<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission file number 1-7933
Aon Corporation
---------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3051915
-------- ------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
123 N. WACKER DR., CHICAGO, ILLINOIS 60606
------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(312) 701-3000
--------------
(Registrant's Telephone Number)
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
--- ---
Number of shares of common stock outstanding:
No. Outstanding
Class as of 3-31-95
----- ---------------
$1.00 par value Common 107,976,401
<PAGE>
Part 1
Financial Information
Aon CORPORATION
Condensed Consolidated Statements of Financial Position
-------------------------------------------------------
<TABLE>
<CAPTION>
(millions) At End of At End of
Assets Mar. 31, 1995 Dec. 31, 1994
------------- -------------
(Unaudited)
<S> <C> <C>
Investments
Fixed maturities
Held to maturity $ 2,955.4 $ 2,983.8
Available for sale 4,391.6 4,160.3
Equity securities at fair value
Common stocks 268.8 314.9
Preferred stocks 652.2 624.4
Mortgage loans on real estate 574.5 567.5
Real estate (net of accumulated depreciation) 35.3 35.6
Policy loans 216.7 214.9
Other long-term investments 105.0 97.9
Short-term investments 950.8 783.2
--------- ---------
Total investments 10,150.3 9,782.5
Cash 517.7 508.8
Receivables
Insurance brokerage and consulting
services 2,047.2 1,882.0
Premiums and other 746.6 637.7
Accrued investment income 146.0 133.5
--------- ---------
Total receivables 2,939.8 2,653.2
Deferred Policy Acquisition Costs 1,186.3 1,181.6
Intangible Assets 1,610.5 1,548.0
Property and Equipment at Cost (net of 291.4 266.5
accumulated depreciation)
Assets Held Under Special Contracts 1,686.8 1,595.1
Other Assets 465.9 386.2
--------- ---------
Total Assets $18,848.7 $17,921.9
========= =========
At End of At End of
Liabilities and Equity Mar. 31, 1995 Dec. 31, 1994
------------- -------------
(Unaudited)
Policy Liabilities
Future policy benefits $ 1,425.2 $ 1,434.5
Policy and contract claims 970.8 944.2
Unearned and advance premiums 1,514.4 1,428.4
Other policyholder funds 5,628.3 5,503.3
--------- ---------
Total policy liabilities 9,538.7 9,310.4
General Liabilities
Short-term borrowings 259.2 243.9
Insurance premiums payable 2,742.2 2,408.7
Commissions and general expenses 534.1 526.6
Accrued income taxes 357.4 330.2
Notes payable 487.0 495.5
Debt guarantee of ESOP 65.5 65.5
Liabilities held under special contracts 1,686.8 1,595.1
Other liabilities 708.6 638.6
--------- ---------
Total Liabilities 16,379.5 15,614.5
--------- ---------
Commitments and Contingent Liabilities
Redeemable Preferred Stock 50.0 50.0
Stockholders' Equity
Preferred stock - $1 par value 11.1 11.1
Common stock - $1 par value 110.6 110.6
Paid-in additional capital 495.9 485.2
Net unrealized investment losses (40.4) (142.8)
Net foreign exchange gains/(losses) 10.5 (19.7)
Retained earnings 2,023.3 1,998.1
Less - Treasury stock at cost (70.7) (72.9)
Deferred compensation (121.1) (112.2)
--------- ---------
Total Stockholders' Equity 2,419.2 2,257.4
--------- ---------
Total Liabilities and Equity $18,848.7 $17,921.9
========= =========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
-2-
<PAGE>
Aon CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(millions except per share data) First Quarter Ended
-----------------------
March 31, March 31,
1995 1994
--------- ---------
REVENUE
Premiums and policy fees........................ $ 490.7 $ 466.9
Net investment income........................... 208.8 185.5
Realized investment gains....................... 0.6 1.7
Brokerage commissions and fees.................. 419.7 342.2
Other income.................................... 19.6 23.3
-------- --------
Total revenue earned........................ 1,139.4 1,019.6
-------- --------
BENEFITS AND EXPENSES
Benefits to policyholders....................... 346.7 326.1
Commissions and general expenses................ 513.4 447.2
Interest expense................................ 13.0 11.1
Amortization of deferred policy
acquisition costs............................. 74.0 64.7
Amortization of intangible assets............... 23.8 22.5
-------- --------
Total benefits and expenses................. 970.9 871.6
-------- --------
INCOME BEFORE INCOME TAX 168.5 148.0
Provision for income tax..................... 57.3 48.9
-------- --------
NET INCOME ........................................ $ 111.2 $ 99.1
======== ========
Income Attributable to Common Stockholders......... $ 104.4 $ 90.8
======== ========
Net income per share (1) .......................... $ 0.96 $ 0.88
======== ========
Cash dividends paid on common stock ............... $ 0.32 $ 0.30
======== ========
Average common and common equivalent shares
outstanding ................................. 108.7 105.7
======== ========
(1) Includes the effect of $6.8 million and $6.5 million of dividends
incurred on the 8%, 6.25% and Series C preferred stock in first quarter
ended March 31, 1995 and 1994, respectively.
See the accompanying notes to the condensed consolidated financial statements.
-3-
<PAGE>
Aon CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
(millions)
First Quarter Ended
---------------------
March 31, March 31,
1995 1994
--------- ---------
<S> <C> <C>
Cash Provided by Operating Activities.................................... $ 290.6 $ 259.5
------- -------
Cash Flows from Investing Activities:
Sale (purchase) of short term investments-net.......................... (149.7) 91.4
Sale or maturity of investments
Fixed maturities - Held to maturity
Maturities........................................ 0.7 10.9
Calls and Prepayments............................. 47.6 438.6
Sales............................................. 3.0 -
Fixed maturities - Available for sale
Maturities........................................ 21.7 36.6
Calls and Prepayments............................. 52.7 150.2
Sales............................................. 465.6 220.8
All other investments................................................ 124.8 430.2
Purchase of investments
Fixed maturities - Held to maturity................................. - (496.4)
Fixed maturities - Available for sale............................... (675.0) (311.0)
All other investments............................................... (135.8) (563.5)
Acquisition of subsidiaries........................................... (63.0) (10.2)
Property and equipment and other...................................... (24.3) (17.1)
------- -------
Cash Used by Investing Activities............................... (331.7) (19.5)
------- -------
Cash Flows from Financing Activities:
Treasury stock transactions - net..................................... (2.3) (2.2)
Issuance(repayments) of short-term borrowings - net................... 15.3 (4.4)
Issuance of long-term debt securities................................. - 99.7
Repayment of notes payable............................................ (11.7) (125.0)
Interest sensitive life, annuity and investment contract deposits..... 477.7 445.5
Interest sensitive life, annuity and investment contract withdrawals.. (397.9) (446.9)
Cash dividends to stockholders........................................ (41.4) (38.9)
Retirement of Series B conversion preferred stock..................... - (28.4)
------- -------
Cash Provided (Used) by Financing Activities.................... 39.7 (100.6)
------- -------
Effect of Exchange Rate Changes on Cash.................................. 10.3 (1.5)
Increase in Cash......................................................... 8.9 137.9
Cash at Beginning of Period.............................................. 508.8 163.8
------- -------
Cash at End of Period.................................................... $ 517.7 $ 301.7
======= =======
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
Aon CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Statement of Accounting Principles
----------------------------------
The financial results included in this report are stated in conformity with
generally accepted accounting principles and are unaudited but include all
normal recurring adjustments which the Registrant ("Aon") considers
necessary for a fair presentation of the results for such periods. These
interim figures are not necessarily indicative of results for a full year
as further discussed below.
Refer to the consolidated financial statements and notes in the Annual
Report to Stockholders for the year ended December 31, 1994 for additional
details of Aon's financial position, as well as a description of the
accounting policies which have been continued without change. The details
included in the notes have not changed except as a result of normal
transactions in the interim and the events mentioned in the footnotes
below.
2. Statements of Financial Accounting Standards (SFAS)
---------------------------------------------------
As required, in first quarter 1995, Aon adopted SFAS Statement Nos. 114 and
118 which relate to accounting by creditors for impairment of a loan.
These standards 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.
Implementation of these standards did not have a material effect on Aon's
financial statements.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121 (Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of). This Statement requires that
long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Aon anticipates adopting this Statement in its 1996 financial
statements as required. Implementation of this Statement is not expected
to have a material effect on Aon's financial statements.
5
<PAGE>
3. Business Combinations
---------------------
In first quarter 1995, Aon merged with a retail insurance broker
specializing in construction business coverages. This business
combination has been accounted for by the pooling of interests method.
Prior period financial statements have not been restated because the effect
of the merger was not material to Aon's consolidated financial statements.
In addition, certain insurance brokerage subsidiaries of Aon acquired
several insurance brokerage operations. These acquisitions were financed
by internal funds and were accounted for by the purchase method. They were
not material to Aon's consolidated financial statements.
4. Treasury Stock
--------------
In first quarter 1995, Aon purchased 521,600 shares of its common stock, at
a total cost of $18.2 million. Aon reissued 418,700 shares of common stock
from treasury for employee benefit plans during the first quarter. The net
aggregate cost of those shares exceeded the net aggregate proceeds
resulting in a charge to retained earnings.
In addition, Aon reissued 383,000 shares of treasury stock in connection
with a business combination. There were 2.6 million shares of common stock
held in treasury at March 31, 1995.
6
<PAGE>
Aon CORPORATION
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS
AND FINANCIAL CONDITION
REVENUE AND INCOME BEFORE INCOME TAX
FOR FIRST QUARTER 1995
CONSOLIDATED RESULTS
- --------------------
Premiums and policy fees increased $23.8 million or 5.1% in first quarter 1995,
compared with the same period last year. Life premium and policy fees earned
increased 4.8% in the quarter, primarily reflecting an increase in auto credit
earned premiums which resulted from strong writings in the prior year. Accident
and health premiums earned increased $16.3 million or 5.5% primarily due to the
continued growth of Combined Insurance Company of America ("Combined") direct
sales business. Specialty property and casualty premiums earned increased 3.7%
in the quarter reflecting a higher volume of new business in the extended
warranty line. The anticipated phase-out of certain specialty liability
programs partially offset this increase.
Net investment income increased $23.3 million or 12.6% in the first quarter.
Investments in higher yielding securities continued to stimulate growth in the
quarter. Levels of investment income were also influenced by higher interest
rates, additional investable funds and increased returns on equity securities
when compared to 1994.
Brokerage commissions and fees increased $77.5 million or 22.6% in first quarter
1995 reflecting internal growth and business combination activity, primarily the
late-1994 mergers with Jenner Fenton Slade Group Limited (JFS), Energy Insurance
International (EII) and HRStrategies Inc. (HRS).
