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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER: 1-7933
Aon CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------------
DELAWARE 36-3051915
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
123 NORTH WACKER DRIVE, 60606
CHICAGO, ILLINOIS (Zip Code)
(Address of Principal Executive Offices)
(312) 701-3000
(Telephone Number)
--------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------------------ ------------------------
Common Stock, $1 par value New York Stock Exchange*
8% Cumulative Perpetual Preferred Stock New York Stock Exchange
6-1/4% Cumulative Convertible Exchangeable
Preferred Stock New York Stock Exchange
6.875% Notes Due 1999 New York Stock Exchange
7.40% Notes Due 2002 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
*The Common Stock of the Registrant is also listed for trading on the Chicago
Stock Exchange and The International Stock Exchange London.
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements,
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 28, 1996 was $4,575,244,569.
Number of shares of $1.00 par value Common Stock outstanding as of February 28,
1996: 108,413,284.
DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE:
Annual Report to Stockholders of the Registrant for the Year 1995 (Parts I, II
and IV)
Notice of Annual Meeting of Holders of Common Stock and Series C Cumulative
Preferred
Stock and Proxy Statement for Annual Meeting of Stockholders on April 19, 1996
of the Registrant (Part III)
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PART I
ITEM 1. BUSINESS.
The Registrant is an insurance holding company. Incorporated in 1979, it is
the parent corporation of long established and more recently formed companies.
In early 1996, one of the Registrant's wholly-owned subsidiaries, Rollins Hudig
Hall Group, Inc. changed its name to Aon Group, Inc. ("Aon Group"). Several of
Aon Group's subsidiaries also changed their names in early 1996 including Aon
Risk Services Companies, Inc. (formerly Rollins Hudig Hall Co.); Aon Holdings bv
(formerly Rollins Hudig Hall Holdings bv); and Aon Consulting Worldwide, Inc.
(formerly Godwins International, Inc.). These newly named corporations join Aon
Specialty Group, Inc.; Aon Re Worldwide, Inc.; and Nicholson Leslie Group
Limited to comprise Aon Group. Aon Group and its subsidiaries provide
reinsurance intermediary services, benefits consulting and commercial insurance
brokerage services.
In fourth quarter 1995, the Registrant and Combined Insurance Company of
America ("Combined Insurance") executed definitive agreements to sell two of
Combined Insurance's insurance subsidiaries, Union Fidelity Life Insurance
Company ("UFLIC") and The Life Insurance Company of Virginia ("LOV"). The
parties have received the necessary regulatory consents, and the sales of these
two subsidiaries are expected to close on or around April 1,1996.
Combined Insurance and Ryan Insurance Group, Inc. engage in the marketing of
life and accident and health insurance products. Ryan Insurance Group, Inc.;
Virginia Surety Company, Inc.; and London General Insurance Company Limited,
also subsidiaries of the Registrant, offer extended warranty and specialty
insurance products. Beginning in fourth quarter 1995, all insurance underwriting
operations are presented as one segment and primarily include life, accident and
health insurance and extended warranty products.
The Registrant hereby incorporates by reference the four inside cover pages
and pages 6 and 7 of the Annual Report to Stockholders of the Registrant for the
Year 1995 ("Annual Report").
COMPETITION AND INDUSTRY POSITION
(1) INSURANCE BROKERAGE AND CONSULTING SERVICES
Aon Risk Services Companies, Inc. ("Aon Risk Services Companies"); Aon
Holdings bv ("Aon Holdings"); Aon Specialty Group, Inc. ("Aon Specialty Group");
Aon Consulting Worldwide, Inc. ("Aon Consulting"); Aon Re Worldwide, Inc. ("Aon
Re"); and Nicholson Leslie Group Limited ("Nicholson Leslie").
Aon Group, Inc. ("Aon Group"), formerly Rollins Hudig Hall Group, Inc., is the
holding company for the Registrant's commercial brokerage and consulting
operation. Aon Group is the second largest brokerage and consulting services
firm in the world. The Aon Group companies have more than 350 offices around the
world and employ approximately 14,000 professionals and support personnel who
serve the diverse needs of clients.
Aon Risk Services Companies' (formerly Rollins Hudig Hall Co.) subsidiaries
operate in a highly competitive industry and compete with a large number of
retail insurance brokerage and agency firms as well as individual brokers and
agents and direct writers of insurance coverage. Aon Risk Services Companies'
subsidiaries offer comprehensive services to clients including insurance
placement, specialized brokerage services, program development and
administration, premium financing services, risk management and loss control
consulting. It has also developed certain specialist niche areas such as marine,
aviation, directors and officers liability, financial institutions,
construction, energy, municipalities, media, entertainment and fine art.
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Aon Holdings (formerly Rollins Hudig Hall Holdings bv) traces its commercial
broking roots to 1688 and is one of the premier brokers in Continental Europe
with more than 90 offices and approximately 3,000 employees. Aon Holdings has
subsidiaries in more than 30 countries and, in 1995, acquired the remaining
interest in a joint venture that owns a network of insurance broking offices in
Southeast Asia.
Subsidiaries of Aon Risk Services Companies and Aon Holdings operate through
owned offices in North America and Europe, as well as in Latin America and
Asia/Pacific. In 1995, Aon Holdings subsidiaries opened offices in Australia,
Germany, France, Denmark, Belgium, Ireland, Sweden, Spain, Portugal, The
Netherlands, and the United Kingdom. The Registrant became the latest insurance
organization licensed to open a representative office in Beijing, China, in
1995.
Aon Specialty Group addresses the highly specialized product development,
consulting and administrative needs of professional groups, service businesses,
governments, health care providers and commercial organizations nationwide. It
also provides specialized managing general underwriting and wholesale brokerage
services for insurance organizations. Aon Specialty Group operating
subsidiaries' market and broker both the primary and reinsurance risks of these
programs. Aon Direct Group is Aon Specialty Group's primary direct marketer of
specialty insurance products for associations and affinity groups.
Media/Professional (MPI), a subsidiary of Aon Specialty Group, is one of the
largest brokers of libel and other insurance to the broadcast and print media in
the United States. Its Bankers Insurance Service Corp. subsidiary is an
underwriting manager that serves the mortgage banking industry. Its Scarborough
& Co. subsidiary provides similar underwriting services to community banks,
mortgage and savings institutions.
Subsidiaries of Aon Consulting (formerly Godwins International, Inc.) and the
European benefits operations of Aon Holdings serve the employee benefit needs
of clients around the world. Aon Consulting is one of the world's largest
integrated human resources consulting organizations.
In the United States, the benefits environment continues to change as
companies look for ways to manage their benefits costs while increasing the
choices offered to their employees. Aon Consulting, with its expertise in all
areas of benefits and compensation, and its access to the Registrant's other
subsidiaries, is well-positioned to serve this market. Existing business
continues to be influenced by a sluggish benefits consulting environment in the
United States. Benefits issues in foreign countries are becoming more
complicated, and Aon Holdings and Aon Consulting anticipate increased demand for
their services in these markets.
The late-1994 acquisition of HRStrategies Inc. marked an important expansion
for Aon Consulting. HRStrategies specializes in human resources strategy
development, employee selection, and identification and development of employee
skills and skills assessment systems. In 1995, Aon Consulting acquired Hutchison
& Associates, Inc. This acquisition strengthens the nationwide capabilities,
client base and service range of Aon Consulting and also integrates the various
aspects of the benefits consulting and human resource fields. As employers
contend with increased competition for skilled workers, the ability to identify,
motivate and compensate those workers becomes increasingly important.
Aon Re is the second largest reinsurance intermediary in the world. Aon Re
serves the alternative market with reinsurance placement, alternative risk
services, captive management services and catastrophe information forecasting.
In 1993, Aon Re was formed as a holding company to coordinate all reinsurance
operations. Agricultural Risk Management Limited in London, specializing in the
evaluation of agricultural risk, was acquired in early 1995.
Nicholson Leslie is a London-based Lloyd's broker that places wholesale and
reinsurance business in the London and international markets and serves the
needs of a wide range of clients around the world. A majority of Nicholson
Leslie's revenue is derived from sources unaffiliated with Aon. The late-1994
acquisition of Lloyd's broker Jenner Fenton Slade Group Limited (JFS) expanded
the Registrant's expertise in the area of energy insurance.
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(2) INSURANCE UNDERWRITING
Combined Insurance Company of America ("Combined Insurance"); Combined Life
Insurance Company of New York ("CLICNY"); Ryan Insurance Group, Inc. ("Ryan");
Virginia Surety Company, Inc. ("VSC"); and London General Insurance Company
Limited ("London General").
Following the Registrant's and Combined Insurance's execution in late 1995 of
definitive agreements to sell Combined Insurance's direct response life and
health subsidiary, Union Fidelity Life Insurance Company ("UFLIC") and Combined
Insurance's capital accumulation insurance subsidiary, The Life Insurance
Company of Virginia ("LOV"), the Registrant reclassified its operating segments
to reflect the focus of its continuing operations. Beginning in fourth quarter
1995, all insurance underwriting operations are presented as one segment based
on the related nature, distribution channels and markets of the continuing
products.
The Registrant's insurance underwriting subsidiaries are part of a highly
competitive industry that serves individual consumers in North America, Europe,
Latin America and Asia/Pacific by providing accident and health coverage,
traditional life insurance, extended warranties and credit insurance through
global distribution networks that are directly owned by the Registrant's
subsidiaries.
The accident and health distribution network encompasses the agents of
Combined Insurance and the automobile dealers that market the products of Ryan.
With more than five million policyholders, Combined Insurance has more
individual accident and health policies in force than any other United States
company. Combined Insurance, the Registrant's principal accident and health
insurer, has a direct sales force of several thousand career agents calling on
individuals to sell a broad spectrum of accident and health products. It is one
of the few companies with agents that call on customers every six months to
renew coverage and to sell additional coverage. Combined Insurance offers a wide
range of accident-only and sickness-only insurance products, including short-
term disability, cancer aid, Medicare supplement and disability income coverage.
Combined Insurance's products are primarily fixed indemnity obligations, thereby
not subject to escalating medical costs. Combined Insurance offers a simplified
accident and sickness long-term disability policy.
Combined Insurance and its wholly-owned subsidiary CLICNY (which operates
exclusively in the State of New York) market whole life products through direct
sales career agents in the United States. Combined Insurance ranked among the
top 100 life insurance companies in the United States in terms of total life
premiums in 1994. Life insurance business is conducted by the Registrant's life
insurance subsidiaries in 49 states, Canada, the United Kingdom, Ireland,
Germany, Australia and New Zealand.
Ryan is a major marketer of extended warranties and credit-related life and
disability products for the automotive industry. In January 1995, Globe Life
Insurance Company was merged with Combined Insurance. Ryan subsidiaries operate
in a highly competitive industry, competing against numerous insurers and
insurance agents engaged in selling credit life and disability insurance,
including some which also provide finance and consulting services to automobile
dealers. Substantially all of the credit insurance sold by Ryan subsidiaries is
generated through dealers who have no legal obligation or commitment to continue
as agents for Ryan and are free to terminate such relationships and act as
agents for, and place insurance with, Ryan's competitors.
The Registrant's extended warranty and specialty insurance business, conducted
by subsidiaries VSC in North America and London General in Europe, is composed
primarily of extended warranty insurance products, professional liability
insurance coverages, workers' compensation and specialty financial institution
coverages. VSC and London General continue to be one of the world's largest
underwriters of consumer extended warranties. Ryan's automobile warranty
products are sold in the United Kingdom,
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Ireland, France, The Netherlands, Belgium and Spain. Aon Warranty Group handles
the administration of certain extended warranty products on automobiles,
electronic goods, personal computers and appliances. It serves manufacturers,
distributors and wholesalers in North America and in Europe.
(3) DISCONTINUED OPERATIONS
The Life Insurance Company of Virginia ("LOV") and Union Fidelity Life
Insurance Company ("UFLIC").
In fourth quarter 1995, the Registrant and Combined Insurance executed
definitive agreements to sell Combined Insurance's insurance subsidiaries, LOV
and UFLIC. The parties have received the necessary regulatory consents, and the
sales of these two subsidiaries are expected to close on or around April 1,
1996. Their results are therefore classified in the consolidated statements of
income in the Annual Report to Stockholders of the Registrant for the Year 1995
as discontinued operations.
The business written by LOV primarily includes capital accumulation products
and some other life products. UFLIC operates in the United States in the highly
competitive direct response life and health marketing segment of the industry.
LICENSING AND REGULATION
Insurance companies must comply with laws and regulations of the jurisdictions
in which they do business. These laws and regulations are designed to ensure
financial solvency of insurance companies and to require fair and adequate
service and treatment for policyholders. They are enforced by the states in the
United States, by industry self-regulating agencies in the United Kingdom, and
by various regulatory agencies in other countries through the granting and
revoking of licenses to do business, licensing of agents, monitoring of trade
practices, policy form approval, minimum loss ratio requirements, limits on
premium and commission rates, and minimum reserve and capital requirements.
Compliance is monitored by the state insurance departments through periodic
regulatory reporting procedures and periodic examinations. The quarterly and
annual financial reports to the regulators in the United States utilize
accounting principles which are different from the generally accepted accounting
principles used in stockholders' reports. The statutory accounting principles,
in keeping with the intent to assure the protection of policyholders, are based,
in general, on a liquidation concept while generally accepted accounting
principles are based on a going-concern concept.
The state insurance regulators are members of the National Association of
Insurance Commissioners ("NAIC"). This Association seeks to promote uniformity
of, and to enhance the state regulation of, insurance. Both the NAIC and the
individual states continue to focus on the solvency of insurance companies. This
focus is reflected in additional regulatory oversight by the states and emphasis
on the enactment or adoption of a series of NAIC model laws and regulations
designed to promote solvency. The increase in any solvency-related oversight by
the states will not have any significant impact on the insurance business of the
Registrant.
Several years ago, the NAIC developed a formula for analyzing insurers called
risk based capital ("RBC"). RBC is intended to establish "minimum" capital
threshold levels that vary with the size and mix of a company's business. It is
designed to identify companies with the capital levels that may require
regulatory attention. RBC does not have any significant impact on the insurance
business of the Registrant.
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Insurance companies are generally not subject to any federal regulation of
their insurance business because of the existence of a federal law commonly
known as the McCarran-Ferguson Act. McCarran-Ferguson provides the insurance
industry with immunity from certain aspects of the federal anti-trust law and
exempts the business of insurance from federal regulation. In the past several
years there have been a number of recommendations that McCarran-Ferguson be
repealed entirely or modified to remove the industry's anti-trust exemption and
subject it to federal regulation. If McCarran-Ferguson were to be repealed or
modified, state regulation of the insurance business would continue. The result
could be an additional layer of federal regulation. The Registrant expects that
any repeal of anti-trust exemptions available to insurers under the McCarran-
Ferguson Act would not have a significant impact on its operations.
The state insurance holding company laws require prior notice to and approval
of the domestic state insurance department of intracorporate transfers of assets
within the holding company structure, including the payment of dividends by
insurance company subsidiaries. In addition, sales of credit insurance by Ryan's
agents and premium finance loans by Cananwill, Inc., an indirect wholly-owned
subsidiary of the Registrant, are subject to one or more of truth-in-lending and
credit regulations, insurance premium finance acts, retail installment sales
acts and other similar consumer protection legislation. Failure to comply with
such laws or regulations can result in the temporary suspension or permanent
loss of the right to engage in business in a particular jurisdiction as well as
other penalties.
Regulatory authorities in the states in which the operating subsidiaries of
Aon Group conduct business may require individual or company licensing to act as
brokers, agents, third party administrators, managing general agents,
reinsurance intermediaries or adjusters. Under the laws of most states,
regulatory authorities have relatively broad discretion with respect to
granting, renewing and revoking brokers' and agents' licenses to transact
business in the state. The manner of operating in particular states may vary
according to the licensing requirements of the particular state, which may
require, among other things, that a firm operate in the state through a local
corporation. In a few states, licenses are issued only to individual residents
or locally-owned business entities. In such cases, Aon Group subsidiaries have
arrangements with residents or business entities licensed to act in the state.
There continues to be activity in the area of health care reform at the state
levels in the United States. Numerous states have had legislation introduced to
reform the health care system and such legislation has passed in several states.
While it is impossible to forecast the precise nature of future state health
care changes, the Registrant does not expect a major impact on its operations
because of the supplemental nature of most of the policies issued by its
insurance subsidiaries and because the coverages are primarily purchased to
provide, on a fixed-indemnity basis, protection against loss-of-time or
disability benefits. If health care reform does not provide for a significant
role for insurance companies currently writing primary medical coverage, the
Registrant expects that some of those companies would increase their
participation in other segments of the insurance underwriting business, perhaps
heightening the competition with Combined Insurance. Combined Insurance and its
subsidiaries currently operate successfully in several foreign countries which
have national health plans in effect.
MORTGAGE LOANS AND REAL ESTATE INVESTMENTS
Mortgage loans and real estate investments held by the Registrants'
subsidiaries at December 31, 1995 were $632 million and $36.5 million,
respectively. Approximately 95% of these mortgage loans and substantially all of
the real estate investments at December 31, 1995 are held by LOV. Commercial
mortgage loans represent over 98% of total mortgage loans at December 31, 1995.
Mortgage loans and real estate in the South Atlantic region totaled $320 million
and $25.8 million, respectively, at December 31, 1995. The five states carrying
the highest concentrations of these mortgage loans and real estate investments
are listed below by each category.
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(millions)
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<CAPTION>
MORTGAGE LOANS 1995 1994 REAL ESTATE 1995 1994
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<S> <C> <C> <C> <C> <C>
Virginia $124.9 $126.1 Virginia $15.8 $14.5
Maryland 63.1 60.2 New Jersey 6.0 2.9
Florida 62.3 56.0 South Carolina 4.2 3.4
Texas 60.9 41.9 Georgia 3.1 2.9
New Jersey 45.3 53.2 Florida 2.6 3.9
</TABLE>
CAPITAL ACCUMULATION INVESTMENT TYPE CONTRACTS
Investment-type contracts (as defined by Statement of Financial Accounting
Standards No. 97) are annuities (approximately 77% are single premium deferred
annuities) and guaranteed investment contracts. These investment-type contracts
primarily relate to discontinued operations. Significant terms and conditions of
these contracts are described below.
SINGLE PREMIUM DEFERRED ANNUITIES (SPDAS): The Registrant's insurance
subsidiaries had approximately $1.7 billion of SPDA reserves in force at
December 31, 1995. SPDAs are single premium accumulation vehicles with one,
three or five year interest rate guarantees, after which declared one year
guaranteed renewal rates are set based on prevailing economic conditions. There
is a minimum guaranteed interest rate of 4% on most policies.
GUARANTEED INVESTMENT CONTRACTS (GICS): The Registrant's insurance
subsidiaries had approximately $1.7 billion in GIC contracts outstanding at
December 31, 1995. Of these, 76% are fixed rate contracts originally written
with a maturity from two to six years. The average maturity of the fixed rate
GIC pool was 2.2 years at December 31, 1995. The remaining 24% of the GICs are
variable rate contracts which have rates that float monthly based on an index
relating to money market yields.
Most of the GICs are benefit sensitive to varying degrees. As of December 31,
1995, most GIC contracts were for the benefit of qualified retirement plans. The
terms of these investment type contracts are typical of similar products sold by
competitors.
CLIENTELE
No significant part of the Registrant's or its subsidiaries' business is
dependent upon a single client or on a few clients, the loss of any one of which
would have a material adverse effect on the Registrant.
EMPLOYEES
The Registrant's subsidiaries had approximately 27,000 employees at the end of
1995 of whom approximately two-thirds are salaried and hourly employees and the
remaining one-third are sales representatives who are generally compensated
wholly or primarily by commission. Employees included in the Registrant's
discontinued operations represent less than 10% of the total at the end of 1995.
ITEM 2. PROPERTIES.
The Registrant's subsidiaries own and occupy office buildings in nine states
and certain foreign countries, and lease office space elsewhere in the United
States and in various foreign cities. Loss of the
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use of any owned or leased property, while potentially disruptive, would have no
material impact on the Registrant.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant hereby incorporates by reference note 12 of the Notes to
Consolidated Financial Statements on page 32 of the Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Registrant are regularly elected by its Board of
Directors at the annual meeting of the Board which is held following each annual
meeting of the stockholders of the Registrant. The executive officers of the
Registrant were elected to their current positions on April 20, 1995 to serve
until the meeting of the Board following the annual meeting of stockholders on
April 19, 1996. Ages shown are as of December 31, 1995.
For information concerning certain executive officers of the Registrant, see
item 10 below. As of March 29, 1996, the following individuals are also
executive officers of the Registrant as defined in Rule 16a-1(f):
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<CAPTION>
HAS CONTINUOUSLY
SERVED AS AN
OFFICER
OF REGISTRANT OR
NAME, AGE, AND ONE OR
CURRENT OFFICE MORE OF ITS
OR PRINCIPAL SUBSIDIARIES BUSINESS EXPERIENCE
POSITION SINCE PAST 5 YEARS
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<S> <C> <C>
Harvey N. Medvin, 59 1972 Mr. Medvin became Vice President
Executive Vice President, and Chief Financial Officer of the
Chief Financial Officer Registrant in 1982 and was elected
and Treasurer to his current position in 1987. He
also serves as a Director or
Officer of certain of the
Registrant's subsidiaries.
Daniel T. Cox, 49 1986 Mr. Cox was elected to his current
Executive Vice President position in 1991 and has served as
Chairman and Chief Executive
Officer of LOV since 1988 and of
Union Fidelity since 1989. Mr. Cox
has headed the Registrant's
benefits consulting operation since
1987. He also serves as Director or
Officer of certain of the
Registrant's subsidiaries.
Michael A. Conway, 48 1990 Mr. Conway was Vice President of
Senior Vice President and Combined Insurance from 1980 to
Senior Investment Officer 1984. Following other employment,
Mr. Conway rejoined the Registrant
in 1990 as Senior Vice President of
Combined Insurance and was elected
to his current position in 1991. He
also serves as Director or Officer
of certain of the Registrant's
subsidiaries.
</TABLE>
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Registrant's $1.00 par value common shares ("Common Shares") are traded on
the New York, Chicago and London stock exchanges. The Registrant hereby
incorporates by reference the "Dividends paid per share" and "Price range" data
on page 35 of the Annual Report.
The Registrant had approximately 13,400 holders of record of its Common Shares
as of February 28, 1996.
The Registrant hereby incorporates by reference note 8 of the Notes to
Consolidated Financial Statements on pages 27 and 28 of the Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
The Registrant hereby incorporates by reference the "Selected Financial Data"
table on page 34 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Registrant hereby incorporates by reference "Management's Analysis of
Operating Results and Financial Condition" on pages 9 through 15 of the Annual
Report.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant hereby incorporates by reference the following statements,
notes and data from the Annual Report.
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Consolidated Financial Statements...................................... 16-20
Notes to Consolidated Financial Statements............................. 21-32
Report of Ernst & Young LLP, Independent Auditors...................... 33
Quarterly Financial Data............................................... 35
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant hereby incorporates by reference the information on pages 3 and
7 of the Notice of Annual Meeting of Holders of Common Stock and Series C
Preferred Stock and Proxy Statement For Annual Meeting of the Stockholders on
April 19, 1996, of the Registrant ("Proxy Statement") concerning the following
Directors of the Registrant, each of whom also serves as an executive officer of
the Registrant as defined in Rule 16a-1(f): Patrick G. Ryan and Raymond I.
Skilling. Information concerning additional executive officers of the
Registrant is contained in Part I hereof, pursuant to General Instruction G(3)
and Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant hereby incorporates by reference the information under the
headings "Executive Compensation," "Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year-End Option Values," "Option Grants in 1995 Fiscal Year" and
"Pension Plan Table" on pages 13 through 15 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Registrant hereby incorporates by reference the share ownership data
contained on pages 2, 8 and 9 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant hereby incorporates by reference the information under the
heading "Transactions With Management" on page 20 of the Proxy Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) AND (2). The Registrant has incorporated by reference from the Annual
Report (see Item 8) the following consolidated financial statements of the
Registrant and subsidiaries:
<TABLE>
<CAPTION>
Annual
Report
Page(s)
- ---------------------------------------------------------------------------------------------
<S> <C>
Consolidated Statements of Financial Position -- As of December 31, 1995 and 1994 16-17
Consolidated Statements of Income -- Years Ended December 31, 1995, 1994
and 1993 18
Consolidated Statements of Stockholders' Equity -- Years Ended December 31, 1995,
1994 and 1993 19
Consolidated Statements of Cash Flows -- Years Ended December 31, 1995, 1994
and 1993 20
Notes to Consolidated Financial Statements 21-32
Report of Ernst & Young LLP, Independent Auditors 33
Financial statement schedules of the Registrant and consolidated subsidiaries
not included in the Annual Report but filed herewith:
Consolidated Financial Statement Schedules --
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schedule
- --------------------------------------------------------------------------------
<S> <C>
Summary of Investments-Other than Investments in Related Parties I
Parent Company Condensed Financial Statements II
Supplementary Insurance Information III
Reinsurance IV
Valuation and Qualifying Accounts V
Schedule VI is omitted as it is immaterial
</TABLE>
(a)(3). Exhibits
(a) Second Restated Certificate of Incorporation of the Registrant --
incorporated by reference to Exhibit 3(a) to the Registrant's Annual
Report to the Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1991 (the "1991 Form 10-K").
(b) Certificate of Amendment of the Registrant's Second Restated Certificate
of Incorporation--incorporated by reference to Exhibit 3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1994 (the "First Quarter 1994 Form 10-Q").
(c) Bylaws of the Registrant -- incorporated by reference to Exhibit (d) to
the Registrant's Annual Report to the Securities and Exchange Commission
on Form 10-K for the year ended December 31, 1982 (the "1982 Form
10-K").
12
<PAGE>
(d) Indenture dated September 15, 1992 between the Registrant and
Continental Bank Corporation (now known as Bank of America Illinois), as
Trustee -- incorporated by reference to Exhibit 4(a) to the Registrant's
Current Report on Form 8-K dated September 23, 1992.
(e) Resolutions establishing terms of 6.875% Notes Due 1999 and 7.40% Notes
Due 2002 -- incorporated by reference to Exhibit 4(d) to the
Registrant's Annual Report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1992 (the "1992 Form 10-K").
(f) Resolutions establishing the terms of 6.70% Notes Due 2003 and 6.30%
Notes Due 2004 incorporated by reference to Exhibits 4(c) and 4(d) of
the Registrant's Annual Report to the Securities and Exchange Commission
on Form 10-K for the year ended December 31, 1993 (the "1993 Form
10-K").
(g) Certificate of Designation for the Registrant's 8% Cumulative Perpetual
Preferred Stock, $1.00 par value -- incorporated by reference to Exhibit
4(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1992 (the "Third Quarter 1992 Form 10-Q").
(h) Certificate of Designation for the Registrant's 6 1/4% Cumulative
Convertible Exchangeable Preferred Stock, $1.00 par value --
incorporated by reference to Exhibit 4(b) to the Third Quarter 1992 Form
10-Q.
(i) Certificate of Designation for the Registrant's Series C Cumulative
Preferred Stock -- incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K dated February 9, 1994.
(j) Registration Rights Agreement dated November 2, 1992 by and between the
Registrant and Frank B. Hall & Co. Inc. -- incorporated by reference to
Exhibit 4(c) to the Third Quarter 1992 Form 10-Q.
(k) Registration rights agreement by and among the Registrant and certain
affiliates of Ryan Insurance Group, Inc. (including Patrick G. Ryan and
Andrew J. McKenna) -- incorporated by reference to Exhibit (f) to the
1982 Form 10-K.
(l) Deferred Compensation Agreement by and among the Registrant and
Registrant's directors who are not salaried employees of Registrant or
Registrant's affiliates -- incorporated by reference to Exhibit 10(i) to
the Registrant's Annual Report to the Securities and Exchange Commission
on Form 10-K for the year ended December 31, 1987 (the "1987 Form
10-K").
(m) Amendment and Waiver Agreement dated as of November 4, 1991 among the
Registrant and each of Patrick G. Ryan, Shirley Ryan, Ryan Enterprises
Corporation and Harvey N. Medvin -- incorporated by reference to Exhibit
10(j) to the 1991 Form 10-K.
(n) Statement regarding Computation of Per Share Earnings.
(o) Statement regarding Computation of Ratio of Earnings to Fixed Charges.
(p) Statement regarding Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
(q) Aon Corporation 1994 Amended and Restated Outside Director Stock Award
Plan -- incorporated by reference to Exhibit 10(b) to the First Quarter
1994 Form 10-Q.
(r) Annual Report to Stockholders of the Registrant for the year ended
December 31, 1995 (for information, and not to be deemed filed, except
for those portions specifically incorporated by reference herein).
13
<PAGE>
(s) List of subsidiaries of the Registrant.
(t) Consent of Ernst & Young LLP to the incorporation by reference into
Aon's Annual Report on Form 10-K of its report included in the 1995
Annual Report to Stockholders and into Aon's Registration Statement Nos.
2-79114, 2-82791, 33-27984, 33-42575, 33-57562, and 33-59037.
(u) Annual Report to the Securities and Exchange Commission on Form 11-K for
the Aon Savings Plan for the year ended December 31, 1995 -- to be filed
by amendment as provided in Rule 15d-21(b).
(v) Executive Compensation Plans and Arrangements:
(A) Aon Stock Option Plan -- incorporated by reference to Exhibit 10(a)
to the Registrant's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1990 (the
"1990 Form 10-K").
(B) First Amendment to Aon Stock Option Plan -- incorporated by
reference to Exhibit 10(b) to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994 (the "Second Quarter 1994
Form 10-Q").
(C) Second Amendment to Aon Stock Option Plan -- incorporated by
reference to Exhibit 10(c) to the Second Quarter 1994 Form 10-Q.
(D) 1994 Restatement of Aon Savings Plan -- incorporated by reference to
Exhibit 10(f) of the 1994 Form 10-K.
(E) 1994 Restatement of Aon Employee Stock Ownership Plan --
incorporated by reference to Exhibit 10(g) of the 1994 Form 10-K.
(F) Ryan Insurance Group, Inc. Stock Option Plan together with Stock
Option Assumption Agreement providing for amendment of the plan --
incorporated by reference to Exhibit 4(b) to Registration Statement
No. 2-79114 on Form S-8.
(G) Aon Stock Award Plan, as amended -- incorporated by reference to
Exhibit 10(a) to the First Quarter 1994 Form 10-Q.
(H) First Amendment to the Aon Stock Award Plan -- incorporated by
reference to Exhibit 10(b) to the Second Quarter 1994 Form 10-Q.
(I) Second Amendment to Aon Stock Award Plan -- incorporated by
reference to Exhibit 10(d) to the Second Quarter 1994 Form 10-Q.
(J) 1994 Restatement of Aon Pension Plan -- incorporated by reference to
Exhibit 10(h) of the 1994 Form 10-K.
(K) Aon Corporation 1995 Senior Officer Incentive Compensation Plan.
(L) Aon Deferred Compensation Plan and First Amendment to the Aon
Deferred Compensation Plan.
(w) Asset Purchase Agreement dated July 24, 1992 between the Registrant and
Frank B. Hall & Co. Inc. -- incorporated by reference to Exhibit 10(c)
to the Registrant's Quarterly Report on Form 10-Q for the period ended
June 30, 1992.
14
<PAGE>
(x) Stock Purchase Agreement by and among the Registrant, Combined Insurance
Company of America, Union Fidelity Life Insurance Company and General
Electric Capital Corporation dated as of November 11, 1995.
(y) Stock Purchase Agreement by and among the Registrant; Combined Insurance
Company of America; The Life Insurance Company of Virginia; Forth
Financial Resources, Ltd.; Newco Properties, Inc.; and General Electric
Capital Corporation dated as of December 22, 1995.
(b) Reports on Form 8-K.
The Registrant filed no Current Reports on Form 8-K during the last
quarter of the Registrant's year ended December 31, 1995.
15
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 29TH DAY OF
MARCH, 1996.
Aon Corporation
By /s/PATRICK G. RYAN
--------------------------------
Patrick G. Ryan, Chairman, President
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/PATRICK G. RYAN Chairman, President, Chief March 29, 1996
- ----------------------------- Executive Officer and Director
Patrick G. Ryan (Principal Executive Officer)
/s/DANIEL T. CARROLL Director March 29, 1996
- -----------------------------
Daniel T. Carroll
/s/FRANKLIN A. COLE Director March 29, 1996
- -----------------------------
Franklin A. Cole
/s/EDGAR D. JANNOTTA Director March 29, 1996
----------------------------
Edgar D. Jannotta
/s/PERRY J. LEWIS Director March 29, 1996
- -----------------------------
Perry J. Lewis
/s/JOAN D. MANLEY Director March 29, 1996
- -----------------------------
Joan D. Manley
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
/s/ANDREW J. MCKENNA Director March 29, 1996
----------------------------
Andrew J. McKenna
/s/NEWTON N. MINOW Director March 29, 1996
- -----------------------------
Newton N. Minow
/s/PEER PEDERSEN Director March 29, 1996
- -----------------------------
Peer Pedersen
/s/DONALD S. PERKINS Director March 29, 1996
- -----------------------------
Donald S. Perkins
/s/JOHN W. ROGERS, JR. Director March 29, 1996
- -----------------------------
John W. Rogers, Jr.
/s/GEORGE A. SCHAEFER Director March 29, 1996
- -----------------------------
George A. Schaefer
/s/RAYMOND I. SKILLING Director March 29, 1996
- -----------------------------
Raymond I. Skilling
/s/FRED L. TURNER Director March 29, 1996
- -----------------------------
Fred L. Turner
/s/ARNOLD R. WEBER Director March 29, 1996
- -----------------------------
Arnold R. Weber
/s/HARVEY N. MEDVIN Executive Vice President, March 29, 1996
- ----------------------------- Chief Financial Officer
Harvey N. Medvin and Treasurer
(Principal Financial and
Accounting Officer)
</TABLE>
17
<PAGE>
SCHEDULE I
Aon Corporation and Subsidiaries
CONSOLIDATED SUMMARY OF INVESTMENTS - OTHER
THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Amount shown
in Statement
(millions) Amortized Fair of Financial
Cost Value Position
--------- ------ -------------
<S> <C> <C> <C>
Fixed Maturities - available for sale:
U.S. government and agencies............. $ 150.8 $ 155.1 $ 155.1
States and political subdivisions........ 443.9 474.7 474.7
Debt securities of foreign governments
not classified as loans................. 798.6 831.7 831.7
Corporate securities.................... 3,246.8 3,289.3 3,289.3
Public utilities........................ 799.3 802.9 802.9
Mortgage-backed securities.............. 2,033.1 2,034.9 2,034.9
Other fixed maturities.................. 100.1 98.5 98.5
-------- -------- --------
TOTAL FIXED MATURITIES AVAILABLE
FOR SALE......................... 7,572.6 7,687.1 7,687.1
-------- -------- --------
Equity securities - available for sale:
Common stocks:
Banks, trusts, and insurance companies... 76.8 108.3 108.3
Industrial, miscellaneous, and all other. 152.4 191.6 191.6
Nonredeemable preferred stocks........... 698.8 706.4 706.4
-------- -------- --------
TOTAL EQUITY SECURITIES............... 928.0 $1,006.3 1,006.3
-------- -------- --------
Mortgage loans on real estate.............. 657.6 * 632.0 *
Real estate - net of depreciation.......... 36.5 36.5
Policy loans............................... 226.3 226.3
Other long-term investments................ 117.8 * 112.6 *
Short-term investments..................... 938.3 938.3
--------- ---------
TOTAL INVESTMENTS................ $10,477.1 $10,639.1
========= =========
</TABLE>
* The fair value for fixed maturity and equity securities relating to the
discontinued operations are based on the underlying purchase agreements.
Differences between amortized costs and amounts shown in Statements of
Financial Position for investments other than fixed maturity and equity
securities result from certain valuation allowances.
18
<PAGE>
SCHEDULE II
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
As of December 31,
------------------
(millions) 1995 1994
-------- --------
<S> <C> <C>
ASSETS
Investments in subsidiaries ............. $3,617.2 $3,024.7
Notes receivable - subsidiaries ......... 468.2 468.3
Other assets............................. 8.7 8.6
-------- --------
Total Assets...................... $4,094.1 $3,501.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Short-term borrowings ................... $ 352.7 $ 243.9
6.3% long-term debt securities .......... 99.7 99.7
7.4% long-term debt securities .......... 99.8 99.8
6.875% long-term debt securities ........ 99.8 99.8
6.7% long-term debt securities .......... 149.7 149.6
Notes payable - other.................... 15.7 22.0
Notes payable - subsidiaries ............ 457.0 372.7
Debt guarantee of employee stock
ownership plan ....................... 56.8 65.5
Accrued expenses and other liabilities... 39.2 41.2
-------- --------
Total Liabilities ................ 1,370.4 1,194.2
-------- --------
Redeemable Preferred Stock............... 50.0 50.0
STOCKHOLDERS' EQUITY
Preferred stock ......................... 8.1 11.1
Common stock ............................ 111.4 110.6
Paid-in additional capital............... 431.8 485.2
Net unrealized investment gains (losses)
of subsidiaries....................... 123.1 (142.8)
Net foreign exchange gains (losses) of
subsidiaries.......................... 1.8 (19.7)
Retained earnings........................ 2,212.1 1,998.1
Less treasury stock at cost.............. (97.3) (72.9)
Less deferred compensation............... (117.3) (112.2)
-------- --------
Total Stockholders' Equity ........ 2,673.7 2,257.4
-------- --------
Total Liabilities and Stockholders'
Equity......................... $4,094.1 $3,501.6
======== ========
</TABLE>
See notes to condensed financial statements.
19
<PAGE>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31
--------------------------
1995 1994 1993
------- ------ ------
(millions)
<S> <C> <C> <C>
REVENUE
Dividends from subsidiaries ....... $199.3 $166.2 $248.7
Other investment income............ 34.3 34.8 10.8
Realized investment losses......... (4.1) 0.0 (2.1)
------ ------ ------
Total Revenue............. 229.5 201.0 257.4
EXPENSES
Operating and administrative (1)... 3.0 2.3 4.7
Interest - subsidiaries............ 20.0 12.2 5.2
Interest - other................... 53.6 45.1 41.3
------ ------ ------
Total Expenses............ 76.6 59.6 51.2
------ ------ ------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES AND
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES.............. 152.9 141.4 206.2
Equity in undistributed income of
subsidiaries.......................... 249.9 218.6 117.6
------ ------ ------
NET INCOME................ $402.8 $360.0 $323.8
====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
See notes to condensed financial statements
(1) Interest expense - other allocated to discontinued operations was $18
million, $14 million and $13 million for the years ended December 31, 1995,
1994 and 1993, respectively.
20
<PAGE>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31
---------------------------
1995 1994 1993
------- ------- -------
(millions)
<S> <C> <C> <C>
Cash Flows From Operating Activities.............. $ 164.5 $ 164.1 $ 186.3
Cash Flows From Investing Activities:
Investments in subsidiaries.................... (62.6) (31.3) (178.9)
Notes receivable from subsidiaries............. 1.5 (15.5) 34.8
------- ------- -------
Cash Used by Investing Activities......... (61.1) (46.8) (144.1)
------- ------- -------
Cash Flows From Financing Activities:
Treasury stock transactions - net.............. (46.4) (15.4) 11.4
Issuance of short-term borrowings - net........ 108.8 75.3 53.5
Issuance of long-term debt..................... 73.6 174.5 154.5
Repayment of long-term debt.................... 0.0 (125.0) (100.0)
Retirement of preferred stock.................. (75.4) (58.3) (7.3)
Cash dividends to stockholders................. (171.3) (162.3) (151.0)
------- ------- -------
Cash Used by Financing Activities......... (110.7) (111.2) (38.9)
------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents.. (7.3) 6.1 3.3
Cash and Cash Equivalents at Beginning of Year.... 9.4 3.3 --
------- ------- -------
Cash and Cash Equivalents at End of Year.......... $ 2.1 $ 9.4 $ 3.3
------- ------- -------
</TABLE>
See notes to condensed financial statements.
21
<PAGE>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) See notes to consolidated financial statements incorporated by reference
from the Annual Report.
(2) Payments made as assessments by state guaranty funds to cover losses to
policyholders of insurance companies under regulatory supervision for the
years ended December 31, 1995, 1994 and 1993 were $5 million, $6.9 million
and $5.8 million, respectively. In addition, Aon's reserve for the
recognition of probable assessments for known industry insolvencies was $7
million and $9.9 million at December 31, 1995 and 1994, respectively.
(3) Generally, the net assets of Aon's insurance subsidiaries available for
transfer to the parent company are limited to the amounts that the insurance
subsidiaries' statutory net assets exceed minimum statutory capital
requirements; however, payments of the amounts as dividends in excess of
$297 million may be subject to approval by regulatory authorities.
22
<PAGE>
Aon Corporation
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(4) Below is a reconciliation of the combined statutory stockholders'
equity and net income of Aon's insurance subsidiaries to the
consolidated stockholders' equity and net income on a basis in
accordance with generally accepted accounting principles (GAAP):
(millions)
<TABLE>
<CAPTION>
As of December 31, 1995 As of December 31, 1994
-------------------------- --------------------------
Life/A&H P&C Combined Life/A&H P&C Combined
-------- --- -------- -------- --- --------
<S> <C> <C> <C> <C> <C> <C>
Statutory Stockholders' Equity $766.2 $296.6 $1,062.8 $714.1 $284.0 $998.1
Insurance business related adjustments:
Deferred policy acquisition costs 1,177.9 83.6 1,261.5 1,120.3 61.3 1,181.6
Cost of insurance purchased 87.2 - 87.2 109.1 - 109.1
Excess of cost over net assets purchased 143.4 - 143.4 148.4 - 148.4
Policy liabilities and reinsurance assets 100.3 - 100.3 131.3 - 131.3
Deferred income taxes (301.8) 32.1 (269.7) (209.1) 42.5 (166.6)
Investment valuation reserves 176.3 - 176.3 171.1 - 171.1
Non Admitted Assets 79.6 5.1 84.6 70.5 4.7 75.1
Unrealized capital gains (losses)
(FAS 115) 74.8 40.2 115.0 (168.6) 10.6 (158.0)
-------------------------- --------------------------
Subtotal $2,303.9 $457.6 2,761.4 $2,087.1 $403.1 2,490.1
================= =================
Investment in other operations and other 855.8 534.6
-------- --------
Investments in subsidiaries 3,617.2 3,024.7
Elimination of parent company contributions (943.5) (767.3)
-------- --------
Consolidated Stockholders' Equity $2,673.7 $2,257.4
======== ========
</TABLE>
<TABLE>
<CAPTION> Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
--------------------------- -------------------------- --------------------------
Life/A&H P&C Combined Life/A&H P&C Combined Life/A&H P&C Combined
--------- --- -------- -------- --- -------- -------- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statutory Net Income * $196.7 $57.5 $254.2 $271.9 $34.1 $306.0 $255.0 $62.1 $317.1
Insurance business related adjustments:
Deferred policy acquisition costs 325.6 84.7 410.3 337.7 76.8 414.5 269.6 56.3 325.9
Amortization of deferred policy
acquisition costs (240.3) (62.4) (302.7) (227.7) (48.5) (276.2) (204.1) (53.6) (257.7)
Amortization of cost of insurance
purchased (10.4) - (10.4) (13.9) - (13.9) (15.5) - (15.5)
Amortization of excess of cost over net
assets purchased (4.9) - (4.9) (4.8) - (4.8) (5.0) - (5.0)
Policy liabilities and reinsurance assets (31.0) - (31.0) 19.2 - 19.2 10.5 - 10.5
Deferred income taxes (17.1) (7.8) (24.9) (64.7) (6.9) (71.6) 26.3 2.7 29.0
Change in valuation reserves 5.6 - 5.6 26.6 - 26.6 (39.2) - (39.2)
Deferred capital losses 34.3 5.9 40.2 - - - - - -
Realized (gain)/loss on transfer of
subsidiary 7.0 - 7.0 (89.4) - (89.4) (3.4) - (3.4)
------------------------ ------------------------ ------------------------
Subtotal $265.5 $77.9 343.4 $254.9 $55.5 310.4 $294.2 $67.5 361.7
=============== =============== ===============
Investment in other operations and other 59.4 49.6 (37.9)
------ ------ ------
Consolidated Net Income - GAAP Basis $402.8 $360.0 $323.8
====== ====== ======
* net of intercompany dividends
</TABLE>
23
<PAGE>
SCHEDULE III
Aon Corporation and Subsidiaries
SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
Future policy Unearned
Deferred benefits, premiums
policy losses, claims and other Net Commissions,
acquisition and loss policyholders' Premium investment fees
costs (2) expenses funds revenue income (3) & other
----------- -------------- ------------ ------- ---------- -----------
(millions)
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1995
Insurance
brokerage
and consulting
services................. $ - $ - $ - $ - $ 73.1 $1,628.2
Insurance
underwriting............. 1,348.7 2,446.0 7,110.4 1,426.5 168.5 44.9
Corporate and
other.................... - - - - 87.8 36.7
-------- -------- -------- -------- ------ --------
Total.................... $1,348.7 $2,446.0 $7,110.4 $1,426.5 $329.4 $1,709.8
======== ======== ======== ======== ====== ========
Year ended
December 31, 1994 (1)
Insurance
brokerage
and consulting
services................. $ - $ - $ - $ - $ 46.6 $1,375.5
Insurance
underwriting............. 1,290.6 2,378.7 6,931.7 1,322.3 142.3 44.9
Corporate and
other.................... - - - - 68.2 41.4
-------- -------- -------- -------- ------ --------
Total.................... $1,290.6 $2,378.7 $6,931.7 $1,322.3 $257.1 $1,461.8
======== ======== ======== ======== ====== ========
Year ended
December 31, 1993 (1)
Insurance
brokerage
and consulting
services................. $ - $ - $ - $ - $ 37.5 $1,177.5
Insurance
Underwriting............. 1,100.1 2,326.3 6,450.0 1,277.4 145.5 41.5
Corporate and
other.................... - - - - 44.2 47.2
-------- -------- -------- -------- ------ --------
Total.................... $1,100.1 $2,326.3 $6,450.0 $1,277.4 $227.2 $1,266.2
======== ======== ======== ======== ====== ========
Benefits, Amortization
claims, of deferred
losses and policy Other
settlement acquisition operating Premiums
expenses costs (2) expenses written (4)
---------- ------------ --------- -----------
(millions)
<S> <C> <C> <C> <C>
Year ended
December 31, 1995
Insurance
brokerage
and consulting
services................. $ - $ - $1,496.6 $ -
Insurance
underwriting............. 698.5 207.5 487.5 1,596.2
Corporate and
other.................... - - 117.6 -
------ ------ -------- --------
Total.................... $698.5 $207.5 $2,101.7 $1,596.2
====== ====== ======== ========
Year ended
December 31, 1994 (1)
Insurance
brokerage
and consulting
services................. $ - $ - $1,263.3 $ -
Insurance
underwriting............. 626.2 189.7 458.3 1,478.2
Corporate and
other.................... - - 106.7 -
------ ------ -------- --------
Total.................... $626.2 $189.7 $1,828.3 $1,478.2
====== ====== ======== ========
Year ended
December 31, 1993 (1)
Insurance
brokerage
and consulting
services................. $ - $ - $1,086.9 $ -
Insurance
Underwriting............. 622.2 179.1 451.1 1,317.2
Corporate and
other.................... - - 99.9 -
------ ------ -------- --------
Total.................... $622.2 $179.1 $1,637.9 $1,317.2
====== ====== ======== ========
</TABLE>
(1) Income statement data has been reclassified to reflect continuing
operations.
(2) Includes cost of insurance purchased.
(3) The above results reflect allocations of investment income and certain
expense elements considered reasonable under the circumstances.
(4) Net of reinsurance ceded.
