; provided, that all investments shall comply with Section 404 of
ERISA.
5.02 INVESTMENT OF THE STOCK FUND. The assets of the Stock Fund shall be
invested solely in Employer Securities, including stock dividends and
stock splits on such Employer Securities. Employer Securities in the
Stock Fund shall not be sold except to provide funds for Participants
receiving a cash distribution under Section 8.09(b) and (c). The Trustee
shall have full power and authority to receive, collect, receipt for,
manage, and care for all Employer Securities in the Stock Fund as a
single fund. Any other assets transferred to the Plan, including items
received with regard to Employer Securities such as cash dividends and
stock rights, shall be held in the General Fund.
5.03 INVESTMENT OF THE GENERAL FUND. The Trustee shall have full power and
authority to receive, collect, receipt for, hold, manage, and care for
all amounts held, paid and contributed to the General Fund, and the
proceeds thereof and the income and profits therefrom, as a single fund,
and to invest and reinvest the same or any part thereof in bonds, notes,
conditional sales contracts, debentures, stocks, obligations of the
United States and any other security or interest in income-producing
property as the Trustee may deem advisable. Employer Securities
acquired by the General Fund shall not be allocated among the accounts of
the Participants but shall be accounted for like any other asset of the
General Fund. The Trustee is further authorized and empowered to sell,
exchange, convert, or transfer any property of the Trust; to sell covered
stock options; to retain uninvested for such time as the Trustee deems
for the best interest of the Trust any cash held in the Trust not
otherwise required to be invested in Employer Securities, to exercise or
dispose of all rights accruing to the holders of any securities; to join
in, by deposit, pledge, or otherwise, any plan of reorganization or other
means of protecting and dealing with securities; and to compromise,
adjust, and settle, all claims of or against said Trust at such amounts
and upon such terms as they deem advisable.
5.04 INVESTMENTS NOT ALLOCATED TO SEPARATE ACCOUNTS. Except as provided in
Section 7.11, all right, title and interest in and to the assets and
investments of the Trust shall be vested in, and reside exclusively in,
the Trustee, and no Participant shall have any right, title, or interest
in or to the assets or investments of the Trust except to have the same
held, invested, and applied in accordance with the provisions of this
agreement. The maintenance of a separate account for each Participant,
as heretofore provided, shall not require the allocation of or
149
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Exhibit 10(g)
Page 27 of 68
segregation of assets to each such account, but the creation of such
accounts is primarily for accounting purposes.
5.05 PURCHASE OR SALE OF CONTRIBUTED EMPLOYER SECURITIES. The Trustee may
acquire or sell Employer Securities with funds in the General Fund. Such
transactions may be entered into so as to acquire Employer Securities to
be distributed to a retired or terminated Participant who decides to take
stock or because of needed liquidity, or for any other reason in the
discretion of the Trustee. Also at the discretion of the Trustee, at
appropriate intervals all or a portion of the Employer Securities in the
General Fund may be transferred to the Stock Fund and shall thereafter be
accounted for as part of the Stock Fund. Upon any transfer of Employer
Securities from the General Fund to the Stock Fund, the General Fund
shall be charged with the Value of such Employer Securities as of the
relevant Valuation Date, and each Participant's General Sub-Account shall
bear a portion of such charge based upon his balance in his General Sub-
Account compared to the total balance in the General Fund; each
Participant's Stock Sub-Account shall then be credited with the same
amount as was charged against his General Sub-Account, and such credit
shall determine the number of shares (or fractional shares) to be
allocated to his Stock Sub-Account. The Trustee may sell Employer
Securities in the Stock Fund only as provided in the following sentence.
If a cash distribution is made to a retired or terminated Participant or
to a Beneficiary pursuant to Section 8.09(b) and (c), the Employer
Securities allocated to his Stock Sub-Account may be sold by the Trustees
or may be instead transferred to the General Fund to be accounted for
thereafter like any other asset of the General Fund. If such individual
demands Employer Securities and a stock distribution is made to him
pursuant to Section 8.09(d), then any Employer Securities distributed in
addition to the number of shares in the Participant's Stock Sub-Account
shall be taken from Employer Securities held in the General Fund.
5.06 ACQUISITION LOANS. The Trustee may incur Acquisition Loans from time to
time to finance the acquisition of Employer Securities (Financed Shares)
for the Plan or to repay a prior Acquisition Loan. An installment
obligation incurred in connection with the purchase of Employer
Securities shall constitute an Acquisition Loan. An Acquisition Loan
shall be for a specific term, shall bear a reasonable rate of interest
and shall not be payable on demand except in the event of default. The
terms of the loan, whether or not between independent parties, must, at
the same time the loan is made, be at least as favorable to the Plan as
the terms of a comparable loan resulting from arm's-length negotiations
between independent parties. An Acquisition Loan may be secured by a
collateral pledge of the Financed Shares so acquired. No other Plan
assets may be pledged as collateral for an Acquisition Loan, and no
lender shall have recourse against Plan assets other than any Financed
Shares remaining subject to pledge. In the event of a default, the value
of the Plan assets transferred in satisfaction of the loan must not
exceed the amount of default. Any pledge of Financed Shares must provide
for the release of shares so pledged as payments on the Acquisition Loan
are made by the Trustee and such Financed Shares are
150
<PAGE>
Exhibit 10(g)
Page 28 of 68
allocated to Participants' Accounts (as provided in Section 4.07).
Repayments of principal and interest on any Acquisition Loan shall be
made by the Trustees only from Company contributions paid in cash to
enable the Trustees to repay such Loan, from dividends under Section
4.06(d) and from earnings attributable to such Company's contributions
and dividends, and from the proceeds of Acquisition Loans.
5.07 DIVERSIFICATION OF INVESTMENTS BY QUALIFIED PARTICIPANTS.
(a) Each Qualified Participant may elect within ninety (90) days after
the close of each Plan Year in his Qualified Election Period to
direct the Trustees as to the investment of twenty-five percent
(25%) of his Stock Sub-Account in the Plan, to the extent that such
portion exceeds the amount to which a prior election under this
Section applies. This election shall apply, at the option of the
Participant, to all funds subject to both the current election and
to a prior election, and only one election per year shall be
allowed.
(b) The following rules shall apply to this Section:
(i) A "Qualified Participant" means any Employee (or former
Employee) who has completed at least ten years of
participation in the Plan and has attained age 55.
(ii) A Participant's "Qualified Election Period" means the six-
Plan Year period beginning with the later of (A) the first
Plan Year in which the individual became a Qualified
Participant or (B) the first Plan Year beginning after
December 31, 1986.
(iii) In the case of the election year in which the Participant can
make his last election, "fifty percent (50%)" shall be
substituted for the aforesaid "twenty-five percent (25%)."
(iv) The requirements of this Section shall be satisfied if the
Participant has the right to demand that the portion of his
Accounts covered by the election (or by a prior election) be
transferred to a plan qualified under the IRC, to be invested
in one or more of three sub-funds, said sub-funds to be
differentiated by the investments therein ranging from assets
less subject to fluctuations in value and with more stable
earnings yield to assets more subject to fluctuations in
value and with less stable earnings.
(v) Within ninety (90) days after the aforesaid ninety (90)-day
election period, the Trustees shall invest the portion of his
Company Stock Account covered by the election as directed by
the Participant pursuant to his election.
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Exhibit 10(g)
Page 29 of 68
(vi) This section shall apply only to Employer Securities acquired
after December 31, 1986, and whose value on the Valuation
Date immediately preceding the first day on which a Qualified
Participant is eligible to make a diversification election is
more than $500.
152
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Exhibit 10(g)
Page 30 of 68
SECTION 6 - PROVISIONS RELATING TO TRUSTEE
6.01 APPOINTMENT OF TRUSTEE AND SUCCESSORS. There shall at all times be one
or more Trustees acting hereunder. Such Trustee or Trustees shall be
appointed by the Board and the Board has duly appointed the Trustee
executing this agreement. The Board shall have the right at any time,
and from time to time, to remove any Trustee or successor Trustee. Each
Trustee or successor Trustee shall serve until such time as he shall
resign or be removed by the Board and until his successor is appointed.
In the event of the death, resignation, or removal of any Trustee acting
hereunder, the Board shall appoint a successor to fill such vacancy and
such successor Trustee, upon accepting such appointment by an instrument
in writing delivered to Aon, shall, without further action on his part,
become vested with all the estate, rights, powers, discretions, and
duties of his predecessor Trustee with like effect as if originally named
as Trustee hereunder. Any Trustee acting hereunder shall have the right
at any time, by sixty (60) days written notice to Aon, to resign as a
Trustee hereunder. By written acceptance of a resignation, Aon may waive
the 60 day notice.
6.02 FEES AND EXPENSES OF TRUSTEE. The Trustee shall be paid such reasonable
compensation as shall from time to time be agreed upon by Aon and the
Trustee except that no person so serving shall be entitled to receive
compensation where he received full-time pay from the Companies. The
Trustee, in addition, shall be reimbursed for any reasonable expenses,
including reasonable counsel fees and investment manager fees, incurred
by it in the administration of the Trust.
6.03 PAYMENT OF COSTS, FEES, AND EXPENSES. Expenses arising form the
operation of the ESOP Fund, including compensation payable to the
Trustee, shall be payable from the ESOP Fund. In construing the
foregoing, the following shall be understood: (a) expenses incurred in
connection with transactions involving the purchase or sale of
investments shall be added to the cost of such investment or deducted
from the sale price thereof as the case may be; and (b) nothing contained
herein shall preclude the Companies, by agreement or otherwise, from
paying expenses not attributable to them hereunder.
6.04 UNCERTAIN DISTRIBUTION. In the event any question or dispute shall arise
as to the proper person or persons to whom any payment shall made, the
Trustee may withhold such payment until a determination of such question
or dispute shall have been made, or the Trustee shall have been
adequately indemnified against loss to its satisfaction.
6.05 LIABILITY. No Trustee shall ever be liable for any act or default by any
predecessor Trustee, nor shall any successor Trustee or Trustees acting
hereunder be under any duty to examine into or take any action with
reference to the accounts or any prior Trustee heretofore acting
hereunder. All contributions and other monies received by the Trustee
shall be held for the exclusive benefit of the
153
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Exhibit 10(g)
Page 31 of 68
Participants and their Beneficiaries and for the payment of such
administrative expenses as may be provided for hereunder. The Trustee
shall be accountable for all such contributions and other monies, but
shall have no duty to determine that the amounts of the contributions
comply with the provisions of the Plan.
6.06 LEGAL ACTION. The Trustee shall at no time be obliged to institute any
legal action or to become a party to any legal action unless it shall
have been indemnified to its satisfaction for any fees, costs, and
expenses to be incurred in connection therewith.
6.07 MANNER OF ACTION. Except as provided for in Section 6.08, if there is
more than one Trustee, all decisions by the Trustees pertaining to the
management of the Trust and their duties and powers, shall be made by the
decision of the majority of the Trustees, and the action of the majority
of the Trustees shall be binding upon all of the Trustees and have the
same effect as an action, or decision, of all the Trustees.
6.08 ALLOCATION OF DUTIES. If there is more than one Trustee of the Trust,
one of which may or may not be a bank, they may agree among themselves by
unanimous consent that one or more (but less than all) of the Trustees
shall be responsible for performing one or more of the duties and powers
prescribed to the Trustee under this Agreement. Such Agreement shall be
in writing and shall be signed by all of the Trustees, and shall be
transmitted to the Executive Committee of Aon, who by its action, or by
action of the Board, may order at any time that such Agreement be
terminated. Such Agreement may also be terminated by any one of the
Trustees giving written notice to the other Trustees that he desires the
Agreement to be terminated.
6.09 LIMITATION ON LIABILITY. To the extent permitted by law, each person
serving as a Trustee without compensation shall be relieved and released
from all personal liability by reason of any act or failure to act on his
part, except to the extent such act or failure to act was a result of
fraud or gross negligence.
6.10 INDEMNITY. Each person serving as a Trustee without compensation (and
their respective assigns, heirs, executors and administrators) shall be
entitled to be indemnified by Aon against all costs and expenses
reasonably incurred by or imposed upon him in connection with or
resulting from any action, suit or proceeding or threat thereof, to which
he may be made a party by reason of his serving as a Trustee, except in
relation to matters as to which a recovery shall be had against him by
reason of his having been finally adjudged in such action, suit or
proceeding to have committed a fraudulent act or omission. The foregoing
right to indemnity shall include reimbursement of the costs and expenses
paid in settling any such action, suit or proceeding or threat thereof
when if appears to Aon that the Trustee did not commit a fraudulent act
or omission.
154
<PAGE>
Exhibit 10(g)
Page 32 of 68
6.11 DISBURSEMENTS. The Trustee shall make such disbursements or payments
from the ESOP Fund as may be directed by the Committee. Any such
directions shall be in writing and signed by a member of the Committee or
the Secretary of the Committee. The Trustee shall have no duty or
obligation to inquire into the propriety of any payment directed by the
Committee but may conclusively presume that the payment is authorized by
the terms of the Plan; however, this Section shall in no event be
construed as granting the Committee any authority to manage, control, or
invest the assets of the Trust but is intended solely to facilitate the
administration of the Plan by the Committee.
6.12 REPORTS. The Trustee shall maintain accurate and detailed records and
accounts of all investments, receipts, disbursements and other
transactions hereunder, and all accounts, books and records relating
thereto shall be open at all reasonable times to inspection and audit by
any person or persons designated by Aon or the Committee. Within sixty
(60) days following the close of each Plan Year (or following the close
of such other periods as may be agreed upon by the Trustee and Aon) the
Trustee shall file with Aon a written account setting forth a description
of all Employer Securities and other property purchased and sold, all
receipts, disbursements and other transactions affected by it during such
period, and listing the Employer Securities and other property held by it
at the end of such period, at their cost and fair market values. Aon may
approve such accounting by written notice of approval delivered to the
Trustee or by failure to express objection to such accounting in writing
delivered to the Trustees within eight (8) months from the date upon
which the accounting was delivered to Aon. Upon receipt of a written
approval of the accounting, or upon the passage of said period of time
within which objections may be filed, without written objections having
been delivered to the Trustee, such accounting shall be deemed to be
approved, and the Trustee shall be released and discharged as to all
items, matters and things set forth in such accounting as if such
accounting had been settled and allowed by a decree of a court of
competent jurisdiction in any action or proceeding in which the Trustee,
Aon, and all persons having or claiming to have any interest in the Trust
Fund or under the Plan, were parties. The Trustee, nevertheless, shall
have the right to have its accounts settled by judicial proceedings if it
so elects, in which event only the Trustee and Aon shall be necessary
parties. Nothing contained in this paragraph shall relieve the Trustee
from any responsibility or duty under ERISA and any subsequent amendment
thereto.
6.13 ADDITIONAL POWERS OF TRUSTEE. The Trustee shall have exclusive authority
and discretion to manage and control the Trust Fund which shall
constitute all of the assets of the Plan. Pursuant thereto, and in
addition to the other powers granted by this Agreement, the Trustee shall
be authorized and empowered:
(a) To sell, exchange, transfer, or otherwise dispose of any property
held by it, by private contract or at public auction, and no person
dealing with the Trustee shall be bound to see the application of
the purchase money or to
155
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inquire into the validity, expediency, or propriety of any such sale
or other disposition;
(b) To make, execute, acknowledge, and deliver any and all documents of
transfer and any and all other instruments that may be necessary or
appropriate to carry out the powers herein granted;
(c) To register any investment held for either Fund in its own name or
in the name of a nominee and to hold any investment in bearer form,
but the books and records of the Trustee shall at all times show
that all such investments are part of the Trust Fund;
(d) To manage, administer, operate, lease for any number of years,
develop, improve, repair, alter, demolish, mortgage, pledge, grant
options with respect to, or other wise deal with any real property
or interest therein at any time held by it;
(e) To employ suitable agents and persons to render it services and
advice in connection with its responsibilities and to pay their
reasonable expenses and compensation;
(f) To settle, compromise, or submit to arbitration, any claims, debts,
or damages, due or owing to or from the Trust, to commence or defend
suits or legal proceedings and to represent the Trust in all suits
or legal proceedings;
(g) To enter into any covenants or agreements binding the Trust with
regard to any securities or other property held by it as Trustee;
and
(h) To borrow or raise monies for the purposes of the Trust and for any
such so borrowed to issue its promissory note as Trustee and to
secure the repayment thereof by pledging all or any part of the
assets of the Trust, but nothing herein contained shall obligate the
Trustee to render itself liable individually for the amount of any
such borrowing; and no person loaning money to the Trustee shall be
bound to see to the application of the money loaned or to inquire
into the validity , expediency, or propriety of any such borrowing.
6.14 INVESTMENT MANAGER. The Trustees are hereby expressly authorized, in
their discretion, to delegate the investment powers granted to them by
this agreement to an investment manager provided such investment manager
meets all the requirements set forth in Section 3(38) of ERISA. In the
event of the delegation of their investment powers as above provided, the
Trustees shall have no duty or obligation to supervise or control in any
way the investments made and shall in no way be liable or responsible on
account of any investments made or retained by the investment manager,
whether or not such investments are authorized by this agreement, or for
any acts or omissions of the investment manager.
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SECTION 7 - ADMINISTRATION OF THE PLAN
7.01 COMMITTEE. The Board shall appoint a Committee consisting of not less
than three (3) nor more than seven (7) members. Any person appointed a
member of the Committee shall signify his acceptance by filing written
acceptance with the Board. The members of the Committee shall serve
without compensation for their services. The term of the members of the
Committee shall commence with the date of their appointment and continue
at the convenience of the Board. Any member of the Committee may resign
by delivering his written resignation to the Company, and such
resignation shall become effective at delivery or at any later date
specified therein.
7.02 DUTIES OF COMMITTEE. The Committee shall have those duties prescribed to
it elsewhere in this Agreement, and shall be responsible for the general
administration of the Plan except where duties in connection with such
general administration have been prescribed to others under this
Agreement. The Committee shall not incur expenses on behalf of the Plan
or Trust except with the consent of Aon.
7.03 CHAIRMAN AND SECRETARY. The members of the Committee shall elect a
chairman from their number, and a secretary who may be but need not be
one of the members of the Committee.
7.04 MEETINGS AND QUORUM. The Committee shall hold meetings upon such notice,
at such place or places, and at such time or times as it may from time to
time determine. A majority of the members of the Committee at the time
in office shall constitute a quorum for the transaction of business. All
resolutions or other actions taken by the Committee at any meeting shall
be by the vote of a majority of the members of the Committee present at
the meeting. Actions may be taken by the Committee without a meeting
where such actions are consented to in writing by the entire Committee.
7.05 ALLOCATION OF DUTIES. The Committee, by its action, may allocate its
fiduciary responsibilities among its members, and may designate persons
other than its members to carry out its fiduciary responsibilities. The
Committee, individual members of the Committee allocated specific
fiduciary responsibilities, and persons other than members of the
Committee designated to carry out specific fiduciary responsibilities,
may employ one or more persons to render advice with respect to their
responsibilities. If the Committee has allocated a specific fiduciary
responsibility among its members, or has designated persons other than
its members to carry out a specific fiduciary responsibility, it shall do
the following things: (a) it shall make as a condition of such allocation
or designation the fact that the Committee may terminate the allocation
or designation at will; and (b) it shall report such allocation or
designation to the Executive Committee of Aon
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who by its action, or by action of the Board, may order that such
allocation or designation be terminated in which case it shall be done as
soon as practicable.
7.06 AON. Aon shall have the responsibility for hiring personnel in
connection with the administration of the Plan (who shall be employees of
Aon), and persons to perform services in connection with the
administration of the Plan on an ad hoc basis, as may be required to
carry out the provisions of the Plan. In accordance with the exercise of
such responsibility, Aon may employ a manager for the Plan, clerical
help, accountants, investment consultants, management consultants, public
relations consultants, attorneys (who may be counsel for Aon) and other
individuals as may be necessary.
7.07 RULES AND INTERPRETATION. The Committee may, from time to time,
establish rules and procedures for administration of the Plan not
inconsistent with the Plan's provisions, and administer the Plan in
accordance with such provisions and such rules and procedures. The
Committee shall have the exclusive right and discretionary authority to
construe the terms and provisions of the Plan, including without
limitation, the power to construe or interpret disputed, ambiguous or
uncertain terms, and such other powers as may be necessary to carry out
the provisions of the Plan. The Committee shall also have the
discretionary authority to determine all questions relating to the
eligibility of Employees to participate in the benefits of the Plan and
the amount of such benefits, and resolve all questions pertaining to the
administration, interpretation and application of the Plan provisions.
Actions taken in good faith by the Company, the Committee or an Employer
shall be conclusive and binding on all interested parties as to all
questions of interpretation and application under this Plan and as to all
other matters arising out of the administration thereof, and shall be
given the maximum possible deference allowed by the law.
7.08 LIMITATIONS ON LIABILITY. To the extent permitted by law, each member of
the Committee, and each employee of the Company who is involved in the
administration of the Plan, shall be relieved and released from all
personal liability by reasons of any act or failure to act on his part
with respect to the administration of the Plan, except to the extent such
act or failure to act was a result of fraud or gross negligence.
7.09 INDEMNITY. Each person named in Section 7.08 (and his respective
assigns, heirs, executors and administrators) shall be entitled to be
indemnified by Aon against all costs and expenses reasonable incurred by
or imposed upon him in connection with or resulting from any action, suit
or proceeding or threat thereof, to which he is made a party by reason of
his being involved in the administration of the Plan, except in relation
to matters as to which a recovery shall be had against him by reason of
his having been finally adjudged in such action, suit or proceeding to
have committed a fraudulent act or omission. The foregoing right to
indemnity shall include reimbursement of the costs and expenses paid in
settling any such
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Exhibit 10(g)
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action, suit or proceeding or threat thereof when it appears to Aon that
the person did not commit a fraudulent act or omission.
7.10 IDENTITY. The Committee shall have authority to determine the identity
of the distributees, and in so doing, to act upon such information as, on
reasonable inquiry, it may deem reliable with respect to heirship,
relationship, survivorship, or any other fact relative to the
distributees; the Committee may rely upon any affidavit, certificate,
letter, or other paper or document reasonably believed by it to be
genuine, and upon any evidence reasonably believed by it to be
sufficient; and shall be protected and saved harmless in all payments
required to be made hereunder, if made in good faith and without actual
notice or knowledge of the changed condition or status of any person
receiving payments upon a condition.
7.11 VOTING OF EMPLOYER SECURITIES. Each Participant (or, in the event of the
Participant's death, the Participant's Beneficiary) shall have the right
to direct the Trustee as to the manner in which shares of Employer
Securities allocated to his Stock Sub-Account are to be voted on each
matter brought before an annual or special stockholders' meeting of the
Company, and each Participant (or Beneficiary) shall be considered a
"named fiduciary" under Section 402(a)(2) or ERISA with respect to this
direction to the Trustee. Before each such meeting of stockholders, the
Company shall cause to be furnished to each Participant (or Beneficiary)
a copy of the proxy solicitation material, together with a form
requesting confidential direction as to how the shares of Employer
Securities allocated to such Participant's Stock Sub-Account are to be
voted on each matter. Upon timely receipt of such directions, the
Trustee shall vote the shares (including fractional shares) of Employer
Securities allocated to such Participant's Stock Sub-Account on each
matter as directed by the Participant. Each Participant (or Beneficiary)
who timely directs voting of Employer Securities shall also direct the
vote of a portion of the shares of Employer Securities for which signed
voting directions are not timely received and any unallocated shares of
Employer Securities held in a suspense account ("Undirected Shares") in
the General Fund and in the Stock Fund. Each Participant (or Beneficiary
shall be considered a "named fiduciary" under Section 402(a)(2) of ERISA
with respect to this direction of the Trustee. Each such Participant
shall be entitled to direct the voting of that number of the Undirected
Shares resulting from multiplying the total number of Undirected Shares
by a fraction, the numerator of which is the total number of shares
allocated to that Participant's Stock Sub-Account and the denominator of
which is the total number of shares of all Participants who timely direct
the voting of Employer Securities. The Participants' individual
instructions are to be given to a recordkeeper, auditor, or other person
who is not the Company, a Subsidiary, or an Employee, officer, or
director thereof and such person shall not divulge any Participant's
directions to any person. Instructions received by the Trustee shall be
made in the aggregate basis, shall be held by the Trustee in strict
confidence and shall not be divulged or released to any person except as
may be required to vote at the shareholders' meeting, or as required by
applicable law.
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<PAGE>
Exhibit 10(g)
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7.12 RIGHTS ON TENDER OR EXCHANGE OFFER. Each Participant (or in the event
of the Participant's death, his Beneficiary) may direct the Trustee as to how to
respond to a tender or exchange offer with respect to shares of Employer
Securities in his Stock Sub-Account, and each Participant (or Beneficiary) shall
be considered a "named fiduciary" under Section 402(a)(2) of ERISA with respect
to this direction to the Trustee. The Company shall use its best efforts to
timely distribute or cause to be distributed to each Participant (or
Beneficiary) such information as will be distributed to stockholders of the
Company in connection with any such tender or exchange offer. Upon timely
receipt of such written instructions, the Trustee shall respond as instructed
with respect to shares of Employer Securities allocated to such Participant's
Stock Sub-Account. If the Trustee does not receive timely written instructions
from a Participant as to the manner in which to respond to such a tender or
exchange offer, the Trustee shall not tender or exchange any shares of Employer
Securities with respect to which such Participant has the right of direction.
Each Participant (or Beneficiary) shall also be entitled to direct the tender or
exchange of a portion of the unallocated shares of Employer Securities held in a
suspense account in the General Fund and the Stock Fund and each Participant (or
Beneficiary) shall be considered a "named fiduciary" under Section 402(a)(2) of
ERISA with respect to this direction to the Trustee. Each such Participant
shall be entitled to direct the voting of that number of unallocated shares by a
fraction, the numerator of which is the total number of shares allocated to that
Participant's Stock Sub-Account and the denominator of which is the total number
of shares of Employer Securities which are allocated to the Stock Sub-Accounts
of all Participants for which instructions on the tender or exchange offer are
received. The Participants' individual instructions shall be given to a
recordkeeper, auditor or other person who is not the Company, a Subsidiary, or
an Employee, officer or director thereof and such person shall not divulge any
Participant's directions to any person, except as required by applicable law.
Instructions received by the Trustee shall be made in the aggregate basis, shall
be held by the Trustee in strict confidence and shall not be divulged or
released to any person except as may be required to vote or tender.
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Exhibit 10(g)
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SECTION 8 - DISPOSITION OF THE SEPARATE TRUST ACCOUNTS
8.01 PARTICIPANT STILL EMPLOYED BY COMPANY AFTER RETIREMENT DATE. A
Participant shall have a 100% vested interest in his Accounts when he
attains his Normal Retirement Date. If he continues in active
employment, no distribution shall be made to such Participant until he
retires or is retired from active employment and the Committee is so
advised, and he shall continue to participate in this Trust.
8.02 DISPOSITION AT OR AFTER RETIREMENT DATE OR IN CASE OF PHYSICAL OR MENTAL
DISABILITY. In the event that at or after his Normal Retirement Date a
Participant shall resign or be released from employment from the
Companies, or in the event that the employment of any Participant shall,
at any time, either before or after Normal Retirement Date, be terminated
because of permanent physical or mental disability, then the Committee
shall direct the Trustee to distribute the Participant's entire
individual accounts to such Participant, without regard to the provisions
for vesting as set forth in Section 9, in one or more of the ways
described in Section 8.09. Permanent physical or mental disability means
a physical or mental disability of illness which , in the opinion of a
physician approved by the Committee, renders the Participant permanently
incapable of performing the duties he was performing for the Companies
when such disability began.
8.03 DISPOSITION UPON THE DEATH OF A PARTICIPANT. The Committee, upon the
death of a Participant, whether before or after retirement, shall direct
the Trustee to distribute the Participant's individual accounts, without
regard to the provisions for vesting as set forth in Section 9, to such
Participant's Beneficiary in one or more of the ways described in Section
8.09. If the Participant has not named a Beneficiary, or if no
Beneficiary is living at the death of the Participant, such accounts
shall be paid over in one sum to the executor or administrator of the
estate of such deceased Participant; provided, however, that if in such
situations the Participant's spouse survives him then such surviving
spouse shall be the Beneficiary. In the event the Beneficiary dies
subsequent to the death of the Participant but prior to the distribution
of the entire accounts to the Beneficiary, the balance of the accounts
shall forthwith be paid over and delivered to the executor or
administrator of the estate of the deceased Beneficiary.
8.04 DISPOSITION UPON TERMINATION OF EMPLOYMENT BEFORE REACHING RETIREMENT
DATE. If a Participant shall withdraw from the employ of the Companies
prior to attaining his Normal Retirement Date, whether because of
resignation or discharge, or any reason other then permanent disability,
provision for which is made in Section 8.02, the Committee shall direct
the Trustee to pay such Participant his vested interest in his individual
accounts, as provided in Section 9, in one or more of the ways described
in Section 8.09. If prior to incurring a 1-Year Break in Service such
terminated Participant shall file with the Committee an application for
the payment of benefits which has been approved by the
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Exhibit 10(g)
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Committee and distributions pursuant thereto have commenced, and if prior
to incurring such 1-Year Break in Service he shall be reemployed by one
of the Companies, he shall not share in the Companies' contribution or
forfeitures for the Plan Year in which the withdrawal occurred (this
assumes he reentered employment in the same year as the withdrawal
occurred) and shall not be entitled to have contributions made on his
behalf under Section 3, in respect to his Compensation for the 12 month
period following the month in which his application is filed or following
the month of termination of his employment, whichever shall occur later
and, accordingly, shall not share in Companies' contributions and
forfeitures on the basis of the contribution which would otherwise have
been made on his behalf under Section 3 during this period.
8.05 TERMINATION OF THE TRUST AND DISPOSITION UPON SUCH TERMINATION. Unless
otherwise terminated as hereinafter provided in Paragraphs (a), (b), (c)
or (d) of this Section 8.05, this Trust and Plan shall continue in
perpetuity or for such time as may be necessary to accomplish the purpose
for which it is created. This Trust and Plan shall terminate in respect
to a Company upon the happening of any of the following events, but shall
continue as a liquidation trust until final distribution of all assets.
(a) ELECTION BY AON. Aon, by appropriate resolutions, by its Board, may
elect to terminate this Trust and Plan as to any Company or all
Companies.
(b) BANKRUPTCY. In the event a Company at any time shall be adjudicated
bankrupt or insolvent.
(c) DISSOLUTION. In the event a Company at any time shall be legally
dissolved.
(d) MERGER OR CONSOLIDATION. In the event of the merger or consolidation
of a Company in and with another corporation or an association and
such other corporation or association shall not agree to continue
this Trust, with proper agreement with the Trustee and Committee;
provided, however, in the event of dissolution, merger, or
consolidation of a Company, provision may be made by the successor or
successors, whether it be an individual, firm, or corporation, for
continuing this Trust and Plan, and such successor or successors
shall be substituted for its predecessor hereunder, in which event
the Trust and Plan shall continue in full force and effect in respect
to such successor.
If this Trust and Plan shall be terminated upon the happening of any of
the events specified in Paragraphs (a), (b), (c), or (d) of this Section
8.05, the Committee shall direct the Trustee to distribute the value of
the affected Participants' entire accounts to such Participants in the
manner provided in Section 8.09. Upon the completing of all payments to
everyone entitled thereto, this Trust and Plan shall finally cease and
terminate in respect to the Company and Participants affected thereby.
Upon the termination of the Trust and Plan
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in respect to any Company, any unallocated contributions, forfeitures, or
earnings and valuation adjustments shall be allocated to the accounts of
the affected Participants in a fair and equitable manner as determined by
the Committee. In the event of any action by or in respect to any
Company resulting in the termination of the Trust and Plan pursuant to
this Section 8.05, this Trust and Plan shall only terminate in respect to
such Company but not in respect to any other Companies which have adopted
the Plan, it being understood that the Trust and Plan shall continue in
full force and effect as to any such other Companies.
8.06 PAYMENT TO MINORS, ETC. In case any payment hereunder becomes payable to
a minor, person under legal disability, or person who by reason of
physical or mental disability, although not adjudicated incompetent, is
in the opinion of the Committee unable to administer properly such
payment, then the same may be paid out by the Trustee for the benefit of
such person in any of the following ways as the Committee, in its sole
and uncontrolled discretion, shall determine:
(a) directly to such person; or
(b) to the legally appointed guardian or conservator of such person; or
(c) to some near relative of such person for the support, maintenance,
and education of such person; or
(d) by the Trustee using such amounts directly for the benefit of such
person.
The payment and acceptance of any money or property in settlement of a
participation under this Section 8.06 shall constitute a complete
acquittance and discharge of all liability of the Trustee with respect to
such participation.
8.07 NET EARNINGS AND VALUATION ADJUSTMENT. As of each Valuation Date, there
shall be allocated the net earnings and valuations changes of the ESOP
Fund for the period ending on such date among the accounts maintained on
such date on the basis of, and in proportion to, their account balances
on such date. A separate adjustment shall be made for the Stock Fund and
for the General Fund as set forth below.
(a) There shall be valued the Employer Securities in the Stock Fund. The
resulting Value, which shall be the amount of the Stock Fund and which
shall not be revised until the next Valuation Date except as described
in the last sentence of this Subsection, shall then be compared with
the total amount of all Participants' Stock Sub-Accounts in the Stock
Fund as of such Valuation Date for the purpose of determining the
interests of the Participants in the assets of the Stock Fund and the
value thereof. If the Value of the Employer Securities shall be more
or less than the total amount of all Participants' Stock Sub-Account
balances, then the Trustees shall prorate any such difference and
shall add or deduct from each Stock Sub-Account such amount
163
<PAGE>
Exhibit 10(g)
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as shall be determined upon the basis of the ratio that the balance of
each Participant's Stock Sub-Account bears to the total of all
Participants' Stock Sub-Account balances. The Value of the Employer
Securities contributed by the Company as of the last day of each Plan
Year shall be their Value for purposes of Section 1.31, which shall be
allocated among those Participants described in Section 4.02(a) on a
per compensation basis, but for the purpose of valuation adjustments
shall not be regarded as a part of the Stock Fund or the Stock Sub-
Account of any Participant until such Employer Securities are remitted
to the Trustees.
(b) There shall then be valued or appraised, the assets in the General
Fund. The resulting value shall be the amount in the General Fund and
shall not be revised until the next Valuation Date. The amount of
such valuation shall be allocated among the General Sub-Accounts of
each Participant's pro rata based upon the balance in each
Participant's Stock Sub-Account compared to the balance of all
Participants' Stock Sub-Accounts in the same ratio as the adjustment
made under the penultimate sentence of Subsection (a), after giving
effect to such adjustment but prior to giving effect to the
adjustment under the final sentence of subsection (a).
8.08 METHOD OF VALUING ASSETS. Valuation adjustments under Section 8.07 shall
be based on the fair market value of the assets held by the Trustees and
the Trustees shall adopt accepted valuation and accounting methods in
determining fair market value. The Value of Employer Securities shall be
determined pursuant to Section 1.31.
8.09 GENERAL PROVISIONS GOVERNING DISTRIBUTIONS. Distributions to a
terminated or retired Participant or Beneficiary of a deceased
Participant shall be governed by the following:
(a) Except upon termination of this Trust as provided in Section 8.05,
and as provided in Subsection (h) distribution shall not be made to a
Participant until he has retired or has terminated his employment.
(b) Upon direction of a Participant except as provided in Subsections (h)
and (i), distribution shall be made in a lump sum as soon as
administratively feasible following the administrative period
described in Subsection (f).
(c) Except as provided in Subsection (d), below, distribution shall be
made in the form of cash.
(d) A Participant or Beneficiary shall have the right to demand that his
benefits be distributed in the form of Employer Securities, and shall
be advised in writing of his right to demand such form of
distribution. Any fractional shares shall be distributed in cash.
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(e) Despite the fact that a Participant has retired or has terminated
employment, no Employer Security allocated to his Stock Sub-Account
prior to January 1, 1989 shall be distributed from that account
before the end of the eighty-fourth (84th) month beginning after the
month in which the security is allocated to the account, unless such
retirement or termination of employment constitutes a "separation
form service" as that phrase is construed under the IRC.
(f) No distribution in the form of cash under Sub-section (c), above,
shall be made to a Participant or Beneficiary of a deceased
Participant, until 30 days have elapsed from the last to occur of the
date he is advised of his right under Subsection (d) to demand that
his benefits be distributed in the form of Employer Securities or the
date of termination of employment. Any demand made by a Participant
or Beneficiary of a deceased Participant shall be irrevocable. If he
fails to make such demand during such 30-day period, he shall be
deemed not to have made any such demand, and payment shall be made in
accordance with the preceding provisions of this Section in the same
manner at though no demand had been made. All elections and requests
shall be made in writing.
(g) As provided in Section 2.02, no distribution shall be made to a
terminated Participant who has been re-employed and is again a
Participant at the time the distribution would otherwise become
payable.
(h) Notwithstanding the provisions of Subsection (b) hereof, distribution
to a Participant who has terminated his service, or who is a 5% owner
[as defined in Section 16.02(b)] at any time during the 5-Plan-Year
period ending in the calendar year in which he attains age 70-1/2
shall commence not later than the 1st day of April of the calendar
year following the calendar year in which he attains age 70-1/2. If a
Participant who has not terminated his service subsequently becomes a
5% owner after the calendar year in which he attains age 70-1/2, then
distribution shall commence by April 1st of the calendar year
following the Plan Year during which he became a 5% owner. Effective
January 1, 1989, distribution to a Participant shall commence by
April 1st of the calendar year following the calendar year in which
he attains age 70-1/2, without regard to whether he has terminated
his service; provided, that this rule shall not apply to a
Participant age 70-1/2 or over on January 1, 1988 unless he has been
a 5% owner at any time during the Plan Year ending during the
calendar year when he attained age 66-1/2 or any subsequent Plan
Year.
(j) Distribution to a Participant (or his Beneficiary) whose vested
interest in his Accounts has a fair market value of $3,500 or less
based on the Plan's last valuation shall be made as soon as
administratively convenient.
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Exhibit 10(g)
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(k) Except as provided in regulations, the provisions of IRC Section
401(a)(9) are hereby incorporated by reference to the extent not set
forth in this Section.
8.10 ELIGIBLE ROLLOVER DISTRIBUTIONS. Effective with respect to distributions
made on or after January 1, 1993, a distributee may elect, at the time
and in the manner prescribed by the plan administrator, to have any
portion of an Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan specified by the distributee in a Direct Rollover. For
purposes of this Section 8.10:
(a) An "Eligible Rollover Distribution" is any distribution of all or any
portion of the balance to the credit of the distributee, except that
an Eligible Rollover Distribution does not include: any distribution
that is one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy)
of the distributee and the distributee's designated beneficiary, or
for a specified period of ten years or more; any distribution to the
extent such distribution is required under Section 401(a)(9) of the
Code; and the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(b) An "Eligible Retirement Plan" is an individual retirement account
described in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the
distributee's Eligible Rollover Distribution. In the case of an
Eligible Rollover Distribution to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or individual
retirement annuity.
(c) A "Distributee" is an employee or former employee, the employee's or
former employee's surviving spouse and the employee's or former
employee's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section 414(p) of
the Code.
(d) A "Direct Rollover" is a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
166
<PAGE>
Exhibit 10(g)
Page 44 of 68
SECTION 9 - PARTICIPANT'S NONFORFEITABLE INTEREST
9.01 GENERAL RULE. A Participant's nonforfeitable (vested) interest prior to
his Normal Retirement Date and as of December 31, 1988, shall be one
hundred percent (100%), and for contributions on or after such date shall
be an amount equal to the balance of his Accounts applicable to his
number of Years of Participation as follows:
Completed Years of Participation Nonforfeitable Interest
-------------------------------- -----------------------
Less than 1 year None
1 Year 20%
2 Years 40%
3 Years 60%
4 Years 80%
5 Years 100%
Upon the termination, or a partial termination, of this Plan, except as
provided in Section 11, or upon complete discontinuance of contributions
thereto by any Company, each affected Participant's interest in his
separate accounts shall become one hundred percent (100%) nonforfeitable.
9.02 SPECIAL RULES. In applying the provisions of Section 9.01, Years of
Participation shall refer to the total years of Service of an Employee
with the following exceptions and modifications:
(a) Subject to the provisions of (c) of this Section, an Employee's
Service shall be deemed to commence on the January first following
the date his actual employment commenced, except that if a prior
Participant is reemployed and again becomes a Participant in the year
of his reemployment pursuant to Section 2.02 his Service shall be
deemed to have commenced on January first of the year of his
reemployment.
(b) If an Employee's employment is terminated during any calendar year,
he shall receive no credit for any Service during such calendar year
(unless the rule set forth in Section 1.25(c) applies).
(c) In the case of an Employee who has five 1-Year Breaks in Service,
Service after such Break in Service, shall not be taken into account
for the purpose of determining his nonforfeitable interest in his
Company Contribution Account before such Break in Service. As
provided at Section 2.02, any nonforfeitable vested interest of an
Participant in the balance of his Company Contribution Account at the
time of such Breaks in Service shall be separately accounted for
thereafter as one hundred percent (100%) nonforfeitable.
167
<PAGE>
Exhibit 10(g)
Page 45 of 68
(d) In the case of a Participant who becomes an independent field sales
representative for the Companies (and thereby ceases to be an
Employee) any period of time that he is acting in such capacity and
during which his accounts are not distributed to him shall be deemed
to be Service.
(e) Any period of time taken into account under the mergers set forth at
Section 9.02(e) of the Aon Savings Plan shall be taken into account
under this Plan.
(f) If the Plan becomes a Top-Heavy Plan and subsequently ceases to be
such, the vesting schedule in Section 16.05 shall continue to apply
in determining the vested interest of any Participant who had at
least three years of Service as of December 31st in the last Plan
Year of top-heaviness. For other Participants, said schedule shall
apply only to their Top-Heavy Account as of such December 31st.
(g) A Participant's account shall be 100% vested and nonforfeitable when
he earns five Years of Participation and attains age 55 and such date
shall be regarded as his early retirement date.
9.03 RESTORATION OF FORFEITURES. Forfeitures from a terminated Participant's
Accounts shall be charged to his Accounts upon termination of his
employment; provided, however, that no forfeiture shall be incurred by a
Participant reemployed on or before the following Anniversary Date if he
does not receive a distribution under Section 8.04 by reason of such
reemployment and if no administrative inconvenience as to such
forfeitable amount would thereby be suffered by the Committee. If any
terminated Participant who has suffered a forfeiture becomes reemployed
before he has incurred five consecutive 1-Year Breaks in Service, upon
his earning a year of Service after his rehire his Accounts shall be
reconstituted by crediting thereto an amount equal to the amount
forfeited, which amount shall be deducted from forfeitures during the
Plan Year in which his Accounts are reconstituted. To the extent
forfeitures for such year are not adequate for such purpose, such amount
as may be necessary to reconstitute his Accounts shall be deducted pro
rata from the assets of those funds earning a net Gain pursuant to the
earnings and valuation adjustment under Section 8.07(a), and if there are
no net Gains then such amount shall be deducted from Company
contributions for the year. As an alternative to either of the sources
set forth in the preceding sentence, at the discretion of the Company
such amount may be contributed by the Company as a special contribution
and credited to such account. In the event the employment of a rehired
Participant whose account has been reconstituted is again terminated
before he has acquired a 100% vested interest, any prior distribution
made to him on account of his prior termination of employment shall be
taken into consideration in computing his vested interest at the time of
his later termination of employment. Financed Shares allocated to a
Participant's Stock Sub-Account shall be forfeited only after his
interest in all other Plan assets has been exhausted.
168
<PAGE>
Exhibit 10(g)
Page 46 of 68
SECTION 10 - SPENDTHRIFT TRUST
10.01 GENERAL. No Participant or Beneficiary shall have any right or power to
transfer, assign, anticipate, mortgage, pledge or otherwise encumber his
interest in the Trust established by this Agreement, or his rights to
receive payments or benefits from the Trust and neither such interest nor
rights nor any assets of the Trust shall be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by any Participant or Beneficiary nor to
transferability by operation of law in the event of bankruptcy,
insolvency or otherwise; provided, that this limitation shall not apply
to a Qualified Domestic Relations Order ("QDRO") under IRC Section
401(a)(13) as amended from time to time.
10.02 QUALIFIED DOMESTIC RELATIONS ORDER. For purposes of this Section, a QDRO
shall mean a domestic relations order which relates to alimony, child
support or marital property rights and which has been determined by the
Company to meet the requirements of IRC Section 414(p) as amended from
time to time. The following rules shall apply to the rights and
obligations of the spouse of a Participant under a QDRO and under a
domestic relations order not yet determined to be a QDRO.
(a) These rules shall apply prior to determination by the Plan
administrator that the domestic relations order is a QDRO, and shall
apply thereafter as applicable.
(i) As soon as administratively feasible after receipt of a
domestic relations order, those funds which will go to the
spouse if she (or he) should be determined to be entitled
thereto will be put into a separate account.
(ii) The spouse will share in any intervening gains (or losses)
enjoyed (or suffered) by the Participant in his accounts
between the time of the domestic relations order and when the
Company is notified of the existence thereof and has been
afforded a reasonable time to transfer the funds which would go
to the spouse into a separate account.
(iii) An account or account balances may be segregated for the spouse
even though the Participant is not yet eligible to have funds
distributed to him (or her). The spouse's funds may be
accounted for separately without the necessity for an escrow.
(iv) The spouse may elect a Beneficiary for her (or his) account
balances under the QDRO. If a property settlement agreement is
involved or some other court decree which is not a final
divorce so that the individuals remain married, the Participant
shall be treated as her
169
<PAGE>
Exhibit 10(g)
Page 47 of 68
death Beneficiary, just as the spouse will be for the
Participant, unless the QDRO provides otherwise. If the QDRO
provides that the spouse is to be no longer regarded as the
Participant's spouse, then the preceding sentence shall not
apply.
(v) Upon written notification from either the Participant or spouse
that a QDRO is forthcoming no distribution of benefits will be
made to the Participant until the later of:
(A) Ninety days after the date the Company has sent the Aon
QDRO Procedures to the parties and no domestic relations
order has been received, or
(B) the period that the Company is reviewing a domestic
relations order to determine if it is a QDRO.
(b) These rules shall apply once the domestic relations order has been
determined to be QDRO.
(i) The spouse may take all of her (or his) account balances at any
time, without regard to whether the Participant has attained
his (or her) earliest retirement age under the Plan. Any
benefits distributed under this rule may be taken out only in a
single sum and may not be taken out periodically or pro rata.
(ii) The spouse may not take a partial withdrawal of her (or his)
account balances.
(iii) If the amount to be distributed to the spouse is less than
$3,500, such amount will be paid out only in a lump sum and may
be distributed without the consent of the spouse or of the
Participant.
(iv) A distribution otherwise permissible may be made to the spouse
without regard to whether the limitations on a distribution
under IRC Section 401(a) are met.
(c) It is the intent of this Subsection that the rules set forth herein
shall be subject to, and shall be interpreted in light of, the
requirements for a QDRO under the IRC and under the regulations and
rulings of the Secretary of the Treasury and his delegate. This
Subsection shall also apply to a child or other dependent of the
Participant as appropriate.
170
<PAGE>
Exhibit 10(g)
Page 48 of 68
SECTION 11 - COMPANY TO HAVE NO INTEREST IN TRUST
The Company shall in no event, either directly or indirectly, receive any fund
or contributions made by it to the Trust, nor directly or indirectly participate
in the distribution, or receive the benefits of the assets or funds comprising
the Trust prior to the satisfaction of all liabilities with respect to
Employees, beneficiaries, and spouses under this Plan; provided, however, that
(subject to the limitations of Revenue Ruling 91-4):
(a) If a contribution is made by a mistake of fact, the mistaken portion
of the contribution shall returned within one year after payment of
the mistaken contribution upon Company's written request; and
(b) Each contribution by the Company is conditioned upon the
deductibility of the contribution under the applicable section of the
IRC. Accordingly, to the extent of disallowance of the decuction for
the part or all of the contribution, the contribution shall be
returned within one year after disallownance upon the Employer's
written request.