Total revenue increased $119.8 million or 11.7% in the first quarter over last
year, reflecting investment income growth, a favorable foreign exchange impact,
and the business combinations mentioned above. Total benefits and expenses
increased 11.4% in the same period. Income before income tax increased $20.5
million or 13.9% in the first quarter, due largely to revenue growth.
7
<PAGE>
MAJOR LINES OF BUSINESS
- -----------------------
INSURANCE BROKERAGE AND CONSULTING SERVICES
- -------------------------------------------
"Retail brokerage" provides for the placement and management of insurance risks
for commercial clients as well as associations and financial institutions.
Revenue increased $48.1 million or 22.5% for the first quarter 1995.
Improvements in revenue and income were primarily fueled by internal growth and
acquisition activity, namely EII and other post-first quarter 1994 acquisitions.
Retail brokerage continued to reflect highly competitive property and casualty
pricing in the domestic market. Consulting related fees previously included in
Retail brokerage in 1994 have been reclassified to "Consulting" to conform to
the 1995 presentation.
"Reinsurance and wholesale" provides reinsurance, third-party administration,
underwriting management and captive services. When compared to the same period
last year, revenue from this brokerage element increased $28.8 million or 33.6%.
The major contributing factors to this increased revenue were internal growth,
and to a lesser extent, the inclusion of the JFS (London-based insurance and
reinsurance broker) business combination in fourth quarter 1994.
"Consulting" provides a full range of employee benefits and compensation
consulting and administrative services. This business showed revenue growth of
$7.1 million or 13.3% for the first quarter. The major contributing factors to
this increased revenue were the inclusion of the Pecos River (employee training)
and HRS (human resources strategy development) business combinations in third
and fourth quarter 1994, respectively. Although the consulting line produced
higher revenues when compared to 1994, this line experienced slow growth in
benefit plan products.
Overall, revenue for the insurance brokerage and consulting services segment
increased $84 million or 23.8% in the quarter primarily due to internal growth
and acquisitions. Limiting this revenue increase, the brokerage segment
continues to be impacted by a soft property and casualty market. Pretax income
increased $12.3 million or 19.6% when compared to first quarter 1994 reflecting
recent acquisitions as well as internal growth.
Domestic/International Results
- ------------------------------
First quarter domestic insurance brokerage and consulting services revenue and
income before income tax represent 67% and 46%, respectively, of the total.
International brokerage revenue of $145.1 million increased 28.6% for the first
quarter. International brokerage pretax income increased 19.9% for the quarter
due in part to acquisitions made since the first quarter 1994. Partially
offsetting this increase is the lower than anticipated inflow of financial
planning revenues in the consulting line of business. In the international
retail brokerage subsegment, the revenue pattern results in revenues being
highest in the first quarter of the year, while expenses are incurred on a more
even basis throughout the year.
8
<PAGE>
LIFE INSURANCE
- --------------
The life insurance line of business is composed primarily of capital
accumulation products, credit insurance and ordinary life products. Revenue
increased 5.1% for the first quarter 1995 when compared to prior year primarily
due to increased investment income generated on higher sales of guaranteed
investment contracts and variable products. Although premiums and fees on
capital accumulation products continued to grow, rising interest rates and
higher adjusted crediting rates caused spreads to further narrow thereby
impacting income growth. In addition, traditional life business in Europe and
the Pacific is continuing to runoff as planned.
Pretax income for life insurance increased $0.9 million or 3.7% for the first
quarter 1995, compared with last year primarily due to good cost controls,
improved benefit experience in the Combined and credit auto businesses and
growth in capital accumulation variable annuities and credit auto premiums
earned. Overall, benefit and expense margins in first quarter 1995 did not
suggest any significant shift in operating trends.
Domestic/International Results
- ------------------------------
First quarter domestic life revenue and income before income tax represent 94%
and 92%, respectively, of the total. Growth in domestic life income before
income tax increased slightly when compared to its 1994 level. International
life revenue of $15.6 million increased 4% and income before income tax
increased substantially due to improved margins on auto credit business.
ACCIDENT AND HEALTH INSURANCE
- -----------------------------
The accident and health line of business is composed primarily of individual
accident and health products sold by employees/agents and through direct
response techniques, and credit disability products. Revenue increased $17.5
million or 5.6% in the first quarter. Combined direct accident and health
revenue grew 6.9% in the first quarter. Financial credit disability revenue
decreased 25.9% in the quarter due to the discontinuation of lower margin
business. Auto credit insurance experienced improved earned premiums in first
quarter resulting from higher growth in written premiums in 1994. Direct
response revenue increased 2.4% in the first quarter, primarily reflecting
continued growth in third party endorsed business.
Income before income tax of $38 million increased 4.4% in the first quarter.
Pretax income on Combined's direct sales was up 10.4% from last year, in part
due to good general expense controls and to strong international health product
sales. Auto credit pretax income decreased from last year reflecting margin
declines. Pretax income on direct response decreased from 1994 primarily due to
adverse benefit experience in the broad market and disability lines.
9
<PAGE>
Domestic/International Results
- ------------------------------
First quarter domestic accident and health revenue and income before income tax
represent 77% and 68%, respectively, of the total. Combined direct and credit
disability products represent all the business marketed internationally.
International accident and health revenue of $76.5 million increased 11% in the
quarter influenced, in part, by an increase in auto credit earned premiums and
by strong sales of Combined's health products in Europe and the Pacific.
International income before income tax increased 5.1% compared to the previous
year primarily due to Combined's revenue growth and reductions in general
expense ratios which offset, in part, slightly higher claims costs.
SPECIALTY PROPERTY AND CASUALTY INSURANCE
- -----------------------------------------
This line of business is composed primarily of extended warranties for
mechanical repair, principally for automobiles as well as appliances and
electronic equipment, and specialty liability insurance, primarily professional
liability and workers' compensation. Revenue decreased slightly when compared
to first quarter 1994. Certain specialty property and casualty underwriting
programs continued to be phased-out with increased warranty revenue largely
offsetting the loss of specialty property and casualty revenue. Revenues in
both the extended warranty auto and the brown and white lines were strong.
Income before income tax of $12.9 million decreased 5.1% in the first quarter
when compared to prior year, reflecting the continued phase-out of certain
underwriting programs. Partially offsetting this decline were improved expense
comparisons and revenue growth in the extended warranty brown and white line.
Domestic/International Results
- ------------------------------
First quarter domestic revenue and income before income tax represent 81% and
95%, respectively, of the total. Domestic income before income tax decreased
6.2% for the first quarter due to the continued phase-out of certain
underwriting programs mentioned above. First quarter international revenue was
13.1% above prior year. International income before income tax improved 16.7%
during the quarter reflecting improved claims experience and a higher volume of
new business, particularly in the brown and white extended warranty line.
CORPORATE AND OTHER
- -------------------
Revenue in this category consists primarily of investment income on capital,
financing fees, and realized investment gains before tax. Allocation
of investment income to the insurance segments is determined by the invested
assets which underlie policyholder liabilities for each of the major insurance
product lines. Excess invested assets and related investment income, which do
not underlie these liabilities, are reported in this segment. Expenses include
corporate administrative costs, interest and financing expenses, and goodwill
amortization associated with acquisitions.
10
<PAGE>
Revenue increased 11.7% for the first quarter 1995 due in part to new
investments in higher yielding securities, additional investable funds,
increased returns on equity securities, and growth in financing fees. Pretax
realized investment gains for the first quarter were $0.6 million and $1.7
million in 1995 and 1994, respectively. Income before income tax increased $6.4
million or 58.2% over the same period last year.
11
<PAGE>
Aon CORPORATION
MAJOR LINES OF BUSINESS
<TABLE>
<CAPTION>
(millions) First Quarter Ended
---------------------
March 31, Percent
1995 Change
--------- -------
<S> <C> <C>
Revenue
Insurance brokerage and consulting services..... $ 436.3 23.8%
Life............................................ 244.3 5.1
Accident and health............................. 329.6 5.6
Specialty property and casualty................. 78.4 (0.1)
Corporate and other............................. 50.8 14.7
-------- ----
Total revenue earned..................... $1,139.4 11.7%
======== ====
Income Before Income Tax
Insurance brokerage and consulting services..... $ 75.0 19.6%
Life............................................ 25.2 3.7
Accident and health............................. 38.0 4.4
Specialty property and casualty................. 12.9 (5.1)
Corporate and other............................. 17.4 58.2
-------- ----
Total income before income tax........... $ 168.5 13.9%
======== ====
</TABLE>
12
<PAGE>
Aon CORPORATION
REVENUE BY MAJOR PRODUCT LINE
<TABLE>
<CAPTION>
(millions) First Quarter Ended
---------------------------
March 31, Percent
1995 Change
---------- ----------
<S> <C> <C>
Insurance brokerage and consulting services
Retail brokerage (1)..........................$ 261.5 22.5 %
Reinsurance and wholesale..................... 114.5 33.6
Consulting (1)................................ 60.3 13.3
---------- ----------
Total revenue earned..................$ 436.3 23.8 %
========== ==========
Life
Capital accumulation products.................$ 142.6 5.6 %
Ordinary, Credit and other.................... 101.7 4.4
---------- ----------
Total revenue earned..................$ 244.3 5.1 %
========== ==========
Accident and health
Combined direct sales.........................$ 216.1 6.9 %
Direct response and Group..................... 79.9 2.4
Credit and other.............................. 33.6 5.0
---------- ----------
Total revenue earned..................$ 329.6 5.6 %
========== ==========
Specialty property and casualty...............$ 78.4 (0.1)%
========== ==========
Corporate and other
Investment income on capital and other........$ 44.6 18.3 %
Financing fees................................ 5.6 14.3
Realized investment gains..................... 0.6 (64.7)
---------- ----------
Total revenue earned...................$ 50.8 14.7 %
========== ==========
</TABLE>
(1) Consulting related fees previously included in Retail brokerage in 1994 have
been reclassified to Consulting to conform to the 1995 presentation.
13
<PAGE>
NET INCOME FOR FIRST QUARTER 1995
The effective tax rate for first quarter 1995 operating income, which excludes
after-tax realized investment gains was 34%, compared to 33% for the full year
1994. The one percentage point increase in the tax rate on operating income is
due to the changing business mix. Realized gains were taxed at 36% in 1995 and
1994.
Average shares outstanding for the first quarter increased 2.8% primarily due to
the issuance of common shares related to business combinations. First quarter
net income was $111.2 million ($0.96 per share) compared to $99.1 million ($0.88
per share) in 1994. Included in first quarter 1994 net income are after-tax
realized investment gains of $0.01 per share.