24
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IV
Aon Corporation and Subsidiaries
REINSURANCE
Year Ended December 31, 1995
---------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance in force (1)......... $80,176.6 $27,936.6 $ 991.4 $53,231.4 1.9%
========= ========= ======== ========= ===
Premiums and policy fees
Life Insurance..................... $ 251.9 $ 83.9 $ 4.0 $ 172.0 2.3%
A&H Insurance...................... 1,032.9 98.5 5.1 939.5 0.5
Specialty Property
& Casualty (2).................. 375.0 133.9 73.9 315.0 23.5
--------- --------- -------- --------- ----
Total premiums and policy fees..... $ 1,659.8 $ 316.3 $ 83.0 $ 1,426.5 5.8%
========= ========= ======== ========= ====
Year Ended December 31, 1994
---------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
--------- --------- ---------- --------- ----------
Life insurance in force (1)......... $74,047.9 $25,109.7 $1,173.9 $50,112.1 2.3%
========= ========= ======== ========= ====
Premiums and policy fees
Life Insurance..................... $ 245.0 $ 81.7 $ 5.1 $ 168.4 3.0%
A&H Insurance...................... 996.2 98.6 6.4 904.0 0.7
Specialty Property
& Casualty (2).................. 309.9 139.1 79.1 249.9 31.7
--------- --------- -------- --------- ----
Total premiums and policy fees(3).. $ 1,551.1 $ 319.4 $ 90.6 $ 1,322.3 6.9%
========= ========= ======== ========= ====
Year Ended December 31, 1993
---------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
--------- --------- ---------- --------- ----------
Life insurance in force (1)......... $70,936.8 $24,800.0 $1,223.9 $47,360.7 2.6%
========= ========= ======== ========= ====
Premiums and policy fees
Life Insurance..................... $ 228.7 $ 74.7 $ 4.8 $ 158.8 3.0%
A&H Insurance...................... 942.2 90.6 6.2 857.8 0.7
Specialty Property
& Casualty (2).................. 281.6 130.7 109.9 260.8 42.1
--------- --------- -------- --------- ----
Total premiums and policy fees(3)... $ 1,452.5 $ 296.0 $ 120.9 $ 1,277.4 9.5%
========= ========= ======== ========= ====
</TABLE>
(1) Includes credit life insurance.
(2) Includes mechanical repair insurance sold through automobile dealers,
appliance warranty insurance and property liability insurance.
(3) Income statement data has been reclassified to reflect continuing
operations.
25
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
Aon CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1995, 1994 and 1993
(millions) Additions
------------------------
Charged/
Balance at Charged to (credited) Balance
beginning cost and to other Deductions at end
Description of year expenses accounts (1) of year
- --------------------------------------------------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
- ----------------------------
Reserve for losses (2)
(deducted from mortgage loans on real estate) $29.7 $ - $ (4.1) $ - $25.6
Reserve for losses (2)
(deducted from other long-term investments) 6.7 - 1.0 (2.5) 5.2
Allowance for doubtful accounts (3)
(deducted from insurance brokerage and consulting
services receivables) 45.2 6.0 - (3.8) 47.4
Allowance for doubtful accounts (3)
(deducted from premiums and other) 3.2 2.0 - (1.3) 3.9
Year ended December 31, 1994
- ----------------------------
Reserve for losses (2)
(deducted from mortgage loans on real estate) $42.0 $ - $(12.3) $ - $29.7
Reserve for losses
(deducted from long-term bonds) 11.7 - - (11.7) -
Reserve for losses (2)
(deducted from other long-term investments) 9.3 - (2.6) - 6.7
Allowance for doubtful accounts (3)
(deducted from insurance brokerage and consulting
services receivables) 41.2 7.0 1.3 (4.3) 45.2
Allowance for doubtful accounts (3)
(deducted from premiums and other) 3.1 1.4 - (1.3) 3.2
Year ended December 31, 1993
- ----------------------------
Reserve for losses (2)
(deducted from mortgage loans on real estate) $23.8 $ - $ 25.7 $ (7.5) $42.0
Reserve for losses (2)
(deducted from long-term bonds) - - 11.7 - 11.7
Reserve for losses (2)
(deducted from other long-term investments) - - 21.0 (11.7) 9.3
Allowance for doubtful accounts (3)
(deducted from insurance brokerage and consulting
services receivables) 34.6 2.3 6.4 (2.1) 41.2
Allowance for doubtful accounts (3)
(deducted from premiums and other) 5.0 1.4 - (3.3) 3.1
(1) Amounts deemed to be uncollectible.
(2) Amounts shown in additions charged/(credited) to other accounts represent realized investment (gains)/losses.
(3) Amounts shown in additions charged to other accounts represent reserves related to acquired business.
</TABLE>
26
<PAGE>
Cross Reference Sheet, Pursuant
to General Instruction G(4)
<TABLE>
<CAPTION>
ITEM IN FORM 10-K INCORPORATED BY REFERENCE TO
- ----------------- ----------------------------
<S> <C>
Part I
Item 1. Business Four inside cover pages of the Annual
Report to Stockholders of the
Registrant for the Year 1995 ("Annual
Report") and pages 6 and 7.
Item 3. Legal Proceedings Annual Report page 32 (note 12 of
Notes to Consolidated Financial
Statements).
Part II
Item 5. Market for the Annual Report pages 27 and 28 (note 8
Registrant's Common Stock and of Notes to Consolidated Financial
Related Security Holder Matters Statements) and page 35 ("Dividends
paid per share" and "Price range").
Item 6. Selected Financial Data Annual Report page 34.
Item 7. Management's Discussion and Annual Report pages 9 through 15.
Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements and Annual Report pages 16 through 33 and
Supplementary Data 35.
Part III
Item 10. Directors and Executive Notice of Annual Meeting of Holders
Officers of the Registrant of Common Stock and Series C
Preferred Stock and Proxy Statement
For Annual Meeting of Stockholders on
April 19, 1996 of the Registrant
("Proxy Statement") pages 3 and 7.
Item 11. Executive Compensation Proxy Statement pages 13 through 15.
Item 12. Security Ownership of Certain Proxy Statement pages 2, 8 and 9.
Beneficial Owners and Management
Item 13. Certain Relationships and Proxy Statement page 20
Related Transactions ("Transactions With Management").
Part IV
Item 14. Exhibits, Financial Statement Annual Report pages 16 through 33.
Schedules, and Reports on
Form 8-K
</TABLE>
27
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Page Number of
Regulation Sequentially
S-K Item 601 Numbered Copy
- ------------ -------------
<S> <C>
(3) Articles of incorporation and bylaws:
(a) Second Restated Certificate of Incorporation of the Registrant --
incorporated by reference to Exhibit 3(a) to the 1991 Form 10-K.
(b) Certificate of Amendment of the Registrant's Second Restated
Certificate of Incorporation -- incorporated by reference to
Exhibit 3 to the First Quarter 1994 Form 10-Q.
(c) Bylaws of the Registrant -- incorporated by reference to Exhibit
(d) to the 1982 Form 10-K.
(d) Certificate of Designation for the Registrant's 8% Cumulative
Perpetual Preferred Stock, $1.00 par value -- incorporated by
reference to Exhibit 4(a) to the Third Quarter 1992 Form 10-Q.
(e) Certificate of Designation for the Registrant's 6 1/4% Cumulative
Convertible Exchangeable Preferred Stock, $1.00 par value --
incorporated by reference to Exhibit 4(b) to the Third Quarter
1992 Form 10-Q.
(f) Certificate of Designation for the Registrant's Series C
Cumulative Preferred Stock -- incorporated by reference to Exhibit
4.1 to the Registrant's Current Report on Form 8-K dated February
9, 1994.
(4) Instruments defining the rights of security holders, including
indentures:
(a) Indenture dated September 15, 1992 between the Registrant and
Continental Bank Corporation (now known as Bank of America
Illinois), as Trustee -- incorporated by reference to Exhibit 4(a)
of the Registrant's Current Report on Form 8-K dated September 23,
1992.
(b) Resolutions establishing terms of 6.875% Notes Due 1999 and 7.40%
Notes Due 2002 -- incorporated by reference to Exhibit 4(d) to the
1992 Form 10-K.
(c) Resolutions establishing the terms of 6.70% Notes Due 2003
incorporated by reference to Exhibit 4(c) to the 1993 Form 10-K.
(d) Resolutions establishing the terms of 6.30% Notes Due 2004
incorporated by reference to Exhibit 4(d) to the 1993 Form 10-K.
(10) Material Contracts:
(a) Aon Stock Option Plan -- incorporated by reference to Exhibit
10(a) to the 1990 Form 10-K.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
<S> <C>
(b) First Amendment to Aon Stock Option Plan -- incorporated by
reference to the Exhibit 10(a) to the Second Quarter 1994
Form 10-Q.
(c) Second Amendment to Aon Stock Option Plan -- incorporated by
reference to Exhibit 10(c) to the Second Quarter 1994 Form 10-Q.
(d) Ryan Insurance Group, Inc. Stock Option Plan together with Stock
Option Assumption Agreement providing for amendment of the plan
-- incorporated by reference to Exhibit 4(b) to the Registration
Statement No. 2-79114 on Form S-8.
(e) Registration Rights Agreement by and among the Registrant and
certain affiliates of Ryan Insurance Group, Inc. (including
Patrick G. Ryan and Andrew J. McKenna) -- incorporated by
reference to Exhibit (f) to the 1982 Form 10-K.
(f) 1994 Restatement of Aon Savings Plan -- incorporated by reference
to Exhibit 10(f) of the 1994 Form 10-K.
(g) 1994 Restatement of Aon Employee Stock Ownership Plan --
incorporated by reference to Exhibit 10(g) of the 1994 Form 10-K.
(h) 1994 Restatement of Aon Pension Plan -- incorporated by reference
to Exhibit 10(h) of the 1994 Form 10-K.
(i) Deferred Compensation Agreement by and among Registrant and
Registrant's directors who are not salaried employees of
Registrant or Registrant's affiliates -- incorporated by reference
to Exhibit 10(i) to the 1987 Form 10-K.
(j) Aon Stock Award Plan, as amended -- incorporated by reference to
Exhibit 10(a) to the First Quarter 1994 Form 10-Q.
(k) Amendment and Waiver Agreement dated as of November 4, 1991 among
the Registrant and each of Patrick G. Ryan, Shirley Ryan, Ryan
Enterprises Corporation and Harvey N. Medvin -- incorporated by
reference to Exhibit 10(j) to the 1991 Form 10-K.
(l) Registration Rights Agreement dated November 2, 1992 by and
between the Registrant and Frank B. Hall & Co. Inc. --
incorporated by reference to exhibit 4(c) to the Third Quarter
1992 Form 10-Q.
(m) Aon Corporation 1994 Amended and Restated Outside Director Stock
Award Plan -- incorporated by reference to Exhibit 10(b) to the
First Quarter 1994 Form 10-Q.
(n) First Amendment to the Aon Stock Award Plan--incorporated by
reference to Exhibit 10(b) to the Second Quarter 1994 Form 10-Q.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
<S> <C>
(o) Second Amendment to Aon Stock Award Plan--incorporated by
reference to Exhibit 10(d) to the Second Quarter 1994 Form 10-Q.
(p) Aon Corporation 1995 Senior Officer Incentive Compensation Plan.
(q) Aon Deferred Compensation Plan and First Amendment to the Aon
Deferred Compensation Plan.
(r) Asset Purchase Agreement dated July 24, 1992 between the
Registrant and Frank B. Hall & Co. Inc. -- incorporated by
reference to Exhibit 10(c) to the Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1992.
(s) Stock Purchase Agreement by and among the Registrant, Combined
Insurance Company of America, Union Fidelity Life Insurance
Company and General Electric Capital Corporation dated as of
November 11, 1995.
(t) Stock Purchase Agreement by and among the Registrant; Combined
Insurance Company of America; The Life Insurance Company of
Virginia; Forth Financial Resources, Ltd.; Newco Properties, Inc.;
and General Electric Capital Corporation dated as of December 22,
1995.
(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.
(13) Annual Report to Stockholders of the Registrant for the year ended
December 31, 1995 (for information, and not to be deemed filed, except
for those portions specifically incorporated by reference herein).
(21) List of subsidiaries of the Registrant.
(23) Consent of Ernst & Young LLP to the incorporation by reference into Aon's
Annual Report on Form 10-K of their report included in the 1995 Annual
Report to Stockholders and into Aon's Registration Statement Nos.
2-79114, 2-82791, 33-27984, 33-42575, 33-57562, and 33-59037.
(99) Annual Report to the Securities and Exchange Commission on Form 11-K for
the Aon Savings Plan for the year ended December 31, 1995 -- to be filed
by amendment as provided in Rule 15d-21(b).
</TABLE>
30
<PAGE>
EXHIBIT 10.P
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 more business criteria.
<PAGE>
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.
<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.
<PAGE>
EXHIBIT 10.Q
---------------------
Aon
DEFERRED COMPENSATION
PLAN
---------------------
<PAGE>
AON DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
SECTION 1 DEFINITION OF TERMS
- --------- -------------------
<C> <S> <C>
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
</TABLE>
<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 combined voting power of the
2
<PAGE>
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.
1.11 "Employee" shall mean any United States staff employee of the
Company and its Subsidiaries.
3
<PAGE>
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 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
6
<PAGE>
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 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
7
<PAGE>
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 Participant or Beneficiary. Such suspension or
withdrawal may not exceed the amount necessary to meet the
emergency.
8
<PAGE>
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.
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
9
<PAGE>
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.
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.
10
<PAGE>
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.
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.
11
<PAGE>
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 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
12
<PAGE>
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 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
13
<PAGE>
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.
14
<PAGE>
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/ Abdul L. Regala
-----------------------------
Abdul L. Regala
<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:
<PAGE>
<TABLE>
<CAPTION>
============================================
Completed Years of Percent Vested
Continuous --------------
Employment
----------
============================================
<S> <C>
Less than 3 years 0%
--------------------------------------------
3 20%
--------------------------------------------
4 30%
--------------------------------------------
5 40%
--------------------------------------------
6 50%
--------------------------------------------
7 60%
--------------------------------------------
8 70%
--------------------------------------------
9 80%
--------------------------------------------
10 100%
============================================
</TABLE>
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.
<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 Dec., 1994.
Aon CORPORATION
/s/ Abdul L. Ragala
By:_________________________________
Executive Vice President
<PAGE>
EXHIBIT 10.S
EXECUTED COPY
________________________________________________________________________________
STOCK PURCHASE AGREEMENT
by and
among
Aon CORPORATION,
COMBINED INSURANCE COMPANY OF AMERICA,
UNION FIDELITY LIFE INSURANCE COMPANY
and
GENERAL ELECTRIC CAPITAL CORPORATION
Dated as of November 11, 1995
________________________________________________________________________________
Sale of All of the Outstanding Common Shares of
Union Fidelity Life Insurance Company
to General Electric Capital Corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. Definitions 1
2. Sale and Purchase of Shares.................................. 10
2.1 Sale of Shares......................................... 10
2.2 Purchase Price and Payment for Shares.................. 10
2.3 Delivery of Shares..................................... 10
2.4 Post-Closing Purchase Price Adjustment; Closing Balance
Sheets................................................. 10
3. Closing; Closing Date........................................ 14
4. Representations and Warranties of Parent and Seller.......... 14
4.1 Existence and Power.................................... 15
4.2 Authority; Execution and Delivery...................... 15
4.3 Consents and Approvals................................. 15
4.4 No Conflict............................................ 16
4.5 Capital Stock; Title................................... 16
4.6 Options or Other Rights................................ 17
4.7 Charter Documents and By-laws.......................... 17
4.8 Minute Books........................................... 17
4.9 GAAP and SAP Statements................................ 17
4.10 Taxes................................................. 19
4.11 Litigation............................................ 22
4.12 [Intentionally Omitted]................................ 23
4.13 Insurance............................................. 23
4.14 Employee Benefits..................................... 23
4.15 Brokers............................................... 24
5. Representations and Warranties of the Company................ 25
5.1 Corporate Authority.................................... 25
5.2 Consents and Approvals................................. 25
5.3 No Conflict............................................ 25
5.4 Minute Books........................................... 26
5.5 Compliance With Laws................................... 26
5.6 Insurance Licenses..................................... 26
5.7 Litigation............................................. 27
5.8 Contracts and Other Agreements......................... 27
5.9 Real Estate............................................ 29
5.10 Personal Property; Intellectual Property.............. 30
5.11 Operations of the Company............................. 30
5.12 [Intentionally Omitted]............................... 35
5.13 Labor Matters......................................... 35
5.14 No Undisclosed Liabilities............................ 35
6. Representations and Warranties of Buyer...................... 36
6.1 Existence and Power.................................... 36
6.2 Execution and Delivery................................. 36
6.3 Consents and Approvals................................. 36
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
6.4 No Conflict............................................. 37
6.5 Purchase Not for Distribution........................... 37
6.6 Financing............................................... 37
6.7 Litigation.............................................. 37
6.8 Brokers................................................. 38
7. Covenants and Agreements...................................... 38
7.1 Conduct of Business..................................... 38
7.2 Pre-Closing Maintenance of Insurance.................... 40
7.3 Litigation; Notice of Assessments; Requests for
Information............................................. 40
7.4 Access to Information; Confidentiality.................. 40
7.5 Approvals............................................... 42
7.6 Additional Financial Statements......................... 43
7.7 Further Assurances...................................... 43
7.8 Certain Employee Matters................................ 44
7.9 Settlement of Intercompany Accounts; Cancellation of
Intercompany and Other Agreements....................... 49
7.10 Actions to Address Certain Interrelationships.......... 50
7.11 Investments............................................ 50
7.12 Resignations of Directors.............................. 51
7.13 No Negotiations, Etc................................... 51
8. Conditions Precedent to the Obligation of Buyer............... 52
8.1 Representations and Warranties; Covenants and
Agreements.............................................. 52
8.2 Governmental Approvals; Illegality...................... 52
8.3 Third Party Consents.................................... 53
8.4 Hart-Scott-Rodino....................................... 53
8.5 Opinions of Counsel to Parent, Seller and the Company... 53
8.6 No Material Adverse Change.............................. 53
8.7 Consummation of Certain Transactions.................... 53
9. Conditions Precedent to the Obligations of Parent, Seller and
the Company................................................... 53
9.1 Representations and Warranties; Covenants and
Agreements.............................................. 54
9.2 Governmental Approvals; Illegality...................... 54
9.3 Third Party Consents.................................... 54
9.4 Hart-Scott-Rodino....................................... 55
9.5 Opinion of Counsel to Buyer............................. 55
9.6 Consummation of Certain Transactions.................... 55
10. Survival and Indemnification................................. 55
10.1 Survival of Representations and Warranties............. 55
10.2 Indemnification by Parent and Seller................... 55
10.3 Indemnification by Buyer............................... 56
10.4 Procedure.............................................. 56
10.5 Indemnification; Directors and Officers Insurance...... 58
11. Tax Matters.................................................. 58
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
11.1 Section 338 Election................................... 58
11.2 Tax Indemnification.................................... 60
11.3 Tax Related Adjustments................................ 67
11.4 Transfer Taxes......................................... 68
12. Termination................................................... 69
12.1 Termination and Abandonment............................ 69
12.2 Survival; Expenses..................................... 69
13. Miscellaneous................................................. 69
13.1 Public Announcements................................... 69
13.2 Notices................................................ 70
13.3 Entire Agreement....................................... 71
13.4 Waivers and Amendments; Noncontractual Remedies;
Preservation of Remedies............................... 71
13.5 Governing Law.......................................... 71
13.6 Binding Effect; Assignment Limited..................... 71
13.7 No Third-Party Beneficiaries........................... 72
13.8 Counterparts........................................... 72
13.9 Schedules.............................................. 72
13.10 Headings.............................................. 72
13.11 Remedies.............................................. 72
13.12 Invalidity of Provisions.............................. 72
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of November 11,
1995 by and among Aon Corporation, a Delaware corporation ("Parent"), Combined
Insurance Company of America, an Illinois corporation ("Seller"), Union Fidelity
Life Insurance Company, an Illinois corporation (the "Company"), and General
Electric Capital Corporation, a New York corporation ("Buyer").
RECITALS:
WHEREAS, Parent is the beneficial owner of all of the issued and
outstanding capital stock of Seller;
WHEREAS, Seller is the beneficial and record owner of 461,035 shares
(the "Shares") of the issued and outstanding common stock, $5.50 par value, of
the Company;
WHEREAS, the Shares constitute all of the issued and outstanding
capital stock of the Company;
WHEREAS, Seller desires to sell, and Buyer desires to purchase, the
Shares, upon the terms, subject to the conditions and for the consideration set
forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and in reliance upon the representations and
warranties contained herein, Parent, Seller, the Company and Buyer agree as
follows:
1. Definitions. (a) Except as the context shall otherwise require,
the following terms when used in this Agreement shall have the following
meanings:
"Adjusted Closing Balance Sheets" means the Adjusted Closing GAAP
Balance Sheet and the Adjusted Closing SAP Balance Sheet.
"Adjusted Closing GAAP Balance Sheet" means the Closing GAAP Balance
Sheet adjusted if and to the extent appropriate (i) to take into account all of
the transactions and other actions described in Exhibit A hereto and Section
7.10(b) hereof which have been effected on or prior to the Closing Date, (ii) to
take into account the valuation principles described in Section 2.4(i), and
(iii) to remove any accrual for Taxes (other than deferred Taxes).
"Adjusted Closing GAAP Capital" means the stockholders' equity as
reflected in the Adjusted Closing GAAP Balance Sheet.
"Adjusted Closing SAP Balance Sheet" means the Closing
<PAGE>
SAP Balance Sheet, adjusted if and to the extent appropriate (i) to take into
account all of the transactions and other actions described in Exhibit A hereto
and Section 7.10(b) hereof which have been effected on or prior to the Closing
Date, (ii) to take into account the valuation principles described in Section
2.4(i), and (iii) to remove any accrual for Taxes.
"Adjusted Closing SAP Capital" means the sum of (i) the Company's
capital and surplus as reflected in the Adjusted Closing SAP Balance Sheet, plus
(ii) the amount of AVR as of the Closing Date for the Company, all determined in
accordance with SAP as in effect on September 30, 1995.
"Affected Employees" means all current or former employees of the
Company, Erco Services, Inc. and Ryan Financial Services, Inc. as of the Closing
Date, including any such person who is on disability, layoff or leave of
absence, but excluding any former employee of the Company or any of its
Subsidiaries who subsequently became employed by Parent or any Subsidiary of
Parent other than the Company, Erco Services, Inc. and Ryan Financial Services,
Inc.
"Affiliate" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person. For purposes of this definition, "control" (including the
terms "controlling", "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or otherwise.
"Agreement" means this Stock Purchase Agreement, including the
Exhibits attached hereto, the Seller Disclosure Schedule and the Company
Disclosure Schedule.
"Annual SAP Statements" means, with respect to any Person, the annual
financial statements of such Person prepared in accordance with SAP, as filed
with or submitted to the Insurance Department on forms prescribed or permitted
by the Insurance Department.
"Auto Credit Business" means the business conducted by the Company and
its Subsidiaries of underwriting and distributing group credit life insurance
and group credit accident and health insurance to auto dealer-creditors, which
business shall be transferred to one or more Subsidiaries of Parent (other than
the Company and its Subsidiaries) as contemplated by Exhibit A hereto.
"AVR" means, with respect to any Person, the Asset Valuation Reserve
set forth in the balance sheet of such Person in accordance with SAP.
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"Benefit Arrangements" has the meaning set forth in Section 4.14(a).
"Business Day" means any day which is neither a Saturday nor a Sunday,
nor a day on which banking institutions in the City of New York shall be
permitted or required by law or executive order to be closed.
"Buyer" has the meaning set forth in the first paragraph hereof.
"Buyer Group Member" has the meaning set forth in Section 11.3(d).
"Closing" means the closing of the sale and purchase of the Shares
contemplated by this Agreement.
"Closing Adjustment Calculations" has the meaning set forth in Section
2.4(c).
"Closing GAAP Balance Sheet" means the audited balance sheet of the
Company and its consolidated subsidiaries, as of the Closing Date (following
consummation of the Closing), prepared in accordance with GAAP using the
Company's customary standards of practice used in preparing year-end financial
statements.
"Closing Purchase Price" has the meaning set forth in Section 2.2(a).
"Closing SAP Balance Sheet" means the audited balance sheet of the
Company and its consolidated subsidiaries, as of the Closing Date (following
consummation of the Closing) prepared in accordance with SAP using the Company's
customary standards of practice used in preparing year-end financial statements.
"Closing SAP RBC Amount" means an amount as of the Closing Date
(following consummation of the Closing) equal to 200% of the Company's company
action level risk based capital as defined by the risk based capital guidelines
issued by the NAIC based on the Adjusted Closing SAP Balance Sheet; provided,
however, that the Exhibit C Assets, the Exhibit D Assets, the Exhibit E Assets
and the GIC will be treated, for risk based capital purposes, as having the same
quality as the Exhibit C Assets as of the date hereof.
"COBRA" refers to the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, relating to continuation of health
benefits in certain circumstances.
"Code" means the Internal Revenue Code of 1986, as amended (including
any successor code), and the rules and regulations promulgated thereunder.
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"Company" has the meaning set forth in the first paragraph hereof.
"Company Disclosure Schedule" refers to the disclosure schedule
delivered by the Company to Buyer in connection with the execution and delivery
of this Agreement.
"Company Plans" has the meaning set forth in Section 4.14(a).
"Contracts and Other Agreements" means all contracts, agreements,
undertakings, indentures, notes, bonds, loans, instruments, leases, mortgages,
commitments or other binding agreements, whether written or oral, other than
Employee Benefit Programs.
"Defined Contribution Plans" means Parent's Savings Plan and Parent's
ESOP.
"Employee Benefit Programs" has the meaning set forth in Section
4.14(a).
"Employment and Withholding Taxes" means all employment, payroll and
withholding Taxes payable with respect to salaries, wages, commissions, other
compensation or other payments actually or constructively made by the Company or
any Subsidiary on or before the Closing Date, except to the extent such Taxes
have been withheld on or prior to the Closing Date and are required to be paid
to the appropriate taxing authority after the Closing Date.
"Environmental Law" means, without limitation, any of the Hazardous
Materials Transportation Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Water Pollution Control Act, the Clean Air
Act, the Resource Conservation and Recovery Act, the Solid Waste Disposal Act,
the Toxic Substances Control Act, the Insecticide, Fungicide and Rodenticide
Act, the Safe Drinking Water Act, the Occupational Health and Safety Act, each
as amended, and all other environmental statutes enacted by the United States
and by state and local Governmental or Regulatory Bodies (including municipal
sewerage authorities), any executive orders, ordinances, rules or regulations
promulgated under any of the foregoing, and common law respecting environmental
matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Executive Officers" means, with respect to any corporation, the
chairman of the board of directors, the president, any executive or senior vice
president (and any vice
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president, in the case of the Company only), the general counsel, and the
treasurer of such corporation (and other individuals, if any, performing
comparable functions), and with respect to any partnership, the individuals
performing comparable functions on behalf of such partnership.
"Exhibit C Assets" are the assets set forth on Exhibit C attached
hereto and any other investment assets acquired following the date hereof using
funds derived from any disposition of such assets; it being agreed that Exhibit
C Assets shall not include any interest income or dividends received in respect
thereof.
"Exhibit D Assets" are the assets set forth on Exhibit D attached
hereto and any other investment assets acquired following the date hereof using
funds derived from any disposition of such assets; it being agreed that Exhibit
D Assets shall not include any interest income or dividends received in respect
thereof.
"Exhibit E Assets" are the assets set forth on Exhibit E attached
hereto and other investment assets acquired following the date hereof using
funds derived from any disposition of such assets.
"Federal" means of or pertaining to the government of the United
States of America.
"Final Purchase Price" has the meaning set forth in Section 2.2(a).
"FTC" means the Federal Trade Commission of the United States of
America.
"GAAP" means United States generally accepted accounting principles
consistently applied throughout the specified period and in the immediately
prior comparable period, except for normal recurring year-end adjustments.
"GIC" has the meaning set forth in Section 7.11.
"Governmental or Regulatory Body" means any government or political
subdivision thereof, whether Federal, state, local or foreign, or any agency or
instrumentality of any such government or political subdivision.
"Group Health Business" means the business conducted by the Seller of
underwriting and distributing group life and group accident and health
insurance, which business shall be transferred to the Company as contemplated by
Exhibit A hereto.
"HSR" means the Hart-Scott-Rodino Antitrust
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Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
"IMR" means, with respect to any Person, the Interest Maintenance
Reserve set forth in the balance sheet of such Person in accordance with SAP.
"Income Taxes" means (i) all Taxes however denominated (including
franchise taxes and premium taxes) that are based upon or measured by gross
income, net income, or gross receipts, (ii) minimum and tax preference based
Taxes, (iii) any guarantee fund assessments, (iv) state insurance department
licenses and fees and (v) any interest, fines, penalties, assessments or
additions to tax resulting from, attributable to or incurred in connection with
any Tax described in clauses (i) through (iv) or any contest, dispute or refund
thereof.
"Income Tax Returns" means Tax Returns in respect of Income Taxes.
"Increase Amount" has the meaning set forth in Section 2.4.
"Indemnitee" has the meaning set forth in Section 10.4.
"Indemnitor" has the meaning set forth in Section 10.4.
"Insurance Contracts" means all insurance policies, annuity contracts,
guaranteed investment contracts and other insurance products underwritten by the
Company or the Insurance Subsidiary.
"Insurance Department" means the appropriate insurance regulatory
governmental authority for the Company's and the Insurance Subsidiary's
respective state of domicile and deemed commercial domicile, if any.
"Insurance Licenses" has the meaning set forth in Section 5.6(a).
"Insurance Subsidiary" means Sterling Life Insurance Company, an
Arizona corporation.
"Interim SAP Statements" has the meaning set forth in Section 7.6.
"Investment Contracts" means all contracts, agreements, undertakings,
indentures, notes, bonds, loans, instruments, leases, mortgages, commitments or
other binding agreements included in the investment portfolio of the Company or
any of its Subsidiaries.
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"IRS" means the Internal Revenue Service of the United States of
America.
"Justice" means the Antitrust Division of the Department of Justice of
the United States of America.
"Knowledge" means, with respect to any entity, the actual knowledge of
any of the Executive Officers of such entity.
"Lien or Other Encumbrance" means any lien, pledge, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any shareholder or similar agreement or
encumbrance.
"Litigation" means, with respect to any Person, any claim, action,
suit, proceeding, arbitration or investigation.
"Losses" means all losses, liabilities (including for environmental
clean up), damages (excluding consequential damages suffered by any Indemnitee),
deficiencies, costs, fines and assessments, penalties, claims, actions,
injuries, suits, judgments and expenses (including interest actually paid by an
Indemnitee to a third party and reasonable attorneys' fees and disbursements),
however arising, net of any insurance proceeds the Person incurring such losses
recovered in respect thereof.
"Material Adverse Effect" means an effect or series of related effects
which, individually or in the aggregate, is materially adverse to either (a) the
business, financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole, (b) the legal ability of Parent or Seller to
consummate the transactions contemplated by this Agreement other than by reason
of the inability of Buyer to consummate such transactions, or (c) the validity
or enforceability of this Agreement.
"NAIC" means the National Association of Insurance Commissioners and
any successor thereto.
"Notice" has the meaning set forth in Section 10.4.
"Parent" has the meaning set forth in the first paragraph hereof.
"Parent's ESOP" means the Aon Employee Stock Ownership Plan.
"Parent's Retirement Plan" means the Aon Pension Plan.
"Parent's Savings Plan" means the Aon Savings Plan.
"Permits" means all licenses, permits, orders,
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<PAGE>
approvals, registrations, authorizations and qualifications with and under all
Federal, state, local or foreign laws and Governmental or Regulatory Bodies and
all industry or other nongovernmental self-regulatory organizations that are
necessary for the conduct of the applicable Person's business and the ownership
of its properties.
"Permitted Liens" means (i) Liens or Other Encumbrances for Taxes not
yet due and payable, and (ii) statutory or other Liens or Other Encumbrances
that do not interfere with the use by a Person of the property involved.
"Person" means and includes any natural person, corporation, limited
liability company, partnership, limited partnership, firm, joint venture,
association, joint-stock company, trust, business trust, unincorporated
organization, Governmental or Regulatory Body, or other entity.
"Quarterly SAP Statements" means, with respect to a specified Person,
the quarterly financial statements of such Person prepared in accordance with
SAP, as filed with or submitted to the Insurance Department on forms prescribed
or permitted by the Insurance Department.
"Reduction Amount" has the meaning set forth in Section 2.4.
"SAP" means, with respect to a specified Person, the statutory
accounting practices prescribed or permitted by the Insurance Department,
consistently applied throughout the specified period and in the immediately
prior comparable period.
"Section 338 Forms" has the meaning set forth in Section 11.1(b).
"Seller" has the meaning set forth in the first paragraph hereof.
"Seller Consolidated and Combined Returns" means any consolidated,
affiliated, combined or unitary Tax Returns of Parent which include the Company
and any Subsidiary of the Company.
"Seller Disclosure Schedule" refers to the disclosure schedule
delivered by Parent and Seller to Buyer in connection with the execution and
delivery of this Agreement.
"Seller Group" has the meaning set forth in Section 11.3(d).
"Shares" has the meaning set forth in the recitals hereof.
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<PAGE>
"Settlement Auditor" has the meaning set forth in Section 2.4(f).
"Special Bonus Program" means the special incentive plan described in
the memorandum attached to Section 5.8(a) of the Company Disclosure Schedule.
"Subsidiary" of a specified Person means a Person 50% or more of the
outstanding voting stock or other ownership interests of which are owned,
directly or indirectly, by such specified Person or one or more other
Subsidiaries of such specified Person. For the purposes of this definition,
"voting stock" means stock that ordinarily has voting power for the election of
directors, whether at all times or only so far as no senior class of stock has
such voting power by reason of any contingency. Ryan Financial Services, Inc.,
an Illinois corporation, shall be deemed to be a Subsidiary of the Company.
"Tax Claim" has the meaning set forth in Section 11.2(d).
"Taxes" means all taxes, charges, fees, levies, or other similar
assessments, including, without limitation, (i) income, gross receipts, ad
valorem, premium, guarantee fund assessments, excise, real property, personal
property, windfall profit, sales, use, transfer, licensing, withholding,
employment, payroll, estimated and franchise taxes imposed by the United States
of America, any state, local, or foreign government, or any subdivision, agency,
or other similar Person of the United States or any such government; and (ii)
any interest, fines, penalties, assessments, or additions to tax resulting from,
attributable to or incurred in connection with any Tax or any contest, dispute
or refund thereof.
"Tax Return" means any report, return, statement or other information
required to be supplied to a taxing authority in connection with Taxes.
"Tax Settlement Auditor" has the meaning set forth in Section
11.1(b)(z).
"Tax Statement" has the meaning set forth in Section 11.2(e).
"Transferred Employee" means any Affected Employee who is offered
employment or remains employed by the Company, Erco Services, Inc. or Ryan
Financial Services, Inc. as of the Closing Date or such later date, in either
case as otherwise provided in Section 7.8(a) hereof.
"WARN" means the Worker Adjustment and Retraining Notification Act of
1988.
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(b) "Including" and other forms of such term, with respect to any
matter or thing, shall be construed to mean "including but not limited to" such
matter or thing.
2. Sale and Purchase of Shares.
2.1 Sale of Shares. At the Closing, Seller agrees to sell to Buyer,
and Buyer agrees to purchase from Seller, the Shares, upon the terms and subject
to the conditions set forth herein.
2.2 Purchase Price and Payment for Shares. (a) The purchase price
for the Shares shall be an amount equal to $425,000,000 (the "Closing Purchase
Price") and subject to adjustment following the Closing in accordance with
Section 2.4 (as so adjusted, the "Final Purchase Price").
(b) At the Closing, Buyer shall pay to Seller the Closing Purchase
Price, in immediately available funds by wire transfer to such account or
accounts of Seller as Seller shall have designated to Buyer, in the manner
specified herein for the delivery of notices, not less than two Business Days
prior to the Closing Date.
2.3 Delivery of Shares. At the Closing, Seller shall deliver to
Buyer certificates representing all of the Shares, duly endorsed in blank for
transfer or accompanied by duly executed blank stock powers together with all
necessary stock transfer stamps affixed thereto.
2.4 Post-Closing Purchase Price Adjustment; Closing Balance Sheets.
(a) Upon the earlier to occur of (i) the parties' agreement (or deemed
agreement pursuant to Section 2.4(e)) with respect to the calculation of the
Final Purchase Price and (ii) the delivery of any report of the Settlement
Auditor as provided in Section 2.4(g), the Closing Purchase Price shall be
decreased by the Reduction Amount, if any, and shall be increased by the
Increase Amount, if any, and shall be decreased by the product of (y) $4,000 and
(z) the number of full months which have elapsed prior to the Closing Date in
the calendar year in which the Closing Date occurs. Seller shall pay, within
five Business Days after the earlier to occur of the events described in clauses
(i) and (ii) above, the amount of such Reduction Amount to Buyer, plus simple
interest thereon from the Closing Date to the date of payment at an annual
interest rate equal to 6% by wire transfer of immediately available funds to
such account or accounts of Buyer as Buyer specifies in writing to Seller in the
manner specified herein for the delivery of notices. Buyer shall pay, within
five Business Days after the earlier to occur of the events described in clauses
(i) and (ii) above, the amount of such Increase Amount to Seller, plus simple
interest thereon from the Closing Date to the date of payment at
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<PAGE>
an annual interest rate equal to 6%, by wire transfer of immediately available
funds to such account or accounts of Seller as Seller specifies in writing to
Buyer in the manner specified herein for the delivery of notices.
(b) The Reduction Amount or Increase Amount, as the case may be, is
calculated as follows:
(i) If the Adjusted Closing GAAP Capital exceeds $384,500,000 and the
Adjusted Closing SAP Capital exceeds the Closing SAP RBC Amount, then the
maximum amount that, on a pro forma basis, could have been paid
immediately preceding the Closing as a cash dividend by the Company
without causing, after giving effect to such dividend, (y) the Adjusted
Closing GAAP Capital to be less than $384,500,000 or (z) the Adjusted
Closing SAP Capital to be less than the Closing SAP RBC Amount, shall be
deemed to be the "Increase Amount".
(ii) If $384,500,000 exceeds the Adjusted Closing GAAP Capital and
the Closing SAP RBC Amount exceeds the Adjusted Closing SAP Capital, then
the minimum amount of cash that, on a pro forma basis, would have been
required to be contributed to the Company by its stockholder in order to
cause, after giving effect to such contribution, both (y) the Adjusted
Closing GAAP Capital to equal or exceed $384,500,000 and (z) the Adjusted
Closing SAP Capital (as adjusted to reflect the contribution that causes
clause (y) above to be satisfied) to equal or exceed the Closing SAP RBC
Amount, shall be deemed to be the "Reduction Amount".
(iii) If the Adjusted Closing GAAP Capital exceeds $384,500,000 and
the Closing SAP RBC Amount exceeds the Adjusted Closing SAP Capital, then
the amount of the excess of the Adjusted Closing GAAP Capital over
$384,500,000, reduced by the minimum amount that, on a pro forma basis
(that assumes the amount of such excess was paid as a cash dividend
immediately prior to the Closing) would have been required to have been
contributed by the stockholder to the Company immediately after such
assumed dividend to cause the Adjusted Closing SAP Capital to equal or
exceed the Closing SAP RBC Amount, shall be deemed to be the "Increase
Amount", unless it is a negative number, in which case the absolute value
of such negative number shall be deemed to be the "Reduction Amount".
(iv) If the Adjusted Closing GAAP Capital is less than $384,500,000
and the Adjusted Closing SAP Capital exceeds the Closing SAP RBC Amount,
then the amount by which $384,500,000 exceeds the Adjusted Closing GAAP
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Capital shall be deemed to be the "Reduction Amount".
(c) Within 30 Business Days after the Closing Date, Seller shall
prepare and deliver to Ernst & Young LLP for audit the Adjusted Closing Balance
Sheets. Buyer shall, and shall cause the Company and its Subsidiaries and
Buyer's and their officers and employees to, afford to Seller and its officers,
employees and agents reasonable access at reasonable times to the officers,
employees, properties, books and records of the Company and its Subsidiaries and
shall furnish to Seller all financial and other data and information relating to
the Company and the Subsidiaries as Seller may reasonably request in connection
with Seller's preparation of the Adjusted Closing Balance Sheets. As promptly
as practicable following such delivery (and, in any event, within 40 Business
Days), Seller shall cause (at its expense) Ernst & Young LLP to complete an
audit of each of the Adjusted Closing Balance Sheets. Buyer shall, and shall
cause the Company and its Subsidiaries and Buyer's and their officers and
employees to, cooperate with Ernst & Young LLP in connection with such audits.
As promptly as practicable after such audits are completed, Seller shall deliver
to Buyer (i) the audited Adjusted Closing SAP Balance Sheet together with the
report thereon of Ernst & Young LLP to the effect that such audit was conducted
in accordance with generally accepted auditing standards and that such firm
believes that such audit provides a reasonable basis for such firm's opinion
thereon and that the Adjusted Closing SAP Balance Sheet presents fairly in all
material respects the financial condition of the Company and its consolidated
subsidiaries as of the Closing Date in conformity with this Agreement, (ii) the
audited Adjusted Closing GAAP Balance Sheet together with the report thereon of
Ernst & Young LLP to the effect that such audit was conducted in accordance with
generally accepted auditing standards and that such firm believes that such
audit provides a reasonable basis for such firm's opinion thereon and that the
Adjusted Closing GAAP Balance Sheet presents fairly in all material respects the
financial condition of the Company and its consolidated subsidiaries as of the
Closing Date in conformity with this Agreement and (iii) a statement signed by
the Seller setting forth the calculation of (A) Adjusted Closing SAP Capital,
(B) the Adjusted Closing GAAP Capital, (C) the Reduction Amount or the Increase
Amount, as the case may be (collectively, the "Closing Adjustment
Calculations"), in each case in sufficient detail to permit Buyer to verify such
calculation.
(d) As promptly as practicable after the conduct of the audits
required pursuant to Section 2.4(c), Seller shall cause Ernst & Young LLP
(subject to the execution by Buyer and delivery to Ernst & Young LLP of an
appropriate agreement for the review and release of such documents) to (i)
provide to Buyer's independent auditors such work papers and other documents of
Ernst & Young LLP relating to such audits as Buyer's independent
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auditors may reasonably request and (ii) cooperate with, and be reasonably
available to, Buyer's independent auditors to provide such other information
reasonably requested by Buyer's independent auditors concerning such audits and
the accounting and auditing issues that arise from or relate to such audits.
Buyer shall pay the fees and expenses of its independent auditors.
(e) Within 30 Business Days after Buyer's receipt of the audited
Adjusted Closing Balance Sheets (together with Seller's Closing Adjustment
Calculations), Buyer shall provide Seller with written notice indicating whether
Buyer agrees or disagrees with such calculations, and, if Buyer disagrees with
such calculations, setting forth Buyer's calculation of the Closing Adjustment
Calculations. If Buyer agrees with such calculations, or if Buyer fails to
deliver to Seller such written notice within such 30 Business Day period, such
Balance Sheets and such calculations shall be deemed final. To the extent Buyer
and Seller are in agreement as to calculation of the Closing Adjustment
Calculations, the parties agree to make the corresponding payment contemplated
in Section 2.4(a).
(f) Within ten Business Days after Seller's timely receipt of any
notice of disagreement with the calculation of the Closing Adjustment
Calculations, Buyer and Seller shall begin, and shall cause their independent
auditors to participate in, good faith negotiations to resolve such
disagreement. If such parties and their independent auditors are unable to
resolve such disagreement within ten Business Days after such negotiations
begin, such disagreement shall be submitted to the national office of Coopers &
Lybrand (which may not assign the matter to its Chicago, Illinois or Stamford,
Connecticut office), or, if such firm is unavailable, another independent
nationally recognized auditing firm selected by the parties (the "Settlement
Auditor") for resolution in a manner consistent with the provisions of this
Agreement. The parties shall, and shall cause their independent auditors to,
cooperate with the Settlement Auditor and shall proceed in good faith to cause
the Settlement Auditor to resolve such disagreement within 40 Business Days
after such disagreement is submitted to the Settlement Auditor. The fees and
expenses of the Settlement Auditor (i) shall be paid by Seller if the Buyer's
calculation of the Closing Adjustment Calculations is closer to the Settlement
Auditor's calculation of the Closing Adjustment Calculations than the Seller's
calculation of the Closing Adjustment Calculations, (ii) shall be paid by Buyer
if the Seller's calculation of the Closing Adjustment Calculations is closer to
the Settlement Auditor's calculation of the Closing Adjustment Calculations than
the Buyer's calculation of the Closing Adjustment Calculations and (iii) shall
be paid one-half by Seller and one-half by Buyer if neither the Seller's
calculation of the Closing Adjustment Calculations nor the Buyer's calculation
of the Closing Adjustment Calculations is
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<PAGE>
closer to the Settlement Auditor's calculation of the Closing Adjustment
Calculations than the other.
(g) The Settlement Auditor, in its sole discretion, shall determine
(i) the nature and extent of the participation by Buyer and Seller and their
respective independent auditors in connection with the resolution of any
disagreement submitted to the Settlement Auditor, (ii) the nature and extent of
information that Buyer and Seller may submit to the Settlement Auditor for
consideration in connection with such resolution and (iii) the personnel of the
Settlement Auditor who shall review such information and resolve such
disagreement; provided, however, that the Settlement Auditor shall permit Buyer
to submit any information relating to any audit by Buyer or its auditors of the
Adjusted Closing Balance Sheets or the calculation of the Closing Adjustment
Calculations prepared by Buyer in connection with the Settlement Auditor's
resolution of any such disagreement. The Settlement Auditor's resolution of any
such disagreement shall be reflected in a written report which shall be
delivered promptly to, and shall be final and binding upon, the parties and the
Closing Purchase Price shall be adjusted accordingly to reflect any such
resolution and, as adjusted, shall be deemed to be the Final Purchase Price and
any adjustment thereto will be paid in accordance with Section 2.4(a).
(h) [Intentionally Omitted]
(i) For purposes of the Adjusted Closing Balance Sheets, (i) the
Exhibit C Assets shall be assigned a value of $367,085,561; (ii) the Exhibit D
Assets shall be assigned a value of $62,667,311; (iii) the Exhibit E Assets
shall be assigned a value of $32,229,000 plus deemed interest income at an
annual rate of 6.70% plus any capital contribution or like payments made by the
Company in respect of the Exhibit E Assets between the date hereof and the
Closing Date, and minus any cash distribution received by the Company in respect
of the Exhibit E Assets between the date hereof and the Closing Date; and (iv)
the GIC shall be assigned a value of $50,000,000.
3. Closing; Closing Date. The Closing shall take place at the
offices of Sidley & Austin, 875 Third Avenue, New York, New York 10022, at 10:00
a.m., on the fifth Business Day following the day on which the last of the
conditions to Closing set forth in Sections 8 and 9 shall have been satisfied,
or at such other place and date as the parties may mutually agree. The date and
time of such Closing are herein referred to as the "Closing Date."
4. Representations and Warranties of Parent and Seller. Parent and
Seller each represents and warrants to Buyer as follows:
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4.1 Existence and Power. (a) Each of Parent, Seller, the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Each of
Parent, Seller and the Company has all requisite corporate power and authority
to execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby.
(b) The Company has all requisite corporate power and authority to
own, lease and operate its assets, properties and business and to carry on its
business as now being conducted by it. The Company is duly qualified or
otherwise authorized or admitted as a foreign corporation to transact business
and is in good standing as a foreign corporation in each jurisdiction set forth
in Section 4.1(b) of the Seller Disclosure Schedule, which are the only
jurisdictions in which such qualification, authorization or admission is
required by law, except for any jurisdictions in which the failure to be so
qualified, authorized or admitted could not reasonably be expected to have a
Material Adverse Effect.