Upon transfer to the Trustees, all responsibilities of the Company for each
contribution shall cease, and Company shall have no responsibilities for the
acts of the Trustees.
171
<PAGE>
Exhibit 10(g)
Page 49 of 68
SECTION 12 - AMENDMENT AND SUSPENSION OF CONTRIBUTIONS
12.01 AMENDMENT OF THE AGREEMENT. Aon reserves the right, by action of the
Board, to amend this Agreement at any time, and from time to time,
including the right to change the provisions for each Company's
contributions; provided that the contribution of Combined Life Insurance
Company of New York for its Life Insurance Agents shall not be changed or
modified without its consent. No amendment shall vest in the Companies
any right, title or interest in and to the Trust Fund, or any part
thereof, or cause them to be used or diverted to, purposes other than for
the exclusive benefit of Participants and beneficiaries. The amendment
of this Agreement shall not require the approval or ratification of the
stockholders of Combined, or any Subsidiary, nor of the Trustee,
Committee, Participants or Beneficiaries, or any of them; however, no
amendment shall change the rights, duties, or responsibilities of the
Trustee without its written consent. Except as may be necessary to
qualify this Trust, or to continue the qualification of the Trust under
Section 4975(e) of the Internal Revenue Code, or any successor to such
section, no amendment shall adversely affect vested rights of any
Participant hereunder.
12.02 SUSPENSION. Except for contributions required under Section 3.01(a)(2),
Aon reserves the right, by action of the Board, to suspend Aon's or any
Subsidiary's contributions for any Plan Year, but not exceeding two
successive Plan Years, without terminating the Plan and Trust or
discontinuing contributions permanently, by providing written notice of
such action of the Board to the Committee and Trustee not later than
sixty (60) days prior to the end of such Plan Year, in which event the
Company or Companies affected shall not be obliged to make any
contribution to the Company Fund for the period of such suspension. The
Committee upon receiving notice of such suspension shall immediately
notify the affected Participants.
172
<PAGE>
Exhibit 10(g)
Page 50 of 68
SECTION 13 - ADOPTION OF PLAN BY AFFILIATE
13.01 ADOPTION OF PLAN. Any Affiliate, by proper resolutions adopted by its
Board, or by an adoption agreement executed by a principal executive
officer, may become a party to this Agreement by adopting this Trust as a
stock bonus plan for its Employees. A certified copy of such resolutions
shall be delivered to the Committee and Trustee.
13.02 INTENTION OF PARTIES. Accept as provided herein, it is the intention of
the parties hereto that the Employees of Aon and the Employees of any
Subsidiary that adopts this Trust shall receive the same benefits as they
would receive if Aon and such Subsidiaries were one corporate entity and
this Plan were the plan of such entity, and the provisions of this
Agreement shall be interpreted in accordance with this intent.
13.03 TERMINATION OF STATUS OF SUBSIDIARY. In the event any Subsidiary
adopting this Plan at any time does not meet the requirements herein set
forth for a Subsidiary, such company shall nevertheless be considered as
continuing its status as a Subsidiary unless Aon files with the Trustee
and Committee a resolution adopted by its Board electing to discontinue
such Company's participation hereunder. Such resolution shall be
considered as an election to terminate such company's participation in
this Trust under the provisions of Section 8.05(a).
173
<PAGE>
Exhibit 10(g)
Page 51 of 68
SECTION 14 - ERISA PROVISIONS
14.01 SERVICE FOR PREDECESSOR. To the extent required by regulations that may
be prescribed by the Secretary of the Treasury or his delegate, service
for a predecessor shall be treated as Service for the Companies.
14.02 CONTROLLED GROUP. To the extent required by Section 414(b), (c), (m),
(n) and (o) of the Internal Revenue Code, all employees of the entities
described therein shall be treated as employed by a single employer.
14.03 MERGER. This Plan shall not be merged or consolidated with any other
plan (or the assets held under this Plan shall not be transferred to any
other plan), unless each Participant under the plan, if the plan then
terminated, would receive a benefit equal to or greater than the benefit
he would have been entitled to receive before the merger, consolidation,
or transfer (if the plan had then terminated).
14.04 CLAIMS PROCEDURE. Pursuant to Section 503 of ERISA the following claims
procedure is established.
(a) A timely written application for benefits shall be filed with the
Committee on a form prescribed by it.
(b) If a claim is denied, in whole or in part, written notice of such
denial shall be furnished to the applicant setting forth, in a manner
calculated to be understood by him, the following:
(i) The specific reason or reasons for the denial;
(ii) A specific reference to pertinent Plan provisions on which the
denial is based;
(iii) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary;
(iv) An explanation of the Plan's claim review procedure.
(c) An applicant whose claim has been denied in whole or in part (or his
duly authorized representatives) may appeal such denial to the
Committee by making a written request for a review and may review
pertinent documents and submit issues and comments in writing. A
written request for review must be filled within 60 days of the date
an applicant has been notified of the denial or partial denial of his
claim.
174
<PAGE>
Exhibit 10(g)
Page 52 of 68
(d) The decision on review shall be made promptly, shall be in writing,
and shall include specific reasons for the decision, written in a
manner calculated to be understood by the applicant, and specific
references to the pertinent Plan provisions on which the decision is
based.
14.05 INVESTMENT IN DEPOSITS WITH CORPORATE FIDUCIARY. In the event a corporate
fiduciary is appointed pursuant to Section 6.01, such fiduciary may invest
all or part of the Plan's assets in deposits, which bear a reasonable rate
of interest, in an account maintained in its own banking department, to
the extent such investment is permitted by Section 408(b) of ERISA.
14.06 MAXIMUM ANNUAL ADDITION.
(a) In no event shall the annual addition (as hereinafter defined) to a
Participant's separate accounts with respect to any Plan Year exceed
the lesser of
(i) $30,000 (or, if greater, one-fourth of the defined benefit plan
dollar limitation under Section 415(b) of the IRC); provided,
however, that such dollar amount may be increased by the lesser
of (A) 100% of the dollar amount otherwise applicable for that
Plan Year, or (B) the amount of Employer Securities allocated as
Company contributions to the Participant for that Plan Year, but
only if not more than one-third (1/3) of the Company
contributions for the Plan Year are allocated to Highly
Compensated Employees, or
(ii) Twenty-five percent (25%) of the Participant's total
compensation.
(b) The term "annual addition" means the sum for any Plan Year of
(i) his share of Company contributions, plus
(ii) the amount of his Employee contributions made on or after
January 1, 1987, plus
(iii) his share of forfeitures, plus
(iv) for purposes of Section 14.06(a)(i) only, amounts allocated to
a separate account for the Participant to provide medical
benefits after retirement, whether under a pension or annuity
plan or a welfare benefit fund, pursuant to Sections 401(h),
415(c), 415(l) and 419(d)(2) of the IRC.
In determining annual additions, forfeitures of Company Stock shall be
based upon the Value of Company Stock as of the Anniversary Date. Any
Company contributions which are applied (not later than the due date,
175
<PAGE>
Exhibit 10(g)
Page 53 of 68
including extensions, for filing the Company's Federal income tax
return for that Plan Year) to pay interest on an Acquisition Loan, and
any Financed Shares which are allocated as forfeitures, shall not be
included as annual additions provided, however, that the provisions of
this sentence shall be applicable only in Plan Years for which not
more than one-third (1/3) of the Company contributions applied to pay
principal and interest on an Acquisition Loan are allocated to the
Highly Compensated Employees. The Trustees may reallocate such
Company contributions in order to satisfy this special limitation.
(c) In the event a Participant herein also participates in any other
stock bonus plan maintained by the Company or a member of a controlled
group (as defined in Section 14.02) the maximum annual addition
computed pursuant to subsection (a) hereof may be reduced (except as
IRC Section 415(c)(6) may apply) by the amount of employer
contributions and forfeitures allocated to the Participant in such
plan; provided, however, that if the Participant also participates in
another profit sharing plan, then the maximum annual addition
hereunder may be reduced subsequent to the maximum annual addition
under such plan; employee contributions made by the Participant to
such other plans shall be included in computing his annual addition
pursuant to subsection (b)(ii) hereof; and compensation received from
a member of a controlled group shall be included in total
compensation.
(d) In the event a Participant herein is a Participant at any time in a
defined benefit plan maintained by the Company or a member of a
controlled group, the sum of the defined benefit plan fraction and the
defined contribution plan fraction for any Plan Year shall not exceed
1.0 but such limitation may be applied to first reduce benefits under
the defined benefit plan before being applied to reduce benefits under
this plan. For this purpose the defined benefit plan fraction for any
Plan Year is:
Project annual benefit of the Participant under
the plan (determined as of the close of the year)
-----
Lesser of: (a) 1.25 multiplied by the dollar
limitation in effect for such year ($90,000 for
Plan Year beginning in 1983) or (b) 1.4 multiplied
by the percentage limitation with respect to
such individual under the plan for such year
(100% of his average total compensation for his
high 3 Years).
The defined contribution plan fraction for any Plan Year is:
176
<PAGE>
Exhibit 10(g)
Page 54 of 68
Sum of the annual additions to the Participant's
account as of the close of the year
------------------------------------------------
Sum of the lesser of the following amounts
determined for such year and for each prior year
of service with the employer: (a) 1.25
multiplied by the dollar limitation in effect
for such year ($30,000 for Plan Year beginning in
1983) or (b) 1.4 multiplied by the percentage
limitation with respect to such individual
under the Plan for each such year (25% of his
total compensation).
(e) At the election of the plan administrator, in determining the defined
contribution plan fraction under Subsection (d), above, with respect
to any Plan Year ending after December 31, 1982, the denominator of
the fraction with respect to each Participant for all years ending
before January 1, 1983, shall be an amount equal to the product of
such denominator under the law in effect for the year ending in 1982
multiplied by the transition fraction. The transition fraction means
a fraction whose numerator is 35% of the compensation of the
Participant for the year ending in 1981 (limited to $51,875) and whose
denominator is 25% of such compensation (but not more than $41,500).
(f) Provided the Plan satisfied the requirements of IRC Section 415 for
the last year beginning before January 1, 1983, and pursuant to
regulations prescribed by the Secretary of the Treasury or his
delegate, the numerator of the defined contribution plan fraction at
Subsection (d) may be reduced so that the sum of the defined
contribution plan fraction and the defined benefit plan fraction does
not exceed 1.0 for such year.
(g) In the case of an individual who is a participant before January 1,
1983, in a defined benefit plan which is in existence on July 1, 1982,
and with respect to which the requirements of Section 415 of the IRC
have been met for all years, if such individual's current accrued
benefit under such plan exceeds the limitation of subsection (b) of
Section 415, then (in the case of such plan) for purposes of such IRC
Section 415(b), and also for purposed of IRC Section 415(e) as
provided under Subsection (d) through (f) hereof, the limitation of
such IRC Section 415(b) with respect to such individual shall be equal
to such current accrued benefit. The term "current accrued benefit"
means the individual's accrued benefit (at the close of the last year
beginning before January 1, 1983) when expressed as an annual benefit
(within the meaning of Section 415(b)(2) of the IRC as in effect
before the amendments made by the Tax Equity and Fiscal Responsibility
Act of 1982). For purposes of determining the amount of any
individual's current accrued benefit, (i) no change in the terms and
conditions of the plan after July 1, 1982, and (ii) no cost-of-living
adjustment occurring after July 1, 1982, shall be taken into account.
177
<PAGE>
Exhibit 10(g)
Page 55 of 68
(h) In the event the amount of the annual addition for a Participant
exceeds the limitation of this Section 14.06, the Trustees shall
forthwith reduce the amount of the annual addition to the limitation
of Section 14.06 by first refunding any contributions of the
Participant for such Plan Year to the extent includable in the
computation of the annual addition; second, if necessary, by reducing
his share of the Company's contribution for such Plan Year, the amount
of such reduction to be applied as a reduction of the Company's
contribution for such Plan Year. Any remaining excess contributions
plus forfeitures, shall be reallocated among the other Participants.
If after such adjustments there still remains an excess, such amounts
from such Participants so affected shall be held unallocated in a
suspense account and all amounts in the suspense account shall be
allocated and reallocated to Participant's accounts (subject to the
limitations of Section 415 of the IRC) before any contributions by the
Company or by the Participants may be made for the limitation year
during which such suspense accounts are in existence.
(i) In determining under which plan the contributions or other annual
additions, or benefits, of a Participant should be reduced under this
Section, the intent is that the order of reduction set forth herein be
for purposes of guidance only and not obligatory, and that such order
of reduction as to one Participant may be different from another
Participant, so as to afford maximum flexibility to the Plan in
avoiding a violation of the provisions of Section 415 of the IRC.
(j) If the Plan satisfied the applicable requirements of Section 415 of
the IRC as in effect for all years beginning before January 1, 1987,
an amount shall be subtracted from the numerator of the defined
contribution plan fraction (not exceeding such numerator) as
prescribed by the Secretary of the Treasury so that the sum of the
defined benefit plan fraction and defined contribution plan fraction
computed under Section 415(e)(1) of the IRC does not exceed 1.0 for
such year.
(k) Compensation shall include the following items:
(i) The Participant's wages, salaries, fees for professional service
and other amounts received for personal services actually
rendered in the course of employment with an employer
maintaining the plan (including but not limited to, commissions
paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips
and bonuses).
(ii) For purposes of the prior sentence, earned income from sources
outside the United States.
178
<PAGE>
Exhibit 10(g)
Page 56 of 68
(iii) Amounts described in IRC Sections 104(a)(3), 105(a) and 105(h),
but only to the extent that these amounts are includable in
the gross income of the Employee.
(iv) Amounts described in IRC Section 105(d), whether or not these
amounts are excludable from the gross income of the Employee
under that Section.
(v) Amounts paid or reimbursed by the Employer for moving expenses
incurred by an Employee, but only to the extent that these
amounts are not deductible by the Employee under IRC Section
217.
(vi) The value of a non-qualified stock option granted to an
Employee by the employer, but only to the extent that the value
of the option is includable in the gross income of the Employee
for the taxable year in which granted.
(vii) The amount includable in the gross income of an Employee upon
making the election described in IRC Section 83(b).
Compensation shall not include the following items:
(viii) Contributions made by the Employer to a plan of deferred
compensation to the extent that, before the application of the
IRC Section 415 limitations to that plan, the contributions are
not includable in the gross income of the employee for the
taxable year in which contributed. In addition, Employer
contributions made on behalf of an Employee to a simplified
employee pension described in IRC Section 408(k) are not
considered as compensation for the taxable year in which
contributed to the extent such contributions are deductible by
the Employee under IRC Section 219(b)(7). Additionally, any
distributions from a plan of deferred compensation are not
considered as compensation for IRC Section 415 purposes,
regardless of whether such amounts are includable in the gross
income of the Employee when distributed. However, any amounts
received by an Employee pursuant to an unfunded non-qualified
plan may be considered as compensation for IRC Section 415
purposes in the year such amounts are includable in the gross
income of the Employee.
(ix) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by an
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture (see IRC Section 83
and the regulations thereunder.)
(x) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option.
179
<PAGE>
Exhibit 10(g)
Page 57 of 68
(xi) Other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent
that the premiums are not includable in the gross income of the
Employee), or contributions made by an Employer (whether or not
under a salary reduction agreement) towards the purchase of an
annuity contract described in Section 403(b) (whether or not
the contributions are excludable from the gross income of the
Employee).
(l) Except as provided in regulations, the provisions of IRC Section 415
are hereby incorporated by reference to the extent not set forth in
this Section.
180
<PAGE>
Exhibit 10(g)
Page 58 of 68
SECTION 15--MISCELLANEOUS
15.01 RELIANCE ON INFORMATION FURNISHED BY THE COMPANIES. Any information
furnished by the Companies to the Committee or Trustee, such as
Compensation of Participants, the proper amount of the Companies'
contribution, the status of individuals as Employees of the Companies, or
otherwise, and any other information which may be furnished by the
companies to the Committee or Trustee, shall be accepted by the Committee
and Trustee as being true and correct, and the Committee or Trustee shall
incur no liability in relying on such information. In no event shall the
Trustee or Committee have any right to request or demand an audit,
investigation, or disclosure of the Companies' books or records.
15.02 INABILITY TO PERFORM. Neither the Companies, the Committee nor the
Trustee shall be responsible for any inability to perform, or delay in
performing, any act occasioned by any restriction or provision of any
annuity contract or Acquisition Loan, or imposed by any insurer, or by
any other person, or by law, and in the event any such inability or delay
shall be so occasioned, then than act which can be performed shall be
performed by the Companies, the Committee, or the Trustee which, in the
sole discretion of the Committee, most completely carries out the
intention and purpose of this Trust. All parties to this Trust or in any
way interested therein shall be bound by any act so performed under such
conditions.
15.03 EXECUTION OF DOCUMENTS. All parties to this Trust or claiming any
interest hereunder expressly agree to perform any and all acts, and to
execute any and all documents and papers which at any time may be
necessary or desirable for carrying out any of the provisions of this
Trust.
15.04 NOTICE OF REQUIRED ACTION. In any case in which the Companies, the
Trustee, or the Committee shall be directed to take any action upon the
occurrence of any event, they, or any one or more of them, shall be under
no obligation or liability to take such action unless and until notice,
proper and satisfactory to them, shall first have been received of the
occurrence of such event. For the purposes of this Section 15.04, a
certificate in writing signed by any officer of Aon and delivered to the
Trustee or the Committee as to the occurrence or happening of any event,
shall constitute conclusive evidence of such occurrence or happening, and
the Trustee and the Committee respectively, shall be fully protected and
discharged from all liability whatsoever in accepting and relying on such
certificate.
15.05 RELIANCE UPON COMMUNICATION. Neither the Companies, the Committee, nor
the Trustee shall incur any liability in acting upon any notice, request,
signed letter, telegram, or other paper or documents reasonably believed
by them or any one of them to be genuine and to be signed or sent by the
proper person.
181
<PAGE>
Exhibit 10(g)
Page 59 of 68
15.06 DISCHARGE UPON PAYMENT. The payment and acceptance of any money or
property in a settlement of any participation under this Trust shall
constitute a complete acquittance and discharge of full liability of the
Trustee with respect to such participation.
15.07 DISPOSITION OF SHARE OF MISSING PERSONS. In the event the Committee is
unable to make payment of any benefit payable under this Plan because of
inability to find the person to whom payment is due and such inability
continues for a period of two years, the benefit shall be forfeited;
provided, however, if a claim is subsequently made for such benefit by
the person entitled thereto, such benefit shall be reinstated.
15.08 GENDER AND CASE. Where used in this Agreement, words in the masculine
shall be read and construed as in the feminine, and words in the singular
shall be read and construed as though used in the plural in all cases
where such constructions would so apply.
15.09 SECTION TITLE NOT PART OF AGREEMENT. The section and subsection
designations and titles are included solely for convenience and shall, in
no event, be construed to affect or modify any of the provisions of this
Agreement or be construed as a part thereof.
15.10 CONSTRUCTION. It is intended that this Plan and the Trust Agreement
which is a part thereof shall comply with the provisions of ERISA,
constitute a qualified plan and trust under the provisions of sections
401(a) and 4975(e) of the IRC and be operated in a manner so as not to
discriminate in favor of Highly Compensated Employees. Accordingly, the
provisions of this Plan and Trust Agreement shall be construed and
applied in a manner consistent with such intent. However, to the extent
not superseded by ERISA, this plan and the Trust Agreement which is a
part thereof, shall be construed and enforced in accordance with the laws
of the State of Illinois.
15.11 AGREEMENT BINDING ON ALL PARTIES. This Agreement shall be binding upon
the heirs, executors, administrators, successors, and assigns of any and
all parties hereto, present and future.
182
<PAGE>
Exhibit 10(g)
Page 60 of 68
SECTION 16--PROVISIONS APPLICABLE IF PLAN BECOMES TOP-HEAVY
16.01 APPLICABILITY. The provisions of this Section 16 shall be applicable
during any Plan Year only if the Plan was a Top-Heavy Plan or was part of
a Top-Heavy Group on the Determination Date, and in such case shall
override and supersede all other provisions in this Plan to the contrary;
provided, that these provisions shall not apply to a Plan which is not
itself a Top-Heavy Plan and which was included in an Aggregation Group
under the second sentence of Section 16.02(f); provided further, that, to
the extent permitted by law, Section 16.06 shall not apply to any
Employee who has received the minimum benefit for the Plan Year as
required under the Top-Heavy rules from any defined benefit plan of the
Company.
16.02 ADDITIONAL DEFINITIONS:
(a) KEY EMPLOYEE. The term "Key Employee" shall refer to any Employee
who, at any time during the Plan Year or any of the four preceding
Plan years, is
(i) an Officer of the Company, excluding any Employee whose
Compensation is less than 150 percent (150%) of the maximum
dollar limitation in Section 14.06(a)(i),
(ii) one of the ten Employees owning [or considered as owning within
the meaning of Section 318 of the IRC but substituting 5% for
50% in Section 318(a)(2)(C) the largest interests in the
Company; excluding any Employee whose Compensation is less than
the maximum dollar limitation in Section 14.06(a)(i),
(iii) a Five Percent Owner of the Company, or
(iv) a One Percent Owner of the Company having an annual
compensation from the Company of more than $150,000.
The term shall also include beneficiaries of a Key Employee. For
purposes of clause (i), no more than 50 Employees (or, if less, the
greater of 3 or 10% of the Employees) shall be treated as officers, and
the officers taken into account shall be the officers with the highest
compensation. For purposes of clause (ii), if two Employees have the
same interest in the Company, the Employee having greater annual
Compensation from the Company shall be treated as having a larger
interest. For this purposes of clauses (ii), (iii) and (iv), the
aggregation rules of subsections (b), (c) and (m) of Section 414 of the
IRC (pertaining to employees of a controlled group of corporations, of
partnerships and proprietorships under common control, and of an
affiliated service group) shall not apply.
183
<PAGE>
Exhibit 10(g)
Page 61 of 68
(b) FIVE PERCENT OWNER. The term "Five Percent Owner" shall mean any
person who owns [or is considered as owning within the meaning of
Section 318 of the IRC but substituting 5% for 50% in Section
318(a)(2)(C)] more than five percent of the outstanding stock of the
Company or stock possessing more than five percent of the total
combined voting power of all stock of the Company.
(c) ONE PERCENT OWNER. The term "One Percent Owner" means any person who
owns [or is considered as owning within the meaning of Section 318 of
the IRC but substituting 5% for 50% in Section 318(a)(2)(C)] more
than one percent of the outstanding stock of the Company or stock
possessing more than one percent of the total combined voting power
of all stock of the Company.
(d) NON-KEY EMPLOYEE. The term "Non-Key Employee" shall refer to any
Participant who is not a Key Employee.
(e) TOP-HEAVY PLAN. A Plan is a "Top-Heavy" Plan if, as of the
Determination Date, the aggregate of the accounts of Key Employees
under the Plan exceed 60% of the aggregate of the accounts of all
Employees under the Plan; or if it is required to be included in an
Aggregation Group and such Aggregation Group is a Top-Heavy Group;
provided, that the Plan shall not be a Top-Heavy Plan if the Plan is
part of an Aggregation Group which is not a Top-Heavy Group.
(f) AGGREGATION GROUP. The term "Aggregation Group" means (i) each plan
of the Company in which a Key Employee is a Participant and (ii) each
other plan of the Company which enables any plan described in (i) to
meet the discrimination requirements of Section 401(a)(4) of the IRC
or the minimum participation standards of Section 410 of the IRC. In
addition, at the option of the Company, it may include any other plan
of the Company if the Group would continue to meet the requirements
of Sections 401(a)(4) and 410 of the IRC with such other plan being
taken into account.
(g) TOP-HEAVY GROUP. An Aggregation Group is a "Top-Heavy Group" if, as
of the Determination Date, (i) the present value of the cumulative
accrued benefits for Key Employees under all defined benefit plans
included in such group, plus (ii) the aggregate of the accounts for
Key Employees under all defined contribution plans included in such
Group, exceeds (iii) 60% of a similar sum determined for all
Employees.
(h) EMPLOYEE. The term "Employee" shall include the Beneficiaries of
such Employee.
184
<PAGE>
Exhibit 10(g)
Page 62 of 68
(i) DETERMINATION DATE. The term "Determination Date" shall mean, with
respect to any Plan Year, the last day of the preceding Plan Year.
All required valuations shall be made as of the Determination Date.
(j) COMPENSATION. The term "Compensation" shall mean total compensation
but shall not include annual compensation in excess of $200,000 (as
adjusted for cost-of-living increases by the Secretary of his
delegate at the same time and in the same manner as the dollar amount
under Section 14.06). Effective January 1, 1989, this Section
16.02(j) shall no longer apply.
16.03 SPECIAL RULES. In determining whether the Plan is a Top-Heavy Plan or
part of a Top-Heavy Group, the following rules shall apply.
(a) Except to the extent provided in regulations issued by the Secretary
of the Treasury, any rollover contribution (or similar transfer)
initiated by an Employee from a plan not maintained by the Company
and made after December 31, 1983, to a plan shall not be taken into
account with respect to the transferee plan.
(b) If any individual is a Non-Key Employee with respect to the Plan for
any Plan Year, but such individual was a Key Employee with respect to
the Plan for any prior Plan Year, any accrued benefit for such
Employee (and the account of such Employee) shall not be taken into
account for purposes of Sections 16.02(e) and (g).
(c) To the extent provided in regulations issued by the Secretary of the
Treasury, the Top-Heavy rules of this Section shall be applied on the
basis of any year specified in such regulations in lieu of Plan
Years.
(d) In determining present values and account balances under Section
16.02(e) and (g), all distributions made with respect to any Employee
during the 5-year period ending on the Determination Date shall be
added back and included therein. The preceding sentence shall also
apply to distributions under a terminated plan which if it had not
been terminated would have been required to be included in an
Aggregation Group.
(e) In determining the account of any Participant under 16.02(e) or (g),
amounts attributable to deductible employee contributions shall not
be considered.
(f) If any individual has not performed services for any employer
maintaining this Plan at any time during the 5 year period ending on
the Determination Date, any accrued benefit for such individual and
his accounts shall not be taken into account.
16.04 PARTICIPANT'S TOP-HEAVY ACCOUNT. An additional separate account shall be
established for each Participant to be known as the Participant's Top-
Heavy
185
<PAGE>
Exhibit 10(g)
Page 63 of 68
Account to which shall be posted his share of Company's contributions,
forfeitures and net earnings and valuation adjustments for each Plan Year
to which Section 16 is applicable. His share of the Company's
contributions, forfeitures and net earnings and valuation adjustments
that have been posted to his Company Contribution Account pursuant to
Section 4.02 for all prior Plan Years shall be transferred to his Top-
Heavy Account.
16.05 VESTING WITH RESPECT TO PARTICIPANTS' TOP-HEAVY ACCOUNTS. In lieu of the
vesting schedule set forth in Section 9.01(a), a Participant, provided he
earns at least one Hour of Service after the Plan has become Top-Heavy,
shall vest in his Top-Heavy Account according to the following schedule:
<TABLE>
<S> <C>
Completed Years of Service Non-Forfeitable %
-------------------------- -----------------
Less than 3 -0-
3 100%
</TABLE>
provided, that a Participant's nonforfeitable (vested) interest in his
Top-Heavy Account, as regards funds transferred from his Company
Contribution Account for prior years as set forth in Section 16.04, shall
not be reduced from his nonforfeitable interest therein under Section
9.01.
16.06 MINIMUM CONTRIBUTION FOR NON-KEY EMPLOYEES. The Company's contribution
and forfeitures allocated to the Top-Heavy Account for each Plan Year for
each Non-Key Employee shall not be less than 3% of his compensation as
defined at IRC Section 416(c)(2)(A), except that said percentage shall
not be more than the highest percentage at which Company contributions
plus forfeitures are made for any Key Employee. The percentage for each
Key Employee shall be determined by dividing the amount of his shares of
the Company's contribution plus forfeitures by the amount of so much of
his Compensation as does not exceed $200,000. For this purpose, all
defined contribution plans required to be included in an Aggregation
Group shall be treated as one plan. The foregoing exception to the 3%
provision shall not apply if the Plan is required to be included in an
Aggregation Group wherein the Plan enables a defined benefit plan
required to be included in such Group to meet the requirements of
Sections 401(a)(4) and 410 of the IRC pertaining to discrimination and
minimum participation. The minimum contribution rules of this Section
16.06 may be satisfied by taking into account Company contributions
attributable to a salary reduction or similar arrangement. The allocation
provisions contained in Section 4 of this plan shall be modified as may
be necessary to comply with the provisions of this Section 16.06 and the
Company may, but shall not be required to, increase Company contributions
so no Participant will incur a reduction of benefits by reason of the
operation of this Section 16.06.
16.07 MAXIMUM ANNUAL ADDITION. The limitations of Section 14.06 shall be
applied by substituting 1.0 for 1.25 where it appears in Section 14.06(d)
in the denominators
186
<PAGE>
Exhibit 10(g)
Page 64 of 68
of the defined benefit plan fraction and the defined contribution plan
fraction. The preceding sentence shall not apply if
(a) The maximum contribution requirements of Section 16.06 would be
met if 4% were substituted for 3%, and
(b) The Plan would not be a Top-Heavy Plan or part of a Top-Heavy
Group if 90% were substituted for 60% in Sections 16.02(e) and
(g).
The application of the first sentence of this Section 16.07 shall be
suspended with respect to any Participant so long as there are no (i)
Company contributions, forfeitures or voluntary nondeductible
contributions allocated to such Participant or (ii) accruals for such
Participant under the defined benefit plan. If the first sentence of
this Section 16.07 is applicable, Section 14.06(e) shall be applied by
substituting $41,500 for $51,875.
16.08 SIMPLIFIED EMPLOYEE PENSIONS. For purposes of Section 16, a Simplified
Employee Pension shall be treated as a defined contribution plan. At the
Company's election, the aggregate Company contributions to a Simplified
Employee Pension may be taken into account in lieu of the aggregate of
the accounts of the Employees for the purpose of determining whether the
Plan is a Top-Heavy Plan or is part of a Top-Heavy Group pursuant to
Section 16.02(e) and (g).
16.09 CONTRIBUTIONS OR BENEFITS NOT TAKEN INTO ACCOUNT. The Plan must meet the
requirements of Section 16.05 and Section 16.06 without taking into
account (i) contributions or benefits under Chapter 2 of the IRC
(relating to tax on self-employment income); (ii) Chapter 21 of the IRC
(relating to Federal Insurance Contributions Act); (iii) Title II of the
Social Security Act; or (iv) any other Federal or State law.
187
<PAGE>
Exhibit 10(g)
Page 65 of 68
AON EMPLOYEE STOCK OWNERSHIP PLAN
SCHEDULE A
SPECIAL PROVISIONS RELATING TO SERVICE
This Schedule A contains special rules regarding the granting of past service
credit for eligibility (Section 2.1), vesting (Section 9.1) and allocation of
employer contributions (Section 4.2) with respect to certain Employees of the
Company acquired through corporate acquisition.
<TABLE>
<CAPTION>
EMPLOYEE CATEGORY PLAN PROVISIONS CREDITED SERVICE
-------------------------------------- ---------------- --------------------
<S> <C> <C>
(1) Employed by Frank B. Hall & Years of service From employment
Co. Inc., or any of its for commencement date
subsidiaries or affiliates ("Hall") eligibility with Hall, with entry
on November 1, 1992, and January 1, 1993.
employed by the Company on or
after November 2, 1992.
Years of service From employment
for commencement date
vesting above and in
accordance with Section
9.02.
Allocation of Hours of service for the
Company Company beginning
contributions January 1, 1993 (and
Compensation for
periods of Plan
participation).
(2) Employed by K&K Insurance Years of service From employment
Group, Inc., K&K Specialties, for commencement date
Inc., National Sports eligibility with K&K, with entry
Underwriters Inc., or American June 11, 1993.
Insurance Brokers, Inc. ("K&K")
on June 10, 1993.
Years of service From employment
for commencement date
vesting above and in
accordance with Section
9.02.
Allocation of Hours of service for the
Company Company (and
contributions Compensation for
periods of Plan
participation).
</TABLE>
188
<PAGE>
Exhibit 10(g)
Page 66 of 68
<TABLE>
<CAPTION>
EMPLOYEE CATEGORY PLAN PROVISIONS CREDITED SERVICE
---------------- --------------- ----------------
<S> <C> <C>
(3) Employed by Booke and Years of service From employment
Company or an affiliate for commencement date
("Booke") on June 30, 1993, and eligibility with Booke, with entry
employed by the Company on July 1, 1993.
July 1, 1993.
Years of service From employment
for commencement date
vesting above and in
accordance with Section
9.02.
Allocation of Hours of service for the
Company Company (and
contributions Compensation for
periods of Plan
Participation).
(4) Employed by Albert G. Ruben Years of service From employment
& Co., Inc., Albert G. Ruben & for commencement date
Co. (New York), Inc., or eligibility with Ruben, with entry
Bachrach Insurance Services, September 1, 1993.
Inc. ("Ruben"), on August 31,
1993, and employed by the Years of service From employment
Company on September 1, 1993. for commencement date
vesting above and in
accordance with Section
9.02.
Allocation of Hours of service for the
Company Company (and
contributions Compensation for
periods of Plan
participation).
(5) Employed by Insurance Brokers Years of service From employment
Service, Inc. on May 4, 1993, for commencement date
and employed by the Company eligibility with Insurance Brokers
on May 5, 1993. Service, Inc., with entry
August 1, 1993.
Years of service From employment
for commencement date
vesting above and in
accordance with Section
9.02.
</TABLE>
189
<PAGE>
Exhibit 10(g)
Page 67 of 68
<TABLE>
<CAPTION>
EMPLOYEE CATEGORY PLAN PROVISIONS CREDITED SERVICE
---------------- --------------- ----------------
<S> <C> <C>
Allocation of Hours of service for the
Company Company (and
contributions Compensation for
periods of Plan
participation).
(6) Employed by National Benefit Years of service From employment
Corporation on May 19, 1993, for commencement date
and employed by the Company eligibility with National Benefit
on May 20, 1993. Corporation, with entry
May 20, 1993.
Years of service From employment
for commencement date
vesting above and in
accordance with Section
9.02.
Allocation of Hours of service for the
Company Company (and
contributions Compensation for
periods of Plan
participation).
(7) Employed by Bryson Associates, Years of service From employment
Inc. on May 16, 1993, and for commencement date
employed by the Company on eligibility with Bryson Associates,
May 17, 1993. Inc., with entry June 1,
1993.
Years of service From employment
for commencement date
vesting above and in
accordance with Section
9.02.
Allocation of Hours of service for the
Company Company (and
contributions Compensation for
periods of Plan
participation).
</TABLE>
190
<PAGE>
Exhibit 10(g)
Page 68 of 68
IN WITNESS WHEREOF, Aon Corporation and the Trustees have signed this amendment
and restatement of the Aon Employee Stock Ownership Plan, effective as of
January 1, 1994.
Aon Corporation
By: /Daniel T. Cox/ 12/20/94
------------------------ --------
Daniel T. Cox Date
Executive Vice President
/Harvey N. Medvin/ 12/20/94
------------------------ --------
Harvey N. Medvin Date
Trustee
/Andrew J. McKenna/ 12/20/94
----------------------- --------
Andrew J. McKenna Date
Trustee
/Peer Pedersen/ 12/20/94
----------------------- --------
Peer Pedersen Date
Trustee
191
<PAGE>
Exhibit 10(H)
page 1 of 91
1994 RESTATEMENT OF
AON PENSION PLAN
192
<PAGE>
Exhibit 10(H)
Page 2 of 91
1994 Restatement of
Aon Pension Plan
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
SECTION 1 - NAME AND PURPOSE 3
1.01 NAME........................................................... 3
SECTION 2 - DEFINITIONS 4
2.01 "ACCRUED RETIREMENT INCOME".................................... 4
2.02 "ANNUAL EARNINGS".............................................. 4
2.03 "ANNUITY STARTING DATE"........................................ 6
2.04 "AUTHORIZED LEAVE OF ABSENCE".................................. 6
2.05 "BOARD"........................................................ 6
2.06 "COMMITTEE".................................................... 6
2.07 "COMPANY"...................................................... 7
2.08 "EFFECTIVE DATE"............................................... 7
2.09 "EMPLOYEE"..................................................... 7
2.10 "EMPLOYER"..................................................... 7
2.11 "EMPLOYMENT"................................................... 7
2.12 "ERISA"........................................................ 7
2.13 "FIELD SALES AGENT"............................................ 7
2.14 "FINAL AVERAGE EARNINGS"....................................... 7
2.15 "HIGHLY COMPENSATED EMPLOYEE".................................. 8
2.16 "HOURS OF SERVICE"............................................. 10
2.17 "IRC".......................................................... 10
2.18 "LEASED EMPLOYEE".............................................. 10
2.19 "MAXIMUM OFFSET ALLOWANCE"..................................... 11
2.20 "NORMAL RETIREMENT BENEFIT".................................... 11
2.21 "NORMAL RETIREMENT DATE"....................................... 12
2.22 "PARTICIPANT".................................................. 12
2.23 "PLAN"......................................................... 12
2.24 "PLAN YEAR".................................................... 12
2.25 "RETIRED PARTICIPANT".......................................... 12
2.26 "RETIREMENT FUND".............................................. 12
2.27 "TERMINATED PARTICIPANT"....................................... 12
2.28 "TERMINATION DATE"............................................. 12
2.29 "TRUST AGREEMENT" OR "TRUST"................................... 12
2.30 "TRUSTEE(S)"................................................... 12
2.31 "YEARS OF SERVICE"............................................. 13
SECTION 3 - ELIGIBILITY 16
3.01 INITIAL COVERAGE............................................... 16
</TABLE>
193
<PAGE>
Exhibit 10(H)
page 3 of 91
TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
<C> <S> <C>
3.02 COVERAGE AFTER DECEMBER 31, 1988............................... 16
3.03 TERMINATION OF EMPLOYMENT...................................... 16
3.04 LEAVE OF ABSENCE............................................... 17
3.05 EMPLOYMENT IN BARGAINING UNIT.................................. 17
3.06 EMPLOYMENT OUTSIDE UNITED STATES............................... 18
SECTION 4 - DETERMINATION OF RETIREMENT BENEFITS.......................... 20
5.01 ELIGIBILITY FOR FULL VESTING................................... 22
5.02 AMOUNT OF MONTHLY BENEFIT...................................... 22
5.03 SPECIAL RULES.................................................. 22
5.04 EARLY COMMENCEMENT ELECTION.................................... 23
5.05 CHANGE IN TOP-HEAVY STATUS..................................... 24
SECTION 6 - DEATH BENEFITS................................................. 25
6.01 AMOUNT OF DEATH BENEFIT........................................ 25
SECTION 7 - FORM OF PAYMENTS............................................... 26
7.01 NORMAL FORM OF PAYMENT......................................... 26
7.02 120 PAYMENT CERTAIN OPTION..................................... 26
7.03 PAYMENT IN QUALIFIED JOINT AND SURVIVOR FORM................... 26
7.04 ALTERNATE JOINT AND SURVIVOR FORM.............................. 27
7.05 SOCIAL SECURITY ADJUSTMENT OPTION.............................. 27
7.06 ELECTION NOT TO RECEIVE QUALIFIED JOINT AND SURVIVOR ANNUITY... 27
7.07 REVOCATION OF ELECTION NOT TO RECEIVE QUALIFIED
JOINT AND SURVIVOR ANNUITY..................................... 27
7.08 SURVIVING SPOUSE BENEFIT....................................... 28
7.09 LUMP SUM CASH OUT.............................................. 28
7.10 USE OF ANNUITY POLICY.......................................... 28
7.11 RETURN TO WORK................................................. 29
7.12 WHEN PARTICIPANT DEEMED RETIRED................................ 30
7.13 GENERAL PROVISIONS GOVERNING DISTRIBUTIONS..................... 31
7.14 SPOUSAL CONSENT................................................ 33
7.15 NOTICE......................................................... 34
7.16 JOINT AND SURVIVOR ANNUITIES AND SURVIVING SPOUSE
BENEFITS TO FORMER PARTICIPANTS................................ 34
</TABLE>
194
<PAGE>
Exhibit 10(H)
page 4 of 91
<TABLE>
<C> <S> <C>
SECTION 8--PLAN FUNDING 36
8.01 CONTRIBUTIONS.......................................... 36
8.02 FORFEITURES............................................ 36
SECTION 9--RIGHTS TO AMEND OR DISCONTINUE CONTRIBUTIONS 37
9.01 CONTINUANCE OF CONTRIBUTIONS NOT ASSUMED............... 37
9.02 RIGHT TO AMEND......................................... 37
SECTION 10--DURATION AND DISTRIBUTION ON TERMINATION 39
10.01 TERMINATION BY EMPLOYER................................ 39
10.02 DISTRIBUTION ON COMPLETE TERMINATION................... 39
10.03 TERMINATION BY PENSION BENEFIT GUARANTY CORPORATION.... 39
10.04 VESTING UPON TERMINATION............................... 40
SECTION 11--BENEFITS IN THE EVENT OF EARLY TERMINATION OF PLAN 41
11.01 PARTICIPANTS........................................... 41
11.02 MAXIMUM BENEFIT........................................ 41
11.03 LIMITATION ON BENEFITS................................. 42
11.04 TERMINATION OF EMPLOYMENT.............................. 42
11.05 DEATH BENEFITS......................................... 42
11.06 RETIREMENT BENEFITS.................................... 42
11.07 LUMP SUM DISTRIBUTION.................................. 43
11.08 INTENT................................................. 43
SECTION 12--ADMINISTRATIVE COMMITTEE 44
12.01 FORMATION AND MEMBERS.................................. 44
12.02 CHAIRMAN AND SECRETARY................................. 44
12.03 ACTIONS OF THE COMMITTEE............................... 44
12.04 EXECUTION OF INSTRUMENTS............................... 44
12.05 REPORTS TO THE BOARD................................... 45
12.06 ADMINISTRATION OF THE PLAN............................. 45
12.07 LIABILITY OF MEMBERS................................... 45
12.08 ALLOCATION OF DUTIES................................... 45
12.09 INVESTMENTS............................................ 46
SECTION 13--ERISA PROVISIONS 47
13.01 SERVICE FOR PREDECESSOR................................ 47
13.02 CONTROLLED GROUP....................................... 47
</TABLE>
195
<PAGE>
Exhibit 10(H)
page 5 of 91
<TABLE>
<CAPTION>
TABLE OF CONTENTS (continued)
<C> <S> <C>
13.03 MERGER.................................................... 48
13.04 CLAIMS PROCEDURE.......................................... 48
13.05 MAXIMUM ANNUAL BENEFIT.................................... 49
SECTION 14--MISCELLANEOUS PROVISIONS 58
14.01 SPENDTHRIFT CLAUSE........................................ 58
14.02 FACILITY OF PAYMENT....................................... 58
14.03 EVIDENCE OF SURVIVAL...................................... 58
14.04 DISCRETIONARY ACTS TO BE UNIFORM.......................... 58
14.05 ELECTIONS TO BE MADE ON PRESCRIBED FORMS.................. 59
14.06 RELIANCE ON INFORMATION FURNISHED BY EMPLOYER............. 59
14.07 INABILITY TO PERFORM...................................... 59
14.08 MISSTATEMENT OF AGE....................................... 59
14.09 RIGHTS OF INDIVIDUALS..................................... 59
14.10 ACTUARIAL COMPUTATIONS.................................... 60
14.11 NOTICE OF REQUIRED ACTION................................. 61
14.12 RELIANCE UPON COMMUNICATION............................... 62
14.13 NO REVERSION TO EMPLOYERS................................. 62
14.14 INSURER NOT PARTY TO AGREEMENT............................ 62
14.15 CONSTRUCTION.............................................. 63
14.16 SECTION TITLES NOT PART OF AGREEMENT...................... 63
14.17 GENDER AND CASE........................................... 63
14.18 ELIGIBLE ROLLOVER DISTRIBUTIONS........................... 63
SECTION 15--ADOPTION OF PLAN BY SUBSIDIARY 65
15.01 ADOPTION OF PLAN.......................................... 65
15.02 INTENTION OF PARTIES...................................... 65
15.03 TERMINATION BY ONE EMPLOYER............................... 65
SECTION 16--RIGHTS OF FORMER EMPLOYEES 66
16.01 RIGHTS OF FORMER EMPLOYEES................................ 66
SECTION 17--PROVISIONS APPLICABLE IF PLAN BECOMES TOP-HEAVY 67
17.01 APPLICABILITY............................................. 67
17.02 ADDITIONAL DEFINITIONS.................................... 67
17.03 SPECIAL RULES............................................. 70
17.04 VESTING WITH RESPECT TO PARTICIPANT'S TOP-HEAVY BENEFIT... 71
17.05 MINIMUM BENEFIT FOR NON-KEY EMPLOYEE...................... 72
17.06 MAXIMUM ANNUAL BENEFIT.................................... 72
17.07 SIMPLIFIED EMPLOYEE PENSIONS.............................. 72
17.08 CONTRIBUTIONS OR BENEFITS NOT TAKEN INTO ACCOUNT.......... 73
17.09 EMPLOYMENT IN BARGAINING UNIT............................. 73
</TABLE>
196
<PAGE>
Exhibit 10(H)
page 6 of 91
<TABLE>
<CAPTION>
TABLE OF CONTENTS (continued)
<S> <C> <C>
17.10 COMMENCEMENT OF BENEFITS.................................. 73
17.11 FORFEITURES............................................... 73
SECTION 18--MERGERS AND TRANSITIONAL RULES 74
18.01 GENERAL................................................... 74
18.02 MERGERS AND TRANSFERS OF ASSETS AND LIABILITIES........... 74
18.04 MILLER, MASON & DICKENSON, INC. PENSION PLAN.............. 75
18.05 ROLLINS BURDICK HUNTER CO. EMPLOYEES PENSION PLAN......... 76
18.06 BOOKE AND COMPANY PENSION PLAN............................ 76
SECTION 19--VOLUNTARY RETIREMENT PROGRAM 78
19.01 VOLUNTARY RETIREMENT PROGRAM.............................. 78
19.02 DEFINITIONS............................................... 78
19.04 COMMENCEMENT OF BENEFITS.................................. 80
SECTION 20--AD HOC RETIREE BENEFIT ADJUSTMENT 81
20.01 RETIREMENT BENEFIT ADJUSTMENT............................. 81
SCHEDULE A--SPECIAL PROVISIONS RELATING TO SERVICE 82
</TABLE>
197
<PAGE>
Exhibit 10(H)
page 7 of 91
1994 RESTATEMENT OF
AON PENSION PLAN
WHEREAS, Combined Insurance Company of America previously entered into an
Agreement establishing an Employees Pension Plan for the benefit of its Staff
Employees and the Staff Employees of its Subsidiaries which adopted the Plan,
which Agreement is known as the Combined Pension Plan and was effective as of
January 1, 1973;
WHEREAS, Combined Insurance Company of America made one amendment to said
Agreement dated February 24, 1975 and restated said Agreement on December 10,
1976 effective as of January 1, 1976, amended said Restatement once on April 6,
1978 and again restated said Agreement effective as of January 1, 1978, and made
five amendments to said 1978 Restatement, on December 14, 1979; June 26, 1980;
November 8, 1982; January 11, 1983; and June 27, 1983;
WHEREAS, Combined International Corporation, the parent corporation of
Combined Insurance Company of America, adopted this Pension Plan and Trust
Agreement for the Staff Employees of Combined International Corporation and of
its various other subsidiaries, amended and restated said Plan and Trust
Agreement, changed the name of this Plan and Trust Agreement to the Combined
International Corporation Pension Plan, and made Combined International the
sponsor of said Plan and Trust Agreement, in an Instrument dated July 1, 1984,
which has been amended six times since such last 1984 Restatement thereof, on
November 16, 1984; again on November 16, 1984; again on November 16, 1984;
November 15, 1985; March 20, 1987; and November 20, 1987;
198
<PAGE>
Exhibit 10(H)
Page 8 of 91
WHEREAS, pursuant to the Sixth Amendment the name of the Plan was changed
to the AON PENSION PLAN;
WHEREAS, the Plan was amended by a 1987 Restatement thereof on November 20,
1987;
WHEREAS, Plan was amended by a 1989 Restatement thereof on July 22, 1988,
which 1989 Restatement was further amended on November 20, 1992, July 16, 1993,
and October 18, 1993;
WHEREAS, Aon Corporation ("Aon") now wishes to amend and again restate said
Plan for the purpose of complying with the Omnibus Budget Reconciliation Act of
1993 and other changes in the law and to make certain other desirable changes
therein;
WHEREAS, Aon Corporation has reserved the right to amend said Plan and
Trust Agreement pursuant to the terms of Section 9.02 thereof;
NOW, THEREFORE, pursuant to a resolution adopted by the Board of Aon
Corporation the Plan shall be and hereby is further amended and restated
effective as of January 1, 1994, unless otherwise stated herein, as follows:
199
<PAGE>
Exhibit 10(H)
Page 9 of 91
SECTION 1 - NAME AND PURPOSE
1.01 NAME. This Plan shall be known as the Aon Pension Plan.
1.02 PURPOSE. It is the purpose of this Plan to provide a retirement income
to supplement benefits payable under the Federal Social Security Program
for such eligible Employees who shall qualify as Participants.