CASH FLOW AND FINANCIAL POSITION
AT THE END OF FIRST QUARTER 1995
Cash flows from operating activities in first quarter 1995 were $290.6 million,
an increase of $31.1 million from first quarter 1994. This increase primarily
reflects growth in operating income as well as growth in the insurance unearned
income liability.
Investing activities used cash of $331.7 million which was made available
primarily from operations as well as $79.8 million from net cash flows from
capital accumulation products. Cash used for acquisition activity during the
first quarter 1995 was $63 million.
Cash totalling $39.7 million was provided during first quarter 1995 by financing
activities. Cash was used to pay dividends of $34.6 million on common stock,
$4.5 million on 8% perpetual preferred stock, $1.7 million on 6.25% convertible
preferred stock and $0.6 million on Series C preferred stock.
In addition, included in notes payable at March 31, 1995 is approximately $11
million which represents the principal amount of notes due within one year.
Aon's operating subsidiaries anticipate that there will be adequate liquidity to
meet their needs in the foreseeable future. Aon anticipates continuation of the
company's positive cash flow and the ability of the parent company to access
adequate short-term lines of credit. Aon does not anticipate insufficient cash
flow in the long-term.
The businesses of Aon's operating subsidiaries 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 fixed maturities. With a carrying value of $7.3 billion,
Aon's total fixed maturity portfolio is invested primarily in investment grade
holdings (97.0%) and has a market value which is 97.6% of amortized cost.
14
<PAGE>
There are $2.9 billion of mortgage-backed securities, primarily collateralized
mortgage obligations (CMOs), included in the fixed maturities portfolio. There
are no CMO residuals, interest only, inverse floating or principal only type
securities in Aon's CMO portfolio. 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 in periods of rising interest
rates and to prepayment risk, especially, in periods of declining interest
rates. To limit its credit risk, Aon's CMO investments are concentrated in AAA
and AA rated tranches.
Invested assets at March 31, 1995 increased $367.8 million from year-end levels.
The amortized cost and fair value of less than investment grade fixed maturity
investments, at March 31, 1995, were $218.9 million and $224.4 million,
respectively. The carrying value of non-income producing investments in Aon's
portfolio at March 31, 1995 was $65 million, or 0.6% of total invested assets.
Mortgage loans held totalled $574.5 million or 5.7% of total invested assets.
Aon maintained separate investment reserves related to mortgage loan losses on
real estate and illiquid holdings, which include real estate ventures and
limited partnerships, totalling $34 million at the end of first quarter 1995,
down $2.4 million from the year end 1994 level of $36.4 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.
Total assets increased $926.8 million to $18.8 billion since year-end 1994,
primarily due to growth in both the investment securities portfolio and the
insurance brokerage business, and to a lesser extent, the impact of foreign
exchange conversion to the U.S. dollar.
Aon measures capital accumulation product asset and liability durations to
determine its net exposure to changes in interest rates. The duration match
associated with interest-sensitive products is closely monitored. Non interest-
sensitive insurance products do not require as close monitoring of duration
matching.
Aon will adjust its duration mismatch subject to market conditions and its
outlook on interest rate trends. As of March 31, 1995, assets and liabilities
had a duration variance of an estimated 1.5 years compared to an estimated 0.7
years at year-end 1994.
Aon uses derivative financial instruments (primarily financial futures, swaps
and options) to: (a) manage its overall asset/liability duration match; (b)
hedge asset price risk associated with financial instruments whose change in
value is reported under SFAS 115; and (c) hedge other business risks. As of
March 31, 1995, Aon had open contracts which had unrealized losses of
approximately $10 million. These losses have been taken into consideration in
deriving the fair value of the portfolios being hedged.
15
<PAGE>
Stockholders' equity increased $161.8 million in first quarter 1995 to $19.79
per share, an increase of $1.49 per share since year-end. During first quarter
1995, net unrealized investment losses decreased by $102.4 million, of which
$83.4 million is related to fixed maturities available for sale. The $30 million
valuation allowance pertaining to the deferred tax asset which was provided
directly in stockholders' equity at year-end 1994 was reversed in first quarter
due to an improvement in market performance. In addition, retained earnings was
reduced by dividends to stockholders of $78.1 million. Included in the reduction
for dividends is an accrual for the second quarter 1995 common stock cash
dividend.
Review by Independent Auditors
- ------------------------------
The condensed consolidated financial statements at March 31, 1995, and for the
first quarter then ended have been reviewed, prior to filing, by Ernst & Young
LLP, Aon's independent auditors, and their report is included herein.
16
<PAGE>
INDEPENDENT ACCOUNTANTS REVIEW REPORT
Board of Directors and Stockholders
Aon Corporation
We have reviewed the accompanying condensed consolidated statement of financial
position of Aon Corporation as of March 31, 1995, and the related condensed
consolidated statements of income and cash flows for the three-month periods
ended March 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial position of Aon Corporation
as of December 31, 1994, and the related consolidated statements of income,
stockholders equity, and cash flows for the year then ended, not presented
herein, and in our report dated February 9, 1995, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated statement of
financial position as of December 31, 1994, is fairly stated, in all material
respects, in relation to the consolidated statement of financial position from
which it has been derived.
ERNST & YOUNG LLP
Chicago, Illinois
May 2, 1995
17
<PAGE>
PART II
-------
OTHER INFORMATION
-----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
(a) The Annual Meeting of Stockholders of the Registrant was held on
April 20, 1995 ("1995 Annual Meeting").
(b) Not applicable.
(c) Set forth below is the tabulation of the votes on each nominee for
election as a director:
<TABLE>
<CAPTION>
Withhold
Name For Authority
---- --- ---------
<S> <C> <C>
Daniel T. Carroll 90,441,603 271,070
Franklin A. Cole 90,458,576 254,097
Edgar D. Jannotta 90,469,876 242,797
Perry J. Lewis 90,470,651 242,022
Joan D. Manley 90,473,926 238,747
Andrew J. McKenna 90,460,889 251,784
Newton N. Minow 90,114,753 597,920
Donald S. Perkins 90,457,442 255,231
Peer Pedersen 88,978,670 1,734,003
John W. Rogers, Jr. 90,468,358 244,315
Patrick G. Ryan 90,116,171 596,502
George A. Schaefer 90,460,453 252,220
Raymond I. Skilling 90,116,127 596,546
Fred L. Turner 90,474,080 238,593
Arnold R. Weber 90,457,510 255,163
</TABLE>
18
<PAGE>
Set forth below is the tabulation of the vote on the resolution to
approve adoption of the Aon Corporation 1995 Senior Officer
Incentive Compensation Plan.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
84,784,391 5,271,233 657,049
</TABLE>
Set forth below is the tabulation of the vote on the resolution to
approve the 1994 Amended and Restated Outside Director Stock Award
Plan as amended and approved at the 1995 Annual Meeting.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
80,408,219 9,071,708 1,232,746
</TABLE>
Set forth below is the tabulation of the vote on the resolution to
approve the adoption of the Aon Deferred Compensation Plan.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
88,881,728 1,319,516 511,429
</TABLE>
Set forth below is the tabulation of the vote on the selection of
Ernst & Young LLP as auditors for the Registrant for the 1995
fiscal year.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
90,233,200 264,318 215,155
</TABLE>
(d) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The exhibits filed with this report are listed on the
attached Exhibit Index.
(b) Reports on Form 8-K - No Current Reports on Form 8-K were filed for the
quarter ended March 31, 1995.
SIGNATURE
Pursuant to the requirements 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.
Aon Corporation
---------------
(Registrant)
May 15, 1995 /s/ Harvey N. Medvin
-------------------------------------------------
HARVEY N. MEDVIN
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND TREASURER
(Principal Financial and Accounting Officer)
19
<PAGE>
Aon CORPORATION
---------------
EXHIBIT INDEX
-------------
Exhibit Number
In Regulation S-K, Page
Item 601 Exhibit Table No.
- ---------------------- ----
(10)(a) Aon Corporation 1995 Senior Officer Incentive
Compensation Plan.
(10)(b) 1994 Amended and Restated Outside Director Stock
Award Plan.
(10)(c) Aon Deferred Compensation Plan.
(11) Statement regarding Computation of Per Share Earnings.
(12) Statements regarding Computation of Ratios.
(a) Statement regarding Computation of Ratio of
Earnings to Fixed Charges.
(b) Statement regarding Computation of Ratio of
Earnings to Combined Fixed Charges and Preferred
Stock Dividends.
(15) Letter re: Unaudited Interim Financial Information.
(27) Financial Data Schedule
20
<PAGE>
Aon CORPORATION
1995 SENIOR OFFICER INCENTIVE COMPENSATION PLAN
1. PURPOSE
The purpose of the Aon Corporation 1995 Senior Officer Incentive Compensation
Plan (the "Plan") is to encourage the highest level of performance by key
employees of operating subsidiaries and affiliates of Aon Corporation (which
subsidiaries and affiliates are herein referred to as the "Corporation") by
making appropriate levels of cash awards following satisfaction of quantifiable
performance goals.
2. PLAN ADMINISTRATION
The Plan shall be administered by the Organization and Compensation Committee
(the "Committee") of the Aon Corporation Board of Directors (the "Board"). All
questions involving eligibility for awards, interpretations of the provisions of
the Plan, or the operation of the Plan shall be decided by the Committee. No
member of the Committee shall be eligible to receive an award under the Plan.
All determinations of the Committee shall be conclusive. The Committee may
obtain such advice or assistance as it deems appropriate from persons not
serving on the Committee.
3. ELIGIBILITY
Participation in the Plan is limited to key salaried employees of the
Corporation selected by the Committee (a "Participant"). Participation may be
revoked at any time by the Committee. An employee whose participation is
revoked will be notified, in writing, of such revocation as soon as practicable
following such action. An individual who becomes eligible to participate in the
Plan during the Plan Year (the one year period beginning January 1 and ending on
December 31 of each calendar year) may be approved by the Committee for a
partial year of participation. In such case, the Participant's award shall be
prorated based on the number of full months of participation.
4. TERMS AND CONDITIONS OF AWARDS
Each Participant will be entitled to receive a maximum award equal to 180% of
Base Pay (the "Award") subject to the performance measured described below.
Base Pay is the salary earned while participating in the Plan in the current
Plan Year. The maximum amount payable under the Plan to a Participant, in any
given Plan Year, is equal to the lesser of 180% of Base Pay or $3,000,000.
Within the first 90 days of the Plan Year the Committee shall determine the
specific Corporate Performance Thresholds which must be met prior to the payment
of any Awards determined pursuant to this paragraph. The Corporate Performance
Thresholds will be based upon either a certain singular business criteria, such
as Earnings Per Share, Return on Equity, Total Shareholder Return, or Operating
Income, or a combination of one or
1
<PAGE>
more business criteria.