4.2 Authority; Execution and Delivery. The execution and delivery by
each of Parent, Seller and the Company of this Agreement, the performance by
each of Parent, Seller and the Company of its obligations hereunder and the
consummation by each of Parent, Seller and the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of each of Parent, Seller and the Company,
respectively. This Agreement has been duly executed and delivered by each of
Parent, Seller and the Company and constitutes the legal, valid and binding
obligation of Parent, Seller and the Company, enforceable against Parent, Seller
and the Company in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, or by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.3 Consents and Approvals. The execution and delivery by each of
Parent, Seller and the Company of this Agreement, the performance by each of
Parent, Seller and the Company of its obligations hereunder and the consummation
by each of Parent, Seller and the Company of the transactions contemplated
hereby do not and will not require Parent, Seller or the Company or any other
Subsidiary of Parent (other than the Subsidiaries of the Company) to obtain any
consent, approval or action of, or make any filing with or give any notice to,
any Person except (i) as set forth in Section 4.3 of the Seller Disclosure
Schedule, (ii) such as have been duly obtained and are in full force and effect
on the date hereof and will continue to be in full force and effect on the
Closing Date and (iii) those
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which, if not obtained, made or given, could not reasonably be expected to have
a Material Adverse Effect or have a material adverse effect on Buyer's ability
to own, possess or exercise the rights of an owner with respect to the Shares or
the Company and its Subsidiaries.
4.4 No Conflict. (a) The execution and delivery by each of Parent
and Seller of this Agreement, the performance by each of Parent and Seller of
its obligations hereunder and the consummation by each of Parent and Seller of
the transactions contemplated hereby in accordance with the terms and conditions
hereof will not violate any provision of the articles or certificate of
incorporation or by-laws or other charter or organizational documents of Parent
or Seller.
(b) Except as set forth in Section 4.4(b) of the Seller Disclosure
Schedule, the execution and delivery by each of Parent and Seller of this
Agreement, the performance by Parent and Seller of their obligations hereunder
and the consummation by Parent and Seller of the transactions contemplated
hereby in accordance with the terms and conditions hereof will not (i) violate,
conflict with or result in the breach of any of the terms of, result in a
material modification of the effect of, otherwise give any other contracting
party the right to terminate, or constitute (with or without notice or lapse of
time or both) a default under, any Contract or Other Agreement to which Parent
or Seller or any other Subsidiary of Parent (other than the Company and the
Subsidiaries of the Company) is a party or by or to which Parent or Seller or
any other Subsidiary of Parent (other than the Company and the Subsidiaries of
the Company) or any of their respective assets or properties may be bound or
subject, or (ii) violate any existing term or provision of any law, regulation,
order, writ, judgment, injunction or decree applicable to Parent or Seller or
any other Subsidiary of Parent (other than the Company and the Subsidiaries of
the Company) or any of their respective assets or properties, except, in the
case of clause (i) for such violations, conflicts, breaches, modifications,
rights, defaults and impairments that could not reasonably be expected to have a
Material Adverse Effect or have a material adverse effect on Buyer's ability to
own, possess or exercise the rights of an owner with respect to the Shares or
the Company and its Subsidiaries.
4.5 Capital Stock; Title. Section 4.5 of the Seller Disclosure
Schedule accurately sets forth the name and jurisdiction of incorporation of
each Subsidiary of the Company and the authorized capital stock of each of the
Company and its Subsidiaries and the number of shares of each class of capital
stock of the Company and each of such Subsidiaries that are issued and
outstanding. The Shares and all of the issued and outstanding shares of capital
stock of the Subsidiaries of the Company are duly authorized, validly issued,
fully paid and
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non-assessable and are owned beneficially and of record as set forth in Section
4.5 of the Seller Disclosure Schedule, free and clear of any Lien or Other
Encumbrance, except as provided in the next sentence. Upon delivery of the
payment for the Shares as herein provided, Buyer will acquire good title
thereto, free and clear of any Lien or Other Encumbrance (other than (i) Liens
or Other Encumbrances created by Buyer and (ii) the requirements of the Federal
and state securities laws and state insurance laws respecting limitations on the
subsequent transfer thereof), and will own all of the issued and outstanding
shares of capital stock of the Company.
4.6 Options or Other Rights. Except for and as provided in this
Agreement, (i) there is no outstanding right, subscription, warrant, call,
unsatisfied preemptive right, option or other agreement of any kind to purchase
or otherwise to receive from Parent, Seller, the Company or any other Affiliate
of Parent, any of the outstanding, authorized but unissued, unauthorized or
treasury shares of the capital stock or any other equity security of the Company
or any of its Subsidiaries (or any interest therein), (ii) there is no
outstanding security of any kind that has been issued by Parent, Seller, the
Company or any other Affiliate of Parent and that is convertible into or
exchangeable for the capital stock of the Company or any of its Subsidiaries (or
any interest therein) and (iii) there is no outstanding Contract or Other
Agreement of or binding upon Parent, Seller, the Company or any other Affiliate
of Parent (y) to purchase, redeem or otherwise acquire any outstanding shares of
the capital stock of the Company or to participate in the equity, income, or
election of directors or officers of the Company or any of its Subsidiaries or
(z) that permits any Person to participate in the equity, income or election of
directors of the Company or any of its Subsidiaries.
4.7 Charter Documents and By-laws. Seller has heretofore made
available to Buyer true and complete copies of the articles or certificate of
incorporation and by-laws of the Company and each of its Subsidiaries, in each
case as in effect on the date hereof.
4.8 Minute Books. The minute books of the Company accurately reflect
in all material respects all formal actions taken at all meetings and all
consents in lieu of meetings of the stockholders of the Company since December
31, 1990 and all formal actions taken at all meetings and all consents in lieu
of meetings of the Board of Directors of the Company and all committees thereof
since December 31, 1990. All of such minute books have previously been made
available for inspection by Buyer.
4.9 GAAP and SAP Statements. (a) Seller has made available to Buyer
true and complete copies of the consolidated
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balance sheets of the Company and its consolidated subsidiaries as of December
31, 1994 and 1993 and September 30, 1995 and the related statements of income,
changes in stockholder's equity for the periods then ended, prepared in each
case on a pro-forma basis after giving effect to the transactions and other
actions contemplated by Exhibit A hereto as of such date or the beginning of
such period, as the case may be. Such financial statements present fairly in
all material respects the financial position and the results of operations and
shareholders' equity of the Company and its consolidated subsidiaries as of each
such date and for each such period in conformity with GAAP, except that
statements of cash flows and footnotes are not included in such financial
statements.
(b) Seller has made available to Buyer true and complete copies of
Annual SAP Statements of the Company and its consolidated subsidiaries for the
years ended December 31, 1994 and 1993, prepared in each case on a pro-forma
basis after giving effect to the transactions and other actions contemplated by
Exhibit A hereto as of such date or the beginning of such period, as the case
may be. Such financial statements present fairly in all material respects the
financial position and the results of operations of the Company and its
consolidated subsidiaries as of each such date and for each such period in
conformity with SAP, except that statements of cash flows and footnotes are not
included in such financial statements.
(c) Seller has made available to Buyer true and complete copies of
Annual SAP Statements of the Company and its consolidated subsidiaries for the
years ended December 31, 1994, 1993 and 1992, together with the exhibits,
schedules and notes thereto and any affirmations and certifications filed
therewith, as filed with the appropriate Insurance Department. Except as set
forth in Section 4.9(c) of the Seller Disclosure Schedule, each of such Annual
SAP Statements presents fairly in all material respects the statutory financial
condition of the Company or the Insurance Subsidiary to which such statement
relates as of the end of each such year and the statutory results of its
operations and changes in capital and surplus for each of the periods then ended
and were prepared in conformity with SAP. Except as set forth in Section 4.9(c)
of the Seller Disclosure Schedule, each of such Annual SAP Statements was
properly prepared in every material respect when filed and there were no
material omissions therefrom. In addition, except as set forth in Section
4.9(c) of the Seller Disclosure Schedule, the schedules included in such Annual
SAP Statements, when considered in relation to the basic statutory financial
statements, present fairly in all material respects the information shown
therein.
(d) Seller has made available to Buyer true and complete copies of
Quarterly SAP Statements of the Company and the Insurance Subsidiary for the
nine months ended September 30,
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1995, together with the exhibits, schedules and notes thereto and any
affirmations and certifications filed therewith, as filed with the appropriate
Insurance Department. Except as set forth in Section 4.9(d) of the Seller
Disclosure Schedule, each of such Quarterly SAP Statements presents fairly in
all material respects the statutory financial condition of the Company or the
Insurance Subsidiary to which such statement relates as of the end of such nine
month period and the statutory results of its operations and changes in capital
and surplus for the period then ended and were prepared in conformity with SAP.
Except as set forth in Section 4.9(d) of the Seller Disclosure Schedule, each of
such Quarterly SAP Statements was properly prepared in every material respect
when filed and there were no material omissions therefrom, subject, in each
case, to normal, recurring year-end adjustments. In addition, except as set
forth in Section 4.9(d) of the Seller Disclosure Schedule, the schedules
included in such Quarterly SAP Statements, when considered in relation to the
basic statutory financial statements, present fairly in all material respects
the information shown therein.
4.10 Taxes. For purposes of this Section 4.10, any reference to the
Company or a Subsidiary of the Company shall include any corporation which
merged or was liquidated with and into the Company or a Subsidiary of the
Company. Except as disclosed in Section 4.10 of the Seller Disclosure Schedule:
(a) All Income Tax Returns and all material other Tax Returns
required to be filed by or with respect to each of the Company and its
Subsidiaries on or before the date hereof have been timely filed (and in the
case of such Tax Returns required to be filed after the date hereof and on or
prior to the Closing Date, will be so filed) and all such Tax Returns are (and
will be) true and complete in all material respects. Each of the Company and
its Subsidiaries has timely paid (or there has been paid on their behalf) all
material Taxes that are due, or claimed or asserted by any taxing authority to
be due, from or with respect to it for taxable years or periods ending prior to
the date hereof (and in the case of payments required to be made after the date
hereof and on or prior to the Closing Date, will so pay), other than non-Income
Taxes which are being contested in good faith. With respect to any period for
which federal and state income tax returns have not been filed, or for which
such taxes are not yet due and owing, the Company or its Subsidiaries, as the
case may be, have made sufficient accruals for such taxes in the financial
statements referred to in Sections 4.9(b) and (c). Neither the Company nor any
of its Subsidiaries files any material Tax Returns in any jurisdiction other
than those set forth in Section 4.10 of the Seller Disclosure Schedule. Each of
the Company and its Subsidiaries have made (or there has been made on their
behalf) all required estimated Tax payments sufficient to avoid material
underpayment penalties.
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(b) No audit or other proceeding by any court, Governmental or
Regulatory Authority, or similar Person is pending, or, to the Knowledge of
Parent, Seller or the Company, threatened, with respect to any Income Tax or
material other Tax due from or with respect to the Company or any of its
Subsidiaries or any such Tax Return filed by or with respect to the Company or
any of its Subsidiaries. No assessment of Income Taxes or material other Taxes
has been proposed in writing against the Company or any of its Subsidiaries or
any of their respective assets or properties.
(c) The statute of limitations with respect to the assessment of a
deficiency relating to Income Taxes of each of the Company and its Subsidiaries
and of each affiliated group (within the meaning of the Code) of which the
Company or any of its Subsidiaries is or has been a member for all periods
ending on or before December 31, 1985 has expired. No issue relating to the
Company or any of its Subsidiaries has been raised in writing by any taxing
authority in any audit or examination which, by application of the same or
similar principles, could reasonably be expected to result in a material
deficiency for any subsequent period, including periods subsequent to the
Closing Date. There are no outstanding agreements, waivers or arrangements
extending the statutory period of limitation applicable to any claim for, or the
period for the collection or assessment of, Income Taxes or material other Taxes
due from or with respect to the Company or any of its Subsidiaries for any
taxable period, and no power of attorney granted by or with respect to the
Company or any of its Subsidiaries relating to Taxes is currently in force.
With respect to Taxes for taxable years or periods ending after December 31,
1985, no closing agreement pursuant to Section 7121 of the Code (or any
predecessor provision) or any similar provision of any state, local, or foreign
law has been entered into by or with respect to the Company or any of its
Subsidiaries.
(d) Seller has previously delivered to Buyer true and complete copies
of each of (i) any audit reports issued within the last three years relating to
the United States federal, state, local or foreign Taxes due from or with
respect to each of the Company and its Subsidiaries and (ii) the United States
federal Income Tax Return, and those state, local and foreign Income Tax Returns
showing Taxes due in excess of $10,000 for each of the last three taxable years,
filed by each of the Company and its Subsidiaries or (insofar as such returns
relate to the Company or any such Subsidiary) filed by any affiliated,
consolidated, combined or unitary group of which the Company or any of its
Subsidiaries was then a member.
(e) There are no Liens or Other Encumbrances with respect to Taxes
upon any of the assets or properties of the Company or any of its Subsidiaries,
other than with respect to
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Taxes not yet due and payable.
(f) No consent to the application of Section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect to the
Company or any of its Subsidiaries or any of their respective assets or
properties. None of the assets or properties of the Company or any of its
Subsidiaries is an asset or property that is or will be required to be treated
as being (i) owned by any Person (other than the Company or its Subsidiaries)
pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of
1954, as amended and in effect immediately before the enactment of the Tax
Reform Act of 1986, or (ii) tax-exempt use property within the meaning of
Section 168(h)(1) of the Code.
(g) The Company and its Subsidiaries are in substantial compliance
with all applicable laws or regulations relating to the payment or withholding
of Taxes. Each of the Company and its Subsidiaries is in substantial compliance
with its obligation to withhold from employee salaries, wages and other
compensation and pay over to the appropriate taxing authorities all amounts
required to be so withheld and paid over for all periods under all applicable
laws and regulations.
(h) Effective as of the Closing, neither the Company nor any of its
Subsidiaries shall be a party to, be bound by or have any obligation under, any
Tax sharing agreement or similar contract or arrangement among the Company or
any of its Subsidiaries and Parent and its Affiliates (other than the Company or
any of its Subsidiaries).
(i) There is no contract or agreement, plan or arrangement by the
Company or any of its Subsidiaries covering any Person that, individually or
collectively, could give rise to a payment after the Closing of any amount that
would not be deductible by the Company or any of its Subsidiaries by reason of
Section 280G of the Code.
(j) Seller is not a "foreign person" within the meaning of Section
1445(b)(2) of the Code.
(k) All life insurance contracts issued by the Company and the
Insurance Subsidiary that are subject to Section 7702 of the Code qualify as
"life insurance contracts" within the meaning of Section 7702(a) of the Code.
No life insurance contract issued by the Company or the Insurance Subsidiary is
a "modified endowment contract" within the meaning of Section 7702A of the Code.
All contracts issued by the Company and the Insurance Subsidiary that are
subject to Section 817 of the Code have met the diversification requirements
applicable thereto since the issuance of the contract.
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(l) Neither the Company nor any of its Subsidiaries has agreed to or
is required to make any adjustment pursuant to Section 481(a) of the Code (or
any predecessor provision) by reason of any change in any accounting method of
the Company or such Subsidiary, and there is no application pending with any
taxing authority requesting permission for, nor has the Internal Revenue Service
proposed any changes, in any accounting method of the Company or any of its
Subsidiaries.
(m) The unearned premiums with respect to the Company set forth in
all federal Income Tax Returns of the Company were determined in all material
respects in accordance with Section 807 of the Code.
(n) The unpaid losses with respect to the Company set forth in all
federal Income Tax Returns of the Company were based upon reasonable estimates
and were discounted in all material respects in accordance with Section 846 of
the Code.
(o) Since January 1, 1991 the Company has, for federal Income Tax
purposes, been taxable as a life insurance company (as defined in Section 816 of
the Code) or an "insurance company other than a life insurance company" within
the meaning of Section 831 of the Code. The Company was treated as an insurance
company other than a life insurance company in calendar year 1994 and will be so
treated in 1995.
(p) Except to the extent that the tax treatment of any annuity policy
or contract issued or sold by the Company or any of its Subsidiaries is not
materially less favorable than the tax treatment of substantially similar
products offered by other companies, the tax treatment under the Code of annuity
policies or contracts issued or sold by the Company or any of its Subsidiaries
is and at all times has been not materially less favorable to the purchaser
thereof than the tax treatment under the Code which the Company represented
could be obtained at the time of its purchase.
Any indemnification with respect to breaches of the representations, warranties
and covenants of this Section 4.10 which also give rise to indemnification
pursuant to Section 11.2 shall not provide a duplicative benefit to Buyer.
4.11 Litigation. There is no Litigation pending to which Parent or
Seller or any other Subsidiary of Parent (other than the Company and its
Subsidiaries) is a party or by which any of such Persons or their respective
assets or properties are or may be bound by or before any Federal, state,
municipal, foreign or other court or Governmental or Regulatory Body, or any
private tribunal, or, to the Knowledge of Parent, Seller or the Company,
threatened against Parent or Seller or any other Subsidiary of Parent (other
than the Company and its Subsidiaries) that, in
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each case, (i) seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or (ii) could reasonably be expected to have a
Material Adverse Effect. Neither Seller nor any of its Affiliates (other than
the Company and its Subsidiaries) is bound by or subject to any existing order,
judgement, injunction award or decree, that, in each case, (i) seeks to restrain
or enjoin the consummation of the transactions contemplated by this Agreement or
(ii) could reasonably be expected to have a Material Adverse Effect.
4.12 [Intentionally Omitted]
4.13 Insurance. Section 4.13 of the Seller Disclosure Schedule
contains a true, complete and correct list as of the date of this Agreement of
all policies of insurance and fidelity bonds, other than those constituting an
Employee Benefit Program, issued to the Company or any of its Subsidiaries
showing the insurers, limits, type of coverage, annual premium, deductibles and
expiration dates. All such policies and bonds are in full force and effect as
of the date of this Agreement. Neither the Company nor any such Subsidiary is
in default with respect to any such policy or bond. All such policies and bonds
will be in effect through the Closing Date or will be replaced by the Parent or
any of its Affiliates on or prior to the Closing Date by policies or bonds, as
the case may be, with substantially similar coverage to the extent available on
commercially reasonable terms except for failures to replace or differences in
coverage which could not reasonably be expected to have a Material Adverse
Effect.
4.14 Employee Benefits. (a) Section 4.14(a) of the Seller
Disclosure Schedule lists each "employee benefit plan" (within the meaning of
Section 3(3) of ERISA) that is maintained or otherwise contributed to by the
Parent, Seller, the Company or any of its Subsidiaries for the benefit of the
Affected Employees (including, without limitation, pension, profit sharing,
stock bonus, medical reimbursement, life insurance, disability and severance pay
plans) (collectively, "Company Plans") and all other material employee benefit
plans and arrangements, payroll practices, agreements, programs, policies or
other arrangements, not subject to ERISA, that are maintained or otherwise
contributed to by the Parent, Seller, Company or any of the Subsidiaries of the
Company for the benefit of the Affected Employees and providing for deferred
compensation, bonuses, stock options, employee insurance coverage or any similar
compensation or welfare benefit plan (collectively, "Benefit Arrangements" and,
together with the Company Plans, collectively referred to as "Employee Benefit
Programs"). All Employee Benefit Programs so listed are sponsored by Parent
except for the child care center.
(b) With respect to each Company Plan, Seller has made available to
Buyer a current, accurate and complete copy (or, to
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the extent no such copy exists, an accurate description) thereof (including all
existing amendments thereto that shall become effective at a later date) and, to
the extent applicable, (i) any related trust agreement, annuity contract or
other funding instrument; and (ii) any summary plan description.
(c) Except as set forth in Section 4.14(c) of the Seller Disclosure
Schedule, (i) each Employee Benefit Program has been established and
administered in substantial compliance with the applicable provisions of ERISA,
the Code and the terms of all documents relating to such programs; (ii) each
Company Plan that is intended to be qualified under Section 401(a) of the Code
has received a favorable determination letter as to its qualification; (iii) as
of the date of this Agreement no "reportable event" (as such term is used in
Section 4043 of ERISA, but other than any event for which notice to the Pension
Benefit Guaranty Corporation has been waived), "prohibited transaction" (as such
term is used in Section 4975 of the Code or Section 406 of ERISA) or
"accumulated funding deficiency" (as such term is used in Section 412 or 4971 of
the Code) has heretofore occurred with respect to any Company Plan where such
occurrence has a reasonable probability of resulting in a termination of a
Company Plan subject to Title IV of ERISA; and (iv) there are no pending or, to
the Knowledge of Parent, Seller, the Company or any of their Subsidiaries
material threatened actions, claims or lawsuits which have been asserted or
instituted against the Employee Benefit Programs, the assets of any of the
trusts under such plans or the plan sponsor or the plan administrator, or
against any fiduciary of the Employee Benefit Programs with respect to the
operation of such plans (other than routine benefit claims).
(d) Neither Parent, Seller, Company nor any of their Subsidiaries
maintains or contributes to any "multiemployer plan" (as such term is defined in
Section 3(37) of ERISA) and neither Parent, Seller, Company nor any of their
Subsidiaries has incurred any material liability that remains unsatisfied with
respect to any such plans or has incurred any material liability which remains
unsatisfied under Sections 4062, 4063, 4064, 4069 or 4201 of ERISA.
(e) Any individual who performs services for the Company or its
Subsidiaries (other than through a contract with an organization other than such
individual) and who is not treated as an employee for federal income tax
purposes by Parent, Seller, the Company or any of their Subsidiaries is not an
employee for such purposes.
4.15 Brokers. Other than Lazard Freres & Co. LLC and Morgan Stanley
& Co. Incorporated, no broker or finder has acted directly or indirectly for
Parent or Seller nor has Parent, Seller or the Company or any Subsidiary of the
Company incurred
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any obligation to pay any brokerage, finder's fee or other commission in
connection with the transactions contemplated by this Agreement. The fees and
expenses of Lazard Freres & Co. LLC and Morgan Stanley & Co. Incorporated in
connection with the transactions contemplated by this Agreement shall be borne
by Parent.
5. Representations and Warranties of the Company. The Company
represents and warrants to Buyer as follows:
5.1 Corporate Authority. Each of the Subsidiaries of the Company has
all requisite corporate power and authority to own, lease and operate its
assets, properties and business and to carry on its business as now being
conducted by it. Each of the Subsidiaries of the Company is duly qualified or
otherwise authorized or admitted as a foreign corporation to transact business
and is in good standing as a foreign corporation in each jurisdiction set forth
in Section 5.1 of the Company Disclosure Schedule, which are the only
jurisdictions in which such qualification, authorization or admission is
required by law, except for any jurisdictions in which the failure to be so
qualified, authorized or admitted could not reasonably be expected to have a
Material Adverse Effect.
5.2 Consents and Approvals. The performance by the Company of its
obligations under this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not require any of the
Subsidiaries of the Company to obtain any consent, approval or action of, or
make any filing with or give any notice to, any Person except (i) as set forth
in Section 5.2 of the Company Disclosure Schedule, (ii) such as have been duly
obtained and are in full force and effect on the date hereof and will continue
to be in full force and effect on the Closing Date and (iii) those which, if not
obtained, made or given, could not reasonably be expected to have a Material
Adverse Effect or have a material adverse effect on Buyer's ability to own,
possess or exercise the rights of an owner with respect to the Shares or the
Company and its Subsidiaries.
5.3 No Conflict. The execution and delivery by each of Parent,
Seller and the Company of, and the performance by each of Parent, Seller and the
Company of its obligations under, this Agreement and the consummation by it of
the transactions contemplated hereby in accordance with the terms and conditions
hereof will not, except as set forth in Section 5.3 of the Company Disclosure
Schedule, (i) violate any provision of the articles or certificate of
incorporation or by-laws of the Company or any of its Subsidiaries, (ii)
violate, conflict with or result in the breach of any of the terms of, result in
a material modification of the effect of, otherwise give any other contracting
party the right to terminate, or constitute (with or
25
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without notice or lapse of time or both) a default under, any Contract or Other
Agreement to which the Company or any of the Subsidiaries of the Company is a
party or by or to which the Company or any of such Subsidiaries or any of their
respective assets or properties may be bound or subject, (iii) violate any
existing term or provision of any law, regulation, order, writ, judgment,
injunction or decree applicable to the Company or any of the Subsidiaries of the
Company or any of their respective assets or properties or (iv) result in the
breach of any of the terms or conditions of, constitute (with or without notice
or lapse of time or both) a default under, or otherwise cause an impairment of,
any Permit (other than Insurance Licenses), or (v) result in the breach of any
of the terms or conditions of, constitute (with or without notice or lapse of
time or both) a default under, or otherwise cause an impairment of any Insurance
License, except, in the case of each of clauses (ii) and (iv), for such
violations, conflicts, breaches, modifications, rights, defaults and impairments
that could not reasonably be expected to have a Material Adverse Effect or have
a material adverse effect on Buyer's ability to own, possess or exercise the
rights of an owner with respect to the Shares or the Company and its
Subsidiaries.
5.4 Minute Books. The minute books of each of the Subsidiaries of
the Company accurately reflect in all material respects all formal actions taken
at all meetings and all consents in lieu of meetings of stockholders of such
Subsidiaries since December 31, 1990 and all formal actions taken at all
meetings and all consents in lieu of meetings of the Board of Directors of each
of such Subsidiaries and all committees thereof since December 31, 1990. All of
such minute books have previously been made available for inspection by Buyer.
5.5 Compliance With Laws. Each of the Company and its Subsidiaries
is in compliance with all Federal, state, local or foreign laws, ordinances or
regulations and other requirements (including any writ, judgment, decree,
injunction, or similar order applicable to any of such Persons or the business
or assets of such Persons) of any Governmental or Regulatory Body, court or
arbitrator applicable to its business, the violation of which could reasonably
be expected to have a Material Adverse Effect.
5.6 Insurance Licenses. (a) Section 5.6(a) of the Company
Disclosure Schedule lists all of the jurisdictions in which the Company and its
Subsidiaries hold licenses (including, without limitation, licenses or
certificates of authority from applicable insurance departments), permits, or
authorizations to transact insurance or reinsurance business (collectively, the
"Insurance Licenses"). All such Insurance Licenses are valid, binding, and in
full force and effect. Each of the Company and the Insurance Subsidiary is duly
licensed in all jurisdictions in which the Company or the Insurance Subsidiary
writes the lines of
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insurance offered by it. No Insurance License is the subject of a proceeding
for suspension or revocation or any similar proceedings and, to the Knowledge of
the Parent, Seller or the Company, there is no pending threat of such suspension
or revocation by any licensing authority.
(b) The Company has heretofore made available to Buyer true and
complete copies of the reports reflecting the results of the most recent
financial examination of the Company or the Insurance Subsidiary issued by any
Insurance Department. Except as disclosed in Section 5.6(b) of the Company
Disclosure Schedule, all material deficiencies or violations in such reports
have been resolved.
5.7 Litigation. Except as set forth in Section 5.7 of the Company
Disclosure Schedule, (x) there is no Litigation (other than policyholder claims
submitted to the Company or any of its Subsidiaries for payment in the ordinary
course of business of the Company and its Subsidiaries) pending to which the
Company or any of its Subsidiaries is a party or by which any of such
Subsidiaries or their respective assets or properties are or may be bound by or
before any Federal, state, municipal, foreign or other court or Governmental or
Regulatory Body, or any private tribunal, or, to the Knowledge of Parent, Seller
or the Company, threatened against the Company or such Subsidiaries, in each
case that (i) seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or (ii) could reasonably be expected to have a
Material Adverse Effect and (y) neither the Company nor any of its Subsidiaries
is bound by or subject to any existing order, judgment, injunction, award or
decree, in each case that (i) seeks to restrain or enjoin the consummation of
the transactions contemplated by this Agreement or (ii) could reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries nor, to the Knowledge of Parent, Seller or the Company, any
officer, director or employee of the Company or any of its Subsidiaries has been
permanently or temporarily enjoined or barred by any order, judgment or decree
of any court or other tribunal or any Governmental or Regulatory Body from
engaging in or continuing any conduct or practice in connection with the
business conducted by the Company or any of its Subsidiaries.
5.8 Contracts and Other Agreements. (a) Section 5.8(a) of the
Company Disclosure Schedule lists all Contracts and Other Agreements to which
the Company or any of its Subsidiaries is a party or by which any of their
assets or properties are bound as of the date of this Agreement that involve or
reasonably could be expected to involve, in any instance, an obligation or
commitment on the part of any of the Company or any of its Subsidiaries in an
amount greater than $250,000 (other than Company Plans set forth in Section
4.14(a) of the Seller Disclosure Schedule, leases set forth in Section 5.9(b) of
the
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Company Disclosure Schedule, agreements described in Section 5.13, Insurance
Contracts and Investment Contracts), as well as the following:
(i) all written or, to the Knowledge of Parent, Seller or the Company,
oral employment, agency, consultation, or representation contracts or other
contracts of any type (including, without limitation, loans or advances)
with any present officer, director, employee, agent, consultant, or other
similar representative of the Company or any Subsidiary of the Company (or
former officer, director, employee, agent, consultant or similar
representative of the Company or any Subsidiary of the Company if there
exists any present or future liability with respect to such contract), other
than contracts (i) with such Persons who do not receive compensation of
$75,000 or more per year, or (ii) with insurance agents of the Company or
any Insurance Subsidiary that are terminable by the Company or such
Insurance Subsidiary without premium or penalty upon notice of 180 days or
less or, by their terms, do not provide for exclusivity (including, without
limitation, by territory, product, or distribution);
(ii) all written or, to the Knowledge of Parent, Seller or the Company,
oral contracts with insurance agents or brokers that both (A) relate to the
sale or distribution of insurance policies or annuity contracts issued,
reinsured, or underwritten by the Company or the Insurance Subsidiary, and
(B) by their terms, provide for exclusivity (including, without limitation,
by territory, product, or distribution); provided, however, excluded from
this clause (ii) shall be any contract terminable by the Company or the
Insurance Subsidiary without premium or penalty upon notice of 180 days or
less;
(iii) all contracts with any Person containing any stipulation,
provision, or covenant limiting, in any material respect, the ability of the
Company or any Subsidiary of the Company to (i) sell any products or
services of any other Person, (ii) transact business or engage in any line
of business, or (iii) compete with or obtain products or services from any
Person;
(iv) all contracts relating to the borrowing of money by the Company or
any Subsidiary of the Company, relating to the deferred purchase price for
property or services, or relating to the direct or indirect guarantee by the
Company or any Subsidiary of the Company of any liability;
(v) all contracts pursuant to which the Company or any Subsidiary of the
Company has agreed to indemnify or hold harmless any Person (other than
indemnifications in the
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ordinary course of business and consistent with past practice);
(vi) all contracts or arrangements (including, without limitation, those
relating to allocations of expenses, taxes, personnel, services, or
facilities) between or among the Company or any Subsidiary of the Company
and Seller, Parent or any Affiliate of Seller or Parent (other than the
Company and its Subsidiaries); and
(vii) all reinsurance, coinsurance, or other similar contracts pursuant
to which the Company or the Insurance Subsidiary receives or has received
surplus relief.
Except as set forth in Section 5.8(a) of the Company Disclosure Schedule, none
of Parent, Seller, the Company or any of its Subsidiaries or, to the Knowledge
of Parent, Seller or the Company, any other party to any such Contract or Other
Agreement is in violation or breach of or default under any such Contract or
Other Agreement (or, with or without notice or lapse of time or both, would be
in violation or breach of or default under any such Contract or Other
Agreement), which violation, breach or default has had or could reasonably be
expected to have a Material Adverse Effect. Each of the agreements listed on
Section 5.8(a) of the Company Disclosure Schedule (i) under "Client Agreements"
and designated File CC-26 through CC-39, (ii) under "Brokerage Agreements" and
(iii) under "Reinsurance Agreements" and designated File R1-12, R1-13, R1-14 and
R1-19 was entered into in the ordinary course of business and contain terms not
materially dissimilar to the terms of the other agreements listed under "Client
Agreements", "Brokerage Agreements" and "Reinsurance Agreements", respectively.
(b) Except as set forth in Section 5.8(b) of the Company Disclosure
Schedule, there have been made available to Buyer true and complete copies of
all of the Contracts and Other Agreements set forth in Section 5.8(a) of the
Company Disclosure Schedule or in any other Section of the Company Disclosure
Schedule.
5.9 Real Estate. (a) Except as set forth in Section 5.9(a) of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
owns any real property.
(b) Section 5.9(b) of the Company Disclosure Schedule lists all real
property leased or subleased to the Company or any of its Subsidiaries. Seller
has made available to Buyer correct and complete copies of each such lease or
sublease as amended to the date of this Agreement. Each such lease or sublease
is in full force and effect and neither the Company nor any of its Subsidiaries
is in default thereunder or has received any notice of any default thereunder of
any other party thereto, except in
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each case where any such unenforceability, ineffectiveness or default would not
have a Material Adverse Effect.
5.10 Personal Property; Intellectual Property. (a) Except as set
forth in Section 5.10(a) of the Company Disclosure Schedule, the Company and its
Subsidiaries have good and valid title to (free and clear of all Liens or Other
Encumbrances, other than Permitted Liens), or a valid leasehold interest in, the
tangible personal property they use in the conduct of their businesses, except
where the failure thereof would not have a Material Adverse Effect.
(b) Section 5.10(b) of the Company Disclosure Schedule contains a
true and complete list and description of all marks, names, trademarks, service
marks, patents, patent rights, assumed names, logos, trade secrets, copyrights,
trade names, and service marks that are material to the conduct of the business,
operations, or affairs of the Company or its Subsidiaries. Except as set forth
in Section 5.10(b) of the Company Disclosure Schedule, the Company or its
Subsidiaries have, and after the Closing will have, the right to use, free and
clear of any Liens or Other Encumbrances, such intellectual property and all
computer software, programs, and similar systems owned by or licensed to the
Company or its Subsidiaries and material to the conduct of the business,
operations, or affairs of the Company or its Subsidiaries. To the Knowledge of
Parent, Seller or the Company, neither the Company nor any Subsidiary of the
Company is in conflict with or in violation or infringement of, nor has Seller,
Parent, the Company, or any Subsidiary received any notice of any conflict with
or violation or infringement of or any claimed conflict with, any asserted
rights of any other Person with respect to any such intellectual property or
computer software, programs, or similar systems.
5.11 Operations of the Company. (a) Except as set forth in Section
5.11 of the Company Disclosure Schedule, since December 31, 1994, there has not
been, occurred or arisen any change in the business, financial condition or
results of operations of the Company or its Subsidiaries that has had or could
reasonably be expected to have a Material Adverse Effect, other than changes
after the date hereof resulting from a change in general economic conditions or
matters affecting the life or health insurance industry generally, and neither
the Company nor any of its Subsidiaries has:
(i) sold, assigned, transferred, mortgaged, pledged, leased, granted or
permitted to exist any Lien or Other Encumbrance, or otherwise disposed of
any assets which are material to the business of the Company and its
Subsidiaries, taken as a whole, as presently conducted, other than in the
ordinary course of business;
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(ii) increased the rates of compensation (including bonuses) payable or
to become payable to any officer, employee, agent, broker, independent
contractor or consultant of the Company or any of its Subsidiaries, other than
increases made in the ordinary course of business and other than the Special
Bonus Program;
(iii) entered into any new, or amended any existing, employment
contracts, severance agreements or consulting contracts or instituted, or agreed
to institute, any increase in benefits with respect to any Company Plans where
such increase would have a Material Adverse Effect, or altered its employment
practices or the terms and conditions of employment other than, in each case, in
the ordinary course of business or as required by applicable law;
(iv) incurred any material obligation, liability or indebtedness except
in the ordinary course of business, incurred any extraordinary losses, or
disposed of, canceled, waived or permitted to lapse any rights of material
value;
(v) changed in any material respect its Tax or accounting methods,
principles or practices (including, without limitation, any changes in
depreciation or amortization policies or rates or any changes in any assumptions
underlying any method of calculating reserves) other than as required by a
change in GAAP, SAP or other applicable law;
(vi) conducted its business otherwise than in the ordinary course;
(vii) entered into or amended or terminated any transaction or contract
that could reasonably be expected to have a Material Adverse Effect;
(viii) split, combined, redeemed, repurchased or reclassified the
capital stock of the Company or declared, set aside, made or paid any dividend
or other distribution in respect of the capital stock of the Company;
(ix) issued or sold (or agreed to issue or sell) any note, debenture,
stock, or other security or any options, warrants, conversion or other rights to
purchase any such securities or any securities convertible into or exchangeable
for such securities, or granted, or agreed to grant, any such options;
(x) amended the articles or certificate of incorporation or by-laws or
other charter or organizational documents of the Company or any of its
Subsidiaries;
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(xi) incurred any damage, destruction, or loss (whether or not
covered by insurance) affecting any of the assets of the Company or any
Subsidiary of the Company (other than claims under any Insurance Contracts)
which damage, destruction, or loss, individually or in the aggregate, has or
could reasonably be expected to have a Material Adverse Effect;
(xii) suffered any work stoppage, strike, or union organizational
campaign (in process or threatened) at or affecting the Company or any
Subsidiary of the Company that has or could reasonably be expected to have a
Material Adverse Effect;
(xiii) terminated, amended, or executed any material reinsurance,
coinsurance, or other similar contract, as ceding or assuming insurer;
(xiv) incurred any expenditure or commitment for additions to property,
plant, or equipment of the Company or any Subsidiary of the Company, which
expenditure or commitment exceeds $150,000 individually or $1,000,000 in the
aggregate; or
(xv) entered into any Contract or Other Agreement to do any of the
foregoing.
(b) The investments of the Company and the Insurance Subsidiary
reflected in the Annual SAP Statements of the Company and the Insurance
Subsidiary described in Section 4.9(b) comply with all applicable requirements
of law of their respective states of domicile, except where the failure to do so
would not have a Material Adverse Effect.
(c) Invested assets, including marketable securities, private
placements, mortgages, real estate and short-term investments, reflected on the
Annual SAP Statements of the Company and the Insurance Subsidiary described in
Section 4.9(b) are valued on such Statements at cost, amortized cost or market
value, as required by applicable law.
(d) Each of the Company and its Subsidiaries has, and on the Closing
Date will have, good and valid title to the bonds, stocks, mortgage loans and
other investments purported to be owned by it and reflected in the financial
statements of the Company or any of its Subsidiaries, in each case free and
clear of any Lien or Other Encumbrance. The Company and its Subsidiaries have
good and valid title to the investments set forth on Exhibits C, D and E hereto,
in each case free and clear of any Lien or Other Encumbrance.
(e) Except as to the Auto Credit Business, no
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outstanding insurance contract issued by the Company or any Insurance Subsidiary
entitles any policyholder thereunder to receive dividends, distributions or
other benefits based on the revenues or earnings of the Company or such
Insurance Subsidiary.
(f) All reserves with respect to insurance and annuities as
established or reflected, and all other provisions made for policy and contract
claims and, with respect to the Annual SAP Statements for the years ended
December 31, 1994, 1993 and 1992, IMR and AVR in the respective Annual SAP
Statements and Quarterly SAP Statements of the Company and the Insurance
Subsidiary described in Section 4.9(b) were determined in accordance with SAP
and generally recognized actuarial methods and generally accepted actuarial
standards, using prescribed or permitted morbidity and mortality tables and
interest rates that are in accordance with the nature of the benefits specified
in the related Insurance Contracts and in the related reinsurance, coinsurance
and other similar contracts of the Insurance Subsidiary, and such reserves and
other provisions met the applicable requirements of the insurance laws of each
Insurance Subsidiary's respective state of domicile, except where the failure to
do so would not have a Material Adverse Effect. All such reserves were adequate
(under accepted actuarial standards) as of the respective dates of such Annual
SAP Statements and Quarterly SAP Statements to cover the total amount of all
reasonably anticipated matured and unmatured benefits, claims and other
actuarially determined liabilities of the Company and the Insurance Subsidiary
under all Insurance Contracts under which the Company or the Insurance
Subsidiary had or would have had any liability (including any liability arising
under or as a result of any reinsurance, coinsurance, or other similar
contract), except where the failure of such reserves to be adequate to cover the
total amount of such benefits, dividends, claims and other liabilities would not
have a Material Adverse Effect. The Company and the Insurance Subsidiary own
assets that qualify as legal reserve assets under applicable insurance laws of
their respective state of domicile in an amount, determined in accordance with
SAP, at least equal to all required reserves, except where the failure to own a
sufficient amount of such assets or the failure of such assets to so qualify
would not have a Material Adverse Effect.
(g) Except as set forth in Section 5.11(g) of the Company Disclosure
Schedule, since September 30, 1995 through the date hereof:
(i) No Person writing, selling or producing insurance business that
accounted for 5% or more of the premium or annuity considerations of the
Company and the Insurance Subsidiary, taken as a whole, for the year ended
December 31, 1994 has terminated or, to the Knowledge of Parent, Seller or
the Company, threatened to terminate its
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relationship with the Company or the Insurance Subsidiary; and
(ii) No policyholder (or group of policyholders known to the
Company to be affiliated with each other) that accounted for 5% or more
of the premium or annuity considerations of the Company and the
Insurance Subsidiary, taken as a whole, for the year ended December 31,
1994 has terminated or, to the Knowledge of Parent, Seller or the
Company, threatened to terminate its policies with the Company or the
Insurance Subsidiary.
(h) From December 31, 1994 through the date hereof, no rating agency
has (i) imposed conditions (financial or otherwise) on retaining any rating
assigned to the Company or any Insurance Subsidiary or (ii) threatened to
downgrade any rating assigned to the Company or any Insurance Subsidiary.
Parent, Seller and the Company have no Knowledge of any facts existing as of
the date of this Agreement (except for the transactions contemplated by this
Agreement) which can reasonably be expected to result in a downgrade in any
rating assigned to the Company or any Insurance Subsidiary by any rating
agency.
(i) The underwriting standards utilized and ratings applied by the
Company and the Insurance Subsidiary and by any other Person that is a party
to or bound by any reinsurance, coinsurance, or other similar contract with
the Company or the Insurance Subsidiary conform in all material respects to
industry accepted practices and to the standards and ratings required
pursuant to the terms of the respective reinsurance, coinsurance, or other
similar contracts.
(j) Each Person who wrote, sold, or produced business for the Company
or the Insurance Subsidiary was duly licensed as an insurance agent at the
time such Person wrote, sold or produced such business (for the type of
business written, sold, or produced by such insurance agent) in the
particular jurisdiction in which such agent wrote, sold, or produced such
business, except where the failure to be so licensed does not or cannot
reasonably be expected to have a Material Adverse Effect.
(k) All outstanding insurance policies and annuity contracts issued,
reinsured, or underwritten by the Company and Insurance Subsidiaries are, to
the extent required under applicable laws, on forms and at rates and
commissions approved by the insurance regulatory authority of the
jurisdiction where issued or have been filed with and not objected to by
such authority within the period provided for objection, except where the
failure to obtain such approval or make such filing does not have or cannot
reasonably be expected to have a Material Adverse Effect.
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5.12 [Intentionally Omitted].
5.13 Labor Matters. (a) Section 5.13(a) of the Company Disclosure
Schedule sets forth a list containing the name, current base salary or wage
rate, and position of each Affected Employee who is actively employed (including
those on vacation). Parent or Seller shall, or shall cause the Company or one
of its Subsidiaries to, provide Buyer with an updated Section 5.13(a) of the
Company Disclosure Schedule listing those Affected Employees (i) who are on
disability, layoff or leave of absence as of the Closing Date or (ii) who were
Inactive Employees (as defined in Section 7.8(a)) as of the date hereof who, in
each case, have returned to active employment with the Company or one of its
Subsidiaries on or prior to the Closing Date.
(b) Neither the Company nor any of its Subsidiaries is a party to any
labor or collective bargaining agreement and there are no labor or collective
bargaining agreements which pertain to employees of the Company or any of its
Subsidiaries. There are no organizing activities, strikes, work stoppages,
slowdowns, lockouts, material arbitrations or material grievances or other
material labor disputes pending or (to the Knowledge of Parent, Seller or the
Company) threatened against or involving the Company or any of its Subsidiaries.
(c) Except as set forth on Section 5.13(c) of the Company Disclosure
Schedule, there are no complaints, charges or claims against the Company or any
of its Subsidiaries pending or, to the Knowledge of Parent, Seller or the
Company, threatened to be brought or filed, with any public or governmental
authority, arbitrator or court based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment by the Company
or any of its Subsidiaries, of any individual, in each case which have or could
reasonably be expected to have a Material Adverse Effect.
(d) The Company and each of its Subsidiaries is in material
compliance with all laws, regulations and orders relating to the employment of
labor, including all such laws, regulations and orders relating to wages, hours,
WARN, collective bargaining, discrimination, civil rights, safety and health,
workers' compensation and the collection and payment of withholding and/or
social security taxes and any similar tax.
(e) There has been no "mass layoff" or "plant closing" as defined by
WARN (or any similar state or local "plant closing" laws), with respect to the
Company or any of its Subsidiaries within the six months prior to the date
hereof.
5.14 No Undisclosed Liabilities. There were no liabilities of the
Company or any of its Subsidiaries as of September 30, 1995 that are of a type
required to be disclosed on
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a balance sheet (or in the notes related thereto) prepared in accordance with
GAAP or SAP, except (a) policyholder benefits payable in the ordinary course of
business and consistent with past practice, (b) as disclosed in Section 5.14 of
the Company Disclosure Schedule, or (c) specifically reflected on the financial
statements of the Company and its consolidated subsidiaries as of September 30,
1995, in the Quarterly SAP statements for the Company or the Insurance
Subsidiary for the period ended September 30, 1995, or in the notes or work
papers related to the foregoing financial statements. Since September 30, 1995
through the date hereof, neither the Company nor any of its Subsidiaries has
incurred any liabilities that are of a type which could reasonably be expected
to have a Material Adverse Effect, except (i) as disclosed in Section 5.14 of
the Company Disclosure Schedule and (ii) policyholder benefits payable, or other
liabilities incurred, in the ordinary course of business.
6. Representations and Warranties of Buyer. Buyer represents and
warrants to each of Parent, Seller and the Company as follows:
6.1 Existence and Power. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York.
Buyer has all requisite corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby.
6.2 Execution and Delivery. The execution and delivery by Buyer of
this Agreement, the performance by Buyer of its obligations hereunder and the
consummation by Buyer of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly executed and delivered by Buyer and constitutes the
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, or by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
6.3 Consents and Approvals. The execution and delivery by Buyer of
this Agreement, the performance by Buyer of its obligations hereunder and the
consummation by Buyer of the transactions contemplated hereby do not and will
not require Buyer to obtain any consent, approval or action of, or make any
filing with or give any notice to, any Governmental or Regulatory Body or Person
except (i) as set forth in Section 5.2 of the Company Disclosure Schedule, (ii)
such as have been duly obtained and are in full force and effect on the date
hereof and will continue to be in full force and effect on the Closing Date and
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(iii) those which, if not obtained, made or given, could not reasonably be
expected to have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated by this Agreement.
6.4 No Conflict. The execution and delivery by Buyer of this
Agreement, the performance by Buyer of its obligations hereunder and the
consummation by Buyer of the transactions contemplated hereby in accordance with
the respective terms and conditions hereof will not: (i) violate any provision
of the articles or certificate of incorporation or by-laws or other charter or
organizational documents of Buyer, (ii) violate, conflict with or result in the
breach of any of the terms of, result in a material modification of the effect
of, otherwise give any other contracting party the right to terminate, or
constitute (with or without notice or lapse of time or both) a default under,
any Contract or Other Agreement to which Buyer is a party or by or to which
Buyer or any of its assets or properties may be bound or subject or (iii)
violate any existing term or provision of any law, regulation, order, writ,
judgment, injunction or decree applicable to Buyer or any of its assets or
properties, except, in the case of clause (ii), for such violations, conflicts,
breaches, modifications, rights and defaults that could not reasonably be
expected to have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated by this Agreement.
6.5 Purchase Not for Distribution. The Shares to be acquired under
the terms of this Agreement will be acquired by Buyer for its own account and
not with a view to distribution. Buyer will not resell, transfer, assign or
distribute the Shares, except in compliance with the registration requirements
of the Securities Act of 1933, as amended, or pursuant to an available exemption
therefrom.
6.6 Financing. Buyer has, or will have at the Closing, sufficient
funds (including as a result of the sale of commercial paper in the ordinary
course of business), in an aggregate amount of not less than the anticipated
Final Purchase Price and all contemplated fees and expenses of Buyer related to
the transactions contemplated by this Agreement, which funds will be available
at the Closing to pay such anticipated Final Purchase Price and all such fees
and expenses.