200
<PAGE>
Exhibit 10(H)
Page 10 of 91
SECTION 2 - DEFINITIONS
Unless the context shall otherwise clearly indicate, the following terms shall
be construed as hereafter defined:
2.01 "ACCRUED RETIREMENT INCOME" shall mean the monthly amount determined at
any time in accordance with Section 4.01 of the Plan, but based on Years
of Service and Final Average Earnings as of the Participant's
determination date on or after his Normal Retirement Date or Termination
Date, whichever is applicable; provided, however, that the Accrued
Retirement Income of a Participant as of December 31, 1988, who would
have earned more than 30 Years of Service at his Normal Retirement Date
if he had continued in employment and earned 40 Hours of Service a week
until his Normal Retirement Date shall not be less than the Normal
Retirement Benefit he would have been eligible to receive on his Normal
Retirement Date (based on the above assumptions but determined on the
basis of Final Average Earnings and his Primary Social Security Benefit
(as defined prior to the 1989 Restatement of the Plan) on December 31,
1988) multiplied by a fraction the numerator of which shall be his Years
of Service on December 31, 1988, and the denominator of which shall be
the Years of Service he would have had if he had continued in employment
until his Normal Retirement Date. In applying the above proviso, Years
of Service that are normally not counted for benefit accrual purposes (as
provided in Sections 3.05, 3.06 and 3.07) shall be counted except for the
purpose of determining the numerator of the fraction referred to in the
preceding sentence, and the Participant shall be deemed to have earned
Years of Service after December 31, 1988, even if he was employed in a
capacity and location where he was not earning Years of Service, for
benefit accrual purposes immediately before December 31, 1988.
2.02 "ANNUAL EARNINGS"
(a) Annual Earnings with respect to calendar years prior to 1993 shall
mean the regular salary of an Employee excluding any bonuses or extra
remuneration, but determined before excluding any reduction described
in Sections 3.03 and 3.04 of the Aon Savings Plan, or before
excluding any reduction for cafeteria plans under Section 125 of the
IRC, paid to him by the Employer during any calendar year for his
services to the Employer in the capacity of a staff
201
<PAGE>
Exhibit 10(H)
Page 11 of 91
Employee. Such Annual Earnings shall also include, for
representatives of the Life Insurance Company of Virginia only,
financing/subsidy payments, first year commissions, renewal
commissions, first year overrides, renewal overrides, personal
service fees, managerial service fees, and validation bonuses.
(b) Annual Earnings with respect to calendar years after 1992 shall mean
the following types of earnings paid to an Employee for his service
on behalf of the Employer determined before excluding any reduction
described in Sections 3.03 and 3.04 of the Aon Savings Plan, or
before excluding any reduction for cafeteria plans under Section 125
of the IRC:
(i) salary and fixed base compensation including compensation for
overtime;
(ii) bonuses paid pursuant to periodic individual performance
appraisals and formal contractual bonus programs, but excluding
other bonus and miscellaneous income;
(iii)net commission, renewal and override compensation (but
excluding deferred commission payments).
Annual Earnings shall not include remuneration reported to the
Internal Revenue Service on Form 1099 or amounts deferred under a
nonqualified deferred compensation Plan.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for
Plan Years beginning on or after January 1, 1994, the Annual Earnings
of each Employee taken into account under the Plan shall not exceed
the OBRA '93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the Commissioner of the
Internal Revenue Service for increases in the cost of living in
accordance with section 401(a)(17)(B) of the IRC. The cost-of-living
adjustment in effect for a calendar year applies to any period, not
exceeding 12 months, over which compensation is determined
(determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93
annual
202
<PAGE>
Exhibit 10(H)
Page 12 of 91
compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under section 401(a)(17) of the Code shall
mean the OBRA '93 annual compensation limit set forth in this
provision.
If compensation for any prior determination period is taken into
account in determining an employee's benefit accruing in the current
plan year, the compensation for that prior determination period is
subject to the OBRA '93 annual compensation limit in effect for that
prior determination period. For this purpose, for determination
periods beginning before the first day of the first Plan Year
beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000. In determining compensation, the
family member rule for Highly Compensated Employees shall apply, but
be limited to the Employee's spouse and lineal descendants under 19
years of age.
2.03 "ANNUITY STARTING DATE" shall mean the first day of the first period for
which the Participant or Beneficiary receives an annuity.
2.04 "AUTHORIZED LEAVE OF ABSENCE" means any absence authorized by the
Employer because of illness, military service, or for any other reason.
Authorized Leaves of Absence shall be granted on a uniform and non-
discriminatory basis.
2.05 "BOARD" shall mean the present and any succeeding Board of Directors of
the Company or any committee of the Board of Directors delegated
authority to act for the whole Board in respect of matters relating to
the Plan.
2.06 "COMMITTEE" shall mean the administrative committee designated by the
Board in accordance with Section 12. The Committee is designated as the
administrator, plan administrator, and named fiduciary with respect to
the administration of the Plan (but not with respect to the control,
management and investment of the assets of the Trust) for the purposes of
ERISA.
2.07 "COMPANY" shall mean Aon Corporation and any successor.
203
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Exhibit 10(H)
page 13 of 91
2.08 "EFFECTIVE DATE" shall mean January 1, 1973, but shall refer to January
1, 1994 when applied to the 1994 restatement of this Plan.
2.09 "EMPLOYEE" shall mean any person employed by the Employers who is not a
Field Sales Agent.
2.10 "EMPLOYER" shall mean the Company and such of its subsidiaries as have
adopted or shall adopt this Plan for the benefit of its Employees. The
term "Employers" as used herein shall refer collectively to all of the
Employers that have adopted this Plan at any particular time and shall be
applied as though all of such Employers constituted a single employer.
2.11 "EMPLOYMENT" shall mean service of an Employee with the Employers.
2.12 "ERISA" refers to the Employee Retirement Income Security Act of 1974, as
from time to time amended.
2.13 "FIELD SALES AGENT" shall refer to an employee who represents Combined
Insurance Company of America (or any Subsidiary thereof) as an insurance
agent in the Superior Policy Division of such company and who is under an
employment contract with the Company denominating him as a
representative, sales manager, territory manager, district manager, state
manager, or other comparable title.
2.14 "FINAL AVERAGE EARNINGS" shall mean the average of a Participant's Annual
Earnings paid to him by the Employers for service during the highest five
consecutive calendar years of the last ten calendar years of Employment
immediately preceding his retirement date or his Termination Date;
provided, however, that if he was not an Employee during any five
consecutive calendar years during such period, his Final Average Earnings
shall be the average of his Annual Earnings during the five calendar
years (or lesser period if he was not an Employee for such five calendar
years) immediately preceding the calendar year he was last an Employee.
"Final Average Earnings A" shall be an amount determined in the same
manner as Final Average Earnings, except that Annual Earnings during a
Participant's highest five consecutive calendar years, whether before
1993 or after 1992, shall
204
<PAGE>
Exhibit 10(H)
page 14 of 91
be computed solely on the basis of Section 2.02(a) without reference to
Section 2.02(b).
2.15 "HIGHLY COMPENSATED EMPLOYEE" shall include an Employee who received
compensation in excess of $75,000, received compensation in excess of
$50,000 and was in the top-paid group, or was an officer and received
compensation greater than $45,000 (all amounts as adjusted for increases
in the cost of living per Section 14.6), either (i) in the current year
while a member of the 100 employees paid the greatest compensation or
(ii) in the preceding year. The term "compensation" means compensation
under Section 13.05, and shall include reductions described in Sections
3.03 and 3.04 of the Aon Savings Plan or for cafeteria plans under
Section 125 of the IRC. The following rules shall apply:
(a) Five-percent owner. Such term shall also include an employee who was
a five-percent owner (as defined at Section 16.2(b)) at any time
during either the preceding year or the current year.
(b) Top-paid group. The "top-paid group" is the group consisting of the
top 20 percent of employees ranked on the basis of compensation paid
during the year. For purposes of determining the number of employees
in the top paid group (but not for purposes of identifying the
particular employees therein), or the number of officers taken into
account under Subsection (c), below, there shall be excluded those
employees who have not completed six months of service; employees who
normally work either less than 17 1/2 hours per week or not more than
six months during any year; employees who have not attained age 21;
and except to the extent provided in regulations, employees included
in a unit of employees covered by a collective bargaining agreement.
(c) Officers. The highest paid officer shall always be treated as a
Highly Compensated Employee; otherwise the number of officers so
treated shall not exceed the lesser of (i) 50 employees or (ii) the
greater of three employees or 10 percent of the employees.
(d) Family members. Any individual who is a member of the family (i.e.,
the spouse, and lineal ascendants or descendants and their spouses)
of a Highly Compensated Employee who is either a five-percent owner
or one of the ten most highly compensated employees shall not be
considered a separate
205
<PAGE>
Exhibit 10(H)
page 15 of 91
employee and his (or her) compensation (and any applicable
contribution or benefit on behalf of such individual) shall be treated
as if it were paid to (or on behalf of) such Highly Compensated
Employee. This rule shall apply in determining the compensation of (or
any contributions or benefits on behalf of) any employee for purposes
of any Section of the IRC with respect to which a Highly Compensated
Employee is defined by reference to IRC Section 414(q) (the provisions
of which are set forth in this Section), except as provided in
regulations and except in determining the portion of the compensation
of a Participant which is under the integration level for purposes of
IRC Section 401(l).
(e) Former employees. A former employee shall be treated as Highly
Compensated Employee if he was a Highly Compensated Employee either
(i) when he separated from service or (ii) at any time after attaining
age 55.
(f) Nonresident Aliens. For purposes of this Section, employees who are
nonresident aliens and who receive no earned income (within the
meaning of Section 911(d)(2) of the IRC) from the Company which
constitutes income from sources within the United States shall not be
treated as employees.
(g) Simplified Method for Determining Highly Compensated Employees. If an
election by the Company under this Subsection applies to any year, in
determining whether an employee is a Highly Compensated Employee for
such year the first sentence of this Section shall be applied by
substituting "$50,000" for "$75,000," and the $50,000 test for the
top-paid group shall not apply. Such election shall not apply to any
year unless at all times during such year, the Company maintained
significant business activities (and employed employees) in at least 2
significantly separate geographic areas, and the Company satisfies
such other conditions as the Secretary of the Treasury may prescribe.
(h) Coordination with Other Provisions. Section 13.02 shall be applied
before the application of this Section 2.15.
2.16 "HOURS OF SERVICE" in respect to an Employee shall refer to the hours for
which the Employee is directly or indirectly paid, or entitled to
payment, for the performance of duties or for a period of time during
which no duties are
206
<PAGE>
Exhibit 10(H)
page 16 of 91
performed during the applicable computation period and such hours shall
include any hours for which back pay, irrespective of mitigation of
damages, has either been awarded or agreed to; provided, however, no more
than 501 Hours of Service shall be credited to an Employee on account of
any single continuous period (irrespective of whether such period occurs
in a single computation period, and irrespective of whether the
employment relationship has terminated) during which the Employee
performs no duties. Hours shall not be credited for payments made or due
under a Plan maintained solely for the purpose of complying with
applicable workman's compensation, unemployment compensation or
disability insurance laws, or for a payment which solely reimburses an
Employee for medical or medically related expenses incurred by such
Employee. In those instances where payroll or other Company records do
not reflect the actual number of hours worked by an Employee, such
Employee shall be credited with 45 Hours of Service for each calendar
week that he would be required to be credited with at least one Hour of
Service under the preceding portion of this Section. This Section shall
be applied, in respect to payments for reasons other than the performance
of duties and in respect to crediting of Hours of Service to a Particular
computation period, in accordance with the rules set forth in Labor
Department Regulations Section 2530.200(b)-2(b) and (c), which are
incorporated herein by reference.
2.17 "IRC" shall refer to the Internal Revenue Code of 1986, as from time to
time amended.
2.18 "LEASED EMPLOYEE" shall refer to an individual, other than an employee of
the Employer or an affiliated employer (the "recipient employer"), who,
pursuant to an agreement between the recipient employer and any other
person (the "leasing organization") has performed services for the
recipient employer (or the recipient employer and related persons
determined in accordance with Section 414(n) of the IRC) on a
substantially full-time basis for a period of at least one year, and such
services are of a type historically performed by employment in the
business field of the recipient employer. Contributions or benefits
provided a leased employee by the leasing organization which are
attributable to services performed for the recipient employer shall be
treated as provided by the recipient employer. A leased employee shall
not be considered an employee of the recipient employer if:
207
<PAGE>
Exhibit 10(H)
page 17 of 91
(a) such individual is covered by a money purchase pension plan
providing:
(i) a nonintegrated employer contribution rate of at least ten
percent of compensation, but including amounts contributed
pursuant to a salary reduction agreement which are excludible
from the employee's gross income under Section 125, 402(e)(3),
402(h), or 403(b) of the Code,
(ii) immediate participation, and
(iii) full and immediate vesting; and
(b) leased employees do not constitute more than 20% of the recipient
employer's non-highly compensated work force, as defined in Section
414(n)(5)(C)(ii) of the Code.
2.19 "MAXIMUM OFFSET ALLOWANCE" shall mean the maximum offset allowance for a
Participant under Section 401(1) of the IRC pursuant to regulations and
rulings of the Secretary of the Treasury or his delegate. The Maximum
Offset Allowance shall be calculated based upon one-half of one percent
(.5%) of the Participant's Final Average Compensation multiplied by his
Years of Service, up to but not in excess of 35 Years of Service,
figuring "Final Average Compensation" so as not to exceed "Covered
Compensation" based upon the definitions and rules under Section
1.401(l)-1(c)(7) of Treasury Regulations; provided, however, that Covered
Compensation shall be the average of the Taxable Wage Bases (as defined
pursuant to Section 3121(a)(1) of the IRC) for the 35 calendar years
ending with the last day of the year in which a Participant attains
Social Security Retirement Age (as defined at Section 13.05(n)), and
assuming for any particular Plan Year that the Taxable Wage Base on
January 1st will remain the same for all future years.
2.20 "NORMAL RETIREMENT BENEFIT" shall mean the monthly income for life of a
Retired Participant pursuant to Section 4.01.
2.21 "NORMAL RETIREMENT DATE" shall mean a Participant's sixty-fifth (65th)
birthday.
208
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Exhibit 10(H)
page 18 of 91
2.22 "PARTICIPANT" shall mean any Employee who is or becomes eligible to
participate in the Plan pursuant to Section 3, but shall also mean a
Retired or Terminated Participant, where the context so requires.
2.23 "PLAN" shall mean the Aon Pension Plan as from time to time amended or
restated.
2.24 "PLAN YEAR" shall mean the annual accounting period of the Plan which
shall be a 12-month period ending on December 31st of each year.
2.25 "RETIRED PARTICIPANT" shall mean a person who was a Participant but who
has become entitled to retirement benefits under Section 4 of this Plan.
2.26 "RETIREMENT FUND" shall mean all assets held by the Trustee for the
purpose of providing the benefits described in this Plan.
2.27 "TERMINATED PARTICIPANT" shall mean a person who was a Participant but
whose employment terminated and who is not eligible for Normal Retirement
Benefits under Section 4 of this Plan, although he may be eligible or
become eligible for payment of a vested retirement benefit under Section
5.
2.28 "TERMINATION DATE" shall mean the date on which a Participant ceases to
be an Employee for reasons other than death or retirement on or after his
Normal Retirement Date.
2.29 "TRUST AGREEMENT" OR "TRUST" shall refer to the "Combined Group of
Companies Employees' Retirement Trust," as from time to time amended, as
set forth in an agreement between the Company and The Northern Trust
Company dated December 28, 1973.
2.30 "TRUSTEE(S)" shall mean the person, persons, corporation, association, or
a combination of them, or their successors, who shall accept the
appointment of the Board to execute the duties of Trustee under the Trust
Agreement. The Trustee is designated as the named fiduciary with respect
to the control, management and investment of the assets of the Trust for
the purposes of ERISA.
209
<PAGE>
Exhibit 10(H)
page 19 of 91
2.31 "YEARS OF SERVICE" shall, except as hereinafter provided, refer to a 12-
month period during which an Employee has not less than 1,000 Hours of
Service in the employment of the Employers. For purposes of eligibility
under Section 3, computation of any 12-month period shall be made with
references to the date on which the Employee's employment commenced and
each anniversary of such date. For all other purposes, it shall coincide
with the Plan Year. Notwithstanding the foregoing, the following special
rules shall be applied for the purpose of determining an Employee's or a
Participant's Years of Service:
(a) In the case of an Employee who was a Participant in the Combined
Pension Plan on December 31, 1975, service prior to January 1, 1976,
that was not a part of a period of Continuous Service as of December
31, 1975, (as defined by the Combined Pension Plan prior to January
1, 1976) shall not be counted, but service that was Continuous
Service as of December 31, 1975, shall be counted and a fractional
year of such service in excess of 6 months shall be counted as a full
Year of Service.
(b) In the case of an Employee whose employment was terminated before he
acquired any vested interest who again becomes a Participant by
reason of reemployment after a 1-Year Break in Service, Years of
Service prior to such break in service shall not be taken into
account if the number of consecutive 1-Year Breaks in Service equals
or exceeds the greater of (a) the aggregate number of such Years of
Service before the break in service; or (b) five. Such aggregate
number of Years of Service before such break shall not include any
Years of Service not taken into account by reason of any prior break
in service.
(c) In the event of employment in a bargaining unit described in Section
3.02(d), the rules set forth in Section 3.05 shall apply.
(d) In the event of employment outside the United States or its
possessions, the rules set forth in Section 3.06 shall apply.
(e) In the event of employment as a Field Sales Agent the rules set forth
in Section 3.07 shall apply.
210
<PAGE>
Exhibit 10(H)
page 20 of 91
(f) Solely for the purpose of determining a Participant's vested or non-
forfeitable interest in his Accrued Retirement Income, and subject to
the limitations of subsection (f) of this section, an Employee shall
be deemed to have earned a Year of Service for each calendar year
prior to the date he became an Employee during all of which he
rendered services to the Employers as an insurance agent in the
Superior Policy Division in a capacity other than that of an Employee
(i.e. an independent contractor) and was compensated with respect to
such service on a commission basis.
(g) In the case of an Employee ineligible for participation prior to
January 1, 1988, because his employment began on or after age 60,
such Employee's service prior to January 1, 1988, shall be taken into
account.
2.32 "1-YEAR BREAK IN SERVICE" shall refer to a 12-month consecutive period
during which an Employee has not completed more than 500 Hours of
Service. For purposes of eligibility under Section 3, computation of
such 12-month period shall be made with reference to the Employee's
employment commencement date (or, where appropriate, reemployment
commencement date) and each anniversary of such date. For all other
purposes, it shall coincide with the Plan Year. For purposes of this
Section only, Hours of Service shall include up to 501 Hours of Maternity
or Paternity Leave, to be treated as Hours of Service only in the Plan
Year in which such absence from work begins if the Employee would be
prevented from incurring a Break in Service in such Plan Year solely
because periods of absence are treated as Hours of Service as provided
under this clause, and in any other case in the immediately following
Plan Year; provided, however, that such hours shall be figured based upon
the Hours of Service which otherwise would normally have been credited to
the Participant but for such absence and eight Hours of Service per day
shall be credited in any case where such normal crediting of Hours of
Service cannot be calculated; provided further, that the Trustees may
require the Participant to furnish such timely information as may
reasonably be required so as to establish that the absence from work is
for Maternity or Paternity Leave and to establish the number of days for
which there was such an absence. "Maternity or Paternity Leave" shall
mean an absence from work by reason of pregnancy of the Participant, by
reason of the birth of a child of the Participant, by reason of placement
of a child with the Participant in connection with its adoption by him or
her, or for purposes of caring for such child for a period beginning
immediately following such birth or placement.
211
<PAGE>
Exhibit 10(H)
page 21 of 91
SECTION 3 - ELIGIBILITY
3.01 INITIAL COVERAGE. Each Employee who was a Participant hereunder on
December 31, 1988, shall continue his status as a Participant hereunder.
3.02 COVERAGE AFTER DECEMBER 31, 1988. Each present or future Employee who is
not eligible to participate pursuant to the Provisions of Section 3.01
hereof shall be eligible for participation hereunder as of the first day
and the first Plan Year beginning after December 31, 1988, that he shall
have met the following requirements:
(a) He must complete one Year of Service prior to the first day of July
of such Plan Year; and
(b) He must attain his 21st birthday prior to the first day of July of
such Plan Year; and
(c) He must be employed within the United States or its possessions on a
permanent basis as determined under Section 3.06; and
(d) He must not be (unless otherwise expressly provided by the bargaining
agreement) included in a unit of employees covered by a collective
bargaining agreement between employee representatives and one or more
employers where retirement benefits were the subject of good faith
bargaining between such employee representatives and such employer or
employers.
3.03 TERMINATION OF EMPLOYMENT. Any Participant whose employment with the
Employers is terminated for any reason whatsoever, shall cease to be
eligible to participate hereunder. Any Participant whose employment with
the Employers is terminated shall, in the event of his later reemployment
as an Employee, again become a Participant on the first day of his
reemployment, provided he meets the requirements of Section 3.02(c) and
(d), unless his prior service is not taken into account under the rule
set forth in Section 2.31(b).
3.04 LEAVE OF ABSENCE. An Employee who receives an Authorized Leave of
Absence shall continue to be regarded as an Employee during such leave of
absence;
212
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Exhibit 10(H)
page 22 of 91
however, he shall not earn Hours of Service during a period of unpaid
Authorized Leave of Absence except to the extent that may be required by
federal law governing veterans' reemployment rights or under Section 2.32
relating to Maternity or Paternity Leave. The Employers shall provide
the Committee with all information with reference to leaves of absence.
The determination made by or caused to be made by the Employers shall be
conclusive and binding upon all persons having any interest in the Trust.
3.05 EMPLOYMENT IN BARGAINING UNIT. In the event an Employee is transferred
to a bargaining unit described in Section 3.02(d) the following rules
shall apply:
(a) He shall not accrue any retirement benefits hereunder while employed
in such bargaining unit.
(b) Compensation paid to him for service in such bargaining unit shall be
disregarded in determining his Final Average Earnings.
(c) His Years of Service in such bargaining unit shall be counted for the
purpose of determining his vested or non-forfeitable interest in his
Accrued Retirement Income in the event his employment terminates
prior to his Normal Retirement Date.
(d) His service in such bargaining unit shall in no event be considered
for the purpose of determining his Normal Retirement Benefit under
Section 4.01 or his Accrued Retirement Income, it being the express
intent hereof that his service in such bargaining unit shall be
counted for the purpose of determining his non-forfeitable percentage
but not for the purpose of increasing the amount of benefits to which
such percentage shall apply.
(e) An Employee who becomes employed in a bargaining unit because of the
recognition of a representative for such unit shall be deemed to be
transferred to such unit.
3.06 EMPLOYMENT OUTSIDE UNITED STATES. In the event an Employee is or was
transferred to or from the United States the following rules shall apply:
213
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Exhibit 10(H)
page 23 of 91
(a) Except as provided under (e) of this Section, he shall not accrue any
retirement benefits hereunder while employed outside the United
States.
(b) Except as provided under (e) of this Section, compensation paid to
him for service outside the United States shall be disregarded in
determining his Final Average Earnings.
(c) His Years of Service outside the United States shall be counted for
the purpose of determining his vested or non-forfeitable interest in
his Accrued Retirement Income in the event his employment terminated
prior to his Normal Retirement Date.
(d) Except as provided under (e) of this Section, his service outside the
United States shall in no event be considered for the purpose of
determining his Normal Retirement Benefit under Section 4.01 or his
Accrued Retirement Income, it being the express intent hereof that
his service outside the United States shall be counted for the
purpose of determining his eligibility to participate hereunder and
his non-forfeitable percentage but not for the purpose of increasing
the amount of benefits to which such percentage shall apply.
(e) If he is transferred from the United States on a temporary basis, he
shall be deemed to continue as being employed within the United
States on a permanent basis until such time as his transfer becomes
permanent.
(f) The determination of when an Employee is employed within the United
States on a permanent basis, when a transfer from the United States
is or become permanent, and when a transfer to or from the United
States is temporary, shall be made by the Employer and such
determination shall be conclusive and binding on all persons having
any interest in the Trust.
(g) As used in this Section the term "United States" includes possessions
of the United States.
3.07 EMPLOYMENT AS FIELD SALES AGENT. In the event an Employee was employed
or becomes employed as a Field Sales Agent the following rules shall
apply:
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Exhibit 10(H)
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(a) He shall not accrue any retirement benefit hereunder while employed
as a Field Sales Agent.
(b) Compensation paid to him for services a Field Sales Agent shall be
disregarded in determining his Final Average Earnings.
(c) His Years of Service as a Field Sales Agent shall be counted for the
purpose of determining his vested or non-forfeitable interest in his
Accrued Retirement Income in the event his employment terminates
prior to his Normal Retirement Date.
(d) His service as a Field Sales Agent shall in no event be considered
for the purpose of determining his Normal Retirement Benefit under
Section 4.01 or his Accrued Retirement Income, it being the express
intent hereof that his service as a Field Sales Agent shall be
counted for the purpose of determining his eligibility to participate
hereunder and his non-forfeitable percentage but not for the purpose
of increasing the amount of benefits to which such percentage shall
apply.
3.08 TRANSFER TO MEMBER THAT IS NOT AN EMPLOYER. If an Employee is or was
transferred to a member of the Aon group that is not an Employer
hereunder, he shall continue to be treated as being employed by member of
the Aon group that has adopted this Plan in the same manner as though
such transfer had not been made and for the purpose of determining his
Normal Retirement Benefit the member of the Aon group to which he
transferred shall be deemed to be an Employer and have adopted this Plan.
This Section shall not apply to an Employee whose employment with a
member of the Aon group is terminated and who subsequently is reemployed
by a non-adopting member of the Aon group.
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Exhibit 10(H)
page 25 of 91
SECTION 4 - DETERMINATION OF RETIREMENT BENEFITS
4.01 NORMAL RETIREMENT BENEFIT. Each Participant who is employed in the
service of the Employer on his Normal Retirement Date and who retires on
or after his Normal Retirement Date shall be entitled to receive a
monthly Normal Retirement Benefit, beginning on the fifteenth (15th) day
of the month next following his actual retirement and continuing for his
life, equal to one-twelfth (1/12th) of the following:
(a) one percent (1%) of the Participant's Final Average Earnings A
multiplied by his Years of Service, plus one percent (1%) of the the
excess, if any, of Final Average Earnings over Final Average Earnings
A multiplied by his Years of Service accrued after January 1, 1993;
plus
(b) three-quarters of one percent (.75%) of the Participant's Final
Average Earnings A multiplied by his Years of Service accrued after
January 1, 1989, up to but not in excess of 25 Years of Service, plus
three-quarters of one percent (.75%) of the excess, if any, of Final
Average Earnings over Final Average Earnings A multiplied by his
Years of Service accrued after January 1, 1993, up to but not in
excess of 25 Years of Service less the number of Years of Service
credited between January 1, 1989, and January 1, 1993; minus
(c) the Participant's Maximum Offset Allowance.
4.02 Notwithstanding any other provision in the Plan, each section 401(a)(17)
employee's accrued benefit under this Plan will be the sum of:
(a) the Employee's accrued benefit as of the last day of the last plan
year beginning before January 1, 1994, frozen in accordance with
section 1.401(a)(4)-13 of the regulations, and
(b) the Employee's accrued benefit determined under the benefit formula
applicable for the Plan Year beginning on or after January 1, 1994,
as applied to the Employee's Years of Service credited to the
Employee for Plan Years beginning on or after January 1, 1994, for
purposes of benefit accruals.
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Exhibit 10(H)
page 26 of 91
A section 401(a)(17) employee means an employee whose current accrued
benefit as of a date on or after the first day of the first Plan Year
beginning on or after January 1, 1994, is based on Compensation for a
year beginning prior to the first day of the first Plan Year beginning on
or after January 1, 1994, that exceeded $150,000.
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Exhibit 10(H)
page 27 of 91
SECTION 5 - VESTED INTEREST
5.01 ELIGIBILITY FOR FULL VESTING. A Terminated Participant who has completed
the required number of Years of Service and whose employment is
terminated (for any reason other than death) prior to his Normal
Retirement Date, shall be entitled to receive a monthly vested retirement
benefit commencing with the fifteenth (15th) day of the month next
following his Normal Retirement Date, if he is then living.
5.02 AMOUNT OF MONTHLY BENEFIT. The amount of monthly vested retirement
benefit which shall be paid to a Terminated Participant with one or more
Hours of Service on or after January 1, 1989, and eligible therefor
pursuant to Section 5.01 shall be a percentage of his Accrued Retirement
Income equal to the percentage determined under the following table:
Full Years of Service Non-forfeitable Percentage
--------------------- --------------------------
Less than 5 0%
5 or more 100%
5.03 SPECIAL RULES. In determining a Participant's vested benefit under this
Section, the following rules shall apply:
(a) The Accrued Retirement Income and the vested retirement benefit of a
Participant shall not be less than his benefit as of December 31,
1988.
(b) Except as provided in Section 7.11, in the event a Terminated
Participant again becomes a Participant his Accrued Retirement Income
shall be determined as of the date his employment last terminated but
shall in no event be less than his Accrued Retirement Income at the
time of any prior termination of employment.
(c) For a Participant formerly in the LOV Pension Plan (as discussed at
Section 18.03 and not under the career average formula therein), such
benefit as described at Section III B.I. thereof but counting
credited Service only through December 31, 1988 shall be (a) 1.5%
times final average compensation times years of credited service up
to 25 years, less (but not
218
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Exhibit 10(H)
page 28 of 91
below zero) (b) 2% times his primary social security benefit at age
65 times years of credited service up to 25 years, plus (c) .5% times
final average compensation times total years of credited service.
(d) For a Participant previously in the MMD Pension Plan (as discussed
at Section 18.04), such benefit as described at Section 4.1 thereof
but counting credited service only through December 31, 1988, shall
be (a) 1.6% times average monthly compensation times years of
credited service up to 25 years plus .5% times average monthly
compensation times total years of credited service in excess of 25
years; less (b) 2.5% times his primary social security benefit at age
65 times years of credited service up to 25 years; (c) prior to
Normal Retirement Date the accrued benefit of a participant shall be
calculated by assuming credited service to Normal Retirement Date and
then multiplying the excess of (a) over (b) by a fraction the
numerator of which is the Participant's actual years of credited
service on December 31, 1988 and the denominator of which is the
number of years of credited service he would have accrued if his
employment had continued uninterrupted to his Normal Retirement Date;
(d) provided, however, that a Participant's accrued benefit shall be
offset by the amount set forth in Appendix A to the Pension Plan,
i.e., the actuarial equivalent of his June 30, 1982, account balance
in the MMD Money Purchase Pension Plan, but said offset shall not
exceed the Participant's accrued benefit figured as set forth at (c)
but reduced by substituting "May 1, 1982" for "December 31, 1988".
5.04 EARLY COMMENCEMENT ELECTION. A Terminated Participant whose employment
is terminated prior to his Normal Retirement Date may elect to have his
deferred vested retirement benefit commence on the fifteenth (15th) day
of any month after his 55th birthday, in which case he will be entitled
to a vested retirement benefit computed under Section 5.02 but reduced as
follows, if at all, for each year payable prior to the fifteenth (15th)
day of the month next following his Normal Retirement Date to reflect the
early commencement of such benefits:
(a) For a vested retirement benefit commencing on or after the fifteenth
(15th) day of the month next following his Normal Retirement Date,
there shall be no reduction in the Terminated Participant's vested
retirement benefit.
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Exhibit 10(H)
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(b) For a vested retirement benefit commencing on or after the fifteenth
(15th) day of the month next following his sixtieth (60th) birthday
but prior to the date sixty (60) months thereafter, there shall be a
reduction in the Terminated Participant's vested retirement benefit
of four percent (4%) for each year or portion thereof payable prior
to the fifteenth (15th) day of the month next following his Normal
Retirement Date.
(c) For a vested retirement benefit commencing on or after the fifteenth
(15th) day of the month next following his fifty-fifth (55th)
birthday but prior to the date sixty (60) months thereafter, there
shall be an additional reduction in the Terminated Participant's
vested retirement benefit of six percent (6%) for each year or
portion thereof payable prior to the fifteenth (15th) day of the
month next following his sixtieth birthday.
(d) Any early vested retirement benefit for a Participant as figured
above shall not be less than the sum of the following two amounts:
(i) his vested retirement benefit as of December 31, 1988, reduced
under the prior reduction formula in effect on such date, plus (ii)
his vested retirement benefit calculated under Section 5.01 for
service after December 31, 1988 (but taking all service into account
in figuring the 35-year cap under Sections 2.19 and 4.01(c)) reduced
under the current formula set forth above.
For Employees of Combined Life Insurance Company of New York the reduced
vested retirement benefit payable under this Section shall in no event
exceed the benefit payable under the rules and regulations of the New
York State Insurance Department.
5.05 CHANGE IN TOP-HEAVY STATUS. If the Plan becomes subject to Section 17
and subsequently ceases to be such, the vesting schedule in Section 17.04
shall continue to apply in determining the amount of monthly vested
retirement benefit of any Participant who had at least three Years of
Service as of December 31st in the last Plan Year of top-heaviness. For
other Participants, said schedule shall apply only to their accrued
benefit as of such December 31st.
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Exhibit 10(H)
page 30 of 91
SECTION 6 - DEATH BENEFITS
6.01 AMOUNT OF DEATH BENEFIT. Except as provided in Section 7, no death
benefits or survivor benefits shall be paid upon the death of a
Participant or former participant.
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Exhibit 10(H)
page 31 of 91
SECTION 7 - FORM OF PAYMENTS
7.01 NORMAL FORM OF PAYMENT. Except as provided in Section 7.03, the normal
form of payment of any monthly retirement benefit shall be a straight
life annuity commencing on the date indicated in Section 4 or 5 (as may
be applicable).
7.02 120 PAYMENT CERTAIN OPTION. Anything herein contained to the contrary
notwithstanding, in every instance in which monthly retirement benefits
are payable to a Retired or Terminated Participant under Section 4 or 5
he may elect to receive such retirement benefits as a life annuity with
120 payments certain. In any such instance, the monthly retirement
benefit shall be reduced to the actuarial equivalent of the straight life
annuity provided by the normal form. An election under this Section must
be filed with the Committee not more than 90 days before retirement
benefits are to commence. If the Retired or Terminated Participant dies
prior to the day he is entitled to receive his first monthly payment, the
election under this Section shall be of no effect and no payments shall
be made to his Beneficiary. All distributions under this Section shall
be subject to Section 7.13.
7.03 PAYMENT IN QUALIFIED JOINT AND SURVIVOR FORM. Notwithstanding the
provisions of Sections 7.01 and 7.02, if a Participant is legally married
under the laws of any jurisdiction on the date retirement benefits
described in Section 4 or 5 are to commence, then, in lieu of the form
and amount of retirement benefit provided by Section 7.01 or 7.02, the
retirement benefit of such Participant shall be paid in the form of a
Qualified Joint and Survivor Annuity (as defined below) with the spouse
of such Participant unless the Participant and his spouse have elected,
as provided in Section 7.06, to have his retirement benefits paid to him
pursuant to Sections 7.01, 7.02, 7.04 or 7.05. For the purposes of this
Plan, the term "Qualified Joint and Survivor Annuity" means an annuity
for the life of the Participant with a survivor annuity for the life of
his spouse which is equal to one-half of the amount of the annuity
payable during the joint lives of the Participant and his spouse and
which is actuarially equivalent ot the annuity for the life of the
Participant which he would otherwise be entitled to receive under the
normal form.
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Exhibit 10(H)
page 32 of 91
7.04 ALTERNATE JOINT AND SURVIVOR FORM. In addition to the 50% Qualified
Joint and Survivor Annuity form under Section 7.03 for the Participant
and his spouse, a Participant may elect a joint and survivor form with a
survivor annuity of 50% (for a contingent annuitant other than the
spouse), 75% or 100% of the annuity payable during the joint lives of the
Participant and his designated contingent annuitant. If the specified
fraction is 75% or 100%, evidence of the Participant's good health must
be submitted to the Committee if the annuity starting date is prior to
the Participant's Normal Retirement Date. Spousal consent under Section
7.14 shall not be required unless the contingent annuitant is a person
other than the spouse.
7.05 SOCIAL SECURITY ADJUSTMENT OPTION. In order that a Participant who
retires under the Plan, prior to the earliest date upon which his primary
insurance benefits may commence under the Social Security Act, may
receive a more level income where the monthly lifetime annuity payable
under Section 7.01 is taken together with the Participant's estimated
primary insurance benefit under the Social Security Act commencing at age
62, such Participant may elect to convert a portion of his lifetime
annuity to an actuarial equivalent temporary annuity. The temporary
annuity shall provide for monthly payments, commencing at the
Participant's retirement date, provided that he is then living, and
terminating with the monthly payment next preceding the earlier of (i)
the date of the Participant's death or (ii) age 62. Such election may
be made by filing a proper written authorization with the Committee
before the date upon which the annuity payments are to commence to the
Participant.
7.06 ELECTION NOT TO RECEIVE QUALIFIED JOINT AND SURVIVOR ANNUITY. A
Participant, Retired Participant or Terminated Participant may elect to
have his retirement benefits paid to him pursuant to Sections 7.01, 7.02,
7.04 or 7.05 instead of the Qualified Joint and Survivor Annuity form
under Section 7.03. Any such election shall be made in writing and filed
with the Committee on such form as the Committee may determine, subject
to spousal consent under Section 7.14, and shall not be effective unless
filed with the Trustees within 90 days of the date retirement benefits
commence.
7.07 REVOCATION OF ELECTION NOT TO RECEIVE QUALIFIED JOINT AND SURVIVOR
ANNUITY. A Participant, Retired Participant or Terminated Participant,
or his spouse, who has
223
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Exhibit 10(H)
page 33 of 91
elected not to receive his retirement benefits in the Qualified Joint and
Survivor Annuity form, as provided in Section 7.06, may revoke such
election at any time before retirement benefits commence.
7.08 SURVIVING SPOUSE BENEFIT. In the event of the death of a Participant,
including a Retired Participant or a Terminated Participant, prior to his
annuity starting date and after he has either attained his Normal
Retirement Date under Section 4 or has earned a vested retirement benefit
under Section 5, the surviving spouse of such deceased Participant shall
be entitled to receive a survivor annuity. This survivor annuity shall
be in the amount that would have been payable under Section 7.03 if the
decedent had retired with a Qualified Joint and Survivor Annuity
thereunder on the day before his death; provided, however, that if the
Participant dies prior to age 55 the survivor annuity shall not be
payable until the date he would have attained age 55, calculated as if
the Participant had separated from service on the date of death, survived
to age 55, and retired with a Qualified Joint and Survivor Annuity on the
day before his death. Commencement of the surviving spouse benefit shall
be delayed beyond the date when it would otherwise commence if the spouse
so elects in writing, but not beyond the date on which the Participant
would have attained age 70-1/2 and only if Section 7.07 does not apply.
7.09 LUMP SUM CASH OUT. In the event the actuarial equivalent of any monthly
benefit pursuant to any of the provisions of this Plan expressed as a
single sum is $3,500 or less, the Committee shall direct the Trustee,
upon termination of the Participant's employment, to pay to the person
entitled to such monthly benefit, in a single sum, the amount of such
actuarial equivalent. If the payee is a Participant, any benefit that
may hereafter become payable to him because of subsequent service as an
Employee shall be reduced by the present value of the accrued benefit
which was paid to him pursuant to this Section or shall be determined by
disregarding the Years of Service with respect to which he has received
payment, the method to be used to be the one which results in the lesser
benefit.
7.10 USE OF ANNUITY POLICY. At such time as a retirement benefit becomes
payable under this Plan, the Committee may, in its sole discretion,
provide for the payment of such benefit by directing the Trustee to
obtain an annuity policy from an insurance company that will provide the
retirement benefit that is payable and
224
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Exhibit 10(H)
page 34 of 91
payment pursuant to the terms of any said policy shall be deemed to be
payment pursuant to the terms of this Plan. The Trustee may retain
ownership of any such policy or assign it to the Participant (or his
surviving spouse, if applicable) and upon such assignment all further
obligation to make payments pursuant to the terms of this Plan shall
terminate. Any annuity policy obtained after July 31, 1983, shall be
issued on a unisex basis and all the terms and conditions under any such
contract, including benefits, premiums, options, loan values and cash
surrender values, shall be the same for both male and female. Before any
annuity policy is assigned by the Trustee it shall cause such policy to
be made nontransferable by any person other than the Trustee.
7.11 RETURN TO WORK.
(a) Except as provided below, the retirement benefits of an Employee
receiving retirement benefits pursuant to Section 4 or 5 and rehired
by a corporation which is a member of the same controlled group of
corporations under Section 13.02 as the Employer as of the time
benefits commenced, shall be suspended or shall continue to be
suspended only for the calendar month in which the fifteenth (15th)
day of the month next following his fifty-fifth (55th) birthday falls
and calendar months thereafter, in which he completes 40 or more
Hours of Service.
(b) An Employee may request, and the Committee within a reasonable amount
of time will render, a determination of whether specific contemplated
employment would result in suspension of benefits. Requests for
status determination shall be considered in accordance with the
procedure under Section 13.04 for affording a review of the status
determination.
(c) No payment shall be withheld pursuant to this Section unless the
Committee notifies the Employee, by personal delivery or first class
mail, during the first calendar month in which the Plan withholds
payments, that his benefits are suspended. Such notification shall
contain a description of the specific reasons why benefit payments
are being suspended, a general description of this Section relating
to the suspension of payments, a copy of this Section and Section
7.13, and a statement to the effect that applicable Department of
Labor regulations may be found in Section 2530.203-3 of Title 29 of
the Code of Federal Regulations. In addition, the suspension
notification shall inform
225
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Exhibit 10(H)
page 35 of 91
the Employee of the procedure under Section 13.04 for affording a
review of the suspension of benefits.
(d) An Employee rehired prior to his Normal Retirement Date may earn
additional Years of Service subsequent to his return to work and
until he retires on or after his Normal Retirement Date. Such period
shall be taken into account in figuring his Normal Retirement Benefit
or his vested retirement benefit, as may be applicable.
(e) Benefits suspended under this Section shall resume (or shall begin,
in the case of a working Employee who continues in employment after
the fifteenth (15th) day of the month next following his fifty-fifth
(55th) birthday and who has completed 40 or more Hours of Service per
month thereafter as set forth in Subsection (b), above) no later than
the first day of the third calendar month after the calendar month in
which the Employee ceases to be subject to suspension of his benefits
hereunder. The initial payment shall include the payment scheduled to
occur in the calendar month when payments resume (or begin) and shall
include any amounts withheld during the period between cessation of
employment (or the beginning of a calendar month with less than 40
Hours of Service as provided at Section 7.12, as the case may be) and
the resumption of payments. The full amount of such initial payment
may be offset against the amount of any prior retirement benefits
erroneously paid to the Employee after he had become subject to this
Section, and subsequent benefit payments may be offset in the amount
of 25% of the amount otherwise due, until the amount of such
overpayment has been completely recovered.
7.12 WHEN PARTICIPANT DEEMED RETIRED. If a Participant continues to be
employed after the fifteenth (15th) day of the month next following his
fifty-fifth (55th) birthday but in any calendar month completes less than
40 Hours of Service, he shall, for the purposes of this Plan, be deemed
to have retired on the first day of the month in which such event took
place; provided, however, that the rules of Section 7.11 shall continue
to apply in respect to any subsequent month in which he completes 40 or
more Hours of Service.
226
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Exhibit 10(H)
page 36 of 91
7.13 GENERAL PROVISIONS GOVERNING DISTRIBUTIONS. Distributions to a
terminated or retired Participant or Beneficiary of a deceased
Participant pursuant to Section 4 or Section 5 shall be governed by the
following:
(a) Distributions (including distributions under any contract) made in
periodic installments (which may be increased or accelerated) to a
Retired Participant shall commence not later than April 1st of the
calendar year following the calendar year in which he attains age
70-1/2.
(b) Distributions made in periodic installments shall be made either:
(i) over the life of the Participant or over the joint lives of the
Participant and his Designated Beneficiary; or
(ii) over a period certain not extending beyond the life expectancy of
the Participant or the life expectancy of the Participant and his
Designated Beneficiary.
(c) Where distribution of the Participant's interest has begun under
Section 7.13(b) and the Participant dies before his entire interest
has been distributed to him, the remaining portion of such interest
will be distributed at least as rapidly as under the method of
distributions being used under Section 7.13(b) as of the date of his
death.
(d) If a Participant dies before the distribution of his interest has
begun under Section 7.13(b), the entire interest of the Participant
will be distributed within five years after his death except as
described below:
(i) If any portion of the Participant's interest is payable to (or
for the benefit of) a Designated Beneficiary, such portion is to
be distributed over the life of such Designated Beneficiary (or
over a period not extending beyond the life expectancy of such
Beneficiary), and such distributions begin not later than one
year after the date of the Participant's death (or such later
date as IRC regulations may prescribe), then for purposes of this
Subsection such portion shall be treated as distributed on the
date when such distributions began.
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Exhibit 10(H)
page 37 of 91
(ii) If such Designated Beneficiary is the surviving spouse of the
Participant, distributions need not begin until the date on which
the Participant would have attained age 70-1/2. If the surviving
spouse dies before distributions to such surviving spouse begin,
Section 7.13(d) shall be applied as if the surviving spouse were
the Participant. Any amount paid to a child shall be treated as
if it had been paid to the surviving spouse if such amount will
become payable to the surviving spouse upon such child reaching
majority (or other designated event permitted under IRC
regulations).
(e) The term "Designated Beneficiary" means any individual designated as
a Beneficiary by the Participant.
(f) Notwithstanding the provisions of Subsection (a) hereof, distribution
to a Participant who has terminated his service, or who is a 5% owner
[as defined in Section 17.02(b)] at any time during the 5-Plan-Year
period ending in the calendar year in which he attains age 70-1/2,
shall commence not later than the 1st day of April of the calendar
year following the calendar year in which he attains age 70-1/2. If a
Participant who has not terminated his service subsequently becomes a
5% owner after the calendar year in which he attains age 70-1/2, then
distribution shall commence by April 1st of the calendar year
following the Plan Year during which he became a 5% owner. Effective
January 1, 1989, distribution to a Participant shall commence by
April 1st of the calendar year following the calendar year in which
he attains age 70-1/2, without regard to whether he has terminated
his service; provided, that this rule shall not apply to a
Participant age 70-1/2 or over on January 1, 1988 unless he has been
a 5% owner at any time during the Plan Year ending during the
calendar year when he attained age 66-1/2 or any subsequent Plan
Year, nor shall it apply to any benefits with respect to which a
designation is in effect as described in Section 7.13(h).