At the end of each Plan Year, Awards will be computed for each participant.
Payment of Awards will be made in cash, subject to applicable tax withholding,
as soon as practicable after the achievement of Corporate Performance Thresholds
and other material terms of the Plan are certified, and individual Awards are
approved, by the Committee; provided, however that the Committee may in its sole
discretion reduce individual Awards determined pursuant to this paragraph.
5. EMPLOYMENT TERMINATION
In the event a Participant's employment is terminated due to death or disability
during a Plan Year, the Participant's Award will be reduced to reflect the
partial year of participation. This reduction will be determined by multiplying
the award by a fraction, the numerator of which is the Participant's total
months of participation in the current Plan Year through the date of termination
rounded up to whole months, and the denominator of which is twelve (12). The
Participant's reduced Award will be paid in accordance with Section 4
hereinabove. In the event a Participant's employment is terminated for reasons
other than death or disability, all rights to an award for the Plan Year will be
forfeited.
6. NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan shall confer on a Participant any right to continue in the
employ of the Corporation or in any way affect the Corporation's right to
terminate the Participant's employment at any time without prior notice and for
any or no reason.
7. BENEFICIARY
Each Participant under the Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his death before he receives any
or all of such benefit. Each designation will revoke all prior designations by
the same Participant, shall be in a form prescribed by the Committee, and will
be effective only when filed by the Participant in writing with the Committee
during his lifetime. In the absence of any such designation, or if for any
reason such designation is ineffective, in whole or in part, benefits remaining
unpaid at the Participant's death shall be paid to his estate.
8. TAX WITHHOLDING
Any and all payments made under the Plan shall be subject to applicable federal,
state, or local taxes required by the law to be withheld.
9. IMPACT ON OTHER BENEFITS
Amounts paid under this Plan will not be considered compensation for purposes of
other benefit plans offered by the Corporation unless specifically provided for
in such plans.
2
<PAGE>
10. TERMINATION OR AMENDMENT OF THE PLAN
The Plan may be modified, amended, or terminated at any time by the Board. The
existence of the Plan does not obligate or bind the Corporation to pay an Award
to any Participant (or beneficiary) nor does any Participant (or beneficiary)
attain any vested, non-forfeitable right to an Award until the Award has been
finalized and approved for payment by the Committee.
11. NON-TRANSFERABILITY
Except as specifically provided herein or as may otherwise be required by law,
no undistributed Award payable to the Participant may be sold, transferred, or
assign or encumbered, in whole or in part, by a Participant, and any attempt to
so alienate or subject any such amount shall be void.
12. EFFECTIVE DATE OF THE PLAN
The Plan shall become effective as of January 1, 1995.
3
<PAGE>
Aon CORPORATION
1994 AMENDED AND RESTATED OUTSIDE
DIRECTOR STOCK AWARD PLAN
1. PURPOSE: Aon Corporation (the "Company") has established the 1994 Amended
and Restated Outside Director Stock Award Plan (the "Plan"). The purposes of
the Plan are to attract and retain well qualified persons for service as
directors of the Company, who are not salaried employees of the Company or any
of its subsidiaries ("Outside Directors"); and to provide such Outside Directors
with the opportunity to increase their proprietary interest in the Company, and
thereby to increase their personal interest in the Company's continued success,
through the payment of a portion of directors' fees and through the payment of
retirement income in the form of shares of the Company Common Stock, $1.00 par
value ("Common Stock").
2. ADMINISTRATION: The Organization and Compensation Committee (the
"Committee") of the Board of Directors of Aon Corporation will have the
responsibility and authority to administer and interpret the provisions of the
Plan.
In administering the Plan, the Committee may employ attorneys, consultants,
accountants or other persons, and the Company and the Committee shall be
entitled to rely upon the advice, opinions or valuation of any such persons.
All usual and reasonable expenses of the Committee shall be paid by the Company.
No member of the Committee shall be personally liable for any action,
determination or interpretation taken or made with respect to the Plan or awards
made thereunder, and all members of the Committee shall be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation, in the absence of a fraudulent act or omission.
3. ELIGIBILITY: Awards under the Plan shall be available to all Outside
Directors; provided, that no director who is an employee of the Company or any
of its subsidiaries shall be eligible for participation in the Plan.
1
<PAGE>
4. AWARDS:
(a) ANNUAL AWARDS: At each meeting of the Board of Directors of the
Company (the "Board") next following the Annual Meeting of Stockholders of the
Company (the "Annual Meeting of the Board") beginning with the meeting to be
held on April 20, 1990 (the "Effective Date"), each Outside Director shall be
awarded 300 shares of Common Stock (the "Annual Fees Award") subject to and in
accordance with the terms of Section 5. Each such award shall be evidenced by a
written agreement, executed by the Outside Director and the Company.
In the case of an Outside Director who is appointed to the Board other than
at the Annual Meeting of Stockholders in any year, such Outside Director shall
be awarded a prorated number of full shares of Common Stock based on the number
of prospective full months of service during the year to end at the then next
Annual Meeting of the Board.
(b) RETIREMENT AWARDS:
(i) Beginning April 15, 1994, each Outside Director in office as of
April 15, 1994 will be credited as of each Annual Meeting of the Board
with shares of Common Stock, subject to and in accordance with the
terms of Section 5, with a Market Value equivalent to the product of
(a) each such Outside Director's years of past service as an Outside
Director of the Company, subject to a maximum of 10 years, multiplied
by (b) ten thousand dollars ($10,000) and divided by (c) the number of
years of service from April 15, 1994 to each such Outside Director's
Mandatory Retirement Date (the "Past Service Award").
(ii) Beginning April 15, 1994, for each full year of service as an
Outside Director after April 15, 1994, an Outside Director will be
credited as of each Annual Meeting of the Board with shares of Common
Stock, subject to and in accordance with the terms of Section 5,
equivalent to twenty thousand
2
<PAGE>
dollars ($20,000) in value (the "Future Service Award").
(iii) The "Market Value" as of the date of the Annual Meeting of
Stockholders shall mean the arithmetic mean of the high and low prices
of the Common Stock as quoted on the New York Stock Exchange as
published in the Wall Street Journal.
(iv) All accumulated shares (hereinafter referred to as "Retirement
Shares") credited pursuant to this subparagraph (b) shall vest at the
rate of ten percent per year of total service; provided, however, all
Retirement Shares credited pursuant to this subparagraph (b) shall be
100% vested at such time as an Outside Director reaches the Mandatory
Retirement Date. As used herein, a "year of total service" means that
period of time measured from Annual Meeting of Stockholders to the
next following Annual Meeting of Stockholders. As used herein
"Mandatory Retirement Date" shall mean the next regularly scheduled
Annual Meeting of Stockholders immediately following attainment of age
72.
(v) On the first day of the month following the latter of the
Mandatory Retirement Date or the date a Director ceases to serve as a
director, the number of Retirement Shares credited to the Outside
Director will be distributed to the retired Director in ten equal
annual installments.
If an Outside Director retires prior to the Mandatory Retirement
Date, the distribution of vested Retirement Shares shall be deferred
for the lesser of five years from the date services to the Board
ceases, or the number of years remaining until the Mandatory
Retirement Date and shall be paid in equal annual installments over
ten years. Such deferred distribution shall commence on the first day
of the month following the deferral period.
3
<PAGE>
In the event of an Outside Director's death following retirement
from the Board any remaining shares payable pursuant to this
subparagraph (b)(v) shall be distributed to the designated beneficiary
or if none then the estate.
(vi) In the event that an Outside Director becomes unable to fulfill
his duties as a director due to death or disability all Retirement
Shares including unaccrued Past Service Awards as of that date shall
be 100% vested and payable to the director in ten equal annual
installments commencing at the beginning of the month following death
or determination of disability.
In the event of an Outside Director's death while an active member of
the Board of Directors, all shares payable pursuant to this
subparagraph (b)(vi) shall be distributed to the designated
beneficiary, or if none then the estate, in ten equal installments.
5. TERMS AND CONDITIONS:
(a) Up to 30,000 shares of Common Stock may be issued pursuant to the Plan.
Shares of Common Stock issued pursuant to the Plan will be drawn from treasury
shares. Such shares will not be registered under the Securities Act of 1933, as
amended (the "Act") and will be "restricted securities" as defined in the Act or
rules promulgated thereunder. Such shares may not be sold, assigned,
transferred or otherwise disposed of in the absence of an effective registration
statement covering such shares, or unless such registration is not required by
reason of an exemption available under the Act. Shares awarded under the Plan
shall be certificated. Certificates for shares issued under the Plan shall
include the following legend:
"The Shares represented by this certificate have not been registered
under the Securities Act of 1933 (the "Act") and, accordingly, may not
be offered, sold or otherwise pledged, hypothecated or transferred
unless (A) pursuant to an effective
4
<PAGE>
registration statement under the Act or (B) an applicable exemption
from the registration requirements of the Act is available. In
addition, the transferability of this certificate and the shares of
stock represented hereby are subject to the terms and conditions
contained in the Aon Corporation 1994 Amended and Restated Outside
Director Stock Award Plan."
(b) No award of Common Stock received under the Plan may be sold, assigned,
transferred or otherwise disposed of for at least six months after receipt of
the award, unless death or disability of the Outside Director occurs before the
expiration of the six-month period.
(c) An Annual Fees Award received by an Outside Director who does not elect
to defer such receipt as provided in Section 6, shall be shown in the Company's
proxy statement if appropriate for the year in which the Common Stock was
granted, and the Outside Director, as of the date of receipt of the Common
Stock, shall be registered as a "Stockholder of Record" and shall immediately
become entitled to all dividends paid on the Company's Common Stock and to all
voting rights accorded the Company's Common Stock and the shares shall be shown
on the appropriate form for reporting beneficial ownership of securities
pursuant to Section 16 of the Securities Exchange Act of 1934.
(d) The Board shall appropriately adjust the number of shares for which
awards may be granted pursuant to the Plan in the event of reorganization,
recapitalization, stock split, reverse stock split, stock dividend, exchange or
combination of shares, merger, consolidation, rights offering, or any change in
capitalization.
6. DEFERMENT OF ANNUAL FEES AWARD:
(a) Each year the Outside Director may make an irrevocable election to
defer the receipt of the Annual Fees Award until a date agreed upon between the
Outside Director
5
<PAGE>
and the Company (the "Distribution Date"). Such election shall be made each
year in advance of the date of the Annual Meeting of Stockholders at which the
Outside Director is standing for election. In the case of an Outside Director
who is elected to the Board other than at the Annual Meeting of Stockholders,
such election to defer shall be in advance of the Board meeting at which the
Outside Director is standing for election.