6.7 Litigation. There is no Litigation pending to which Buyer is a
party or its assets or properties are or may be bound by or before any Federal,
state, municipal, foreign or other court or Governmental or Regulatory Body, or
any private tribunal, or, to the Knowledge of Buyer, threatened against Buyer or
any of its Affiliates that, in each case, (i) seeks to restrain or enjoin the
consummation of the transactions contemplated by this Agreement or (ii) could
reasonably be
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expected to have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated by this Agreement. Neither Buyer nor any of its
Affiliates is bound by or subject to any existing order, judgement, injunction
award or decree that, in each case, (i) seeks to restrain or enjoin the
consummation of the transactions contemplated by this Agreement or (ii) could
reasonably be expected to have a material adverse effect on the ability of Buyer
to consummate the transactions contemplated by this Agreement. Neither Buyer
nor any of its Affiliates nor, to the Knowledge of Buyer, any officer, director
or employee of Buyer or any of its Affiliates has been permanently or
temporarily enjoined or barred by any order, judgment or decree of any court or
other tribunal or any Governmental or Regulatory Body from engaging in or
continuing any conduct or practice that could reasonably be expected to have a
material adverse effect on the ability of Buyer to consummate the transactions
contemplated by this Agreement.
6.8 Brokers. No broker or finder has acted directly or indirectly
for Buyer, nor has Buyer incurred any obligation to pay any brokerage, finder's
fee or other commission, in connection with the transactions contemplated by
this Agreement.
7. Covenants and Agreements. The parties covenant and agree as
follows:
7.1 Conduct of Business. From the date hereof through the Closing
Date, except as set forth in Section 7.1 of the Seller Disclosure Schedule or as
may otherwise be expressly required or permitted by this Agreement (including,
without limitation, the matters contemplated by Section 7.10), Parent and Seller
covenant and agree that, except with the consent of Buyer:
(a) Parent and Seller shall cause the Company and each of its
Subsidiaries to conduct the business of the Company and its Subsidiaries only in
the ordinary course of business and consistent with past practice.
(b) Parent and Seller shall cause the Company and each of its
Subsidiaries to use commercially reasonable efforts to maintain all Insurance
Licenses and all other Permits, other than such other Permits the failure of
which so to maintain shall not have had and could not reasonably be expected to
have a Material Adverse Effect, of each of the Company and its Subsidiaries to
do business in each jurisdiction in which it is licensed, qualified, or
authorized.
(c) Parent and Seller shall cause the Company and each of its
Subsidiaries to use commercially reasonable efforts to (i) maintain until their
scheduled expiration, in full force and effect, all material contracts,
documents, and arrangements referred to in Section 5.8, and (ii) maintain each
rating
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classification assigned as of the date hereof to the Company and each Insurance
Subsidiary by insurance rating agencies.
(d) Parent and Seller will cause the Company and each of its
Subsidiaries to (i) maintain all material assets of each of the Company and its
Subsidiaries in good working order and condition, ordinary wear and tear
excepted, and (ii) continue (in all material respects) all current marketing and
selling activities relating to the business, operations, and affairs of each of
the Company and its Subsidiaries.
(e) Parent and Seller will cause the Company and the Insurance
Subsidiary to refrain from entering into any surplus relief or financial
reinsurance contract. Parent and Seller will cause the Company and the
Insurance Subsidiary to refrain from entering into any other reinsurance,
coinsurance, or similar contract, whether as reinsurer or reinsured, other than
in the ordinary course of business and consistent with past practice.
(f) Parent and Seller will cause each of the Company and its
Subsidiaries to refrain from entering into any (i) contract (other than
contracts with insurance agents or Insurance Contracts) that involves the
payment or potential payment pursuant to the terms of such contract, by or to
the Company or any Subsidiary of the Company of more than $150,000 individually
or $1,000,000 in the aggregate or (ii) transaction of the type, or engaging in
any of the activities, described in Section 5.11.
(g) Parent and Seller will cause each of the Company and its
Subsidiaries to refrain from entering into any contract with any insurance agent
or broker that provides, by its terms, for exclusivity (including, without
limitation, by territory, product, or distribution) or that is not terminable by
its terms within 180 days by the Company or a Subsidiary of the Company, as the
case may be, without premium or penalty.
(h) Parent and Seller will cause each of the Company and its
Subsidiaries to comply with all laws applicable to the business, operations, or
affairs of such entity, except to the extent that any such non-compliance does
not have or is not reasonably likely to have a Material Adverse Effect.
(i) Neither Parent, Seller, the Company nor any of their Subsidiaries
shall make any change to, or amend in any way, the contracts, salaries, wages,
or other compensation of any officer, director, employee, agent, or other
similar representative of the Company or any of its Subsidiaries other than
changes or amendments that (i) are made in the ordinary course of business and
consistent with past practice or (ii) are required pursuant to the terms of any
Employee Benefit Program or written agreement to which such Person is a party,
in either case, existing as of the date hereof.
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(j) Neither Parent, Seller, the Company nor any of their Subsidiaries
shall adopt, enter into, amend, alter, or terminate, any Employee Benefit
Program relating to or affecting any employee of the Company or any of its
Subsidiaries (unless required to do so by applicable law or pursuant to a
preexisting binding obligation or commitment), where the effect of any of the
foregoing would be material upon the Company or any of its Subsidiaries.
(k) Neither the Company nor any of its Subsidiaries shall enter into
any contract with an officer, director, employee, agent, or other similar
representative of the Company or any of its Subsidiaries that is not terminable,
without penalty or other liability, upon not more than 60 calendar days' notice
where the liability for such contract exceeds $75,000 in any year in respect of
such Person.
(l) Neither the Company nor any of its Subsidiaries shall assume,
enter into, amend, alter, or terminate any labor or collective bargaining
agreement to which it is a party or is affected thereby.
7.2 Pre-Closing Maintenance of Insurance. From the date hereof
through the Closing Date, Parent shall use commercially reasonable efforts to
maintain or cause to be maintained in force insurance with respect to the
Company and its Subsidiaries as described in Section 4.13.
7.3 Litigation; Notice of Assessments; Requests for Information. (a)
From the date hereof through the Closing Date, Seller agrees to notify Buyer
promptly of any Litigation that, if pending or threatened as of the date hereof,
would be required to be described in Section 5.7 of the Company Disclosure
Schedule and of any material requests for additional information or documentary
materials by any Governmental or Regulatory Body in connection with the
transactions contemplated by this Agreement.
(b) From the date hereof through the Closing Date, Seller agrees to
notify Buyer promptly of any inquiry from the IRS or the U.S. Department of
Labor that, if made on or prior to the date of this Agreement, would be required
to be described in Section 4.14(a) or Section 4.14(c) of the Seller Disclosure
Schedule.
(c) From the date hereof through the Closing Date, Buyer shall notify
Seller promptly of any Litigation that, if pending or threatened as of the date
hereof, would be required to be described in Section 6.7.
7.4 Access to Information; Confidentiality. (a) Prior to the Closing
Date, each of Parent, Seller and the Company shall, and shall cause the
Subsidiaries of the Company and its
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and their respective directors, officers, employees and agents to, permit
representatives of Buyer to discuss the affairs, operations, finances and
accounts of the Company with the officers and employees of the Company and its
Subsidiaries, all at such reasonable times and as may reasonably be requested,
subject to the terms of any confidentiality agreements with third parties to
which Parent, Seller, the Company or any Subsidiary of the Company is subject.
Prior to the Closing Date, each of Parent, Seller and the Company shall, and
shall cause the Subsidiaries of the Company and its and their respective
directors, officers, employees and agents to, upon reasonable request, make
available to Buyer and its representatives all of the books, records and other
documents of the Company and its Subsidiaries, and permit Buyer and its
representatives to examine, make extracts from and, at Buyer's expense, copy
such books, records or documents at any time during normal business hours in
order that the Buyer may have the opportunity to make such reasonable
investigations as it shall desire to make of the affairs of the Company. All
requests by Buyer for such access shall be directed to the person or persons who
are or have been from time to time designated by Parent and Seller to be the
recipient of such requests. After the Closing Date, each of Buyer and the
Company shall, and shall cause the Subsidiaries of the Company and its and their
respective directors, officers, employees and agents to, upon reasonable
request, make available to Seller and its representatives the books, records and
other documents of the Company and its Subsidiaries pertaining to the operation
of the Company and its Subsidiaries prior to the Closing Date, and permit Seller
and its representatives to examine, make extracts from and, at Seller's expense,
copy such books, records or documents at any time during normal business hours
in connection with any claim or legal proceeding for which Parent or Seller may
be responsible and in order for Parent or Seller to comply with any applicable
regulatory requirements or applicable requirements of law.
(b) Prior to the Closing, Buyer shall, and shall cause each of its
Subsidiaries and its and their respective directors, officers, employees, agents
and representatives to, keep confidential and, if this Agreement terminates,
shall not use in any manner any information or material obtained from or on
behalf of Parent, Seller, the Company or any of the Subsidiaries of the Company
or any of its or their respective directors, officers, employees, agents or
representatives, whether prior to, on or after the date of this Agreement, other
than information and material readily ascertainable from public or published
information, or trade sources, or already known by Buyer or any of its
Affiliates independently of any investigation of Parent, Seller, the Company and
the Subsidiaries of the Company or received from a third party who Buyer knows
(or reasonably believes) is not under an obligation to any of Parent, Seller,
the Company or any of the Subsidiaries of the Company to keep
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such information confidential. In addition, at all times, except as required by
law or judicial order, Buyer shall, and shall cause each of its Subsidiaries and
its and their respective directors, officers, employees, agents and
representatives to, keep confidential any information or material relating to
Parent or Seller or their respective Subsidiaries (other than the Company and
its Subsidiaries) obtained from or on behalf of Parent, Seller, the Company or
any of the Subsidiaries of the Company or any of its or their respective
directors, officers, employees, agents or representatives, whether prior to, on
or after the date of this Agreement, other than information and material readily
ascertainable from public or published information, or trade sources, or already
known by Buyer or any of its Affiliates independently of any investigation of
Parent, Seller, the Company and the Subsidiaries of the Company or received from
a third party who Buyer knows (or reasonably believes) is not under an
obligation to any of Parent, Seller, the Company or any of the Subsidiaries of
the Company to keep such information confidential. After the Closing, except as
required by law or judicial order, Parent and Seller shall, and shall cause each
of their Subsidiaries and their respective directors, officers, employees,
agents and representatives to, keep confidential and shall not use in any manner
any information or material obtained from or on behalf of the Company or any of
its Subsidiaries or any of its or their respective directors, officers,
employees, agents or representatives, other than information and material
readily ascertainable from public or published information, or trade sources, or
known by Parent, Seller or any of their Affiliates independently of the Company
and its Subsidiaries or received from a third party who Parent or Seller knows
(or reasonably believes) is not under an obligation to Buyer, the Company or any
of the Subsidiaries of the Company to keep such information confidential. If
this Agreement terminates, any documents or material obtained by Buyer from or
on behalf of Parent, Seller, the Company or any of the Subsidiaries of the
Company or any of the respective directors, officers, employees, agents or
representatives of such Persons and any analyses, compilations, studies or other
material prepared by Buyer or its representatives containing, or based in whole
or in part on, any information or material so obtained from or on behalf of
Parent, Seller, the Company or any of its Subsidiaries shall promptly be
destroyed and certification thereof shall promptly be furnished to Parent.
7.5 Approvals. (a) Each party shall use commercially reasonable
efforts to obtain as promptly as practicable all necessary approvals,
authorizations and consents of all Persons (including, without limitation,
Governmental and Regulatory Bodies) required of it to be obtained to consummate
the transactions contemplated by this Agreement and cooperate with the other
parties in seeking to obtain all their respective approvals, authorizations and
consents. Each party shall use
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commercially reasonable efforts to provide such information to Governmental and
Regulatory Bodies (including applicable insurance regulators) as such bodies may
request.
(b) Each of the parties shall provide to the other parties copies of
all insurance change of control applications filed in connection with this
Agreement.
(c) Following the date hereof, the Company shall use commercially
reasonable efforts to cure such deficiencies, if any, that Buyer and Parent
agree exist in the licensing of agents of the Company and the Insurance
Subsidiary.
7.6 Additional Financial Statements. As soon as reasonably
practicable after they become available, Seller shall make available to Buyer
(i) as and to the extent prepared, the GAAP financial statements of the Company
and its Subsidiaries (without footnotes) for all interim quarterly fiscal
periods and all monthly periods subsequent to September 30, 1995 and prior to
the Closing Date, (ii) Quarterly SAP Statements of the Company and the Insurance
Subsidiary for all interim periods subsequent to September 30, 1995 and prior to
the Closing Date ("Interim SAP Statements"), and (iii) pro-forma GAAP and SAP
financial statements of the Company for such interim quarterly fiscal periods
after giving effect to the transactions and other actions described in Exhibit A
and Section 7.10(b) hereof and the valuation principles described in Section
2.4(i). Such GAAP financial statements will present fairly in all material
respects the financial position and results of operations of the Company and its
consolidated subsidiaries as of each such date and for each such period in
conformity with GAAP, subject to year-end adjustments and except that such
financial statements shall not contain footnotes. Such SAP financial statements
will present fairly the statutory financial condition of the Company or the
Insurance Subsidiary to which such statement relates as of the end of the
calendar quarter to which such statement relates and the statutory results of
its operations for the period then ended and will be prepared in conformity in
all material respects with SAP.
7.7 Further Assurances. Each of the parties shall execute such
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions of this Agreement and the
transactions contemplated hereby. Each such party shall use commercially
reasonable efforts to fulfill or obtain the fulfillment of the conditions to the
Closing as promptly as practicable. Without limiting the generality of the
foregoing, the parties shall use commercially reasonable efforts to file
promptly with the FTC and Justice complete and accurate notification and report
forms with respect to the transactions contemplated hereby pursuant to HSR, to
file as promptly as practicable such additional information
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and documentary materials as may be requested pursuant to HSR, and request early
termination of all applicable waiting periods.
7.8 Certain Employee Matters. (a) Employment of Affected Employees.
Any Affected Employee who is actively employed by the Company or any of its
Subsidiaries (including such employees who are on vacation) immediately prior to
the date hereof in the administration or management of such business of the
Company as shall be the business of the Company after giving effect to the
transactions outlined in Exhibit A, in addition to employees newly hired between
the date hereof and Closing to be so employed, shall remain an employee of the
Company or such Subsidiary, as the case may be, immediately following the
Closing at the same base compensation and wage levels as in effect immediately
preceding the Closing. Notwithstanding anything herein to the contrary, nothing
in this Agreement shall create any obligation on the part of the Company or any
of its Subsidiaries to continue the employment of any employee for any definite
period following the Closing. Buyer shall cause the Company or its Subsidiaries
to offer to employ (or offer severance benefits if such individual's position is
no longer available as allowed by applicable law) each Affected Employee who is
receiving sick-leave or short-term disability benefits under Seller's sick-leave
or short-term disability program or who is on an approved leave of absence as of
the Closing ("Inactive Employees"); provided, however, no individual shall be
offered employment under this provision after six months following the Closing
or under the terms of his leave of absence or any applicable period as required
by law, if longer. Each Inactive Employee shall become an employee of Parent,
Seller or one of their Subsidiaries as of the Closing Date until (i) such
Inactive Employee is offered employment (or paid severance) by Buyer, the
Company or their Subsidiaries pursuant to this Section 7.8(a), (ii) the
expiration of the period for which such Inactive Employee is entitled to such an
offer of employment (or payment of severance) or (iii) such Inactive Employment
is otherwise terminated by Parent, Seller or their Subsidiaries. Nothing in
this Section 7.8(a) shall be interpreted as obligating Parent, Seller or their
Subsidiaries to accept any Inactive Employee for active employment for any
period of time. The active participation of all Affected Employees in each
Employee Benefit Program that is not maintained primarily for the benefit of
Affected Employees shall cease as of the Closing Date.
(b) Substantially Equivalent Benefits.
(i) Effective as of the Closing Date, Buyer shall cause the Company
or one of its Subsidiaries to provide such plans, programs, agreements or
arrangements on behalf of the Transferred Employees so as to provide, in the
aggregate, employee benefits which are substantially equivalent to the
benefits provided to similarly situated employees at the
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life insurance subsidiary of Buyer.
(ii) Notwithstanding the foregoing, with respect to any terminations
of employment with the Company or one of its Affiliates occurring within one
year after the Closing Date, Buyer shall cause to be maintained following
the Closing Date severance benefits for the Transferred Employees which are
no less favorable to the Transferred Employees than the following:
1. Full-time exempt employees shall receive one week of severance
for each year of service plus four weeks. The minimum amount of
severance shall be four (4) weeks.
2. Full-time non-exempt employees shall receive one week of
severance for each year of service plus two weeks. The minimum
amount of severance shall be two (2) weeks.
3. Part-time exempt and non-exempt employees shall receive
severance pay based upon the schedule described in item 2
immediately above, pro-rated based upon average hours worked.
4. Partial years of service shall be rounded to the closest year
of service for calculation of benefit purposes.
(c) Retirement Plan. On the Closing Date, Parent shall cause each
Affected Employee who is a participant (other than any terminated non-vested
participant) in the Parent's Retirement Plan to become fully vested, to the
extent not already vested, as of the Closing Date in the benefits accrued under
the Parent's Retirement Plan as of the Closing Date. Transferred Employees
shall cease to accrue any benefits under the Parent's Retirement Plan, and the
Company and its Subsidiaries shall cease to be participating employers in such
plan, as of the Closing Date. After the Closing Date, any new benefits accrued
by Affected Employees shall be accrued under the terms of the Buyer's Retirement
Plan, if any, and Parent's Retirement Plan shall have no liability or obligation
in respect of such accruals.
(d) Defined Contribution Plans. On the Closing Date, Parent shall
cause each Affected Employee who is a participant (other than any Affected
Employee who is terminated prior to the Closing) in the Defined Contribution
Plans to become fully vested, to the extent not already vested, as of the
Closing Date in his account balance under each such plan. The Company and its
Subsidiaries shall cease to be participating employers in the Defined
Contribution Plans as of the Closing Date. Transferred
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Employees shall be entitled to receive distributions pursuant to the terms of
such plans and the provisions of applicable law.
(e) Post-Retirement Medical and Life Benefits. Parent shall retain
all obligations and liabilities for post-retirement medical benefits and life
insurance under the Company Plans in respect of any Affected Employee who
retired on or before the Closing and any Affected Employee who is not a
Transferred Employee, whether such claims are incurred prior to, on or after the
Closing Date. Following the Closing, Buyer or the Company or its Subsidiaries
shall provide to the Transferred Employees coverage under a retiree welfare
benefit plan which provides benefits which are substantially equivalent to the
benefits provided under the retiree welfare benefit plans maintained by Parent
immediately prior to the Closing.
(f) Bonuses. Buyer shall cause the Company and its Subsidiaries to
assume all obligations and liabilities for bonuses and incentive payments in
connection with the relevant Employee Benefit Programs in effect immediately
prior to the Closing Date and shall cause the payment of such bonuses or
incentive payments, if any, to be made in accordance with the terms of such
Employee Benefit Programs consistent with past practice to the extent such
obligations and liabilities have been accrued on the Closing SAP Balance Sheet
in accordance with SAP, such accruals to be made in a manner consistent with
past practices.
(g) Special Bonus Program. Parent or a Subsidiary of Parent (other
than the Company and its Subsidiaries) shall assume all obligations and
liabilities for bonuses in connection with the Special Bonus Program in effect
on the date hereof and shall cause the payment of such bonuses to be made in
accordance with the terms of the Special Bonus Program.
(h) Vacation. Buyer shall cause the Company and its Subsidiaries to
credit each Transferred Employee with the number of unused vacation days
credited to such individual through the Closing Date under the applicable
vacation policies of his or her employer and shall permit or cause Transferred
Employees to be permitted to use such vacation days.
(i) Welfare Benefits. Effective as of the Closing, Buyer shall cause
the Company or one or more of its Subsidiaries to provide coverage to all
Transferred Employees and their dependents or COBRA beneficiaries under a group
health plan which is substantially similar to the group health plan covering the
Transferred Employees (and their dependents and COBRA beneficiaries) immediately
prior to the Closing, and such coverage shall be provided under substantially
the same terms and conditions applicable to such Transferred Employees under
Parent's group health plan immediately prior to the Closing.
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With respect to each Transferred Employee, the Company shall retain the
obligation and liability for claims by any such individual (or his or her
covered dependent) or any COBRA beneficiary under the Company's employee welfare
benefit plans (within the meaning of Section 3(1) of ERISA), incurred after the
Closing Date. Buyer shall cause the Company and its Subsidiaries to provide for
the waiver under the Company's or one of its Subsidiaries' welfare benefit plans
covering Transferred Employees on and after the Closing Date of any conditions
to coverage with respect to pre-existing medical conditions (but only with
respect to conditions which are covered under Seller's welfare benefit plans
prior to the Closing Date) and shall credit Transferred Employees with any
amounts paid prior to the Closing Date in order to satisfy applicable deductible
amounts and copayment minimums under the corresponding welfare plans of the
Company or one of its Subsidiaries to the extent such payments would be taken
into account under the welfare plans maintained by Buyer with respect to
similarly situated employees. Parent agrees that the Affected Employees shall
not be eligible to participate in Parent's cafeteria plan for any period after
December 31, 1995, assuming that the Closing Date is on or before March 31,
1996, and Buyer agrees to provide for immediate participation and enrollment of
such employees in an equivalent cafeteria plan as of the Closing Date and to use
its best efforts to make available to such employees the benefits that would
have been available thereunder had the Closing Date occurred on December 31,
1995. If the Closing Date does not occur by March 31, 1996, the parties shall
cooperate in good faith to make available to the Affected Employees cafeteria
plan benefits to replace those that would have been available to such employees
under Parent's cafeteria plan for such period of time but for this Agreement.
With respect to each Affected Employee who is not on the Closing Date a
Transferred Employee and his or her dependents or COBRA beneficiaries, Parent,
Seller or one of their Subsidiaries shall assume the obligation and liability
for claims under any Employee Benefit Program that is an employee welfare
benefit plan under Section 3(1) of ERISA incurred pursuant to the terms of such
plan (as if such employee had been an employee of Parent, Seller or such
Subsidiary) prior to the date on which such employee becomes a Transferred
Employee. Promptly after the end of each calendar quarter after the Closing
Date, Parent shall provide to Buyer a report of the payments of short-term
disability salary continuation payments (to the extent not accounted for under
Section 7.8(m)) made pursuant to the preceding sentence, and Buyer shall within
5 business days thereafter reimburse Parent for such amount.
(j) Workers' Compensation. With respect to each Affected Employee,
Parent shall retain the obligation and liability for any workers' compensation
or similar workers' protection claims with respect to any such individual
incurred on or prior to the Closing Date.
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(k) Credit. Buyer, Company and any of its Subsidiaries shall
recognize the service credited to Transferred Employees on or prior to the
Closing Date to the extent recognized under the Employee Benefit Programs as if
such service had been rendered to Buyer or one of its Affiliates in connection
with (i) any welfare benefit plan (within the meaning of Section 3(1) of ERISA)
for purposes of any waiting period and eligibility purposes only (including
eligibility for benefits that might otherwise be limited due to pre-existing
medical conditions or participant co-payments and deductibles) and (ii) any
employee pension plan (within the meaning of Section 3(2) of ERISA) for purposes
of eligibility and vesting (but not for benefit accrual) but only with respect
to a plan in which such employees participate and which is made available by
Buyer or any of its Affiliates following the Closing.
(l) Third-Party Rights. No provision of this Section 7.8 shall
create any third-party beneficiary rights in any employee or former employee
(including any beneficiary or dependent thereof) of Parent, Seller, any of their
Affiliates, the Company or any Subsidiaries of the Company in respect of
continued employment (or resumed employment) for any specified period of any
nature or kind whatsoever, and no provision of this Section 7.8 shall create
such third-party beneficiary rights in any such persons in respect of any
benefits that may be provided, directly or indirectly, under any employee
benefit plan or arrangement, including the currently existing Employee Benefit
Programs.
(m) Reimbursement of Liabilities. Within five Business Days after
the Final Purchase Price has been agreed to or determined by the Settlement
Auditor, Buyer shall pay to Parent the amount of liabilities accrued on the
Adjusted Closing GAAP Balance Sheet that relate to pension, post-retirement
medical, workers compensation and welfare liabilities which are retained by
Parent and Seller in this Section 7.8. For purposes of this Section 7.8(m), the
amount of welfare (including post-retirement) and pension liabilities retained
by Parent in respect of Affected Employees shall be determined pursuant to FAS
87, FAS 88, FAS 106 and FAS 112, as the case may be, as applied for purposes of
GAAP. Any payments pursuant to this Section 7.8(m) shall constitute an
adjustment to the Final Purchase Price.
(n) Indemnity. Buyer agrees to indemnify Parent, Seller and their
Affiliates and to defend and hold Parent, Seller and their Affiliates harmless
from and against any and all claims, losses, damages, expenses, obligations and
liabilities (including costs of collection, attorney's fees and other costs of
defense) arising out of any claims by or in respect of any Transferred Employee
(or such Transferred Employee's successors or assigns) with respect to any of
the obligations or liabilities which Parent or Seller has not assumed or
retained hereunder or
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any other events arising after the Closing Date, including, but not limited to,
claims with respect to (i) assumed severance, (ii) vacation, (iii) bonus or
incentive payments, or (iv) WARN or any similar state notification law. Seller
and Parent hereby agree to indemnify Buyer and its Affiliates and to defend and
hold Buyer and its Affiliates harmless from and against any and all Losses
arising out of (x) any claims under any of the Employee Benefit Programs with
respect to any of the obligations or liabilities that Buyer has not agreed to
cause the Company or its Subsidiaries to assume, (y) any "employee pension plan"
(within the meaning of Section 3(2) of ERISA) or any "group health plan" (within
the meaning of Section 607 of ERISA) in respect of which the Company or any of
its Subsidiaries have any liability solely as a result of being a member of a
"controlled group" (within the meaning of Section 4001(a)(14) of ERISA) prior to
the Closing Date which includes Parent or Seller (but exclusive of liabilities
in connection with Affected Employees under any such plan maintained or
contributed to by the Company or any of its Subsidiaries) or (z) any claims by
or in respect of any Affected Employee, including a Transferred Employee (or
such Transferred Employee's successors or assigns), arising out of, or in
connection with, or otherwise relating to, any allegations of unlawful
discrimination or sexual harassment which occurred on or prior to the Closing
Date. Notwithstanding any other provision of this Agreement to the contrary,
the indemnities provided for herein shall not be subject to the deductible and
maximum liability contained in Section 10.2, and all such indemnities shall
survive until 60 days after the expiration of the applicable statute of
limitations with respect thereto, other than the indemnity set forth in clause
(z) herein, which shall be subject to, and be taken into account for purposes
of, calculating the availability or applicability of the deductible and maximum
liability contained in Section 10.2, and shall survive for one (1) year after
the Closing Date (except to the extent that a detailed notice of a specific
claim giving rise to a right of indemnification shall have been given by Buyer
in accordance with the procedures set forth in Section 10.4). Any claim for
indemnification by Buyer, Seller or Parent pursuant to this Section 7.8(n) shall
be subject to the procedures set forth in Section 10.4.
7.9 Settlement of Intercompany Accounts; Cancellation of Intercompany
and Other Agreements. The parties agree that all intercompany accounts,
including all accounts receivable (whether or not currently due and payable),
between the Company or any of its Subsidiaries, on the one hand, and Parent,
Seller and their Affiliates (other than the Company and its Subsidiaries), on
the other hand, shall be settled in full on or prior to the Closing Date
(subject to the next sentence). Within five days prior to the Closing Date,
Seller will deliver to Buyer a schedule of all amounts to be so settled on the
Closing Date. If Buyer agrees with such settlement amounts, Seller will, at
Closing, cause such
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amounts to be settled. If Buyer disagrees with any such settlements, Buyer and
Seller will resolve such disagreement in accordance with the procedures set
forth in Section 2.4(g), and such settlement payments will be made after such
resolution. Except for the agreements entered into pursuant to Section 7.10 and
as otherwise provided in this Agreement, the Company shall cause any Contracts
or Other Agreements between the Company or its Subsidiaries, on the one hand,
and Seller and its Affiliates (other than the Company and its Subsidiaries), on
the other hand, to be canceled. Except in the ordinary course consistent with
past practice or as otherwise provided in this Agreement, the Company and its
Subsidiaries, on the one hand, and Parent, Seller and their Affiliates (other
than the Company and its Subsidiaries), on the other hand, shall not enter into
any material Contracts or Other Arrangements with each other or engage in any
material transactions with each other without the consent of Buyer, which shall
not be unreasonably withheld.
7.10 Actions to Address Certain Interrelationships; Dividends.
(a) On or prior to the Closing Date, Buyer, Seller, Parent and the
Company shall enter into such arrangements and other relationships as are
contemplated by Exhibit B hereto.
(b) On or prior to the Closing Date, Parent and Seller shall be
entitled to cause the Company and its Subsidiaries to declare and pay such
dividend or dividends and to make such distributions as Parent shall deem
appropriate.
(c) After the Closing Date and except as specifically provided in
Exhibit B, Parent shall cause its broker/consulting Subsidiaries, consistent
with their fiduciary obligations as broker/consultants, to use commercially
reasonable efforts to continue and maintain the relationships described in
paragraph A of Exhibit B.
7.11 Investments. (a) From the date hereof until the close of
business on November 17, 1995, the Company will refrain from selling,
transferring, or otherwise trading in any of the securities set forth in
Exhibits C, D or E hereto.
(b) On or before the Closing Date, Seller will sell to the Company a
guaranteed investment contract (the "GIC") having (i) a face value of $50
million, (ii) a book yield of 10.9% (payable semi-annually in arrears), and
(iii) a six-year term. After such issuance and before the Closing, the Company
will refrain from selling or transferring the GIC. It is agreed that "GIC"
shall not include any interest income received thereon.
(c) From the close of business on November 17, 1995 until the
Closing, the Company will refrain from selling,
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transferring or otherwise trading in or investing any of the Exhibit C Assets,
Exhibit D Assets or Exhibit E Assets, except in accordance with written
instructions of Charles Kaminski or his designee on behalf of Buyer; provided,
that such instructions comply with (x) the insurance laws of the State of
Illinois, and (y) the investment guidelines adopted by the insurance
Subsidiaries of the Buyer currently in effect.
(d) Nothing in this Agreement shall restrict the Company's ability to
sell, transfer or otherwise trade in investment securities other than Exhibit C
Assets, Exhibit D Assets or Exhibit E Assets.
7.12 Resignations of Directors. Parent and Seller will cause such
members of the boards of directors and such officers of the Company and its
Subsidiaries as are designated by Buyer to tender, effective at the Closing,
their resignations from such boards of directors or from such offices.
7.13 No Negotiations, Etc. Parent, Seller and the Company will
refrain and will cause each other Person acting for or on behalf of them to
refrain from taking, directly or indirectly , any action (i) to seek or
encourage any offer (including in connection with any proposed public offering
of securities) or proposal from any Person to acquire any assets or shares of
capital stock or other securities of the Company or any to its Subsidiaries or
any interests therein, (ii) to merge, consolidate, or combine, or to permit any
other Person to merge, consolidate or combine, with the Company or any of its
Subsidiaries, (iii) to liquidate, dissolve, or reorganize the Company or any of
its Subsidiaries, (iv) to acquire or transfer any assets of the Company or any
of its Subsidiaries or any interests therein, except in the ordinary course of
business and consistent with past practice or except as expressly permitted by
the terms of this Agreement, (v) to reach any agreement or understanding
(whether or not such agreement or understanding is absolute, revocable,
contingent, or conditional) for, or otherwise to attempt to consummate, any such
acquisition, transfer, merger, consolidation, combination, or reorganization, or
(vi) to furnish or cause to be furnished any information with respect to the
Company or any of its Subsidiaries to any Person (other than Buyer) that Parent,
Seller or the Company (or any Person acting for or on behalf of them) knows or
has reason to believe is in the process of attempting or considering any such
acquisition, transfer, merger, consolidation, combination, liquidation,
dissolution or reorganization. If Parent, Seller or the Company receives from
any Person (other than Buyer) any offer, proposal, or information request that
is subject to this Section 7.13, Parent, Seller or the Company will promptly
advise such Person, by written notice, of the terms of this Section 7.13 and
will promptly deliver a copy of such notice of Buyer.
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8. Conditions Precedent to the Obligation of Buyer. The obligation of
Buyer to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction or, where permissible, waiver by Buyer of the
following conditions:
8.1 Representations and Warranties; Covenants and Agreements. (a)
Except as otherwise permitted or contemplated by this Agreement or as consented
to by Buyer, the representations and warranties of Parent, Seller and the
Company contained in this Agreement shall be true, accurate and complete in all
material respects as of the date hereof and on and as of the Closing Date with
the same force and effect as though made on and as of the Closing Date (except
that any such representations and warranties that are given as of a specified
date and relate solely to a specified date or period shall be true, accurate and
complete in all material respects as of such date or period). Each of Parent and
Seller shall have delivered to Buyer a certificate, dated the Closing Date and
signed on its behalf by one of its Executive Officers, to the foregoing effect
with respect to the representations and warranties of Parent and Seller and the
Company shall have delivered to Buyer a certificate, dated the Closing Date and
signed on its behalf by one of its Executive Officers, to the foregoing effect
with respect to the representations and warranties of the Company.
(b) Except as otherwise consented to by Buyer, Parent, Seller and the
Company shall each have performed and complied in all material respects with all
covenants and agreements required by this Agreement to be performed or complied
with by it on or prior to the Closing Date. Each of Parent and Seller shall
have delivered to Buyer a certificate, dated the Closing Date and signed on its
behalf by one of its Executive Officers, to the foregoing effect with respect to
the covenants and agreements required by this Agreement to be performed or
complied with by Parent or Seller and the Company shall have delivered to Buyer
a certificate, dated the Closing Date and signed on its behalf by one of its
Executive Officers, to the foregoing effect with respect to the covenants and
agreements required by this Agreement to be performed or complied with by the
Company.
8.2 Governmental Approvals; Illegality. (a) All authorizations,
approvals and consents from Governmental and Regulatory Bodies set forth in
Section 4.3 of the Seller Disclosure Schedule and Section 5.2 of the Company
Disclosure Schedule required for the transactions contemplated by this Agreement
shall have been obtained and shall be in full force and effect and shall no
longer be subject to any conditions or limitations other than the occurrence of
the Closing (and other than customary conditions uniformly imposed by regulatory
authorities in connection with similar acquisitions), and Buyer shall have been
furnished with appropriate evidence, reasonably
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satisfactory to it and its counsel, of the granting of such authorizations,
approvals and consents.
(b) There shall not be in effect any statute, rule, regulation or
order of any court, Governmental or Regulatory Body which prohibits, enjoins, or
makes illegal the transactions contemplated by this Agreement.
(c) There shall not be instituted or pending any action, suit,
investigation, or other proceeding in, before, or by any court, governmental or
regulatory authority to recover any damages or obtain other relief (which is
reasonably likely to have a Material Adverse Effect or a material adverse effect
on the business or condition of the Buyer) as a result of this Agreement or any
of the transactions contemplated hereby.
8.3 Third Party Consents. There shall have been obtained all
consents and approvals from parties to Contracts or Other Agreements with
Parent, Seller, the Company or any Subsidiaries of Parent or the Company that
are required in connection with the performance by Parent, Seller and the
Company of their respective obligations under this Agreement, except for such
consents and approvals the failure of which so to have obtained could not
reasonably be expected to have a Material Adverse Effect.
8.4 Hart-Scott-Rodino. The waiting period under HSR, including any
extension thereof, shall have expired or been terminated.
8.5 Opinions of Counsel to Parent, Seller and the Company. Buyer
shall have received the opinion of counsel to Parent (which may be internal or
external counsel), dated the Closing Date and addressed to Buyer, in form and
substance reasonably acceptable to Buyer prior to the Closing.
8.6 No Material Adverse Change. There shall not have occurred since
September 30, 1995 any change in the business or condition (financial or
otherwise) of the Company or its Subsidiaries that has had or is reasonably
likely to have a Material Adverse Effect, other than changes resulting from a
change in general economic conditions or matters affecting the life or health
insurance industry generally.
8.7 Consummation of Certain Transactions. Each of the transactions
and other actions contemplated by Exhibit A shall have been effected or taken.
9. Conditions Precedent to the Obligations of Parent, Seller and the
Company. The obligations of Parent, Seller and the Company to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment
or, where
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permissible, waiver by Parent and Seller of the following conditions:
9.1 Representations and Warranties; Covenants and Agreements. (a)
Except as otherwise permitted or contemplated by this Agreement or as consented
to by Parent, the representations and warranties of Buyer contained in this
Agreement shall be true, accurate and complete in all material respects as of
the date hereof and on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date (except that any such
representations and warranties that are given as of a specified date and relate
solely to a specified date or period shall be true, accurate and complete in all
material respects as of such date or period). Buyer shall have delivered to
Parent and Seller a certificate, dated the Closing Date and signed on its behalf
by one of its Executive Officers, to the foregoing effect.
(b) Buyer shall have performed and complied in all material respects
with all covenants and agreements required by this Agreement to be performed or
complied with by it on or prior to the Closing Date. Buyer shall have delivered
to Parent and Seller a certificate, dated the Closing Date and signed by one of
its Executive Officers, to the foregoing effect.
9.2 Governmental Approvals; Illegality. (a) All authorizations,
approvals and consents from Governmental and Regulatory Bodies set forth in
Section 4.3 of the Seller Disclosure Schedule and Section 5.2 of the Company
Disclosure Schedule required for the transactions contemplated by this Agreement
shall have been obtained and be in full force and effect and shall no longer be
subject to any conditions or limitations other than the occurrence of the
Closing (and other than customary conditions uniformly imposed by regulatory
authorities in connection with similar acquisitions), and Parent, Seller and the
Company shall have been furnished with appropriate evidence, reasonably
satisfactory to it and its counsel, of the granting of such authorizations,
approvals and consents.
(b) There shall not be in effect any statute, rule, regulation or
order of any court, Governmental or Regulatory Body which prohibits, enjoins or
makes illegal the transactions contemplated by this Agreement.
9.3 Third Party Consents. There shall have been obtained all
consents and approvals from parties to Contracts or Other Agreements with Buyer
or any of its Affiliates that are required in connection with the performance by
Buyer of its obligations under this Agreement, except for such consents and
approvals the failure of which to have so obtained could not reasonably be
expected to have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated by
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this Agreement.
9.4 Hart-Scott-Rodino. The waiting period under HSR, including any
extension thereof, shall have expired or been terminated.
9.5 Opinion of Counsel to Buyer. Parent, Seller and the Company
shall have received the opinion of counsel to Buyer (which may be internal or
external counsel), dated the Closing Date and addressed to Parent, Seller and
the Company, in form and substance reasonably acceptable to Parent prior to the
Closing.
9.6 Consummation of Certain Transactions. Each of the transactions
and other actions contemplated by Exhibit A shall have been effected or taken.
10. Survival and Indemnification.
10.1 Survival of Representations and Warranties. All representations
and warranties contained herein shall survive the execution and delivery hereof
and the Closing hereunder, and thereafter (i) in the case of the representations
and warranties contained in Sections 4.5, 4.6, 4.10 (other than Sections 4.10(k)
and 4.10(p)) and 4.14, such representations and warranties shall survive until
60 days after the expiration of the applicable statute of limitations with
respect to the subject matter thereof and (ii) in the case of all other
representations and warranties, such representations and warranties shall
survive until the date which is 18 months after the Closing Date; provided,
however, that any representation or warranty shall survive the time it would
otherwise terminate pursuant to this Section 10.1 to the extent that a detailed
notice of a specific breach thereof giving rise to a right of indemnification
shall have been given by a party hereto in accordance with this Article 10 prior
to such time.
10.2 Indemnification by Parent and Seller. From and after the
Closing, subject to the provisions of Sections 10.1 and 10.4, Parent and Seller
jointly and severally shall indemnify and hold harmless Buyer from and against
any and all Losses incurred or suffered by Buyer, the Company and their
respective Affiliates and their respective officers, directors, employees,
agents and representatives arising out of, resulting from, or relating to (a)
any breach of any of the representations or warranties made by Parent, Seller or
the Company in this Agreement; (b) any failure by Parent, Seller or the Company
to perform any of its respective covenants or agreements contained in this
Agreement; (c) (i) any Environmental Law (whether or not such Losses result from
a violation of Environmental Law), to the extent such Losses relate to
conditions existing as of or prior to the Closing and (ii) any disposal or
arrangements for disposal made prior to the Closing of solid waste, toxic or
hazardous substances as defined
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by Environmental Law; or (d) any litigation listed in Section 5.7 of the Company
Disclosure Schedule and described therein as being before a court in the State
of Alabama; provided, that Parent and Seller shall not be obligated to indemnify
and hold harmless Buyer from and against the first $3,000,000 of Losses in
accordance with the foregoing; and the aggregate amount of Losses in respect of
which Buyer shall be entitled to indemnification in accordance with this Section
10.2 shall not exceed $130,000,000. Notwithstanding the foregoing, (i) the
indemnity relating to a breach of the representation and warranty contained in
Sections 4.5, 4.6, 4.10 or 4.14 or under clause (b), (c) or (d) immediately
above shall not be subject to the aforesaid deductible or maximum amount of
liability, (ii) except for the procedural provisions of Section 10.4, this
Article 10 shall not apply to the matters governed by Section 7.8(n)(except to
the extent provided therein) and (iii) this Article 10 shall not apply to the
matters governed by Article 11 and (iv) for purposes of determining whether
indemnification is available under clause (a) of this Section 10.2, all
qualifications as to materiality and Material Adverse Effect contained in
representations or warranties shall be disregarded.
10.3 Indemnification by Buyer. From and after the Closing, subject
to the provisions of Sections 10.1 and 10.4, Buyer shall indemnify and hold
harmless Seller and Parent from and against any and all Losses incurred or
suffered by Parent, Seller and their respective Affiliates and their respective
officers, directors, employees, agents and representatives arising out of,
resulting from, or relating to (a) subject to Section 10.1, any breach of any of
the representations or warranties made by Buyer in this Agreement; or (b) any
failure by Buyer to perform any of its covenants or agreements contained in this
Agreement. Notwithstanding the foregoing, (i) except for the procedural
provisions of Section 10.4, this Article 10 shall not apply to the matters
governed by Section 7.8(n) (except to the extent provided therein), and (ii)
this Article 10 shall not apply to the matters governed by Article 11.
10.4 Procedure. (a) In the event that any Person shall incur or
suffer any Losses in respect of which indemnification may be sought hereunder by
Buyer, Seller or Parent, the party seeking to be indemnified hereunder (the
"Indemnitee") shall assert a claim for indemnification by written notice (the
"Notice") to the party from whom indemnification is being sought (the
"Indemnitor") stating the nature and basis of such claim. In the case of Losses
arising or which may arise by reason of any third party claim, promptly after
receipt by an Indemnitee of written notice of the assertion or the commencement
of any Litigation with respect to any matter in respect of which indemnification
may be sought by such party hereunder, the Indemnitee shall give Notice to the
Indemnitor and shall thereafter keep the Indemnitor reasonably informed with
respect
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thereto, provided that failure of the Indemnitee to give the Indemnitor prompt
notice as provided herein shall not relieve the Indemnitor of any of its
obligations hereunder, except to the extent that the Indemnitor is materially
prejudiced by such failure. In case any such Litigation is brought against any
Indemnitee, the Indemnitor shall be entitled to assume the defense thereof, by
written notice of its intention to do so to the Indemnitee within 30 days after
receipt of the Notice, in which event the Indemnitor shall assume all future
responsibility for such Litigation. If the Indemnitor shall assume the defense
of such Litigation, it shall not settle such Litigation (other than any
Litigation subject to indemnification under clause (d) of Section 10.2 hereof)
without the consent of Indemnitees (which consent shall not be unreasonably
withheld) and unless such settlement includes as an unconditional term thereof
the giving by the claimant or the plaintiff of a release of the Indemnitee from
all liability with respect to such Litigation. As long as the Indemnitor is
contesting any such Litigation in good faith and on a timely basis, the
Indemnitee shall not pay or settle any claims brought under such Litigation.
Notwithstanding the assumption by the Indemnitor of the defense of any
Litigation as provided in this Section 10.4(a), the Indemnitee shall be
permitted to participate in the defense of such Litigation and to employ counsel
at its own expense; provided, however, that if the defendants in any action
shall include both an Indemnitor and any Indemnitee and such Indemnitee shall
have reasonably concluded that counsel selected by Indemnitor has a conflict of
interest because of the availability of different or additional defenses to such
Indemnitee, such Indemnitee shall have the right to select separate counsel to
participate in the defense of such action on its behalf, at the expense of the
Indemnitor; provided that the Indemnitor shall not be obligated to pay the
expenses of more than one separate counsel for all Indemnitees. Notwithstanding
the foregoing, with respect to any Litigation for which indemnification is
provided under clause (d) of Section 10.2, no notice shall be required pursuant
to the first sentence of this Section 10.4(a) and the Indemnitor shall be deemed
to have elected to assume the defense thereof pursuant to this Section 10.4(a).
(b) If the Indemnitor shall fail to notify the Indemnitee of its
desire to assume the defense of any such Litigation within the prescribed period
of time and as required above, or shall notify the Indemnitee that it will not
assume the defense of any such Litigation, then the Indemnitee may assume the
defense of any such Litigation, in which event it may do so in such manner as it
may deem appropriate, and the Indemnitor shall be bound by any determination
made in such Litigation or any settlement thereof effected by the Indemnitee,
provided that any such determination or settlement shall not affect the right of
the Indemnitor to dispute the Indemnitee's claim for indemnification and
provided that the Indemnitee shall not effect
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any such settlement without the prior written consent of the Indemnitor (such
consent not to be unreasonably withheld). The failure of the Indemnitor to
assume the defense of any such Litigation shall not be deemed a concession that
it is required to indemnify the Indemnitee for the subject matter of such
Litigation. The Indemnitor shall be permitted to join in the defense of such
Litigation and to employ counsel at its own expense.
(c) Any payment by any Indemnitor in indemnification hereunder shall
be treated as an adjustment to the Final Purchase Price.
10.5 Indemnification; Directors and Officers Insurance. For six
years from and after the Closing Date, the Company shall and Buyer agrees to
cause the Company and its Subsidiaries to, indemnify, defend and hold harmless
all past and present officers and directors of the Company and of its
Subsidiaries to the same extent such persons are indemnified as of the date of
this Agreement by the Company or its Subsidiaries pursuant to the certificate of
incorporation or articles of incorporation, as the case may be, or the by-laws,
of the Company or its Subsidiaries, as the case may be, and indemnification
agreements in existence on the date hereof for acts or omissions occurring at or
prior to the Closing. Parent shall provide, for a period of not less than six
years from and after the Closing Date, the current directors and officers of the
Company and its Subsidiaries a directors' and officers' liability insurance
policy (the "D&O Insurance") that is no less favorable than the policy currently
made available for their benefit by Parent or one of its Affiliates, or, if
substantially equivalent insurance coverage is unavailable, the best available
coverage. The provisions of this Section 10.5 are intended to be for the
benefit of, and shall be enforceable by, each past and present officer or
director of the Company or of its Subsidiaries and each person who becomes such
prior to the Closing Date.
11. Tax Matters.
11.1 Section 338 Election.
(a) With respect to Seller's sale of the Shares hereunder, at the
request of Buyer, Seller and Buyer shall jointly make timely and irrevocable
elections under Section 338(h)(10) of the Code (which elections shall be
made with respect to the Company and each of its Subsidiaries requested by
Buyer), and, if permissible, similar elections under any applicable state or
local income tax laws. To the extent Buyer has requested an election under
such Section 338(h)(10), Buyer and Seller agree to report the transfer of
the Shares (and the deemed sale of the shares of the Company's Subsidiaries)
under this Agreement consistent with
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such elections under Section 338(h)(10) of the Code or any similar state or
local tax provision (the "Elections") and agree not to take any action that
could cause such Elections to be invalid, and shall take no position contrary
thereto unless required to do so pursuant to a determination (as defined in
Section 1313(a) of the Code) or any similar state or local tax provision.