(g) If any contract or annuity policy on the life of a terminated,
deceased or retired Participant is distributed, such contract or
annuity policy shall be endorsed to provide for payments thereunder
in accordance with the preceding provisions of this Section.
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Exhibit 10(H)
page 38 of 91
(h) The foregoing provisions of this Section 7.13 shall not apply to
distributions under a plan of distribution designated by a
Participant in writing prior to January 1, 1984, which was
permissible under the provisions of this Plan as in effect prior to
the Amendment adding the provisions of the Tax Equity and Fiscal
Responsibility Act of 1982.
(i) Distribution to a Participant (or his Beneficiary) whose vested
accrued benefit has a present value of $3,500 or less shall be made
as soon as administratively convenient.
(j) If the Beneficiary of the Participant is not his spouse the form of
distribution must be one whereunder the present value of the
retirement benefit payments projected to be made to the Participant,
while living, is more than 50 percent of the present value of the
total payments projected to be made to the Participant and the
Participant's Beneficiary; provided, however, that this requirement
shall be interpreted so as to comply with the incidental benefit rule
of the IRC and the rules and regulations thereunder.
(k) Except as provided in regulations, the provisions of IRC Section
Section 401(a)(9) are hereby incorporated by reference to the extent
not set forth in this Section.
7.14 SPOUSAL CONSENT. Any election by the Participant under Section 7.06
shall not take effect unless the spouse consents in writing to such
election. Such consent must be given within the 90 day election period
under Section 7.06, must acknowledge the effect of the election or
designation, shall be to a specific Beneficiary and to a specific form of
benefit, and be witnessed by a Plan representative or a notary public.
Any consent shall be effective only as to such spouse. Such election
shall take effect without the spousal consent only if it is established
to the satisfaction of a Plan representative that the consent may not be
obtained because there is no spouse, because the spouse cannot be
located, or because of such other circumstances as the Secretary of the
Treasury may by regulations prescribe.
7.15 NOTICE. The Trustees shall deliver a written explanation to each
Participant or terminated Participant who will become entitled to receive
vested retirement benefits on or about the date nine (9) months before he
attains age 55 of the terms and conditions of the Qualified Joint and
Survivor Annuity form and the
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Exhibit 10(H)
page 39 of 91
surviving spouse benefit, including the rights of the spouse under
Section 7.14, and the effect of electing or not electing such a form of
payment. The explanation shall include a general description of the
eligibility conditions and other material features of the optional forms
of benefit, including the relative values of such optional forms with the
interest rate used in calculating such values. Notwithstanding the
provisions of Sections 7.06 and 7.07, the period for such election or
revocation thereof shall not expire until at least ninety (90) days after
such notice has been given. Any Participant who has not had an election
under Section 7.06 made available may elect (or his personal
representative may elect in the event of his death) to receive the
balance of his benefits in a form other than that of a Qualified Joint
and Survivor Annuity or surviving spouse benefit at any time until ninety
(90) days after notice of the availability of such election is given to
such Participant (or to his personal representative).
7.16 JOINT AND SURVIVOR ANNUITIES AND SURVIVING SPOUSE BENEFITS TO FORMER
PARTICIPANTS. Effective August 23, 1984, a Participant (including a
Terminated Participant) who had at least one Hour of Service on or after
September 2, 1974, to whom Section 205 of ERISA and IRC Section
401(a)(11) (as in effect on August 22, 1984) would not apply but for this
Section, to whom the amendments made by Section 103 and 203 of the
Retirement Equity Act of 1984 dealing with Qualified Joint and Survivor
Annuities and Surviving spouse Benefits do not apply, whose annuity
starting date has not occurred as of August 23, 1984, and who is still
alive as of August 23, 1984, may elect to have the Provisions of Section
7 as in effect prior to August 23, 1984 apply. A Participant (including
a Terminated Participant) who had at least one Hour of Service in any
Plan Year beginning on or after January 1, 1976, to whom the amendments
made by Section 103 and 203 of the Retirement Equity Act of 1984 dealing
with Qualified Joint and Survivor Annuities and Surviving Spouse Benefits
would not (but for this Section) apply who at the time of his separation
from service had at least ten Years of Service under the Plan and had a
non-forfeitable right at least a portion of his accrued benefit derived
from Employer contributions, whose annuity starting date has not occurred
as of August 23, 1984, and who is still alive as of August 23, 1984, may
elect to have the qualified pre-retirement survivor annuity requirements
of the amendments made by such Sections 103 and 203 apply. Any election
under this Section may be made during the period beginning August 23,
1984, and ending on the earlier of the Participant's Annuity Starting
Date or the
230
<PAGE>
Exhibit 10(H)
page 40 of 91
date of his death. Notice of the provisions of this Section shall be
given at such time or times and in such manner as the Secretary of the
Treasury may prescribe.
231
<PAGE>
Exhibit 10(H)
page 41 of 91
SECTION 8 - PLAN FUNDING
8.01 CONTRIBUTIONS. The Employers will make contributions from time to time to
the Trustee under the Trust Agreement in amounts that are sufficient (as
determined in accordance with the Plan funding method and policy adopted
by the Employer) to provide the benefits provided hereunder and as are
consistent with the provisions of Part 3 of Title I of ERISA.
Participants shall not make contributions under the Plan.
8.02 FORFEITURES. All forfeitures arising under the Plan will be applied to
reduce the Employer's contributions thereunder and shall not be used to
increase the benefits any person would otherwise receive under the Plan.
232
<PAGE>
Exhibit 10(H)
page 42 of 91
SECTION 9 - RIGHTS TO AMEND OR DISCONTINUE CONTRIBUTIONS
9.01 CONTINUANCE OF CONTRIBUTIONS NOT ASSUMED. It is the expectation of the
Employers that they will continue this Plan and the payment of its
contributions hereunder indefinitely; but continuance of the Plan is not
assumed as a contractual obligation and the right is reserved to each
Employer at any time to discontinue its contributions hereunder.
9.02 RIGHT TO AMEND. Except as herein limited, the Company, by action of the
Board, shall have the right to amend this Plan at any time to any extent
it may deem advisable. Such amendment shall be stated in an instrument
in writing approved by the Board. Upon delivery of such instrument to
the Committee, this Agreement shall be deemed to have been amended in the
manner set forth, provided, however, except as may be required to
maintain this Plan as a qualified Plan under the IRC:
(a) No amendment shall increase the duties or liabilities of the Trustees
without their consent;
(b) No amendment shall have the effect of vesting in the Employers any
interest in or control over the Retirement Fund;
(c) No amendment shall have the effect of depriving the surviving spouse
or Beneficiary of a then deceased Participant of the right to receive
the benefits to which such spouse or Beneficiary is entitled;
(d) No amendment shall have the effect of depriving any then Retired
Participant or active Participant who has then reached his Normal
Retirement Date of the retirement income which he is entitled to
receive;
(e) No amendment shall have the effect of depriving any Terminated
Participant of the benefits which he is entitled to receive;
(f) No amendment shall have the effect of depriving any Participant of
any benefit he would have been entitled to receive if he had
terminated his employment immediately prior to such amendment;
233
<PAGE>
Exhibit 10(H)
page 43 of 91
(g) No amendment shall have the effect of decreasing the accrued benefit
of Participant other than an amendment described in IRC Section
412(c)(8), or Section 4281 of ERISA. For purposes of the preceding
sentence a plan amendment which has the effect of (i) eliminating or
reducing a subsidy or an early retirement benefit (as defined in
regulations), or (ii) eliminating an optional form of benefit with
respect to benefits attributable to service before the amendment,
shall be treated as reducing accrued benefits. In the case of a
retirement-type subsidy, the preceding sentence shall apply only with
respect to a Participant who satisfies (either before or after the
amendment) the pre-amendment conditions for the subsidy. This
Paragraph shall not apply, to the extent provided by regulations, to
a plan amendment described in clause (ii) (other than a plan
amendment having an effect described in clause (i)).
234
<PAGE>
Exhibit 10(H)
page 44 of 91
SECTION 10 - DURATION AND DISTRIBUTION ON TERMINATION
10.01 TERMINATION BY EMPLOYER. Unless otherwise terminated, as provided in
paragraphs (a), (b), and (c), of this Section or Section 10.03, this Plan
shall continue in perpetuity, or for such time as may be necessary to
accomplish the purpose or which it is created. This Plan shall terminate
upon the happening of any of the following events:
(a) The Company, by appropriate resolution of its Board, elects to
terminate this Plan;
(b) An Employer shall elect to terminate its participation in the Plan or
shall be judicially declared bankrupt or insolvent, or in the event
of dissolution, merger, or consolidation of the Employer without
provision for continuing this Plan; provided, however, in the event
of dissolution, merger, or consolidation of the Employer, provision
may be made by its successor for continuing this Plan and the
substitution of such successor or successors for the Employer
hereunder, in which event this Plan shall continue in full force and
effect and further provided that termination shall be limited as
described under Section 15.03.
(c) There is a complete termination of this Plan within the meaning of
Section 411(d)(3) of the IRC.
10.02 DISTRIBUTION ON COMPLETE TERMINATION. In the event this Plan shall
terminate for any of the reasons set forth in Section 10.01(a) or (c),
the Trustees shall, after payment of all expenses of liquidation,
distribute the Retirement Fund in the manner and order set forth in
Section 4044 of ERISA. This Trust shall continue as a liquidation trust
until final distribution of all assets.
10.03 TERMINATION BY PENSION BENEFIT GUARANTY CORPORATION. In the event this
Plan is terminated by reason of proceedings instituted by the Pension
Benefit Guaranty Corporation under Section 4042 of ERISA, the Retirement
Fund shall be distributed pursuant to the provisions of Section 402 of
ERISA.
235
<PAGE>
Exhibit 10(H)
page 45 of 91
10.04 VESTING UPON TERMINATION. Except as provided in Section 11, upon the
termination or partial termination of this Plan the rights of all
affected Participants to benefits accrued to the date of termination or
partial termination, to the extent funded as of such date, shall be non-
forfeitable.
236
<PAGE>
Exhibit 10(H)
page 46 of 91
SECTION 11 - BENEFITS IN THE EVENT OF EARLY TERMINATION OF PLAN
11.01 PARTICIPANTS. Notwithstanding any provision in this Agreement to the
contrary, the benefits provided by the Company's contributions for
Participants whose anticipated annual retirement benefit provided by such
contributions will exceed $1,500, but applicable only to the twenty-five
highest paid Employees as of December 31, 1988 (including any such
highest-paid Employees who are not Participants at that time but may
later become Participants) shall be subject to the conditions hereinafter
set forth.
11.02 MAXIMUM BENEFIT. Such benefits shall be paid in full which have been
provided by the Company's contributions not exceeding the largest of the
following amounts:
(a) The Company contributions (or funds attributable thereto) which would
have been applied to provide the benefits for the Employee of this
Plan, as it existed prior to January 1, 1989, and as if the Plan had
been continued without change.
(b) $20,000
(c) An amount equal to 20% of the first $50,000 of the Participant's
annual Compensation multiplied by the number of years between
December 31, 1988, and (A) the date that the Plan terminates, or (B)
if benefits become payable to a Participant described in Section
11.01 within ten years after December 31, 1988, the date the benefits
of such Participant first become payable (if before the date of
termination of this Plan), or (C) if benefits become payable to a
Participant described in Section 11.01 after December 31, 1988, and
if the full current costs of the Plan for the ten years starting
December 31, 1988, have not been met, or if the full current costs
have not been met on the dates referred to in (A) or (B) above, the
date of the failure to meet the full current cost.
(d) whichever of the following amounts shall apply:
(i) for a Participant who owns, directly or indirectly, more than ten
percent (10%) in value of either the voting stock of the Company
or all the stock of the Company (applying the constructive
ownership rules
237
<PAGE>
Exhibit 10(H)
page 47 of 91
of Section 1563(e) of the IRC without regard to Section
1563(e)(3)), a dollar amount which equals the present value of
the benefit guaranteed for such Participant under Section 4022 of
ERISA, as amended, or if the Plan has not terminated, the present
value of the benefit that would be guaranteed if the Plan
terminated on the date the benefit commences determined in
accordance with regulations of the Pension Benefit Guaranty
Corporation; or
(ii) for a Participant not within Paragraph (i), above, a dollar
amount which equals the present value of the maximum benefit
described in Section 4022(b)(3)(B) of ERISA, as amended
(determined on the date the Plan terminates or on the date
benefits commence, whichever is earlier) without regard to any
other limitations in Section 4022 of ERISA.
11.03 LIMITATION ON BENEFITS. If (1) this Plan is terminated within ten years
after December 31, 1988, or (2) the benefits of any of the Participants
described in Section 11.01 become payable within ten years from December
31, 1988, the benefits which any of the Participants described in Section
11.01 may receive from the Company's contributions shall not exceed the
benefits set forth in Section 11.02.
11.04 TERMINATION OF EMPLOYMENT. If a Participant described in Section 11.01
leaves the employ of the Company or withdraws from participation in this
Plan, the benefits which he may receive from the Company's contributions
shall not at any time, within the first ten years after December 31,
1988, exceed the benefits set forth in Section 11.02. If, at the end of
the ten-year period starting December 31, 1988, the full current costs
for such ten years have not been met, the benefits such Participant may
receive from the Company's contributions shall not exceed the benefits
set forth in Section 11.02 until the first time that the full current
costs of this Plan have been met.
11.05 DEATH BENEFITS. These conditions shall not restrict the full payment of
any insurance, death or survivor's benefits on behalf of a Participant
who dies while this Plan is in full effect and its full current costs
have been met.
11.06 RETIREMENT BENEFITS. These conditions shall not restrict the current
payment of full retirement benefits not exceeding those provided by the
normal form called
238
<PAGE>
Exhibit 10(h)
Page 48 of 91
for by this Plan for any Retired Participant while this Plan is in full
effect and its full current costs have been met.
11.07 LUMP SUM DISTRIBUTION. The conditions of this Section shall not restrict
a lump sum distribution to a Terminated or Retired Participant of the
benefits he may be entitled to receive, if this Plan is in full effect
and its full current costs have been met at the time of the distribution
and he enters into an agreement with the Trustees to the effect that in
the event
(a) the Plan terminates before December 31, 1998, or
(b) a default occurs in the payment of the full current costs of the Plan
for any Plan Year ending before December 31, 1998
he (or, in the case of his death, his estate) will repay to the Trustees
a sum equal to the actuarial equivalent of the amounts by which his
monthly retirement benefits under the Plan (under the normal form) would
have decreased during his then remaining lifetime pursuant to the
provisions of this Section 11. Such obligation to repay must be
adequately secured, and if secured by property of the distributes, the
distributes must agree that if the market value of the property falls
below a certain percentage of the amount that would then be repayable if
the Plan were then terminated he will deposit additional property
necessary to sufficiently increase the value of the property held by the
depositary. The agreement need not be secured if the fair market value
of Plan assets is not less than the actuarial equivalent of all accrued
benefits (whether or nor forfeitable) expressed as a single sum;
provided, that the agreement shall provide for security to be provided in
the future in the event that the fair market value of Plan assets
subsequently, during the period covered by this Section, falls below the
actuarial equivalent of all accrued benefits.
11.08 INTENT. This Section 11 is included in this agreement to conform to the
requirements of Treasury Regulation Paragraph 1.401-4(c) and shall be
applied in a manner consistent with such Regulation or any substitute
therefor but shall cease to be effective at such time as the provisions
of the Treasury Regulation Paragraph 1.401(c) or any substitute therefor
are no longer effective or applicable.
239
<PAGE>
Exhibit 10(H)
page 49 of 91
SECTION 12 - ADMINISTRATIVE COMMITTEE
12.01 FORMATION AND MEMBERS. This Plan shall be administered by an
administrative committee constituted of not less than three (3) and not
more than seven (7) members. The Board shall have the right at any time
and from time to time to appoint the members of the Committee and to
remove any member of the Committee and appoint a successor member. Each
member of the Committee shall serve until such time as he shall resign,
die, or be removed by the Board and until his successor is appointed. In
the event of the death, resignation or removal of any member acting
hereunder, the Board may appoint a successor to fill such vacancy and
such successor member, upon accepting such appointment by an instrument
in writing delivered to the Company, shall without further action, become
vested with all the rights, powers, discretion and duties of a member of
the Committee with like effect as if originally named as a member
hereunder. Each member of the Committee shall have the right at any
time, by ten (10) days written notice to the other members then acting
hereunder, and to the Company, to resign as a member hereunder.
12.02 CHAIRMAN AND SECRETARY. The Committee shall appoint a Chairman from
among the members of the Committee and the Chairman shall preside at all
meetings of the Committee, and shall have the right to vote on any matter
to be determined by the Committee. The Committee shall also appoint a
Secretary to the Committee, who need not be a member of the Committee,
who shall keep an accurate record of all determinations of the Committee
and perform such other duties as may from time to time be assigned to him
by the Committee or the Chairman of the Committee.
12.03 ACTIONS OF THE COMMITTEE. All actions of the Committee shall be by
majority vote of the entire Committee. No formal meetings need be called
or held by such Committee if a majority of the then members of the
Committee shall authorize and approve, by an instrument in writing, any
action or decision agreed upon by such majority.
12.04 EXECUTION OF INSTRUMENTS. The Committee may designate any one or more of
its members, or its Secretary, to sign any document, instrument or paper
on behalf of the entire Committee.
240
<PAGE>
Exhibit 10(H)
page 50 of 91
12.05 REPORTS TO THE BOARD. The Committee shall furnish such reports and other
information as may be required from time to time by the Board.
12.06 ADMINISTRATION OF THE PLAN. The Committee may, from time to time,
establish rules and procedures for administration of the Plan not
inconsistent with the Plan's provisions, and administer the Plan in
accordance with such provisions and such rules and procedures. The
Committee shall have the exclusive right and discretionary authority to
construe the terms and provisions of the Plan, including without
limitation, the power to construe or interpret disputed, ambiguous or
uncertain terms, and such other powers as may be necessary to carry out
the provisions of the Plan. The Committee shall also have the
discretionary authority to determine all questions relating to the
eligibility of Employees to participate in the benefits of the Plan and
the amount of such benefits, and resolve all questions pertaining to the
administration, interpretation and application of the Plan provisions.
Actions taken in good faith by the Company, the Committee or an Employer
shall be conclusive and binding on all interested parties as to all
questions of interpretation and application under this Plan and as to all
other matters arising out of the administration thereof, and shall be
given the maximum possible deference allowed by the law. The Committee
shall issue such directions to the Trustee as may from time to time be
necessary to authorize the Trustee to make the payments provided for by
this Plan.
12.07 LIABILITY OF MEMBERS. To the extent permitted by law, no member of the
Committee shall ever be liable for any act or default of any predecessor
member nor for any loss sustained through any error of judgment, but
shall only be liable for his own willful default. No successor member
acting hereunder shall be under any duty to examine into or take any
action with reference to the prior action of any prior Committee acting
hereunder. The Company shall indemnify and save harmless each member of
the Committee and the Secretary to the Committee from the effects and
consequences of his actions and conduct in his official capacity, except
to the extent that such effects and consequences flow from his own
willful conduct.
12.08 ALLOCATION OF DUTIES. The Committee, by its action, may allocate its
fiduciary responsibilities among its members, and may designate persons
other than its members to carry out its fiduciary responsibilities. The
Committee, individual members of the Committee allocated specific
fiduciary responsibilities, and
241
<PAGE>
Exhibit 10(H)
page 51 of 91
persons other than members of the Committee designated to carry out
specific fiduciary responsibilities may employ one or more persons to
render advice with respect to their responsibilities. If the Committee
has allocated a specific fiduciary responsibility among its members, or
has designated persons other than its members to carry out a specific
fiduciary responsibility, it shall do the following things: (1) it
shall make as a condition of such allocation or designation the fact that
the Committee may terminate the allocation or designation at will; and
(2) it shall report such allocation or designation to the Board who by
its action, may order that such allocation or designation be terminated
in which case it shall be done as soon as practicable.
12.09 INVESTMENTS. The Committee shall have no duty or obligation to supervise
or control in any way the investments made by the Trustee under the Trust
Agreement, but all fiduciary responsibility for investing and
safeguarding the assets of the Plan shall reside solely with such
Trustee.
242
<PAGE>
Exhibit 10(H)
page 52 of 91
SECTION 13 - ERISA PROVISIONS
13.01 SERVICE FOR PREDECESSOR. To the extent required by regulations that may
be prescribed by the Secretary of the Treasury or his delegate, service
for a predecessor shall be treated as service for the Employers.
13.02 CONTROLLED GROUP. To the extent required by Section 414(b), (c), (m),
(n) and (o) of the Internal Revenue Code, all employees of the entities
described therein shall be treated as employed by a single employer. If
an Employee or former Employee becomes employed or was employed by any
such entity that the Employer is a member of and such other member has
not adopted this Plan, the following rules shall apply:
(a) Upon becoming an Employee of the Employer, his prior service in the
employment of another member of the controlled group shall be
considered as though it was service for the Employer for the purpose
of determining when he will become eligible for participation under
Section 3 and for the purpose of determining his eligibility for a
vested retirement benefit.
(b) If he was previously an Employee of the Employers and a Participant
under this Plan but did not have five Years of Service at the time
such employment terminated, his subsequent service in the employment
of another member of the controlled group shall be considered as
though it was service for the Employers for the purpose of
determining his eligibility for a vested retirement benefit under
Section 5.02.
(c) His service for such other member of the controlled group shall in no
event be considered for the purpose of determining his Normal
Retirement Benefit under Section 4.01 or his Accrued Retirement
Income under Section 5.02, it being the express intent hereof that
his service for another member of the controlled group that has not
adopted this Plan shall be counted for the purpose of determining his
non-forfeitable percentage but not for the purpose of increasing the
amount of benefits to which such percentage shall apply.
(d) He shall not be eligible to receive any benefits while employed by
any other member of the controlled group, except as provided at
Section 7.12.
243
<PAGE>
Exhibit 10(H)
page 53 of 91
(e) Remuneration paid to such person for services rendered to another
member of a controlled group shall not be considered in determining
his Final Average Earnings.
13.03 MERGER. This Plan shall not be merged or consolidated with any other
Plan or the assets held under this Plan shall not be transferred to any
other Plan, unless each Participant in the Plan would (if the Plan then
terminated) receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit he would have
been entitled to receive immediately before the merger, consolidation or
transfer (if this Plan had then terminated) .
13.04 CLAIMS PROCEDURE. Pursuant to Section 503 of ERISA the following claims
procedure is established:
(a) A timely written application for benefits shall be filed with the
Committee on a form prescribed by it.
(b) if a Claim is denied, in whole or in part, written notice of such
denial shall be furnished to the applicant setting forth, in a manner
calculated to be understood by him, the following:
(i) The specific reason or reasons for the denial;
(ii) A specific reference to pertinent Plan provisions on which the
denial is based;
(iii) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary;
and
(iv) An explanation of the claim review procedure.
(c) An applicant whose claim has been denied in whole or in part (or his
duly authorized representative) may appeal such denial to the
Committee by making a written request for a review and may review
pertinent documents and submit issues and comments in writing. A
written request for review
244
<PAGE>
Exhibit 10(H)
page 54 of 91
must be filed within 120 days of the date an applicant has been
notified of the denial or partial denial of this claim.
(d) The decision on review shall be made promptly and within 60 days of
receipt of the request for review, shall be in writing, and shall
include specific reasons for the decision, written in a manner
calculated to be understood by the applicant, and specific references
to the pertinent Plan provisions on which the decision is based.
13.05 MAXIMUM ANNUAL BENEFIT. The annual benefits payable to a Participant
under this Plan and any other qualified defined benefit plan adopted by
the Employer shall in no event exceed the lesser of $90,000 (the "dollar"
limitation) or 100% of the Participant's average compensation for his
high three consecutive calendar years of participation (the "percentage"
limitation). The following rules shall be effective in applying the
provisions of this Section:
(a) Both the $90,000 dollar limitation and the 100% percentage limitation
referred to in the first sentence of this Section shall be adjusted
for increases in the cost of living in accordance with regulations
prescribed by the Secretary of the Treasury or his delegate;
provided, however, that the 100% percent limitation shall be adjusted
only in the case of adjusting any benefits under this Section, and no
cost of living adjustments under this Subsection shall be taken into
account before the year for which such adjustment takes effect.
(b) If the annual benefit is payable in a form other than as a straight
life annuity, an adjustment shall be made to the maximum permissible
annual benefit, in accordance with regulations prescribed by the
Secretary of the Treasury or his delegates so that it is equivalent
to the maximum annual benefit payable as a straight life annuity. In
determining the maximum annual benefit payable any ancillary benefit
which is not directly related to retirement income benefits shall not
be taken into account, and that portion of any joint and survivor
annuity which constitutes a qualified joint and survivor annuity
under Section 7.03 shall not be taken into account.
(c) If the retirement income benefit begins before the Social Security
Retirement Age, the determination as to whether the $90,000 dollar
limitation referred to in the first sentence of this Section has been
satisfied shall be made in
245
<PAGE>
Exhibit 10(H)
page 55 of 91
accordance with regulations prescribed by the Secretary of the
Treasury or his delegate, by reducing the limitation so that such
limitation (as so reduced) equals an annual benefit (beginning when
such retirement income benefit begins) which is equivalent to a
$90,000 annual benefit beginning at the Social Security Retirement
Age. The reduction shall be made in such manner (as prescribed by the
secretary of the Treasury or his delegate) as is consistent with the
reduction for old-age insurance benefits commencing before the Social
Security Retirement Age under the Social Security Act.
(d) If the retirement income benefit begins after the Social Security
Retirement Age, the determination as to whether the dollar limitation
referred to in the first sentence of this Section has been satisfied
shall be made in accordance with regulations prescribed by the
Secretary of the Treasury or his delegate, by increasing the
limitation so that such limitation (as so increased) equals an annual
benefit (beginning when such retirement income benefit begins) which
is equivalent to a $90,000 annual benefit beginning at the Social
Security Retirement Age.
(e) For the purpose of adjusting any benefit under Subsection (b) or (c),
above, the interest rate assumption shall not be less than the
greater of 5% or the rate specified in the Plan. For purposes of
adjusting any benefit under Subsection (d), above, the interest rate
assumption shall not be greater than the lesser of 5% or the rate
specified in the Plan.
(f) Notwithstanding the preceding provisions, the benefits payable with
respect to a Participant shall be deemed not to exceed his limitation
if they do not exceed $10,000 for the Plan Year, or for any prior
Plan Year, and the Employer has not at any time maintained a defined
contribution Plan in which the Participant participated.
(i) if a Participant has less than 10 years of participation in the
Plan, the $90,000 dollar limitation referred to in the first
sentence of this Section shall be the limitation determined under
such sentence (without regard to this Subsection (g)), multiplied
by a fraction --
(A) the numerator of which is the number of years (or part
thereof) of participation, and
246
<PAGE>
Exhibit 10(H)
page 56 of 91
(B) the denominator of which is 10.
(ii) If a Participant has less than 10 years of service with the
Employer, the 100% percentage limitation under the first
sentence of this Section and the $10,000 limitation under
Subsection (f) shall be adjusted by multiplying such amounts by
a fraction --
(A) the numerator of which is the number of years (or part
thereof) of service, and
(B) the denominator of which is 10.
(iii) In no event shall Paragraphs (i) or (ii), above, reduce either
the dollar limitation or the percentage limitation under the
first sentence of this Section, or the $10,000 limitation under
Subsection (f), to an amount less than 1/10 of such limitation
(determined without regard to this Subsection (g)).
(iv) To the extent provided in regulations this Subsection (g) shall
be applied separately with respect to each change in the benefit
structure of the Plan.
(g) In the event a Participant herein is a participant at any time in a
defined contribution plan maintained by the Employer or a member of a
controlled group, the sum of the defined benefit plan fraction and
the defined contribution plan fraction for any year shall not exceed
1.0 but such limitation may be applied to first reduce benefits under
this Plan before being applied to reduce annual additions under the
defined contribution plan. For this purpose the defined benefit plan
fraction for any year is:
Projected annual benefit of the Participant under the Plan
(determined as of the close of the year)
-----------------------------------------------------------------
Lesser of: (a) 1.25 multiplied by the dollar limitation in effect
for such year ($90,000 for 1987) or (b) 1.4 multiplied by the
percentage limitation with respect to such individual under
247
<PAGE>
Exhibit 10(H)
page 57 of 91
the Plan for such year (100% of his average total compensation
for his high 3 years).
The defined contribution plan fraction for any year is:
Sum of the annual additions to the participant's account as of
the close of the year.
--------------------------------------------------------------
The sum of the lesser of the following amounts determined for
such year and for each prior year of service with the employer:
(a) 1.25 multiplied by the dollar limitation in effect for such
year ($30,000 for 1987) or (b) 1.4 multiplied by the percentage
limitation with respect to such individual under the plan for
such year (25% of his total compensation). Contributions by a
Participant to any qualified cost-of-living arrangement (as
defined under IRC Section 415(k)(2), as amended from time to
time) under the Plan shall be treated as an annual addition for
purposes of this Subsection (h).
248
<PAGE>
Exhibit 10(H)
page 58 of 91
(h) At the election of the plan administrator, in applying the defined
contribution plan fraction under Subsection (h), above, with respect
to any year ending after December 31, 1982, the denominator of the
fraction with respect to each participant for all years ending before
January 1, 1983, shall be an amount equal to the product of such
denominator under the law in effect for the year ending in 1982
multiplied by the transition fraction. The transition fraction means
a fraction whose numerator is 35% of the compensation of the
participant for the year ending in 1981 (limited to $51,875) and
whose denominator is 25% of such compensation (but more than
$41,500).
(i) Provided the Plan satisfied the requirements of IRC Section 415 for
the last year beginning before January 1, 1983, and pursuant to
regulations prescribed by the Secretary of the Treasury or his
delegate, the numerator of the defined contribution plan fraction at
Subsection (h) may be reduced so that the sum of the defined
contribution plan fraction and the defined benefit plan fraction does
not exceed 1.0 for such year.
(j) In the case of an individual who is a participant before January 1,
1983, in a defined benefit plan which is in existence on July 1,
1982, and with respect to which the requirements of Section 415 of
the IRC have been met for all years, if such individual's current
accrued benefit under such plan exceeds the limitation of Subsection
(b) of Section 415 as provided under the first sentence of this
Section and under Subsections (a) through (g) hereof, then (in the
case of such plan) for purposes of such IRC Section 415(b), and also
for purposes of IRC Section 415(e) as provided under Subsections (h)
through (j), hereof, the limitation of such IRC Section 415(b) with
respect to such individual shall be equal to such current accrued
benefit.
The term "current accrued benefit" means the individual's accrued
benefit (at the close of the last year beginning before January 1,
1983) under this Plan, which was in existence on July 1, 1982, when
expressed as an annual benefit (within the meaning of Section
415(b)(2) of the IRC as in effect before the amendments made by the
Tax Equity and Fiscal Responsibility Act of 1982). For purposes of
determining the amount of any individual's current accrued benefit,
no change in the terms and conditions of the Plan after July 1, 1982,
and no cost-of-living adjustment occurring after July 1, 1982, shall
be taken into account.
249
<PAGE>
Exhibit 10(H)
page 59 of 91
(k) In the case of an individual who was an active Participant in this
Plan before October 3, 1973, his annual benefit need not be less than
100% of his annual rate of compensation on the earlier of October 2,
1973, or the date on which he separated from the service of the
Employer; provided, that such annual benefit shall not exceed the
benefit which would have been payable under the terms of the plan on
October 3, 1973, if his compensation taken into account for any
period after such date had not exceeded his annual rate of
compensation on such date; and provided further, in the case of a
Participant who separated from service prior to October 2, 1973, his
annual benefit shall in no event be greater than his vested retired
benefit as of the date he separated from service.
(l) In addition to other limitations set forth in the Plan and
notwithstanding any other provisions of the Plan , the accrued
benefit, including the right to any option benefit provided in the
Plan (and all other defined benefit plans required to be aggregated
with this Plan under the provisions of IRC Section 415) shall not
increase to any amount in excess of the amount permitted under IRC
Section 415 as amended by the Tax Equity and Fiscal Responsibility
Act of 1982.
(m) In determining under which Plan the contributions or other annual
additions, or benefits, of a Participant should be reduced under this
Section, the intent is that the order of reduction set forth herein
is for purposes of guidance only and not obligatory, and that such
order of reduction as to one Participant may be different from
another Participant, so as to afford maximum flexibility to the Plan
in avoiding a violation of the provisions of Section 415 of the IRC.
(n) For purposes of this Subsection, the term "Social Security Retirement
Age" means the age used as the retirement age for the Participant
under Section 216(l) of the Social Security Act, except that such
section shall be applied without regard to the age increase factor,
and as if the early retirement age under Section 216(l)(2) of such
Act were 62.
(o) In the case of an individual who is a Participant as of January 1,
1987, the dollar limitation of the Participant shall be equal to his
Current Accrued Benefit if such Current Accrued Benefit exceeds the
benefit limitations of this
250
<PAGE>
Exhibit 10(H)
page 60 of 91
Section and of IRC Section 415(b) of the IRC. The "Current Accrued
Benefit" shall be the Participant's accrued benefit under the Plan
when expressed as an annual benefit under IRC Section 415(b)(2),
determined as if he had separated from service as of December 31,
1986, but disregarding any changes in the terms and conditions of the
Plan, or any cost-of-living adjustment, occurring after May 5, 1986.
(p) Compensation shall include the following items:
(i) The Participant's wages, salaries, fees for professional service
and other amounts received for personal services actually
rendered in the course of employment with an employer
maintaining the plan (including but not limited to, commissions
paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips
and bonuses).
(ii) For purposes of the prior sentence, earned income from sources
outside the United States.
(iii) Amounts described in IRC Sections 104(a)(3), 105(a) and 105(h),
but only to the extent that these amounts are includable in the
gross income of the Employee.
(iv) Amounts described in IRC Section 105 (d) , whether or not these
amounts are excludable from the gross income of the Employee
under that section.
(v) Amounts paid or reimbursed by the Employer for moving expenses
incurred by an Employee, but only to the extent that these
amounts are not deductible by the Employee under IRC Section
217.
(vi) The value of a non-qualified stock option granted to an Employee
by the employer, but only to the extent that the value of the
option is includable in the gross income of the Employee for the
taxable year in which granted.
251
<PAGE>
Exhibit 10(H)
page 61 of 91
(vii) The amount includable in the gross income of an Employee upon
making the election described in IRC Section 83(b).
(q) Compensation shall not include the following items:
(i) Contributions made by the Employer to a plan of deferred
compensation to the extent that, before the application of the
IRC Section 415 limitations to that plan, the contributions are
not includable in the gross income of the employee for the
taxable year in which contributed. In addition, Employer
contributions made on behalf of an Employee to a simplified
employee pension described in IRC Section 408(k) are not
considered as compensation for the taxable year in which
contributed to the extent such contributions are deductible by
the Employee under IRC Section 219(b)(7). Additionally, any
distributions from a plan of deferred compensation are not
considered as compensation for IRC Section 415 purposes,
regardless of whether such amounts are includable in the gross
income of the Employee when distributed. However, any amounts
received by an Employee pursuant to an unfunded non-qualified
plan may be considered as compensation for IRC Section 415
purposes in the year such amounts are includable in the gross
income of the Employee.
(ii) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by an
Employee either becomes freely transferable or is not longer
subject to a substantial risk of forfeiture (see IRC Section 83
and the regulations thereunder).
(iii) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option.
(iv) Other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent
that the premiums are not includable in the gross income of the
Employee), or contributions made by an Employer (whether or not
under a salary reduction agreement) towards the purchase of an
annuity contract described in Section 403(b) (whether or not the
contributions are excludable from the gross income of the
Employee).
252
<PAGE>
Exhibit 10(H)
page 62 of 91
(r) Except as provided in regulations, the provisions of IRC Section 415
are hereby incorporated by reference to the extent not set forth in
this Section.
253
<PAGE>
Exhibit 10(H)
page 63 of 91
SECTION 14 - MISCELLANEOUS PROVISIONS
14.01 SPENDTHRIFT CLAUSE. Except as provided in Section 14.02, benefits or
payments from this Plan shall be paid to the individual entitled to
receive them personally and upon his personal receipt or endorsement. No
Participant, spouse or Beneficiary shall have the right or power to
transfer, assign, anticipate, mortgage, pledge or otherwise encumber this
interest in the Trust established by this Agreement, or his rights to
receive payments or benefits from the Trust and neither such interests
nor rights nor any assets of the Trust shall be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by the Participant or Beneficiary nor to
transferability by operation of law in the event of bankruptcy,
insolvency or otherwise, provided, however, that this limitation shall
not apply to a qualified domestic relations order under IRC Section
414(p).
14.02 FACILITY OF PAYMENT. If any person to whom payments are to be made under
the Plan is in the judgment of the Committee or an insurance company that
has issued an annuity policy pursuant to Section 7.10 under a legal
disability, or by reason of mental or physical disability is in the
opinion of the Committee or such insurance company unable to administer
properly such payments, even though such person has not been legally
adjudicated incompetent, then such payment or payments may be made to any
person, persons, or institution as, in the option of the Committee or the
insurance company, is then maintaining or has custody of such person
until claim is made by a duly appointed guardian or other legal
representative of such person. Such payment shall constitute a full
discharge of liability of the Plan to the extent thereof.
14.03 EVIDENCE OF SURVIVAL. The Committee or an insurance company shall have
the right to require satisfactory evidence that a person entitled to
receive benefits hereunder is living on each and every date when a
benefit is due such person. In the absence of such evidence, when
required, any payments otherwise due shall not be made until such
evidence shall have been received.
14.04 DISCRETIONARY ACTS TO BE UNIFORM. Any discretionary acts to be taken
under the Plan by the Committee, or any person or persons to whom
authority has been delegated, shall be uniform in their nature and
applicable to all persons similarly
254
<PAGE>
Exhibit 10(H)
page 64 of 91
situated, and no discretionary acts shall be taken that will be
discriminatory under the applicable provisions of the IRC pertaining to
qualified plans.
14.05 ELECTIONS TO BE MADE ON PRESCRIBED FORMS. All elections, claims,
designations, and revocations made by Participants or other persons under
the Plan shall be made in writing on forms prescribed by and furnished by
the Committee and shall not be effective until filed with the Committee.
14.06 RELIANCE ON INFORMATION FURNISHED BY EMPLOYER. Any information furnished
by the Employer to the Committee, such as compensation of Employees,
length of service, Hours of Service, or otherwise, shall be accepted by
the Committee as being true and correct, and the Committee shall incur no
liability in relying on such information.
14.07 INABILITY TO PERFORM. Neither the Employers nor the Committee shall be
responsible for any inability to perform, or delay in performing, any act
occasioned by any restriction or provisions imposed by the Trustee, or by
any other person, or by law, and in the event any such inability or delay
shall be so occasioned, then that act which can be performed shall be
performed by the Employers or the Committee which, in the sole discretion
of the Committee, most completely carries out the intention and purpose
of this Plan. All parties of this Plan or in any way interested therein
shall be bound by any acts so performed under such conditions.
14.08 MISSTATEMENT OF AGE. In the event an Employee misrepresents his age or
his spouse's age to his Employer or the Committee, he shall be entitled
to the lesser of the following benefits:
(a) The benefit that would be payable on the basis of actual age; or
(b) The benefit that would be payable on the basis of the misrepresented
age.
14.09 RIGHTS OF INDIVIDUALS. No Employee, nor any person claiming by, through,
or under such Employee, shall have any right, title, or interest in or to
the Retirement Fund except such right to a benefit as expressly provided
herein. No Employee shall be entitled to receive any part of the
contributions of the Employers or any other cash consideration upon his
withdrawal from the services
255
<PAGE>
Exhibit 10(H)
page 65 of 91
of the Employers, or the termination of his services by the Employers,
unless otherwise provided herein, or upon the discontinuance of the Plan
except to the extent provided herein. All rights and claims are limited
as set forth hereunder and no Participant or other person shall have any
recourse toward satisfaction or payment of any benefit provided by this
Plan from other than the Retirement Fund or the Pension Benefit Guaranty
Corporation. Nothing contained herein gives, nor is intended to give,
any Employee the right to be retained in the service of the Employers,
nor to interfere with the right of the Employers to discharge or
terminate the employment of an Employee at any time and this Plan shall
in no event be construed as a contract of employment between any Employer
and the Employee.
14.10 ACTUARIAL COMPUTATIONS. The Committee, Trustees and the Employer shall
be entitled to conclusively rely upon any actuarial computations or
evaluations made by an insurance company or an actuary or a firm of
actuaries. Except in case of a mathematical error, each Employee, or
person claiming through any Employee, shall be conclusively bound by any
actuarial computation or evaluation made by an insurance company or an
actuary or a firm of actuaries, provided, however, the determination of
an actuarial equivalent of another form of payment or the present value
of future payments that may become payable shall be made on the basis of
the following factors until such time as the applicable law or rulings of
the Internal Revenue Service no longer requires fixed standards for
actuarial assumptions used in determining actuarial equivalents to be set
forth in the Plan:
Table
-----
Unisex Pension Table - 1984 (UP-1984) with a two year age setback,
except that the age setback shall be one year for a contingent
annuitant under a joint and survivor annuity option.
Interest
--------
Interest factor of seven and one-half percent (7.5%), except that
single sum distributions shall be based upon an interest factor which
shall be adjusted as of the first day of each calendar month to be the
monthly annuity rate (immediate or deferred) of the Pension Benefit
Guaranty Corporation for that calendar month.
256
<PAGE>
Exhibit 10(H)
page 66 of 91
The following rules shall apply to the interest factor:
(i) In figuring whether the single sum actuarial equivalent under
Section 7.09 exceeds $3,500, the interest rate used shall not
exceed the Pension Benefit Guaranty Corporation ("PBGC")
interest rate or rates for purposes of determining the present
value of a lump sum distribution on plan termination, as in
effect on the first day of that calendar month.
(ii) In figuring whether such single sum actuarial equivalent exceeds
$25,000, the interest rate shall not exceed 120% of the PBGC
interest rate but such increase in the allowable PBGC rate may
in no event cause the single sum actuarial equivalent to be less
than $25,000.
(iii) This Section shall apply to distributions in Plan Years
beginning after December 31, 1986. The Section shall also apply
to distributions in Plan Years beginning after December 31,
1984, which were not made in accordance with regulations issued
under the Retirement Equity Act of 1984, other than
distributions under an annuity contract distributed to or owned
by a Participant prior to September 17, 1985, unless additional
contributions were made by the Employer under such contracts.
14.11 NOTICE OF REQUIRED ACTION. In any case in which an Employer, the
Committee, or the Trustee shall be directed to take any action upon the
occurrence of any event, they, or any one or more of them, shall be under
no obligation or liability to take such action unless and until notice,
proper and satisfactory to them shall first have been received or the
occurrence of such event. For the purposes of this Section 14.11, a
certificate in writing signed by an officer of the Company and delivered
to the Committee or the Trustee, or a certificate in writing from the
Committee to the Trustee as to the occurrence or happening of any event,
shall constitute conclusive evidence of such occurrence or happening, and
the Committee and the Trustee, respectively, shall be fully protected and
discharged from all liability whatsoever in accepting and relying on such
certificate. No Trustee shall be required to go a back of any action of
the Committee, and no Trustee shall be responsible to see that any action
of the Committee is authorized by the terms of this agreement.
257
<PAGE>
Exhibit 10(H)
page 67 of 91
14.12 RELIANCE UPON COMMUNICATION. Neither the Employers, the Committee,
nor any agent of the Trustees shall incur any liability in acting upon
any notice, request, signed letter, telegram, or other paper or documents
reasonably believed by any one of them to be genuine and to be signed or
sent by the proper person.
14.13 NO REVERSION TO EMPLOYERS. The Employers shall in no event, either
directly or indirectly, receive any fund or contributions made by it to
the Trust, nor directly or indirectly participate in the distribution, or
receive the benefits of the assets or funds comprising the Retirement
Fund prior to the satisfaction of all liabilities with respect to
Employees, beneficiaries, and spouses under this Plan; provided, however,
if there are any assets remaining after all such liabilities have been
satisfied they shall be returned to the Employers; provided, further:
that (subject to the limitations of Revenue Ruling 91-4):
(a) If a contribution is made by a mistake of fact, the mistaken portion
of the contribution shall be returned within one year after payment
of the mistaken contribution upon the Employer's written request; and
(b) Each contribution by the Employer is conditioned upon the
deductibility of the contribution under the applicable section of the
IRC. Accordingly, to the extent of disallowance of the deduction for
the part or all of the contribution, the contribution shall be
returned within one year after disallowance upon the Employer's
written request.
Upon transfer to the Trustees, all responsibilities of the Employers for
each contribution shall cease, and the Employer shall have no
responsibilities for the acts of the Trustees.
14.14 INSURER NOT PARTY TO AGREEMENT. No insurance company (other than the
Employers) shall be deemed a party to this Plan for any purpose.
14.15 CONSTRUCTION. It is intended that this Plan and the Trust Agreement
which is a part thereof shall comply with the provisions of ERISA and
constitute a qualified plan and trust under the Provisions of Section
401(a) of the IRC, and be operated in a manner so as not to discriminate
in favor of Highly Compensated Employees as defined at Section 414(q) of
the IRC. Accordingly, the provisions of this Plan and the Trust
Agreement shall be construed and applied in a manner consistent
258
<PAGE>
Exhibit 10(H)
page 68 of 91
with such intent. However, to the extent not superseded by ERISA, this
Plan and the Trust Agreement which is a part thereof, shall be construed
and enforced in accordance with the laws of the State of Illinois.
14.16 SECTION TITLES NOT PART OF AGREEMENT. The section designations and
titles are included solely for convenience and shall, in no event, be
construed to affect or modify any of the provisions of this Agreement or
be construed as a part thereof.
14.17 GENDER AND CASE. Where used in this Agreement, words in the masculine
shall be read and construed as in the feminine, and words in the singular
shall be read and construed as though used in the plural, in all cases
where such constructions would so apply. Unless the context requires
otherwise, such words as "herein" "hereto" "hereinafter" "hereinbefore"
or "hereunder" refer to this instrument as a whole and not merely to the
subdivisions in which such words appear.
14.18 ELIGIBLE ROLLOVER DISTRIBUTIONS. Effective with respect to distributions
made on or after January 1, 1993, a distributee may elect, at the time
and in the manner prescribed by the plan administrator, to have any
portion of an Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan specified by the distributee in a Direct Rollover. For
purposes of this Section 14.18:
(a) An "Eligible Rollover Distribution" is any distribution of all or any
portion of the balance to the credit of the distributee, except that
an Eligible Rollover Distribution does not include: any distribution
that is one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy)
of the distributee and the distributee's designated beneficiary, or
for a specified period of ten years or more; any distribution to the
extent such distribution is required under Section 401(a)(9) of the
Code; and the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(b) An "Eligible Retirement Plan" is an individual retirement account
described in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the
distributee's Eligible Rollover Distribution. In the case of an
259
<PAGE>
Exhibit 10(H)
page 69 of 91
Eligible Rollover Distribution to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or individual
retirement annuity.
(c) A "Distributee" is an employee or former employee, the employee's or
former employee's surviving spouse and the employee's or former
employee's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section 414(p) of
the Code.
(d) A "Direct Rollover" is a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
260
<PAGE>
Exhibit 10(H)
page 70 of 91
SECTION 15 - ADOPTION OF PLAN BY SUBSIDIARY
15.01 ADOPTION OF PLAN. This Plan has been adopted by Combined Insurance
Company of America, Combined American Insurance Company, Combined
Insurance Company of Wisconsin, and Combined Life Insurance Company of
New York. Any other Subsidiary of the Company, by proper resolutions
adopted by its Board, or by an adoption agreement executed by a principal
executive officer, may become a party to this instrument by adopting this
Plan as its pension plan for its Staff Employees. A certified copy of
such resolutions shall be delivered to the Trustees.