(b) A bookkeeping account shall be established for each Outside Director's
deferred Annual Fees Award ("Bookkeeping Account"). The Bookkeeping Account
shall reflect the number of shares of Common Stock deferred from time to time by
each Outside Director. The Bookkeeping Account shall also be credited with the
amount of cash dividends each Outside Director would have received from time to
time had the Outside Director actually owned the number of shares credited to
his or her Bookkeeping Account on each dividend payment date. With regard to
the cash dividends, each Outside Director may choose either:
(i) To have the Bookkeeping Account credited with a number of
units("Stock Units") equal to the number of shares of Common Stock
(including fractions of a share) which is equal to the cash dividend
portion of the Bookkeeping Account then attributed to the Outside
Director, assuming the purchase price per share is equal to the Market
Price on such dividend payment date.
(ii) To have the Bookkeeping Account credited with cash and that cash
portion of the Bookkeeping Account shall be credited with interest,
compounded semi-annually at an annual rate determined as of January
1st and July 1st of each year by averaging the one-year Treasury bill
yield as published monthly by the Federal Reserve Bank of St. Louis on
a bank discount basis through the secondary market for the last six
months immediately prior thereto.
6
<PAGE>
7. COMPANY'S OBLIGATION: The Company's obligation with respect to each
Outside Director's Bookkeeping Account or Retirement Shares shall be a general
liability of the Company and the Company shall not be required to fund in any
manner any such Bookkeeping Account or Retirement Shares. Any shares of Common
Stock deliverable or cash payable with respect to any Bookkeeping Account or
Retirement Shares shall come solely from the general assets of the Company. The
rights of an Outside Director with respect to any Bookkeeping Account or
Retirement Shares shall be those of an unsecured general creditor. Outside
Directors shall not have the right to vote Common Stock credited to any
Bookkeeping Account or any credited Retirement Shares, and shall not be required
to be shown as owning such Common Stock on any proxy statement and shall not be
required to show such Common Stock on the appropriate form for reporting
beneficial ownership under Section 16 of the Securities Exchange Act of 1934
until the Distribution Date of such Annual Fees Award or receipt of Retirement
Shares after the Mandatory Retirement Date.
8. TRANSFERABILITY: Any award deferred pursuant to Section 6 and/or any
credited Retirement Shares shall not be transferable other than by will or the
laws of descent and distribution, and shall not be receivable prior to the
Distribution Date or the Mandatory Retirement Date with regard to Retirement
Shares, but in no event shall such date be less than six months from the date of
the award, except in the case of the Outside Director's death or disability.
9. REGULATORY COMPLIANCE AND LISTING: The delivery of any shares under this
Plan may be postponed by the Company for such period as may be required to
comply with Federal or State securities laws, including listing requirements,
national securities exchange requirements and any other law or regulation
applicable to the delivery of such shares. The Company shall not be obligated
to deliver any shares under this Plan if such delivery shall constitute a
violation of any provision of any law or any regulation of any governmental
authority or any national securities exchange. In addition, the shares when
delivered may be subject to conditions, including transfer restrictions, if such
conditions are required to
7
<PAGE>
comply with applicable securities law.
10. NO RIGHT TO CONTINUE AS OUTSIDE DIRECTOR: Nothing contained in this Plan
shall be construed as conferring upon the Outside Director the right to continue
to be associated with the Company as an Outside Director or in any other
capacity.
11. AMENDMENT OR DISCONTINUANCE: The Board may amend, rescind or terminate the
Plan as it shall deem advisable; provided, however, that no change may be made
more than once every six months and no changes may be made in awards theretofore
granted under the Plan which would impair an Outside Director's rights without
his or her consent.
12. APPROVAL OF PLAN: The Outside Director Stock Award Plan was originally
adopted by the Board on March 16, 1990 and approved by the Company's
stockholders as of April 19, 1991. The 1994 Amended and Restated Outside
Director Stock Award Plan was adopted by the Board on March 18, 1994 and must be
submitted to the Company's stockholders within 18 months of its approval by the
Board. If the Company does not obtain stockholder approval of the 1994 Amended
and Restated Plan within 18 months, any Retirement Awards made subsequent to
March 18, 1994 will be null and void, but the Outside Director Stock Award Plan
will be deemed to have continued unamended and in full force and effect.
13. GOVERNING LAW: This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Illinois
pertaining to contracts made and to be performed wholly within such
jurisdiction, except as Federal Law may apply.
8
<PAGE>
-----------------------------
| |
| Aon |
| |
| DEFERRED COMPENSATION |
| PLAN |
| |
-----------------------------
<PAGE>
Aon DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
PAGE
----
SECTION 1 DEFINITION OF TERMS
- --------- -------------------
1.01 Accounts............................................................ 2
1.02 Aon Common Stock Account............................................ 2
1.03 Aon General Account................................................. 2
1.04 Beneficiary......................................................... 2
1.05 Board............................................................... 2
1.06 Change of Control................................................... 2
1.07 Code................................................................ 3
1.08 Committee........................................................... 3
1.09 Company............................................................. 3
1.10 Compensation........................................................ 3
1.11 Employee............................................................ 3
1.12 Participant......................................................... 4
1.13 Performance......................................................... 4
1.14 Plan................................................................ 4
1.15 Subsidiary.......................................................... 4
SECTION 2 ELIGIBILITY AND PARTICIPATION
- --------- -----------------------------
2.01 Eligibility......................................................... 4
2.02 Participation....................................................... 4
SECTION 3 ELECTION TO DEFER
- --------- -----------------
3.01 Irrevocable Election................................................ 5
3.02 First Calendar Year Election........................................ 5
3.03 Election as to Period Deferral...................................... 5
3.04 Election as to Aon Common Stock Account or Aon General Account...... 5
3.05 Failure to Make an Election......................................... 5
SECTION 4 DEFERRED COMPENSATION AMOUNTS
- --------- -----------------------------
4.01 Deferral Period Subaccounts......................................... 6
4.02 Amounts Credited to the Aon Common Stock Account.................... 6
4.03 Amounts Credited to the Aon General Account......................... 6
4.04 Dividends Credited to Aon Common Stock Account...................... 7
SECTION 5 METHOD OF DISTRIBUTION OF DEFERRED COMPENSATION
- --------- -----------------------------------------------
5.01 Election of Distribution............................................ 7
5.02 Method of Distribution.............................................. 7
5.03 Installment Payments................................................ 8
5.04 Termination of Employment Prior to Distribution Date................ 8
5.05 Hardship Withdrawals................................................ 8
5.06 Distribution Upon Death after Payments Have Commenced............... 9
5.07 Distribution to Beneficiaries....................................... 9
5.08 Distributions from Aon Common Stock Account......................... 10
SECTION 6 MISCELLANEOUS
- --------- -------------
6.01 Other Benefit Plans................................................. 10
6.02 Participant's Rights................................................ 10
6.03 Change of Control................................................... 11
6.04 Nonalienability and Nontransferability.............................. 11
6.05 Plan Administrator.................................................. 12
6.06 Amendment and Termination........................................... 12
SECTION 7 GENERAL PROVISIONS
- --------- ------------------
7.01 Notices............................................................. 12
7.02 Controlling Law..................................................... 12
7.03 Gender and Number................................................... 12
7.04 Captions............................................................ 13
7.05 Action by the Company............................................... 13
7.06 Facility of Payment................................................. 13
7.07 Withholding Payroll Taxes........................................... 13
7.08 Severability........................................................ 13
7.09 Liability........................................................... 13
7.10 Successors.......................................................... 14
7.11 Unfunded Status of the Plan......................................... 14
<PAGE>
Aon Deferred Compensation Plan
------------------------------
Preamble
--------
The name of this plan is the Aon Deferred Compensation Plan (the "Plan").
Its purpose is to provide certain select management or highly compensated
employees of Aon Corporation and its subsidiaries with the opportunity to
defer amounts earned as an employee. The Plan shall be effective as of
October 1, 1994.
SECTION 1
---------
DEFINITIONS
-----------
1.01 "Accounts" shall mean the Aon Common Stock Account and the Aon
General Account.
1.02 "Aon Common Stock Account" shall mean the account established on
the books of the Company or a Subsidiary for a Participant who
has elected to defer Compensation or the Performance Bonus, as if
such deferral had been invested in whole and fractional shares of
Aon common stock.
1.03 "Aon General Account" shall mean the account established on the
books of the Company or a Subsidiary for a Participant who has
elected to defer Compensation or to defer a Performance Bonus as
if such deferral had been invested in accordance with Section
4.03.
1.04 "Beneficiary" shall mean the beneficiary or beneficiaries
designated by the Participant to receive the amount, if any,
payable under the Plan upon the death of the Participant.
1.05 "Board" shall mean the board of directors of the Company.
1.06 "Change of Control" shall mean:
(a) the purchase or other acquisition by any person (as defined
by (S)(S) 13(d) or 14(d)(2) of the Securities Exchange Act of
1934 (the "Act") or any comparable successor provisions) of
beneficial ownership (within the meaning of Rule 13d-3 under the
Act) of 20% or more of either the outstanding shares of common
stock or the
2
<PAGE>
combined voting power of the Company's then outstanding voting
securities entitled to vote generally; or
(b) the consummation of a merger or equivalent combination in
which the Company is not the continuing or surviving corporation,
or pursuant to which shares of Aon common stock are converted
into cash, securities or other property, other than a merger of
the Company in which the holders of Aon common stock immediately
prior to the merger have substantially the same proportionate
ownership of common stock of the surviving corporation
immediately after the merger; or
(c) the election by stockholders of members of the Board 20% or
more whom are persons who were not nominated in the most recent
proxy statement of the Company; or
(d) a liquidation or dissolution of the Company or the sale of
all or substantially all of the Company's assets.
1.07 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.08 "Committee" shall mean the Organization and Compensation
Committee of the Board (or such successor committee of the Board
as shall from time to time have responsibility for compensation
matters).
1.09 "Company" shall mean Aon Corporation.
1.10 "Compensation" shall mean the following types of earnings paid
to an Employee for his service on behalf of the Company or the
Subsidiaries: salary and fixed base compensation including
compensation for overtime, and net commission, renewal and
override compensation. Compensation shall be determined before
excluding any pretax deferrals for retirement, health, welfare,
death, insurance, or similar plans of the Company.
The following shall not be included in Compensation: (i) deferred
commission payments; (ii) bonuses; (iii) stock awards; (iv)
expense reimbursements; (v) income from exercise of stock
options; (vi) distributions from, and Company or Subsidiary
contributions to, the Aon Savings Plan, the Aon Employee Stock
Ownership Plan, the Aon Pension Plan or any other Company or
Subsidiary fund or plan providing retirement, health, welfare,
death, insurance or similar benefits; (vii) amounts paid to an
Employee in respect to employment during which he is not
permanently employed within the United States or its possessions;
and (viii) amounts previously deferred under the terms of the
Plan.