(b) To the extent Buyer has requested an Election:
(y) To the extent possible, Buyer, Parent, Seller and the Company
agree to execute at the Closing any and all forms necessary to effectuate
the Elections (including, without limitation, Internal Revenue Service Form
8023-A and any similar forms under applicable state and local income tax
laws (the "Section 338 Forms")). In the event, however, any Section 338
Forms are not executed at the Closing, Buyer, Parent, Seller and the Company
agree to prepare and complete each such Section 338 Form no later than 10
Business Days prior to the date such Section 338 Form is required to be
filed. Buyer, Parent, Seller and the Company shall each cause the Section
338 Forms to be duly executed by an authorized person for Buyer, Parent,
Seller or the Company, in each case, and shall duly and timely file the
Section 338 Forms in accordance with applicable tax laws and the terms of
this Agreement.
(z) As soon as practicable after the Closing Date, Buyer shall
deliver to Seller a written notice setting forth (with reasonable
specificity) Buyer's good faith calculation of the Modified Aggregate Deemed
Sales Price (as defined below) and the allocation thereof among the assets
of the Company and the assets of the Company's Subsidiaries in accordance
with the principles of Treas. Reg. Section 1.338(h)(10)-1(f)(1)(ii)
(collectively, "Buyer's Allocation"). For such purposes, the tangible
personal property of the Company and its Subsidiaries shall be valued at
statutory book value as of the Closing Date, securities of the Company and
its Subsidiaries shall be valued at fair market value as of the Closing
Date, and insurance in force of the Company shall be valued at fair market
value as of the Closing Date. Within 20 Business Days after receipt thereof,
Seller shall deliver to Buyer written notice indicating whether Seller
agrees or disagrees with Buyer's Allocation. If Seller agrees with Buyer's
Allocation or if Seller fails to deliver such written notice within such 20
Business Days, Buyer's Allocation shall constitute the Agreed Allocation. If
Seller provides timely written notice to Buyer of any disagreement with
Buyer's Allocation,
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Buyer and Seller shall begin good faith negotiations to resolve such
disagreement. If Buyer and Seller are able to resolve such
disagreement within ten Business Days after Buyer's receipt of notice
of disagreement, Buyer's Allocation shall be adjusted to reflect such
resolution, and such resolved Modified Aggregate Deemed Sales Price
and allocation thereof shall constitute the Agreed Allocation. If
Buyer and Seller are unable to resolve any disagreement within ten
Business Days after Buyer's receipt of notice of disagreement, Buyer
and Seller shall jointly request the national office of Coopers &
Lybrand (which may not assign the matter to its Chicago, Illinois or
Stamford, Connecticut office), or, if such firm is unavailable,
another independent nationally recognized auditing firm selected by
the parties (the "Tax Settlement Auditor") to resolve any issue in
dispute as promptly as possible and shall cooperate with the Tax
Settlement Auditor to resolve such dispute. The Tax Settlement Auditor
shall make a determination with respect to all disputed issues, which
determination shall be set forth in a written report delivered to
Buyer and Seller, and the Agreed Allocation shall be as determined by
the Tax Settlement Auditor. Each of Buyer and Seller shall each pay
one-half of the fees and expenses of the Tax Settlement Auditor with
respect to such determination. Except as determined to the contrary by
the appropriate taxing authority upon an audit of its (or its
Affiliates') Tax Returns, each of Buyer, Parent, Seller, the Company
and the Company's Subsidiaries shall file all Tax Returns consistent
with the Agreed Allocation. For purposes of this Section 11.1, the
term "Modified Aggregate Deemed Sales Price" shall mean the amount
resulting from the Elections, determined pursuant to Treas. Reg.
Section 1.338(h)(10)-1(f) without regard to items described in Treas.
Reg. Section 1.338(h)(10)-1(f)(4).
11.2 Tax Indemnification. (a) Parent and Seller jointly and
severally shall be responsible for, shall pay or cause to be paid, and shall
indemnify and hold harmless Buyer and its Affiliates (including, after the
Closing, the Company and its Subsidiaries) from and against any and all Losses
for or in respect of each of the following:
(i) any and all Income Taxes with respect to any taxable period of the
Company or any of its Subsidiaries (or any predecessor) ending on or before
the Closing Date (including Income Taxes arising as a result of the
Elections), but excluding any transactions occurring on the Closing Date and
after the Closing (other than the Elections) which are not related to the
transfer of the Shares and the other transactions contemplated by this
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Agreement ("Excluded Transactions"));
(ii) any and all Income Taxes resulting from the Company or any of its
Subsidiaries (or any predecessor) having been (or ceasing to be) included in any
affiliated, consolidated, combined or unitary Tax Return that included the
Company or any of its Subsidiaries (or any predecessor) for any taxable period
(or portion thereof) ending on or before the Closing Date (including, without
limitation, any liability for Taxes resulting from an acceleration of an
"intercompany transaction," within the meaning of Treasury Regulation Section
1.1502-13(d) (or any analogous or similar provision under state, local or
foreign law or any predecessor provision or regulation), that occurred on or
before the Closing Date (but excluding the Excluded Transactions);
(iii) any and all Income Taxes of any member of an affiliated,
consolidated, combined or unitary group (other than the Company or any of its
Subsidiaries) of which the Company or any of its Subsidiaries (or any
predecessor) is or was a member on or prior to the Closing Date, by reason of
the liability of the Company or any of its Subsidiaries pursuant to Treasury
Regulation Section 1.1502-6(a) or any analogous or similar state, local or
foreign law or regulation;
(iv) any and all Employment and Withholding Taxes;
(v) to the extent not previously paid, any and all real property Taxes
allocable to the Seller pursuant to Section 11.2(c) hereof (excluding real
property Taxes resulting from the Excluded Transactions and any increase in real
property Taxes arising from a revaluation of the property as a result of the
sale of the Shares or the Elections);
(vi) any and all Income Taxes allocable to the Seller pursuant to
Section 11.2(c) hereof and not previously paid thereunder;
(vii) any and all Taxes (other than Taxes described in clauses (i)
through (vi) of this Section 11.2(a)) with respect to taxable years ending on or
before December 31, 1995;
(viii) any and all Taxes (other than Taxes described in clauses (i)
through (vi) of this Section 11.2(a)) with respect to taxable years ending after
December 31, 1995, but only to the extent that such Taxes are attributable to
the portion of the period ending on December 31, 1995; and
(ix) any breach by the Seller of any representation,
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warranty or covenant contained in Section 4.10 or Section 11.2.
(b) Buyer agrees to indemnify and hold harmless Seller and its
Affiliates from and against (and Seller and its Affiliates shall have no
liability under Section 11.2(a) on account of) any and all Losses for or in
respect of any and all Taxes of the Company or any of its Subsidiaries (or any
predecessor) that are not described in Section 11.2(a) (including Taxes
resulting from an Excluded Transaction), except for such Taxes arising from a
breach of a representation or warranty contained in 4.10, to the extent such
representation or warranty has not expired pursuant to Section 10.1.
(c) Seller and Buyer shall, to the extent permitted by applicable
law, elect with the relevant taxing authority to close the taxable period of the
Company and its Subsidiaries on the Closing Date. In any case where applicable
law does not permit the Company or any Subsidiary of the Company to close its
taxable year on the Closing Date (and in the case of Taxes described in Section
11.2(a)(v)), Taxes (other than Taxes described in Section 11.2(a)(viii))
attributable to the taxable period of the Company or such Subsidiary beginning
on or before and ending after the Closing Date shall be allocated (i) to Seller
for the period up to and including the Closing Date, excluding any Excluded
Transaction and any increase in real property Taxes arising from a revaluation
of the property as a result of the sale of the Shares or the Elections, and (ii)
to Buyer for the period subsequent to the Closing Date (including any Excluded
Transaction and any increase in real property Taxes arising from a revaluation
of the property as a result of the sale of the Shares or the Elections). Taxes
described in Section 11.2(a)(viii) shall be allocated (i) to Seller for the
period ending December 31, 1995 and (ii) to Buyer for the period thereafter.
Any allocation required to determine any Income Taxes attributable to any period
beginning on or before and ending after the Closing Date (including, without
limitation, any Income Taxes resulting from a Tax audit or administrative or
court proceeding) shall be made by means of a closing of the books and records
of each of the Company and its Subsidiaries as of the close of business on the
Closing Date, excluding any Excluded Transaction, and, to the extent not
susceptible to such allocation, by apportionment on the basis of elapsed days,
except that extraordinary items described in Treasury Regulation Section 1.1502-
76(b)(2)(ii)(C) shall be allocated to the day that they are taken into account.
Real property Taxes (excluding those arising from any Excluded Transaction and
any increase in such Taxes arising from a revaluation of the property as a
result of the sale of the Shares or the Elections) shall be allocated on the
basis of elapsed days. Any allocation of Taxes described in Section
11.2(a)(viii) shall be allocated on the basis of elapsed days.
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(d) (i) Promptly after receipt by Buyer or its Affiliates of written
notice of the assertion or commencement of any claim, audit, examination, or
other proposed change or adjustment by any taxing authority concerning any Tax
covered by Section 11.2(a) (each a "Tax Claim"), Buyer shall notify Seller.
Such notice shall contain factual information (to the extent known by Buyer, the
Company or any of its Subsidiaries) describing the asserted Tax Claim in
reasonable detail and shall include copies of any notice or other document
received from any taxing authority in respect of any such asserted Tax Claim.
The failure of Buyer to give Seller prompt notice as provided herein shall not
relieve Seller of any of its obligations under Section 11.2, except to the
extent that the Seller is materially prejudiced by such failure.
(ii) Seller shall have the sole right to represent the Company's or any
of its Subsidiaries' interests in any Tax audit or administrative or court
proceeding relating to any Tax covered by Section 11.2(a) and to employ counsel
of its choice, provided that (A) with respect to any taxable period referred to
in Sections 11.2(a)(v), (vi) or (viii) hereof or (B) if the results of such Tax
audit or proceeding (other than a Tax audit or proceeding with respect to any
Seller Consolidated and Combined Return, as to which Seller's sole obligation
shall be to keep Buyer duly informed of the progress thereof) could reasonably
be expected to be material to Buyer, the Company, any of the Company's
Subsidiaries or their Affiliates for any taxable period including or ending
after the Closing Date, then Seller and Buyer shall jointly control the defense
and settlement of any such Tax audit or proceeding and each party shall
cooperate with the other party at its own expense and there shall be no
settlement or closing or other agreement with respect thereto without the
consent of the other party, which consent shall not be unreasonably withheld.
Seller shall promptly notify Buyer if it decides not to control the defense or
settlement of any such Tax audit or administrative or court proceeding and Buyer
thereupon shall be permitted to defend and settle such Tax audit or proceeding.
(iii) Seller shall promptly notify Buyer of the commencement of any
claim, audit, examination or other proposed change or adjustment by any taxing
authority which could reasonably be expected to affect the liability of the
Company or any of its Subsidiaries for Taxes and Seller shall keep Buyer duly
informed of the progress thereof.
(e) (i) Seller shall properly prepare or cause to be properly
prepared, and shall timely file or cause to be timely filed, (x) all Tax Returns
which include the Company
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or any of its Subsidiaries required to be filed on or before the Closing Date,
(y) all Tax Returns which include the Company or any of its Subsidiaries or
their assets or operations for all taxable periods of the Company and its
Subsidiaries ending on or before the Closing Date (which Tax Returns shall
include the Company and its Subsidiaries and the reportable items from the
assets or operations of the Company and its Subsidiaries through and including
the Closing Date), and (z) all Tax Returns with respect to Taxes described in
Section 11.2(a)(vii). Such Tax Returns (insofar as they relate to the Company
or any of its Subsidiaries) shall be prepared in a manner consistent with past
practices and prior audit adjustments and Parent and the Seller shall pay or
cause to be paid all Taxes shown as due on such Tax Returns or otherwise levied
or assessed upon the Company or any Subsidiary or any of its Assets on or prior
to the Closing Date. Insofar as they relate to the Company and its
Subsidiaries, such Tax Returns shall be provided to Buyer for Buyer's review and
comment 20 Business Days prior to filing, and Buyer shall be entitled to suggest
to Seller any reasonable changes to such Tax Returns. Seller and Buyer agree to
consult and resolve in good faith any issue arising as a result of the review of
such Tax Returns and mutually to consent to the filing as promptly as possible
of such Tax Returns. In the event the parties are unable to resolve any dispute
within ten Business Days following the delivery of such Tax Returns, the parties
shall jointly request a Tax Settlement Auditor (appointed pursuant to the
principles set forth in Section 11.1(b)(z)) to resolve any issue at least five
Business Days before the due date of any such Tax Return, in order that such Tax
Return may be timely filed. Seller and Buyer shall each pay one-half of the Tax
Settlement Auditor's fees and expenses. Seller shall, subsequent to the Closing
Date, provide written notice to Buyer of its intent to file any amended Tax
Return or claim for refund with respect to any taxable period ending on or prior
to the Closing Date that could reasonably be expected to be material to Buyer,
the Company, any of the Company's Subsidiaries, or their Affiliates for any
taxable period including or ending after the Closing Date, and Seller shall not
make such filing without the consent of Buyer, which consent shall not be
unreasonably withheld.
(ii) Except as set forth in clause (i) above, Buyer shall be responsible
for the filing and payment (subject to Buyer's right to indemnification to the
extent provided in Section 11.2(a)) of all other Tax Returns required to be
filed after the Closing Date (including Tax Returns with respect to Taxes
described in Section 11.2(a)(viii)) by or on behalf of the Company and its
Subsidiaries, or with respect to their assets and operations.
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(iii) With respect to (x) any Income Tax Return required to be filed by
Buyer for a taxable period of the Company or any of its Subsidiaries beginning
on or before the Closing Date and ending after the Closing Date, (y) any Taxes
described in Section 11.2(a)(v) or (z) any Tax Returns with respect to Taxes
described in Section 11.2(a)(viii), Buyer shall deliver, at least 20 Business
Days prior to the due date for filing such Tax Return (including extensions), to
Seller a statement setting forth the amount of Tax allocated to Seller pursuant
to Section 11.2(c) or Section 11.2(a)(viii), as the case may be, (the "Tax
Statement") and copies of such Tax Returns, and Buyer shall cause the Company
and its Subsidiaries to pay all Taxes shown as due on such Tax Returns. Seller
shall have the right to review such Tax Return and the Tax Statement prior to
the filing of such Tax Return and to suggest to Buyer any reasonable changes to
such Tax Returns. Seller and Buyer agree to consult and resolve in good faith
any issue arising as a result of the review of such Tax Return and the Tax
Statement and mutually to consent to the filing as promptly as possible of such
Tax Return. In the event the parties are unable to resolve any dispute within
eight Business Days following the delivery of such Tax Return and the Tax
Statement, the parties shall jointly request a Tax Settlement Auditor (appointed
pursuant to the principles set forth in Section 11.1(b)(z)) to resolve any issue
in dispute as promptly as possible. If the Tax Settlement Auditor is unable to
make a determination with respect to any disputed issue within five Business
Days prior to the due date (including extensions) for the filing of the Tax
Return in question, then Buyer may file such Tax Return on the due date
(including extensions) therefor without such determination having been made and
without Seller's consent. Notwithstanding the filing of such Tax Return, the Tax
Settlement Auditor shall make a determination with respect to any disputed
issue, and the amount of Taxes that are allocated to Seller pursuant to Section
11.2(c) or Section 11.2(a)(v) or (viii), as the case may be, shall be as
determined by the Tax Settlement Auditor. The fees and expenses of the Tax
Settlement Auditor shall be paid one-half by Buyer and one-half by Seller.
Nothing in this Section 11.2(e)(iii) shall excuse Seller from its
indemnification obligations pursuant to Section 11.2 hereof if the amount of
Taxes as ultimately determined (on audit or otherwise), for the periods covered
by such Tax Returns and which are allocable to Seller pursuant to Section
11.2(c), or Section 11.2(a)(v) or (viii), as the case may be, exceeds the amount
determined under this Section 11.2(e)(iii).
(iv) Seller and Buyer shall cooperate fully with each other and make
available to each other in a timely fashion such Tax data and other information
as may be reasonably
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required by Seller or Buyer for the preparation and timely filing of any Tax
Returns required to be prepared and filed by Seller or Buyer hereunder, or
in connection with the preparation or filing of any election, claim for
refund, consent or certification.
(f) Seller and Buyer shall provide to each other, and Buyer shall
cause each of the Company and its Subsidiaries to provide to Seller, full
access, at any reasonable time and from time to time, at the business location
at which the books and records are maintained, after the Closing Date, to such
Tax data of each of the Company and its Subsidiaries as Seller or Buyer, as the
case may be, may from time to time reasonably request and shall furnish, and
request the independent accountants and legal counsel of Seller, Buyer, the
Company, or any Subsidiary of the Company to furnish to Seller or Buyer, as the
case may be, such additional Tax and other information and documents in the
possession of such persons as Seller or Buyer may from time to time reasonably
request.
(g) Any claim for indemnity hereunder may be made at any time prior
to 60 Business Days after the expiration of the applicable Tax statute of
limitations with respect to the relevant taxable period (including all
extensions obtained, whether automatic or permissive).
(h) The party seeking indemnification or other payment pursuant to
this Section 11.2 (Seller or Buyer, as the case may be) shall give the other
party written notice of claim for indemnification or payment, which notice shall
include a calculation of the amount of the requested indemnity or other payment
and shall furnish to the other party copies of all books, records and other
information reasonably requested by the other party to the extent necessary to
substantiate such claim and verify the amount thereof. If reasonably necessary
in order to make or substantiate a claim (or to determine if a claim should be
made), each party shall be permitted access to the other party's books, records
and other information in connection therewith. The party requested to make any
indemnity or other payment pursuant to this Section 11.2 shall deliver to the
party requesting payment, within 20 Business Days after receiving both the
foregoing notice and all books, records and other information reasonably
requested by it, a detailed statement describing its objections (if any)
thereto. The parties shall use reasonable efforts to resolve any such
objections, but if they do not obtain a final resolution within 20 Business Days
(or any longer period mutually agreed to by the parties) after the party
requesting indemnification (or other payment) has received the statement of
objections, a Tax Settlement Auditor (appointed pursuant to the principles set
forth in Section 11.1(b)(z)) shall resolve any remaining objections. Seller and
Buyer shall each pay one-half of the Tax Settlement Auditor's fees and expenses.
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(i) Seller shall be responsible for, shall pay or cause to be paid,
and shall indemnify and hold harmless Buyer, as an adjustment to the Final
Purchase Price, from and against any Losses arising after the Closing Date
arising under any Tax sharing, Tax indemnity, Tax allocation or similar
contracts (whether or not written) to which the Company or any of its
Subsidiaries, any predecessor of the Company or any of its Subsidiaries, or any
transferor to the Company or any of its Subsidiaries, is a party or is obligated
thereunder, in each case on or prior to the Closing Date. None of Buyer, the
Company or any of its Subsidiaries shall have any liability pursuant to any such
agreement after the Closing Date.
11.3 Tax Related Adjustments. (a) Seller and Buyer agree that any
indemnity payment made under this Agreement shall be treated by the parties on
their Tax Returns as an adjustment to the Final Purchase Price. If,
notwithstanding such treatment by the parties, any indemnity payment is
determined to be taxable to (i) Parent or Seller (other than as an adjustment to
the Final Purchase Price) or (ii) Buyer, the Company or any of its Subsidiaries,
for federal Income Tax purposes by the Internal Revenue Service, the
indemnifying party shall indemnify the indemnified party for any additional
federal Income Taxes payable by the indemnified party by reason of the receipt
or accrual of such indemnity payment (including any payments under this Section
11.3)).
(b) An indemnity payment otherwise due and payable hereunder shall be
decreased (but not below zero) to the extent of any net actual reduction in
federal Income Tax liability that is actually realized by the indemnified party
upon its payment of an indemnifiable loss.
(c) Except as provided in Section 11.3(d), Buyer shall pay to Seller
any refund of any Tax for which Seller is responsible under Section 11.2(a) or
the amount of actual reduction in such Taxes realized (or portion of either
thereof) after the Closing Date by Buyer or any of its Affiliates (including the
Company or any of its Subsidiaries) relating to such Taxes imposed on or with
respect to Seller or any of its Affiliates (including the Company or any of its
Subsidiaries) with respect to any taxable period (or portion thereof) ending on
or prior to the Closing Date. Buyer shall pay to Seller such refund (including
interest received thereon) (reduced by any actual Tax increase or actual Tax
detriment to Buyer, the Company or any of its Subsidiaries, but increased by any
actual Tax benefit resulting from such payment) or the amount of any such
reduction in Taxes promptly upon receipt thereof by the recipient thereof.
Buyer shall, if Seller requests, cause the relevant entity to file for and
obtain any refunds or equivalent amounts to which Seller is entitled under this
Section 11.3(c), and Buyer shall permit Seller to control the prosecution of any
such refund
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claim, and shall cause the relevant entity to authorize by appropriate powers of
attorney such Persons as Seller shall designate to represent such entity with
respect to such refund claim; provided, however, that Buyer must consent to any
such refund claim, which consent may not be unreasonably withheld, and that any
such refund claim shall be at the sole expense of the Seller.
(d) Seller agrees that to the extent that the Company or any of its
Subsidiaries realizes any Tax attribute after the Closing Date that may be
carried back to a taxable period ending on or prior to the Closing Date, Seller
shall, at Buyer's sole expense, permit such carryback, shall cooperate in the
filing of any required returns or claims for refund and shall pay Buyer any Tax
refund received or the amount of any reduction in Taxes so obtained by the
Seller Group (as hereinafter defined); provided, however, in the event that any
Tax attribute generated after the Closing Date by Buyer, the Company or any
Subsidiary or any member of any affiliated group (or other group filing on a
combined basis) of which any thereof is a member (any of the foregoing being
referred to herein as a "Buyer Group Member") is carried back to a taxable year
(or portion thereof) of Parent's affiliated group (or other group filing on a
combined basis of which Seller is a member) (the "Seller Group") that ended on
or prior to the Closing Date and, as a result of such carryback, any Tax
attribute generated by the Seller Group (whether in the same year or in a prior
or subsequent year) is not capable of being carried back or forward to the same
extent it would have been had no such Buyer Group carryback occurred, Buyer
shall pay to Seller an amount sufficient to place the Seller Group in the same
position as it would have been in if no such carryback occurred (except that
Seller shall pay Buyer (when and as actually realized) any refund of Taxes or
actual reduction of Taxes otherwise payable by the Seller Group that is
subsequently realized by the Seller Group as a result of the Seller Group's use
of any Tax attributes that would otherwise have been utilized by the Seller
Group earlier had the Tax attribute of Buyer, the Company or any Subsidiary of
the Company (or any other Buyer Group Member) not been so carried back, and
provided, further, that if Seller makes a payment pursuant to this Section
11.3(d) on account of a refund of Taxes, or an actual reduction of Taxes of the
Seller Group and it is later determined (as a result of an audit adjustment or
otherwise) that the Seller Group is liable for the return thereof to the
applicable taxing authority, Buyer shall promptly remit to Seller the amount
Seller has previously paid to Buyer with respect to the item in issue (plus
appropriate interest)).
11.4 Transfer Taxes. Seller shall pay, or cause to be paid, any
transfer Tax or fee, recordation or similar Tax or fee, deed, stamp or other
Tax, grantor's or grantee's Tax, recording charge, fee, or other similar cost or
expense of any kind
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required or customary in the applicable jurisdiction in connection with the
effectuation of the transfer of the Shares and all transactions pursuant to this
Agreement (including the Elections), whether such Tax or fee is imposed on
Buyer, Seller, the Company or any Subsidiary. Upon demand by Seller, Buyer
shall reimburse Seller for one-half of all such payments.
12. Termination.
12.1 Termination and Abandonment. This Agreement may be terminated
and the transactions contemplated by this Agreement may be abandoned at any time
prior to the Closing:
(a) by mutual written consent of Buyer, Parent and Seller; or
(b) by Buyer or Parent and Seller if the Closing shall not have
occurred on or before May 31, 1996; provided, however, that the right to
terminate this Agreement under this Section 12.1(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement shall
have been the cause of, or resulted in, the failure of the Closing to occur on
or before such date; or
(c) by Buyer or Parent and Seller if any court of competent
jurisdiction shall have issued an order, decree or ruling or taken any other
action enjoining or otherwise prohibiting the transactions contemplated under
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable.
12.2 Survival; Expenses. (a) If this Agreement is terminated and
the transactions contemplated hereby are not consummated as described above,
this Agreement shall become void and of no further force and effect, except for
the provisions of this Section 12.2, Section 7.4(b) and Article 13. None of the
parties hereto shall have any liability in respect of a termination of this
Agreement, except to the extent that such termination results from a breach of
the representations, warranties, covenants or agreements of Parent and Seller,
on the one hand, or Buyer, on the other hand, under this Agreement.
(b) Except as otherwise specifically provided herein, the parties
shall bear their respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of agents, representatives,
counsel, actuaries and accountants.
13. Miscellaneous.
13.1 Public Announcements. No party shall issue any
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news release or make any public announcement concerning this Agreement or any of
the transactions contemplated hereby without the advance approval thereof by
Parent and Buyer; provided, however, that any party may make any public
disclosure that it reasonably believes, upon the advice of counsel, is required
by applicable federal or state securities laws, in which case the disclosing
party shall use commercially reasonable efforts to advise the other party or
parties prior to making such disclosure. Subject to the prior sentence, Parent
and Buyer shall cooperate with each other in the development and distribution of
all news releases and other public announcements with respect to this Agreement
or any of the transactions contemplated hereby.
13.2 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission, sent by overnight courier or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when actually received by the relevant party as follows:
if to Buyer, to:
General Electric Capital Corporation
3001 Summer Street
Stamford, Connecticut 06927
Attention: Managing Director of
Insurance Services
Facsimile: 203-357-6969
with copies to:
General Electric Capital Corporation
260 Long Ridge Road
Stamford Connecticut 06927-5000
Attention: General Counsel
Facsimile: 203-357-3365
and
Weil Gotshal & Manges
100 Crescent Ct. Suite 1300
Dallas, Texas 75201
Attention: David Spuria, Esq.
Facsimile: 214-746-7777
if to Parent, Seller or, prior to Closing, the Company, to:
Aon Corporation
123 North Wacker Drive
Chicago, IL 60606
Attention: Raymond I. Skilling, Esq.
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Facsimile: (312) 701-3080
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attention: Thomas A. Cole and
Frederick C. Lowinger
Facsimile: (312) 853-7036
Any party may by notice given in accordance with this Section 13.2 to
the other parties designate another address or Person for receipt of notices
hereunder.
13.3 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) contains the entire agreement among the parties with respect to
the transactions contemplated hereby, and supersedes all prior agreements and
understandings, written or oral, with respect thereto.
13.4 Waivers and Amendments; Noncontractual Remedies; Preservation of
Remedies. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof. No waiver on the part of
any party of any such right, power or privilege, and no single or partial
exercise of any such right, power or privilege, shall preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
The rights and remedies herein provided are cumulative and, except as provided
in Section 13.11, are not exclusive of any rights or remedies that any party may
otherwise have at law or in equity.
13.5 Governing Law. This Agreement and the rights and obligations of
the parties hereto shall be governed by, and construed and enforced in
accordance with, the laws of the State of the State of Illinois, without giving
effect to the conflicts of laws principles thereof.
13.6 Binding Effect; Assignment Limited. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and permitted assigns and legal
representatives.
(b) Neither this Agreement, nor any right hereunder, may be assigned
by any party without the written consent of the other parties hereto, except
that Buyer may assign all or any portion of its interest in this Agreement to
any one or more wholly-owned Subsidiaries of Buyer; provided that,
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notwithstanding any such assignment, Buyer shall remain liable to perform all
obligations hereunder.
13.7 No Third-Party Beneficiaries. Except for Section 10.5, nothing
in this Agreement is intended or shall be construed to give any Person, other
than the parties hereto, any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision contained herein.
13.8 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original and which together shall constitute one and
the same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all of the parties hereto.
13.9 Schedules. (a) The Schedules hereto are a part of this
Agreement as if fully set forth herein.
(b) Any item appearing in either the Seller Disclosure Schedule or
the Company Disclosure Schedule pursuant to any one Section of this Agreement
shall be deemed to have been listed in such disclosure schedules with respect to
any other Section of this Agreement where such listing may be deemed to be
required, and subject to Section 8.1 all disclosures in the Seller Disclosure
Schedule or the Company Disclosure Schedule shall be deemed to refer solely to
matters as they exist at the date of this Agreement, unless a different date is
specified in such disclosure schedule.
13.10 Headings. The article, section and paragraph headings in this
Agreement are for convenience only, and shall not control or affect the meaning
or construction of any provision of this Agreement.
13.11 Remedies. The parties hereto agree that money damages or other
remedies at law would not be sufficient or adequate remedy for any breach or
violation of, or a default under, this Agreement by them and that, in addition
to all other remedies available to them, each of them shall be entitled to an
injunction restraining such breach, violation or default or threatened breach,
violation or default and to any other equitable relief, including specific
performance, without bond or other security being required.
13.12 Invalidity of Provisions. The invalidity or unenforceability
of any provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including that
provision, in any other jurisdiction. If any restriction or
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provision of this Agreement is held unreasonable, unlawful or unenforceable in
any respect, such restriction or provision shall be interpreted, revised or
applied in a manner that renders it lawful and enforceable to the fullest extent
possible under law.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
Aon CORPORATION
By: /s/ Harvey N. Medvin
------------------------------------
Name: Harvey N. Medvin
Title:
COMBINED INSURANCE COMPANY OF AMERICA
By: /s/ Harvey N. Medvin
------------------------------------
Name: Harvey N. Medvin
Title:
UNION FIDELITY LIFE INSURANCE COMPANY
By: /s/ Harvey N. Medvin
------------------------------------
Name: Harvey N. Medvin
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Edward D. Stewart
------------------------------------
Name: Edward D. Stewart
Title:
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EXHIBIT 10.T
EXECUTED COPY
STOCK PURCHASE AGREEMENT
by and
among
Aon CORPORATION,
COMBINED INSURANCE COMPANY OF AMERICA,
GENERAL ELECTRIC CAPITAL CORPORATION
and
THE OTHER PARTIES SPECIFIED HEREIN
Dated as of December 22, 1995
Sale of All of the Outstanding Common Shares of
The Life Insurance Company of Virginia,
Forth Financial Resources, Ltd. and Newco Properties, Inc.
to General Electric Capital Corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions........................................................... 1
2. Sale and Purchase of Shares........................................... 11
2.1 Sale of Shares..................................................... 11
2.2 Purchase Price and Payment for Shares.............................. 11
2.3 Delivery of Shares................................................. 11
2.4 Post-Closing Purchase Price Adjustment; Closing Balance Sheet...... 11
3. Closing; Closing Date................................................. 14
4. Representations and Warranties of Parent and Seller................... 14
4.1 Existence and Power................................................ 14
4.2 Authority; Execution and Delivery.................................. 15
4.3 Consents and Approvals............................................. 15
4.4 No Conflict........................................................ 15
4.5 Capital Stock; Title............................................... 16
4.6 Options or Other Rights............................................ 16
4.7 Charter Documents and By-laws...................................... 17
4.8 Minute Books....................................................... 17
4.9 GAAP and SAP Statements........................................... 17
4.10 Taxes............................................................. 18
4.11 Litigation........................................................ 21
4.12 Broker Dealer Financial Statements................................ 22
4.13 Insurance......................................................... 22
4.14 Employee Benefits................................................. 22
4.15 Brokers........................................................... 23
5. Representations and Warranties of the Companies....................... 24
5.1 Corporate Authority................................................ 24
5.2 Consents and Approvals............................................. 24
5.3 No Conflict........................................................ 24
5.4 Minute Books....................................................... 25
5.5 Compliance With Laws............................................... 25
5.6 Insurance Licenses................................................. 25
5.7 Litigation......................................................... 26
5.8 Contracts and Other Agreements..................................... 26
5.9 Real Estate........................................................ 28
5.10 Personal Property; Intellectual Property.......................... 28
5.11 Operations of the Companies....................................... 29
5.12 The Mutual Fund................................................... 33
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5.13 Labor Matters....................................... 34
5.14 No Undisclosed Liabilities.......................... 35
6. Representations and Warranties of Buyer..................... 36
6.1 Existence and Power.................................. 36
6.2 Execution and Delivery............................... 36
6.3 Consents and Approvals............................... 36
6.4 No Conflict.......................................... 36
6.5 Purchase Not for Distribution........................ 37
6.6 Financing............................................ 37
6.7 Litigation........................................... 37
6.8 Brokers.............................................. 37
7. Covenants and Agreements.................................... 37
7.1 Conduct of Business.................................. 38
7.2 Pre-Closing Maintenance of Insurance................. 39
7.3 Litigation; Notice of Assessments; Requests for
Information........................................ 39
7.4 Access to Information; Environmental Investigation;
Confidentiality.................................... 40
7.5 Approvals............................................ 42
7.6 Additional Financial Statements...................... 42
7.7 Further Assurances................................... 42
7.8 Certain Employee Matters............................. 43
7.9 Settlement of Intercompany Accounts; Cancellation of
Intercompany and Other Agreements.................. 48
7.10 Actions to Address Certain Interrelationships;
Dividends.......................................... 48
7.11 Investments......................................... 48
7.12 Resignations of Directors........................... 49
7.13 No Negotiations, Etc................................ 49
7.14 Newco Assets; Other Real Property................... 49
8. Conditions Precedent to the Obligation of Buyer............. 50
8.1 Representations and Warranties; Covenants and
Agreements.......................................... 50
8.2 Governmental Approvals; Illegality................... 51
8.3 Third Party Consents................................. 52
8.4 Hart-Scott-Rodino.................................... 52
8.5 Opinions of Counsel to Parent, Seller and the
Companies........................................... 52
8.6 No Material Adverse Change........................... 52
8.7 Consummation of Certain Transactions................. 52
9. Conditions Precedent to the Obligations of Parent,
Seller and the Companies................................... 52
9.1 Representations and Warranties; Covenants and
Agreements.......................................... 52
9.2 Governmental Approvals; Illegality................... 53
9.3 Third Party Consents................................. 53
9.4 Hart-Scott-Rodino.................................... 53
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9.5 Opinion of Counsel to Buyer................................... 53
9.6 Consummation of Certain Transactions.......................... 53
10. Survival and Indemnification...................................... 53
10.1 Survival of Representations and Warranties.................... 53
10.2 Indemnification by Parent and Seller.......................... 54
10.3 Indemnification by Buyer...................................... 54
10.4 Procedure..................................................... 55
10.5 Indemnification; Directors and Officers Insurance............. 56
10.6 Certain Exclusions from Article 10 Coverage................... 56
11. Tax Matters....................................................... 56
11.1 Section 338 Election.......................................... 57
11.2 Tax Indemnification........................................... 60
11.3 Tax Related Adjustments....................................... 66
11.4 Transfer Taxes................................................ 67
12. Termination....................................................... 67
12.1 Termination and Abandonment................................... 67
12.2 Survival; Expenses............................................ 68
13. Miscellaneous..................................................... 68
13.1 Public Announcements.......................................... 68
13.2 Notices....................................................... 68
13.3 Entire Agreement.............................................. 70
13.4 Waivers and Amendments; Noncontractual Remedies;
Preservation of Remedies..................................... 70
13.5 Governing Law................................................. 70
13.6 Binding Effect; Assignment Limited............................ 70
13.7 No Third-Party Beneficiaries.................................. 70
13.8 Counterparts.................................................. 70
13.9 Schedules..................................................... 71
13.10 Headings..................................................... 71
13.11 Remedies..................................................... 71
13.12 Invalidity of Provisions..................................... 71
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of December 22,
1995 by and among Aon Corporation, a Delaware corporation ("Parent"), Combined
Insurance Company of America, an Illinois corporation ("Seller"), The Life
Insurance Company of Virginia, a Virginia corporation (the "LOV"), Forth
Financial Resources, Ltd., a Virginia corporation ("Forth"), Newco Properties,
Inc., a Virginia corporation ("Newco", and together with Forth and LOV,
collectively the "Companies" and each a "Company"), and General Electric Capital
Corporation, a New York corporation ("Buyer").
RECITALS:
WHEREAS, Parent is the beneficial owner of all of the issued and
outstanding capital stock of Seller;
WHEREAS, Seller is the beneficial and record owner of 4,000 shares
(the "LOV Shares") of the issued and outstanding common stock, $1,000 par value,
of LOV;
WHEREAS, Parent is the beneficial and record owner of (i) 6,000
shares (the "Forth Shares") of the issued and outstanding common stock, $1 par
value, of Forth; and (ii) of 500 shares (the "Newco Shares") of the issued and
outstanding common stock, $1.00 par value, of Newco;
WHEREAS, the LOV Shares, the Forth Shares and the Newco Shares
(collectively, the "Shares") constitute all of the issued and outstanding
common shares of capital stock of the Companies; and
WHEREAS, each of Parent and Seller desires to sell its Shares, and
Buyer desires to purchase the Shares, upon the terms, subject to the conditions
and for the consideration set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and in reliance upon the representations and
warranties contained herein, Parent, Seller, the Companies and Buyer agree as
follows:
1. Definitions. (a) Except as the context shall otherwise require,
the following terms when used in this Agreement shall have the following
meanings:
"Adjusted Closing SAP Balance Sheet" means the Closing SAP Balance
Sheet, adjusted if and to the extent appropriate (i) to take into account all of
the transactions and other actions described in Exhibit A hereto which have been
effected on or prior to the Closing Date and (ii) to exclude the impact of any
realized or
<PAGE>
unrealized capital gain or loss, arising on or after July 1, 1995 with respect
to the investment portfolio of LOV or the Exhibit C Assets.
"Adjusted Closing SAP Capital" means the sum of (i) LOV's capital and
surplus as reflected in the Adjusted Closing SAP Balance Sheet, plus (ii) the
amount of AVR as of the Closing Date for LOV, all determined in accordance with
SAP as in effect on June 30, 1995.
"Adverse Environmental Condition" means any of the following: (i) the
existence, or the continuation of the existence, of a Release (including,
without limitation, sudden or non-sudden, accidental or non-accidental Releases)
of, exposure to, or presence of, any substance, chemical, material, pollutant,
odor or audible noise or other release or emission in, into or onto the
environment (including, without limitation, the air, ground, water or any
surface) at, in, by, from or related to the Real Property, (ii) any material
damage or injury to the environment in connection with the transportation,
storage, treatment or disposal of materials in connection with the operation of
the Real Property or (iii) any material violation, or alleged violation, of
Environmental Law in connection with Real Property.
"Affected Employees" means all current or former employees of the
Companies and their Subsidiaries, including any such person who is on
disability, layoff or leave of absence, but excluding any former employee of any
Company or any of its Subsidiaries who subsequently became employed by Parent or
any Subsidiary of Parent other than any Company or any of its Subsidiaries.
"Affiliate" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person. For purposes of this definition, "control" (including the
terms "controlling", "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or otherwise.
"Agreed Aggregate Asset Bases" has the meaning set forth in Section
11.1(c).
"Agreed Allocation" has the meaning set forth in Section 11.1(b)(z).
"Agreement" means this Stock Purchase Agreement, including the
Exhibits attached hereto, the Seller Disclosure Schedule and the Company
Disclosure Schedule.
"Annual SAP Statements" means, with respect to any Person, the annual
financial statements of such Person prepared in accordance with SAP, as filed
with or
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submitted to the Insurance Department on forms prescribed or permitted by the
Insurance Department.
"AVR" means, with respect to any Person, the Asset Valuation Reserve
set forth in the balance sheet of such Person in accordance with SAP.
"Basis Step-Up" has the meaning set forth in Section 11.1(d).
"Basis Step-Up Deficit" has the meaning set forth in Section 11.1(d).
"Basis Step-Up Excess" has the meaning set forth in Section 11.1(d).
"Benefit Arrangements" has the meaning set forth in Section 4.14(a).
"Business Day" means any day which is neither a Saturday nor a Sunday,
nor a day on which banking institutions in the City of New York shall be
permitted or required by law or executive order to be closed.
"Buyer" has the meaning set forth in the first paragraph hereof.
"Buyer Group Member" has the meaning set forth in Section 11.3(d).
"Buyer's Allocation" has the meaning set forth in Section 11.1(b)(z).
"Calculating Party" has the meaning set forth in Section 11.1(b)(z)
"Closing" means the closing of the sale and purchase of the Shares
contemplated by this Agreement.
"Closing Date" has the meaning set forth in Section 3.
"Closing Adjustment Calculations" has the meaning set forth in Section
2.4(c).
"Closing Purchase Price" has the meaning set forth in Section 2.2(a).
"Closing SAP Balance Sheet" means the balance sheet of LOV, as of the
Closing Date (immediately prior to consummation of the Closing) prepared in
accordance with SAP using LOV's customary standards of practice used in
preparing year-end financial statements.
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"COBRA" refers to the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, relating to continuation of health
benefits in certain circumstances.
"Code" means the Internal Revenue Code of 1986, as amended (including
any successor code), and the rules and regulations promulgated thereunder.
"Companies" has the meaning set forth in the first paragraph hereof.
"Company" has the meaning set forth in the first paragraph hereof.
"Company Disclosure Schedule" refers to the disclosure schedule
delivered by the Companies to Buyer in connection with the execution and
delivery of this Agreement.
"Company Plans" has the meaning set forth in Section 4.14(a).
"Contracts and Other Agreements" means all contracts, agreements,
undertakings, indentures, notes, bonds, loans, instruments, leases, mortgages,
commitments or other binding agreements, whether written or oral, other than
Employee Benefit Programs.
"Deemed Purchase Price" has the meaning set forth in Section
11.1(b)(z).
"Defined Contribution Plans" means Parent's Savings Plan and Parent's
ESOP.
"Disputing Party" has the meaning set forth in Section 11.1(b)(z).
"Elections" has the meaning set forth in Section 11.1(a).
"Employee Benefit Programs" has the meaning set forth in Section
4.14(a).
"Employment and Withholding Taxes" means all employment, payroll and
withholding Taxes payable with respect to salaries, wages, commissions, other
compensation or other payments actually or constructively made by the Companies
or any of their Subsidiaries on or before the Closing Date, except to the extent
such Taxes have been withheld on or prior to the Closing Date and are required
to be paid to the appropriate taxing authority after the Closing Date.
"Environmental Investigation" has the meaning set forth in Section
7.4(c).
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"Environmental Law" means, without limitation, any of the Hazardous
Materials Transportation Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Water Pollution Control Act, the Clean Air
Act, the Resource Conservation and Recovery Act, the Solid Waste Disposal Act,
the Toxic Substances Control Act, the Insecticide, Fungicide and Rodenticide
Act, the Safe Drinking Water Act, the Occupational Health and Safety Act, each
as amended, and all other environmental statutes enacted by the United States
and by state and local Governmental or Regulatory Bodies (including municipal
sewerage authorities), any executive orders, ordinances, rules or regulations
promulgated under any of the foregoing, and common law respecting environmental
matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Executive Officers" means, with respect to any corporation, the
chairman of the board of directors, the president, any executive or senior vice
president (and any vice president, in the case of the Companies only), the
general counsel, and the treasurer of such corporation (and other individuals,
if any, performing comparable functions), and with respect to any partnership,
the individuals performing comparable functions on behalf of such partnership.
"Excluded Transactions" has the meaning set forth in Section 11.2.
"Exhibit C Assets" means the assets set forth on Exhibit C attached
hereto and any other investment assets acquired on or after December 1, 1995
using funds (i) derived from any disposition of such assets, (ii) earned on such
assets and (iii) from other cash flows on the insurance businesses described in
items 1 through 4 of Exhibit A.
"Federal" means of or pertaining to the government of the United
States of America.
"FFRL Re" means FFRL Re Corp., a Virginia corporation.
"Final Purchase Price" has the meaning set forth in Section 2.2(a).
"Forth" has the meaning set forth in the first paragraph hereof.
"Forth Shares" has the meaning set forth in the recitals hereof.
"FTC" means the Federal Trade Commission of the United States of
America.
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"GAAP" means United States generally accepted accounting principles
consistently applied throughout the specified period and in the immediately
prior comparable period, except for normal recurring year-end adjustments.
"Governmental or Regulatory Body" means any government or political
subdivision thereof, whether Federal, state, local or foreign, or any agency or
instrumentality of any such government or political subdivision.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"IMR" means, with respect to any Person, the Interest Maintenance
Reserve set forth in the balance sheet of such Person in accordance with SAP.
"Income Taxes" means (i) all Taxes however denominated (including
franchise taxes and premium taxes) that are based upon or measured by gross
income, net income, or gross receipts, (ii) minimum and tax preference based
Taxes, (iii) any guarantee fund assessments, (iv) state insurance department
licenses and fees and (v) any interest, fines, penalties, assessments or
additions to tax resulting from, attributable to or incurred in connection with
any Tax described in clauses (i) through (iv) or any contest, dispute or refund
thereof.
"Income Tax Returns" means Tax Returns in respect of Income Taxes.
"Increase Amount" has the meaning set forth in Section 2.4(b).
"Indemnitee" has the meaning set forth in Section 10.4.
"Indemnitor" has the meaning set forth in Section 10.4.
"Insurance Contracts" means all insurance policies, annuity contracts,
guaranteed investment contracts and other insurance products underwritten by LOV
or FFRL Re.
"Insurance Department" means the appropriate insurance regulatory
governmental authority for LOV's and FFRL Re's respective states of domicile and
deemed commercial domicile, if any.
"Insurance Licenses" has the meaning set forth in Section 5.6(a).
"Interim SAP Statements" has the meaning set forth in Section 7.6.
"Investment Assets" means (i) the investment assets of LOV and FFRL Re
(including, without limitation, "caps," "swaps" and other similar arrangements)
as of
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the date hereof and any other investment assets acquired following the date
hereof using funds derived from any disposition of such assets or funds earned
on such assets or cash flows from the related insurance business and (ii) the
Exhibit C Assets.
"Investment Advisor" means Aon Advisors, Inc.
"Investment Act" means the Investment Advisers Act of 1940, as
amended.
"Investment Contracts" means all contracts, agreements, undertakings,
indentures, notes, bonds, loans, instruments, leases, mortgages, commitments or
other binding agreements included in the investment portfolio of the Companies
or any of their Subsidiaries.
"IRS" means the Internal Revenue Service of the United States of
America.
"Justice" means the Antitrust Division of the Department of Justice of
the United States of America.
"Knowledge" means, with respect to any entity, the actual knowledge of
any of the Executive Officers of such entity.
"Lawyers Title Building" means the six-story multi-tenant office
building owned as of the date hereof by LOV that as of the date hereof is
primarily occupied by the Lawyer's Title Insurance Company.
"Lien or Other Encumbrance" means any lien, pledge, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any shareholder or similar agreement or
encumbrance.
"Litigation" means, with respect to any Person, any claim, action,
suit, proceeding, arbitration or governmental investigation.
"Losses" means all losses, liabilities (including for environmental
clean up) , damages (excluding consequential damages suffered by any
Indemnitee), deficiencies, costs, fines and assessments, penalties, claims,
actions, injuries, judgments and expenses (including interest actually paid by
an Indemnitee to a third party and reasonable attorneys' fees and
disbursements), however arising, net of any insurance proceeds the Person
incurring such losses recovered in respect thereof.
"LOV" has the meaning set forth in the first paragraph hereof.
"LOV Shares" has the meaning set forth in the recitals hereof.
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"Material Adverse Effect" means an effect or series of related effects
which, individually or in the aggregate, is materially adverse to either (a) the
business, financial condition or results of operations of the Companies and
their Subsidiaries, taken as a whole, (b) the legal ability of Parent or Seller
to consummate the transactions contemplated by this Agreement other than by
reason of the inability of Buyer to consummate such transactions, or (c) the
validity or enforceability of this Agreement.
"Modified Aggregate Deemed Sales Price" has the meaning set forth in
Section 11.1(b)(z).
"Mutual Fund" means Life of Virginia Series Fund, Inc.
"NAIC" means the National Association of Insurance Commissioners and
any successor thereto.
"Newco" has the meaning set forth in the first paragraph hereof.
"Newco Shares" has the meaning set forth in the recitals hereof.
"Notice" has the meaning set forth in Section 10.4.
"Parent" has the meaning set forth in the first paragraph hereof.
"Parent's ESOP" means the Aon Employee Stock Ownership Plan.
"Parent's Retirement Plan" means the Aon Pension Plan.
"Parent's Savings Plan" means the Aon Savings Plan.