15.02 INTENTION OF PARTIES. The provisions of this Plan shall be construed as
the pension plan of each of the Employers that may adopt this Plan as its
pension plan and each such Employer shall contribute the cost
attributable to its Employees, as may be determined by the Company.
Except as otherwise may be provided herein, or as may be provided in the
resolutions of an adopting Subsidiary, it is the intention of the parties
hereto that the Employees of the Company and the Employees of any
Subsidiary that adopts this Plan or has adopted this Plan shall receive
the same benefits as they would receive if all the Employers were one
corporate entity and this Plan were the plan of such entity, and the
provisions of this Plan shall be interpreted in accordance with this
intent.
15.03 TERMINATION BY ONE EMPLOYER. In the event any Employer discontinues the
Plan in accordance with the provisions of Section 10, this Plan shall
only be discontinued in respect to such Employer and its Employees but
not in respect to the other Employers that have adopted the Plan; it
being understood that the Plan shall continue in full force and effect as
to any such other Employers and their Employees.
261
<PAGE>
Exhibit 10(H)
page 71 of 91
SECTION 16 - RIGHTS OF FORMER EMPLOYEES
16.01 RIGHTS OF FORMER EMPLOYEES.
The rights of Employees whose employment terminated prior to January 1,
1989, shall be determined by the terms of the Plan as they existed prior
to January 1, 1989; provided, however, that if any such individual again
becomes an Employee his rights shall be determined by the terms of the
Plan at the time he again becomes an Employee and such amendments thereto
as may thereafter be adopted.
262
<PAGE>
Exhibit 10(H)
page 72 of 91
SECTION 17 - PROVISIONS APPLICABLE IF PLAN BECOMES TOP-HEAVY
17.01 APPLICABILITY. The provisions of this Section 17 shall be applicable
during any Plan Year commencing subsequent to December 31, 1983, but only
if the Plan was a Top-Heavy Plan or was part of a Top-Heavy Group on the
Determination Date, and in such case shall override and supersede all
other provisions in this Plan to the contrary; provided, that these
provisions shall not apply to a Plan which is not itself a Top-Heavy Plan
and which was included in an Aggregation Group under the second sentence
of Section 17.02(f); provided further, that, these the extent permitted
by law, Section 17.05 shall not apply to any Employee who has received
the minimum contribution and/or benefit for the Plan Year as required
under The Top-Heavy rules from either any defined contribution plan of
the Employer, or from such defined contribution plan plus this Plan.
17.02 ADDITIONAL DEFINITIONS.
(a) Key Employee. The term "Key Employee" shall refer to any Participant
who at any time during the Plan Year or any of the four preceding
Plan years, is
(i) an officer of the Employer, but not taking into account any such
Employee whose Compensation is less than one hundred fifty
percent (150%) of the maximum dollar limitation in IRC Section
415(c)(1)(A) as in effect for the calendar year in which the
Determination Date falls,
(ii) one of the ten Employees owning [or considering as owning within
the meaning of Section 318 of the IRC but substituting 5% for
50% in Section 318(a)(2)(C)] the largest interests in the
Employer, but not taking into account any such Employee whose
Compensation is less than the maximum dollar limitation in IRC
Section 415(c)(1)(A) as in effect for the calendar year in which
the Determination Date falls,
(iii) a Five Percent Owner of the Employer,
or
263
<PAGE>
Exhibit 10(H)
page 73 of 91
(iv) a One Percent Owner of the Employer having an annual compensation
from the Employer of more than $150,000.
The term shall also include beneficiaries of a Key Employee. For
purposes of clause (i), no more than 50 Employees (or, if lesser, the
greater of 3 or 10% of the Employees) shall be treated as officers,
and the officers taken into account shall be the officers with the
highest compensation. For purposes of Paragraph (ii), if two
Employees have the same interest in the Employer, the Employee having
greater annual Compensation from the Employer shall be treated as
having a larger interest. For purposes of Paragraphs (ii), (iii), and
(iv), the aggregation rules of Subsections (b), (c), and (m) of
Section 414 of the IRC (pertaining to employees of a controlled group
of corporation, of partnerships and proprietorships under common
control, and of an affiliated service group) shall not apply.
(b) Five Percent Owner. The term "Five Percent owner" shall mean any
person who owns (or is considered as owning within the meaning of
Section 318 of the IRC but substituting 5% or 50% in Section
318(a)(2)(C)] more than five percent of the outstanding stock of the
Employer or stock possessing more than five percent of the total
combined voting power of all stock of the Employer.
(c) One Percent Owner. The term "One Percent Owner" means any person who
owns or is considered as owning within the meaning of Section 318 of
the IRC but substituting 5% for 50% in Section 318(a)(2)(C)] more
than one percent of the outstanding stock of the Employer or stock
possessing more than one percent of the total combined voting power
of all stock of the Employer.
(d) Non-Key Employee. The term "Non-Key Employee" shall refer to any
Participant who is not a Key Employee.
(e) Top-Heavy Plan. A Plan is a "Top-Heavy Plan" if, as of the
Determination Date, the present value of the cumulative accrued
benefits under the Plan for Key Employees exceeds 60% of the present
value of the cumulative accrued benefits for all Employees under the
Plan, or under the Aggregation Group if the Plan is required to be
included in an Aggregation Group and such
264
<PAGE>
Exhibit 10(H)
page 74 of 91
group is a Top-Heavy Group; provided, that the Plan shall not be a
Top-Heavy Plan if the Plan is part of an Aggregation Group which is
not a Top-Heavy Group.
(f) Aggregation Group. The term "Aggregation Group" means (i) each plan
of the Employer in which a Key Employee is a Participant and (ii)
each other plan of the Company which enables any plan described in
(i) to meet the discrimination requirements of Section 401(a)(4) of
the IRC or the minimum participation standards of Section 410 of the
IRC. In addition, at the option of the Company, it may include any
other plan of the Company if the Group would continue to meet the
requirements of Sections 401(a)(4) and 410 of the IRC with such other
plan being taken into account.
(g) Top-Heavy Group. An Aggregation Group is a "Top-Heavy Group" if, as
of the Determination Date, (i) the present value of the cumulative
accrued benefits for Key Employees under all defined benefit plans
included in such group, plus (ii) the aggregate of the accounts for
Key Employees under all defined contribution plans included in such
Group, exceeds (ii) 60% of a similar sum determined for all
Employees.
(h) Employee. The term "Employee" shall include the Beneficiaries of such
Employee.
(i) Determination Date. The term "Determination Date" shall mean, with
respect to any Plan Year, the last day of the preceding Plan Year.
(j) Compensation. The term "Compensation" shall mean total compensation
but shall not include annual compensation in excess of $200,000 (as
adjusted for cost-of-living increases by the Secretary or his
delegate at the same time and in the same manner as the dollar amount
contained in Section 13.06). Effective January 1, 1989, this Section
17.02(j) shall no longer apply.
(k) Annual Retirement Benefit. The term "Annual Retirement Benefit"
means a benefit payable annually in the form of a single life annuity
(with no ancillary benefits beginning at Normal Retirement Date. Such
benefit shall be actuarially adjusted if payment commences before or
after Normal Retirement Date.
265
<PAGE>
Exhibit 10(H)
page 75 of 91
(l) Applicable Percentage. The term "Applicable Percentage" means 2
percent multiplied by the number of Years of Top-Heavy Service with
the Employer, disregarding any such years in excess of ten.
(m) Year of Top-Heavy Service. The term "Year of Top-Heavy Service"
shall refer to a Year of Service under Section 2.31, except that no
Years of Service shall be taken into account which may be disregarded
under paragraphs (4), (5) and (6) of IRC Section 411(a), other than
under IRC Section 411(a)(4)(B) for failure of the Participant to make
mandatory contributions. In addition, a Year of Top-Heavy Service
with the Employer shall not be taken into account if
(i) the plan was not a Top-Heavy Plan for the Plan Year ending during
such Year of Service, or
(ii) such Year of Top-Heavy Service was completed in a Plan Year
beginning before January 1, 1984.
(n) Top-Heavy Benefit. The term "Top-Heavy Benefit" shall mean a
Participant's pension benefit earned under Section 17.05.
(o) Testing Period. The term "Testing Period" shall mean the period of
consecutive Plan Years (not exceeding 5) during which the Participant
had the greatest aggregate Compensation from the Employer. Such years
shall be properly adjusted for years not included as a Year of Top-
Heavy Service. Furthermore, a year shall not be taken into account if
(i) such year ends in a Plan Year beginning before January 1, 1984,
or
(ii) such year begins after the close of the last year in which the
Plan was a Top-Heavy Plan.
17.03 SPECIAL RULES. In determining whether the Plan is a Top-Heavy Plan or
part of a Top-Heavy Group, the following rules shall apply.
(a) Except to the extent provided in regulations issued by the Secretary
of the Treasury, any rollover contribution (or similar transfer)
initiated by an
266
<PAGE>
Exhibit 10(H)
page 76 of 91
Employee and made after December 31, 1983, to a plan shall not be
taken into account with respect to the transferee plan.
(b) If any individual is a Non-Key Employee with respect to the Plan for
any Plan Year, but such individual was a Key Employee with respect to
the Plan for any prior Plan Year, any accrued benefit for such
Employee (and the account of such Employee) shall not be taken into
account for purposes of Sections 17.02(e), (f) and (g).
(c) To the extent provided in regulations issued by the Secretary of
Treasury, the Top-Heavy rules of this Section shall be applied on the
basis of any year specified in such regulations in lieu of Plan
Years.
(d) In determining present values and account balances under Section
17.02(e), (f), and (g), all distributions made with respect to any
Employee during the 5-year period ending on the Determination Date
shall be added back and included therein. The preceding sentence
shall also apply to distributions under a terminated plan which if it
had not been terminated would have been required to be included in an
Aggregation Group.
(e) In determining the present value of accrued benefits under Section
17.02(e) or (g), amounts attributable to deductible employee
contributions shall not be considered to be part of the accrued
benefits.
(f) Effective January 1, 1985, if any Employee has not performed services
for any Employer maintaining the Plan at any time during the 5-Year
period ending on the Determination Date, any accrued benefit for such
Employee (and the account of such individual) shall not be taken into
account.
17.04 VESTING WITH RESPECT TO PARTICIPANT'S TOP-HEAVY BENEFIT. In lieu of the
vesting schedule set forth in Section 5.02, a Participant, provided he
earns at least one Hour of Service after the Plan becomes Top-Heavy,
shall vest in his Top-Heavy Benefit according to the following schedule:
Completed Years of Service Non-Forfeitable %
2 20%
3 40%
267
<PAGE>
Exhibit 10(H)
page 77 of 91
4 60%
5 80%
6 100%
17.05 MINIMUM BENEFIT FOR NON-KEY EMPLOYEE. The Normal Retirement Benefit
derived from Employer contributions for each Participant in a Top-Heavy
Plan, when expressed as an Annual Retirement Benefit, shall not be less
than the Applicable Percentage of his average Compensation in the Testing
Period. The Participant's accrued benefit under Section 2.01 shall not
be less than the amount of such Top-Heavy Benefit. Any accrued benefits
derived from Employer contributions, whether or not attributable to years
for which the Plan is a Top-Heavy Plan, may be used to satisfy such
minimum benefit.
17.06 MAXIMUM ANNUAL BENEFIT. The limitations of Section 13.05 shall be
applied by substituting 1.0 for 1.25 where it appears in Section 13.05(g)
in the denominators of the defined benefit plan fraction and the defined
contribution plan fraction. However, if the plan would not be a Top-
Heavy Plan or part of a Top-Heavy Group if 90% were substituted for 60%
in Sections 17.02(e) and (g), then "3 percent" shall be substituted for
"2 percent" as the minimum benefit for any defined contribution plan in
the Top-Heavy Group and the preceding sentence shall not apply. The
application of the first sentence of this Section 17.06 shall be
suspended with respect to any Participant so long as there are no (i)
Employer contributions, forfeitures or voluntary nondeductible
contributions allocated to such Participant or (ii) accruals for such
Participant under any defined benefit plan. If the first sentence of
this Section 17.06 is applicable, Section 13.05(h) shall be applied by
substituting $41,500 for $51,875.
17.07 SIMPLIFIED EMPLOYEE PENSIONS. For purposes of Section 17, a Simplified
Employee Pension shall be treated as a defined contribution plan. At the
Employer's election, the aggregate Employer contributions to a Simplified
Employee Pension may be taken into account in lieu of the aggregate of
the accounts of the Employees for the purpose of determining whether the
Plan is part of a Top-Heavy Group pursuant to Section 17.02(g).
17.08 CONTRIBUTIONS OR BENEFITS NOT TAKEN INTO ACCOUNT. The Plan must meet the
requirements of Sections 17.05 and 17.06 without taking into account (i)
contributions or benefits under Chapter 2 of the IRC (relating to tax on
self-
268
<PAGE>
Exhibit 10(H)
page 78 of 91
employment income); (ii) Chapter 21 of the IRC (relating to Federal
insurance Contributions Act; (iii) Title 11 of the Social Security Act;
or (iv) any other Federal or State law.
17.09 EMPLOYMENT IN BARGAINING UNIT. The provisions of Sections 17.02(j),
17.04 and 17.05 shall not apply with respect to any Employee employed in
a bargaining unit described in Section 3.02(d).
17.10 COMMENCEMENT OF BENEFITS. Notwithstanding Section 7.11(a), distributions
to a Key Employee shall commence not later than the end of his taxable
year in which he attains age 70-1/2 whether or not he has retired.
17.11 FORFEITURES. No portion of a Participant's Top-Heavy Benefit maybe
forfeited under Section 7.11 or because of his withdrawal of any amount
attributable to the benefit derived from mandatory contributions made by
such Participant.
269
<PAGE>
Exhibit 10(H)
page 79 of 91
SECTION 18 - MERGERS AND TRANSITIONAL RULES
18.01 GENERAL. As part of the 1989 Restatement of The Plan, both the
Retirement Plan for Employees of the Life Insurance Company of Virginia
and Designated Subsidiaries and Designated Affiliates ("LOV Pension
Plan") and the Miller, Mason & Dickenson, Inc. Pension Plan ("MMD
Pension Plan") were merged into this Plan as set forth below. It is the
intention of this Section to set forth the transitional rules applicable
to former participants in those plans, and also to set forth transitional
rules for former participants in the Rollins Burdick Hunter Co. Employees
Pension Plan which was merged into this Plan effective January 1, 1986;
and for former participants in the Pension Plan for the Employees of
Booke and Company ("Booke Plan") which was merged into this Plan
effective August 1, 1993.
18.02 MERGERS AND TRANSFERS OF ASSETS AND LIABILITIES. Effective as of January
1, 1989, or as soon as administratively convenient thereafter, the
following mergers and transfers of assets and liabilities took place.
(a) Participants under the LOV Pension Plan became Participants in this
Plan as of January 1, 1989. The Trustee shall deposit and hold as
part of the Retirement Fund the transferred assets, as certified to
by the Trustee under the LOV Pension Plan as provided for by the
Amendment to such plan pursuant to which the assets of such plan are
turned over and delivered to the Trustee of this Plan.
(b) Participants under the MMD Pension Plan shall became Participants in
this Plan as of January 1, 1989. The Trustee shall deposit and hold
as part of the Retirement Fund the transferred assets, as certified
to by the Trustee under the MMD Pension Plan as provided for by the
Amendment to such plan pursuant to which the assets of such plan are
turned over and delivered to the Trustee of this Plan.
18.03 THE RETIREMENT PLAN FOR EMPLOYEES OF THE LIFE INSURANCE COMPANY OF
VIRGINIA AND DESIGNATED SUBSIDIARIES. In figuring the normal retirement
benefit under Section 4.01, the 25 years of Service maximum under Section
4.01(b) shall take into account years of credited service for a former
Participant in the LOV
270
<PAGE>
Exhibit 10(H)
page 80 of 91
Pension Plan prior to such date and such years of credited service shall
reduce the remaining years available as of January 1, 1989. The post-
retirement cost of living adjustment ("COLA") under the LOV Pension Plan
at former Section IX is eliminated but the accrued benefit of a
Participant as of December 31, 1988, shall be calculated so as to take
into account an actuarial increase to reflect the COLA as of such date
but only for Participants who attain age 55 with 10 or more years of
credited service. A Participant's pre-retirement death benefit under the
66-2/3% joint and survivor annuity form as of December 31, 1988, shall be
the minimum amount of such benefit. As required under Reg. Section
1.410(a)-7(f) upon transfer from an elapsed time plan to a plan using the
general method, as of January 1, 1989, former participants shall get
credit for the same number of Years under this Plan as were credited
under the LOV Pension Plan; provided, however, that future benefits shall
be reduced to take into account any part year credited under the LOV
Pension Plan; provided further, however, that the actual Hours of Service
for the full Plan Year beginning January 1, 1989, shall be used since the
computation period which includes the date of transfer is a full year and
not a fractional year. Since the accrual rate of benefits is reduced,
the amendment to the early termination rule at Section 11 shall not
apply. The career average formula for Ordinary Field Representatives (as
defined in the LOV Pension Plan) is preserved through December 31, 1988,
and the normal retirement benefit under Section 4.01 shall apply for
service on or after January 1, 1989; provided, however, that service of
an Ordinary Field Representative prior to January 1, 1989 shall be taken
into account in figuring years available under Section 4.01(b) and Final
Average Earnings. The formula for such field representatives shall be 1%
of pay up to $17,000 plus 1.5% of pay in excess of $17,000. Accrued
benefits as of December 31, 1988 shall be calculated as set forth at
Section 5.03(c).
18.04 MILLER, MASON & DICKENSON, INC. PENSION PLAN. With respect to the
maximum credit under Section 4.01(b) of 25 Years of Service on or after
January 1, 1989, prior years of credited service under the MMD Pension
Plan shall be taken into account and reduce the 25 years maximum in the
same manner as provided under Section 18.03 for the LOV Pension Plan.
The offset to the retirement benefit for account balances in the former
Miller, Mason & Dickenson, Inc. Money Purchase Pension Plan is preserved.
Any Participant with four years of vesting service as of December 31,
1988 shall be given 40% vesting as of January 1, 1989. Accrued
271
<PAGE>
Exhibit 10(H)
page 81 of 91
benefits as of December 31, 1988 shall be calculated as set forth at
Section 5.03(d).
18.05 ROLLINS BURDICK HUNTER CO. EMPLOYEES PENSION PLAN. The formula for
compensation at former Section 19.01(g) shall include overtime. The
special pre-retirement death benefit for a Participant with 20 Years of
Service or after age 55 with 10 Years of service under former Section
19.15, for payment of 50% of the accrued benefit immediately as the death
benefit is preserved, but only for the amount accrued as of December 31,
1988. The retirement benefit formula at former Section 19.07 shall
continue to apply except that the new offset at Section 4.01(c) shall
apply. Service previously not taken into account as of December 31, 1988
pursuant to former Sections 18(b)(ii) and 19.13 shall continue not to be
taken into account. The offsets at former Sections 18(b)(vi) and 19.10
shall continue to apply.
18.06 BOOKE AND COMPANY PENSION PLAN. Effective August 1, 1993, the assets and
liabilities of the Pension Plan for the Employees of Booke and Company
("Booke Plan") shall be transferred to this Plan. The following special
provisions apply, effective as of August 1, 1993, to an Employee who was
employed by Booke and Company on July 31, 1993 ("Former Booke Employee"):
(a) Participation. Notwithstanding the provisions of Section 3
("Eligibility") of this Plan, both active and inactive participants
in the Booke Plan shall become Participants in this Plan as of August
1, 1993. A Former Booke Employee who was not an active participant in
the Booke Plan on July 31, 1993, shall become a Participant in this
Plan following satisfaction of the requirements of Section 3.02.
(b) Hours of Service. For purposes of satisfying Section 3.02 (relating
to service requirements for eligibility), and Section 5.02 (relating
to service requirements for vesting) hours of service performed for
Booke shall be considered hours of service performed for an Employer.
(c) Normal Retirement Benefit. The Normal Retirement Benefit for a
Former Booke Employee under Section 4.01 of this Plan shall be the
sum of (i) and (ii):
272
<PAGE>
Exhibit 10(H)
page 82 of 91
(i) For Years of Participation (as defined in the Booke Plan) before
January 1, 1993: the normal retirement benefit as computed under
Section 5.1 of the Booke Plan but adjusted to reflect Annual
Earnings on and after January 1, 1993, as defined under the Aon
Pension Plan.
(ii) For Years of Service after December 31, 1992: the Normal
Retirement Benefit as computed under Section 4.01 of this Plan.
The 25 Years of Service maximum under Section 4.01(b) shall take
into account years of credited service under the Booke Plan, and
such years of credited service shall reduce the remaining years
available effective December 31, 1992.
(d) Early Commencement Election. A Participant who terminates employment
prior to his Normal Retirement Date shall be entitled to a vested
retirement benefit computed under Sections 5.02 and 5.04 provided,
however, that Accrued Retirement Income shall be computed in
accordance with subsection (c) of this Section 18.06, using the
reduction factors and excess factors specified in Section 5.2 of the
Booke Plan with respect to Years of Service before January 1, 1993,
and that the reductions of Sections 5.04(b) and (c) shall apply only
to Accrued Retirement Income for Years of Service after December 31,
1992.
(e) Special Rules. In no event shall the Normal Retirement Benefit nor
the Accrued Retirement Income of a Former Booke Employee under the
terms of this Plan be less than his minimum accrued benefit under the
terms of the Booke Plan as of July 31, 1993.
(f) Benefit Options. Benefit options under the Booke Plan which shall
continue to apply to benefits accrued under the Booke Plan through
July 31, 1993, shall include, under Section 7.8 of the Booke Plan,
the ability of the spouse of a deceased Participant to elect a
benefit commencement date prior to the date the Participant would
have attained age 55.
273
<PAGE>
Exhibit 10(H)
page 83 of 91
SECTION 19 - VOLUNTARY RETIREMENT PROGRAM
19.01 VOLUNTARY RETIREMENT PROGRAM. The terms of this Section 19 are effective
to provide supplemental retirement benefits (subject to Section 13.05)
for certain Participants who terminate employment with an Employer under
the terms of the Voluntary Retirement Program.
19.02 DEFINITIONS. In addition to those of Section 2, the following
definitions shall apply for purposes of this Section 19:
(a) "Additional Temporary Supplement" shall mean an amount equal to $150,
to be paid monthly until the first to occur of:
(i) attainment of age 65;
(ii) death of the Participant; or
(iii) completion of 24 payments.
(b) "Lifetime Pension Supplement" shall mean an amount equal to 0.5
percent of the Participant's Final Average Earnings multiplied by
Years of Service up to but not in excess of 20 Years of Service. The
Lifetime Pension Supplement shall be paid at the same time and in the
same optional form as benefits paid to the Participant under Section
4 or 5 and shall terminate coincident with the termination of such
benefits.
(c) "Temporary Pension Supplement" shall mean an amount equal to 0.5
percent of a Participant's Final Average Earnings multiplied by Years
of Service up to but not in excess of 20 Years of Service.
The Temporary Pension Supplement shall be paid monthly until the
first to occur of:
(i) attainment of age 65;
(ii) death of the Participant; or
274
<PAGE>
Exhibit 10(H)
page 84 of 91
(iii) completion of 120 payments.
(d) "Voluntary Retirement Participant" shall mean a Participant who:
(i) is at least 54 years of age on or before December 31, 1992;
(ii) terminates employment with an Employer between December 18,
1992, and February 15, 1993, inclusive; and
(iii) meets the requirements of (A) or (B):
(A) has Annual Earnings in 1992 of less than $62,345 and whose
combined total Years of Employment and age as of January 1,
1993, is at least 66; or
(B) has Annual Earnings in 1992 of $62,345 or more and whose
combined total Years of Employment and age as of January 1,
1993, is at least 72.
Commissioned agents of Combined Life Insurance Company of America and
commissioned representatives of Life Insurance Company of Virginia are
not eligible for the Voluntary Retirement Program.
(e) "Years of Employment" shall mean total number of years of Employment
with an Employer, beginning on the date an Employee first performs an
Hour of Service and ending on the date the Voluntary Retirement
Participant retires under the terms of this Section 19, excluding
intervening periods, if any, commencing with such Employee's
discharge or termination and ending with such Employee's rehire by an
Employer. Years of Employment shall include years of employment by a
Voluntary Retirement Participant for an employer the stock or assets
of which was acquired by an Employer at the time of such employee's
employment by the acquired entity.
(f) "Years of Service" shall have the same meaning as stated in Section
2.28. However, for the sole purpose of determining amounts under
Section 19.02(a), (b) and (c), Years of Service shall include
credited service as that term is used in the Frank B. Hall & Co. Inc.
Retirement Account Plan for
275
<PAGE>
Exhibit 10(H)
page 85 of 91
those formerly employed by Frank B. Hall companies and who were active
participants in the Frank B. Hall & Co. Inc. Retirement Account Plan
as of December 31, 1992.
19.03 COVERAGE. A Voluntary Retirement Participant shall be entitled to
receive a Temporary Pension Supplement, an Additional Temporary Pension
Supplement and a Lifetime Pension Supplement upon satisfaction of (a) and
(b) on or before February 15, 1993:
(a) receipt by an Employer of properly executed election form; and
(b) receipt by an Employer of properly executed waiver and release.
19.04 COMMENCEMENT OF BENEFITS. Payment of the Temporary Pension Supplement
and the Additional Temporary Pension Supplement shall commence as soon as
practicable upon satisfaction of the requirements of Section 19.03 by the
Voluntary Retirement Participant. Payment of the Lifetime Pension
Supplement shall commence coincident with commencement of benefits paid
to the Voluntary Retirement Participant in accordance with any election
made by such Participant under Section 4 or 5. The amount of the
Lifetime Pension Supplement, if payment is deferred, shall be the
actuarial equivalent of the Lifetime Pension Supplement as if payment had
commenced upon the later of attainment of age 55 or termination of
employment.
276
<PAGE>
Exhibit 10(H)
page 86 of 91
SECTION 20 - AD HOC RETIREE BENEFIT ADJUSTMENT
20.01 RETIREMENT BENEFIT ADJUSTMENT. Participants or beneficiaries for whom
benefit payments commenced before January 1, 1994, shall receive an
adjustment for payments, effective as of January 1, 1994. Such
adjustment shall be an addition to the monthly payment equal to: 3
percent times the Normal Retirement Benefit times the number of full
years of retirement; provided, however, that:
(a) "1 1/2 percent" shall be substituted for "3 percent" with respect to
the Normal Retirement Benefit of: (i) former Participants or
beneficiaries in the LOV Pension Plan who are eligible for the
actuarial increase set forth in Section 18.03 of this Plan; and (ii)
former Participants and beneficiaries under the LOV Pension Plan
currently eligible for ongoing COLA adjustments;
(b) the Normal Retirement Benefit shall be computed in accordance with
the adjustments set forth in Section 5.04 for Participants and
beneficiaries for whom the rules regarding early commencement of
benefits are applicable; and
(c) the maximum increase in any monthly payment shall not exceed $60.00
per month.
For purposes of this Section 20.01, a "full year of retirement" shall be
the 12-month period beginning on the date of a Participant's benefit
commencement as defined in Section 4.01 or 5.04, and each complete 12-
month period thereafter.
277
<PAGE>
Exhibit 10(H)
page 87 of 91
SCHEDULE A
SPECIAL PROVISIONS RELATING TO SERVICE
This Schedule A contains special rules regarding the granting of past service
credit for eligibility (Section 3), vesting (Section 5) and benefits (Sections 4
and 5) with respect to certain Employees of the Company acquired through
corporate acquisition.
<TABLE>
<CAPTION>
EMPLOYEE CATEGORY PLAN PROVISIONS CREDITED SERVICE
---------------------------- ---------------------------- ------------------------------
<S> <C> <C>
(1) Employed by Frank B. Years of service for From employment
Hall & Co. Inc., or any eligibility commencement date with
of its subsidiaries or Hall, with entry
affiliates ("Hall") on December 31, 1992.
November 1, 1992, and
employed by the
Company on or after
November 2, 1992.
Years of service for vesting From employment
commencement date above
and in accordance with
Section 2.28, effective
December 31, 1992.
Benefit accrual Years of service for the
Company beginning
January 1, 1993, and Final
Average Earnings based on
compensation received from
the Company and Hall.
(2) Employed by K&K Years of service for From employment
Insurance Group, Inc., eligibility commencement date with
K&K Specialties, Inc., K&K, with entry June 11,
National Sports 1993.
Underwriters Inc., or
American Insurance
Brokers, Inc. ("K&K")
on June 10, 1993.
</TABLE>
278
<PAGE>
<TABLE>
<CAPTION>
Exhibit 10(h)
Page 88 of 91
EMPLOYEE CATEGORY PLAN PROVISIONS CREDITED SERVICE
----------------- --------------- ----------------
<S> <C> <C>
Years of service for vesting From employment
commencement date above
and in accordance with
Section 2.28.
Benefit accrual Years of service for the
Company beginning
June 11, 1993, and Final
Average Earnings based on
compensation received from
Company and K&K.
(3) Employed by Booke Years of service for From employment
and Company or an eligibility commencement date with
affiliate ("Booke") on Booke, with entry August 1,
June 30, 1993, and 1993.
employed by the
Company on July 1,
1993.
Years of service for vesting From employment
commencement date above
and in accordance with
Section 2.28.
Benefit accrual See Section 18.06.
(4) Employed by Albert G. Years of service for From employment
Ruben & Co., Inc., eligibility commencement date with
Albert G. Ruben & Co. Ruben, with entry
(New York), Inc., or September 1, 1993.
Bachrach Insurance
Services, Inc. ("Ruben"),
on August 31, 1993, and
employed by the
Company on
September 1, 1993.
Years of service for vesting From employment
commencement date above
and in accordance with
Section 2.28.
279
</TABLE>
<PAGE>
Exhibit 10(h)
Page 89 of 91
<TABLE>
<CAPTION>
EMPLOYEE CATEGORY PLAN PROVISIONS CREDITED SERVICE
----------------- --------------- ----------------
<S> <C> <C>
Benefit accrual Years of service for the
Company beginning
September 1, 1993, and
Final Average Earnings
based on compensation
received from Company and
Ruben.
(5) Employed by Insurance Years of service for From employment
Brokers Service, Inc. eligibility commencement date with
on May 4, 1993, and Insurance Brokers Service,
employed by the Inc., with entry May 5, 1993.
Company on May 5,
1993.
Years of service for vesting From employment
commencement date above
and in accordance with
Section 2.28.
Benefit accrual Years of service for the
Company beginning May 5,
1993, and Final Average
Earnings based on
compensation received from
Company and Insurance
Brokers Service.
(6) Employed by National Years of service for From employment
Benefit Corporation eligibility commencement date with
on May 19, 1993, and National Benefit
employed by the Corporation, with entry date
Company on May 20, May 20, 1993.
1993.
</TABLE>
280
<PAGE>
Exhibit 10(h)
Page 90 of 91
<TABLE>
<CAPTION>
EMPLOYEE CATEGORY PLAN PROVISIONS CREDITED SERVICE
----------------- --------------- ----------------
<S> <C> <C>
Years of service for vesting From employment
commencement date above
and in accordance with
Section 2.28.
Benefit accrual Years of service for the
Company beginning May 20,
1993, and Final Average
Earnings based on
compensation received from
Company and National
Benefit Corporation.
(7) Employed by Bryson Years of service for From employment
Associates, Inc. on eligibility commencement date with
May 16, 1993, and Bryson Associates, Inc., with
employed by the entry date June 1.
Company on May 17,
1993.
Years of service for vesting From employment
commencement date above
and in accordance with
Section 2.28.
Benefit accrual Years of service for the
Company beginning May 17,
1993, and Final Average
Earnings based on
compensation received from
Company and Bryson
Associates.
</TABLE>
281
<PAGE>
Exhibit 10(h)
page 91 of 91
IN WITNESS WHEREOF, Aon Corporation and the Trustees have signed this amendment
and restatement of the Aon Pension Plan, effective as of January 1, 1994.
Aon Corporation
By: /Daniel T. Cox/ 12/16/94
--------------------------- --------
Daniel T. Cox Date
Executive Vice President
/Mark B. Burka/ 12/19/94
--------------------------- --------
Mark B. Burka Date
Trustee
/Michael A. Conway/ 12/19/94
--------------------------- --------
Michael A. Conway Date
Trustee
/Lawrence R. Miller/ 12/19/94
--------------------------- --------
Lawrence R. Miller Date
Trustee
/J. Garnett Nelson/ 12/22/94
--------------------------- --------
J. Garnett Nelson Date
Trustee
282
<PAGE>
EXHIBIT 11
Aon Corporation and Subsidiaries
CONSOLIDATED NET INCOME PER SHARE COMPUTATION
<TABLE>
<CAPTION>
(millions except per share data) Years Ended December 31
-----------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
EARNINGS PER SHARE
Net income........................................................ $360.0 $323.8 $126.6
Preferred stock dividends......................................... 26.8 24.5 4.2
------ ------ ------
Net income less preferred stock dividends.................... $333.2 $299.3 $122.4
====== ====== ======
Average common shares issued...................................... 107.1 105.0 102.5
Net effect of treasury stock activity............................. (4.4) (3.7) (4.3)
Weighted average effect of Series A and B preferred stock......... 2.8 4.1 5.7
Net effect of dilutive stock compensation plans based
on the treasury stock method................................ 0.7 1.0 1.0
------ ------ ------
Average common and common equivalent shares
outstanding.......................................... 106.2 106.4 104.9
====== ====== ======
Net income per share................................................... $ 3.14 $ 2.81 $ 1.17
====== ====== ======
</TABLE>
(1) Primary and fully diluted net income per share are materially the same.
283
<PAGE>
Exhibit 12(a)
Aon Corporation and Consolidated Subsidiaries
Combined With Unconsolidated Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
(millions except ratios) 1994 1993 1992(1) 1991 1990
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes $537.6 $479.1 $290.5 $331.5 $325.2
Add back fixed charges:
Interest on indebtedness 46.4 42.3 41.9 40.7 44.4
Interest on ESOP 5.9 6.5 6.9 7.2 7.4
Portion of rents representative of
interest factor 28.7 26.1 19.2 15.4 13.2
------ ------ ------ ------ ------
Income as adjusted $618.6 $554.0 $358.5 $394.8 $390.2
====== ====== ====== ====== ======
Fixed charges:
Interest on indebtedness:
Aon Corporation and
consolidated subsidiaries $ 46.4 $ 42.3 $ 41.9 $ 40.7 $ 43.9
Unconsolidated subsidiaries - - - - 0.5
------ ------ ------ ------ ------
Interest 46.4 42.3 41.9 40.7 44.4
Interest on ESOP 5.9 6.5 6.9 7.2 7.4
Portion of rents representative of
interest factor 28.7 26.1 19.2 15.4 13.2
------ ------ ------ ------ ------
Total fixed charges $ 81.0 $ 74.9 $ 68.0 $ 63.3 $ 65.0
====== ====== ====== ====== ======
Ratio of earnings to fixed charges 7.6 7.4 5.3 6.2 6.0
====== ====== ====== ====== ======
</TABLE>
(1) Income from continuing operations before provision for income taxes
excludes the cumulative effect of changes in accounting principles.
284
<PAGE>
Exhibit 12(b)
Aon Corporation and Consolidated Subsidiaries
Combined With Unconsolidated Subsidiaries
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
(millions except ratios) 1994 1993 1992(1) 1991 1990
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes $537.6 $479.1 $290.5 $331.5 $325.2
Add back fixed charges:
Interest on indebtedness 46.4 42.3 41.9 40.7 44.4
Interest on ESOP 5.9 6.5 6.9 7.2 7.4
Portion of rents representative of
interest factor 28.7 26.1 19.2 15.4 13.2
------ ------ ------ ------ ------
Income as adjusted $618.6 $554.0 $358.5 $394.8 $390.2
====== ====== ====== ====== ======
Fixed charges and preferred stock dividends:
Interest on indebtedness:
Aon Corporation and
consolidated subsidiaries $ 46.4 $ 42.3 $ 41.9 $ 40.7 $ 43.9
Unconsolidated subsidiaries - - - - 0.5
Preferred stock dividends 48.4 47.5 20.3 3.5 2.0
------ ------ ------ ------ ------
Interest and dividends 94.8 89.8 62.2 44.2 46.4
Interest on ESOP 5.9 6.5 6.9 7.2 7.4
Portion of rents representative of
interest factor 28.7 26.1 19.2 15.4 13.2
------ ------ ------ ------ ------
Total fixed charges and preferred
stock dividends $129.4 $122.4 $ 88.3 $ 66.8 $ 67.0
====== ====== ====== ====== ======
Ratio of earnings to combined fixed
charges and preferred stock 4.8 4.5 4.1 5.9 5.8
====== ====== ====== ====== ======
</TABLE>
(1) Income from continuing operations before provision for income taxes
excludes the cumulative effect of changes in accounting principles.
285
<PAGE>
Aon Corporation | Commercial Operations
Businesses
Aon's global commercial brokerage and consulting
businesses are represented by the units of Rollins Hudig
Hall Group (RHH Group). RHH Group offers a full range of
insurance brokerage, risk management and consulting
services, including reinsurance, wholesale brokerage,
alternative risk services, specialty products, employee
benefits and training services. RHH Group units have
13,000 employees in more than 300 offices around the
world.
===============================================================================
Rollins Hudig Hall Rollins Hudig Hall (RHH) is the worldwide retail
brokerage and risk management arm of Aon. RHH is a full-
service insurance brokerage and consulting firm, working
with commercial clients to develop and deliver creative
and innovative ways to protect assets. Services provided
by RHH include placement of all lines of insurance,
actuarial services and alternative risk services,
development and administration of new products or
programs, and employee benefits, risk management and
loss-control consulting worldwide.
Aon Specialty Group The companies of Aon Specialty Group (ASG) develop and
deliver highly specialized products and services for
professional groups, service businesses, governmental
units and commercial organizations, including health care
providers, financial institutions, automotive clients and
the media. ASG is a market leader in virtually every area
it serves. ASG markets specialty insurance products and
services for affinity groups. These products cover more
than 2 million insureds in the United States.
In addition, Aon's training and consulting capabilities
were greatly expanded through the 1994 acquisition of
Pecos River Learning Centers Inc. Pecos River is a
creative and innovative corporate change organization,
serving many major corporate clients. The acquisition
complements, and allows us to expand on, Aon's successful
programs serving the automobile industry, including
Intercept and Ryan/CSi.
Aon Risk Services Aon Risk Services (ARS) serves the insurance industry and
the alternative risk marketplace worldwide with
reinsurance brokerage, captive management and consulting
services, underwriting management and third-party
administration services, and wholesale brokerage. Aon Re
Worldwide, formed in 1993, is one of the largest
reinsurance brokerage companies in the world. Through its
reinsurance expertise and its other services, including
captive management, ARS is a leader in serving the fast-
growing alternative market with creative ideas and
superior solutions.
Nicholson Leslie Nicholson Leslie Group (NLG) is one of the largest
Group Lloyd's brokers. Nicholson Leslie places wholesale and
reinsurance business in the London and international
markets on behalf of Aon companies as well as other
companies. During 1994, Aon acquired Lloyd's broker
Jenner Fenton Slade Group Limited (JFS), a premier energy
insurance and reinsurance brokerage firm. The acquisition
of JFS expands the expertise of Aon in this important and
growing area. The energy brokerage operations of
Nicholson Leslie will be integrated into JFS.
Godwins Godwins International (Godwins) meets the employee
International benefits and compensation consulting needs of employers.
In the United States, Godwins Booke and Dickenson offers
outstanding benefits expertise through more than 1,000
employees in 25 offices nationwide. Godwins Ltd. serves
employers in the United Kingdom, with more than 600
employees in 27 offices. The human resources capabilities
of the Aon companies were enhanced significantly during
1994 by the acquisition of HRStrategies Inc., a human
resources consulting firm.
15
<PAGE>
Aon Corporation | Commercial Operations
|
Operations Highlights
Rollins Hudig Hall Group (RHH Group), which includes
Aon's commercial insurance brokerage and consulting
companies, is one of the largest insurance brokerage and
consulting operations in the world.
================================================================================
Rollins Hudig Hall As the the retail brokerage and risk management arm of
Aon, Rollins Hudig Hall (RHH) is the largest contributor
to the revenues of the commercial operations. Despite
severe pressure on pricing throughout the brokerage
industry, particularly in the U.S. market, RHH recorded
worldwide revenues of $701.4 million in 1994, up 5.8
percent from $663 million in 1993. Domestic revenues were
70 percent of total worldwide revenues, with
international accounting for the balance.
1994 Revenue Through acquisition and
as a percent of total internal growth, RHH has
Commercial Operations assembled some of the best talent
in the industry in an extensive
variety of niches, and created an
organization that can bring this
talent to the service of clients
throughout the world.
Areas that saw important
--------------------- expansion in 1994 include
construction, transportation,
energy, financial services, entertainment and health
care. In addition, in 1994, RHH enhanced its position as
a specialist in satellite risks, forming Space Risk
International in conjunction with Nicholson Leslie.
Further, the 1994 acquisition of Houston energy broker
Energy Insurance International (EII), combined with our
existing expertise, positions RHH as a leader serving the
vital and growing energy industry.
RHH emphasizes interdependence, bringing its vast
resources together to find the best solutions for each
client, going beyond the traditional role of the broker.
The professionals of RHH work in partnership with
clients, developing and delivering innovative solutions
for each insurance need.
As part of this commitment to provide the highest
levels of service, RHH in 1994 established the Knowledge
Network, a global communication system that enables RHH
professionals to share market intelligence, identify
specific expertise, and facilitate improved communication
with each other and with clients. RHH also has actively
responded to clients seeking to outsource portions of
their risk management activities.
RHH's operations in Europe and elsewhere overseas are
working with RHH in the United States, using specialty
practice groups to pursue business in specific
industries, to share information and to develop
innovative products and services.
RHH commercial insurance brokerage operates through its
offices in the United States and Europe, as well as in
the Far East, Latin America and the Middle East. RHH is
actively pursuing expansion in Latin America and the Far
East. During 1994, RHH opened offices in Russia, Finland,
Turkey, Portugal and Slovakia, and expanded its rapidly
growing European art brokerage business, operating under
the name ArtScope, with acquisitions of specialized art
brokers in France and Germany. Together with its
Huntington T. Block operation in Washington, RHH is now
one of the leading art brokerage specialists in the
world.
16
<PAGE>
RHH also acquired an Australian broker specializing in
group programs, making RHH one of the largest such
brokers in that part of the world. Building on the
success of Aon's affinity group program business in the
United States and in Europe, RHH is expanding a worldwide
group program business.
RHH continues to build its pool of talented
professionals, to add to its distribution capabilities
and to expand its expertise. The breadth of its
resources, as well as the ability to bring these vast
resources to bear in a very direct way in the service of
each client, differentiates RHH in the global brokerage
arena.
================================================================================
Aon Specialty Group The companies of Aon Specialty
Group (ASG) develop highly
specialized insurance products
and administrative service
programs for third-party and
affinity groups.
ASG companies include
Media/Professional Insurance, one
of the largest providers of libel
insurance in the country; Bankers
Insurance Service Corp., an
underwriting manager for the
mortgage banking industry;
Scarborough & Co., an
underwriting manager for
community banks, mortgage and
savings institutions; and GoPro
1994 Revenues Inc., an underwriting manager
as a percent of total for property and liability
Commercial Operations programs for governmental
entities, public officials,
school boards and law enforcement
entities.
ASG units are direct marketers
-------------------- of specialty insurance products
for association and affinity
groups, including accountants, attorneys, chiropractors,
dentists, insurance agents, nurses, pharmacists, physical
therapists and podiatrists.
ASG formed the Aon Alliance in 1993 to meet the unique
needs of health care delivery systems. The Aon Alliance
provides brokerage, risk management, loss prevention,
software, actuarial and reinsurance services for health
care entities. These health care entities are forming new
relationships that present opportunities for the Aon
Alliance.
Employee training has long been an area of expertise
for Aon companies, and the 1994 acquisition of Pecos
River Learning Centers Inc. extends that expertise into a
broad range of industries, including some of the largest
multinational corporations. Further, it builds upon a
tradition of nationally recognized customer-satisfaction
consulting and training programs developed for the
automobile industry by The Ryan Group.
ASG revenues, including specialty programs and training
and consulting, were $155.9 million in 1994, up
significantly from 1993.
17
<PAGE>
================================================================================
Aon Risk Services A key to Aon's growth in 1994 was
the growing significance of the
expertise provided by Aon Risk
Services (ARS) to insurance
organizations. The alternative
insurance market, both
conventional and non-
conventional, continues to
experience explosive growth, as
large multinational companies
look for more control over the
cost and configuration of their
risk-protection strategies.
Working with other RHH Group
operations, ARS has emerged as
one of the premier players in
this increasingly important
arena.
1994 Revenue ARS experienced an outstanding
as a percent of total year in 1994, with growth in
Commercial Operations virtually every line of business.
Revenues increased 33.5 percent
in 1994, to $258.5 million from
$193.6 million in 1993.
--------------------- Aon Re Worldwide, formed in
1993 to bring together all the
reinsurance operations of ARS,
has become one of the top reinsurance intermediaries in
the world. Included in ARS revenues are reinsurance
brokerage revenues that increased 40.3 percent in 1994,
to $103.4 million from $73.7 million a year earlier. The
increase in revenues was fueled largely by the formation
of strategic alliances with other insurers.
The captive management and alternative market services
in Europe were combined under the name Aon Risk Services
(Europe). In 1994, we opened new offices in Luxembourg
and The Netherlands. Agricultural Risk Management in
London, specializing in the evaluation of agricultural
risk, was acquired in early 1995. Through Aon Risk
Consultants, ARS offers actuarial expertise, catastrophe
modeling and alternative risk financing products to the
global marketplace. SLE Worldwide, a managing general
underwriter in the sports, leisure and entertainment
industries, recorded significant revenue increases.
In the United States, ARS established Aon Risk
Technologies, which conducts research and development in
risk-evaluation systems, and opened a Los Angeles office
for Aon Broker Services. Wexford Underwriting Managers,
which specializes in the alternative market for workers
compensation, experienced significant growth in 1994.
At year-end, Sherwood Insurance Services, a wholesale
brokerage unit of ARS, announced a cooperative venture
with CNA Insurance Companies to enter the commercial
property insurance market. This venture is targeting
major companies, here and abroad.
The growth of ARS over the last several years should
continue in concert with the growth of the alternative
market. Leaving the traditional insurance market can
offer large companies significant advantages, but it also
requires great sophistication, creativity and an
understanding of the market. ARS, with its experience and
resources, is a valuable and important resource for RHH
offices in meeting the needs of major companies seeking
to navigate the alternative market.
18
<PAGE>
================================================================================
Nicholson Leslie Nicholson Leslie Group (NLG) is a
Group prominent Lloyd's of London
broker placing wholesale and
reinsurance business in the
London and international
markets.
Brokerage revenues at NLG rose
in 1994, to $112.1 million from
$87.4 million in 1993. Expenses
were reduced considerably because
of the integration of the
operations of Nicholson
Chamberlain Colls and Leslie &
Godwin, which created NLG.
In 1994, NLG formed Nicholson
Leslie Accident & Health, which
places managed health care
business in the London market.
1994 Revenue NLG will merge its energy
as a percent of total business into Jenner Fenton Slade
Commercial Operations Group Limited (JFS), a Lloyd's
insurance and reinsurance
brokerage firm specializing in
--------------------- the placement of coverages for
companies in the international
energy and petrochemical industries. Aon acquired JFS in
late 1994.
NLG works with Aon Re Worldwide to place Aon Re
Worldwide's North American business in the London market.
NLG continues to derive a significant majority of its
revenues from sources unaffiliated with Aon.
===============================================================================
Godwins Employers around the world turn
International to the companies of Godwins
International for help in meeting
their employee benefits,
compensation and human resources
needs.