3
<PAGE>
1.11 "Employee" shall mean any United States staff employee of the
Company and its Subsidiaries.
1.12 "Participant" shall mean any eligible Employee who elects to
participate in the Plan pursuant to Section 2.
1.13 "Performance Bonus" shall mean any amount paid by the Company or
a Subsidiary to an Employee pursuant to periodic individual
performance appraisals or a formal contractual bonus program.
1.14 "Plan" shall mean the Aon Deferred Compensation Plan.
1.15 "Subsidiary" shall mean any corporation of which 50% or more of
the voting stock is owned or controlled, directly or indirectly,
by the Company or by one or more of such corporations.
SECTION 2
---------
ELIGIBILITY AND PARTICIPATION
-----------------------------
2.01 Eligibility. Any Employee of the Company or a Subsidiary who
received wages or compensation as reported on Box 1 of IRS Form
W-2 of $125,000 or more in the prior calendar year or whose rate
of annual base pay in the current calendar year is $125,000 or
more shall be eligible to participate in the Plan in accordance
with the requirements of Section 2.02, unless otherwise decided
by the Committee. In addition, other select management or highly
compensated Employees may be eligible to participate at the
option of the Committee.
2.02. Participation. Every eligible Employee shall become a
Participant after making an irrevocable election to participate
as described in Sections 3.01 or 3.02 and as of the first day of
the first period for which amounts are deferred. 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. The Company will establish an Aon Common Stock
Account and Aon General Account, as applicable, for each
Participant. Such accounts shall be book entries maintained by
the Company or its Subsidiaries, and the existence of such book
entries shall not create and shall not be deemed to create a
trust of any kind, or a fiduciary relationship between the
Company or the Subsidiary and the Employee or Beneficiary.
4
<PAGE>
SECTION 3
---------
ELECTION TO DEFER
-----------------
3.01 Irrevocable Election. On or before December 31 of any year, each
Employee eligible to participate in the Plan shall be entitled to
make an irrevocable election to defer receipt of: (i) any whole
percentage of Compensation otherwise payable from the Company or
a Subsidiary for the following calendar year; and (ii) any whole
percentage of a Performance Bonus to be earned in the following
calendar year.
3.02 First Calendar Year Election. Within 30 days after the later of
the date the Plan is effective or the date the Employee first
becomes eligible to participate in the Plan, each Employee
eligible to participate shall be entitled to make an irrevocable
election to defer (i) any whole percentage of Compensation not
yet payable; and (ii) any whole percentage of a Performance Bonus
not yet earned.
3.03 Election as to Period of Deferral. Each Employee shall also make,
within the time specified in Section 3.01 or 3.02, an irrevocable
election as to the period of deferral and distribution in
accordance with Section 5.
3.04 Election as to Aon Common Stock Account or Aon General Account.
Each Employee shall also make, within the time specified in
Section 3.01 or 3.02, (i) an election as to the allocation of the
full amount of deferred Compensation to the Aon Common Stock
Account or to the Aon General Account; (ii) an election as to the
allocation of the full amount of the deferred Performance Bonus
to the Aon Common Stock Account or to the Aon General Account;
and, if the Participant desires, (iii) a similar election to
reallocate balances in the Aon Common Stock Account and Aon
General Account.
3.05 Failure to Make an Election. The elections set forth in any
notice described in Sections 3.01 through 3.03 shall pertain only
to the period for which they are made, and if no election is made
for a period no deferral will be made. In the event an Employee
fails to specify an allocation of Compensation or of the
Performance Bonus, 100% of the deferred portion of such
Employee's Compensation or Performance Bonus shall be credited to
the Aon General Account.
5
<PAGE>
SECTION 4
---------
DEFERRED COMPENSATION AMOUNTS
-----------------------------
4.01 Deferral Period Subaccounts. Separate subaccounts under the Aon
Common Stock Account and under the Aon General Account for each
deferral period shall be established and maintained for each
Participant. Such subaccounts shall reflect the amount deferred
for each deferral period specified in each election form by the
Participant. In the event two or more subaccounts reflect
deferred amounts which are to be paid at the same time, all such
subaccounts shall be aggregated into a single subaccount.
4.02 Amounts Credited to the Aon Common Stock Account. With respect to
an Employee's election to defer any portion of Compensation or
the Performance Bonus, a Participant's Aon Common Stock Account
will be credited with such additions as the Participant has
elected to defer to such account. For purposes of crediting
Compensation or the Performance Bonus, deferred amounts shall be
assumed to have been invested in Aon common stock. The amount of
shares so credited will be determined by dividing the deferred
amount of the Participant's Compensation or Performance Bonus by
the fair market value of Aon common stock on the New York Stock
Exchange for the day such Compensation or Performance Bonus would
have been payable to the Participant had it not been deferred.
Fair market value on any day is the average of the highest and
lowest price at which the stock was sold on the New York Stock
Exchange that day. In the event of a recapitalization, stock
split, stock dividend, combination or exchange of shares, merger,
consolidation, rights offering, separation, reorganization or
liquidation, or any other change in the corporate structure or
shares of the Company, the Committee may make such equitable
adjustments to prevent dilution or enlargement of rights, as it
may deem appropriate, in the number and class of shares so
credited.
4.03 Amounts Credited to the Aon General Account. With respect to an
Employee's election to defer any portion of Compensation or of a
Performance Bonus, a Participant's Aon General Account will be
credited with such additions as the Participant has elected to
defer to such account. For purposes of computing such addition,
deferred amounts shall be credited as of the day such
Compensation or Performance Bonus would have been payable to the
Participant had it not been deferred, and such deferrals shall be
credited with interest, compounded semiannually, at the annual
rate determined as of January 1 and July 1 of each year by
averaging the one-year Treasury bill yield as published monthly
by the Federal Reserve Bank of St. Louis on a
6
<PAGE>
bank discount basis through the secondary market for the last six
months immediately prior thereto. The rate of interest shall be
so determined by the Committee but may be modified by the Board
at any time in its exclusive discretion, with prospective effect
but with respect to all prior and all future deferrals; provided,
however, that no such modification may be implemented without
advance notice to Participants affected by the modification.
Such deferred amounts shall be deemed to earn interest from the
date of crediting until the last day of the month preceding (i)
the Elected Distribution Date (as defined in Section 5.02) and
every 12-month anniversary of the Elected Distribution Date in
the case of installment payments; (ii) the Termination
Distribution Date (as defined in Section 5.04) and every 12-month
anniversary of the Termination Distribution Date in the case of
installment payments; or (iii) the hardship distribution date,
whichever is applicable.
4.04 Dividends Credited to Aon Common Stock Account. As of each
dividend payment date, each Participant's Aon Common Stock
Account shall be credited with the dividends that would be paid
with respect to Aon common stock on the dividend payment date as
if the Participant owned the stock credited to the Aon Common
Stock Account. Dividends will be credited as if reinvested in
whole or fractional shares on the dividend date.
SECTION 5
---------
METHOD OF DISTRIBUTION OF DEFERRED COMPENSATION
-----------------------------------------------
5.01 Election of Distribution. Any amount deferred for any period plus
any earnings or dividends attributable thereto shall be payable
under the method selected by the Participant under Section 5.02,
unless the Participant terminates employment before the Elected
Distribution Date (as defined below) or receives a hardship
withdrawal in accordance with Section 5.05 before the period of
deferral has expired.
5.02 Method of Distribution. At the time the Participant elects to
defer Compensation or the Performance Bonus pursuant to Section
3, the Participant shall also make an irrevocable election as to
(i) the beginning date of distribution with respect to amounts so
credited to the Accounts of the Participant; and (ii) the number
of annual
7
<PAGE>
installments, not in excess of ten, over which such distribution
will be made. Payments, subject to the provisions of Sections
5.04 and 5.05, shall commence within 30 days following the date
of distribution specified by the Participant in his or her
deferral election (the "Elected Distribution Date"); provided,
however, that the Committee may in its sole discretion determine
that payment shall be made over a shorter or longer period or in
more frequent installments, or commence on an earlier or later
date, or any or all of the above. Each installment shall be
withdrawn proportionately from the Aon Common Stock Account and
the Aon General Account.
5.03 Installment Payments. The first annual installment shall be paid
within the 30-day period following the Elected Distribution Date
or following the Termination Distribution Date, whichever is
applicable. Subsequent annual installments shall be paid within
the 30-day period following the end of each 12-month anniversary
of the Elected Distribution Date or Termination Distribution
Date, whichever is applicable. The amount of the first payment
shall be a fraction of the total balances of the Participant's
Accounts for such period (with interest credited in accordance
with Section 4.03; with dividends credited in accordance with
Section 4.04, and with Aon common stock as valued under Section
5.08), the numerator of which is one and the denominator of which
is the total number of installments elected. The amount of each
subsequent payment shall be a fraction of the total balances of
the Participant's Accounts similarly computed for each subsequent
payment, the numerator of which is one and the denominator of
which is the total number of installments remaining.
5.04 Termination of Employment Prior to Distribution Date. If the
Participant terminates employment for any reason prior to the
Elected Distribution Date, payments shall commence within the 30-
day period following the first business day of the first calendar
year following the year in which employment terminated (the
"Termination Distribution Date"), and distributions shall be made
in the same number of annual installments as had been elected by
the Participant at the time of the deferral election; provided,
however, that the Committee may, in its sole discretion,
determine that distribution to a terminated employee shall
commence on any earlier or later date.
5.05 Hardship Withdrawals. If a Participant or Beneficiary would
otherwise suffer severe financial hardship and distribution of
amounts credited to the Accounts has not yet commenced, deferral
of amounts may be suspended and payment of amounts credited to
the Accounts shall commence within 30 days following the
determination of the Committee that such hardship resulted from
an unforeseeable emergency that is caused by an event beyond the
control of the
8
<PAGE>
Participant or Beneficiary. Such suspension or withdrawal may
not exceed the amount necessary to meet the emergency.
For purposes of this section, "unforeseeable emergency" is
defined as a severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in Internal Revenue
Code Section 152(a)) of the Participant, loss of the
Participant's property due to casualty or other similar
extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of a Participant. Payment may not
be made to a Participant to the extent that such hardship is or
may be relieved:
(a) through reimbursement or compensation by insurance or
otherwise;
(b) by liquidation of the Participant's assets, to the extent
the liquidation of such assets would not itself cause severe
financial hardship.