"Permits" means all licenses, permits, orders, approvals,
registrations, authorizations and qualifications with and under all Federal,
state, local or foreign laws and Governmental or Regulatory Bodies and all
industry or other nongovernmental self-regulatory organizations that are
necessary for the conduct of the applicable Person's business and the ownership
of its properties.
"Permitted Liens" means (i) Liens or Other Encumbrances for Taxes not
yet due and payable, and (ii) statutory or other Liens or Other Encumbrances
that do not interfere with the use by a Person of the property involved.
"Person" means and includes any natural person, corporation, limited
liability company, partnership, limited partnership, firm, joint venture,
association, joint-stock company, trust, business trust, unincorporated
organization, Governmental or Regulatory Body, or other entity.
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"Product" has the meaning set forth in Section 2.4(a).
"Quarterly SAP Statements" means, with respect to a specified Person,
the quarterly financial statements of such Person prepared in accordance with
SAP, as filed with or submitted to the Insurance Department on forms prescribed
or permitted by the Insurance Department.
"Real Property" means any real estate (including all buildings,
structures, improvements and fixtures thereon) in which a Company or a
Subsidiary of a Company holds an ownership or leasehold interest (including,
without limitation, Lawyers Title Building).
"Reduction Amount" has the meaning set forth in Section 2.4(b).
"Release" means any material release, spill, emission, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching or migration on or into the indoor or outdoor environment or
into or out of any property.
"SAP" means, with respect to a specified Person, the statutory
accounting practices prescribed or permitted by the Insurance Department,
consistently applied throughout the specified period and in the immediately
prior comparable period.
"Section 338 Forms" has the meaning set forth in Section 11.1(b)(y).
"Seller" has the meaning set forth in the first paragraph hereof.
"Seller Consolidated and Combined Returns" means any consolidated,
affiliated, combined or unitary Tax Returns of Parent which include any Company
and any Subsidiary of such Company.
"Seller Disclosure Schedule" refers to the disclosure schedule
delivered by Parent and Seller to Buyer in connection with the execution and
delivery of this Agreement.
"Seller Group" has the meaning set forth in Section 11.3(d).
"Seller's Aggregate Asset Bases" has the meaning set forth in Section
11.1(c).
"Shares" has the meaning set forth in the recitals hereof.
"Settlement Auditor" has the meaning set forth in Section 2.4(f).
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"Special Bonus Program" means the special incentive plan described in
the memorandum attached to Section 5.8(a) of the Company Disclosure Schedule.
"Subsidiary" of a specified Person means a Person 50% or more of the
outstanding voting stock or other ownership interests of which are owned,
directly or indirectly, by such specified Person or one or more other
Subsidiaries of such specified Person. For the purposes of this definition,
"voting stock" means stock that ordinarily has voting power for the election of
directors, whether at all times or only so far as no senior class of stock has
such voting power by reason of any contingency. For purposes of this Agreement,
each of Forth Financial Resources of Ohio, Inc., an Ohio corporation, Forth
Financial Resources of Oklahoma Agency, Inc., an Oklahoma corporation, and
Forth Financial Resources of Texas, Inc., a Texas corporation, shall be deemed
to be a Subsidiary of Forth.
"Tax Claim" has the meaning set forth in Section 11.2(d).
"Taxes" means all taxes, charges, fees, levies, or other similar
assessments, including, without limitation, (i) income, gross receipts, ad
valorem, premium, guarantee fund assessments, excise, real property, personal
property, windfall profit, sales, use, transfer, licensing, withholding,
employment, payroll, estimated and franchise taxes imposed by the United States
of America, any state, local, or foreign government, or any subdivision, agency,
or other similar Person of the United States or any such government; and (ii)
any interest, fines, penalties, assessments, or additions to tax resulting from,
attributable to or incurred in connection with any Tax or any contest, dispute
or refund thereof.
"Tax Return" means any report, return, statement or other information
required to be supplied to a taxing authority in connection with Taxes.
"Tax Settlement Auditor" has the meaning set forth in Section
11.1(b)(z).
"Tax Settlement Procedure" has the meaning set forth in Section
11.1(b)(z).
"Tax Statement" has the meaning set forth in Section 11.2(e).
"Transferred Employee" means any Affected Employee who is offered
employment or remains employed by LOV, Forth, Newco or any of their respective
Subsidiaries as of the Closing Date or such later date, in either case as
otherwise provided in Section 7.8(a) hereof.
"Value" has the meaning set forth in Section 7.14(a).
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"WARN" means the Worker Adjustment and Retraining Notification Act of
1988.
(b) "Including" and other forms of such term, with respect to any
matter or thing, shall be construed to mean "including but not limited to" such
matter or thing.
2. Sale and Purchase of Shares.
2.1 Sale of Shares. (a) At the Closing, Seller agrees to sell to
Buyer, and Buyer agrees to purchase from Seller, the LOV Shares, upon the terms
and subject to the conditions set forth herein.
(b) At the Closing, Parent agrees to sell to Buyer, and Buyer agrees
to purchase from Parent, the Newco Shares and the Forth Shares, upon the terms
and subject to the conditions set forth herein.
2.2 Purchase Price and Payment for Shares. (a) The purchase price
for the Shares shall be an amount equal to $960,000,000 plus, if the Closing
occurs after March 31, 1996, simple interest thereon from and including April 1,
1996 to (but not including) the Closing Date at an annual interest rate equal to
6% (the "Closing Purchase Price") and subject to adjustment following the
Closing in accordance with Sections 2.4 and 11.1(d) (as so adjusted, the "Final
Purchase Price"). The Closing Purchase Price shall be allocated among the
Shares as determined by mutual agreement of Parent, Seller and Buyer.
(b) At the Closing, Buyer shall pay to Seller and Parent the Closing
Purchase Price (as allocated in accordance with the mutual agreement referred to
in Section 2.2(a)), in immediately available funds by wire transfer to such
account or accounts of Parent and/or Seller as Parent shall have designated to
Buyer, in the manner specified herein for the delivery of notices, not less than
two Business Days prior to the Closing Date.
2.3 Delivery of Shares. At the Closing, Parent and Seller shall
deliver to Buyer certificates representing all of the Shares, duly endorsed in
blank for transfer or accompanied by duly executed blank stock powers together
with all necessary stock transfer stamps affixed thereto.
2.4 Post-Closing Purchase Price Adjustment; Closing Balance Sheet.
(a) Upon the earlier to occur of (i) the parties' agreement (or deemed agreement
pursuant to Section 2.4(e)) with respect to the calculation of the Final
Purchase Price and (ii) the delivery of any report of the Settlement Auditor as
provided in Section 2.4(g), the Closing Purchase Price shall be decreased by the
Reduction Amount, if any, and shall be increased by the Increase Amount, if any,
and shall be decreased by the product (the "Product") of (y) $80,000 and (z) the
number of full months which have
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elapsed prior to the Closing Date in the calendar year in which the Closing Date
occurs. Seller and/or Parent, as the parties shall then agree, shall pay,
within five Business Days after the earlier to occur of the events described in
clauses (i) and (ii) above, the amount of such Reduction Amount plus the Product
to Buyer, plus simple interest thereon (exclusive of the Product) from and
including April 1, 1996 to (but not including) the date of payment at an annual
interest rate equal to 6%, by wire transfer of immediately available funds to
such account or accounts of Buyer as Buyer specifies in writing to Seller in the
manner specified herein for the delivery of notices. Buyer shall pay to Seller
and/or Parent, as the parties shall then agree, within five Business Days after
the earlier to occur of the events described in clauses (i) and (ii) above, the
amount of such Increase Amount, by wire transfer of immediately available funds
to such account or accounts of Parent and/or Seller as Parent specifies in
writing to Buyer in the manner specified herein for the delivery of notices.
The allocation of any such payment to particular Shares shall be determined by
mutual agreement of Parent, Seller and Buyer.
(b) The Reduction Amount shall equal the amount, if any, by which
$470,000,000 exceeds the Adjusted Closing SAP Capital. The Increase Amount
shall equal the amount of all accruals for Taxes on the Closing SAP Balance
Sheet, provided that such accrual for federal income taxes (but not for other
Income Taxes or other Taxes) with respect to the period commencing July 1, 1995
and ending on the Closing Date shall be calculated in accordance with the Aon
Corporation and Subsidiaries Tax Sharing Agreement effective January 1, 1994.
(c) Within 30 Business Days after the Closing Date, Seller and Parent
shall prepare and deliver to Ernst & Young LLP for audit the Adjusted Closing
SAP Balance Sheet. Buyer shall, and shall cause each Company and its
Subsidiaries and Buyer's and their officers and employees to, afford to Seller
and Parent and their officers, employees and agents reasonable access at
reasonable times to the officers, employees, properties, books and records of
each Company and its Subsidiaries and shall furnish to Seller and Parent all
financial and other data and information relating to each Company and its
Subsidiaries as Seller or Parent may reasonably request in connection with
Seller's preparation of the Adjusted Closing SAP Balance Sheet. As promptly as
practicable following such delivery (and, in any event, within 40 Business
Days), Seller and Parent shall cause (at its expense) Ernst & Young LLP to
complete an audit of the Adjusted Closing SAP Balance Sheet. Buyer shall, and
shall cause each Company and its Subsidiaries and Buyer's and their officers and
employees to, cooperate with Ernst & Young LLP in connection with such audit.
As promptly as practicable after such audit is completed, Seller and Parent
shall deliver to Buyer (i) the audited Adjusted Closing SAP Balance Sheet
together with the report thereon of Ernst & Young LLP to the effect that such
audit was conducted in accordance with generally accepted auditing standards and
that such firm believes that such audit provides a reasonable basis for such
firm's opinion thereon and that the Adjusted Closing SAP Balance Sheet presents
fairly in all material respects the statutory financial condition of
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LOV and its consolidated subsidiaries (assuming Forth and its Subsidiaries to be
such consolidated subsidiaries) as of the Closing Date in conformity with this
Agreement, and (ii) a statement signed by the Seller and Parent setting forth
the calculation of the Reduction Amount and/or the Increase Amount, as the case
may be (collectively, the "Closing Adjustment Calculations"), in each case in
sufficient detail to permit Buyer to verify such calculation.
(d) As promptly as practicable after the conduct of the audits
required pursuant to Section 2.4(c), Seller and Parent shall cause Ernst & Young
LLP (subject to the execution by Buyer and delivery to Ernst & Young LLP of an
appropriate agreement for the review and release of such documents) to (i)
provide to Buyer's independent auditors such work papers and other documents of
Ernst & Young LLP relating to such audits as Buyer's independent auditors may
reasonably request and (ii) cooperate with, and be reasonably available to,
Buyer's independent auditors to provide such other information reasonably
requested by Buyer's independent auditors concerning such audits and the
accounting and auditing issues that arise from or relate to such audits. Buyer
shall pay the fees and expenses of its independent auditors.
(e) Within 30 Business Days after Buyer's receipt of the audited
Adjusted Closing SAP Balance Sheet (together with the Closing Adjustment
Calculations of Seller and Parent), Buyer shall provide Seller and Parent with
written notice indicating whether Buyer agrees or disagrees with such
calculations, and, if Buyer disagrees with such calculations of Seller and
Parent, setting forth Buyer's calculation of the Closing Adjustment
Calculations. If Buyer agrees with such calculations, or if Buyer fails to
deliver to Seller such written notice within such 30 Business Day period, such
SAP Balance Sheet and such calculations shall be deemed final. To the extent
Buyer, on the one hand, and Seller and Parent, on the other hand, are in
agreement as to calculation of the Closing Adjustment Calculations, the parties
agree to make the corresponding payment contemplated in Section 2.4(a).
(f) Within ten Business Days after Seller's timely receipt by Seller
and Parent of any notice of disagreement with the calculation of the Closing
Adjustment Calculations, Buyer, Seller and Parent shall begin, and shall cause
their independent auditors to participate in, good faith negotiations to resolve
such disagreement. If such parties and their independent auditors are unable to
resolve such disagreement within ten Business Days after such negotiations
begin, such disagreement shall be submitted to the national office of Coopers &
Lybrand (which may not assign the matter to its Chicago, Illinois or Stamford,
Connecticut office), or, if such firm is unavailable, another independent
nationally recognized auditing firm selected by the parties (the "Settlement
Auditor") for resolution in a manner consistent with the provisions of this
Agreement. The parties shall, and shall cause their independent auditors to,
cooperate with the Settlement Auditor and shall proceed in good faith to cause
the Settlement Auditor to resolve such disagreement within 40 Business Days
after such disagreement is submitted to the Settlement Auditor. The fees and
expenses of the Settlement Auditor
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(i) shall be paid by Seller if the Buyer's calculation of the Closing Adjustment
Calculations is closer to the Settlement Auditor's calculation of the Closing
Adjustment Calculations than the Seller's calculation of the Closing Adjustment
Calculations, (ii) shall be paid by Buyer if the Seller's and Parent's
calculation of the Closing Adjustment Calculations is closer to the Settlement
Auditor's calculation of the Closing Adjustment Calculations than the Buyer's
calculation of the Closing Adjustment Calculations and (iii) shall be paid one-
half by Seller and one-half by Buyer if neither the Seller's and Parent's
calculation of the Closing Adjustment Calculations nor the Buyer's calculation
of the Closing Adjustment Calculations is closer to the Settlement Auditor's
calculation of the Closing Adjustment Calculations than the other.
(g) The Settlement Auditor, in its sole discretion, shall determine
(i) the nature and extent of the participation by Buyer, Seller and their
respective independent auditors in connection with the resolution of any
disagreement submitted to the Settlement Auditor, (ii) the nature and extent of
information that Buyer, Seller and Parent may submit to the Settlement Auditor
for consideration in connection with such resolution and (iii) the personnel of
the Settlement Auditor who shall review such information and resolve such
disagreement; provided, however, that the Settlement Auditor shall permit Buyer
to submit any information relating to any audit by Buyer or its auditors of the
Adjusted Closing SAP Balance Sheet or the calculation of the Closing Adjustment
Calculations prepared by Buyer in connection with the Settlement Auditor's
resolution of any such disagreement. The Settlement Auditor's resolution of any
such disagreement shall be reflected in a written report which shall be
delivered promptly to, and shall be final and binding upon, the parties and the
Closing Purchase Price shall be adjusted accordingly to reflect any such
resolution and, as adjusted, shall be deemed to be the Final Purchase Price and
any adjustment thereto will be paid in accordance with Section 2.4(a).
3. Closing; Closing Date. The Closing shall take place at the
offices of Sidley & Austin, 875 Third Avenue, New York, New York 10022, at 10:00
a.m., on the fifth Business Day following the day on which the last of the
conditions to Closing set forth in Sections 8 and 9 shall have been satisfied,
or at such other place and date as the parties may mutually agree. The date and
time of such Closing are herein referred to as the "Closing Date."
4. Representations and Warranties of Parent and Seller. Parent and
Seller each represents and warrants to Buyer as follows:
4.1 Existence and Power. (a) Each of Parent, Seller, the Companies
and their Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Each of
Parent, Seller and the Companies has all requisite corporate power and authority
to execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby.
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(b) Each Company has all requisite corporate power and authority to
own, lease and operate its assets, properties and business and to carry on its
business as now being conducted by it. Each Company is duly qualified or
otherwise authorized or admitted as a foreign corporation to transact business
and is in good standing as a foreign corporation in each jurisdiction set forth
in Section 4.1(b) of the Seller Disclosure Schedule, which are the only
jurisdictions in which such qualification, authorization or admission is
required by law, except for any jurisdictions in which the failure to be so
qualified, authorized or admitted could not reasonably be expected to have a
Material Adverse Effect.
4.2 Authority; Execution and Delivery. The execution and delivery by
each of Parent, Seller and the Companies of this Agreement, the performance by
each of Parent, Seller and the Companies of its obligations hereunder and the
consummation by each of Parent, Seller and the Companies of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of each of Parent, Seller and the Companies,
respectively. This Agreement has been duly executed and delivered by each of
Parent, Seller and the Companies and constitutes the legal, valid and binding
obligation of Parent, Seller and the Companies, enforceable against Parent,
Seller and the Companies in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.3 Consents and Approvals. The execution and delivery by each of
Parent, Seller and the Companies of this Agreement, the performance by each of
Parent, Seller and the Companies of its obligations hereunder and the
consummation by each of Parent, Seller and the Companies of the transactions
contemplated hereby do not and will not require Parent, Seller or the Companies
or any other Subsidiary of Parent (other than the Subsidiaries of the Companies)
to obtain any consent, approval or action of, or make any filing with or give
any notice to, any Person except (i) as set forth in Section 4.3 of the Seller
Disclosure Schedule, (ii) such as have been duly obtained and are in full force
and effect on the date hereof and will continue to be in full force and effect
on the Closing Date and (iii) those which, if not obtained, made or given, could
not reasonably be expected to have a Material Adverse Effect or have a material
adverse effect on Buyer's ability to own, possess or exercise the rights of an
owner with respect to the Shares or any Company and its Subsidiaries.
4.4 No Conflict. (a) The execution and delivery by each of Parent
and Seller of this Agreement, the performance by each of Parent and Seller of
its obligations hereunder and the consummation by each of Parent and Seller of
the transactions contemplated hereby in accordance with the terms and conditions
hereof will not violate any provision of the articles or certificate of
incorporation or by-laws or other charter or organizational documents of Parent
or Seller.
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(b) Except as set forth in Section 4.4(b) of the Seller Disclosure
Schedule, the execution and delivery by each of Parent and Seller of this
Agreement, the performance by Parent and Seller of their obligations hereunder
and the consummation by Parent and Seller of the transactions contemplated
hereby in accordance with the terms and conditions hereof will not (i) violate,
conflict with or result in the breach of any of the terms of, result in a
material modification of the effect of, otherwise give any other contracting
party the right to terminate, or constitute (with or without notice or lapse of
time or both) a default under, any Contract or Other Agreement to which Parent
or Seller or any other Subsidiary of Parent (other than the Companies and the
Subsidiaries of the Companies) is a party or by or to which Parent or Seller or
any other Subsidiary of Parent (other than the Companies and the Subsidiaries of
the Companies) or any of their respective assets or properties may be bound or
subject, or (ii) violate any existing term or provision of any law, regulation,
order, writ, judgment, injunction or decree applicable to Parent or Seller or
any other Subsidiary of Parent (other than the Companies and the Subsidiaries of
the Companies) or any of their respective assets or properties, except, in the
case of clause (i) for such violations, conflicts, breaches, modifications,
rights, defaults and impairments that could not reasonably be expected to have a
Material Adverse Effect or have a material adverse effect on Buyer's ability to
own, possess or exercise the rights of an owner with respect to the Shares or
the Companies and their Subsidiaries.
4.5 Capital Stock; Title. Section 4.5 of the Seller Disclosure
Schedule accurately sets forth the name and jurisdiction of incorporation of
each Subsidiary of each Company and the authorized capital stock of each Company
and its Subsidiaries and the number of shares of each class of capital stock of
each Company and each of such Subsidiaries that are issued and outstanding. The
Shares and all of the issued and outstanding shares of capital stock of the
Subsidiaries of each Company are duly authorized, validly issued, fully paid and
non-assessable and are owned beneficially and of record as set forth in Section
4.5 of the Seller Disclosure Schedule, free and clear of any Lien or Other
Encumbrance, except as provided in such Schedule or in the next sentence. Upon
delivery of the payment for the Shares as herein provided, Buyer will acquire
good title thereto, free and clear of any Lien or Other Encumbrance (other than
(i) Liens or Other Encumbrances created by Buyer and (ii) the requirements of
the Federal and state securities laws and state insurance laws respecting
limitations on the subsequent transfer thereof), and will own all of the issued
and outstanding shares of capital stock of each Company.
4.6 Options or Other Rights. Except for and as provided in this
Agreement and except as set forth in Section 4.6 of the Seller Disclosure
Schedule, (i) there is no outstanding right, subscription, warrant, call,
unsatisfied preemptive right, option or other agreement of any kind to purchase
or otherwise to receive from Parent, Seller, any Company or any other Affiliate
of Parent, any of the outstanding, authorized but unissued, unauthorized or
treasury shares of the capital stock or any other equity security of any Company
or any of its Subsidiaries (or any interest therein), (ii) there is
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no outstanding security of any kind that has been issued by Parent, Seller, any
Company or any other Affiliate of Parent and that is convertible into or
exchangeable for the capital stock of any Company or any of its Subsidiaries (or
any interest therein) and (iii) there is no outstanding Contract or Other
Agreement of or binding upon Parent, Seller, any Company or any other Affiliate
of Parent (y) to purchase, redeem or otherwise acquire any outstanding shares of
the capital stock of any Company or to participate in the equity, income, or
election of directors or officers of any Company or any Subsidiary of a Company
or (z) that permits any Person to participate in the equity, income or election
of directors of any Company or any Subsidiary of a Company.
4.7 Charter Documents and By-laws. Seller has heretofore made
available to Buyer true and complete copies of the articles or certificate of
incorporation and by-laws of each Company and each of its Subsidiaries, in each
case as in effect on the date hereof.
4.8 Minute Books. The minute books of each Company accurately
reflect in all material respects all formal actions taken at all meetings and
all consents in lieu of meetings of the stockholders of such Company since
December 31, 1990 and all formal actions taken at all meetings and all consents
in lieu of meetings of the Board of Directors of such Company and all committees
thereof since December 31, 1990. All of such minute books have previously been
made available for inspection by Buyer.
4.9 GAAP and SAP Statements. (a) Seller has made available to
Buyer true and complete copies of the consolidating balance sheets, with
appropriate eliminations, of LOV and its consolidated subsidiaries (assuming
that Forth and its Subsidiaries are consolidated subsidiaries of LOV) as of
December 31, 1994 and 1993, June 30, 1995 and September 30, 1995, and the
related statements of income for the periods then ended, prepared in each case
on a pro-forma basis after giving effect to the transactions and other actions
contemplated by Exhibit A hereto as of such date or the beginning of such
period, as the case may be. Such balance sheets and income statements present
fairly in all material respects the financial position and the results of
operations and shareholders' equity of LOV and its consolidated subsidiaries as
of each such date and for each such period in conformity with GAAP, except that
footnotes are not included in such financial statements.
(b) Seller has made available to Buyer true and complete copies of
the statutory balance sheets of LOV as of December 31, 1994 and 1993 and June
30, 1995 and the related statements of statutory income for the periods then
ended prepared in each case on a pro-forma basis after giving effect to the
transactions and other actions contemplated by Exhibit A hereto as of such date
or the beginning of such period, as the case may be. Such balance sheets and
income statements present fairly in all material respects the statutory
financial position and statutory results of operations of LOV as of each such
date and for each such period in conformity with SAP, except that footnotes are
not included in such financial statements.
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(c) Seller has made available to Buyer true and complete copies of
Annual SAP Statements of LOV and FFRL Re for the years ended December 31, 1994,
1993 and 1992 and Quarterly SAP Statements of LOV and FFRL Re for the three
months ended June 30, 1995 and September 30, 1995, together with the exhibits,
schedules and notes thereto and any affirmations and certifications filed
therewith, as filed with the appropriate Insurance Department. Except as set
forth in Section 4.9(c) of the Seller Disclosure Schedule, each of such Annual
and Quarterly SAP Statements presents fairly in all material respects the
statutory financial condition of LOV or FFRL Re as of the end of each such
period and the statutory results of its operations and changes in capital and
surplus for each of the periods then ended and were prepared in conformity with
SAP. Except as set forth in Section 4.9(c) of the Seller Disclosure Schedule,
each of such Annual and Quarterly SAP Statements was properly prepared in every
material respect when filed and there were no material omissions therefrom. In
addition, except as set forth in Section 4.9(c) of the Seller Disclosure
Schedule, the schedules included in such Annual and Quarterly SAP Statements,
when considered in relation to the basic statutory financial statements, present
fairly in all material respects the information shown therein.
4.10 Taxes. For purposes of this Section 4.10, any reference to a
Company or a Subsidiary of a Company shall include any corporation which merged
or was liquidated with and into such Company or a Subsidiary of such Company.
Except as disclosed in Section 4.10 of the Seller Disclosure Schedule:
(a) All Income Tax Returns and all material other Tax Returns
required to be filed by or with respect to each of the Companies and their
Subsidiaries on or before the date hereof have been timely filed (and in the
case of such Tax Returns required to be filed after the date hereof and on or
prior to the Closing Date, will be so filed) and all such Tax Returns are (and
will be) true and complete in all material respects. Each Company and its
Subsidiaries has timely paid (or there has been paid on their behalf) all
material Taxes that are due, or claimed or asserted by any taxing authority to
be due, from or with respect to it for taxable years or periods ending prior to
the date hereof (and in the case of payments required to be made after the date
hereof and on or prior to the Closing Date, will so pay), other than non-Income
Taxes which are being contested in good faith. With respect to any period for
which federal and state Income Tax Returns have not been filed, or for which
such Taxes are not yet due and owing, each Company or its Subsidiaries, as the
case may be, has made sufficient accruals for such Taxes in the financial
statements referred to in Sections 4.9(b) and (c). Neither any Company nor any
Subsidiary of a Company files any material Tax Returns in any jurisdiction other
than those set forth in Section 4.10 of the Seller Disclosure Schedule. Each
Company and its Subsidiaries has made (or there has been made on their behalf)
all required estimated Tax payments sufficient to avoid material underpayment
penalties.
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(b) No audit or other proceeding by any court, Governmental or
Regulatory Authority, or similar Person is pending, or, to the Knowledge of
Parent, Seller or any Company, threatened, with respect to any Income Tax or
material other Tax due from or with respect to any Company or any Subsidiary of
a Company or any such Tax Return filed by or with respect to any Company or any
of its Subsidiaries. No assessment of Income Taxes or material other Taxes has
been proposed in writing against any Company or any Subsidiary of a Company or
any of their respective assets or properties.
(c) The statute of limitations with respect to the assessment of a
deficiency relating to Income Taxes of each Company and its Subsidiaries and of
each affiliated group (within the meaning of the Code) of which such Company or
any Subsidiary of a Company is or has been a member for all periods ending on or
before December 31, 1985 has expired. No issue relating to any Company or any
of its Subsidiaries has been raised in writing by any taxing authority in any
audit or examination which, by application of the same or similar principles,
could reasonably be expected to result in a material deficiency for any
subsequent period, including periods subsequent to the Closing Date. There are
no outstanding agreements, waivers or arrangements extending the statutory
period of limitation applicable to any claim for, or the period for the
collection or assessment of, Income Taxes or material other Taxes due from or
with respect to any Company or any Subsidiary of a Company for any taxable
period, and no power of attorney granted by or with respect to any Company or
any of its Subsidiaries relating to Taxes is currently in force. With respect
to Taxes for taxable years or periods ending after December 31, 1985, no closing
agreement pursuant to Section 7121 of the Code (or any predecessor provision) or
any similar provision of any state, local, or foreign law has been entered into
by or with respect to any Company or any Subsidiary of a Company.
(d) Seller has previously delivered to Buyer true and complete copies
of each of (i) any audit reports issued within the last three years relating to
the United States federal, state, local or foreign Taxes due from or with
respect to each
Company and its Subsidiaries and (ii) the United States federal Income Tax
Return, and those state, local and foreign Income Tax Returns showing Taxes due
in excess of $10,000 for each of the last three taxable years, filed by each
Company and its Subsidiaries or (insofar as such returns relate to such Company
or any such Subsidiary) filed by any affiliated, consolidated, combined or
unitary group of which such Company or any of its Subsidiaries was then a
member.
(e) There are no Liens or Other Encumbrances with respect to Taxes
upon any of the assets or properties of any Company or any Subsidiary of a
Company, other than with respect to Taxes not yet due and payable.
(f) No consent to the application of Section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect to any
Company or
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any Subsidiary of a Company or any of their respective assets or properties.
None of the assets or properties of any Company or any of its Subsidiaries is an
asset or property that is or will be required to be treated as being (i) owned
by any Person (other than a Company or its Subsidiaries) pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended, and in effect immediately before the enactment of the Tax Reform Act of
1986, or (ii) tax-exempt use property within the meaning of Section 168(h)(1) of
the Code.
(g) Each Company and its Subsidiaries are in substantial compliance
with all applicable laws or regulations relating to the payment or withholding
of Taxes. Each Company and its Subsidiaries is in substantial compliance with
its obligation to withhold from employee salaries, wages and other compensation
and pay over to the appropriate taxing authorities all amounts required to be so
withheld and paid over for all periods under all applicable laws and
regulations.
(h) Effective as of the Closing, neither any Company nor any of its
Subsidiaries shall be a party to, be bound by or have any obligation under, any
Tax sharing agreement or similar contract or arrangement among such Company or
any Subsidiary of a Company and Parent and its Affiliates (other than any
Company or any Subsidiary of a Company).
(i) There is no contract or agreement, plan or arrangement by the
Company or any Subsidiary of a Company covering any Person that, individually or
collectively, could give rise to a payment after the Closing of any amount that
would not be deductible by any Company or any of its Subsidiaries by reason of
Section 280G of the Code.
(j) Neither Parent nor Seller is a "foreign person" within the meaning
of Section 1445(b)(2) of the Code.
(k) All life insurance contracts issued by LOV and FFRL Re that are
subject to Section 7702 of the Code qualify as "life insurance contracts" within
the meaning of Section 7702(a) of the Code. All contracts issued by LOV and
FFRL Re that are subject to Section 817 of the Code have met the diversification
requirements applicable thereto since the issuance of the contract. All annuity
contracts issued by LOV or FFRL Re that are subject to Section 72(s) of the Code
contain all of the necessary provisions of Section 72(s) of the Code.
(l) Neither any Company nor any Subsidiary of a Company has agreed to
or is required to make any adjustment pursuant to Section 481(a) of the Code (or
any predecessor provision) by reason of any change in any accounting method of
such Company or such Subsidiary, and there is no application pending with any
taxing
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authority requesting permission for, nor has the Internal Revenue Service
proposed any changes, in any accounting method of any Company or any Subsidiary
of a Company. Neither LOV nor FFRL Re is subject to any adjustment under
Section 807(f) or Section 807(e)(7)(B) of the Code which would have a material
effect on Buyer.
(m) The insurance reserves and the unearned premiums with respect to
LOV and FFRL Re set forth in all federal Income Tax Returns of such Company were
determined in all material respects in accordance with Section 807 of the Code.
(n) The unpaid losses with respect to each Company set forth in all
federal Income Tax Returns of such Company were based upon reasonable estimates
and were discounted in all material respects in accordance with Section 846 of
the Code.
(o) LOV is and for all taxable periods since April 30, 1986 has been
taxable as a life insurance company for purposes of Section 816 of the Code.
(p) Except to the extent that the tax treatment of any Insurance
Contract issued by LOV or FFRL Re is not materially less favorable than the tax
treatment of substantially similar products offered by other companies, the tax
treatment under the Code of Insurance Contracts is and at all times has been not
materially less favorable to the purchaser thereof than the tax treatment under
the Code which the Company represented could be obtained at the time of its
purchase.
(q) Notwithstanding anything to the contrary in Section 4.10 of the
Seller Disclosure Schedule, the balances of the policyholders surplus accounts
(as defined in Section 815 of the Code) of LOV and FFRL Re as of December 31,
1994 are zero (0) and zero (0), respectively.
Any indemnification with respect to breaches of the representations, warranties
and covenants of this Section 4.10 which also give rise to indemnification
pursuant to Section 11.2 shall not provide a duplicative benefit to Buyer.
4.11 Litigation. There is no Litigation pending to which Parent or
Seller or any other Subsidiary of Parent (other than any Company or any
Subsidiary of a Company) is a party or by which any of such Persons or their
respective assets or properties are or may be bound by or before any Federal,
state, municipal, foreign or other court or Governmental or Regulatory Body, or
any private tribunal, or, to the Knowledge of Parent, Seller or any Company,
threatened against Parent or Seller or any other Subsidiary of Parent (other
than any Company or any Subsidiary of a Company) that, in each case, (i) seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement or (ii) could reasonably be expected to have a Material Adverse
Effect. Neither Seller nor any of its Affiliates (other than any Company or any
Subsidiary of a Company) is bound by or subject to any existing order,
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judgement, injunction award or decree, that, in each case, (i) seeks to restrain
or enjoin the consummation of the transactions contemplated by this Agreement or
(ii) could reasonably be expected to have a Material Adverse Effect.
4.12 Broker Dealer Financial Statements. The Seller has previously
made available to Buyer true and complete copies of the FOCUS Reports of Forth
Financial Securities Corporation for each of the years ended December 31, 1993
and 1994 and the quarters ended March 31, 1995, June 30, 1995, and September 30,
1995, as filed with the Securities and Exchange Commission. Each financial
statement included in such FOCUS Reports (and the notes relating thereto) was
prepared in all material respects in accordance with the regulations promulgated
by the Securities and Exchange Commission.
4.13 Insurance. Section 4.13 of the Seller Disclosure Schedule
contains a true, complete and correct list as of the date of this Agreement of
all policies of insurance and fidelity bonds, other than those constituting an
Employee Benefit Program, issued to each Company or any of its Subsidiaries
showing the insurers, limits, type of coverage, annual premium, deductibles and
expiration dates. All such policies and bonds are in full force and effect as
of the date of this Agreement. Neither such Company nor any such Subsidiary is
in default with respect to any such policy or bond. All such policies and bonds
will be in effect through the Closing Date or will be replaced by the Parent or
any of its Affiliates on or prior to the Closing Date by policies or bonds, as
the case may be, with substantially similar coverage to the extent available on
commercially reasonable terms except for failures to replace or differences in
coverage which could not reasonably be expected to have a Material Adverse
Effect.
4.14 Employee Benefits. (a) Section 4.14(a) of the Seller
Disclosure Schedule lists each "employee benefit plan" (within the meaning of
Section 3(3) of ERISA) that is maintained or otherwise contributed to by the
Parent, Seller, any Company or any Subsidiary of a Company for the benefit of
the Affected Employees (including, without limitation, pension, profit sharing,
stock bonus, medical reimbursement, life insurance, disability and severance pay
plans) (collectively, "Company Plans") and all other material employee benefit
plans and arrangements, payroll practices, agreements, programs, policies or
other arrangements, not subject to ERISA, that are maintained or otherwise
contributed to by the Parent, Seller, any Company or any Subsidiary of a Company
for the benefit of the Affected Employees and providing for deferred
compensation, bonuses, stock options, employee insurance coverage or any similar
compensation or welfare benefit plan (collectively, "Benefit Arrangements" and,
together with the Company Plans, collectively referred to as "Employee Benefit
Programs"). All Employee Benefit Programs so listed are sponsored by Parent.
(b) With respect to each Company Plan, Seller has made available to
Buyer a current, accurate and complete copy (or, to the extent no such copy
exists, an
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accurate description) thereof (including all existing amendments thereto that
shall become effective at a later date) and, to the extent applicable, (i) any
related trust agreement, annuity contract or other funding instrument; and (ii)
any summary plan description.
(c) Except as set forth in Section 4.14(c) of the Seller Disclosure
Schedule, (i) each Employee Benefit Program has been established and
administered in substantial compliance with the applicable provisions of ERISA,
the Code and the terms of all documents relating to such programs; (ii) each
Company Plan that is intended to be qualified under Section 401(a) of the Code
has received a favorable determination letter as to its qualification; (iii) as
of the date of this Agreement no "reportable event" (as such term is used in
Section 4043 of ERISA, but other than any event for which notice to the Pension
Benefit Guaranty Corporation has been waived), "prohibited transaction" (as such
term is used in Section 4975 of the Code or Section 406 of ERISA) or
"accumulated funding deficiency" (as such term is used in Section 412 or 4971 of
the Code) has heretofore occurred with respect to any Company Plan where such
occurrence has a reasonable probability of resulting in a termination of a
Company Plan subject to Title IV of ERISA; and (iv) there are no pending or, to
the Knowledge of Parent, Seller, the Companies or any of their Subsidiaries
material threatened actions, claims or lawsuits which have been asserted or
instituted against the Employee Benefit Programs, the assets of any of the
trusts under such plans or the plan sponsor or the plan administrator, or
against any fiduciary of the Employee Benefit Programs with respect to the
operation of such plans (other than routine benefit claims).
(d) Neither Parent, Seller, any Company nor any of their Subsidiaries
maintains or contributes to any "multiemployer plan" (as such term is defined in
Section 3(37) of ERISA) and neither Parent, Seller, any Company nor any of their
Subsidiaries has incurred any material liability that remains unsatisfied with
respect to any such plans or has incurred any material liability which remains
unsatisfied under Sections 4062, 4063, 4064, 4069 or 4201 of ERISA.
(e) Any individual who performs services for any Company or any
Subsidiary (other than through a contract with an organization other than such
individual) and who is not treated as an employee for federal income tax
purposes by Parent, Seller, the Companies or any of their Subsidiaries is not an
employee for such purposes.
4.15 Brokers. Other than Lazard Freres & Co. LLC and Morgan Stanley
& Co. Incorporated, no broker or finder has acted directly or indirectly for
Parent or Seller nor has Parent, Seller or the Companies or any Subsidiary of
the Companies incurred any obligation to pay any brokerage, finder's fee or
other commission in connection with the transactions contemplated by this
Agreement. The fees and
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expenses of Lazard Freres & Co. LLC and Morgan Stanley & Co. Incorporated in
connection with the transactions contemplated by this Agreement shall be borne
by Parent.
5. Representations and Warranties of the Companies. Each Company
represents and warrants to Buyer as follows:
5.1 Corporate Authority. Each of the Subsidiaries of such Company
has all requisite corporate power and authority to own, lease and operate its
assets, properties and business and to carry on its business as now being
conducted by it. Each of the Subsidiaries of such Company is duly qualified or
otherwise authorized or admitted as a foreign corporation to transact business
and is in good standing as a foreign corporation in each jurisdiction set forth
in Section 5.1 of the Company Disclosure Schedule, which are the only
jurisdictions in which such qualification, authorization or admission is
required by law, except for any jurisdictions in which the failure to be so
qualified, authorized or admitted could not reasonably be expected to have a
Material Adverse Effect.
5.2 Consents and Approvals. The performance by such Company of its
obligations under this Agreement and the consummation by such Company of the
transactions contemplated hereby do not and will not require any of the
Subsidiaries of such Company to obtain any consent, approval or action of, or
make any filing with or give any notice to, any Person except (i) as set forth
in Section 5.2 of the Company Disclosure Schedule, (ii) such as have been duly
obtained and are in full force and effect on the date hereof and will continue
to be in full force and effect on the Closing Date and (iii) those which, if not
obtained, made or given, could not reasonably be expected to have a Material
Adverse Effect or have a material adverse effect on Buyer's ability to own,
possess or exercise the rights of an owner with respect to the Shares or such
Company and its Subsidiaries.
5.3 No Conflict. The execution and delivery by each of Parent,
Seller and such Company of, and the performance by each of Parent, Seller and
such Company of its obligations under, this Agreement and the consummation by it
of the transactions contemplated hereby in accordance with the terms and
conditions hereof will not, except as set forth in Section 5.3 of the Company
Disclosure Schedule, (i) violate any provision of the articles or certificate of
incorporation or by-laws of such Company or any of its Subsidiaries, (ii)
violate, conflict with or result in the breach of any of the terms of, result in
a material modification of the effect of, otherwise give any other contracting
party the right to terminate, or constitute (with or without notice or lapse of
time or both) a default under, any Contract or Other Agreement to which such
Company or any of the Subsidiaries of such Company is a party or by or to which
such Company or any of such Subsidiaries or any of their respective assets or
properties may be bound or subject, (iii) violate any existing term or provision
of any law, regulation, order, writ, judgment, injunction or decree applicable
to such Company or
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any of the Subsidiaries of such Company or any of their respective assets or
properties or (iv) result in the breach of any of the terms or conditions of,
constitute (with or without notice or lapse of time or both) a default under, or
otherwise cause an impairment of, any Permit (other than Insurance Licenses), or
(v) result in the breach of any of the terms or conditions of, constitute (with
or without notice or lapse of time or both) a default under, or otherwise cause
an impairment of any Insurance License, except, in the case of each of clauses
(ii) and (iv), for such violations, conflicts, breaches, modifications, rights,
defaults and impairments that could not reasonably be expected to have a
Material Adverse Effect or have a material adverse effect on Buyer's ability to
own, possess or exercise the rights of an owner with respect to the Shares or
such Company and its Subsidiaries.
5.4 Minute Books. The minute books of each of the Subsidiaries of
such Company accurately reflect in all material respects all formal actions
taken at all meetings and all consents in lieu of meetings of stockholders of
such Subsidiaries since December 31, 1990 and all formal actions taken at all
meetings and all consents in lieu of meetings of the Board of Directors of each
of such Subsidiaries and all committees thereof since December 31, 1990. All of
such minute books have previously been made available for inspection by Buyer.
5.5 Compliance With Laws. Such Company and its Subsidiaries are in
compliance with all Federal, state, local or foreign laws, ordinances or
regulations and other requirements (including any writ, judgment, decree,
injunction, or similar order applicable to any of such Persons or the business
or assets of such Persons) of any Governmental or Regulatory Body, court or
arbitrator applicable to their businesses, the violation of which could
reasonably be expected to have a Material Adverse Effect.
5.6 Insurance Licenses. (a) Section 5.6(a) of the Company
Disclosure Schedule lists all of the jurisdictions in which such Company and its
Subsidiaries hold licenses (including, without limitation, licenses or
certificates of authority from applicable insurance departments), permits, or
authorizations to transact insurance or reinsurance business (collectively, the
"Insurance Licenses"). All such Insurance Licenses are valid, binding, and in
full force and effect. Each of LOV and FFRL Re is duly licensed in all
jurisdictions in which it writes the lines of insurance offered by it. No
Insurance License is the subject of a proceeding for suspension or revocation or
any similar proceedings and, to the Knowledge of the Parent, Seller or such
Company, there is no pending threat of such suspension or revocation by any
licensing authority.
(b) LOV and FFRL Re have heretofore made available to Buyer true and
complete copies of the reports reflecting the results of the most recent
financial examination and market conduct examination of LOV or FFRL Re issued by
any Insurance Department. Except as disclosed in Section 5.6(b) of the Company
Disclosure Schedule, all material deficiencies or violations in such reports
have been resolved.
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5.7 Litigation. Except as set forth in Section 5.7 of the Company
Disclosure Schedule, (x) there is no Litigation (other than policyholder claims
submitted to such Company or any of its Subsidiaries for payment in the ordinary
course of business of such Company and its Subsidiaries) pending to which such
Company or any of its Subsidiaries is a party or by which any of such
Subsidiaries or their respective assets or properties are or may be bound by or
before any Federal, state, municipal, foreign or other court or Governmental or
Regulatory Body, or any private tribunal, or, to the Knowledge of Parent, Seller
or such Company, threatened against such Company or such Subsidiaries, in each
case that (i) seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or (ii) could reasonably be expected to have a
Material Adverse Effect and (y) neither such Company nor any of its Subsidiaries
is bound by or subject to any existing order, judgment, injunction, award or
decree, in each case that (i) seeks to restrain or enjoin the consummation of
the transactions contemplated by this Agreement or (ii) could reasonably be
expected to have a Material Adverse Effect. Neither such Company nor any of its
Subsidiaries nor, to the Knowledge of Parent, Seller or such Company, any
officer, director or employee of such Company or any of its Subsidiaries has
been permanently or temporarily enjoined or barred by any order, judgment or
decree of any court or other tribunal or any Governmental or Regulatory Body
from engaging in or continuing any conduct or practice in connection with the
business conducted by such Company or any of its Subsidiaries.
5.8 Contracts and Other Agreements. (a) Section 5.8(a) of the
Company Disclosure Schedule lists all Contracts and Other Agreements to which
such Company or any of its Subsidiaries is a party or by which any of their
assets or properties are bound as of the date of this Agreement that involve or
reasonably could be expected to involve, in any instance, an obligation or
commitment on the part of such Company or any of its Subsidiaries in an amount
greater than $250,000 (other than Company Plans set forth in Section 4.14(a) of
the Seller Disclosure Schedule, leases set forth in Section 5.9(b) of the
Company Disclosure Schedule, agreements described in Section 5.13, Insurance
Contracts and Investment Contracts), as well as the following:
(i) all written or, to the Knowledge of Parent, Seller or such Company,
oral employment, agency, consultation, or representation contracts or other
contracts of any type (including, without limitation, loans or advances) with
any present officer, director, employee, agent, consultant, or other similar
representative of such Company or any Subsidiary of such Company (or former
officer, director, employee, agent, consultant or similar representative of such
Company or any Subsidiary of such Company if there exists any present or future
liability with respect to such contract), other than contracts (i) with such
Persons who do not receive compensation of $75,000 or more per year, or (ii)
with insurance agents that are terminable without premium or penalty upon notice
of 180 days or less or, by their terms, do not provide for exclusivity
(including, without limitation, by territory, product, or distribution);
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(ii) all written or, to the Knowledge of Parent, Seller or such
Company, oral contracts with insurance agents or brokers that both (A)
relate to the sale or distribution of insurance policies or annuity
contracts issued, reinsured, or underwritten by LOV or FFRL Re, and (B) by
their terms, provide for exclusivity (including, without limitation, by
territory, product, or distribution); provided, however, excluded from this
clause (ii) shall be any contract terminable by any Company or any
Subsidiary of a Company without premium or penalty upon notice of 180 days
or less;
(iii) all contracts with any Person containing any stipulation,
provision, or covenant limiting, in any material respect, the ability of
such Company or any Subsidiary of such Company to (i) sell any products or
services of any other Person, (ii) transact business or engage in any line
of business, or (iii) compete with or obtain products or services from any
Person;
(iv) all contracts relating to the borrowing of money by such Company
or any Subsidiary of such Company, relating to the deferred purchase price
for property or services, or relating to the direct or indirect guarantee
by such Company or any Subsidiary of such Company of any liability;
(v) all contracts pursuant to which such Company or any Subsidiary of
such Company has agreed to indemnify or hold harmless any Person (other
than indemnifications in the ordinary course of business and consistent
with past practice);
(vi) all contracts or arrangements (including, without limitation,
those relating to allocations of expenses, taxes, personnel, services, or
facilities) between or among such Company or any Subsidiary of such Company
and Seller, Parent or any Affiliate of Seller or Parent (other than such
Company and its Subsidiaries); and
(vii) all reinsurance, coinsurance, or other similar contracts
pursuant to which LOV or FFRL Re receives or has received surplus relief.
Except as set forth in Section 5.8(a) of the Company Disclosure Schedule, none
of Parent, Seller, such Company or any of its Subsidiaries or, to the Knowledge
of Parent, Seller or such Company, any other party to any such Contract or Other
Agreement is in violation or breach of or default under any such Contract or
Other Agreement (or, with or without notice or lapse of time or both, would be
in violation or breach of or default under any such Contract or Other
Agreement), which violation, breach or default has had or could reasonably be
expected to have a Material Adverse Effect.
(b) Except as set forth in Section 5.8(b) of the Company Disclosure
Schedule, there have been made available to Buyer true and complete copies of
all of
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the Contracts and Other Agreements set forth in Section 5.8(a) of the Company
Disclosure Schedule or in any other Section of the Company Disclosure Schedule.
5.9 Real Estate. (a) Except as set forth in Section 5.9(a) of the
Company Disclosure Schedule, neither such Company nor any of its Subsidiaries
owns any real property. Except as set forth in Section 5.9(a) of the Company
Disclosure Schedule, such Company or a Subsidiary of such Company has good and
marketable fee simple title to all real property owned by the Company or any of
its Subsidiaries, free and clear of all Liens or Other Encumbrances, other than
Permitted Liens.
(b) Section 5.9(b) of the Company Disclosure Schedule lists all real
property leased or subleased to such Company or any of its Subsidiaries. Seller
has made available to Buyer correct and complete copies of each such lease or
sublease as amended to the date of this Agreement. Each such lease or sublease
is in full force and effect and neither such Company nor any of its Subsidiaries
is in default thereunder or has received any notice of any default thereunder of
any other party thereto, except in each case where any such unenforceability,
ineffectiveness or default would not have a Material Adverse Effect.
5.10 Personal Property; Intellectual Property. (a) Except as set
forth in Section 5.10(a) of the Company Disclosure Schedule, such Company and
its Subsidiaries have good and valid title to (free and clear of all Liens or
Other Encumbrances, other than Permitted Liens), or a valid leasehold interest
in, the tangible personal property they use in the conduct of their businesses,
except where the failure thereof would not have a Material Adverse Effect.