In the United States, Godwins
Booke and Dickenson (GBD)
experienced growth in most
employee benefits and
compensation areas. However, the
"wait-and-see" posture prompted
by the debate over health care
reform contributed to weaker than
normal revenues. The
consolidation during 1994 of
merged companies also caused some
loss of revenues, but improved
1994 Revenue profitability.
as a percent of total
Commercial Operations The late-1994 acquisition of
HRStrategies Inc. marks an
important expansion for GBD.
-------------------- HRStrategies specializes in human
resources strategy development,
employee selection, and identification and development of
employee skills and skills assessment systems. As
employers contend with a steadily shrinking skilled labor
pool, the ability to identify, motivate and compensate
the skilled worker becomes increasingly important.
Both in the United States and internationally,
employers continue to look for efficiencies in their
employee benefits operations. Given its expertise in
benefits administration, Godwins International currently
is providing support for companies that want to
streamline this work. The market outlook appears to be
improving for the retirement and capital accumulation
consulting areas. With GBD's daily valuation service
fully operational, it is well-positioned to assist its
clients.
With these companies as cornerstones, Godwins Ltd. in
the United Kingdom and Australia and GBD in the United
States, Godwins International offers services around the
world to diverse employers, from the start-up company to
the multinational organization.
Godwins International reported worldwide revenues of
$164.8 million in 1994, compared to $168.5 million in
1993. Of those revenues, $111.2 million, or 67.5 percent,
were from domestic business. International business grew
to $53.6 million in 1994, an increase of 3.3 percent over
$51.9 million in 1993.
19
<PAGE>
Aon Corporation | Consumer Operations
|
Businesses
Aon businesses serve consumers in North America, Europe
and the Pacific with a variety of insurance products and
services, including traditional and specialty life
insurance, capital accumulation products, accident and
health coverages, extended warranty, credit insurance and
related products.
================================================================================
Combined Insurance Combined Insurance Company of America (CICA), which
Company of traces its origins to 1919 and is one of the founding
America companies of Aon, underwrites and sells supplemental life
and disability-based accident and health products in
North America, Europe and the Pacific. CICA's products
are distributed through a well trained and highly
motivated career sales force of more than 9,000 agents in
the United States, Canada, Puerto Rico, the United
Kingdom, Ireland, The Netherlands, Germany, Australia and
New Zealand. More than 4.5 million policyholders are
covered by the products of CICA.
The Ryan Group The Ryan Group markets automobile extended warranties,
credit insurance and training services to the
automotive industry. The company also has expanded its
leading position in the automotive industry by
developing value-added profit programs, including
prospect development and customer-satisfaction training
systems. The extended warranty and credit insurance
activities are underwritten by Aon companies.
Union Fidelity Union Fidelity Life Insurance Company (UFLIC) is a
Life Insurance direct-response marketer of supplementary accident and
Company/ health and life insurance products, mostly through third-
Combined Group party and association groups. During the past few years,
UFLIC has achieved significant success by building long-
term relationships with sponsoring organizations,
including auto clubs, major oil companies and veterans
groups. In addition, UFLIC manages the marketing and
underwriting of Combined Group. Combined Group
distributes products through managing general agents,
brokers, LOV agents and the agents of endorsed companies.
The Life Insurance The Life Insurance Company of Virginia (LOV) provides
Company of capital accumulation products as well as traditional life
Virginia insurance to help individuals meet their savings and
retirement goals. LOV, founded more than 120 years ago,
distributes its products through approximately 400 career
agents in 31 offices, mostly in the Southern and Eastern
United States. LOV products also are marketed by the
Forth Financial Network, a network of about 35
franchisees who have the right to represent LOV in a
specific area. Finally, LOV distributes its products
through about 115 managing general agents, banks in six
states, life brokers and stockbrokers nationwide.
Virginia Surety Virginia Surety Company in North America and London
London General General Insurance Company in Europe are the specialty
Insurance property and casualty insurance companies of Aon. The
primary business of these companies is the underwriting
of extended warranty products, especially for
automobiles, electronics and appliances.
21
<PAGE>
Aon Corporation | Consumer Operations
|
Operations Highlights
Aon companies provide a wide range of insurance products
to consumers throughout the world.
================================================================================
Combined Combined Insurance Company of
Insurance America (CICA) has built a long
Company tradition of providing consumers
of America with life and disability-based
accident and health insurance
products.
The success of CICA is fueled
1994 Revenue by its three captive sales forces
as a percent of total numbering a total of more than
Consumer Operations 9,000 agents. These direct sales
forces offer accident, health and
-------------------- life coverages directly to
consumers.
CICA had a record year in 1994,
with worldwide revenues
increasing to $976.3 million, a 4
percent increase over $938.9
million in 1993. U.S. business
represented $703.5 million, or
72.1 percent of this total, an
increase of $19 million over
1993. International business was
$272.8 million, or 27.9 percent
of the total; this was an
increase of 7.2 percent over
$254.4 million in 1993.
Total life insurance revenue
rose to $130.4 million from $129.8 million in 1993. The
domestic life business recorded its most successful year
in the last 10 years with $111.8 million in revenues.
Accident and health (A&H) business also grew in 1994,
with revenues of $845.9 million, up 4.5 percent from
$809.1 million in 1993. Domestic business accounted for
$591.7 million, or 69.9 percent, of this total.
Domestically, new sales of A&H products increased in the
fourth quarter, with health sales showing a double-digit
rate of growth for the year.
Overseas, CICA's operation in The Netherlands, which
began in 1993, continued to develop. In addition, CICA
was one of only a few U.S. insurers authorized to be
licensed in Mexico during 1994. CICA will begin test-
marketing in Mexico in 1995.
================================================================================
The Ryan Group The Ryan Group is a leader in
offering insurance products and
services to the automotive
industry.
The companies of The Ryan Group
distribute automotive extended
warranty products and credit-
related life and disability
insurance products underwritten
by Aon companies.
Ryan is the largest independent
marketer of auto credit insurance
in North America and produces
more auto extended warranties
than any other independent
company worldwide. Ryan has
expanded its experience and
expertise to develop a number of
1994 Revenue training and other service
as a percent of total programs.
Consumer Operations
---------------------
22
<PAGE>
Ryan Group Europe produces credit insurance and
extended warranty products in Europe. These products are
marketed through automobile dealerships in the United
Kingdom, Ireland, The Netherlands, France, Belgium and
Spain.
Worldwide auto credit revenues were $178.8 million in
1994, up 12.2 percent from $159.4 million in 1993.
Domestic credit revenues were $124.8 million in 1994, up
5 percent from $118.9 million in 1993. International
credit revenues were $54 million, up 33.3 percent from
$40.5 million in 1993. Credit premiums written become
part of earned revenue over the approximate five-year
life of underlying policies. In 1994, credit premiums
written before reinsurance were $388.8 million, a 25.3
percent increase from $310.2 million in 1993.
================================================================================
Union Fidelity Life A variety of consumer insurance
Insurance Company/ needs are met by two Aon
Combined Group subsidiaries: Union Fidelity Life
Insurance Company (UFLIC), a
direct-response marketer and
underwriter of supplemental A&H
and life insurance coverages and
provider of credit insurance
coverages; and Combined Group,
the group arm of Combined
Insurance Company of America.
UFLIC's direct-response
business, which is marketed
primarily through third-party and
affinity groups, posted strong
results in 1994. For the first
time in its history, the company
issued more than 1 million new
policies.
1994 Revenue
as a percent of total This growth was fueled by some
Consumer Operations significant new business,
including the acquisition of a
--------------------- major Medicare Supplement
portfolio, and new relationships
with major sponsoring
organizations. These
relationships were developed with
the help of other Aon companies,
exemplifying the spirit of
interdependence among Aon units.
A major area of growth for Combined Group was voluntary
insurance coverages, particularly dental and disability
plans. Employers offer these coverages to employees at
group rates; employees who choose to participate pay
their cost through payroll deduction. This product line
is expected to expand, as the cost of traditional
employer-provided benefits rises, especially for smaller
employers.
Life insurance revenues for UFLIC and Combined Group
direct-response business totaled $57.7 million in 1994,
up 8.7 percent from $53.1 million in 1993. Revenues from
accident and health business were $314.1 million in 1994,
up 23 percent from $255.3 million a year earlier.
In addition, revenues attributable to financial
institution mortgage and credit insurance underwritten by
UFLIC reflected the elimination of low-margin business.
UFLIC sees opportunities for expanding relationships with
bank clients for additional insurance products that could
be distributed to their customers.
23
<PAGE>
================================================================================
The Life Insurance The Life Insurance Company of
Company of Virginia (LOV) underwrites and
Virginia distributes a broad range of
capital accumulation, life and
annuity products through a
variety of distribution systems.
The product portfolio includes
variable life and annuities,
universal and interest-sensitive
whole life coverages, individual
and group term coverages and
individual and group annuities.
During 1994, LOV added a
survivorship universal life
coverage, which pays on the death
of the second of a joint life
insured. Additionally, its term
life and universal life products
1994 Revenue were revised to meet the rapidly
as a percent of total changing needs of the
Consumer Operations marketplace.
Last year, interest rate
--------------------- spreads narrowed on capital
accumulation products. In 1994,
LOV earned a 136 basis-point interest rate spread
compared to 170 basis points in 1993. The interest rate
spread narrowed primarily due to reinvestment at lower
yields of proceeds from bonds called and mortgage-backed
securities prepaid, as well as sharply higher short-term
interest rates negatively affecting crediting rates on
indexed GICs.
Total life revenues were $634.4 million in 1994
compared to $625.7 million in 1993; capital accumulation
products accounted for $529.9 million, up 1 percent from
1993. Traditional life revenues increased to $104.5
million in 1994.
Life revenues reflect the fees earned on variable
product sales. Variable product sales continued to be
strong. Variable annuity sales rose 97 percent. Variable
life deposits increased 82 percent, and variable
universal life annualized premium sales were up 37
percent.
================================================================================
Virginia Surety/ Aon's specialty property and
London General casualty insurers are Virginia
Insurance Surety Company (VSC), operating
in North America, and London
General Insurance Company,
operating in Europe.
VSC continues the run-off of
the underwriting of certain lines
of specialty property and
casualty insurance. However, the
growth in extended warranty
business has largely compensated
for the loss in revenues. Total
worldwide revenues were $315.6
million in 1994, compared with
$326.2 million in 1993,
reflecting this run-off. Extended
warranty worldwide revenues were
1994 Revenue up 22.8 percent in 1994, to
as a percent of total $234.9 million from $191.3
Consumer Operations million in 1993. Written premium
rose substantially in 1994.
During 1994, Aon Warranty Group
--------------------- was created to handle certain
extended warranty products on
automobiles, electronic goods, personal computers and
appliances. In addition, the company acquired Independent
Dealer Services Inc. (IDS) of St. Louis, a major extended
warranty marketing and administration company for
electronic goods, personal computers and appliances.
Virginia Surety and London General Insurance continue
to be the largest independent underwriter of extended
warranties on automobiles worldwide and are moving
rapidly toward achieving that goal in the electronics,
personal computer and appliance extended warranty
segments.
24
<PAGE>
Aon Corporation | Investment Operations
|
================================================================================
Aon Corporation invests in broad
asset categories related to its
diversified operations.
Investments are managed with the
objective of maximizing earnings
while matching assets and
liability durations and in
consideration of regulatory
requirements.
Investment characteristics
mirror liability characteristics
of the respective operating
units. Aon's insurance brokerage
and consulting businesses invest
fiduciary funds in short-term
obligations. Investments
underlying interest-sensitive
capital accumulation insurance
products are primarily
intermediate-term obligations,
while indemnity and other types
of non-interest sensitive
insurance liabilities are
supported by longer-term
1994 Invested Assets instruments. Our longer-term
as a percent of total assets also include private
Investments equity investments that are
expected to generate returns in
excess of those available in the
--------------------- public capital markets.
Aon maintains well-capitalized
operating companies. The financial strength of these
companies permits an overall diversified investment
portfolio for stability in volatile financial markets.
Moreover, the quality of invested assets remains solid,
as 97 percent of our rated bonds were investment-grade at
year-end.
Last year, interest rates moved sharply higher in most
countries where Aon operates. In the United States, bond
prices suffered their steepest loss in nearly 70 years.
This sharp increase in interest rates reduced the market
to book value of Aon's fixed maturity portfolio to 94.6
percent at year-end 1994 compared to 105.1 percent at
year-end 1993.
Investment income earned in 1994 totaled $759.5
million, modestly higher than the $745.2 million earned a
year ago. Lower yields on securities underlying capital
accumulation products were partially offset by higher
yields on insurance brokerage and consulting short-term
investments. The yield on average invested assets was
7.56 percent in 1994 compared to 7.55 percent a year
earlier.
Net investment income from insurance brokerage and
consulting activities totaled $46.6 million in 1994
compared to $37.5 million a year earlier. The 24.3
percent increase was due primarily to sharply higher
short-term yields in the United States and the United
Kingdom.
Through Aon Advisors, Aon manages funds and provides
consulting services on behalf of clients in addition to
our operating units. This includes acting as investment
advisor to mutual funds which are among the investment
options available to purchasers of LOV annuities. At
year-end, nearly $1 billion of outside funds were managed
by Aon Advisors. This developing business line fits in a
seamless fashion with other Aon insurance consulting
activities.
Financing Operations
================================================================================
The specialized finance subsidiaries of Aon offer
financing services to commercial clients of RHH and other
independent organizations for their liability and
casualty premiums through Cananwill Inc., and offer auto
financing for individuals in partnership with select
retail auto dealerships through Aon Auto Capital
Corporation. Both these organizations enjoyed good growth
in 1994. Total revenues rose to $20.2 million, a 16.8
percent increase over 1993.
25
<PAGE>
Aon Corporation | Management's Analysis of Operating
| Results and Financial Condition
Revenue and Income Before Income Tax
Consolidated Results for 1994 Compared to 1993
Total revenues amounted to $4.2 billion, an increase of 8.1%. This increase
was primarily due to the growth in brokerage commissions and fees resulting
from business combination activity and internal growth. Brokerage commissions
and fees increased 16.7% to $1.4 billion.
Premiums and policy fees of $1.9 billion increased 6.1% in 1994 reflecting
improvement in the life and accident and health major lines of business. Life
premium and policy fees of $454.4 million increased 5.2%, primarily reflecting
policy fees on domestic capital accumulation products. Accident and health
premiums earned of $1.2 billion, an increase of 8.8%, were influenced by the
continued growth in Combined Insurance Company of America's (CICA) direct sales
business in addition to the direct response acquisition of a medicare
supplement block of business and growth in the third party line of business.
Specialty property and casualty premiums earned decreased 4.2% or $10.9 million
as anticipated, reflecting the phase-out of certain specialty liability
programs. A higher volume of new business in the extended warranty line
partially offset this decrease.
Net investment income of $759.5 million increased 1.9% for the year. Pretax
investment portfolio yield of 7.56% was flat for the year when compared to
1993. Investment income was stable as reduced returns on securities underlying
capital accumulation products were partially offset by higher yields on
insurance brokerage and consulting short-term investments and investment in new
assets at higher yields.
Net realized investment gains of $5.8 million decreased significantly,
largely reflecting the reduction in bond calls by issuers in 1994. Revenues
excluding realized investment gains increased 8.7% or $332.9 million when
compared to 1993.
Benefits to policyholders increased 3%. Accident and health benefits
increased primarily due to the acquired direct response block of business
mentioned above. Additionally, the reduction in benefits on specialty liability
products primarily reflected the discontinuation of certain specialty programs.
Commissions and general expenses (excluding interest expense) increased 11.3%
for the year. Amortization of intangibles, which include deferred policy
acquisition costs, increased $19.3 million or 5.5%. Total benefits and expenses
increased 7.5% or $253.6 million over 1993. Pretax income increased $58.5
million or 12.2% due largely to growth in the brokerage businesses and to the
continued favorable phase-out of certain specialty property and casualty
underwriting programs.
Fourth quarter revenue increased 10.5% to $1.1 billion reflecting business
combination activity and internal growth. Benefits and expenses of $952 million
increased 10.4% for the quarter. Pretax income increased $13.5 million or 11.7%.
Revenue and Income Before Income Tax
Consolidated Results for 1993 Compared to 1992
Total revenues amounted to $3.8 billion, an increase of 15.2%. Premiums and
policy fees were $1.8 billion, slightly below 1992. As anticipated, special
property and casualty premiums earned decreased reflecting reduced underwriting
of certain specialty liability programs. Net investment income of $745.2
million increased 1.1% for the year. Brokerage commissions and fees increased
68.2% to $1.2 billion. This increase was primarily due to the growth in
brokerage commissions and fees resulting from the late 1992 acquisition of the
businesses of Frank B. Hall & Co., Inc.
During 1992, Aon adopted Statement of Financial Accounting Standards
(Statement) No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," and Statement No. 109, "Accounting for Income Taxes." The 1992
results reflect a $79.6 million charge for the cumulative effect of these
changes in accounting principles. In addition, in 1992, Aon had pretax special
charges amounting to $86.5 million relating primarily to the consolidation of
global brokerage operations. For purposes of the following expense ratio
comparisons, these items have been excluded.
Benefits to policyholders decreased 2.9% when compared to 1992. This
reduction primarily reflects the discontinuation of certain specialty property
and casualty programs. Total benefits and expenses increased 13.7% over 1992.
Commissions and general expenses (excluding interest expense) increased 24.2%
for the year primarily reflecting brokerage acquisition activity. Pretax income
excluding the 1992 special charges increased by 27.1% or $102.1 million.
Major Lines of Business
Highlights of operating performance were discussed earlier in this Annual
Report. Please refer to pages 14 through 25 for descriptions of Aon's
businesses and comments on each operation's revenue comparisons.
Insurance Brokerage and Consulting Services
Total revenue, which includes investment income, was $1,422.1 million in
1994, up 17%. The increase is due primarily to the contribution of acquisition
activity and internal growth. Domestic revenue of $1,033 million was up 20.8%
while international revenue increased 8.1%. Consulting related fees previously
included in Retail brokerage in 1993 have been reclassified to Consulting to
conform to the 1994 presentation.
Pretax income was $158.8 million in 1994, up 24% from $128.1 million in 1993.
Domestic income was up 41.9% from 1993 while international income declined 6.5%,
primarily due to start-up activity. Retail brokerage benefited from integration
efficiencies and growth from acquisition activity; however, results continued to
be influenced by a highly competitive property and casualty pricing environment
and investment in new industry areas.
27
<PAGE>
Reinsurance and wholesale income improved due to the inclusion of the Jenner
Fenton Slade Group Limited (JFS) business combination, international expansion
of alternative market services and internal growth. In the Consulting line,
growth of specialized employee development programs marketed primarily through
the 1994 merger with Pecos River Learning Centers Inc. partially offset a
decline in income due to investments in new automobile training operations.
Life Insurance
Revenue was $946.9 million in 1994 up 1.3% from $935.1 million in 1993.
Domestic revenue of $886.9 million was up 0.8% while international revenue rose
8.1%. Capital accumulation products were negatively influenced by rising
interest rates and higher adjusted crediting rates causing investment spreads
to narrow. Sales of variable products increased when compared to prior year. In
addition, traditional life business in Europe and the Pacific is continuing to
run off as planned.
Pretax income was $113.2 million in 1994, up 6.4% from $106.4 million last
year. Domestic income was up 10.7%. International income declined $3.6 million
or 38.3%, largely due to higher operating costs. Improved market conditions,
increased productivity, and better underwriting controls contributed to a
positive impact on auto credit business income during the year. On the majority
of life and variable annuity policies, lapse rates did not increase in 1994
from prior years. While lapse rates on fixed annuity policies that reached the
end of their surrender period did increase in 1994, these policies remain
profitable. Variations in mortality experience between years do not suggest any
fundamental changes and do not signal a trend.
Accident and Health Insurance
Revenue was $1,296.6 million in 1994, up 8% from $1,200.7 million in 1993.
Domestic revenue of $1,009.3 million was up 7.7% while international revenue
rose 9.2%. Domestically, the impact of the acquisition of the medicare
supplement block of business on direct response revenues and, to a lesser
extent, new business growth on direct sales products, were chiefly responsible
for this improvement. Financial credit disability revenue declined due to the
discontinuation of lower margin business. Auto credit insurance revenues
improved due to growth in new business.
Pretax income was $177.7 million in 1994, up 6.5% from $166.8 million in
1993. Domestic and international income were up 5.8% and 8.2%, respectively.
Levels of persistency have been stable for this line of business.
Both domestic and international direct sales income improved with continued
good expense control and strong health product sales. Expense savings and
growth in third party endorsed business primarily contributed to improved
income in direct response. Good expense controls and improved underwriting
ratios led to an improvement in auto credit income.
Specialty Property and Casualty Insurance
Revenue was $315.6 million in 1994, down 3.2% from $326.2 million in 1993.
Domestic revenue was down 6.6% while international revenue was up 15.8%.
Domestically, the continued phase-out of certain specialty property and
casualty underwriting programs offset good warranty revenue growth.
Internationally, revenue improvements reflect growth in the extended warranty
mechanical repair and brown and white lines.
Pretax income was $53.5 million in 1994, up 23% from $43.5 million in 1993.
Domestic income was up 21%. International income was up sharply due to improved
claims experience and a higher volume of new business in the extended warranty
line. Specialty liability programs continued to be phased-out with favorable
income results.
Corporate and Other
Revenue consists primarily of investment income on capital, premium finance
revenue, and realized investment gains before tax. Expenses include interest
and financing expenses, corporate administrative expenses, and goodwill
amortization associated with acquisitions. Revenue increased 4.7% over 1993 to
$175.7 million. Realized investment gains were $20.8 million lower in 1994 than
1993. The 1993 realized investment gains reflected a high number of corporate
bond calls by issuers. Excluding these gains from both years, the revenue
increase of 20.3% reflects growth in financing fees and new investments in
higher yielding securities. Allocation of investment income to the operating
segments is determined by each segment's investable assets as well as the
related yield on these investments. The remaining investment income is reported
in this segment.
Pretax income of $34.4 million in 1994 increased modestly over 1993.
Excluding realized investment gains from both years, pretax income increased
$20.9 million or over 200%. The increase primarily reflects improved investment
yields and investment mix, as well as, a reduction in the level of internal
funds employed for acquisition financing. The premium financing business
experienced continued growth. In addition, financing costs and goodwill
amortization related to acquisitions grew more slowly when compared to the
growth in investment income.
Geographic Segments
The international segment is primarily composed of insurance brokerage and
consulting services, accident, health and life products of CICA, and The Ryan
Group credit insurance and extended warranty products. Overall, international
results were influenced by favorable foreign exchange rates in 1994.
International revenues increased 9.2% to $833.3 million primarily reflecting
the improvement in brokerage revenues relating to internal growth and
acquisitions. International pretax income increased slightly when compared to
1993 to $118.2 million.
28
<PAGE>
Aon Corporation | Major Lines of Business
<TABLE>
<CAPTION>
(millions)
---------------------------------------------------------------------------------------------------------------
Insurance Specialty
Brokerage Accident Property
and Consulting and and Corporate
Year ended December 31, 1994 Services Life Health Casualty and Other
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $1,422.1 $ 946.9 $1,296.6 $ 315.6 $ 175.7
Benefits to policyholders -- 608.2 539.9 156.8 --
Amortization of intangibles 47.6 98.2 143.4 48.5 30.7
Other operating expenses 1,215.7 127.3 435.6 56.8 110.6
------------------------------------------------------------------
Total benefits and expenses 1,263.3 833.7 1,118.9 262.1 141.3
------------------------------------------------------------------
Income before income tax $ 158.8 $ 113.2 $ 177.7 $ 53.5 $ 34.4
------------------------------------------------------------------
Identifiable assets $2,967.4 $8,417.0 $1,344.1 $ 999.6 $4,193.8
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Insurance Specialty
Brokerage Accident Property
and Consulting and and Corporate
Year ended December 31, 1993 Services Life Health Casualty and Other
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $1,215.0 $ 935.1 $1,200.7 $ 326.2 $ 167.8
Benefits to policyholders -- 609.1 483.0 175.2 --
Amortization of intangibles 47.5 90.7 128.8 53.9 28.2
Other operating expenses 1,039.4 128.9 422.1 53.6 105.3
------------------------------------------------------------------
Total benefits and expenses 1,086.9 828.7 1,033.9 282.7 133.5
------------------------------------------------------------------
Income before income tax $ 128.1 $ 106.4 $ 166.8 $ 43.5 $ 34.3
------------------------------------------------------------------
Identifiable assets $2,705.6 $7,613.4 $1,220.3 $ 910.1 $3,829.7
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Insurance Specialty
Brokerage Accident Property
and Consulting and and Corporate
Year ended December 31, 1992 Services Life Health Casualty and Other
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 726.7 $ 927.5 $1,198.2 $ 348.3 $ 135.8
Benefits to policyholders -- 616.1 494.6 194.9 --
Amortization of intangibles 30.9 89.7 126.0 57.7 19.5
Other operating expenses 629.1 128.6 418.1 58.4 95.9
------------------------------------------------------------------
Total benefits and expenses 660.0 834.4 1,038.7 311.0 115.4
------------------------------------------------------------------
Income before income tax
excluding special charges* 66.7 93.1 159.5 37.3 20.4
Special charges (68.4) (12.2) (1.9) -- (4.0)
------------------------------------------------------------------
Income (loss) before income tax* $ (1.7) $ 80.9 $ 157.6 $ 37.3 $ 16.4
------------------------------------------------------------------
Identifiable assets $2,366.3 $6,489.3 $1,164.0 $ 565.2 $3,705.0
===============================================================================================================
</TABLE>
*Before cumulative effect of changes in accounting principles.
29
<PAGE>
Domestic revenues increased 7.8% primarily reflecting brokerage acquisition
activity. Pretax income increased 16.1% primarily on the strength of
acquisition activity, improved benefit experience in life insurance and
specialty property and casualty business lines, and overall expense controls.
Income Tax and Net Income
On March 18, 1994, the Board of Directors authorized a three-for-two stock
split, payable in the form of a stock dividend, of Aon's $1.00 par value common
stock. All references to share data in the accompanying management's discussion
and analysis and financial statements reflect the three-for-two stock split.
Net income for 1994 was $360 million or $3.14 per share compared to $323.8
million or $2.81 per share in 1993. Dividends on the 8%, 6.25% and Series C
preferred stock of $26.8 million in 1994 and dividends on the 8% and 6.25%
preferred stock of $24.5 million in 1993 have been deducted from net income to
compute earnings per share. Net income for fourth quarter 1994 amounted to $86
million or $0.74 per share compared to $77.9 million or $0.67 per share for
1993.
Operating income amounted to $356.3 million or $3.10 per share, up from
$312.2 million or $2.70 per share in 1993. Operating income excludes after-tax
realized investment gains in 1994 and 1993. Aon's effective operating income
tax rate was 33% in 1994 and 31% in 1993, while realized gains were taxed at a
36% rate for both years. The 1993 annual tax provision also incorporated a
federal tax rate increase of one percentage point effective January 1, 1993
which caused a retroactive charge to deferred income tax of $5.4 million.
Liquidity
Aon's operating subsidiaries anticipate that there will be adequate liquidity to
meet their needs in the foreseeable future. Aon Corp.'s liquidity needs are
primarily for servicing its debt and for the payment of dividends on stock
issues. Dividends from Aon Corp.'s subsidiaries are the primary source for
meeting these requirements. There are certain regulatory restrictions relating
to dividend capacity of insurance subsidiaries that are discussed in note 7.
Insurance subsidiaries' statutory equity at year end 1994 again exceeded the
risk-based capital target set by the National Association of Insurance
Commissioners by a satisfactory level. At December 31, 1994, Aon Corp. had
short-term lines of credit available in excess of $100 million.
The businesses of Aon continue to provide substantial positive cash flow.
Brokerage cash flow has been used primarily for servicing acquisition-related
debt. Due to the contractual nature of its insurance policyholder liabilities
which are intermediate to long-term in nature, Aon has invested primarily in
investment-grade fixed maturities. Capital accumulation products are
interest-sensitive and require close duration matching. Non interest-sensitive
insurance products do not require as close monitoring of duration matching.
Because there is a reasonable duration match between these investments and
their related liabilities, changes in prevailing interest rates can, to a large
extent, be matched by congruent changes in credited interest rates resulting in
minimal impact on Aon's earnings. However, mismatches do occur. Aon will accept
a mismatch in duration in each individual segment but attempts to allow no more
than a one year mismatch when all interest-sensitive segments are aggregated.
As of December 31, 1994, assets and interest-sensitive liabilities were
closely matched with the aggregate estimated duration variance of less than one
year. Through the use of derivative financial instruments (derivatives) (see
note 10), Aon improved its overall asset and liability duration match and
managed its interest rate risks. Given Aon's bond portfolio's average life of
7.6 years, access to lines of credit, and an uninterrupted trend in Aon's
positive cash flow, Aon expects sufficient cash flow to meet both short-term
and long-term cash needs.
Cash provided by operating activities in 1994 increased $91 million from
1993 to $695.8 million. This increase primarily reflects internal growth as
well as acquisitions related to brokerage operations.
Investment activities used $361.5 million, down $312.3 million from prior
year primarily due to the use of cash at the brokerage operations as well as a
reduced level of funds made available from capital accumulation products. Cash
of approximately $100 million was provided from the issuance of long-term debt.
Proceeds from the debt issuance were used to retire $125 million of long-term
debt securities at par. Cash was used to pay dividends of $135.7 million on
common stock and Series B conversion preferred stock (PERCS), $18 million on 8%
preferred stock, $6.7 million on 6.25% preferred stock and $1.9 million on
Series C preferred stock.
As of January 1, 1994, Aon adopted Statement of Financial Accounting
Standards (Statement) No. 115 "Accounting for Certain Investments in Debt and
Equity Securities." In accordance with Statement No. 115, Aon has segregated
its fixed maturity portfolio into two components: fixed maturities to be held
to maturity and fixed maturities available for sale. Fixed maturities that are
categorized as held to maturity are valued at amortized cost, while those
available for sale are carried at fair value with unrealized gains and losses
excluded from income and recorded directly as a separate component of
stockholders' equity. The after-tax stockholders' equity impact of reporting
fixed maturities available for sale at fair value was a net unrealized loss of
$111 million at December 31, 1994. To minimize the volatility of the changes in
this component of stockholders' equity, Aon enters into derivatives to hedge
its available for sale asset positions. In administering its hedging programs,
Aon performs analyses that have demonstrated that Aon achieves a high degree of
correlation.
30
<PAGE>
Aon Corporation | Geographic Segments
|
<TABLE>
<CAPTION>
(millions)
-------------------------------------------------------------------------------
Year ended December 31, 1994 Domestic International Total
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Insurance brokerage and
consulting services $ 1,033.0 $ 389.1 $ 1,422.1
Life 886.9 60.0 946.9
Accident and health 1,009.3 287.3 1,296.6
Specialty property and casualty 259.2 56.4 315.6
Corporate and other 135.2 40.5 175.7
----------------------------------------
Total revenue 3,323.6 833.3 4,156.9
----------------------------------------
Income before income tax $ 419.4 $ 118.2 $ 537.6
----------------------------------------
Identifiable assets $15,083.6 $2,838.3 $17,921.9
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Year ended December 31, 1993 Domestic International Total
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Insurance brokerage and
consulting services $ 855.0 $ 360.0 $ 1,215.0
Life 879.6 55.5 935.1
Accident and health 937.5 263.2 1,200.7
Specialty property and casualty 277.5 48.7 326.2
Corporate and other 132.3 35.5 167.8
----------------------------------------
Total revenue 3,081.9 762.9 3,844.8
----------------------------------------
Income before income tax $ 361.2 $ 117.9 $ 479.1
----------------------------------------
Identifiable assets $13,689.3 $2,589.8 $16,279.1
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Year ended December 31, 1992 Domestic International Total
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Insurance brokerage and
consulting services $ 494.8 $ 231.9 $ 726.7
Life 867.2 60.3 927.5
Accident and health 925.5 272.7 1,198.2
Specialty property and casualty 295.8 52.5 348.3
Corporate and other 84.4 51.4 135.8
----------------------------------------
Total revenue 2,667.7 668.8 3,336.5
----------------------------------------
Income before income tax* $ 180.6 $ 109.9 $ 290.5
----------------------------------------
Identifiable assets $11,755.7 $2,534.1 $14,289.8
===============================================================================
</TABLE>
*Before cumulative effect of changes in accounting principles.
31
<PAGE>
With a carrying value of $7.1 billion, Aon's total fixed maturity portfolio
is invested primarily in investment grade holdings (97%) and has a market value
which is 94.6% of amortized cost. At December 31, 1994 and 1993, Aon's fixed
maturity portfolio includes mortgage-backed securities with an amortized cost
of $3.1 billion and $2.7 billion, respectively. The amortized cost and fair
value of Aon's mortgage-backed securities are also presented in note 3. The
following table summarizes Aon's mortgage-backed securities held at December
31, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Par Amortized Fair
(millions) As of December 31, 1994 Value Cost Value
------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-backed securities:
Collateralized mortgage obligations
(CMOs):
Principally targeted
amortization classes $ 322.8 $ 315.3 $ 290.6
Principally sequential pay class 2,429.3 2,401.1 2,159.9
------------------------------------------------------------------------------
Total collateralized
mortgage obligations 2,752.1 2,716.4 2,450.5
Mortgage-backed pass-through
securities 348.7 351.7 345.2
------------------------------------------------------------------------------
Total mortgage-backed
securities $3,100.8 $3,068.1 $2,795.7
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Par Amortized Fair
(millions) As of December 31, 1993 Value Cost Value
------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-backed securities:
Collateralized mortgage obligations:
Principally targeted
amortization classes $ 443.5 $ 443.4 $ 448.0
Principally sequential pay class 1,903.7 1,914.4 1,914.6
------------------------------------------------------------------------------
Total collateralized
mortgage obligations 2,347.2 2,357.8 2,362.6
Mortgage-backed pass-through
securities 338.0 339.9 354.0
------------------------------------------------------------------------------
Total mortgage-backed
securities $2,685.2 $2,697.7 $2,716.6
==============================================================================
</TABLE>
Aon does not have any CMO residuals, interest only, inverse floating or
principal only type securities. CMOs have been acquired as alternatives to
mortgage-backed pass-through securities. Aon's insurance subsidiaries have
generally acquired shorter tranche CMOs classified in the form of sequential
payment, targeted amortization classes (TACs) or support TACs.
Market values for CMOs are established each quarter based primarily on
information received from broker-dealer market makers. Certain mortgage-backed
securities are subject to duration extension risk during periods of rising
interest rates and to prepayment risk during periods of declining interest
rates. To limit its credit risk, Aon's CMO investments are concentrated in
tranches that have received an investment grade rating.
Aon maintained separate investment reserves related to mortgage loan losses
on real estate and illiquid holdings which include real estate ventures,
limited partnerships and private placement common stocks totalling $36.4
million in 1994, down $14.9 million from the year end 1993 level of $51.3
million. These reserves are a product of Aon's continued review of the
characteristics and risks of its investment portfolio and current environmental
and economic conditions.
Assets and liabilities held under special contracts increased $554 million
from 1993 primarily due to increased funds in variable life and annuity
programs. The net investment income generated from these assets is not included
in the consolidated statements of income.
Capital Resources
In 1994, notes payable decreased $25.8 million, reflecting the $125 million
repayment of public debt, the issuance of $100 million public debt, as well as
repayments on privately placed obligations. In addition, short-term borrowings
increased $75.3 million to satisfy Aon's short-term cash needs. This increase
was used primarily to finance the repurchase of common stock and the repurchase
of PERCS prior to mandatory conversion into common stock. The credit agreements
providing lines of credit for commercial paper contain no restrictive covenants.
Aon Corp. continues to maintain an internal lending program with its various
subsidiaries where the parent company is able to borrow or lend funds. As of
December 31, 1994, Aon Corp. held notes payable to its subsidiaries of
approximately $373 million. These notes have interest rates in terms that were
competitive at the time of issuance.
In 1994, stockholders' equity per common share decreased to $18.30, down from
$18.95 in 1993. The principal factors influencing this reduction were a $193.1
million increase in net unrealized investment losses, the exchange of 1,500,000
shares of common stock for Series C preferred stock and business combinations.
Excluding net income and dividends, another significant impact on equity was a
$41.3 million reduction in net unrealized foreign exchange losses.
32
<PAGE>
Aon Corporation | Consolidated Statements of Income
|
<TABLE>
<CAPTION>
(millions except common stock and per share data) Years ended December 31 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Premiums and policy fees $1,933.7 $1,823.0 $1,826.3
Net investment income (note 3) 759.5 745.2 737.0
Realized investment gains 5.8 26.6 4.2
Brokerage commissions and fees 1,369.6 1,173.2 697.4
Other income 88.3 76.8 71.6
----------------------------------------
Total revenue earned 4,156.9 3,844.8 3,336.5
============================================================================================================================
Benefits and Expenses
Benefits to policyholders 1,304.9 1,267.3 1,305.6
Commissions and general expenses 1,899.6 1,707.0 1,374.7
Interest expense 46.4 42.3 41.9
Amortization of deferred policy acquisition costs 276.2 257.7 252.3
Amortization of intangible assets 92.2 91.4 71.5
----------------------------------------
Total benefits and expenses 3,619.3 3,365.7 3,046.0
============================================================================================================================
Income Before Income Tax and Cumulative Effect
of Changes in Accounting Principles 537.6 479.1 290.5
Provision for income tax (note 5) 177.6 155.3 84.3
----------------------------------------
Income Before Cumulative Effect of Changes
in Accounting Principles 360.0 323.8 206.2
Cumulative effect of changes in accounting principles -- -- (79.6)
----------------------------------------
Net Income $ 360.0 $ 323.8 $ 126.6
============================================================================================================================
Income attributable to common stockholders $ 327.6 $ 291.0 $ 112.2
============================================================================================================================
Per Share
Income before cumulative effect of changes in accounting principles $ 3.14 $ 2.81 $ 1.93
Cumulative effect of changes in accounting principles -- -- (0.76)
----------------------------------------
Net income $ 3.14 $ 2.81 $ 1.17
----------------------------------------
Cash dividends paid on common stock $ 1.26 $ 1.18 $ 1.11
============================================================================================================================
Average common and common equivalent shares outstanding 106,177,000 106,369,000 104,885,000
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
Aon Corporation | Consolidated Statements of Financial Position
|
<TABLE>
<CAPTION>
(millions) As of December 31 1994 1993
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments
Fixed maturities
Held to maturity--at amortized cost (fair value: 1994--$2,750; 1993--$5,304) $ 2,983.8 $ 5,021.1
Available for sale--1994 at fair value; 1993 at amortized cost 4,160.3 2,032.3
(1994 amortized cost: $4,318; 1993 fair value: $2,112)
Equity securities--at fair value (cost: 1994--$989; 1993--$852) 939.3 932.5
Mortgage loans on real estate
(net of reserve for losses: 1994--$30; 1993--$42) 567.5 557.1
Real estate
(net of accumulated depreciation: 1994--$8; 1993--$5) 35.6 34.2
Policy loans 214.9 207.3
Other long-term investments 97.9 63.0
Short-term investments 783.2 804.2
--------------------------
Total investments 9,782.5 9,651.7
=============================================================================================================================
Cash 508.8 163.8
Receivables
Insurance brokerage and consulting services
(net of allowance for doubtful accounts: 1994--$45; 1993--$41) 1,882.0 1,614.6
Premiums and other
(net of allowance for doubtful accounts: 1994--$3; 1993--$3) 637.7 485.9
Accrued investment income 133.5 128.6
--------------------------
Total receivables 2,653.2 2,229.1
=============================================================================================================================
Deferred Policy Acquisition Costs 1,181.6 1,005.4
Cost of Insurance and Renewal Rights Purchased
(net of accumulated amortization: 1994--$567; 1993--$504) 678.6 688.5
Excess of Cost Over Net Assets Purchased
(net of accumulated amortization: 1994--$121; 1993--$91) 869.4 840.8
Property and Equipment at Cost
(net of accumulated depreciation: 1994--$281; 1993--$253) 266.5 224.2
Assets Held Under Special Contracts 1,595.1 1,041.1
Other Assets 386.2 434.5
=============================================================================================================================
Total Assets $17,921.9 $16,279.1
=============================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
(millions except share data) As of December 31 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Policy Liabilities
Future policy benefits $ 1,434.5 $ 1,405.6
Policy and contract claims 944.2 920.7
Unearned and advance premiums 1,428.4 1,234.8
Other policyholder funds 5,503.3 5,215.2
-----------------------
Total policy liabilities 9,310.4 8,776.3
===============================================================================
General Liabilities
Short-term borrowings 243.9 168.6
Insurance premiums payable 2,408.7 1,948.1
Commissions and general expenses 526.6 500.4
Current income tax 200.9 189.4
Deferred income tax 129.3 169.7
Notes payable 495.5 521.3
Debt guarantee of employee stock ownership plan 65.5 72.5
Liabilities held under special contracts 1,595.1 1,041.1
Other liabilities 638.6 603.9
-----------------------
Total Liabilities 15,614.5 13,991.3
===============================================================================
Commitments and Contingent Liabilities
Redeemable Preferred Stock 50.0 --
Stockholders' Equity
Preferred stock--$1 par value
Authorized--25,000,000 shares; issued
Series B conversion preferred stock -- 2.7
8% cumulative perpetual preferred stock 9.0 9.0
6.25% cumulative convertible exchangeable
preferred stock 2.1 2.1
Common stock--$1 par value
Authorized--(shares: 1994--300,000,000;
1993--120,000,000); issued 110.6 70.0
Paid-in additional capital 485.2 605.7
Net unrealized investment gains (losses) (142.8) 50.3
Net foreign exchange losses (19.7) (61.0)
Retained earnings 1,998.1 1,784.9
Less treasury stock at cost (shares:
1994--2,872,000; 1993--3,482,000) (72.9) (69.3)
Less deferred compensation (112.2) (106.6)
-----------------------
Total Stockholders' Equity 2,257.4 2,287.8
===============================================================================
Total Liabilities and Stockholders' Equity $17,921.9 $16,279.1
===============================================================================
</TABLE>
35
<PAGE>
Aon Corporation | Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
(millions) Years ended December 31 1994 1993 1992
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK Balance at January 1 $ 13.8 $ 15.2 $ 3.8
Issuance of preferred stock -- -- 11.4
Retirement of preferred stock (1.3) (0.4) --
Conversion of preferred stock to common stock (1.4) (1.0) --
-------------------------------------
11.1 13.8 15.2
=====================================================================================================
COMMON STOCK Balance at January 1 70.0 68.3 67.2
Shares issued for business combinations 5.3 0.7 1.1
Effect of three-for-two stock split 35.3 -- --
Conversion of preferred stock to common stock -- 1.0 --
-------------------------------------
110.6 70.0 68.3
=====================================================================================================
PAID-IN ADDITIONAL CAPITAL Balance at January 1 605.7 600.9 258.4
Issuance of stock awards and option shares 10.8 20.6 10.8
Adjustment for business combinations 1.9 1.4 (0.6)
Issuance of preferred stock -- -- 332.3
Retirement and conversion of preferred stock (97.9) (17.2) --
Effect of three-for-two stock split (35.3) -- --
-------------------------------------
485.2 605.7 600.9
=====================================================================================================
NET UNREALIZED INVESTMENT GAINS (LOSSES) Balance at January 1 50.3 32.9 21.9
Effect of a change in accounting principles at January 1 148.2 -- --
Net unrealized investment gains (losses) (341.3) 17.4 11.0
-------------------------------------
(142.8) 50.3 32.9
=====================================================================================================
NET FOREIGN EXCHANGE GAINS (LOSSES) Balance at January 1 (61.0) (39.1) 6.9
Net foreign exchange gains (losses) 41.3 (21.9) (46.0)
-------------------------------------
(19.7) (61.0) (39.1)
=====================================================================================================
RETAINED EARNINGS Balance at January 1 1,784.9 1,603.2 1,602.3
Net income 360.0 323.8 126.6
Dividends to stockholders (162.0) (151.0) (124.5)
Loss on treasury stock reissued -- -- (3.1)
Adjustment for business combinations 27.6 10.4 1.9
Retirement of preferred stock (12.4) (1.5) --
-------------------------------------
1,998.1 1,784.9 1,603.2
=====================================================================================================
TREASURY STOCK Balance at January 1 (69.3) (79.7) (87.7)
Cost of shares (26.6) (0.6) (8.1)
Shares reissued at average cost 73.0 11.0 16.1
Conversion of common stock to redeemable preferred stock (50.0) -- --
-------------------------------------
(72.9) (69.3) (79.7)
=====================================================================================================
DEFERRED COMPENSATION Balance at January 1 (106.6) (97.8) (97.8)
Stock awards issued (18.3) (18.3) (10.5)
Debt guarantee of employee stock ownership plan 7.0 5.8 4.7
Amortization of deferred compensation 5.7 3.7 5.8
-------------------------------------
(112.2) (106.6) (97.8)
-----------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY AT DECEMBER 31 $2,257.4 $2,287.8 $2,103.9
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
Aon Corporation | Consolidated Statements of Cash Flows
|
<TABLE>
<CAPTION>
(millions) Year ended December 31 1994 1993 1992
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 360.0 $ 323.8 $ 126.6
Adjustments to reconcile net income to cash
provided by operating activities
Policy liabilities 298.6 273.0 278.6
Deferred policy acquisition costs (414.5) (325.9) (319.8)
Amortization of deferred policy acquisition costs 276.2 257.7 252.3
Amortization of intangible assets 92.2 91.4 71.5
Other amortization and depreciation 57.3 50.7 33.2
Other operating assets and liabilities 31.8 (39.3) 140.5
Realized investment gains (5.8) (26.6) (4.2)
-----------------------------------------
Cash Provided by Operating Activities 695.8 604.8 578.7
==================================================================================================
Cash Flows from Investing Activities:
Sale (purchase) of short term investments--net 143.4 (160.2) 266.7
Sale or maturity of investments
Fixed maturities--Held to maturity
Maturities 49.2 116.8 88.6
Calls and Prepayments 727.6 2,021.7 1,497.3
Sales -- 60.4 907.8
Fixed maturities--Available for sale
Maturities 109.5 13.9 0.1
Calls and Prepayments 312.2 484.3 20.6
Sales 883.9 496.1 64.1
All other investments 979.2 925.4 752.6
Purchase of investments
Fixed maturities--Held to maturity (734.8) (2,171.7) (2,751.6)
Fixed maturities--Available for sale (1,591.2) (1,326.8) (318.5)
All other investments (1,141.6) (990.3) (930.2)
Acquisition of subsidiaries (22.0) (96.3) (290.0)
Property and equipment and other (76.9) (47.1) (25.7)
-----------------------------------------
Cash Used by Investing Activities (361.5) (673.8) (718.2)
==================================================================================================
Cash Flows from Financing Activities:
Treasury stock transactions--net (15.4) 11.4 6.9
Issuance of short-term borrowings--net 75.3 53.5 51.8
Issuance of long-term debt securities 99.7 149.6 199.5
Repayment of notes payable (128.0) (192.8) (141.7)
Interest sensitive life, annuity and investment
contract deposits 1,557.5 1,376.0 955.6
Interest sensitive life, annuity and investment
contract withdrawals (1,362.4) (1,089.9) (761.4)
Retirement of Series B conversion preferred stock (58.3) (7.3) --
Cash dividends to stockholders (162.3) (151.0) (119.5)
-----------------------------------------
Cash Provided by Financing Activities 6.1 149.5 191.2
==================================================================================================
Effect of Exchange Rate Changes on Cash 4.6 (4.4) (2.1)
Increase in Cash 345.0 76.1 49.6
Cash at Beginning of Year 163.8 87.7 38.1
-----------------------------------------
Cash at End of Year $ 508.8 $ 163.8 $ 87.7
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
Aon Corporation | Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Principles
and Practices
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include the
accounts of Aon Corporation and its operating subsidiaries (Aon). All material
intercompany accounts and transactions have been eliminated.