5.06 Distribution Upon Death after Payments Have Commenced. If any
Participant dies before receiving all amounts credited to such
Participant's Accounts, the unpaid amounts in the Participant's
Accounts shall be paid to the Participant's Beneficiary or
Beneficiaries in accordance with the last effective beneficiary
designation form filed by the Participant with the Company. Such
unpaid amounts shall be paid in the same manner and at the same
time as had been elected by the Participant prior to such
Participant's death.
5.07 Distribution to Beneficiaries. Each Participant shall file with
the Company a form indicating the person, persons, or entity
which are to receive the Participant's benefits under the Plan if
the Participant dies before receiving all the balances in his
Accounts. A Participant's beneficiary designation may be changed
at any time prior to death by execution and delivery of a new
beneficiary designation form. If a Participant has failed to
designate a Beneficiary, the amounts payable hereunder shall be
made to such person or persons who, as of the date payment is to
be made under this Plan, would receive distribution of the
Participant's account balances, if any, under the terms of the
Aon Savings Plan, or, if the Participant is not a participant in
the Aon Savings Plan at the time of his death or if the
Beneficiary fails to survive the Participant, payment shall be
made in a lump sum to the estate of the Participant. A
Beneficiary who fails to survive a Participant by at least 10
days shall be deemed to have predeceased the Participant.
9
<PAGE>
5.08 Distributions from Aon Common Stock Account. The form of
distribution from the Aon Common Stock Account may be elected by
the Participant no fewer than 30 days prior to distribution, or,
in the case of hardship pursuant to Section 5.05, at the time the
Committee determines hardship. Distributions from the Aon Common
Stock Account may be made in cash, in Aon common stock, or in a
combination of cash and Aon common stock; provided, however, that
the Committee, in its sole discretion, may modify such election
and determine the form of distribution. To the extent each
installment payment will be paid in cash, the cash value of the
Aon common stock credited to the Aon Common Stock Account shall
be obtained by multiplying the number of full and fractional
shares to be converted to cash by the average market price of Aon
common stock on the New York Stock Exchange for the last business
day of the month immediately preceding: (a) in the case of the
first annual installment, the Elected Distribution Date or the
Termination Distribution Date, whichever is applicable; (b) in
the case of subsequent installments, the 12-month anniversary of
the Elected Distribution Date or the 12-month anniversary of the
Termination Distribution Date, whichever is applicable; or (c)
the hardship determination date.
SECTION 6
---------
MISCELLANEOUS
-------------
6.01 Other Benefit Plans. The amount of each Participant's
Compensation or Performance Bonus which the Participant elects to
defer under the Plan shall be deemed compensation for the purpose
of calculating the amount of a Participant's benefits or
contributions under all retirement and welfare benefit plans
sponsored by the Company and the Subsidiaries, except to the
extent not permitted under such retirement or welfare benefit
plan and except to the extent not permitted under the Code.
No amount distributed to a Participant from a Participant's
Accounts under this Plan shall be deemed to be compensation with
respect to a Participant's entitlement to benefits under any
employee benefit plan established by the Company or the
Subsidiaries for its employees unless otherwise specifically
provided in such plan.
10
<PAGE>
6.02 Participant's Rights. Establishment of the Plan shall not be
construed to give any Participant the right to be retained in the
Company's or a Subsidiary's service or to any benefits not
specifically provided by the Plan. Neither a Participant nor a
Beneficiary shall have any interest in the deferred compensation
or earnings credited to his accounts. All amounts deferred or
otherwise held for the account of a Participant or a Beneficiary
under the Plan shall remain the sole property of the Company or
Subsidiary. With respect to such amounts, the Participant or
Beneficiary is merely a general creditor, and any obligation of
the Company or Subsidiary hereunder is purely contractual and
shall not be funded or secured in any way, except as described in
Section 6.03.
In case the claim of any Participant or Beneficiary for benefits
under the Plan is denied, the Company shall provide adequate
notice in writing to such claimant, setting forth the specific
reasons for such denial. The notice shall be written in a manner
calculated to be understood by the claimant. The Company shall
afford a Participant or Beneficiary whose claim for benefits has
been denied 60 days from the date notice of such denial is
delivered or mailed in which to appeal the decision in writing to
the Committee. If the Participant or Beneficiary appeals the
decision in writing within 60 days, the Committee shall review
the written comments and any submissions of the Participant or
Beneficiary and render its decision regarding the appeal all
within 60 days of such appeal.
6.03 Change of Control. Upon a Change of Control, the Company shall,
as soon as possible, but in no event longer than 45 days
following the Change of Control, establish an irrevocable grantor
trust: (a) subject to the claims of the Company's creditors; (b)
with respect to which the Participants and Beneficiaries have
only the rights of unsecured general creditors and receive no
title or beneficial ownership; (c) under which benefits payable
may not be assigned, alienated, pledged, attached or encumbered
by the Participant or Beneficiary; and (d) in substantial
compliance with the required provisions of Revenue Procedure
92-64, 1992-33 I.R.B. 11, of the Internal Revenue Service (or any
comparable successor procedure).
At the same time, the Company shall make a contribution to such
trust in an amount that is sufficient to pay each Participant or
Beneficiary the benefits to which such Participants and
Beneficiaries would be entitled pursuant to the terms of the Plan
as of the date on which the Change of Control occurred. Any
payments made to a Participant under the trust for his benefit
shall reduce dollar for dollar the amount payable to the
Participant or Beneficiary from the general assets of the
Company.
Upon the occurrence of a Change of Control, this Plan may not be
amended until all accounts have been paid in full and may be
terminated only if all accounts have been paid in full.
11
<PAGE>
6.04 Nonalienability and Nontransferability. The rights of a
Participant to the payment of deferred compensation as provided
in the Plan shall not be assigned, transferred, pledged or
encumbered, or be subject in any manner to alienation or
anticipation. No Participant may borrow against his Accounts. No
Accounts shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, whether
voluntary or involuntary, including any liability which is for
alimony or other payments for the support of a spouse or former
spouse, or for any other relative of any Participant.
6.05 Plan Administrator. The administrator of the Plan shall be the
Committee, which shall have authority to adopt rules and
regulations for carrying out the Plan, to delegate its
administrative responsibilities as it shall, from time to time,
deem advisable, and to interpret, construe, and implement the
provisions thereof. Any decision or interpretation of any
provision of the Plan adopted by the Committee shall be final and
conclusive.
6.06 Amendment and Termination. The Plan may, at any time (except as
provided in Section 6.03 upon a Change of Control), be amended,
modified, or terminated by action of the Board. No amendment,
modification, or termination shall, without the consent of a
Participant, adversely affect such Participant's rights with
respect to amounts accrued in his or her Accounts.
SECTION 7
---------
GENERAL PROVISIONS
------------------
7.01 Notices. All notices to the Company hereunder shall be delivered
to the attention of the Secretary of the Company. Any notice or
filing required or permitted to be given to the Company under
this Plan shall be sufficient if in writing and hand delivered,
or sent by registered or certified mail, to the Company at the
principal office of the Company. Such notice shall be deemed
given as of the date of delivery or, if delivery is made by mail,
as of the date shown on the postmark or the receipt for
registration or certification.
7.02 Controlling Law. Except to the extent superseded by federal law,
the laws of Illinois shall be controlling in all matters relating
to the Plan.
7.03 Gender and Number. Where the context admits, words in the
masculine gender shall include the feminine and neuter genders,
the
12
<PAGE>
plural shall include the singular and the singular shall include
the plural.
7.04 Captions. The captions of Sections and paragraphs of this Plan
are for convenience only and shall not control or affect the
meaning of construction of any of its provisions.
7.05 Action by the Company. Any action required or permitted by the
Company under the Plan shall be by resolution of its Board or any
person or persons authorized by resolution of its Board.
7.06 Facility of Payment. Any amounts payable hereunder to any person
under legal disability or who, in the judgment of the Company, is
unable to properly manage his financial affairs may be paid to
the legal representative of such person or may be applied for the
benefit of such person in any manner which the Company may
select.
7.07 Withholding Payroll Taxes. To the extent required by the laws in
effect at the time distributions or contributions are made to
this Plan, the Company shall withhold from such payments any
taxes required to be withheld for federal, state, or local
government purposes. A participant shall have the duty to pay to
the Company or the Subsidiary an amount equal to the taxes
required by any government to be withheld or otherwise deducted
and paid by the Company or a Subsidiary as a result of the
distribution to the Participant of shares of stock. Such shares
shall not be delivered to the Participant until such time as such
payment has been made.
7.08 Severability. Whenever possible, each provision of the Plan
shall be interpreted in such manner as to be effective and valid
under applicable law (including the Internal Revenue Code), but
if any provision of the Plan shall be held to be prohibited by or
invalid under applicable law, then (a) such provision shall be
deemed amended to, and to have contained from the outset such
language as shall be necessary to, accomplish the objectives of
the provision as originally written to the fullest extent
permitted by law and (b) all other provisions of the Plan shall
remain in full force and effect.
7.09 Liability. No member of the Board, no employee of the Company or
a Subsidiary, and no member of the Committee (nor the Committee
itself) shall be liable for any act or action hereunder whether
of omission or commission, by any other member or employee or by
any agent to whom duties in connection with the administration of
the Plan have been delegated or, except in circumstances
involving his bad faith, gross negligence or fraud, for anything
done or omitted to be done by himself. The Company will fully
indemnify and hold the members of the Committee harmless from any
liability hereunder, except in circumstances involving a
Committee member's bad faith, gross negligence, or fraud. The
Company or the Committee may consult
13
<PAGE>
with legal counsel, who may be counsel for the Company or other
counsel, with respect to its obligation or duties hereunder, or
with respect to any action or proceeding or any question of law,
and shall not be liable with respect to any action taken or
omitted by it in good faith pursuant to the advice of counsel.
7.10 Successors. The provisions of the Plan shall bind and inure to
the benefit of the Company and its successors and assigns. The
term "successors" as used herein shall include any corporation or
other business entity which shall by merger, consolidation,
purchase, or otherwise, acquire all or substantially all of the
business and assets of the Company and successors of any such
corporation or other business entity.
7.11 Unfunded Status of the Plan. Except as provided in Section 6.03,
any and all payments made to the Participant pursuant to the Plan
shall be made only from the general assets of the Company or a
Subsidiary. All accounts under the Plan shall be for bookkeeping
purposes only and shall not represent a claim against specific
assets of the Company or the Subsidiaries. Nothing contained in
this Plan shall be deemed to create a trust of any kind or create
any fiduciary relationship.
IN WITNESS WHEREOF, Aon Corporation hereby adopts the Aon Deferred
Compensation Plan, effective as set forth above, as of this 11th day
of October, 1994.