(b) Section 5.10(b) of the Company Disclosure Schedule contains a
true and complete list and description of all marks, names, trademarks, service
marks, patents, patent rights, assumed names, logos, trade secrets, copyrights,
trade names, and service marks that are material to the conduct of the business,
operations, or affairs of such Company or its Subsidiaries. Except as set forth
in Section 5.10(b) of the Company Disclosure Schedule, such Company or its
Subsidiaries have, and after the Closing will have, the right to use, free and
clear of any Liens or Other Encumbrances, such intellectual property and all
computer software, programs, and similar systems owned by or licensed to such
Company or its Subsidiaries and material to the conduct of the business,
operations, or affairs of such Company or its Subsidiaries. To the Knowledge of
Parent, Seller or such Company, neither such Company nor any Subsidiary of such
Company is in conflict with or in violation or infringement of, nor has Seller,
Parent, such Company, or any Subsidiary of such Company received any notice of
any conflict with or violation or infringement of or any claimed conflict with,
any asserted rights of any other Person with respect to any such intellectual
property or computer software, programs, or similar systems.
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5.11 Operations of the Companies. (a) Except as set forth in
Section 5.11 of the Company Disclosure Schedule, since December 31, 1994, there
has not been, occurred or arisen any change in the business, financial condition
or results of operations of such Company or its Subsidiaries that has had or
could reasonably be expected to have a Material Adverse Effect, other than
changes after the date hereof resulting from a change in general economic
conditions or matters affecting the life or health insurance industry generally,
and neither such Company nor any of its Subsidiaries has:
(i) sold, assigned, transferred, mortgaged, pledged, leased, granted
or permitted to exist any Lien or Other Encumbrance, or otherwise disposed of
any assets which are material to the business of such Company and its
Subsidiaries, taken as a whole, as presently conducted, other than in the
ordinary course of business;
(ii) increased the rates of compensation (including bonuses) payable
or to become payable to any officer, employee, agent, broker, independent
contractor or consultant of such Company or any of its Subsidiaries, other
than increases made in the ordinary course of business and other than the
Special Bonus Program;
(iii) entered into any new, or amended any existing, employment
contracts, severance agreements or consulting contracts or instituted, or
agreed to institute, any material increase in benefits with respect to any
Company Plans, or altered its employment practices or the terms and
conditions of employment other than, in each case, in the ordinary course of
business or as required by applicable law;
(iv) incurred any material obligation, liability or indebtedness
except in the ordinary course of business, incurred any extraordinary losses,
or disposed of, canceled, waived or permitted to lapse any rights of material
value;
(v) changed in any material respect its Tax or accounting methods,
principles or practices (including, without limitation, any changes in
depreciation or amortization policies or rates or any changes in any
assumptions underlying any method of calculating reserves) other than as
required by a change in GAAP, SAP or other applicable law;
(vi) conducted its business otherwise than in the ordinary course;
(vii) entered into or amended or terminated any transaction or
contract that could reasonably be expected to have a Material Adverse Effect;
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(viii) split, combined, redeemed, repurchased or reclassified the
capital stock of such Company or declared, set aside, made or paid any
dividend or other distribution in respect of the capital stock of such
Company (other than the declaration of a $40,000,000 dividend by LOV which
will be paid after the date hereof);
(ix) issued or sold (or agreed to issue or sell) any note, debenture,
stock, or other security or any options, warrants, conversion or other
rights to purchase any such securities or any securities convertible into
or exchangeable for such securities, or granted, or agreed to grant, any
such options;
(x) amended the articles or certificate of incorporation or by-laws
or other charter or organizational documents of such Company or any of its
Subsidiaries;
(xi) incurred any damage, destruction, or loss (whether or not
covered by insurance) affecting any of the assets of such Company or any
Subsidiary of such Company (other than claims under any Insurance
Contracts) which damage, destruction, or loss, individually or in the
aggregate, has or could reasonably be expected to have a Material Adverse
Effect;
(xii) suffered any work stoppage, strike, or union organizational
campaign (in process or threatened) at or affecting such Company or any
Subsidiary of such Company that has or could reasonably be expected to have
a Material Adverse Effect;
(xiii) terminated, amended, or executed any material reinsurance,
coinsurance, or other similar contract, as ceding or assuming insurer;
(xiv) incurred any expenditure or commitment for additions to
property, plant, or equipment of such Company or any Subsidiary of such
Company, which expenditure or commitment exceeds $150,000 individually or
$1,000,000 in the aggregate; or
(xv) entered into any Contract or Other Agreement to do any of the
foregoing.
(b) The investments of LOV and FFRL Re reflected in the Annual SAP
Statements of LOV and FFRL Re described in Section 4.9(c) and the Exhibit C
Assets comply with all applicable requirements of law of their respective
states of domicile, except where the failure to do so would not have a
Material Adverse Effect.
(c) Invested assets, including marketable securities, private
placements, mortgages, real estate and short-term investments, reflected on
the Annual SAP
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Statements of LOV and FFRL Re described in Section 4.9(c) are valued on such
Statements at cost, amortized cost or market value, as required by applicable
law.
(d) Each of such Company and its Subsidiaries has, and on the Closing
Date will have, good and valid title to the bonds, stocks, mortgage loans and
other investments purported to be owned by it and reflected in the financial
statements of such Company or any of its Subsidiaries, in each case free and
clear of any Lien or Other Encumbrance.
(e) No outstanding insurance contract issued by LOV or FFRL Re
entitles any policyholder thereunder to receive dividends, distributions or
other benefits based on the revenues or earnings of LOV or FFRL Re.
(f) All reserves with respect to insurance and annuities as
established or reflected, and all other provisions made for policy and contract
claims and, with respect to the Annual SAP Statements for the years ended
December 31, 1994, 1993 and 1992, IMR and AVR in the respective Annual SAP
Statements and Quarterly SAP Statements of LOV and FFRL Re described in Section
4.9(c) were determined in accordance with SAP and generally recognized actuarial
methods and generally accepted actuarial standards, using prescribed or
permitted morbidity and mortality tables and interest rates that are in
accordance with the nature of the benefits specified in the related Insurance
Contracts and in the related reinsurance, coinsurance and other similar
contracts of FFRL Re, and such reserves and other provisions met the applicable
requirements of the insurance laws of FFRL Re's state of domicile, except where
the failure to do so would not have a Material Adverse Effect. All such
reserves were adequate (under accepted actuarial standards) as of the respective
dates of such Annual SAP Statements and Quarterly SAP Statements to cover the
total amount of all reasonably anticipated matured and unmatured benefits,
claims and other actuarially determined liabilities of LOV and FFRL Re under all
Insurance Contracts under which LOV or FFRL Re had or would have had any
liability (including any liability arising under or as a result of any
reinsurance, coinsurance, or other similar contract), except where the failure
of such reserves to be adequate to cover the total amount of such benefits,
dividends, claims and other liabilities would not have a Material Adverse
Effect. LOV and FFRL Re own assets that qualify as legal reserve assets under
applicable insurance laws of their respective state of domicile in an amount,
determined in accordance with SAP, at least equal to all required reserves,
except where the failure to own a sufficient amount of such assets or the
failure of such assets to so qualify would not have a Material Adverse Effect.
(g) Except as set forth in Section 5.11(g) of the Company Disclosure
Schedule, since June 30, 1995 through the date hereof:
(i) No Person writing, selling or producing insurance business that
accounted for 5% or more of the premium or annuity considerations of LOV
for
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the year ended December 31, 1994 has terminated or, to the Knowledge of
Parent, Seller or LOV, threatened to terminate its relationship with LOV;
and
(ii) No policyholder (or group of policyholders known to LOV to be
affiliated with each other) that accounted for 5% or more of the premium or
annuity considerations of LOV for the year ended December 31, 1994 has
terminated or, to the Knowledge of Parent, Seller or LOV, threatened to
terminate its policies with LOV.
(h) From December 31, 1994 through the date hereof, no rating agency
has (i) imposed conditions (financial or otherwise) on retaining any rating
assigned to LOV or FFRL Re or (ii) threatened to downgrade any rating assigned
to LOV or FFRL Re. Parent, Seller and LOV have no Knowledge of any facts
existing as of the date of this Agreement (except for the transactions
contemplated by this Agreement) which can reasonably be expected to result in a
downgrade in any rating assigned to LOV or FFRL Re by any rating agency.
(i) The underwriting standards utilized and ratings applied by LOV
and FFRL Re and by any other Person that is a party to or bound by any
reinsurance, coinsurance, or other similar contract with LOV or FFRL Re conform
in all material respects to industry accepted practices and to the standards and
ratings required pursuant to the terms of the respective reinsurance,
coinsurance, or other similar contracts.
(j) Each Person who wrote, sold, or produced business for LOV or FFRL
Re was duly licensed as an insurance agent at the time such Person wrote, sold
or produced such business (for the type of business written, sold, or produced
by such insurance agent) in the particular jurisdiction in which such agent
wrote, sold, or produced such business, except where the failure to be so
licensed does not or cannot reasonably be expected to have a Material Adverse
Effect.
(k) All outstanding insurance policies and annuity contracts issued,
reinsured, or underwritten by LOV and FFRL Re are, to the extent required under
applicable laws, on forms and at rates and commissions approved by the insurance
regulatory authority of the jurisdiction where issued or have been filed with
and not objected to by such authority within the period provided for objection,
except where the failure to obtain such approval or make such filing does not
have or cannot reasonably be expected to have a Material Adverse Effect.
(l) The assets listed on Exhibit C constitute the investment
portfolio (i) as of November 30, 1995 associated with the business to be
transferred to LOV pursuant to items 1 through 4 of Exhibit A and (ii) as of
July 1, 1995 associated with such business, as rolled forward to November 30,
1995 in the ordinary course of business consistent with past investment
practices, except that such assets also include assets
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that equal the amount of the balance outstanding for reinsurance recoverable
from LOV on such business as of November 30, 1995.
5.12 The Mutual Fund. Except as disclosed in Section 5.12 of the
Company Disclosure Schedule:
(a) The Mutual Fund is a Virginia corporation duly organized, validly
existing, and in good standing under the laws of the Commonwealth of Virginia
and has all requisite corporate power and authority to own, use, or lease its
assets and to conduct its business as now being conducted. Seller has furnished
to Buyer true and complete copies of the articles of incorporation and bylaws of
the Mutual Fund.
(b) The Seller has previously delivered to the Buyer true and complete
copies of the statement of assets and liabilities of the Mutual Fund as of the
end of fiscal years 1992, 1993, and 1994 (including the schedules of investments
as of such dates), and the related separate statements of operations and changes
in net assets of the Mutual Fund for each of the periods then ended, together
with the notes relating thereto and the unqualified report thereon of Ernst &
Young, LLP. Each such financial statement (together with the notes thereto )
was prepared in accordance with GAAP and presents fairly in all material
respects the financial position of the Mutual Fund as of the respective dates
thereof and the related results of operations and changes in net assets of the
Mutual Fund for and during the respective periods covered thereby.
(c) The Mutual Fund is an open-end, diversified management company,
registered as an investment company under the Investment Act and has been
established and maintained as such in compliance with all applicable laws other
than where such non-compliance could not be reasonably expected to have a
Material Adverse Effect. Shares of beneficial interest in the Mutual Fund have
been offered and sold in all material respects in accordance with all applicable
laws. Each registration statement relating to shares of beneficial interest in
the Mutual Fund currently offered or sold by Forth Financial Securities
Corporation is currently effective under and in compliance with all applicable
laws, including securities laws other than where such non-compliance could not
reasonably be expected to have a Material Adverse Effect. No stop order
suspending the effectiveness of any such registration statement has been issued
under any law and no proceedings for such purpose are pending or, to the
Knowledge of Parent, Seller or LOV, threatened.
(d) The Mutual Fund does not own and, since January 1, 1994, has not
owned any material investment or other asset that it is not authorized to own
under applicable laws or under the terms of the investment policies established
for the Mutual Fund (whether or not set forth in the registration statement or
prospectus dealing with the Mutual Fund). All investment advisory services are
provided to the Mutual Fund by the Investment Advisor, and the Investment
Advisor is registered as such under the Investment Act, and all other laws of
each other jurisdiction where such registration or a
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similar registration is required, other than where such non-compliance could not
reasonably be expected to have a Material Adverse Effect.
(e) Section 5.12 of the Company Disclosure Schedule contains a true
and complete list of all investment advisory contracts (true and complete copies
of which have been delivered to Buyer) for the Mutual Fund. The Mutual Fund is
not, and (to the Knowledge of Parent, Seller or LOV), the Investment Advisor is
not, in violation, breach, or default under any such contracts, which violation,
breach, or default has or could reasonably be expected to have a Material
Adverse Effect.
(f) Except as set forth in Section 5.12, neither the execution and
delivery of this Agreement by Parent, Seller and each Company, the performance
of their respective obligations under this Agreement, nor the consummation of
the transactions contemplated hereby require the Mutual Fund to obtain any
consent, approval or action of, or make any filing with or give any notice to,
any Person, except (i) as disclosed in Section 5.12 of the Company Disclosure
Schedule, or (ii) those that have been duly obtained or made, as the case may
be, and are in full force and effect on the date hereof and will continue to be
in full force and effect on the Closing Date, other than any failure to obtain
any such consent, approval or action, make any such filing or give any such
notice which could not reasonably be expected to have a Material Adverse Effect.
(g) There are no writs, judgments, decrees, or similar orders
outstanding against or affecting the Mutual Fund or its assets. There are no
actions, suits, investigations, arbitrations, or proceedings pending, or (to the
Knowledge of the Parent, Seller or LOV) threatened against or affecting the
Mutual Fund or its assets which could reasonably be expected to have a Material
Adverse Effect.
(h) Since its formation, the Mutual Fund has qualified as a "regulated
investment company" within the meaning of Section 851 of the Code and has
satisfied in all material respects the requirements of Section 852(a) of the
Code for each taxable year since such formation. The Mutual Fund has never
incurred any excise Tax under Section 4982 of the Code.
5.13 Labor Matters. (a) Section 5.13(a) of the Company Disclosure
Schedule sets forth a list containing the name, current base salary or wage
rate, and position of each Affected Employee who is actively employed (including
those on vacation). Parent or Seller shall, or shall cause each Company or one
of its Subsidiaries to, provide Buyer on the Closing Date with an updated
Section 5.13(a) of the Company Disclosure Schedule listing those Affected
Employees (i) who are on disability, layoff or leave of absence as of the
Closing Date or (ii) who were Inactive Employees (as defined in Section 7.8(a))
as of the date hereof who have returned to active employment with a Company or
one of its Subsidiaries on or prior to the Closing Date.
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(b) Neither any such Company nor any of its Subsidiaries is a party
to any labor or collective bargaining agreement, and there are no labor or
collective bargaining agreements which pertain to employees of, any such Company
or any of its Subsidiaries. There are no organizing activities, strikes, work
stoppages, slowdowns, lockouts, material arbitrations or material grievances or
other material labor disputes pending or (to the Knowledge of Parent, Seller or
any Company) threatened against or involving any such Company or any of its
Subsidiaries.
(c) Except as set forth on Section 5.13(c) of the Company Disclosure
Schedule, there are no complaints, charges or claims against any Company or any
of its Subsidiaries pending or, to the Knowledge of Parent, Seller or any such
Company, threatened to be brought or filed, with any public or governmental
authority, arbitrator or court based on, arising out of, in connection with or
otherwise relating to the employment or termination of employment by any such
Company or any of its Subsidiaries, of any individual, in each case which have
or could reasonably be expected to have a Material Adverse Effect.
(d) Each Company and each of its Subsidiaries is in material
compliance with all laws, regulations and orders relating to the employment of
labor, including all such laws, regulations and orders relating to wages, hours,
WARN, collective bargaining, discrimination, civil rights, safety and health,
workers' compensation and the collection and payment of withholding and/or
social security taxes and any similar tax.
(e) There has been no "mass layoff" or "plant closing" as defined by
WARN (or any similar state or local "plant closing" laws) with respect to any
such Company or any of its Subsidiaries within the six months prior to the date
hereof.
5.14 No Undisclosed Liabilities. There were no liabilities of such
Company or any of its Subsidiaries as of June 30, 1995 that are of a type
required to be disclosed on a balance sheet (or in the notes related thereto)
prepared in accordance with GAAP or SAP, except (a) policyholder benefits
payable in the ordinary course of business and consistent with past practice,
(b) as disclosed in Section 5.14 of the Company Disclosure Schedule, or (c)
specifically reflected on the the balance sheets or other financial statements
as of or for the quarterly period ended on June 30, 1995 described in Section
4.9, or in the notes or work papers related to the foregoing financial
statements. Since June 30, 1995 through the date hereof, neither such Company
nor any Subsidiary of a Company has incurred any liabilities that are of a type
which could reasonably be expected to have a Material Adverse Effect, except (i)
as disclosed in Section 5.14 of the Company Disclosure Schedule and (ii)
policyholder benefits payable, or other liabilities incurred, in the ordinary
course of business.
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6. Representations and Warranties of Buyer. Buyer represents and
warrants to each of Parent, Seller and the Companies as follows:
6.1 Existence and Power. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York.
Buyer has all requisite corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby.
6.2 Execution and Delivery. The execution and delivery by Buyer of
this Agreement, the performance by Buyer of its obligations hereunder and the
consummation by Buyer of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly executed and delivered by Buyer and constitutes the
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, or by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
6.3 Consents and Approvals. The execution and delivery by Buyer of
this Agreement, the performance by Buyer of its obligations hereunder and the
consummation by Buyer of the transactions contemplated hereby do not and will
not require Buyer to obtain any consent, approval or action of, or make any
filing with or give any notice to, any Governmental or Regulatory Body or Person
except (i) as set forth in Section 5.2 of the Company Disclosure Schedule, (ii)
such as have been duly obtained and are in full force and effect on the date
hereof and will continue to be in full force and effect on the Closing Date and
(iii) those which, if not obtained, made or given, could not reasonably be
expected to have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated by this Agreement.
6.4 No Conflict. The execution and delivery by Buyer of this
Agreement, the performance by Buyer of its obligations hereunder and the
consummation by Buyer of the transactions contemplated hereby in accordance with
the respective terms and conditions hereof will not: (i) violate any provision
of the articles or certificate of incorporation or by-laws or other charter or
organizational documents of Buyer, (ii) violate, conflict with or result in the
breach of any of the terms of, result in a material modification of the effect
of, otherwise give any other contracting party the right to terminate, or
constitute (with or without notice or lapse of time or both) a default under,
any Contract or Other Agreement to which Buyer is a party or by or to which
Buyer or any of its assets or properties may be bound or subject or (iii)
violate any existing term or provision of any law, regulation, order, writ,
judgment, injunction or decree applicable to Buyer or any of its assets or
properties, except, in the case of clause (ii), for such violations, conflicts,
breaches, modifications, rights and defaults that could not
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reasonably be expected to have a material adverse effect on the ability of Buyer
to consummate the transactions contemplated by this Agreement.
6.5 Purchase Not for Distribution. The Shares to be acquired under
the terms of this Agreement will be acquired by Buyer for its own account and
not with a view to distribution. Buyer will not resell, transfer, assign or
distribute the Shares, except in compliance with the applicable registration
requirements of federal and state securities laws and regulations, or pursuant
to an available exemption therefrom.
6.6 Financing. Buyer has, or will have at the Closing, sufficient
funds (including as a result of the sale of commercial paper in the ordinary
course of business), in an aggregate amount of not less than the anticipated
Final Purchase Price and all contemplated fees and expenses of Buyer related to
the transactions contemplated by this Agreement, which funds will be available
at the Closing to pay such anticipated Final Purchase Price and all such fees
and expenses.
6.7 Litigation. There is no Litigation pending to which Buyer is a
party or its assets or properties are or may be bound by or before any Federal,
state, municipal, foreign or other court or Governmental or Regulatory Body, or
any private tribunal, or, to the Knowledge of Buyer, threatened against Buyer or
any of its Affiliates that, in each case, (i) seeks to restrain or enjoin the
consummation of the transactions contemplated by this Agreement or (ii) could
reasonably be expected to have a material adverse effect on the ability of Buyer
to consummate the transactions contemplated by this Agreement. Neither Buyer
nor any of its Affiliates is bound by or subject to any existing order,
judgement, injunction award or decree that, in each case, (i) seeks to restrain
or enjoin the consummation of the transactions contemplated by this Agreement or
(ii) could reasonably be expected to have a material adverse effect on the
ability of Buyer to consummate the transactions contemplated by this Agreement.
Neither Buyer nor any of its Affiliates nor, to the Knowledge of Buyer, any
officer, director or employee of Buyer or any of its Affiliates has been
permanently or temporarily enjoined or barred by any order, judgment or decree
of any court or other tribunal or any Governmental or Regulatory Body from
engaging in or continuing any conduct or practice that could reasonably be
expected to have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated by this Agreement.
6.8 Brokers. Other than CS First Boston, no broker or finder has
acted directly or indirectly for Buyer, nor has Buyer incurred any obligation to
pay any brokerage, finder's fee or other commission in connection with the
transactions contemplated by this Agreement. The fees and expenses of CS First
Boston in connection with the transactions contemplated by this Agreement shall
be borne by Buyer.
7. Covenants and Agreements. The parties covenant and agree as
follows:
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7.1 Conduct of Business. From the date hereof through the Closing
Date, except as set forth in Section 7.1 of the Seller Disclosure Schedule or as
may otherwise be expressly required or permitted by this Agreement (including,
without limitation, the matters contemplated by Section 7.10), Parent and Seller
covenant and agree that, except with the consent of Buyer:
(a) Parent and Seller shall cause each Company and each of its
Subsidiaries to conduct the business of such Company and its Subsidiaries only
in the ordinary course of business and consistent with past practice.
(b) Parent and Seller shall cause each Company and each of its
Subsidiaries to use commercially reasonable efforts to maintain all Insurance
Licenses and all other Permits, other than such other Permits the failure of
which so to maintain shall not have had and could not reasonably be expected to
have a Material Adverse Effect.
(c) Parent and Seller shall cause (i) each Company and each of its
Subsidiaries to use commercially reasonable efforts to maintain until their
scheduled expiration, in full force and effect, all material contracts,
documents, and arrangements referred to in Section 5.8, and (ii) LOV and FFRL Re
to maintain each rating classification assigned as of the date hereof to LOV
and FFRL Re by insurance rating agencies.
(d) Parent and Seller will cause each Company and each of its
Subsidiaries to (i) maintain all material assets of each of such Company and its
Subsidiaries in good working order and condition, ordinary wear and tear
excepted, and (ii) continue (in all material respects) all current marketing and
selling activities relating to the business, operations, and affairs of such
Company and its Subsidiaries.
(e) Parent and Seller will cause LOV and FFRL Re to refrain from
entering into any surplus relief or financial reinsurance contract. Parent and
Seller will cause LOV and FFRL Re to refrain from entering into any other
reinsurance, coinsurance, or similar contract, whether as reinsurer or
reinsured, other than in the ordinary course of business and consistent with
past practice.
(f) Parent and Seller will cause each Company and its Subsidiaries to
refrain from entering into any (i) contract (other than contracts with insurance
agents or Insurance Contracts) that involves the payment or potential payment
pursuant to the terms of such contract, by or to such Company or any Subsidiary
of such Company of more than $150,000 individually or $1,000,000 in the
aggregate or (ii) transaction of the type, or engaging in any of the activities,
described in Section 5.11.
(g) Parent and Seller will cause each Company and its Subsidiaries to
refrain from entering into any contract with any insurance agent or broker that
provides,
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by its terms, for exclusivity (including, without limitation, by territory,
product, or distribution) or that is not terminable by its terms within 180 days
by such Company or a Subsidiary of such Company, as the case may be, without
premium or penalty.
(h) Parent and Seller will cause each Company and its Subsidiaries to
comply with all laws applicable to the business, operations, or affairs of such
entity, except to the extent that any such non-compliance does not have or is
not reasonably likely to have a Material Adverse Effect.
(i) Neither Parent, Seller, any Company nor any of their Subsidiaries
shall make any change to, or amend in any way, the contracts, salaries, wages,
or other compensation of any officer, director, employee, agent, or other
similar representative of such Company or any of its Subsidiaries other than
changes or amendments that (i) are made in the ordinary course of business and
consistent with past practice or (ii) are required pursuant to the terms of any
Employee Benefit Program or written agreement to which such Person is a party,
in either case, existing as of the date hereof.
(j) Neither Parent, Seller, any Company nor any of their Subsidiaries
shall adopt, enter into, amend, alter, or terminate, any Employee Benefit
Program relating to or affecting any employee of such Company or any of its
Subsidiaries (unless required to do so by applicable law or pursuant to a
preexisting binding obligation or commitment), where the effect of any of the
foregoing would be material upon such Company or any of its Subsidiaries.
(k) Neither any Company nor any of its Subsidiaries shall enter into
any contract with an officer, director, employee, agent, or other similar
representative of such Company or any of its Subsidiaries that is not
terminable, without penalty or other liability, upon not more than 60 calendar
days' notice where the liability for such contract exceeds $75,000 in any year
in respect of such Person.
(l) Neither any Company nor any of its Subsidiaries shall assume,
enter into, amend, alter, or terminate any labor or collective bargaining
agreement to which it is a party or is affected thereby.
7.2 Pre-Closing Maintenance of Insurance. From the date hereof
through the Closing Date, Parent shall use commercially reasonable efforts to
maintain or cause to be maintained in force insurance with respect to each
Company and its Subsidiaries as described in Section 4.13.
7.3 Litigation; Notice of Assessments; Requests for Information. (a)
From the date hereof through the Closing Date, Seller agrees to notify Buyer
promptly of any Litigation that, if pending or threatened as of the date hereof,
would be required to be described in Section 5.7 of the Company Disclosure
Schedule and of any material
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requests for additional information or documentary materials by any Governmental
or Regulatory Body in connection with the transactions contemplated by this
Agreement.
(b) From the date hereof through the Closing Date, Seller agrees to
notify Buyer promptly of any inquiry from the IRS or the U.S. Department of
Labor that, if made on or prior to the date of this Agreement, would be required
to be described in Section 4.14(a) or Section 4.14(c) of the Seller Disclosure
Schedule.
(c) From the date hereof through the Closing Date, Buyer shall notify
Seller promptly of any Litigation that, if pending or threatened as of the date
hereof, would be required to be disclosed pursuant to Section 6.7.
7.4 Access to Information; Environmental Investigation;
Confidentiality. (a) Prior to the Closing Date, each of Parent, Seller and each
Company shall, and shall cause the Subsidiaries of such Company and its and
their respective directors, officers, employees and agents to, permit
representatives of Buyer to discuss the affairs, operations, finances and
accounts of such Company with the officers and employees of such Company and its
Subsidiaries, all at such reasonable times and as may reasonably be requested,
subject to the terms of any confidentiality agreements with third parties to
which Parent, Seller, such Company or any Subsidiary of such Company is subject.
Prior to the Closing Date, each of Parent, Seller and each Company shall, and
shall cause the Subsidiaries of such Company and its and their respective
directors, officers, employees and agents to, upon reasonable request, make
available to Buyer and its representatives all of the books, records and other
documents of such Company and its Subsidiaries, and permit Buyer and its
representatives to examine, make extracts from and, at Buyer's expense, copy
such books, records or documents at any time during normal business hours in
order that the Buyer may have the opportunity to make such reasonable
investigations as it shall desire to make of the affairs of such Company. All
requests by Buyer for such access shall be directed to the person or persons who
are or have been from time to time designated by Parent and Seller to be the
recipient of such requests. After the Closing Date, each of Buyer and each
Company shall, and shall cause the Subsidiaries of such Company and its and
their respective directors, officers, employees and agents to, upon reasonable
request, make available to each of Parent and Seller and their representatives
the books, records and other documents of such Company and its Subsidiaries
pertaining to the operation of such Company and its Subsidiaries prior to the
Closing Date, and permit Parent, Seller and their representatives to examine,
make extracts from and, at Seller's expense, copy such books, records or
documents at any time during normal business hours in connection with any claim
or legal proceeding for which Parent or Seller may be responsible and in order
for Parent or Seller to comply with any applicable regulatory requirements or
applicable requirements of law.
(b) Prior to the Closing, Buyer shall, and shall cause each of its
Subsidiaries and its and their respective directors, officers, employees, agents
and
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representatives to, keep confidential and, if this Agreement terminates, shall
not use in any manner any information or material obtained from or on behalf of
Parent, Seller, any Company or any of the Subsidiaries of any Company or any of
its or their respective directors, officers, employees, agents or
representatives, whether prior to, on or after the date of this Agreement, other
than information and material readily ascertainable from public or published
information, or trade sources, or already known by Buyer or any of its
Affiliates independently of any investigation of Parent, Seller, any Company and
the Subsidiaries of any Company or received from a third party who Buyer knows
(or reasonably believes) is not under an obligation to any of Parent, Seller,
any Company or any of the Subsidiaries of any Company to keep such information
confidential. In addition, at all times, except as required by law or judicial
order, Buyer shall, and shall cause each of its Subsidiaries and its and their
respective directors, officers, employees, agents and representatives to, keep
confidential any information or material relating to Parent or Seller or their
respective Subsidiaries (other than the Companies and their Subsidiaries)
obtained from or on behalf of Parent, Seller, any Company or any of the
Subsidiaries of any Company or any of its or their respective directors,
officers, employees, agents or representatives, whether prior to, on or after
the date of this Agreement, other than information and material readily
ascertainable from public or published information, or trade sources, or already
known by Buyer or any of its Affiliates independently of any investigation of
Parent, Seller, any Company and the Subsidiaries of any Company or received from
a third party who Buyer knows (or reasonably believes) is not under an
obligation to any of Parent, Seller, any Company or any of the Subsidiaries of
any Company to keep such information confidential. After the Closing, except as
required by law or judicial order, Parent and Seller shall, and shall cause each
of their Subsidiaries and their respective directors, officers, employees,
agents and representatives to, keep confidential and shall not use in any manner
any information or material obtained from or on behalf of any Company or any of
its Subsidiaries or any of its or their respective directors, officers,
employees, agents or representatives, other than information and material
readily ascertainable from public or published information, or trade sources, or
known by Parent, Seller or any of their Affiliates independently of any Company
or its Subsidiaries or received from a third party who Parent or Seller knows
(or reasonably believes) is not under an obligation to Buyer, any Company or any
of the Subsidiaries of any Company to keep such information confidential. If
this Agreement terminates, any documents or material obtained by Buyer from or
on behalf of Parent, Seller, any Company or any of the Subsidiaries of any
Company or any of the respective directors, officers, employees, agents or
representatives of such Persons and any analyses, compilations, studies or other
material prepared by Buyer or its representatives containing, or based in whole
or in part on, any information or material so obtained from or on behalf of
Parent, Seller, any Company or any of its Subsidiaries shall promptly be
destroyed and certification thereof shall promptly be furnished to Parent.
(c) From the date of this Agreement until February 1, 1996, Buyer
shall have the right, but not the obligation, at its expense, to retain one or
more
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environmental professionals to conduct an environmental assessment and
investigation ("Environmental Investigation") of the Real Property, which
Environmental Investigation shall include the right to conduct such tests of
soil, groundwater, surface water or air as Buyer may request.
7.5 Approvals. (a) Each party shall use commercially reasonable
efforts to obtain as promptly as practicable all necessary approvals,
authorizations and consents of all Persons (including, without limitation,
Governmental and Regulatory Bodies) required of it to be obtained to consummate
the transactions contemplated by this Agreement and cooperate with the other
parties in seeking to obtain all their respective approvals, authorizations and
consents. Each party shall use commercially reasonable efforts to provide such
information to Governmental and Regulatory Bodies (including applicable
insurance regulators) as such bodies may request.
(b) Each of the parties shall provide to the other parties copies of
all insurance change of control applications filed in connection with this
Agreement.
7.6 Additional Financial Statements. As soon as reasonably
practicable after they become available, Seller shall make available to Buyer
(i) as and to the extent prepared, the GAAP financial statements of each Company
and its Subsidiaries (without footnotes) for all interim quarterly fiscal
periods and all monthly periods subsequent to June 30, 1995 and prior to the
Closing Date, (ii) Quarterly SAP Statements of LOV and FFRL Re for all interim
periods subsequent to June 30, 1995 and prior to the Closing Date ("Interim SAP
Statements") and (iii) as and to the extent prepared, consolidating pro-forma
GAAP and SAP financial statements of LOV for such interim quarterly fiscal
periods after giving effect to the transactions and other actions described on
Exhibit A. Such GAAP financial statements will present fairly in all material
respects the financial position and results of operations of the applicable
Company and its consolidated subsidiaries as of each such date and for each such
period in conformity with GAAP, subject to year-end adjustments and except that
such financial statements shall not contain footnotes. Such SAP financial
statements will present fairly the statutory financial condition of LOV or FFRL
Re to which such statement relates as of the end of the calendar quarter to
which such statement relates and the statutory results of its operations for the
period then ended and will be prepared in conformity in all material respects
with SAP.
7.7 Further Assurances. Each of the parties shall execute such
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions of this Agreement and the
transactions contemplated hereby. Each such party shall use commercially
reasonable efforts to fulfill or obtain the fulfillment of the conditions to the
Closing as promptly as practicable. Without limiting the generality of the
foregoing, the parties shall use commercially reasonable efforts to file
promptly with the FTC and Justice complete and accurate notification and report
forms with respect to the transactions contemplated hereby
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pursuant to HSR, to file as promptly as practicable such additional information
and documentary materials as may be requested pursuant to HSR, and request early
termination of all applicable waiting periods.
7.8 Certain Employee Matters. (a) Employment of Affected Employees.
Any Affected Employee who is actively employed (including such employees who are
on vacation) immediately prior to the Closing shall remain an employee of such
Company or such Subsidiary, as the case may be, immediately following the
Closing at the same base compensation and wage levels as in effect immediately
preceding the Closing. Notwithstanding anything herein to the contrary, nothing
in this Agreement shall create any obligation on the part of any Company or any
of its Subsidiaries to continue the employment of any employee for any definite
period following the Closing Date. Buyer shall cause each Company or its
Subsidiaries to offer to employ (or offer severance benefits if such
individual's position is no longer available as allowed by applicable law) each
Affected Employee who is receiving sick-leave or short-term disability benefits
under Parent's or Seller's sick-leave or short-term disability program or who
is on an approved leave of absence on the Closing Date ("Inactive Employees");
provided, however, that no individual shall be offered employment under this
provision after six months following the Closing Date or under the terms of his
leave of absence or any applicable period as required by law, if longer. Each
Inactive Employee shall become an employee of Parent, Seller or one of their
Subsidiaries as of the Closing Date until (i) such Inactive Employee is offered
employment (or paid severance) by Buyer, a Company or its Subsidiaries pursuant
to this Section 7.8(a), (ii) the expiration of the period for which such
Inactive Employee is entitled to such an offer of employment (or payment of
severance) or (iii) such Inactive Employment is otherwise terminated by Parent,
Seller or their Subsidiaries. Nothing in this Section 7.8(a) shall be
interpreted as obligating Parent, Seller or their Subsidiaries to accept any
Inactive Employee for active employment for any period of time. The active
participation of all Affected Employees in each Employee Benefit Program shall
cease as of the Closing Date.
(b) Substantially Equivalent Benefits.
(i) Effective as of the Closing Date, Buyer shall cause each Company
or one of its Subsidiaries to provide such plans, programs, agreements or
arrangements on behalf of the Transferred Employees so as to provide, in the
aggregate, employee benefits which are substantially equivalent to the benefits
provided to similarly situated employees at the life insurance subsidiary of
Buyer.
(ii) Notwithstanding the foregoing, with respect to any terminations
of employment with any Company or one of its Affiliates occurring within one
year after the Closing Date, Buyer shall cause to be maintained following the
Closing
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Date severance benefits for the Transferred Employees which are no less
favorable to the Transferred Employees than the following:
1. Full-time exempt employees shall receive one week of
severance for each year of service plus four weeks. The
minimum amount of severance shall be four (4) weeks.
2. Full-time non-exempt employees shall receive one week of
severance for each year of service plus two weeks. The
minimum amount of severance shall be two (2) weeks.
3. Part-time exempt and non-exempt employees shall receive
severance pay based upon the schedule described in item 2
immediately above, pro-rated based upon average hours worked.
4. Partial years of service shall be rounded to the closest year
of service for calculation of benefit purposes.
(c) Retirement Plan. On the Closing Date, Parent shall cause each
Affected Employee who is a participant (other than any terminated non-vested
participant) in the Parent's Retirement Plan to become fully vested, to the
extent not already vested, as of the Closing Date in the benefits accrued under
the Parent's Retirement Plan as of the Closing Date. Transferred Employees
shall cease to accrue any benefits under the Parent's Retirement Plan, and each
Company and its Subsidiaries shall cease to be participating employers in such
plan, as of the Closing Date. After the Closing Date, any new benefits accrued
by Affected Employees shall be accrued under the terms of the Buyer's Retirement
Plan, if any, and Parent's Retirement Plan shall have no liability or obligation
in respect of such accruals.
(d) Defined Contribution Plans. On the Closing Date, Parent shall
cause each Affected Employee who is a participant (other than any Affected
Employee whose employment terminates prior to the Closing) in the Defined
Contribution Plans to become fully vested, to the extent not already vested, as
of the Closing Date in his account balance under each such plan. Each Company
and its Subsidiaries shall cease to be participating employers in the Defined
Contribution Plans as of the Closing Date. Transferred Employees shall be
entitled to receive distributions pursuant to the terms of such plans and the
provisions of applicable law.
(e) Post-Retirement Medical and Life Benefits. Parent shall retain
all obligations and liabilities for post-retirement medical benefits and life
insurance under the Company Plans in respect of any Affected Employee who
retired on or before the Closing and any Affected Employee who is not a
Transferred Employee, whether such claims are incurred prior to, on or after the
Closing Date. Following the Closing, Buyer,
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or a Company or its Subsidiaries shall provide to the Transferred Employees
coverage under a retiree welfare benefit plan which provides benefits which are
substantially equivalent to the benefits provided under the retiree welfare
benefit plans maintained by Parent immediately prior to the Closing.
(f) Bonuses. Buyer shall cause each Company and its Subsidiaries to
assume all obligations and liabilities for bonuses and incentive payments in
connection with the relevant Employee Benefit Programs in effect immediately
prior to the Closing Date and shall cause the payment of such bonuses or
incentive payments, if any, to be made in accordance with the terms of such
Employee Benefit Programs consistent with past practice to the extent such
obligations and liabilities have been accrued on the Adjusted Closing SAP
Balance Sheet, such accruals to be made in a manner consistent with past
practices.
(g) Special Bonus Program. Parent or a Subsidiary of Parent (other
than a Company and its Subsidiaries) shall assume all obligations and
liabilities for bonuses in connection with the Special Bonus Program in effect
on the date hereof and shall cause the payment of such bonuses to be made in
accordance with the terms of the Special Bonus Program.
(h) Vacation. Buyer shall cause each Company and its Subsidiaries to
credit each Transferred Employee with the number of unused vacation days
credited to such individual through the Closing Date under the applicable
vacation policies of his or her employer and shall permit or cause Transferred
Employees to be permitted to use such vacation days.
(i) Welfare Benefits. Effective as of the Closing, Buyer shall cause
each Company or one or more of its Subsidiaries to provide coverage to all
Transferred Employees and their dependents or COBRA beneficiaries under a group
health plan which is substantially similar to the group health plan or plans
(including any such plan that is a flexible spending account under a cafeteria
plan as defined in Section 125 of the Code) covering the Transferred Employees
(and their dependents and COBRA beneficiaries) immediately prior to the Closing,
and such coverage shall be provided under substantially the same terms and
conditions applicable to such Transferred Employees under Parent's group health
plan immediately prior to the Closing. With respect to each Transferred
Employee, each Company and its Subsidiaries shall retain the obligation and
liability for claims by any such individual (or his or her covered dependent) or
any COBRA beneficiary under such Company's or Subsidiaries employee welfare
benefit plans (within the meaning of Section 3(1) of ERISA), incurred after the
Closing Date. Buyer shall cause each Company and its Subsidiaries to provide
for the waiver under such Company's or its Subsidiaries' welfare benefit plans
covering Transferred Employees on and after the Closing Date of any conditions
to coverage with respect to pre-existing medical conditions (but only with
respect to conditions which are covered under Parent's or Seller's welfare
benefit plans prior to
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the Closing Date) and shall credit Transferred Employees with any amounts paid
prior to the Closing Date in order to satisfy applicable deductible amounts and
copayment minimums under the corresponding welfare plans of such Company or one
of its Subsidiaries to the extent such payments would be taken into account
under the welfare plans maintained by Buyer with respect to similarly situated
employees. Buyer shall or shall cause the Companies and their Subsidiaries to
recognize after the Closing Date the aggregate value of any unused balances of
Transferred Employees under Parent's cafeteria plan as of the Closing Date.
With respect to each Affected Employee who is not on the Closing Date a
Transferred Employee and his or her dependents or COBRA beneficiaries, Parent,
Seller or one of their Subsidiaries shall assume the obligation and liability
for claims under any Employee Benefit Program that is an employee welfare
benefit plan under Section 3(1) of ERISA incurred pursuant to the terms of such
plan (as if such employee had been an employee of Parent, Seller or such
Subsidiary) prior to the date on which such employee becomes a Transferred
Employee. Promptly after the end of each calendar quarter after the Closing
Date, Parent shall provide to Buyer a report of the payments of short-term
disability salary continuation payments made pursuant to the preceding sentence,
and Buyer shall within 5 business days thereafter reimburse Parent for such
amount.
(j) Workers' Compensation. With respect to each Affected Employee,
Parent shall retain the obligation and liability for any workers' compensation
or similar workers' protection claims with respect to any such individual
incurred on or prior to the Closing Date.
(k) Credit. Buyer, each Company and its Subsidiaries shall recognize
the service credited to Transferred Employees on or prior to the Closing Date to
the extent recognized under the Employee Benefit Programs as if such service had
been rendered to Buyer or one of its Affiliates in connection with (i) any
welfare benefit plan (within the meaning of Section 3(1) of ERISA) for purposes
of any waiting period and eligibility purposes only (including eligibility for
benefits that might otherwise be limited due to pre-existing medical conditions
or participant co-payments and deductibles) and (ii) any employee pension plan
(within the meaning of Section 3(2) of ERISA) for purposes of eligibility and
vesting (but not for benefit accrual) but only with respect to a plan in which
such employees participate and which is made available by Buyer or any of its
Affiliates following the Closing.
(l) Third-Party Rights. No provision of this Section 7.8 shall
create any third-party beneficiary rights in any employee or former employee
(including any beneficiary or dependent thereof) of Parent, Seller, any of their
Affiliates, any Company or any Subsidiaries of any Company in respect of
continued employment (or resumed employment) for any specified period of any
nature or kind whatsoever, and no provision of this Section 7.8 shall create
such third-party beneficiary rights in any such persons in respect of any
benefits that may be provided, directly or indirectly, under
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any employee benefit plan or arrangement, including the currently existing
Employee Benefit Programs.
(m) Indemnity. Buyer agrees to indemnify Parent, Seller and their
Affiliates and to defend and hold Parent, Seller and their Affiliates harmless
from and against any and all Losses arising out of any claims by or in respect
of any Transferred Employee (or such Transferred Employee's successors or
assigns) with respect to any of the obligations or liabilities which Parent or
Seller has not assumed or retained hereunder or any other events arising after
the Closing Date, including, but not limited to, claims with respect to (i)
assumed severance, (ii) vacation, (iii) bonus or incentive payments, or (iv)
WARN or any similar state notification law. Seller and Parent hereby agree to
indemnify Buyer and its Affiliates and to defend and hold Buyer and its
Affiliates harmless from and against any and all Losses arising out of (x) any
claims under any of the Employee Benefit Programs with respect to any of the
obligations or liabilities that Buyer has not agreed to cause a Company or its
Subsidiaries to assume, (y) any "employee pension plan" (within the meaning of
Section 3(2) of ERISA) or any "group health plan" (within the meaning of Section
607 of ERISA) in respect of which a Company or any of its Subsidiaries have any
liability solely as a result of being a member of a "controlled group" (within
the meaning of Section 4001(a)(14) of ERISA) prior to the Closing Date which
includes Parent or Seller (but exclusive of liabilities in connection with
Affected Employees under any such plan maintained or contributed to by any
Company or any of its Subsidiaries) or (z) any claims by or in respect of any
Affected Employee, including a Transferred Employee (or such Transferred
Employee's successors or assigns), arising out of, or in connection with, or
otherwise relating to, any allegations of unlawful discrimination or sexual
harassment which occurred on or prior to the Closing Date. Notwithstanding any
other provision of this Agreement to the contrary, the indemnities provided for
herein shall not be subject to the deductible and maximum liability contained in
Section 10.2, and all such indemnities shall survive until 60 days after the
expiration of the applicable statute of limitations with respect thereto, other
than the indemnity set forth in clause (z) herein, which shall be subject to,
and be taken into account for purposes of, calculating the availability or
applicability of the deductible and maximum liability contained in Section 10.2,
and shall survive for two years after the Closing Date (except to the extent
that a detailed notice of a specific claim giving rise to a right of
indemnification shall have been given by Buyer in accordance with the procedures
set forth in Section 10.4). Any claim for indemnification by Buyer, Seller or
Parent pursuant to this Section 7.8(n) shall be subject to the procedures set
forth in Section 10.4.
(n) In addition, for a two year period following the Closing Date,
neither Parent nor Seller shall solicit for employment or appointment as agent
(i) any employees of any of the Companies or their Subsidiaries who have
managerial responsibility or (ii) any insurance agents of the Companies or their
Subsidiaries on the
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Closing Date; provided, however, that such agreement of non-solicitation shall
not apply to general advertisements as to available employment positions.
7.9 Settlement of Intercompany Accounts; Cancellation of Intercompany
and Other Agreements. The parties agree that all intercompany accounts,
including all accounts receivable (whether or not currently due and payable),
between any Company or any of its Subsidiaries, on the one hand, and Parent,
Seller and their Affiliates (other than a Company and its Subsidiaries), on the
other hand, shall be settled in full on or prior to the Closing Date (subject to
the next sentence). Within five days prior to the Closing Date, Seller will
deliver to Buyer a schedule of all amounts to be so settled on the Closing Date.
If Buyer agrees with such settlement amounts, Seller will, at Closing, cause
such amounts to be settled. If Buyer disagrees with any such settlements, Buyer
and Seller will resolve such disagreement in accordance with the procedures set
forth in Section 2.4(g), and such settlement payments will be made after such
resolution. Except for the agreements entered into pursuant to Section 7.10(a),
8.7 or 9.6 or as otherwise provided in this Agreement, each Company shall cause
any Contracts or Other Agreements between such Company or its Subsidiaries, on
the one hand, and Seller and its Affiliates (other than any Company or any
Subsidiary of a Company), on the other hand, to be canceled. Except in the
ordinary course consistent with past practice or as otherwise provided in this
Agreement, each Company and its Subsidiaries, on the one hand, and Parent,
Seller and their Affiliates (other than any Company or any Subsidiary of a
Company), on the other hand, shall not enter into any material Contracts or
Other Arrangements with each other or engage in any material transactions with
each other without the consent of Buyer, which shall not be unreasonably
withheld.
7.10 Actions to Address Certain Interrelationships; Dividends.
(a) On or prior to the Closing Date, Buyer, Seller, Parent and the
Companies shall enter into such arrangements and other relationships as are
contemplated by Exhibit B hereto.
(b) On or prior to the Closing Date, Parent and Seller shall not be
entitled to cause any Company to declare and pay any dividend or to make any
distributions to such Company's stockholders other than the declaration of a
$40,000,000 dividend by LOV, which shall be paid after the date hereof.
7.11 Investments. (a) From the date hereof until the opening of
business on January 2, 1996, each Company will refrain from selling,
transferring, or otherwise trading in any of the Investment Assets.
(b) From the opening of business on January 2, 1996 until the
Closing, Seller and its Affiliates will refrain from selling, transferring or
otherwise trading in or investing any of the Investment Assets except in
accordance with written instructions of
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Charles Kaminski or his designee on behalf of Buyer; provided, that such
instructions comply with (x) the insurance laws of the States of Virginia and
Illinois, as the case may be, and (y) the investment guidelines adopted by the
insurance subsidiaries of Buyer currently in effect.