Recognition of Premium Revenue and Related Expenses
For universal life-type and investment products, generally there is no
requirement for payment of premium other than to maintain account values at a
level sufficient to pay mortality and expense charges. Consequently, premiums
for universal life-type policies and investment products are not reported as
revenue, but as deposits. Policy fee revenue for universal life-type policies
and investment products consists of charges for the cost of insurance, policy
administration, and surrenders assessed during the period. Expenses include
interest credited to policy account balances and benefit claims incurred in
excess of policy account balances.
In general, for accident and health, property and casualty and credit
products, premiums collected are reported as earned proportionately over the
period covered by the policies. For all other life products, premiums are
recognized as revenue when due. Benefits and related expenses associated with
premium revenues are charged to expense proportionately over the lives of the
policies through a provision for future policy benefit liabilities and through
deferral and amortization of deferred policy acquisition costs. In general, for
property and casualty and accident and health products, benefits and related
expenses associated with premium revenues are charged to expense as incurred.
Brokerage Commissions and Fees
In general, commission income is recognized at the later of the billing or
effective date of the related insurance policies. Contingent commissions,
certain life insurance commissions and commissions on premiums billed directly
by insurance companies are generally recognized as income when received.
Commissions on premium adjustments, including policy cancellations, are
recognized as they occur. Fees for claim administration services, benefit
consulting, reinsurance services and other services are recognized when the
services are rendered.
Reinsurance
Reinsurance premiums, commissions, and expense reimbursements on reinsured
business are accounted for on a basis consistent with those used in accounting
for the original policies issued and the terms of the reinsurance contracts.
Premiums and benefits ceded to other companies have been reported as a reduction
of premium revenue and benefits. Expense reimbursements received in connection
with reinsurance ceded have been accounted for as a reduction of the related
policy acquisition costs or, to the extent such reimbursements exceed the
related acquisition costs, as other revenue. All reinsurance receivables and
prepaid reinsurance premium amounts are reported as assets.
Income Tax
Deferred income tax has been provided for the effects of temporary differences
between financial reporting and tax bases of assets and liabilities and has been
measured using the enacted marginal tax rates and laws that are currently in
effect.
Earnings Per Share
Earnings per share are computed based on the weighted average number of common
and common equivalent shares outstanding during the respective period. Common
shares outstanding include 3,386,000 shares held by the employee stock ownership
plan. Common equivalent shares include Series A and Series B preferred stocks
and dilutive stock awards and stock options. The 8% cumulative perpetual
preferred stock (8% preferred stock), the 6.25% cumulative convertible
exchangeable preferred stock (6.25% preferred stock) and the Series C cumulative
preferred stock (Series C) are not considered common equivalent shares.
Accordingly, the dividends on the 8%, 6.25% and Series C preferred stock of $27
million in 1994 and the dividends on the 8% and 6.25% preferred stock of $25
million and $4 million in 1993 and 1992, respectively, have been deducted from
net income to compute earnings per share. There is no material difference
between primary and fully diluted per share amounts. Income attributable to
common stockholders is net of dividends on all preferred stock.
A three-for-two stock split of Aon's $1.00 par value common stock was effected
on May 16, 1994 with 35 million shares issued to stockholders of record as of
May 3, 1994. All references in the accompanying financial statements and notes
to the number of common shares and per share amounts have been retroactively
restated to reflect the stock split.
Investments
Fixed maturities, where the intent is to hold to maturity, are carried generally
at amortized cost. As a result of adopting Statement of Financial Accounting
Standards (Statement) No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" on January 1, 1994, fixed maturities that are available for
sale are carried at fair value at December 31, 1994. At December 31, 1993, fixed
maturities available for sale were carried, on an aggregate basis, at the lower
of amortized cost or fair value. The amortized cost of fixed maturities is
adjusted for amortization of premiums and accretion of discounts to maturity
that are included in net investment income. Included in fixed maturities are
investments in collateralized mortgage obligations (CMOs). Premiums and
discounts arising from the purchase of CMOs are treated as yield adjustments and
included in net investment income. Equity securities are valued at fair value.
Unrealized gains and temporary unrealized losses on fixed maturities available
for sale and equity securities are excluded from income and are recorded
directly to stockholders' equity, net of related deferred income taxes. Mortgage
loans are carried at amortized cost, net of reserves. Real estate is carried
generally at cost less accumulated depreciation. Policy loans are carried at
unpaid principal balance.
38
<PAGE>
Other long-term investments are carried generally at cost. Realized investment
gains or losses are computed using specific costs of securities sold.
Investments that have declines in fair value below cost, are judged to be
other than temporary, are written down to estimated fair values and reported as
realized investment losses. Additionally, reserves for mortgage loans and
certain other long-term investments are established based on an evaluation of
the respective investment portfolio, past credit loss experience, and current
economic conditions. Writedowns and reserves are included in realized investment
gains and losses in the statements of income. In general, Aon ceases to accrue
investment income where interest or dividend payments are in arrears.
Accounting policies relating to derivative financial instruments are discussed
in note 10.
Deferred Policy Acquisition Costs
Costs of acquiring new and renewal business, principally the excess of new
commissions over renewal commissions, mass marketing advertising, underwriting
and sales expenses that vary with and are primarily related to the production of
new business, are deferred. For non-universal life-type products, amortization
of deferred acquisition costs and the cost of insurance purchased is related to
and based on the expected premium revenues on the policies. In general, such
amortization is adjusted to reflect current withdrawal experience. Expected
premium revenues are estimated by using the same assumptions used in estimating
future policy benefits. For property and casualty and short-duration health
insurance, costs of acquiring and renewing business, which are deferred, are
amortized as the related premium is earned.
In general, deferred policy acquisition costs and cost of insurance purchased
related to universal life-type policies and investment products are amortized in
relation to the present value of expected gross profits on the policies. Such
amortization is adjusted periodically to reflect differences in actual and
assumed gross profits.
To the extent that unrealized gains or losses on available for sale securities
would result in an adjustment of deferred policy acquisition costs had those
gains or losses actually been realized, the related deferred policy acquisition
cost adjustments are recorded along with the unrealized gains or losses included
in stockholders' equity with no effect on net income.
Other Intangible Assets
In general, the excess of cost over net assets purchased relating to business
acquisitions is being amortized into income over periods not exceeding forty
years using the straight-line method. The cost of insurance and renewal rights
purchased of certain subsidiaries is being amortized over a range of 2 to 30
years.
Property and Equipment
Property and equipment are generally depreciated using the straight-line method
over their estimated useful lives.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair values for
financial instruments. The carrying amounts in the consolidated statements of
financial position for cash and cash equivalents and short-term investments
approximate their fair values. Fair values for fixed maturity securities and
equity securities are based on quoted market prices or, if they are not actively
traded, on estimated values obtained from independent pricing services. The fair
values for mortgage loans and policy loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Fair values of derivatives are based on
quoted prices for exchange-traded instruments or the cost to terminate or offset
with other contracts.
In general, other long-term investments are comprised of real estate joint
ventures and limited partnerships. It was not practicable to estimate the fair
value of other long-term investments because of the lack of quoted market prices
and the inability to estimate fair value without incurring excessive costs. In
addition, the determination of the fair value of investment commitments was
deemed impractical due to the inability to estimate future cash flows.
Fair values for liabilities for investment-type contracts are estimated using
discounted cash flow calculations based on interest rates currently being
offered for similar contracts with maturities consistent with those remaining
for the contracts being valued. The fair value of notes payable are based on
quoted market prices for the publicly traded portion and on estimates using
discounted cash flow analyses based on current borrowing rates for similar types
of borrowing arrangements for the non-publicly traded portion.
Assets and Liabilities Held Under Special Contracts
Assets held under special contracts principally represent designated funds of
group pension, variable life, annuity and unit-linked policyholders. These
assets are offset by liabilities that represent such policyholders' equity in
those assets. The net investment income generated from these assets is not
included in the consolidated statements of income.
Future Policy Benefits, Unearned Premiums and Policy and Contract Claims
Future policy benefit liabilities on non-universal life-type and accident and
health products have been provided on the net level premium method. The
liabilities are calculated based on assumptions as to investment yield,
mortality, morbidity, and withdrawal rates that were determined at the date of
issue, and provide for possible adverse deviations. Interest assumptions are
graded and range from 9% to 4.5%. Withdrawal assumptions are based principally
on insurance subsidiaries' experience and vary by plan, year of issue, and
duration.
Policyholder liabilities on universal life-type and investment products are
generally based on policy account values. Interest credit rates for these
products range from 8.4% to 5.6%.
Unearned premiums generally are calculated using the pro rata method based on
gross premiums. However, in the
39
<PAGE>
case of credit life, credit accident and health, and extended warranty products,
the unearned premiums are calculated such that the premiums are earned over the
period of risk in a reasonable relationship to anticipated claims.
Policy and contract claim liabilities represent estimates for reported claims,
as well as provisions for losses incurred, but not yet reported. These claim
liabilities are based on historical experience and are estimates of the ultimate
amount to be paid when the claims are settled. Changes in the estimated
liability are reflected in income as the estimates are revised.
Foreign Currency Translation
Foreign revenues and expenses are translated at average exchange rates. Foreign
assets and liabilities are translated at year end exchange rates. Unrealized
foreign exchange losses on translation are generally reported in stockholders'
equity, net of deferred income tax credit of $11 million, $33 million and $20
million at December 31, 1994, 1993 and 1992, respectively.
Accounting Changes
On January 1, 1994, Aon adopted Statement No. 115 which requires categorization
of fixed maturities either as held to maturity, available for sale or trading
and equity securities as available for sale or trading. Investments in fixed
maturities and equity investments, that are categorized as available for sale,
are carried at fair value, with unrealized gains and losses (net of applicable
tax and adjustment to amortization of deferred policy acquisition costs)
excluded from income and recorded directly as a separate component of
stockholders' equity. Aon does not categorize any fixed maturities or equity
securities as trading.
The adoption of Statement No. 115 had no effect on Aon's accounting for equity
securities. In accordance with Statement No. 115, prior period financial
statements have not been restated to reflect the change in accounting principle.
In addition, Aon adopted Statement No. 112, "Employers' Accounting for
Postemployment Benefits" in 1994. Implementation of this Statement did not have
a material effect on Aon's financial statements. Aon adopted Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (note 8)
and Statement No. 109, "Accounting for Income Taxes" (note 5) in 1992.
The Financial Accounting Standards Board has issued Statements No. 114 and 118
which relate to accounting by creditors for impairment of a loan. The Statements
require that impaired loans are to be valued at the present value of expected
future cash flows, at the loan's observable market price, or at the fair value
of the collateral if the loan is collateral dependent. Aon anticipates adopting
these Statements in its 1995 financial statements as required. Implementation of
these Statements is not expected to have a material effect on Aon's financial
statements.
2. Business Combinations
Pooling of Interests Method
In the fourth quarter of 1994, Aon issued 3,540,000 shares of common stock for
the mergers with the insurance brokerage organizations of Jenner Fenton Slade
Limited (JFS) and Energy Insurance International, Inc. (EII). In connection with
these poolings, 325,000 shares are being held in escrow pending the resolution
of contingencies.
In addition, in 1994, 1993 and 1992, Aon issued 2,006,000 shares, 1,044,000
shares and 1,673,000 shares of common stock, respectively, for the mergers with
certain other insurance brokerage organizations. In connection with several of
the 1994 mergers, 255,000 shares are being held in escrow pending the resolution
of contingencies. Aon's prior period financial statements have not been restated
because the effect of the above mergers was not material.
Purchase Method
In November 1992, Aon acquired certain assets and assumed certain liabilities of
Frank B. Hall and Co., Inc. (Hall) for approximately $500 million. This
acquisition was financed with the issuance of 9 million shares of 8% preferred
stock, 2,374,000 shares of 6.25% preferred stock, and cash. Based on the
resolution in 1993 of certain issues related to the purchase of the assets of
Hall, Hall returned 238,000 shares of 6.25% preferred stock to Aon, which were
retired. In accordance with the purchase agreement, securities with a value of
$125 million are being held in escrow. The escrowed securities will be released
on a pre-determined schedule between 1997 and 2007. The statements of income
include the operations of Hall since the transaction date.
In 1992, Aon recorded special charges for employee reductions, which primarily
included an early retirement program and the consolidation of certain brokerage
offices as a result of the acquisition of the assets of Hall. The above charges
aggregated $87 million before income taxes.
In addition, during 1994, 1993 and 1992, subsidiaries of Aon acquired certain
insurance brokerage and consulting services operations that were financed
primarily by internal funds and the reissuance of common stock from treasury.
Pursuant to a 1994 purchase agreement with one of the brokerage operations, over
the next six years, Aon is contingently liable to issue up to 249,000 additional
shares of common stock based on a formula relating to future earnings of that
operation. The aggregate cost of these acquisitions was $22 million, $176
million and $153 million in 1994, 1993 and 1992, respectively. The proforma
results of these operations, as if the acquisitions had occurred as of the
beginning of the year, have an immaterial effect on Aon's consolidated revenues
and net income.
3. Investments
The components of net investment income are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
(millions) Years ended December 31 1994 1993 1992
----------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $555 $568 $574
Equity securities 76 55 51
Mortgage loans on real estate 55 58 63
Short-term investments 60 47 41
Other 36 33 27
----------------------------------------------------------------------
Gross investment income 782 761 756
Investment expenses 22 16 19
----------------------------------------------------------------------
Net investment income $760 $745 $737
======================================================================
</TABLE>
40
<PAGE>
Realized gains (losses) on investments are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
(millions) Years ended December 31 1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Held to maturity $ 4 $ 28 $ 18
Available for sale (15) -- --
Equity securities 32 46 24
Mortgage loans on real estate 14 (25) (28)
Other (29) (22) (10)
---------------------------------------------------------------------
Total before tax 6 27 4
Less applicable tax 2 10 1
---------------------------------------------------------------------
Total realized gains $ 4 $ 17 $ 3
=====================================================================
</TABLE>
Gross gains of $68 million, and gross losses of $51 million, were realized
on available for sale fixed maturities and equity securities sales during 1994.
Gross gains of $11 million, and gross losses of $7 million, were realized on
sales of held to maturity fixed maturities during 1994. Gross gains of $63
million and $48 million and gross losses of $35 million and $30 million were
realized on fixed maturity sales during 1993 and 1992, respectively.
The cumulative effect of the adoption of Statement No. 115 increased
stockholders' equity by $148 million (net of adjustments to deferred policy
acquisition costs of $14 million and deferred income taxes of $83 million) to
reflect the net unrealized fixed maturities holding gains on securities
previously carried at amortized cost; there was no effect on net income as a
result of the adoption. During 1994, those holding gains decreased by $259
million (net of adjustments to deferred policy acquisition costs of $44
million and deferred income taxes of $100 million) to a net unrealized loss of
$111 million.
In connection with the adoption of Statement No. 115, Aon reclassified
certain fixed maturity investments with an amortized cost of $1,984 million and
fair value of $2,149 million from held to maturity to available for sale.
Subsequent to January 1, 1994 there were no additional reclassifications
between available for sale and held to maturity.
The changes in net unrealized gains (losses) on fixed maturities and equity
security investments are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
(millions) Years ended December 31 1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Held to maturity $(351) $ 81 $(109)
Available for sale (403) 28 52
Equity securities (131) 31 16
---------------------------------------------------------------------
Total $(885) $140 $ (41)
=====================================================================
</TABLE>
The amortized cost and fair value of investments in fixed maturities and
equity securities are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) As of December 31, 1994 Cost Gains Losses Value
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
U.S. government and agencies $ 3 $-- $ -- $ 3
States and political subdivisions 3 -- -- 3
Corporate securities 1,388 15 (97) 1,306
Mortgage-backed securities 1,590 1 (153) 1,438
----------------------------------------------------------------------------------------
Total held to maturity $2,984 $16 $(250) $2,750
========================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) As of December 31, 1994 Cost Gains Losses Value
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government and agencies $ 189 $ 2 $ (4) $ 187
States and political subdivisions 393 17 (3) 407
Foreign governments 608 13 (11) 610
Corporate securities 1,581 37 (83) 1,535
Mortgage-backed securities 1,478 3 (123) 1,358
Other fixed maturities 69 -- (6) 63
----------------------------------------------------------------------------------------
Total fixed maturities 4,318 72 (230) 4,160
Total equity securities 989 50 (100) 939
----------------------------------------------------------------------------------------
Total available for sale $5,307 $122 $(330) $5,099
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) As of December 31, 1993 Cost Gains Losses Value
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
U.S. government and agencies $ 142 $ 14 $ -- $ 156
States and political subdivisions 368 43 -- 411
Foreign governments 423 59 -- 482
Corporate securities 2,000 155 (6) 2,149
Mortgage-backed securities 2,088 33 (15) 2,106
----------------------------------------------------------------------------------------
Total held to maturity $5,021 $304 $(21) $5,304
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) As of December 31, 1993 Cost Gains Losses Value
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government and agencies $ 140 $ 6 $ -- $ 146
States and political subdivisions 46 6 -- 52
Foreign governments 196 27 -- 223
Corporate securities 939 43 (4) 978
Mortgage-backed securities 610 7 (6) 611
Other fixed maturities 101 2 (1) 102
----------------------------------------------------------------------------------------
Total fixed maturities 2,032 91 (11) 2,112
Total equity securities 852 94 (13) 933
----------------------------------------------------------------------------------------
Total available for sale $2,884 $185 $(24) $3,045
========================================================================================
</TABLE>
Net unrealized investment losses at December 31, 1994 of $143 million are
net of deferred income tax credit of $45 million and a $20 million after-tax
deferred policy acquisition cost adjustment. Net unrealized investment gains at
December 31, 1993 of $50 million are net of a deferred income tax charge of $31
million.
The amortized cost and fair value of fixed maturities, by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Amortized Fair
(millions) As of December 31, 1994 Cost Value
----------------------------------------------------------------------------------------
<S> <C> <C>
Held to maturity:
Due in one year or less $ 14 $ 14
Due after one year through five years 133 133
Due after five years through ten years 727 666
Due after ten years 520 499
Mortgage-backed securities 1,590 1,438
----------------------------------------------------------------------------------------
Total held to maturity $2,984 $2,750
========================================================================================
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Amortized Fair
(millions) As of December 31, 1994 Cost Value
-----------------------------------------------------------------
<S> <C> <C>
Available for sale:
Due in one year or less $ 129 $ 130
Due after one year through five years 1,012 1,015
Due after five years through ten years 1,159 1,140
Due after ten years 540 517
Mortgage-backed securities 1,478 1,358
-----------------------------------------------------------------
Total available for sale $4,318 $4,160
=================================================================
</TABLE>
Securities on deposit for regulatory authorities as required by law amounted
to $296 million at December 31, 1994 and $253 million at December 31, 1993. As
required by the by-laws of Lloyd's brokers, assets subject to floating charges
for the benefit of insurance creditors amounted to $594 million and $403 million
at December 31, 1994 and 1993, respectively. Aon maintains premium trust bank
accounts for premiums collected from insureds but not yet remitted to insurance
companies of $475 million and $398 million at December 31, 1994 and 1993,
respectively.
At December 31, 1994 and 1993, respectively, Aon had $118 million and $30
million of non-income producing investments.
4. Debt and Lease Commitments
Short-term Borrowings
The interest rates on these borrowings vary based on existing market conditions.
The weighted average interest rates on these borrowings were 4.5% in 1994 and
3.4% in 1993 and 1992. Interest expense was $11 million, $7 million and $6
million in 1994, 1993 and 1992, respectively. Aon has credit agreements
providing lines of credit for commercial paper. The unused portion of these
lines of credit totaled $121 million at December 31, 1994.
Notes Payable
The following is a summary of notes payable:
<TABLE>
<CAPTION>
---------------------------------------------------------------
(millions) As of December 31 1994 1993
---------------------------------------------------------------
<S> <C> <C>
6.3% debt securities, due January 2004 $100 $ --
6.7% debt securities, due June 2003 150 150
6.875% debt securities, due October 1999 100 100
7.4% debt securities, due October 2002 100 100
7.5% debt securities, due February 1994 -- 125
Notes payable, due in varying installments,
with interest at 4% to 9% 46 46
---------------------------------------------------------------
Total carrying value $496 $521
===============================================================
</TABLE>
Interest is payable semiannually on all debt securities. In addition, the
debt securities are not redeemable by Aon prior to maturity and contain no
sinking fund provisions.
Maturities of notes payable are $22 million in 1995, $9 million in 1996, 1997
and 1998 and $101 million in 1999.
Interest expense was $35 million in 1994 and $36 million in 1993 and 1992.
Total interest paid on debt for 1994, 1993 and 1992 was $44 million, $41 million
and $40 million, respectively.
Guaranteed Debt
During 1989, Aon's employee stock ownership plan (ESOP) entered into loan
agreements amounting to $90 million to purchase Aon common stock. The ESOP
paid $13 million in 1994 and $12 million in 1993 and 1992, in loan principal and
interest from contributions made by Aon to the ESOP as well as dividend proceeds
of common stock held by the ESOP. The loans have an interest rate of 8.35% and
serially mature through 1999. Interest expense incurred by the ESOP related to
these loans amounted to $6 million in 1994 and $7 million in 1993 and 1992. The
loans are unconditionally guaranteed by Aon and therefore the unpaid balance of
the loans is reflected as debt in the accompanying statements of financial
position. An equivalent amount, representing deferred compensation, is recorded
as a deduction from stockholders' equity. Future contributions, as determined by
Aon's Board of Directors, plus dividends earned on shares held by the ESOP will
be used to service the loans.
Lease Commitments
Aon has noncancelable operating leases for certain office space, equipment
and automobiles. Future minimum rental payments required under operating leases
that have initial or remaining noncancelable lease terms in excess of one year
at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
(millions) Minimum Lease Payments
---------------------------------------------------------------
<S> <C>
1995 $ 95
1996 88
1997 79
1998 71
1999 65
Later years 224
---------------------------------------------------------------
Total minimum payments required $622
===============================================================
</TABLE>
Rental expenses for all operating leases for the years ended December 31, 1994,
1993 and 1992, amounted to $96 million, $104 million and $64 million,
respectively.
5. Income Tax
Aon and its principal domestic subsidiaries are included in a consolidated life-
nonlife federal income tax return. Aon's foreign subsidiaries file various
income tax returns in their foreign jurisdictions. A reconciliation of the
income tax provisions based on the statutory corporate tax rate to the
provisions reflected in the consolidated financial statements is as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Years ended December 31 1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 34.0%
Tax-exempt investment income (3.2) (3.2) (4.2)
Increase in deferred taxes due to enacted
rate increase from 34% to 35% -- 1.1 --
State income taxes 2.3 1.9 1.8
Other--net (1.1) (2.4) (2.6)
---------------------------------------------------------------------
Effective tax rate 33.0% 32.4% 29.0%
=====================================================================
</TABLE>
The provision for income tax is made up of the following components:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
(millions) Years ended December 31 1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 96 $ 95 $ 64
Foreign 64 38 48
State 19 15 8
---------------------------------------------------------------------
Total current 179 148 120
---------------------------------------------------------------------
Deferred (credit):
Federal 3 34 1
Foreign (7) (28) (37)
State 3 1 --
---------------------------------------------------------------------
Total deferred (1) 7 (36)
---------------------------------------------------------------------
Provision for income tax $178 $155 $ 84
=====================================================================
</TABLE>
42
<PAGE>
Significant components of Aon's deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
(millions) As of December 31 1994 1993
---------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Policy acquisition costs $291 $251
Other--net 148 104
---------------------------------------------------------------
Total deferred tax liabilities 439 355
---------------------------------------------------------------
Deferred tax assets:
Insurance reserve amounts 196 139
Unrealized investment losses 45 --
Other--net 69 46
---------------------------------------------------------------
Total deferred tax assets 310 185
---------------------------------------------------------------
Net deferred tax liabilities $129 $170
===============================================================
</TABLE>
As of December 31, 1994, the deferred tax asset relating to unrealized
investment losses is net of a $30 million valuation allowance that was provided
directly in stockholders' equity in 1994.
Prior to 1984, the life insurance companies were required to accumulate
certain untaxed amounts in a memorandum "policyholders' surplus account." Under
the Tax Reform Act of 1984, the "policyholders' surplus account" balances were
"capped" at December 31, 1983 and the balances will be taxed only to the extent
distributed to stockholders or when they exceed certain prescribed limits. As of
December 31, 1994, the combined "policyholders' surplus account" of Aon's life
insurance subsidiaries approximates $363 million. Aon's life insurance
subsidiaries do not intend to make any taxable distributions or exceed the
prescribed limits in the foreseeable future; therefore, no income tax provision
has been made. However, if such taxes were assessed, the amount of tax payable
would be $127 million.
The amount of income taxes paid for 1994, 1993 and 1992 was $167 million, $130
million and $105 million, respectively.
Effective January 1, 1992, Aon changed its method of accounting for income
taxes from the deferred method to the liability method required by Statement No.
109, "Accounting for Income Taxes." The cumulative effect of adopting Statement
No. 109 for periods prior to January 1, 1992 was to decrease 1992 net income by
$40 million ($0.38 per share).
6. Reinsurance and Claim Reserves
Aon's insurance subsidiaries are involved in both the cession and assumption of
reinsurance with other companies. Aon's reinsurance consists primarily of short-
duration contracts that are entered into with numerous automobile dealerships
and financial institutions. Aon's insurance subsidiaries would remain liable to
the extent that the reinsuring companies are unable to meet their obligations.
Ceded premiums earned were $415 million, $408 million and $414 million for 1994,
1993 and 1992, respectively, while ceded premiums written were $408 million and
$420 million for 1994 and 1993, respectively. Assumed premiums earned were $213
million, $184 million and $228 million for 1994, 1993 and 1992, respectively,
while assumed premiums written were $218 million and $176 million for 1994 and
1993, respectively. Benefits to policyholders are net of $247 million and $211
million in reinsurance recoveries during 1994 and 1993, respectively.
Activity in the liability for policy contract claims is summarized as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------
(millions) Years ended December 31 1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities at beginning of year $ 686 $ 669 $ 624
Incurred losses 923 910 916
Deduct payment of claims:
Current year claims (582) (523) (536)
Prior years claims (346) (370) (335)
------------------------------------------------------------------
Liabilities at end of year
(net of insurance recoverables:
1994--$263, 1993--$235) $ 681 $ 686 $ 669
==================================================================
</TABLE>
7. Redeemable Preferred Stock and Stockholders' Equity
Redeemable Preferred Stock
In 1994, Aon issued 1,000,000 shares of Series C preferred stock to a former
officer in exchange for 1,500,000 shares of Aon common stock. Dividends are
cumulative at an annual rate of $2.55 per share. Dividends incurred were
$2 million in 1994. The shares of Series C preferred stock will be redeemable at
the option of Aon (by resolution of its Board of Directors) or the holders, in
whole or in part, at $50.00 per share no sooner than February 9, 1999.
Common Stock
Aon recorded dividends to common stockholders of $129 million, $118 million and
$112 million in 1994, 1993 and 1992, respectively. In addition, Aon repurchased
844,000, 16,000 and 395,000 shares, in 1994, 1993 and 1992, respectively, of its
common stock, primarily to provide shares for stock compensation plans and the
conversion of the Series B conversion preferred stock.
Series B Conversion Preferred Stock
In 1991, Aon issued 2,800,000 shares of $3.04 cumulative Series B conversion
preferred stock (Series B preferred stock). Aon repurchased 1,210,000 shares and
151,000 shares of its outstanding stock for $58 million and $7 million in 1994
and 1993, respectively. These shares were cancelled and retired. Aon recorded
dividends of $6 million, $8 million and $9 million in 1994, 1993 and 1992,
respectively. At December 1, 1994, 1,439,000 shares were outstanding and each
share of stock was automatically converted, pursuant to the stock's terms, into
one and one half shares of common stock issued from treasury.
8% Cumulative Perpetual Preferred Stock
In 1992, Aon issued 9,000,000 shares of cumulative perpetual 8% preferred stock.
Dividends are cumulative at the annual rate of $2.00 per share. Dividends
incurred were $18 million in 1994 and 1993 and $3 million in 1992. At its
option, Aon may redeem all or any part of the stock at any time on or after
November 1, 1997 at a redemption price of $25.00 per share plus all accrued and
unpaid dividends. The holders of the stock have limited voting rights.
6.25% Cumulative Convertible Exchangeable Preferred Stock
In 1992, Aon issued 2,374,000 shares of 6.25% cumulative convertible
exchangeable preferred stock. At December 31, 1994, 2,136,000 shares are
outstanding. Dividends are cumulative at the annual rate of $3.125 per share.
Dividends incurred were $7 million in 1994 and 1993 and
43
<PAGE>
$1 million in 1992. The stock is convertible at any time at the option of the
holder into 1.22 shares of common stock for each share. The stock is
exchangeable at Aon's option, in whole but not in part, on any dividend payment
date commencing November 1, 1996 for 6.25% convertible subordinated debentures
due November 1, 2022 at the rate of $50.00 principal amount of the debentures
for each share. At its option, Aon may redeem all or any part of the stock,
unless previously converted or exchanged, on or after November 1, 1996 at prices
ranging from $51.875 per share in 1996 declining to $50.00 per share in 2002 and
thereafter, plus accrued and unpaid dividends. The holders of the stock have
limited voting rights.
Statutory Capital and Surplus
Generally, the capital and surplus of Aon's insurance subsidiaries available for
transfer to the parent company are limited to the amounts that the insurance
subsidiaries' statutory capital and surplus exceed minimum statutory capital
requirements; however, payments of the amounts as dividends may be subject to
approval by regulatory authorities. See note 5 for possible tax effects of
distributions made out of untaxed earnings. Net income of Aon's insurance
subsidiaries, as determined using statutory accounting practices, amounted to
$272 million, $255 million and $187 million for the life insurance companies and
$34 million, $62 million and $42 million for the property and casualty companies
for the years ended December 31, 1994, 1993 and 1992, respectively. Statutory
stockholders' equity of Aon's direct life insurance subsidiaries amounted to
$714 million and $561 million at December 31, 1994 and 1993, respectively.
Statutory stockholders' equity of property and casualty insurance companies
amounted to $284 million and $251 million at December 31, 1994 and 1993,
respectively.
8. Employee Benefits
Savings and Profit Sharing Plans
Certain of Aon's subsidiaries maintain a contributory savings plan for the
benefit of United States salaried and commissioned employees and a contributory
profit sharing plan for the benefit of Canadian salaried employees and
commissioned agents. The company contribution for the savings plan is based on a
match of 100% of employee contributions up to a maximum of 3% of eligible
compensation. Provisions made for these plans were $14 million in 1994 and 1993
and $11 million in 1992.
During 1993, the Hall savings and investment plan, the Booke & Company salary
deferral thrift plan and the K&K Insurance Agency, Inc. 401(k) profit sharing
trust were merged into the Aon savings plan.
Employee Stock Ownership Plan
Certain of Aon's subsidiaries maintain a leveraged ESOP for the benefit of
the United States salaried and certain commissioned employees. Shares are
allocated to eligible employees over a period of ten years through 1998.
Contributions to the ESOP and charged to income amounted to $10 million in 1994
and $9 million in 1993 and 1992.
Domestic Pension Plan
Certain of Aon's subsidiaries maintain a non-contributory defined benefit
pension plan providing retirement benefits for salaried employees and certain
commissioned employees in the United States based on years of service and
salary. Aon's funding policy is to contribute amounts to the plan sufficient to
meet the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional amounts as Aon determines to
be appropriate from time to time. A summary of the components of net periodic
pension cost for the defined benefit plans in 1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
(millions) Years ended December 31 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plan:
Service cost-benefits earned $ 21 $ 19 $ 10
Interest cost on projected
benefit obligation 17 16 13
Actual return on plan assets (3) (27) (22)
Net amortization and deferral (18) 6 3
------------------------------------------------------------------------------
Net periodic pension cost $ 17 $ 14 $ 4
==============================================================================
</TABLE>
The weighted average assumptions used in accounting for the defined benefit
plan were:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Years ended December 31 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Assumed discount rate 8.5% 7.0% 8.0%
Rate of compensation increase 5.0% 5.0% 6.0%
Expected long-term rate of return
on plan assets 9.0% 9.0% 9.0%
==============================================================================
</TABLE>
In December 1992, as part of an employee reduction program, Aon established a
limited time early retirement incentive program that provided benefits through
the defined benefit plan. The additional cost of termination benefits applicable
for 1992 resulting from the program was $13 million.
During 1993, the assets and liabilities of the Pension Plan for the Employees
of Booke & Company were merged with the Aon Pension Plan as a result of the
merger of Booke & Company with an Aon subsidiary. Also, the Aon Pension Plan was
amended in 1993 to include certain additional amounts of compensation in
determining plan benefits and in 1994 to reduce the maximum amount of
compensation that can be considered under the plan as required by law. Further
the Pension Plan was amended in 1994 to provide increases in benefits to current
pensioners. Net periodic pension cost for 1994 decreased $2 million and
increased $2 million in 1993 as a result of these amendments.
The following table sets forth the funded status and amounts recognized in the
consolidated statements of financial position for Aon's U.S. defined benefit
pension plan.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
(millions) As of December 31 1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $183 $190
Accumulated benefit obligation 189 197
Projected benefit obligation 228 251
------------------------------------------------------------------------------
Plan assets at fair value 228 239
------------------------------------------------------------------------------
Plan assets in less than projected benefit obligations -- (12)
Unrecognized net loss (gain) (14) 17
Unrecognized prior service cost 2 3
Unrecognized net transition asset (3) (5)
------------------------------------------------------------------------------
Prepaid pension cost included in other
assets (liabilities) $(15) $ 3
==============================================================================
</TABLE>
44
<PAGE>
Plan assets include marketable equity securities, deposit administration
insurance contracts, and corporate and government debt securities. Included are
securities issued by Aon totaling $18 million in 1994 and 1993. In addition,
$143 million of plan assets are held under a special contract with a subsidiary
of Aon in 1994.
Foreign Pension Plans
Certain of Aon's foreign subsidiaries maintain contributory and non-contributory
defined benefit pension plans for employees outside of the United States that
provide retirement benefits based on service and salary. Material plans are
maintained in the United Kingdom and The Netherlands. The funding policy for
these plans is to contribute the amounts required by the plan provisions or
applicable regulations, although additional amounts may be contributed from time
to time. A summary of the components of net periodic pension cost for the
material defined benefit plans in 1994 and 1993, grouped by country, is as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
United
(millions) Year Ended December 31, 1994 Kingdom Netherlands
------------------------------------------------------------------------------
<S> <C> <C>
Defined benefit plans
Service cost-benefits earned $ 8 $ 2
Interest cost on projected
benefit obligation 10 8
Actual return on plan assets 6 (9)
Net amortization and deferral (20) 1
------------------------------------------------------------------------------
Net periodic pension cost $ 4 $ 2
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
United
(millions) Year Ended December 31, 1993 Kingdom Netherlands
------------------------------------------------------------------------------
<S> <C> <C>
Defined benefit plans
Service cost-benefits earned $ 8 $2
Interest cost on projected
benefit obligation 8 7
Actual return on plan assets (11) (10)
------------------------------------------------------------------------------
Net periodic pension cost $ 5 $ (1)
==============================================================================
</TABLE>
The weighted average assumptions used in accounting for these defined
benefit plans were:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
United
Year Ended December 31, 1994 Kingdom Netherlands
------------------------------------------------------------------------------
<S> <C> <C>
Assumed discount rate 9.0% 7.0%
Rate of compensation increase 7.0% 4.0%
Expected long-term rate of return
on plan assets 10.0% 7.0%
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
United
Year Ended December 31, 1993 Kingdom Netherlands
------------------------------------------------------------------------------
<S> <C> <C>
Assumed discount rate 7.3% 7.0%
Rate of compensation increase 5.0% 4.0%
Expected long-term rate of return
on plan assets 10.0% 7.0%
=============================================================================
</TABLE>
The following table sets forth the funded status and the amounts recognized
in the 1994 and 1993 consolidated statements of financial position for Aon's
foreign defined benefit pension plans.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
United
(millions) Year Ended December 31, 1994 Kingdom Netherlands
------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligations $172 $123
------------------------------------------------------------------------------
Plan assets at fair value 179 146
------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligations 7 23
Unrecognized net loss 14 18
Unrecognized prior service cost 1 --
Unrecognized net transition obligation 1 --
Adjustment to recognize minimum liability (4) --
------------------------------------------------------------------------------
Prepaid pension cost included in other assets $19 $41
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
United
(millions) Year Ended December 31, 1993 Kingdom Netherlands
------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligations $133 $117
------------------------------------------------------------------------------
Plan assets at fair value 137 128
------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligations 4 11
Unrecognized net loss 8 25
Unrecognized net transition obligation 1 --
------------------------------------------------------------------------------
Prepaid pension cost included in other assets $ 13 $ 36
==============================================================================
</TABLE>
In 1992, the only significant foreign pension plans were the European
brokerage plans. Aon recorded a net periodic pension credit for 1992 of
approximately $1 million. These plans used an assumed discount rate of 8%, a
rate of compensation increase of 6%, and an expected long-term rate of return
on plan assets of 8%.
Postretirement Benefits Other Than Pensions
Aon sponsors defined benefit postretirement health and welfare plans that cover
both salaried and nonsalaried employees in the U.S., as well as certain other
salaried employees in Canada. In the U.S., one plan provides medical benefits,
prior to and subsequent to Medicare eligibility, and the other provides life
insurance benefits. In Canada, the plans provide both extended health care
benefits and life insurance benefits. The postretirement health care plans are
contributory, with retiree contributions adjusted annually; the life insurance
plans are noncontributory. All plans are funded on a pay-as-you go basis.
In 1993, the accounting for the U.S. health care plan reflected changes in the
future cost-sharing provisions of the plan. These changes limited the employer's
liability for future plan cost increases in any year to 5% per annum. In prior
years, Aon anticipated that the retiree's share of future cost would increase at
the same rate as the employer's share.
In 1992, Aon adopted Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Aon recorded a cumulative effect
change for adopting Statement No. 106 in the amount of $40 million ($0.38 per
share), which is net of income taxes of $20 million, in the 1992 statement of
income. The recorded amount represented the cumulative postretirement benefit
obligation for periods prior to January 1, 1992.
45
<PAGE>
The following table sets forth the plans' combined funded status:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(millions) As of December 31, 1994 Medical Life
--------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $16 $ 6
Fully eligible active plan participants 7 4
Other active plan participants 8 2
--------------------------------------------------------------------------------
31 12
Unrecognized prior service 26 8
Unrecognized net gain 22 6
--------------------------------------------------------------------------------
Accrued postretirement benefit cost $79 $26
================================================================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(millions) As of December 31, 1993 Medical Life
--------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $21 $ 8
Fully eligible active plan participants 8 4
Other active plan participants 13 3
--------------------------------------------------------------------------------
42 15
Unrecognized prior service 31 9
Unrecognized net gain 9 3
--------------------------------------------------------------------------------
Accrued postretirement benefit cost $82 $27
================================================================================
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(millions) As of December 31, 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1 $ 3 $ 3
Interest cost 4 5 6
Amortization of prior service (6) (5) --
--------------------------------------------------------------------------------
Net periodic postretirement
benefit cost (credit) $(1) $ 3 $ 9
================================================================================
</TABLE>
For measurement purposes in 1994 and 1993, an 11.5% and 12.5%, respectively,
annual rate of increase in the per capita cost of covered health care benefits
(trend rate) adjusted for actual current year cost experience was assumed,
decreasing gradually to 7% in year 2000 and remaining the same thereafter.
However, with the employer funding increase cap limited to 5% per year, net
employer trend rates are effectively limited to 5% per year in the future. For
measurement purposes in 1992, a 14.5% trend rate was assumed, decreasing
gradually to 7% in year 2000 and remaining the same thereafter.
Increasing the assumed health care cost trend rates by one percentage point
would result in a negligible change in the accumulated postretirement benefit
obligation (APBO) as of December 31, 1994 because of the 5% cap on future
employer funding increases for domestic medical plans.
The weighted-average discount rate used in determining the APBO was 8.5%, 7.0%
and 8.0% at December 31, 1994, 1993 and 1992, respectively. The weighted-average
rate of compensation increase used in determining the APBO for the
postretirement life insurance plan was 5.0%, 5.5% and 6.0% at December 31, 1994,
1993 and 1992, respectively.
9. Stock Compensation Plans
Stock Award Plan
In 1994, Aon's stockholders approved an amendment to the Aon Stock Award Plan
that increases the aggregate number of shares of common stock that Aon can award
from 1,350,000 to 3,350,000 shares. Generally, the award plan requires the
employees to complete three continuous years of service before the award begins
to vest in increments until the completion of a ten year period of continuous
employment. All awarded shares are issued as they become vested. With certain
limited exceptions, any break in continuous employment will cause forfeiture of
all unvested awards. During 1994, 1993 and 1992, Aon awarded 801,000, 539,000
and 401,000 shares, respectively. At December 31, 1994, 1993 and 1992, 587,000,
372,000 and 265,000 shares awarded under the Stock Award Plan have vested and
been issued. The compensation cost associated with each award is deferred and
amortized over the period of continuous employment using the straight line
method. Aon awarded shares aggregating a net deferred compensation cost of $18
million in 1994 and 1993 and $11 million in 1993, that was included as an
increase in paid-in additional capital with an equal amount deducted from
stockholders' equity (deferred compensation). Amortization of deferred
compensation cost totaled $6 million, $4 million and $6 million in 1994, 1993
and 1992, respectively.
Stock Option Plan
Under a nonqualified stock option plan, options to purchase common stock were
granted to certain officers and employees of Aon and its subsidiaries at 100% of
market value on the date of grant. Common stock options outstanding consisted of
the following:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
As of December 31 1994 1993
--------------------------------------------------------------------------------
No. of Price No. of Price
(shares in thousands) Shares Range Shares Range
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
at beginning of year 2,699 $14-36 2,745 $14-29
Granted 1,134 31-36 503 34-36
Exercised (353) 14-26 (486) 14-25
Canceled (134) 14-36 (63) 14-36
--------------------------------------------------------------------------------
Options outstanding
at end of year 3,346 $14-36 2,699 $14-36
--------------------------------------------------------------------------------
Options exercisable
at end of year 648 $14-32 591 $14-32
--------------------------------------------------------------------------------
Shares available for
grant at end of year 2,180 3,182
================================================================================
</TABLE>
10. Financial Instruments
Derivative Financial Instruments
Aon uses interest rate derivative contracts to manage the interest rate and
asset and liability duration risks on certain life and annuity and premium
finance businesses. Aon does not engage in trading of derivatives. In addition,
Aon purchased interest rate caps to limit interest expense on short-term
borrowings. Exchange-traded interest rate futures and options are used
primarily as a hedge against the value of Aon's available for sale fixed
maturity and equity investments. As of December 31, 1994, Aon was selling
futures as well as writing call options and limiting its risk on these written
options to a spread by purchasing call options. Exchange traded futures and
options are valued and settled daily. The premium that Aon pays for purchased
options and receives for written options represents the cost basis of the
option until it expires or is closed.
46
<PAGE>
Interest rate swap agreements are used primarily to manage asset and
liability durations relating to capital accumulation life and annuity business.
As of December 31, 1994, Aon was paying fixed rates and receiving variable
rates on interest rate swap contracts with the effect of lengthening liability
durations. The net effect of interest rate swap payments is settled
periodically and reported in income. There is no settlement of underlying
notional amounts. Aon also used interest rate options and swaps to hedge
against interest rate movements until certain anticipated debt was issued.
Aon performs frequent analysis to measure the degree of correlation
associated with its derivative programs. Aon assesses the adequacy of the
correlation analysis results in determining whether the derivatives qualify for
hedge accounting. Realized gains and losses on derivatives that qualify as
hedges are deferred and reported as an adjustment of the cost basis of the
hedged item. Deferred gains and losses are amortized into income over the life
of the hedged item. Outstanding derivatives that are hedges of items carried at
fair value are reflected in the financial statements with the derivative fair
value reported as unrealized gains and losses directly in stockholders' equity.
Aon uses foreign currency futures, options, and forward contracts to hedge
against the effects of foreign currency fluctuations on the translation of the
financial statements of Aon's foreign operations. Generally, realized and
unrealized gains and losses on those derivatives are recorded directly to
stockholders' equity, as a separate component of net unrealized foreign
exchange gains and losses.
Certain of Aon's foreign brokerage subsidiaries receive revenues in
currencies that differ from the currency in which their operating costs are
denominated. To reduce the variability of cash flows from these operations,
foreign forward exchange contracts having settlement dates that are primarily
less than one year are used. Related gains or losses on these contracts are
reflected as an adjustment to the expense component on the statement of income
when the currencies are exchanged to settle expense commitments. Contracts
entered into require no up-front premium and settle at the expiration of the
related contract.
The following are the notional amounts of Aon's outstanding derivatives
grouped by the types of risks being managed:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(millions) As of December 31 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C>
Interest rate and asset/liability
duration management
Futures sold $ 916 $203
Call options 1,089 168
Interest rate swaps--pay fixed 750 --
Interest rate swaps--receive fixed 10 450
Interest rate management for
anticipated transactions
Futures sold -- 53
Interest rate caps 58 --
Interest rate floors -- 52
Interest rate swaps--pay fixed 41 74
Foreign currency management--forwards 37 79
================================================================================
</TABLE>
During 1994, Aon amortized $3 million of deferred gains relating to
derivatives into income. Deferred losses related to anticipated transactions
were immaterial at December 31, 1994.
The interest rates on Aon's principal outstanding swaps at December 31 are
presented below.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Pay Receive Receive Pay
Fixed Variable Fixed Variable
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 7.7-8.3% 7.8% 7.9% 6.5%
1993 3.9-4.9% 3.3% 6.0-6.3% 3.4-3.5%
===============================================================================
</TABLE>
As of December 31, 1994, the principal swaps have maturities ranging from
October 1998 to October 2000 and variable rates based on the five-year treasury
rate. As of December 31, 1993, Aon paid variable rates based on the three and
six month LIBOR index. Other outstanding derivative contracts generally have
lives that are 90 days or less.
Aon is exposed to credit risk of derivative contracts in the event of
nonperformance by the counterparties to the financial instruments. The credit
risk is generally limited to the fair value of those contracts that are
favorable to Aon. Aon has limited its credit risk by restricting investments in
derivative contracts to a diverse group of highly rated major financial
institutions and by using exchange-traded instruments. At December 31, 1994 and
1993, Aon placed securities in escrow amounting to $21 million and $8 million,
respectively, relating to these derivative contracts.
Other Financial Instruments
Aon has certain investment commitments to provide capital and fixed-rate
loans as well as certain forward contract purchase commitments. The investment
commitments, which would be collateralized by related properties of the
underlying investments, involve varying elements of credit and market risk.
Investment commitments outstanding at December 31, 1994 and 1993 totalled $134
million and $481 million, respectively.
Subsidiaries of Aon have entered into agreements with financial institutions,
whereby the subsidiaries sold certain receivables, with limited recourse.
Agreements provide for sales of receivables on a continuing basis through
November 1995. As of December 31, 1994 and 1993, the maximum commitment
contained in these agreements was $525 million and $400 million, respectively.
Accounts receivable sold in 1994, 1993 and 1992, amounted to $1,095 million,
$879 million and $671 million, respectively. Outstanding receivables of $512
million and $401 million, remained to be collected at December 31, 1994 and
1993, respectively. Aon's credit risk relates to amounts that may be due under
recourse provisions that could exceed recorded estimates. At December 31, 1994
and 1993, this exposure was approximately $34 million and $41 million,
respectively.
47
<PAGE>
Fair Value of Financial Instruments
Accounting standards require the disclosure of fair values for certain
financial instruments. The fair value disclosures are not intended to encompass
the majority of policy liabilities, various other non-financial instruments, or
other intangible items related to Aon's business. Accordingly, care should be
exercised in deriving conclusions about Aon's business or financial condition
based on the fair value disclosures. The carrying value and fair value of
certain of Aon's financial instruments are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
As of December 31 1994 1993
---------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(millions) Value Value Value Value
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Fixed maturities and
equity securities (note 3) $8,083 $7,849 $7,986 $8,349
Mortgage loans on real estate 568 577 557 640
Policy loans 215 212 207 204
Cash, short-term investments,
and receivables 3,945 3,945 3,197 3,197
Derivatives -- -- -- 4
Liabilities:
Investment type
insurance contracts $3,830 $3,745 $3,721 $3,736
Short-term borrowings,
premium payables and
commissions and
general expenses 3,179 3,179 2,617 2,617
Notes payable 496 453 521 537
Derivatives 8 12 3 1
=================================================================================
</TABLE>
11. Litigation
Aon and its subsidiaries are subject to numerous claims and lawsuits that arise
in the ordinary course of business. In some of these cases, the remedies that
may be sought or damages claimed are substantial, including cases which seek
punitive or extraordinary damages. Accruals for these lawsuits have been
provided to the extent that losses are deemed probable and are estimable.