Aon CORPORATION
By: /s/Daniel T. Cox
---------------------
Executive Vice President
14
<PAGE>
First Amendment to the
Aon Deferred Compensation Plan
------------------------------
Whereas, the Board of Directors of Aon Corporation desires to amend the
Aon Deferred Compensation Plan (the "Plan") pursuant to the Board's authority to
do so under Section 6.05 of the Plan;
Now, therefore, the Plan is amended as follows effective as of December
1, 1994:
Section 4.05. A new Section 4.05 shall be added to read as follows:
4.05 Company Match. The Company, at its discretion, may credit to
the Accounts of selected Participants an additional amount equal
to a specified percentage of the amount of Compensation deferred
by the Employee or a specified dollar amount (the "Company Match")
during the calendar year in which the Company Match is credited.
The following rules shall apply:
(a) the Company Match for any year shall be subject to the same
elections regarding the periods of deferral and distribution and
regarding allocation to the Accounts as the amount of Compensation
irrevocably deferred by the Employee under Sections 3.01 or 3.02
during the year in which the Company Match is credited;
(b) the Company Match shall be subject to the rules regarding
crediting under Section 4 and distributions under Section 5;
provided, however, that no hardship withdrawals under Section 5.06
shall be available either as to the Company Match or as to
earnings or dividends attributable thereto; and
(c) the amount of the Company Match credited in each separate
year shall vest separately and in accordance with the schedule set
forth below, together with earnings or dividends attributable to
that year's Company Match; provided, however, that such other
restrictions as the Company may place upon crediting, vesting or
distribution shall be satisfied:
15
<PAGE>
Completed Years of Percent Vested
------------------ ---------------
Continuous
----------
Employment
----------
===========================================
Less than 3 years 0%
-------------------------------------------
3 20%
-------------------------------------------
4 30%
-------------------------------------------
5 40%
-------------------------------------------
6 50%
-------------------------------------------
7 60%
-------------------------------------------
8 70%
-------------------------------------------
9 80%
-------------------------------------------
10 100%
===========================================
For these purposes, "Continuous Employment" shall be computed
separately, with respect to each year's credited Company Match, to
determine the vested percentage. For each year's separate Company
Match, "Continuous Employment" shall mean the total period of time
that an individual has served as an Employee of the Company or of
a Subsidiary beginning on the date an Employee's account is first
credited with the particular Company Match for which vesting is
being computed and ending on the date an employee quits, retires,
is discharged or dies. A "Completed Year of Continuous
Employment" shall refer to a 12-month period during which a
Participant has been continuously employed. If a prior
Participant is reemployed and again becomes a Participant,
Continuous Employment after the date of reemployment shall not be
taken into account for purposes of determining such Participant's
nonforfeitable interest in the Company Match or in earnings or
dividends attributable thereto and accrued prior to the date of
reemployment.
16
<PAGE>
IN WITNESS WHEREOF, Aon Corporation hereby adopts this First Amendment to
the Aon Deferred Compensation Plan, effective as set forth above, as of
this 16th day of December, 1994.
Aon CORPORATION
By: /s/ Daniel T. Cox
---------------------
Executive Vice President
17
<PAGE>
EXHIBIT 11
Aon Corporation and Subsidiaries
CONSOLIDATED NET INCOME PER SHARE COMPUTATION
(millions except per share data)
<TABLE>
<CAPTION>
First Quarter
--------------------
March 31, March 31,
1995 1994
--------- ---------
<S> <C> <C>
EARNINGS PER SHARE
Net income.............................................. $111.2 $ 99.1
Preferred stock dividends............................... 6.8 6.5
------ ------
Net income less preferred stock dividends............. $104.4 $ 92.6
====== ======
Average common shares issued.............................. 110.6 105.8
Net effect of treasury stock activity..................... (2.4) (4.4)
Weighted average effect of Series B preferred stock....... -- 3.5
Net effect of dilutive stock compensation plans based
on the treasury stock method........................... 0.5 0.8
------ ------
Average common and common equivalent shares
outstanding....................................... 108.7 105.7
====== ======
Net income per share (1).................................. $ 0.96 $ 0.88
====== ======
</TABLE>
(1) Primary and fully diluted net income per share are materially the same.
<PAGE>
Exhibit 12(a)
Aon Corporation and Consolidated Subsidiaries
Combined With Unconsolidated Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
First Quarter
Ended March 31, Years Ended December 31,
--------------- ------------------------------------------
(millions except ratios) 1995 1994 1994 1993 1992 (1) 1991 1990
------ ------ ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes $168.5 $148.0 $537.6 $479.1 $290.5 $331.5 $325.2
Add back fixed charges:
Interest on indebtedness 13.0 11.1 46.4 42.3 41.9 40.7 44.4
Interest on ESOP 1.4 1.5 5.9 6.5 6.9 7.2 7.4
Portion of rents representative of
interest factor 7.2 7.9 28.7 26.1 19.2 15.4 13.2
------ ------ ------ ------ ------ ------ ------
Income as adjusted $190.1 $168.5 $618.6 $554.0 $358.5 $394.8 $390.2
====== ====== ====== ====== ====== ====== ======
Fixed charges:
Interest on indebtedness:
Aon Corporation and
consolidated subsidiaries $ 13.0 $ 11.1 $ 46.4 $ 42.3 $ 41.9 $ 40.7 $ 43.9
Unconsolidated subsidiaries - - - - - - 0.5
------ ------ ------ ------ -------- ------ ------
Interest 13.0 11.1 46.4 42.3 41.9 40.7 44.4
Interest on ESOP 1.4 1.5 5.9 6.5 6.9 7.2 7.4
Portion of rents representative of
interest factor 7.2 7.9 28.7 26.1 19.2 15.4 13.2
------ ------ ------ ------ -------- ------ ------
Total fixed charges $ 21.6 $ 20.5 $ 81.0 $ 74.9 $ 68.0 $ 63.3 $ 65.0
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges 8.8 8.2 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.
1
<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>
First Quarter
Ended March 31, Years Ended December 31,
--------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(millions except ratios) 1995 1994 1994 1993 1992(1) 1991 1990
------ ------ ------ ------ ------- ------- ------
Income from continuing operations
before provision for income taxes $168.5 $148.0 $537.6 $479.1 $290.5 $331.5 $325.2
Add back fixed charges:
Interest on indebtedness 13.0 11.1 46.4 42.3 41.9 40.7 44.4
Interest on ESOP 1.4 1.5 5.9 6.5 6.9 7.2 7.4
Portion of rents representative of
interest factor 7.2 7.9 28.7 26.1 19.2 15.4 13.2
------ ------ ------ ------ ------ ------ ------
Income as adjusted $190.1 $168.5 $618.6 $554.0 $358.5 $394.8 $390.2
====== ====== ====== ====== ====== ====== ======
Fixed charges and preferred stock dividends:
Interest on indebtedness:
Aon Corporation and
consolidated subsidiaries $ 13.0 $ 11.1 $ 46.4 $ 42.3 $ 41.9 $ 40.7 $ 43.9
Unconsolidated subsidiaries - - - - - - 0.5
Preferred stock dividends 10.3 12.4 48.4 47.5 20.3 3.5 2.0
------ ------ ------ ------ ------- ------- -----
Interest and dividends 23.3 23.5 94.8 89.8 62.2 44.2 46.4
Interest on ESOP 1.4 1.5 5.9 6.5 6.9 7.2 7.4
Portion of rents representative of
interest factor 7.2 7.9 28.7 26.1 19.2 15.4 13.2
------ ------ ------ ------ ------- ------- -----
Total fixed charges and preferred
stock dividends $ 31.9 $ 32.9 $129.4 $122.4 $ 88.3 $ 66.8 $ 67.0
======= ====== ====== ====== ====== ====== ======
Ratio of earnings to combined fixed
charges and preferred stock dividends 6.0 5.1 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.
2
<PAGE>
Exhibit 15
Board of Directors and Stockholders
Aon Corporation
We are aware of the incorporation by reference in the Registration Statements of
Aon Corporation ("Aon") described in the following table of our report dated May
2, 1995 relating to the unaudited condensed consolidated interim financial
statements of Aon Corporation which is included in its Form 10-Q for the quarter
ended March 31, 1995:
<TABLE>
<CAPTION>
Registration Statement
----------------------
Form Number Purpose
---- ------ -------
<S> <C> <C>
S-8 2-79114 Pertaining to Aon's stock option plan
S-8 2-82791 Pertaining to Aon's stock option plan
S-8 33-27984 Pertaining to Aon's savings plan
S-8 33-42575 Pertaining to Aon's stock award plan and stock option plan
S-8 33-59037 Pertaining to Aon's stock award plan and stock option plan
S-3 33-57562 Registration of Aon's 8% cumulative perpetual preferred
stock and 6 1/4% cumulative convertible exchangeable
preferred stock
</TABLE>
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the registration statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
Chicago, Illinois
May 2, 1995
1
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 4,392
<DEBT-CARRYING-VALUE> 2,955
<DEBT-MARKET-VALUE> 2,822
<EQUITIES> 921
<MORTGAGE> 575
<REAL-ESTATE> 35
<TOTAL-INVEST> 10,150
<CASH> 518
<RECOVER-REINSURE> 0<F1>
<DEFERRED-ACQUISITION> 1,186
<TOTAL-ASSETS> 18,849
<POLICY-LOSSES> 1,425
<UNEARNED-PREMIUMS> 1,514
<POLICY-OTHER> 971
<POLICY-HOLDER-FUNDS> 5,628
<NOTES-PAYABLE> 812<F2>
50
11<F3>
<COMMON> 111<F4>
<OTHER-SE> 2,297
<TOTAL-LIABILITY-AND-EQUITY> 18,849
491
<INVESTMENT-INCOME> 209
<INVESTMENT-GAINS> 1
<OTHER-INCOME> 438<F5>
<BENEFITS> 347
<UNDERWRITING-AMORTIZATION> 74
<UNDERWRITING-OTHER> 550
<INCOME-PRETAX> 168
<INCOME-TAX> 57
<INCOME-CONTINUING> 111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111
<EPS-PRIMARY> .96
<EPS-DILUTED> 0.00
<RESERVE-OPEN> 0<F1>
<PROVISION-CURRENT> 0<F1>
<PROVISION-PRIOR> 0<F1>
<PAYMENTS-CURRENT> 0<F1>
<PAYMENTS-PRIOR> 0<F1>
<RESERVE-CLOSE> 0<F1>
<CUMULATIVE-DEFICIENCY> 0<F1>
<FN>
<F1> Available on an annual basis only.
<F2> Includes short-term borrowings and debt guarantee of ESOP.
<F3> Preferred stock at par value.
<F4> Common stock at par value.
<F5> Includes brokerage commissions and fees and other income.
</FN>
</TABLE>