Although the ultimate outcome of these suits cannot be ascertained and
liabilities in indeterminate amounts may be imposed on Aon or its subsidiaries,
on the basis of present information, availability of insurance coverages, and
advice received from counsel, it is the opinion of management that the
disposition or ultimate determination of such claims and lawsuits will not have
a material adverse effect on the consolidated financial position of Aon.
12. Segment Information
The segment information located on pages 29 and 31 is incorporated herein by
reference.
48
<PAGE>
Aon Corporation | Reports by Independent Auditors
| and Management
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Stockholders
Aon Corporation
We have audited the accompanying consolidated statements of financial position
of Aon Corporation as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aon Corporation at
December 31, 1994 and 1993, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
As discussed in notes 3, 5 and 8, the Company changed its method of accounting
for certain investments in 1994 and income taxes and postretirement benefits
other than pensions in 1992.
/s/ Ernst & Young LLP
Chicago, Illinois
February 9, 1995
Report by Management
The management of Aon Corporation is responsible for the financial
statements and other financial information in the annual report and for their
integrity and objectivity. The statements have been prepared in conformity with
generally accepted accounting principles. These statements include informed
estimates and judgments for those transactions not yet complete or for which
the ultimate effects cannot be measured precisely. Financial information
elsewhere in this report is consistent with that in the financial statements.
The consolidated financial statements have been audited by our independent
auditors. Their role is to render an independent professional opinion on Aon's
financial statements.
Management maintains a system of internal control designed to meet its
responsibilities for reliable financial statements. The system is designed to
provide reasonable assurance, at appropriate costs, that assets are safeguarded
and that transactions are properly recorded and executed in accordance with
management's authorization. Judgments are required to assess and balance the
relative costs and expected benefits of those controls. It is management's
opinion that its system of internal control, as of December 31, 1994, was
effective in providing reasonable assurance that its financial statements were
free of material misstatement. In addition, management supports and maintains a
professional staff of internal auditors who coordinate audit coverage with the
independent auditors and conduct an extensive program of financial and
operational audits.
The Board of Directors selects an Audit Committee from among its members. No
member of the Audit Committee is an employee of Aon. The Audit Committee is
responsible to the Board for reviewing the accounting and auditing procedures
and financial practices of Aon and for recommending appointment of the
independent auditors. The Audit Committee meets periodically with management,
internal auditors and independent auditors to review the work of each and
satisfy itself that they are properly discharging their responsibilities. Both
the independent auditors and the internal auditors have free access to the
Committee, without the presence of management, to discuss the adequacy of
internal control and to review the quality of financial reporting.
49
<PAGE>
Aon Corporation | Selected Financial Data
|
<TABLE>
<CAPTION>
(millions except common stock and per share data)* 1994 1993 1992 1991 1990
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Premiums and policy fees $ 1,934 $ 1,823 $ 1,826 $ 1,734 $ 1,559
Net investment income 760 745 737 713 661
Realized investment gains 6 27 4 5 5
Brokerage commissions and fees 1,369 1,173 697 375 355
Other income 88 77 72 104 46
-------------------------------------------------------------------
Total revenue earned $ 4,157 $ 3,845 $ 3,336 $ 2,931 $ 2,626
=============================================================================================================================
Income before cumulative effect
of changes in accounting principles $ 360 $ 324 $ 206 $ 242 $ 239
Per share 3.14 2.81 1.93 2.47 2.41
Net income 360 324 127 242 239
Per share 3.14 2.81 1.17 2.47 2.41
Operating income** 356 312 265 239 235
Per share 3.10 2.70 2.49 2.44 2.37
=============================================================================================================================
Balance Sheet Data
Assets
Investments $ 9,783 $ 9,652 $ 9,088 $ 8,360 $ 7,704
Other 8,139 6,627 5,202 3,273 2,728
-------------------------------------------------------------------
Total assets $17,922 $16,279 $14,290 $11,633 $10,432
=============================================================================================================================
Liabilities and Stockholders' Equity
Policy liabilities $ 9,310 $ 8,776 $ 7,759 $ 7,342 $ 6,832
Notes payable 561 594 556 501 517
General liabilities 5,744 4,621 3,871 2,015 1,625
-------------------------------------------------------------------
Total liabilities 15,615 13,991 12,186 9,858 8,974
Redeemable preferred stock 50 -- -- -- --
Stockholders' equity 2,257 2,288 2,104 1,775 1,458
===================================================================
Total liabilities and stockholders' equity $17,922 $16,279 $14,290 $11,633 $10,432
=============================================================================================================================
Common Stock Data
Dividends paid per share $ 1.26 $ 1.18 $ 1.11 $ 1.05 $ 0.99
Stockholders' equity per share 18.30 18.95 17.48 17.39 14.93
Price range 35 3/4-29 1/4 39-30 7/8 36-26 1/8 27 7/8-19 7/8 28 3/8-17 7/8
Market price at year-end 32.000 32.250 36.000 26.375 23.125
Common stockholders 14,163 14,615 14,746 15,168 15,774
Shares outstanding 107,696,000 101,554,000 99,985,000 97,908,000 97,664,000
=============================================================================================================================
</TABLE>
*Per share and shares outstanding data have been restated to reflect the three-
for-two stock split.
**Operating income excludes after-tax realized investment gains, a retroactive
tax charge in 1993 of $5.4 million, the 1992 cumulative effect of changes in
accounting principles of $79.6 million and 1992 special charges of $61.4
million.
--
50
<PAGE>
Aon Corporation | Quarterly Financial Data
|
<TABLE>
<CAPTION>
(millions except common stock and
per share data)* 1Q 2Q 3Q 4Q 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums and policy fees $ 466.9 $ 482.9 $ 480.9 $ 503.0 $ 1,933.7
Net investment income 185.5 184.7 190.6 198.7 759.5
Realized investment gains 1.7 1.7 1.8 0.6 5.8
Brokerage commissions and fees 342.2 336.1 336.7 354.6 1,369.6
Other income 23.3 21.0 20.5 23.5 88.3
--------------------------------------------------------------------------------------
Total revenue earned $ 1,019.6 $ 1,026.4 $ 1,030.5 $ 1,080.4 $ 4,156.9
--------------------------------------------------------------------------------------
Net income $ 99.1 $ 88.2 $ 86.7 $ 86.0 $ 360.0
Per share 0.88 0.77 0.76 0.74 3.14
Operating income** 98.0 87.1 85.6 85.6 356.3
Per share 0.87 0.76 0.75 0.73 3.10
===========================================================================================================================
COMMON STOCK DATA
Dividends paid per share $ 0.30 $ 0.32 $ 0.32 $ 0.32 $ 1.26
Stockholders' equity per share 18.88 18.73 18.75 18.30 18.30
Price range 35-30 32 3/8-32 35 3/4-32 3/8 34-29 1/4 35 3/4-29 1/4
Average dividend yield 3.7% 4.0% 3.8% 4.0% 3.9%
Shares outstanding 101,095,000 101,803,000 102,131,000 107,696,000 107,696,000
Average monthly trading volume 1,553,000 1,110,000 1,461,000 1,938,000 1,515,000
===========================================================================================================================
(millions except common stock and
per share data)* 1Q 2Q 3Q 4Q 1993
---------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Premiums and policy fees $ 442.9 $ 457.4 $ 454.6 $ 468.1 $ 1,823.0
Net investment income 190.1 186.7 184.2 184.2 745.2
Realized investment gains 2.0 1.4 14.6 8.6 26.6
Brokerage commissions and fees 296.7 298.0 281.6 296.9 1,173.2
Other income 18.6 19.5 19.2 19.5 76.8
--------------------------------------------------------------------------------------
Total revenue earned $ 950.3 $ 963.0 $ 954.2 $ 977.3 $ 3,844.8
--------------------------------------------------------------------------------------
Net income $ 89.0 $ 79.1 $ 77.8 $ 77.9 $ 323.8
Per share 0.79 0.69 0.67 0.67 2.81
Operating income** 87.6 78.2 73.1 73.3 312.2
Per share 0.77 0.68 0.62 0.63 2.70
===========================================================================================================================
COMMON STOCK DATA
Dividends paid per share $ 0.28 $ 0.30 $ 0.30 $ 0.30 $ 1.18
Stockholders' equity per share 18.05 18.40 18.69 18.95 18.95
Price range 37 5/8-33 3/8 37 7/8-33 1/2 39-35 1/4 37 3/8-30 7/8 39-30 7/8
Average dividend yield 3.2% 3.4% 3.2% 3.5% 3.4%
Shares outstanding 100,136,000 101,333,000 101,417,000 101,554,000 101,554,000
Average monthly trading volume 2,064,000 1,717,000 1,469,000 2,514,000 1,941,000
===========================================================================================================================
</TABLE>
**Per share and outstanding data have been restated to reflect the three-for-two
stock split.
**Operating income excludes after-tax realized investment gains of $3.7 million
and $17 million in 1994 and 1993, respectively, and a retroactive tax charge
in 1993 of $5.4 million.
--
51
<PAGE>
GRAPHICS APPENDIX
DESCRIPTION OF GRAPHS IN THE 1994
Aon CORPORATION ANNUAL REPORT
PAGE 16
RHH retail and RHH consulting, pie chart representing 48.4% and 0.9%,
respectively, of the total 1994 commercial operations revenue.
PAGE 17
ASG retail and ASG consulting, pie chart representing 7.8% and 3.1%,
respectively, of the total 1994 commercial operations revenue.
PAGE 18
ARS reinsurance and wholesale, pie chart representing 18.2% of the total 1994
commercial operations revenue.
PAGE 19
NL reinsurance and wholesale, pie chart representing 7.9% of the total 1994
commercial operations revenue.
Godwins International consulting, pie chart representing 11.6% of the total 1994
commercial operations revenue.
PAGE 22
CICA direct sales life and direct sales accident and health, pie chart
representing 5.1% and 33.1%, respectively, of the total 1994 consumer operations
revenue.
Ryan Group auto credit life and auto credit accident and health, pie chart
representing 2.7% and 4.3%, respectively, of the total 1994 consumer operations
revenue.
PAGE 23
Union Fidelity Life direct response life, direct response accident and health,
and financial institution life and accident and health, pie chart representing
2.2%, 12.3% and 1.6%, respectively, of the total 1994 consumer operations
revenue.
<PAGE>
PAGE 24
Life of Virginia capital accumulation life and traditional life, pie chart
representing 20.7% and 4.1%, respectively, of the total 1994 consumer operations
revenue.
VSC/London General Insurance extended warranty and specialty liability, pie
chart representing 9.2% and 3.2%, respectively, of the total 1994 consumer
operations revenue.
PAGE 25
Investments fixed maturities, equity securities, mortgage loans and real estate,
short-term, and other, pie chart representing 73.0%, 9.6%, 6.2%, 8.0% and 3.2%,
respectively of the total 1994 invested assets.
<PAGE>
Exhibit 21
1 of 11
<TABLE>
<CAPTION>
=========================================================================================
corp_full_name juris_name
=========================================================================================
<S> <C>
A. J. Norcott & Company (Holdings) Limited United Kingdom
A. J. Norcott & Partners (Northern) Limited United Kingdom
A. J. Norcott & Partners (Scotland) Limited United Kingdom
A. J. Norcott & Partners Limited United Kingdom
A. J. Norcott Benefit Consultants Limited United Kingdom
A.H. Laseur B.V. Netherlands
AMLT, Inc. Alabama
AOPA Insurance Agency, Inc. Maryland
AOPA Insurance Agency, Inc. Texas
APS International Limited United Kingdom
APS Life & Pensions Limited United Kingdom
APS Overseas Investments Limited United Kingdom
ARS Holdings, Inc. Illinois
ARS Holdings, Inc. Louisiana
Acedale Co. Ltd. Hong Kong
Adams & Porter Financial Services, Inc. Texas
Adams & Porter Services, Inc. Texas
Advantage Plus Insurance Services, Inc. Illinois
Adviser 151 Limited United Kingdom
Airscope Insurance Services Limited United Kingdom
American Associates, Inc. Texas
American Attorneys' Protection Plan Co. Illinois
American Combined Life Insurance Company Nebraska
American Insurance Brokers, Ltd. Indiana
American National General Agencies, Inc. Colorado
Anchor Reinsurance Company, Ltd. Bermuda
Anchor Underwriting Managers, Ltd. Bermuda
Anscor Insurance Brokers Inc. Philippines
Aon Advisors (U.K.) Limited United Kingdom
Aon Advisors, Inc. Virginia
Aon Asset Management Fund, Inc. Virginia
Aon Auto Capital Corporation Delaware
Aon Aviation, Inc. Illinois
Aon Broker Services, Inc. Illinois
Aon Capital Corporation Delaware
Aon Capital Management, Inc. Delaware
Aon Captive Management, Ltd. U.S. Virgin Islands
Aon Direct Group, Inc. California
Aon Direct Group, Inc. Pennsylvania
Aon Entertainment, Ltd. California
Aon Entertainment, Ltd. New York
Aon Entertainment, Ltd. (Divertissement Aon, Ltee.) Canada
Aon Financial Institutions Services, Inc. Illinois
Aon H&R, Inc. New York
Aon Holdings Limited United Kingdom
Aon Insurance Management Services - Virgin Islands, Inc. U.S. Virgin Islands
Aon Insurance Management Services, Inc. Delaware
Aon Insurance Management of Texas, Inc. Texas
Aon Insurance Services California
Aon Nominees Limited United Kingdom
Aon Overseas Holdings Limited United Kingdom
Aon Re (Bermuda) Ltd. Bermuda
Aon Re Inc. Illinois
Aon Re Latinoamericana, S.A. Mexico
Aon Re Panama, S.A. Panama
Aon Re Services, Inc. Delaware
=========================================================================================
</TABLE>
286
<PAGE>
Exhibit 21
2 of 11
<TABLE>
<CAPTION>
=========================================================================================
corp_full_name juris_name
=========================================================================================
<S> <C>
Aon Re Worldwide, Inc. Delaware
Aon Reengineering & Consulting Services, Inc. Delaware
Aon Risk Consultants (Bermuda ) Ltd. Bermuda
Aon Risk Consultants (Europe) Limited United Kingdom
Aon Risk Consultants, Inc. Illinois
Aon Risk Resources, Inc. Delaware
Aon Risk Services (Bermuda) Ltd. Bermuda
Aon Risk Services (Europe) Luxembourg
Aon Risk Services (Vermont) Inc. Vermont
Aon Risk Services, Inc. Delaware
Aon Risk Technologies, Inc. Delaware
Aon Service Corporation Illinois
Aon Singer, Inc. Delaware
Aon Specialty Group of Tennessee, Inc. Tennessee
Aon Specialty Group, Inc. Delaware
Aon Technical Insurance Services, Inc. Illinois
Artscope Insurance Services Limited United Kingdom
Artscope International Insurance Services Agency GmbH Germany
Artscope International Insurance Services Limited United Kingdom
Ascom B.V. Netherlands
Asia Area Underwriters Ltd. Hong Kong
Assurantie Groep Langeveldt c.v. Netherlands
Atlantic Underwriters Agency, Incorporated Kentucky
Auto Conduit Corporation, The Delaware
Automotive Development Centers, Inc. Illinois
B.V. Assurantiekantoor Langeveldt-Schroder Netherlands
BRIC, Inc. North Carolina
Banker's Acceptance, L.P. Illinois
Bankers Insurance Service Corp. Illinois
BenefitsMedia, Inc. Tennessee
Big Sky Finance, L.P. Illinois
Blanco Finance, L.P. Illinois
Blom & Van der Aa BV Netherlands
Blom & Van der Aa Holding BV Netherlands
Brennan Group, Inc., The Delaware
Bruno Sforni S.p.A. Italy
Bruns Ten Brink & Co. b.v. Netherlands
Bruns Ten Brink Groep b.v. Netherlands
Bruns Ten Brink Herverzekeringen b.v. Netherlands
Bryson Associates Incorporated Pennsylvania
C.I.C. Realty, Inc. Illinois
C.V. 'T Huys Ter Merwe Netherlands
CCC Agency, Inc. of Illinois Illinois
CIC - Atlanta, Inc. Illinois
CIC - Hilldale, Inc. Illinois
CIC - Wells, Inc. Illinois
CIC - Westmont, Inc. Illinois
CICA - 123, Inc. Illinois
CICA - Court, Inc. Illinois
CICA Realty Corporation Illinois
CICA Superannuation Nominees Pty. Ltd. Australia
CJP, Inc. Delaware
Cabinet Servet et Baud S.a.r.l. Annecy France
California Auto Finance, L.P. Illinois
California Group Services California
Cananwill Corporation Delaware
Cananwill, Inc. California
</TABLE>
287
<PAGE>
Exhibit 21
3 of 11
<TABLE>
<CAPTION>
=========================================================================================
corp_full_name juris_name
=========================================================================================
<S> <C>
Cananwill, Inc. Pennsylvania
Catz & Lips B.V. Netherlands
Central States Acceptance, L.P. Illinois
Cinema Completions International, Inc. Delaware
Citadel Insurance Company Texas
Cole Booth Potter of New Jersey, Inc. New Jersey
Cole Booth Potter, Inc. Pennsylvania
Combined Administrative Services Corp. Illinois
Combined Insurance Company of America Illinois
Combined Insurance Company of Ireland Limited Ireland
Combined Insurance Company of New Zealand Limited New Zealand
Combined Life Assurance Company Limited United Kingdom
Combined Life Assurance Company of Europe Limited Ireland
Combined Life Insurance Company of Australia Limited Australia
Combined Life Insurance Company of New York New York
Consumer Program Administrators, Inc. Illinois
Cooreman & Saverys IBC & Co. nv Belgium
Cooreman & Saverys N.V. Belgium
Coughlan General Insurances Limited Ireland
Courtiers D'Assurances Rollins Hudig Hall du Quebec, Inc. Canada
Crotty MacRedmond Insurance Limited Ireland
Cush Finance Group, L.P. Illinois
D. Hudig & Co. b.v. Netherlands
D.W.F.S., L.P. Illinois
DPR, Dansk Pensionsradgivning A/S Denmark
Dealer Development Services, Ltd. United Kingdom
Dearborn Insurance Company Illinois
Dobson Park L. G. Limited Guernsey
Dominion Mutual Insurance Brokers Ltd. Canada
Don Flower Aviation Underwriters, Inc. Kansas
Dreadnaught Insurance Company Limited Bermuda
DuPage Acceptance, L.P. Illinois
E. Lillie & Co. Limited United Kingdom
ERCO Services, Inc. Ohio
Elm Lane Limited United Kingdom
Energy Insurance International, Inc. Texas
Equiscope Insurance Services Limited United Kingdom
Excess Underwriters Agency, Inc. New York
Expatriate Consultancy Limited, The United Kingdom
FFRL Re Corp. Virginia
Fabels-Versteeg b.v. Netherlands
Far East Agency Korea
Film Insurance Underwriting Agencies Pty. Limited (AUS) Australia
Finance Associates, Inc. Texas
Forth Financial Resources (Hawaii), Ltd. Hawaii
Forth Financial Resources Insurance Agency of Massachusetts, Inc. Massachusetts
Forth Financial Resources of Alabama, Inc. Alabama
Forth Financial Resources of Ohio, Inc. Ohio
Forth Financial Resources of Oklahoma Agency, Inc. Oklahoma
Forth Financial Resources of Texas, Inc. Texas
Forth Financial Resources, Ltd. Virginia
Forth Financial Securities Corp. Virginia
=========================================================================================
</TABLE>
288
<PAGE>
Exhibit 21
4 of 11
<TABLE>
<CAPTION>
=========================================================================================
corp_full_name juris_name
=========================================================================================
<S> <C>
France Fenwick Limited United Kingdom
Frank B. Hall & Co. Holdings (N.Z.) Limited New Zealand
Frank B. Hall (Reinsurance) France S.A. France
Frank B. Hall Iberica S.A. Spain
Frank B. Hall Ireland Ltd. Ireland
Frank B. Hall Management Services Pty. Ltd. Australia
Frank B. Hall Re (Latin America) Inc. Panama
G.E.F. Insurance Ltd. U.S. Virgin Islands
GBV Gesellschaft Fur Betriebliche Beratung und verwaltung GmbH Germany
General Environmental Management Corporation Illinois
Go Pro Agency, Inc. of San Antonio Texas
Go Pro Life Agency, Inc. of San Antonio Texas
Go Pro Underwriting Managers of Virginia, Inc. Virginia
Go Pro Underwriting Managers, Inc. Texas
Godolphin Bloodstock Limited United Kingdom
Godwins (Overseas) Limited United Kingdom
Godwins (Trustees) Limited United Kingdom
Godwins Australia Pty. Limited Australia
Godwins Booke & Dickenson Insurance Services California
Godwins Booke & Dickenson Insurance Services Massachusetts
Godwins Employee Benefits Services (Texas), Inc. Texas
Godwins General Agency, Inc. Texas
Godwins Group Limited United Kingdom
Godwins International, Inc. Delaware
Godwins Investment Advisors, Inc. Florida
Godwins Limited United Kingdom
Godwins Nederland pensioen- en employee benefits adviseurs en Netherlands
actuarissen c.v
Godwins Nominees Pty. Limited Australia
Godwins Securities, Inc. Washington
Godwins of New York, Inc. New York
Godwins, Inc. Pennsylvania
Gotuaco del Rosario & Associates, Inc. Philippines
Group Organization, Inc. District of Columbia
H.Z. Financial, Limited Partnership Illinois
HHL (Holdings) Ltd. Hong Kong
HHL (Taiwan) Ltd. Taiwan
HHL (Thailand) Ltd. Thailand
HHL Employee Benefits Ltd. Thailand
HHL Ltd. Hong Kong
HHL Management Ltd. Hong Kong
HHL Pte Ltd. Singapore
HHL Re Ltd. Thailand
HHL Reinsurance Brokers Inc. Philippines
HHL Reinsurance Brokers Pte. Ltd. Singapore
HHL Reinsurance Services Ltd. Hong Kong
HLS Hudig-Langeveldt Stanner GmbH Germany
Hanseatische Assekuranz Kontor GmbH Germany
Hanseatische Assekuranz Vermittlungs AG Germany
Havag Hudig-Langeveldt GmbH Germany
Heinz Hahn GmbH Germany
Heli Agency Korea
Highplain Limited United Kingdom
Hodgson McCreery & Company Limited United Kingdom
Hudig-Langeveldt Berlin GmbH Germany
Hudig-Langeveldt Borghuis B.V. Netherlands
Hudig-Langeveldt Coens N.V. Belgium
=========================================================================================
</TABLE>
289
<PAGE>
Exhibit 21
5 of 11
<TABLE>
<CAPTION>
=========================================================================================
corp_full_name juris_name
=========================================================================================
<S> <C>
Hudig-Langeveldt Janson Elffers B.V. Netherlands
Hudig-Langeveldt Kyoritsu Ltd. Japan
Hudig-Langeveldt Makelaardij in Assurantien bv Netherlands
Hudig-Langeveldt Merwestad bv Netherlands
Hudig-Langeveldt Nijmegen B.V. Netherlands
Hudig-Langeveldt Pensioenbureau B.V. Netherlands
Hudig-Langeveldt Reinsurance B.V. Netherlands
Hudig-Langeveldt Reinsurance Brokers C.V. Netherlands
Hudig-Langeveldt S.A. France
Hudig-Langeveldt SECA S.A. France
Hudig-Langeveldt Tilburg B.V. Netherlands
Hudig-Langeveldt Van Bruggen & De Laat B.V. Netherlands
Huntington T. Block Insurance Agency, Inc. District of Columbia
Huntington T. Block Insurance Agency, Inc. Ohio
IRISC London Limited United Kingdom
IRISC Specialty, Inc. Delaware
IRISC, Inc. New Jersey
Independent Dealer Services, Inc. Missouri
Independent Homeowner Services, Inc. Missouri
Independent Inspections, Inc. Illinois
Inmobiliaria Ramos Rosada, S.A. de C.V. Mexico
Insurance Brokers Service, Inc. Illinois
Intassco Versicherungsmakler GmbH Austria
Integrated Insurance Industries, Inc. Delaware
Intercept Corporation Illinois
International Industrial Insurances Limited Ireland
International Shipowners Mutual Insurance Association Limited Bermuda
Interocean (Italia) S.p.A. Italy
Interocean Reinsurance Company, S.A. Panama
J.C.J. Van Dalen Beheer B.V. Netherlands
J.H. Blades & Co. (Agency), Inc. Texas
J.H. Blades & Co., Inc. Texas
J.H. Blades, Inc. Oklahoma
J.H. Lea & Company, Inc. Illinois
James S. Kemper & Co. International, Limited Bermuda
James S. Kemper Insurance Services, Inc. Texas
K & K Insurance Brokers, Ltd. Ontario
K & K Insurance Group, Inc. Indiana
K & K Insurance Specialties, Inc. Indiana
K & K Insurance of Wyoming, Inc. Wyoming
K & K Specialties, Inc. Indiana
Karl Alt & Co. GmbH Germany
Keeling & Company California
Key-Royal Automotive Company, Inc. Alabama
Kininmonth Limited Ireland
L & G LMX Limited United Kingdom
L & G Seascope Insurance Holdings Limited United Kingdom
Langeveldt Groep B.V. Netherlands
Langeveldt de Vos b.v. Netherlands
Laverack & Haines, Inc. New York
Lescorp Limited United Kingdom
Leslie & Godwin (C.I.) Limited Guernsey
Leslie & Godwin (Reinsurance) Copenhagen A/S Denmark
Leslie & Godwin (Scotland) Limited Scotland
Leslie & Godwin (U.K.) Limited United Kingdom
Leslie & Godwin (WFG) Limited United Kingdom
Leslie & Godwin AXL Limited United Kingdom
=========================================================================================
</TABLE>
290
<PAGE>
Exhibit 21
6 of 11
<TABLE>
<CAPTION>
=========================================================================================
corp_full_name juris_name
=========================================================================================
<S> <C>
Leslie & Godwin Aviation Holdings Limited United Kingdom
Leslie & Godwin Aviation Limited United Kingdom
Leslie & Godwin Aviation Reinsurance Services Limited United Kingdom
Leslie & Godwin Cargo Limited United Kingdom
Leslie & Godwin Financial Risks Limited United Kingdom
Leslie & Godwin Financial Services (Holdings) Limited United Kingdom
Leslie & Godwin Financial Services Limited United Kingdom
Leslie & Godwin GmbH Germany
Leslie & Godwin Group Limited United Kingdom
Leslie & Godwin Insurance Brokers Ltd. Canada
Leslie & Godwin Insurance Brokers, Inc. New York
Leslie & Godwin International Limited United Kingdom
Leslie & Godwin Investments Limited United Kingdom
Leslie & Godwin Limited United Kingdom
Leslie & Godwin Marine Holdings Limited United Kingdom
Leslie & Godwin Non-Marine Limited United Kingdom
Leslie & Godwin Overseas Reinsurance Holdings Limited United Kingdom
Leslie & Godwin Personal Insurance Services Limited United Kingdom
Leslie & Godwin Reinsurance Holdings Limited United Kingdom
Leslie & Godwin Risk Management Limited United Kingdom
Leslie & Godwin Technical Services Limited United Kingdom
Life Insurance Company of Virginia, The Virginia
Life of Virginia Series Fund, Inc. Virginia
Lloyd Paulista Corretores de Seguros e Reaseguros S.A. Brazil
London General Holdings Limited United Kingdom
London General Insurance Company Limited United Kingdom
Lowndes Lambert Insurance Limited Ireland
Lynn & Schaller Insurance Brokers, Inc. California
MTSA S.a.r.l., Annecy France
MacDonagh & Boland (International) Limited Ireland
MacDonagh & Boland Group Limited Ireland
MacDonagh Boland Beech Hill Limited Ireland
MacDonagh Boland Crotty MacRedmond Limited Ireland
MacDonagh Boland Cullen Duggan Limited Ireland
MacDonagh Boland Foley Woollam Limited Ireland
Macey Clifton Walters Limited United Kingdom
Macey Williams Insurance Services Limited Ireland
Macey Williams Insurance Services Limited United Kingdom
Macey Williams Limited Ireland
Madison Intermediaries Pty. Limited Australia
Madison Reinsurance Holdings, Inc. Illinois
Mahamy Company plc (Rollins Hudig Hall Iran) Iran
Maritime Underwriters, Ltd. Bermuda
Martin Boyer Company, Inc. Illinois
Mayflower National Life Insurance Company Indiana
Mayflower National Life Insurance Company of Texas Texas
Minahan Reinsurance Management Limited United Kingdom
Motorists Service Corporation Delaware
Motorplan Limited United Kingdom
Muirfield Underwriters, Ltd. Delaware
N.V. Assurantiehuis Holding (Curacao) Netherland Antilles
NB Life Agents, Inc. New York
NSU Benefit Corporation Indiana
=========================================================================================
</TABLE>
291
<PAGE>
Exhibit 21
7 of 11
<TABLE>
<CAPTION>
=========================================================================================
corp_full_name juris_name
=========================================================================================
<S> <C>
Nask bv Netherlands
National Benefits Corporation Pennsylvania
National Care Provider Insurance, Inc. California
National Product Care Company Illinois
National Sports Underwriters, Inc. Indiana
Nesdale Holdings Limited New Zealand
Newco Properties, Inc. Virginia
Nicholson Chamberlain Colls Australia Holdings Limited Australia
Nicholson Chamberlain Colls Australia Limited Australia
Nicholson Chamberlain Colls Group Limited United Kingdom
Nicholson Chamberlain Colls Marine Limited United Kingdom
Nicholson Leslie (North America) Limited United Kingdom
Nicholson Leslie Accident & Health Limited United Kingdom
Nicholson Leslie Agencies Limited United Kingdom
Nicholson Leslie Aviation Limited United Kingdom
Nicholson Leslie Aviation Reinsurance Brokers United Kingdom
Nicholson Leslie Bank Assure Limited United Kingdom
Nicholson Leslie Bankscope Insurance Services Limited United Kingdom
Nicholson Leslie Bankscope Marine Insurance Consultants United Kingdom
Nicholson Leslie Energy Resources Limited United Kingdom
Nicholson Leslie Financial Institutions Limited United Kingdom
Nicholson Leslie Group Limited United Kingdom
Nicholson Leslie International (Reinsurance Brokers) Limited United Kingdom
Nicholson Leslie International Limited United Kingdom
Nicholson Leslie International Limited United Kingdom
Nicholson Leslie Investments Limited United Kingdom
Nicholson Leslie Italia S.P.A. Italy
Nicholson Leslie Limited United Kingdom
Nicholson Leslie Management Services United Kingdom
Nicholson Leslie Marine Limited United Kingdom
Nicholson Leslie Nominees Limited United Kingdom
Nicholson Leslie Non-Marine Reinsurance Brokers Limited United Kingdom
Nicholson Leslie North American Reinsurance Brokers, Limited United Kingdom
Nicholson Leslie Property Limited United Kingdom
Nicholson Leslie Seascope Limited United Kingdom
Nicholson Leslie Special Risks Limited United Kingdom
Nicholson Stewart-Brown Limited United Kingdom
North Derbyshire Finance Company Limited, The United Kingdom
Nova Reinsurance Brokers, Inc. Illinois
OLD BENEFITS CORPORATION Illinois
OUM & Associates of California, A Corporation California
OUM & Associates of New York, A Corporation New York
OUM & Associates of Ohio, A Corporation Ohio
OUM & Associates, Inc., A Corporation Washington
OUM Risk Consultants, Inc. Washington
Oak Brook Holding, Inc. Delaware
Oak Brook Life Insurance Company Arizona
Oceanic Adjusters Limited New York
Ogle & Waters, Inc. Florida
Ohrinsoo Agency Korea
Olarescu & B. I. Davis Asesores y Corredores de Seguros S.A. Peru
=========================================================================================
</TABLE>
292
<PAGE>
Exhibit 21
8 of 11
<TABLE>
<CAPTION>
=========================================================================================
corp_full_name juris_name
=========================================================================================
<S> <C>
Old RHH North, Inc. California
Oxford Managers, Inc. Illinois
P.I. Consultants Ltd. Hong Kong
PFS, L.P. Illinois
PLCM Group, Inc. Florida
PLCM Group, Inc. Illinois
PLCM Group, Inc. Pennsylvania
PT RNJ Ratna Nusa Jaya Indonesia
Pandimar Consultants, Inc. New York
Paribas Assurantien B.V. Netherlands
Parker Risk Management (Barbados) Ltd. Barbados
Parker Risk Management (Bermuda) Ltd. Bermuda
Parker Risk Management (Cayman) Ltd. Cayman Islands
Parker Risk Management (Guernsey) Ltd. Guernsey
Parker Risk Management (S) Pte Ltd Singapore
Parker Risk Management, Inc. Colorado
Pat Ryan & Associates, B.V. Netherlands
Pat Ryan & Associates, Inc. Illinois
Pat Ryan & Associates, Inc. Texas
Pecos River Learning Centers, Inc. Minnesota
Pernas HHL Malaysia
Piercey Auto Group Finance, L.P. Illinois
Pikes Peak Holding Company, Inc. Delaware
Preferred Risk Strategies, A Corporation Washington
Premier Auto Finance, L.P. Illinois
Product Care, Inc. Illinois
Production Life Insurance Company Arizona
Professional Sports Insurance Co. Ltd. Bermuda
Property Owners Database Limited United Kingdom
Provider Services, Ltd. Bermuda
Pyramid Services, Inc. Connecticut
RAMRO y Asociados, S.C. Mexico
RBH Acquisition Co. Delaware
RBH Equities, Inc. New York
RBH General Agencies (Canada) Inc. Quebec
RHH (Intermediaries) Ltd. Bermuda
RHH Captive Management Ltd. Bermuda
RHH Empreendimentos e Servicos Ltda. Brazil
RHH Europe, Inc. Delaware
RHH Financial Services Group of New York, Inc. New York
RHH Financial Services Group, Inc. California
RHH Financial Services Group, Inc. Illinois
RHH Financial Services Group, Inc. Pennsylvania
RHH Financial Services Group, Inc. Texas
RHH General Agency, Inc. Texas
RHH Hazard Limited United Kingdom
RHH Life Agency of Texas, Inc. Texas
RHH Special Risks, Inc. Illinois
RHH Texas Acquisition Company, Inc. Texas
RHH/Albert G. Ruben Insurance Services, Inc. California
RIP Services Limited Guernsey
Rae Liness & Duffus Limited Scotland
Ramos, Rosado y Ascociados Agente de Seguros, S.A. de C.V. Mexico
Regent Acceptance, L.P. New Jersey
Resource Insurance Services, Inc. Indiana
Retailer Acceptance, L.P. Illinois
Rockford Holding, Inc. Delaware
=========================================================================================
</TABLE>
293
<PAGE>
Exhibit 21
9 of 11
<TABLE>
<CAPTION>
=========================================================================================
corp_full_name juris_name
=========================================================================================
<S> <C>
Rockford Life Insurance Company Arizona
Rolins Hudig Hall (Sweden) A.B Sweden
Rollins Financial Brokers, Inc. Oklahoma
Rollins Financial Services Co. Illinois
Rollins Heath (Japan) Ltd. Japan
Rollins Hudig Hall & Co. (N.S.W.) Pty. Ltd. Australia
Rollins Hudig Hall (Bermuda) Limited Bermuda
Rollins Hudig Hall (Finland) OY Finland
Rollins Hudig Hall (Hong Kong) Ltd. Hong Kong
Rollins Hudig Hall (Nederland) Limited United Kingdom
Rollins Hudig Hall (Norway) A/S Norway
Rollins Hudig Hall (Scandinavia) A/S Norway
Rollins Hudig Hall (Scandinavia) Holding A/S Denmark
Rollins Hudig Hall (Singapore) Pte Ltd Singapore
Rollins Hudig Hall (Turks & Caicos) Limited Bermuda
Rollins Hudig Hall Agency of Texas, Inc. Texas
Rollins Hudig Hall Antillen N.V. Netherland Antilles
Rollins Hudig Hall Aruba N.V. Netherland Antilles
Rollins Hudig Hall Associates B.V. Netherlands
Rollins Hudig Hall Ceska Republika spol.s r.o. Czech Republic
Rollins Hudig Hall Co. Delaware
Rollins Hudig Hall Consulting Italia srl Italy
Rollins Hudig Hall Denmark A/S Denmark
Rollins Hudig Hall Employee Benefits of Ohio, Inc. Ohio
Rollins Hudig Hall Entertainment Brokers Ltd. United Kingdom
Rollins Hudig Hall Espana Correduria de Seguros, SA Spain
Rollins Hudig Hall Groep B.V. Netherlands
Rollins Hudig Hall Group, Inc. Delaware
Rollins Hudig Hall Healthcare Risk, Inc. Florida
Rollins Hudig Hall Holdings (Deutschland) GmbH Germany
Rollins Hudig Hall Holdings Limited Australia
Rollins Hudig Hall Holdings Limited United Kingdom
Rollins Hudig Hall Holdings bv Netherlands
Rollins Hudig Hall Insurance Brokers, Inc. Ontario
Rollins Hudig Hall Insurance Services, Inc. British Columbia
Rollins Hudig Hall International b.v. Netherlands
Rollins Hudig Hall Italia S.p.A. Italy
Rollins Hudig Hall Limited United Kingdom
Rollins Hudig Hall Magyarorszag Biztositasi Alkusz Hungary
Rollins Hudig Hall Middle East United Arab Emirates
Rollins Hudig Hall Nederland Makelaars in Assurantien bv Netherlands
Rollins Hudig Hall Netherlands b.v. Netherlands
Rollins Hudig Hall Polska Ltd. Poland
Rollins Hudig Hall Pty. Ltd. Australia
Rollins Hudig Hall Risk Management Services A/S Denmark
Rollins Hudig Hall Services Limited United Kingdom
Rollins Hudig Hall Slovensko spol.s r.o. Slovak Republic
Rollins Hudig Hall Surety & Guarantee Limited United Kingdom
Rollins Hudig Hall do Brazil Corretora de Seguros Ltda. Brazil
Rollins Hudig Hall of Alabama, Inc. Alabama
Rollins Hudig Hall of Alaska, Inc. Alaska
Rollins Hudig Hall of Arizona, Inc. Arizona
Rollins Hudig Hall of Arkansas, Inc. Arkansas
Rollins Hudig Hall of Canada Inc. Canada
Rollins Hudig Hall of Central California, Inc. Insurance Services California
=========================================================================================
</TABLE>
294
<PAGE>
Exhibit 21
10 of 11
<TABLE>
<CAPTION>
=========================================================================================
corp_full_name juris_name
=========================================================================================
<S> <C>
Rollins Hudig Hall of Colorado, Inc. Colorado
Rollins Hudig Hall of Connecticut, Inc. Connecticut
Rollins Hudig Hall of Florida, Inc. Florida
Rollins Hudig Hall of Georgia, Inc. Georgia
Rollins Hudig Hall of Hawaii, Inc. Hawaii
Rollins Hudig Hall of Idaho, Inc. Idaho
Rollins Hudig Hall of Illinois, Inc. Illinois
Rollins Hudig Hall of Indiana, Inc. Indiana
Rollins Hudig Hall of Kansas, Inc. Kansas
Rollins Hudig Hall of Latin America, Inc. Delaware
Rollins Hudig Hall of Louisiana, Inc. Louisiana
Rollins Hudig Hall of Massachusetts, Inc. Massachusetts
Rollins Hudig Hall of Michigan, Inc. Michigan
Rollins Hudig Hall of Minnesota, Inc. Minnesota
Rollins Hudig Hall of Missouri, Inc. Missouri
Rollins Hudig Hall of Montana, Inc. Montana
Rollins Hudig Hall of Nebraska, Inc. Nebraska
Rollins Hudig Hall of Nevada, Inc. Nevada
Rollins Hudig Hall of New Jersey, Inc. New Jersey
Rollins Hudig Hall of New York, Inc. New York
Rollins Hudig Hall of Northern California, Inc. Insurance Services California
Rollins Hudig Hall of Ohio, Inc. Ohio
Rollins Hudig Hall of Oklahoma, Inc. Oklahoma
Rollins Hudig Hall of Oregon, Inc. Oregon
Rollins Hudig Hall of Pennsylvania, Inc. Pennsylvania
Rollins Hudig Hall of Rhode Island, Inc. Rhode Island
Rollins Hudig Hall of Southern California, Inc. California
Rollins Hudig Hall of Tennessee, Inc. Tennessee
Rollins Hudig Hall of Utah, Inc. Utah
Rollins Hudig Hall of Virginia, Inc. Virginia
Rollins Hudig Hall of Washington, D.C., Inc. District of Columbia
Rollins Hudig Hall of Washington, Inc. Washington
Rollins Hudig Hall of Wisconsin, Inc. Wisconsin
Rollins Hudig Hall of Wyoming, Inc. Wyoming
Rollins Hudig Hall of the Americas, Inc. Illinois
Rollins Hudig Hall of the Carolinas, Inc. North Carolina
Rollins Risk & Benefit Management Services, Inc. Nevada
Rollins Technical Services Co. Illinois
Rollins Technology Brokers, Inc. California
Roundwise Limited United Kingdom
Ryan Financial Services, Inc. Illinois
Ryan Insurance Group France S.A.R.L. France
Ryan Insurance Group, Inc. Delaware
Ryan Services Corporation Illinois
Ryan Warranty Services Canada, Inc. Canada
Ryan Warranty Services of Florida, Inc. Florida
Ryan Warranty Services, Inc. Delaware
Ryan/CSI, Inc. Illinois
SIS Services of New York, Inc. New York
SLE International Underwriters, Inc. Delaware
SLE Underwriters, Inc. Delaware
SLE Worldwide Australia Pty Limited Australia
SLE Worldwide, Inc. Delaware
SLE Worldwide, Limited United Kingdom
SRS Management Antilles N.V. Netherland Antilles
Saat Van Marwijk Beheer B.V. Netherlands
Saat Van Marwijk Noordwijk B.V. Netherlands
=========================================================================================
</TABLE>
295
<PAGE>
Exhibit 21
11 of 11
<TABLE>
<CAPTION>
=========================================================================================
corp_full_name juris_name
=========================================================================================
<S> <C>
Safeguard Risk Services (Bermuda) Ltd. Bermuda
Safeguard Risk Services Antilles N.V. Netherland Antilles
Safeguard Risk Services b.v. Netherlands
Sang Woon Agency Korea
Scarborough & Company Illinois
Scarborough & Company, Inc. Delaware
Scarborough Agency of Ohio, Inc. Ohio
Scarborough Insurance Agency of Massachusetts, Inc. Massachusetts
Seascope Cargo Insurance Services Limited United Kingdom
Seascope Insurance Holdings Limited United Kingdom
Seascope Insurance Services Limited United Kingdom
Seascope Marine Insurance Services Limited United Kingdom
Seascope Marine Limited United Kingdom
Seascope Reinsurance Services Limited United Kingdom
Select Direct Limited Scotland
Self-Insurers Service, Inc. Delaware
Service Protection, Inc. Illinois
Service Saver, Incorporated Florida
ServicePlan, Inc. Illinois
Sherwood Insurance Services California
Shoreline Insurance Agency, Inc. Rhode Island
Singer Group, Inc., The Texas
Singer Plan, Inc. Delaware
Skyline Agency, Ltd., The Illinois
Square One, Inc. Texas
Steetley Leslie & Godwin Limited Guernsey
Sterling Life Insurance Company Arizona
Stichting Employee Fund Hudig-Langeveldt Groep B.V. Netherlands
Stichting Verum-HLG Netherlands
Stichting Werknemerscertificaten HLG Netherlands
Superannuation Fund (CICNZ) Limited New Zealand
Suras B.V. Netherlands
Surety & Guarantee Consultants Limited United Kingdom
Tabma-Hall Insurance Services Pty. Limited Australia
Texecur Versicherungs Vermittlungs GmbH Germany
UNIRISC, Inc. Delaware
UNIRISC, Inc. Texas
Underwriters Marine Services Limited United Kingdom
Underwriters Marine Services of Texas, Inc. Texas
Underwriters Marine Services, Inc. Louisiana
Union Fidelity Life Insurance Company Illinois
United Heartland, Inc. Wisconsin
Universal Acceptance, L.P. Illinois
Verum-HLG B.V. Netherlands
Virginia Surety Company, Inc. Illinois
Wacus/Hudig-Langeveldt GmbH Germany
Wacus/Hudig-Langeveldt, Kreditversicherungsmakler und Beratungs GmbH Germany
Walker Persson & Partners Limited United Kingdom
Wexford Underwriting Managers, Inc. Delaware
Wilfredo Armstrong S.A. Argentina
Worldwide Integrated Services Company Texas
Yorkshire Investment Company, Inc. Arizona
=========================================================================================
</TABLE>
296
<PAGE>
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Aon Corporation of our report dated February 9, 1995, included in the 1994
Annual Report to Stockholders of Aon Corporation.
Our audits also included the financial statement schedules of Aon Corporation
listed in Item 14(a). These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, with respect to which the date is February 9, 1995, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein. As discussed in Notes 3, 5 and 8 to the
consolidated financial statements in the 1994 Annual Report to Stockholders of
Aon Corporation, the Company changed its method of accounting for certain
investments in 1994 and income taxes and postretirement benefits other than
pensions in 1992.
We also consent to the incorporation by reference in the Registration Statements
pertaining to the employer's stock option and savings plans (Form S-8 Nos.
2-79114, 2-82791, 33-27984, and 33-42575) and the right to offer preferred stock
(Form S-3 No. 33-57562) of Aon Corporation of our report dated February 9,
1995, with respect to the consolidated financial statements incorporated herein
by reference, and our report, included in the preceding paragraph with respect
to the financial statement schedules included in this Annual Report (Form 10-K)
of Aon Corporation.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Chicago, Illinois
March 28, 1995
297
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AND CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 4,160
<DEBT-CARRYING-VALUE> 2,984
<DEBT-MARKET-VALUE> 2,750
<EQUITIES> 939
<MORTGAGE> 568
<REAL-ESTATE> 36
<TOTAL-INVEST> 9,783
<CASH> 509
<RECOVER-REINSURE> 296
<DEFERRED-ACQUISITION> 1,182
<TOTAL-ASSETS> 17,922
<POLICY-LOSSES> 1,435
<UNEARNED-PREMIUMS> 1,428
<POLICY-OTHER> 944
<POLICY-HOLDER-FUNDS> 5,503
<NOTES-PAYABLE> 805<F1>
50
11<F2>
<COMMON> 111<F3>
<OTHER-SE> 2,135
<TOTAL-LIABILITY-AND-EQUITY> 17,922
1,934
<INVESTMENT-INCOME> 760
<INVESTMENT-GAINS> 6
<OTHER-INCOME> 1,457<F4>
<BENEFITS> 1,305
<UNDERWRITING-AMORTIZATION> 276
<UNDERWRITING-OTHER> 2,038
<INCOME-PRETAX> 538
<INCOME-TAX> 178
<INCOME-CONTINUING> 360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 360
<EPS-PRIMARY> 3.14
<EPS-DILUTED> 0.00
<RESERVE-OPEN> 686
<PROVISION-CURRENT> 923
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 582
<PAYMENTS-PRIOR> 346
<RESERVE-CLOSE> 681
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Includes short-term borrowings and debt guarantee of ESOP.
<F2> Preferred stock at par value.
<F3> Common stock at par value.
<F4> Includes brokerage commissions and fees and other income.
</FN>
</TABLE>