7.12 Resignations of Directors. Subject to applicable statutory and
regulatory requirements and to the agreements set forth on Section 4.6 of the
Seller Disclosure Schedule, Parent and Seller will cause such members of the
boards of directors and such officers of each Company and its Subsidiaries as
are designated by Buyer to tender, effective at the Closing, their resignations
from such boards of directors or from such offices.
7.13 No Negotiations, Etc. Parent, Seller and each Company will
refrain and will cause each other Person acting for or on behalf of them to
refrain from taking, directly or indirectly, any action (i) to seek or encourage
any offer (including in connection with any proposed public offering of
securities) or proposal from any Person to acquire any assets or shares of
capital stock or other securities of any Company or any to its Subsidiaries or
any interests therein, (ii) to merge, consolidate, or combine, or to permit any
other Person to merge, consolidate or combine, with any Company or any of its
Subsidiaries, (iii) to liquidate, dissolve, or reorganize any Company or any of
its Subsidiaries, (iv) to acquire or transfer any assets of any Company or any
of its Subsidiaries or any interests therein, except in the ordinary course of
business and consistent with past practice or except as expressly permitted by
the terms of this Agreement, (v) to reach any agreement or understanding
(whether or not such agreement or understanding is absolute, revocable,
contingent, or conditional) for, or otherwise to attempt to consummate, any such
acquisition, transfer, merger, consolidation, combination, or reorganization, or
(vi) to furnish or cause to be furnished any information with respect to any
Company or any of its Subsidiaries to any Person (other than Buyer) that Parent,
Seller or any Company (or any Person acting for or on behalf of them) knows or
has reason to believe is in the process of attempting or considering any such
acquisition, transfer, merger, consolidation, combination, liquidation,
dissolution or reorganization. If Parent, Seller or any Company receives from
any Person (other than Buyer) any offer, proposal, or information request that
is subject to this Section 7.13, Parent, Seller or such Company will promptly
advise such Person, by written notice, of the terms of this Section 7.13 and
will promptly deliver a copy of such notice to Buyer.
7.14 Newco Assets; Other Real Property. (a) In the event that Buyer
conducts an Environmental Investigation with respect to any Real Property owned
by Newco or the Lawyers Title Building and such Environmental Investigation or
any environmental report received by Parent, Seller or any of the Companies
identifies an Adverse Environmental Condition, then, at the option of Buyer,
the parties hereto shall enter into an amendment to this Agreement that (i)
eliminates the obligation of Parent to sell, and Buyer to purchase, the capital
stock of Newco and/or requires Newco
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and/or LOV to transfer to Parent or an Affiliate thereof designated by Parent
(other than any Company or any Subsidiary of a Company) all ownership interest
in the parcel(s) of Real Property of Newco with respect to which such contingent
liability exists and/or the Lawyers Title Building, as the case may be, (ii)
reduces the Closing Purchase Price by an amount equal to the aggregate Value (as
hereinafter defined) of the Real Property as to which Buyer will not, by reason
of the foregoing, acquire any direct or indirect ownership interest, and (iii)
provides for the lease by Parent or an Affiliate thereof to an Affiliate of
Buyer with respect to some or all of the Real Property as to which such
ownership interest is not acquired by Buyer, it being understood that the Real
Property, if any, covered by such lease(s) and the terms and conditions thereof
shall be reasonably satisfactory to Parent and Buyer. As used herein, "Value"
means book value in the case of the Lawyers Title Building and current appraised
value in the case of other Real Property. Notwithstanding anything to the
contrary contained herein, the option described in the immediately preceding
sentence shall not be required to be consummated with respect to any parcel of
Real Property to the extent Parent or any of its Affiliates causes the Adverse
Environmental Condition thereon to be fully remedied to the satisfaction of
Buyer on or before the Closing Date.
(b) In the event Buyer is not entitled, or does not elect, to require
this Agreement to be amended as contemplated by Section 7.14(a), Buyer may, at
its option, require the parties hereto to enter into an amendment to this
Agreement that provides for a purchase by Buyer or an Affiliate thereof of the
assets of Newco together with an assumption of the liabilities thereof in lieu
of the purchase of capital stock of Newco contemplated by this Agreement.
(c) With respect to any Real Property (other than the Lawyers Title
Building and the Real Property owned by Newco) as to which Buyer's Environmental
Investigation identifies an Adverse Environmental Condition, at Buyer's option,
Parent or Seller, as the case may be, shall cause the applicable Company or
Subsidiary, on or prior to the Closing Date, to sell such Real Property to
Parent or an Affiliate thereof (other than any Company or any Subsidiary of a
Company) for a consideration equal in value to the book value of such Real
Property, it being understood that such consideration may be an investment asset
having similar income attributes to the Real Property but shall, in any event,
be reasonably satisfactory to Buyer.
8. Conditions Precedent to the Obligation of Buyer. The obligation
of Buyer to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction or, where permissible, waiver by Buyer of the
following conditions:
8.1 Representations and Warranties; Covenants and Agreements. (a)
Except as otherwise permitted or contemplated by this Agreement or as consented
to by Buyer, the representations and warranties of Parent, Seller and each
Company contained in this Agreement shall be true, accurate and complete in all
material respects as of the date hereof and on and as of the Closing Date with
the same force
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and effect as though made on and as of the Closing Date (except that any such
representations and warranties that are given as of a specified date and relate
solely to a specified date or period shall be true, accurate and complete in all
material respects as of such date or period). Each of Parent and Seller shall
have delivered to Buyer a certificate, dated the Closing Date and signed on its
behalf by one of its Executive Officers, to the foregoing effect with respect to
the representations and warranties of Parent and Seller and each Company shall
have delivered to Buyer a certificate, dated the Closing Date and signed on its
behalf by one of its Executive Officers, to the foregoing effect with respect to
the representations and warranties of such Company.
(b) Except as otherwise consented to by Buyer, Parent, Seller and each
Company shall each have performed and complied in all material respects with all
covenants and agreements required by this Agreement to be performed or complied
with by it on or prior to the Closing Date. Each of Parent and Seller shall
have delivered to Buyer a certificate, dated the Closing Date and signed on its
behalf by one of its Executive Officers, to the foregoing effect with respect to
the covenants and agreements required by this Agreement to be performed or
complied with by Parent or Seller and each Company shall have delivered to Buyer
a certificate, dated the Closing Date and signed on its behalf by one of its
Executive Officers, to the foregoing effect with respect to the covenants and
agreements required by this Agreement to be performed or complied with by such
Company.
8.2 Governmental Approvals; Illegality. (a) All authorizations,
approvals and consents from Governmental and Regulatory Bodies set forth in
Section 4.3 of the Seller Disclosure Schedule and Section 5.2 of the Company
Disclosure Schedule required for the transactions contemplated by this Agreement
shall have been obtained and shall be in full force and effect and shall no
longer be subject to any conditions or limitations other than the occurrence of
the Closing (and other than customary conditions uniformly imposed by regulatory
authorities in connection with similar acquisitions), and Buyer shall have been
furnished with appropriate evidence, reasonably satisfactory to it and its
counsel, of the granting of such authorizations, approvals and consents.
(b) There shall not be in effect any statute, rule, regulation or
order of any court, Governmental or Regulatory Body which prohibits, enjoins, or
makes illegal the transactions contemplated by this Agreement.
(c) There shall not be instituted or pending any action, suit,
investigation, or other proceeding in, before, or by any court, governmental or
regulatory authority to recover any damages or obtain other relief (which is
reasonably likely to have a Material Adverse Effect or a material adverse effect
on the business or condition of the Buyer) as a result of this Agreement or any
of the transactions contemplated hereby.
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8.3 Third Party Consents. There shall have been obtained all
consents and approvals from parties to Contracts or Other Agreements with
Parent, Seller, any Company or any Subsidiaries of Parent or any Company that
are required in connection with the performance by Parent, Seller and any
Company of their respective obligations under this Agreement, except for such
consents and approvals the failure of which so to have obtained could not
reasonably be expected to have a Material Adverse Effect.
8.4 Hart-Scott-Rodino. The waiting period under HSR, including any
extension thereof, shall have expired or been terminated.
8.5 Opinions of Counsel to Parent, Seller and the Companies. Buyer
shall have received the opinion of counsel to Parent, Seller and the Companies
(which may be internal or external counsel), dated the Closing Date and
addressed to Buyer, in form and substance reasonably acceptable to Buyer prior
to the Closing.
8.6 No Material Adverse Change. There shall not have occurred since
June 30, 1995 any change in the business or condition (financial or otherwise)
of any Company or any Subsidiary of any Company that has had or is reasonably
likely to have a Material Adverse Effect, other than changes resulting from a
change in general economic conditions or matters affecting the life or health
insurance industry generally.
8.7 Consummation of Certain Transactions. Each of the transactions
and other actions contemplated by Exhibit A shall have been effected or taken on
terms and conditions reasonably satisfactory to Buyer.
9. Conditions Precedent to the Obligations of Parent, Seller and the
Companies. The obligations of Parent, Seller and each Company to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
or, where permissible, waiver by Parent and Seller of the following conditions:
9.1 Representations and Warranties; Covenants and Agreements. (a)
Except as otherwise permitted or contemplated by this Agreement or as consented
to by Parent, the representations and warranties of Buyer contained in this
Agreement shall be true, accurate and complete in all material respects as of
the date hereof and on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date (except that any such
representations and warranties that are given as of a specified date and relate
solely to a specified date or period shall be true, accurate and complete in all
material respects as of such date or period). Buyer shall have delivered to
Parent and Seller a certificate, dated the Closing Date and signed on its behalf
by one of its Executive Officers, to the foregoing effect.
(b) Buyer shall have performed and complied in all material respects
with all covenants and agreements required by this Agreement to be performed or
complied
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with by it on or prior to the Closing Date. Buyer shall have delivered to
Parent and Seller a certificate, dated the Closing Date and signed by one of its
Executive Officers, to the foregoing effect.
9.2 Governmental Approvals; Illegality. (a) All authorizations,
approvals and consents from Governmental and Regulatory Bodies set forth in
Section 4.3 of the Seller Disclosure Schedule and Section 5.2 of the Company
Disclosure Schedule required for the transactions contemplated by this Agreement
shall have been obtained and be in full force and effect and shall no longer be
subject to any conditions or limitations other than the occurrence of the
Closing (and other than customary conditions uniformly imposed by regulatory
authorities in connection with similar acquisitions), and Parent, Seller and
each Company shall have been furnished with appropriate evidence, reasonably
satisfactory to it and its counsel, of the granting of such authorizations,
approvals and consents.
(b) There shall not be in effect any statute, rule, regulation or
order of any court, Governmental or Regulatory Body which prohibits, enjoins or
makes illegal the transactions contemplated by this Agreement.
9.3 Third Party Consents. There shall have been obtained all
consents and approvals from parties to Contracts or Other Agreements with Buyer
or any of its Affiliates that are required in connection with the performance by
Buyer of its obligations under this Agreement, except for such consents and
approvals the failure of which to have so obtained could not reasonably be
expected to have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated by this Agreement.
9.4 Hart-Scott-Rodino. The waiting period under HSR, including any
extension thereof, shall have expired or been terminated.
9.5 Opinion of Counsel to Buyer. Parent, Seller and each Company
shall have received the opinion of counsel to Buyer (which may be internal or
external counsel), dated the Closing Date and addressed to Parent, Seller and
the Company, in form and substance reasonably acceptable to Parent prior to the
Closing.
9.6 Consummation of Certain Transactions. Each of the transactions
and other actions contemplated by Exhibit A shall have been effected or taken on
terms and conditions reasonably satisfactory to Parent.
10. Survival and Indemnification.
10.1 Survival of Representations and Warranties. All representations
and warranties contained herein shall survive the execution and delivery hereof
and the Closing hereunder, and thereafter (i) in the case of the representations
and warranties
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contained in Sections 4.5, 4.6, 4.10 (other than Sections 4.10(k)) and 4.14,
such representations and warranties shall survive until 60 days after the
expiration of the applicable statute of limitations with respect to the subject
matter thereof and (ii) in the case of all other representations and warranties,
such representations and warranties shall survive until the date which is 18
months after the Closing Date; provided, however, that any representation or
warranty shall survive the time it would otherwise terminate pursuant to this
Section 10.1 to the extent that a detailed notice of a specific breach thereof
giving rise to a right of indemnification shall have been given by a party
hereto in accordance with this Article 10 prior to such time.
10.2 Indemnification by Parent and Seller. From and after the
Closing, subject to the provisions of Sections 10.1 and 10.4, Parent and Seller
jointly and severally shall indemnify and hold harmless Buyer from and against
any and all Losses incurred or suffered by Buyer, any Company and their
respective Affiliates and their respective officers, directors, employees,
agents and representatives arising out of, resulting from, or relating to (a)
any breach of any of the representations or warranties made by Parent, Seller or
the Companies in this Agreement; (b) any failure by Parent, Seller or (prior to
the Closing Date) any Company to perform any of its respective covenants or
agreements contained in this Agreement; (c) (i) any Environmental Law (whether
or not such Losses result from a violation of Environmental Law), to the extent
such Losses relate to conditions existing as of or prior to the Closing and (ii)
any disposal or arrangements for disposal made prior to the Closing of solid
waste, toxic or hazardous substances as defined by Environmental Law; or (d) the
marketing and sales activities conducted prior to the Closing by the employees,
agents, and brokers of the Companies and their Subsidiaries (which
indemnification shall expire on the third anniversary of the Closing Date);
provided, that Parent and Seller shall not be obligated to indemnify and hold
harmless Buyer from and against the first $6,775,000 of Losses in accordance
with the foregoing; and the aggregate amount of Losses in respect of which Buyer
shall be entitled to indemnification in accordance with this Section 10.2 shall
not exceed $293,600,000. Notwithstanding the foregoing, (i) the indemnity
relating to a breach of the representation and warranty contained in Sections
4.5, 4.6, 4.10 or 4.14 or under clause (b), or (c) immediately above shall not
be subject to the aforesaid deductible or maximum amount of liability; and (ii)
for purposes of determining whether indemnification is available under clause
(a) of this Section 10.2, all qualifications as to materiality and Material
Adverse Effect contained in representations and warranties shall be disregarded.
10.3 Indemnification by Buyer. From and after the Closing, subject
to the provisions of Sections 10.1 and 10.4, Buyer shall indemnify and hold
harmless Seller and Parent from and against any and all Losses incurred or
suffered by Parent, Seller and their respective Affiliates and their respective
officers, directors, employees, agents and representatives arising out of,
resulting from, or relating to (a) subject to Section 10.1, any breach of any of
the representations or warranties made by Buyer in
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this Agreement; or (b) any failure by Buyer or (following the Closing Date) any
Company to perform any of its covenants or agreements contained in this
Agreement.
10.4 Procedure. (a) In the event that any Person shall incur or
suffer any Losses in respect of which indemnification may be sought hereunder by
Buyer, Seller or Parent, the party seeking to be indemnified hereunder (the
"Indemnitee") shall assert a claim for indemnification by written notice (the
"Notice") to the party from whom indemnification is being sought (the
"Indemnitor") stating the nature and basis of such claim. In the case of Losses
arising or which may arise by reason of any third party claim, promptly after
receipt by an Indemnitee of written notice of the assertion or the commencement
of any Litigation with respect to any matter in respect of which indemnification
may be sought by such party hereunder, the Indemnitee shall give Notice to the
Indemnitor and shall thereafter keep the Indemnitor reasonably informed with
respect thereto, provided that failure of the Indemnitee to give the Indemnitor
prompt notice as provided herein shall not relieve the Indemnitor of any of its
obligations hereunder, except to the extent that the Indemnitor is materially
prejudiced by such failure. In case any such Litigation is brought against any
Indemnitee, the Indemnitor shall be entitled to assume the defense thereof, by
written notice of its intention to do so to the Indemnitee within 30 days after
receipt of the Notice, in which event the Indemnitor shall assume all future
responsibility for such Litigation. If the Indemnitor shall assume the defense
of such Litigation, it shall not settle such Litigation without the consent of
Indemnitees (which consent shall not be unreasonably withheld) and unless such
settlement includes as an unconditional term thereof the giving by the claimant
or the plaintiff of a release of the Indemnitee from all liability with respect
to such Litigation. As long as the Indemnitor is contesting any such Litigation
in good faith and on a timely basis, the Indemnitee shall not pay or settle any
claims brought under such Litigation. Notwithstanding the assumption by the
Indemnitor of the defense of any Litigation as provided in this Section 10.4(a),
the Indemnitee shall be permitted to participate in the defense of such
Litigation and to employ counsel at its own expense; provided, however, that if
the defendants in any action shall include both an Indemnitor and any Indemnitee
and such Indemnitee shall have reasonably concluded that counsel selected by
Indemnitor has a conflict of interest because of the availability of different
or additional defenses to such Indemnitee, such Indemnitee shall have the right
to select separate counsel to participate in the defense of such action on its
behalf, at the expense of the Indemnitor; provided, further, that the Indemnitor
shall not be obligated to pay the expenses of more than one separate counsel for
all Indemnitees.
(b) If the Indemnitor shall fail to notify the Indemnitee of its
desire to assume the defense of any such Litigation within the prescribed period
of time and as required above, or shall notify the Indemnitee that it will not
assume the defense of any such Litigation, then the Indemnitee may assume the
defense of any such Litigation, in which event it may do so in such manner as it
may deem appropriate, and the Indemnitor shall be bound by any determination
made in such Litigation or any
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settlement thereof effected by the Indemnitee, provided that any such
determination or settlement shall not affect the right of the Indemnitor to
dispute the Indemnitee's claim for indemnification and provided that the
Indemnitee shall not effect any such settlement without the prior written
consent of the Indemnitor (such consent not to be unreasonably withheld). The
failure of the Indemnitor to assume the defense of any such Litigation shall not
be deemed a concession that it is required to indemnify the Indemnitee for the
subject matter of such Litigation. The Indemnitor shall be permitted to join in
the defense of such Litigation and to employ counsel at its own expense.
(c) Any payment by any Indemnitor in indemnification hereunder shall
be treated as an adjustment to the Final Purchase Price.
10.5 Indemnification; Directors and Officers Insurance. For six
years from and after the Closing Date, each Company shall, and Buyer agrees to
cause each Company and its Subsidiaries to, indemnify, defend and hold harmless
all past and present officers and directors of such Company and of its
Subsidiaries to the same extent such persons are indemnified as of the date of
this Agreement by such Company or its Subsidiaries pursuant to the certificate
of incorporation or articles of incorporation, as the case may be, or the by-
laws, of such Company or its Subsidiaries, as the case may be, and
indemnification agreements in existence on the date hereof for acts or omissions
occurring at or prior to the Closing. Parent shall provide, for a period of not
less than six years from and after the Closing Date, the current directors and
officers of each Company and its Subsidiaries a directors' and officers'
liability insurance policy (the "D&O Insurance") that is no less favorable than
the policy currently made available for their benefit by Parent or one of its
Affiliates, or, if substantially equivalent insurance coverage is unavailable,
the best available coverage. The provisions of this Section 10.5 are intended
to be for the benefit of, and shall be enforceable by, each past and present
officer or director of each Company or of its Subsidiaries and each person who
becomes such prior to the Closing Date.
10.6 Certain Exclusions from Article 10 Coverage. Except for the
procedural provisions of Section 10.4, this Article 10 shall not apply to the
matters governed by Section 7.8(n) (except to the extent provided therein) and
this Article 10 (including procedural provisions thereof) shall not apply to the
matters governed by Article 11. Buyer shall not be entitled to indemnification
under this Article 10 with respect to breaches of the representations,
warranties and covenants contained in Section 4.10 to the extent such breaches
give rise to indemnification pursuant to Section 11.2.
11. Tax Matters.
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11.1 Section 338 Election.
(a) With respect to Parent's and Seller's sale of the Shares hereunder,
at the request of Buyer, Parent or Seller, as appropriate, and Buyer shall
jointly make timely and irrevocable elections under Section 338(h)(10) of the
Code (which elections shall be made with respect to each Company and each of its
Subsidiaries requested by Buyer), and, if permissible, similar elections under
any applicable state or local income tax laws. To the extent Buyer has
requested an election under such Section 338(h)(10), Buyer and Seller or Parent,
as the case may be, agree to report the transfer of the Shares (and the deemed
sale of the shares of the affected Company's Subsidiaries) under this Agreement
consistent with such elections under Section 338(h)(10) of the Code or any
similar state or local tax provision (the "Elections") and agree not to take any
action that could cause such Elections to be invalid, and shall take no position
contrary thereto unless required to do so pursuant to a determination (as
defined in Section 1313(a) of the Code) or any similar state or local tax
provision.
(b) To the extent Buyer has requested an Election:
(y) To the extent possible, Buyer, Parent, Seller and the affected
Company agree to execute at the Closing any and all forms necessary to
effectuate the Elections (including, without limitation, Internal Revenue
Service Form 8023-A and any similar forms under applicable state and
local income tax laws (the "Section 338 Forms")). In the event, however,
any Section 338 Forms are not executed at the Closing, Buyer, Parent,
Seller and the affected Company agree to prepare and complete each such
Section 338 Form no later than 10 Business Days prior to the date such
Section 338 Form is required to be filed. Buyer, Parent, Seller and such
Company shall each cause the Section 338 Forms to be duly executed by an
authorized person for Buyer, Parent, Seller or such Company, in each
case, and shall duly and timely file the Section 338 Forms in accordance
with applicable tax laws and the terms of this Agreement.
(z) As soon as practicable after the Closing Date, Buyer shall deliver to
Seller and Parent a written notice setting forth (with reasonable
specificity) Buyer's good faith calculation of (1) the Modified Aggregate
Deemed Sales Price (as defined below) and the allocation thereof among
the assets of the affected Company and the assets of such Company's
Subsidiaries in accordance with the principles of Treasury Regulation
(S)1.338(h)(10)-1(f)(1)(ii) and (2) the adjusted grossed-up basis of the
assets of the affected Company and of the assets of such Company's
Subsidiaries pursuant to Treasury Regulation (S)1.338(h)(10) - 1(e)(5)
(the
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"Deemed Purchase Price") (collectively, "Buyer's Allocation"). For such
purposes, the tangible personal property of such Company and its
Subsidiaries shall be valued at statutory book value as of the Closing
Date, investments of such Company and its Subsidiaries shall be valued at
fair market value as of the Closing Date, and insurance in force of such
Company shall be valued at fair market value as of the Closing Date.
Within 20 Business Days after receipt thereof, Seller or Parent shall
deliver to Buyer written notice indicating whether Seller and Parent
agree or disagree with Buyer's Allocation. If Seller and Parent agree
with Buyer's Allocation or if both Seller and Parent fail to deliver such
written notice within such 20 Business Days, Buyer's Allocation shall
constitute the "Agreed Allocation." If Seller or Parent provides timely
written notice to Buyer of any disagreement with Buyer's Allocation, the
Agreed Allocation shall be determined through the Tax Settlement
Procedure. Except as determined to the contrary by the appropriate taxing
authority upon an audit of its (or its Affiliates') Tax Returns, each of
Buyer, Parent, Seller, each Company and each Company's Subsidiaries shall
file all Tax Returns consistent with the Agreed Allocation. For purposes
of this Section 11.1, the term "Modified Aggregate Deemed Sales Price"
shall mean the amount resulting from the Elections, determined pursuant
to Treasury Regulation (S)1.338(h)(10)-1(f) without regard to items
described in Treasury Regulation (S)1.338(h)(10)-1(f)(4) (it being
understood that Parent or Seller may take such items into account in
filing Tax Returns).
For purposes of this Agreement, the "Tax Settlement Procedure" is as
follows:
Upon receipt by Parent and Seller or by Buyer, as the case may be (the
"Calculating Party"), of notice from the other party (the "Disputing
Party") of disagreement with any Tax calculation or determination
supplied by the Calculating Party, the Calculating Party and the
Disputing Party shall begin good faith negotiations to resolve such
disagreement. If the Calculating Party and the Disputing Party are able
to resolve such disagreement within ten Business Days after the
Calculating Party's receipt of notice of disagreement (or any longer
period mutually agreed to by the parties), the relevant amount will
become the amount agreed upon by the Calculating Party and the Disputing
Party. If the Calculating Party and the Disputing Party are unable to
resolve any disagreement within ten Business Days after the Calculating
Party's receipt of notice of disagreement, the Calculating Party and the
Disputing Party shall jointly request the national office of Coopers &
Lybrand (which may not assign the matter to its Chicago, Illinois or
Stamford, Connecticut, offices), or, if such firm is unavailable, another
independent nationally recognized auditing firm selected by the parties
(the "Tax Settlement Auditor") to
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resolve any issue in dispute as soon as possible and shall cooperate with
the Tax Settlement Auditor to resolve such dispute. The Tax Settlement
Auditor shall make a determination with respect to all disputed issues,
which determination shall be set forth in a written report delivered to
the Calculating Party and the Disputing Party. The Calculating Party and
the Disputing Party shall each pay one-half of the fees and expenses of
the Tax Settlement Auditor with respect to such determination.
(c) As soon as practicable after the Closing Date, Parent or Seller
shall deliver to Buyer a written notice setting forth (with reasonable
specificity) Parent's and Seller's good faith calculation of the aggregate bases
of the assets of the Companies (other than Newco) and their Subsidiaries on the
Closing Date (without giving effect to the Elections) (the "Seller's Aggregate
Asset Bases"). Within 20 Business Days after receipt thereof, Buyer shall
deliver to Parent and Seller written notice indicating whether Buyer agrees or
disagrees with Seller's Aggregate Asset Bases. If Buyer agrees with Seller's
Aggregate Asset Bases or if Buyer fails to deliver said written notice within 20
Business Days, Seller's Aggregate Asset Bases shall constitute the "Agreed
Aggregate Asset Bases." If Buyer provides timely written notice to Parent and
Seller of any disagreement with Seller's Aggregate Asset Bases, the Agreed
Aggregate Asset Bases shall be determined through the Tax Settlement Procedure.
(d) Within ten Business Days after the Agreed Allocation and the Agreed
Aggregate Asset Bases have been finally determined, Parent or Seller shall pay
to Buyer as an adjustment to the Closing Purchase Price the Basis Step-Up
Deficit or Buyer shall pay to Parent or Seller as an adjustment to the Closing
Purchase Price the Basis Step-Up Excess, as the case may be. In either case,
such payment shall bear simple interest from and including April 1, 1996 to (but
not including) the date of payment at an annual interest rate of 6%. The term
"Basis Step-Up Deficit" shall mean the product of (i) 0.159 times (ii) the
excess of (A) $220 million over (B) the Basis Step-Up. The term "Basis Step-Up
Excess" shall mean the product of (i) 0.159 times (ii) the excess of (A) the
Basis step-Up over (B) $220 million. The term "Basis Step-Up" shall mean the
Deemed Purchase Price (computed without regard to any payment of the Basis Step-
Up Deficit or the Basis Step-Up Excess and without regard to the Deemed Purchase
Price allocable to the assets of Newco) minus the Agreed Aggregate Asset Bases.
Any disagreements as to such calculation shall be settled through the Tax
Settlement Procedure.
(e) In the event that following the Closing Date there is an adjustment
for federal Income Tax purposes by a taxing authority and the effect of such
adjustment is that the Agreed Aggregate Asset Bases, the Deemed Purchase Price,
the Basis Step-Up Deficit, the Basis Step-Up Excess or the Basis Step-Up
(including, without limitation, by reason of the invalidity of the Elections) is
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changed, then upon final resolution of such adjustment, Buyer, Parent or
Seller, as the case may be, shall recompute the Basis Step-Up Deficit or the
Basis Step-Up Excess. The party computing such amount shall provide the
other party with written notice of such recomputed Basis Step-Up Deficit or
Basis Step-Up Excess. Within 20 Business Days after receipt thereof, the
party receiving such notice shall deliver to the party delivering such
notice written notice indicating whether it agrees or disagrees with said
amount. If the parties disagree on said amount, the recomputed Basis Step-Up
Deficit or Basis Step-Up Excess shall be determined through the Tax
Settlement Procedure. Immediately following determination of such amount,
Parent or Seller shall pay Buyer the excess of the recomputed Basis Step-Up
Deficit over the Basis Step-Up Deficit (or the Basis Step-Up Excess,
reflected as a negative number) as originally computed or the excess of the
Basis Step-Up Excess as originally computed over the recomputed Basis Step-
Up Excess, or Buyer shall pay to Parent or Seller the excess of the
recomputed Basis Step-Up Excess over the Basis Step-Up Excess (or the Basis
Step-Up Deficit reflected as a negative number) as originally computed or
the excess of the Basis Step-Up Deficit as originally computed over the
Basis Step-Up Deficit as recomputed, as the case may be.
11.2 Tax Indemnification. (a) Parent and Seller jointly and
severally shall be responsible for, shall pay or cause to be paid, and shall
indemnify and hold harmless Buyer and its Affiliates (including, after the
Closing, each Company and its Subsidiaries) from and against any and all Losses
for or in respect of each of the following:
(i) any and all Income Taxes with respect to any taxable period of each
Company or any of its Subsidiaries (or any predecessor) ending on or before
the Closing Date (including Income Taxes arising as a result of the
Elections), but excluding any transactions occurring on the Closing Date and
after the Closing (other than the Elections) which are not related to the
transfer of the Shares and the other transactions contemplated by this
Agreement ("Excluded Transactions"));
(ii) any and all Income Taxes resulting from any Company or any of its
Subsidiaries (or any predecessor) having been (or ceasing to be) included in
any affiliated, consolidated, combined or unitary Tax Return that included
such Company or any of its Subsidiaries (or any predecessor) for any taxable
period (or portion thereof) ending on or before the Closing Date (including,
without limitation, any liability for Taxes resulting from an acceleration
of an "intercompany transaction," within the meaning of Treasury Regulation
(S)1.1502-13(d) (or any analogous or similar provision under state, local or
foreign law or any predecessor provision or regulation), that occurred on or
before the Closing Date (but excluding the Excluded Transactions);
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(iii) any and all Income Taxes of any member of an affiliated,
consolidated, combined or unitary group (other than any Company or any of
its Subsidiaries) of which any Company or any of its Subsidiaries (or any
predecessor) is or was a member on or prior to the Closing Date, by reason
of the liability of any Company or any of its Subsidiaries pursuant to
Treasury Regulation (S)1.1502-6(a) or any analogous or similar state, local
or foreign law or regulation;
(iv) any and all Employment and Withholding Taxes;
(v) to the extent not previously paid, any and all real property Taxes
allocable to the Seller pursuant to Section 11.2(c) hereof (excluding real
property Taxes resulting from the Excluded Transactions and any increase in
real property Taxes arising from a revaluation of the property as a result
of the sale of the Shares or the Elections);
(vi) any and all Income Taxes allocable to the Seller pursuant to
Section 11.2(c) hereof and not previously paid thereunder;
(vii) any and all Taxes (other than Taxes described in clauses (i)
through (vi) of this Section 11.2(a)) with respect to taxable years ending
on or before December 31, 1995;
(viii) any and all Taxes (other than Taxes described in clauses (i)
through (vii) of this Section 11.2(a)) with respect to taxable years ending
after December 31, 1995, but only to the extent that such Taxes are
attributable to the portion of the period ending on December 31, 1995; and
(ix) any breach by the Seller of any representation, warranty or
covenant contained in Section 4.10 or Section 11.2.
(b) Buyer agrees to indemnify and hold harmless Seller and its
Affiliates from and against (and Seller and its Affiliates shall have no
liability under Section 11.2(a) on account of) any and all Losses for or in
respect of any and all Taxes of any Company or any of its Subsidiaries (or any
predecessor) that are not described in Section 11.2(a) (including Taxes
resulting from an Excluded Transaction), except for such Taxes arising from a
breach of a representation or warranty contained in 4.10, to the extent such
representation or warranty has not expired pursuant to Section 10.1.
(c) Seller and Buyer shall, to the extent permitted by applicable
law, elect with the relevant taxing authority to close the taxable period of
each Company and its Subsidiaries on the Closing Date. In any case where
applicable law does not permit any Company or any Subsidiary of such Company to
close its taxable year on the Closing Date (and in the case of Taxes described
in Section 11.2(a)(v)), Taxes (other
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than Taxes described in Section 11.2(a)(viii)) attributable to the taxable
period of such Company or such Subsidiary beginning on or before and ending
after the Closing Date shall be allocated (i) to Seller for the period up to and
including the Closing Date, excluding any Excluded Transaction and any increase
in real property Taxes arising from a revaluation of the property as a result of
the sale of the Shares or the Elections, and (ii) to Buyer for the period
subsequent to the Closing Date (including any Excluded Transaction and any
increase in real property Taxes arising from a revaluation of the property as a
result of the sale of the Shares or the Elections). Taxes described in Section
11.2(a)(viii) shall be allocated (i) to Seller for the period ending December
31, 1995 and (ii) to Buyer for the period thereafter. Any allocation required
to determine any Income Taxes attributable to any period beginning on or before
and ending after the Closing Date (including, without limitation, any Income
Taxes resulting from a Tax audit or administrative or court proceeding) shall be
made by means of a closing of the books and records of each Company and its
Subsidiaries as of the close of business on the Closing Date, excluding any
Excluded Transaction, and, to the extent not susceptible to such allocation, by
apportionment on the basis of elapsed days, except that extraordinary items
described in Treasury Regulation (S)1.1502-76(b)(2)(ii)(C) shall be allocated to
the day that they are taken into account. Real property Taxes (excluding those
arising from any Excluded Transaction and any increase in such Taxes arising
from a revaluation of the property as a result of the sale of the Shares or the
Elections) shall be allocated on the basis of elapsed days. Any allocation of
Taxes described in Section 11.2(a)(viii) shall be allocated on the basis of
elapsed days.
(d) (i) Promptly after receipt by Buyer or its Affiliates of written
notice of the assertion or commencement of any claim, audit, examination, or
other proposed change or adjustment by any taxing authority concerning any
Tax covered by Section 11.2(a) (each a "Tax Claim"), Buyer shall notify
Seller and Parent. Such notice shall contain factual information (to the
extent known by Buyer, any Company or any of its Subsidiaries) describing
the asserted Tax Claim in reasonable detail and shall include copies of any
notice or other document received from any taxing authority in respect of
any such asserted Tax Claim. The failure of Buyer to give Seller and Parent
prompt notice as provided herein shall not relieve Seller or Parent of any
of its obligations under Section 11.2, except to the extent that the Seller
or Parent is materially prejudiced by such failure.
(ii) Seller or Parent shall have the sole right to represent each
Company's or any of its Subsidiaries' interests in any Tax audit or
administrative or court proceeding relating to any Tax covered by Section
11.2(a) and to employ counsel of its choice, provided that (A) with respect
to any taxable period referred to in Sections 11.2(a)(v), (vi) or (viii)
hereof or (B) if the results of such Tax audit or proceeding (other than a
Tax audit or proceeding with respect to any Seller Consolidated and Combined
Return, as to which Seller's and Parent's sole obligation shall be to keep
Buyer duly informed of the progress thereof)
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could reasonably be expected to be material to Buyer, such Company, any of
such Company's Subsidiaries or their Affiliates for any taxable period
including or ending after the Closing Date, then Seller, Parent and Buyer
shall jointly control the defense and settlement of any such Tax audit or
proceeding and each party shall cooperate with the other party at its own
expense and there shall be no settlement or closing or other agreement with
respect thereto without the consent of the other party, which consent shall
not be unreasonably withheld. Seller and Parent shall promptly notify Buyer
if it decides not to control the defense or settlement of any such Tax audit
or administrative or court proceeding and Buyer thereupon shall be permitted
to defend and settle such Tax audit or proceeding.
(iii) Seller or Parent shall promptly notify Buyer of the commencement
of any claim, audit, examination or other proposed change or adjustment by
any taxing authority which could reasonably be expected to affect the
liability of any Company or any of its Subsidiaries for Taxes and Seller or
Parent shall keep Buyer duly informed of the progress thereof.
(e) (i) Seller or Parent shall properly prepare or cause to be properly
prepared, and shall timely file or cause to be timely filed, (x) all Tax Returns
which include each Company or any of its Subsidiaries required to be filed on or
before the Closing Date, (y) all Tax Returns which include each Company or any
of its Subsidiaries or their assets or operations for all taxable periods of
such Company and its Subsidiaries ending on or before the Closing Date (which
Tax Returns shall include such Company and its Subsidiaries and the reportable
items from the assets or operations of such Company and its Subsidiaries through
and including the Closing Date), and (z) all Tax Returns with respect to Taxes
described in Section 11.2(a)(vii). Such Tax Returns (insofar as they relate to
any Company or any of its Subsidiaries) shall be prepared in a manner consistent
with past practices and prior audit adjustments and Parent and the Seller or
Parent shall pay or cause to be paid all Taxes shown as due on such Tax Returns
or otherwise levied or assessed upon such Company or any Subsidiary or any of
its Assets on or prior to the Closing Date. Insofar as they relate to any
Company and its Subsidiaries, such Tax Returns shall be provided to Buyer for
Buyer's review and comment 20 Business Days prior to filing, and Buyer shall be
entitled to suggest to Seller or Parent, as the case may be, any reasonable
changes to such Tax Returns. Any disagreement between the parties will be
resolved through the Tax Settlement Procedure. Seller or Parent shall,
subsequent to the Closing Date, provide written notice to Buyer of its intent to
file any amended Tax Return or claim for refund with respect to any taxable
period ending on or prior to the Closing Date that could reasonably be expected
to be material to Buyer, any Company, any Company's Subsidiaries, or their
Affiliates for any taxable period including or ending after the Closing Date,
and Seller and Parent shall not make such filing without the consent of Buyer,
which consent shall not be unreasonably withheld.
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(ii) Except as set forth in clause (i) above, Buyer shall be
responsible for the filing and payment (subject to Buyer's right to
indemnification to the extent provided in Section 11.2(a)) of all other Tax
Returns required to be filed after the Closing Date (including Tax Returns
with respect to Taxes described in Section 11.2(a)(viii)) by or on behalf
of each Company and its Subsidiaries, or with respect to their assets and
operations.
(iii) With respect to (x) any Income Tax Return required to be filed by
Buyer for a taxable period of any Company or any of its Subsidiaries
beginning on or before the Closing Date and ending after the Closing Date,
(y) any Taxes described in Section 11.2(a)(v) or (z) any Tax Returns with
respect to Taxes described in Section 11.2(a)(viii), Buyer shall deliver,
at least 20 Business Days prior to the due date for filing such Tax Return
(including extensions), to Seller and Parent a statement setting forth the
amount of Tax allocated to Seller and Parent pursuant to Section 11.2(c) or
Section 11.2(a)(viii), as the case may be, (the "Tax Statement") and copies
of such Tax Returns, and Buyer shall cause such Company and its
Subsidiaries to pay all Taxes shown as due on such Tax Returns. Seller and
Parent shall have the right to review such Tax Return and the Tax Statement
prior to the filing of such Tax Return and to suggest to Buyer any
reasonable changes to such Tax Returns. Seller, Parent and Buyer agree to
consult and resolve in good faith any issue arising as a result of the
review of such Tax Return and the Tax Statement and mutually to consent to
the filing as promptly as possible of such Tax Return. In the event the
parties are unable to resolve any dispute within eight Business Days
following the delivery of such Tax Return and the Tax Statement, the
parties shall jointly request a Tax Settlement Auditor (appointed pursuant
to the principles set forth in the Tax Settlement Procedure) to resolve any
issue in dispute as promptly as possible. If the Tax Settlement Auditor is
unable to make a determination with respect to any disputed issue within
five Business Days prior to the due date (including extensions) for the
filing of the Tax Return in question, then Buyer may file such Tax Return
on the due date (including extensions) therefor without such determination
having been made and without Seller's and Parent's consent. Notwithstanding
the filing of such Tax Return, the Tax Settlement Auditor shall make a
determination with respect to any disputed issue, and the amount of Taxes
that are allocated to Seller and Parent pursuant to Section 11.2(c) or
Section 11.2(a)(v) or (viii), as the case may be, shall be as determined by
the Tax Settlement Auditor. The fees and expenses of the Tax Settlement
Auditor shall be paid one-half by Buyer, on the one hand, and one-half by
Seller and Parent, on the other. Nothing in this Section 11.2(e)(iii) shall
excuse Seller or Parent from its indemnification obligations pursuant to
Section 11.2 hereof if the amount of Taxes as ultimately determined (on
audit or otherwise), for the periods covered by such Tax Returns and which
are allocable to Seller or Parent pursuant to Section 11.2(c), or Section
11.2(a)(v) or (viii), as the case may be, exceeds the amount determined
under this Section 11.2(e)(iii).
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(iv) Seller, Parent and Buyer shall cooperate fully with each other and
make available to each other in a timely fashion such Tax data and other
information as may be reasonably required by Seller, Parent or Buyer for the
preparation and timely filing of any Tax Returns required to be prepared and
filed by Seller, Parent or Buyer hereunder, or in connection with the
preparation or filing of any election, claim for refund, consent or
certification.
(f) Seller, Parent and Buyer shall provide to each other, and Buyer
shall cause each Company and its Subsidiaries to provide to Seller and Parent,
full access, at any reasonable time and from time to time, at the business
location at which the books and records are maintained, after the Closing Date,
to such Tax data of each Company and its Subsidiaries as Seller, Parent or
Buyer, as the case may be, may from time to time reasonably request and shall
furnish, and request the independent accountants and legal counsel of Seller,
Parent, Buyer, each Company, or any Subsidiary of such Company to furnish to
Seller, Parent or Buyer, as the case may be, such additional Tax and other
information and documents in the possession of such persons as Seller, Parent or
Buyer may from time to time reasonably request.
(g) Any claim for indemnity hereunder may be made at any time prior
to 60 Business Days after the expiration of the applicable Tax statute of
limitations with respect to the relevant taxable period (including all
extensions obtained, whether automatic or permissive).
(h) The party seeking indemnification or other payment pursuant to
this Section 11.2 (Seller, Parent or Buyer, as the case may be) shall give the
other party written notice of claim for indemnification or payment, which notice
shall include a calculation of the amount of the requested indemnity or other
payment and shall furnish to the other party copies of all books, records and
other information reasonably requested by the other party to the extent
necessary to substantiate such claim and verify the amount thereof. If
reasonably necessary in order to make or substantiate a claim (or to determine
if a claim should be made), each party shall be permitted access to the other
party's books, records and other information in connection therewith. The party
requested to make any indemnity or other payment pursuant to this Section 11.2
shall deliver to the party requesting payment, within 20 Business Days after
receiving both the foregoing notice and all books, records and other information
reasonably requested by it, a detailed statement describing its objections (if
any) thereto. Any such objections will be resolved through the Tax Settlement
Procedure.
(i) Seller and Parent shall be responsible for, shall pay or cause to
be paid, and shall indemnify and hold harmless Buyer, as an adjustment to the
Final Purchase Price, from and against any Losses arising after the Closing Date
arising under any Tax sharing, Tax indemnity, Tax allocation or similar
contracts (whether or not written) to which any Company or any of its
Subsidiaries, any predecessor of such Company or any of its Subsidiaries, or any
transferor to such Company or any of its
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Subsidiaries, is a party or is obligated thereunder, in each case on or prior to
the Closing Date. None of Buyer, any Company or any of its Subsidiaries shall
have any liability pursuant to any such agreement after the Closing Date.
11.3 Tax Related Adjustments. (a) Seller, Parent and Buyer agree
that any indemnity payment made under this Agreement shall be treated by the
parties on their Tax Returns as an adjustment to the Final Purchase Price. If,
notwithstanding such treatment by the parties, any indemnity payment is
determined to be taxable to (i) Parent or Seller (other than as an adjustment to
the Final Purchase Price) or (ii) Buyer, each Company or any of its
Subsidiaries, for federal Income Tax purposes by the IRS, the indemnifying party
shall indemnify the indemnified party for any additional federal Income Taxes
payable by the indemnified party by reason of the receipt or accrual of such
indemnity payment (including any payments under this Section 11.3).
(b) An indemnity payment otherwise due and payable hereunder shall be
decreased (but not below zero) to the extent of any net actual reduction in
federal Income Tax liability that is actually realized by the indemnified party
upon its payment of an indemnifiable loss.
(c) Except as provided in Section 11.3(d), Buyer shall pay to Seller
or Parent, as appropriate, any refund of any Tax for which Seller or Parent is
responsible under Section 11.2(a) or the amount of actual reduction in such
Taxes realized (or portion of either thereof) after the Closing Date by Buyer or
any of its Affiliates (including each Company or any of its Subsidiaries)
relating to such Taxes imposed on or with respect to Seller, Parent or any of
their Affiliates (including any Company or any of its Subsidiaries) with respect
to any taxable period (or portion thereof) ending on or prior to the Closing
Date. Buyer shall pay to Seller or Parent, as appropriate, such refund
(including interest received thereon) (reduced by any actual Tax increase or
actual Tax detriment to Buyer, any Company or any of its Subsidiaries, but
increased by any actual Tax benefit resulting from such payment) or the amount
of any such reduction in Taxes promptly upon receipt thereof by the recipient
thereof. Buyer shall, if Seller or Parent requests, cause the relevant entity
to file for and obtain any refunds or equivalent amounts to which Seller or
Parent is entitled under this Section 11.3(c), and Buyer shall permit Seller or
Parent, as the case may be, to control the prosecution of any such refund claim,
and shall cause the relevant entity to authorize by appropriate powers of
attorney such Persons as Seller or Parent, as the case may be shall designate to
represent such entity with respect to such refund claim; provided, however, that
Buyer must consent to any such refund claim, which consent may not be
unreasonably withheld, and that any such refund claim shall be at the sole
expense of the Seller or Parent, as the case may be.
(d) Seller and Parent agree that to the extent that any Company or
any of its Subsidiaries realizes any Tax attribute after the Closing Date that
may be carried back to a taxable period ending on or prior to the Closing Date,
Seller and Parent shall,
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at Buyer's sole expense, permit such carryback, shall cooperate in the filing of
any required returns or claims for refund and shall pay Buyer any Tax refund
received or the amount of any reduction in Taxes so obtained by the Seller Group
(as hereinafter defined); provided, however, in the event that any Tax attribute
generated after the Closing Date by Buyer, any Company or any Subsidiary or any
member of any affiliated group (or other group filing on a combined basis) of
which any thereof is a member (any of the foregoing being referred to herein as
a "Buyer Group Member") is carried back to a taxable year (or portion thereof)
of Parent's affiliated group (or other group filing on a combined basis of which
Seller is a member) (the "Seller Group") that ended on or prior to the Closing
Date and, as a result of such carryback, any Tax attribute generated by the
Seller Group (whether in the same year or in a prior or subsequent year) is not
capable of being carried back or forward to the same extent it would have been
had no such Buyer Group carryback occurred, Buyer shall pay to Seller an amount
sufficient to place the Seller Group in the same position as it would have been
in if no such carryback occurred (except that Seller shall pay Buyer (when and
as actually realized) any refund of Taxes or actual reduction of Taxes otherwise
payable by the Seller Group that is subsequently realized by the Seller Group as
a result of the Seller Group's use of any Tax attributes that would otherwise
have been utilized by the Seller Group earlier had the Tax attribute of Buyer,
any Company or any Subsidiary of such Company (or any other Buyer Group Member)
not been so carried back, and provided, further, that if Seller makes a payment
pursuant to this Section 11.3(d) on account of a refund of Taxes, or an actual
reduction of Taxes of the Seller Group and it is later determined (as a result
of an audit adjustment or otherwise) that the Seller Group is liable for the
return thereof to the applicable taxing authority, Buyer shall promptly remit to
Seller the amount Seller has previously paid to Buyer with respect to the item
in issue (plus appropriate interest).
11.4 Transfer Taxes. Seller and Parent shall pay, or cause to be
paid, any transfer Tax or fee, recordation or similar Tax or fee, deed, stamp or
other Tax, grantor's or grantee's Tax, recording charge, fee, or other similar
cost or expense of any kind required or customary in the applicable jurisdiction
in connection with the effectuation of the transfer of the Shares and all
transactions pursuant to this Agreement (including the Elections), whether such
Tax or fee is imposed on Buyer, Parent, Seller, any Company or any Subsidiary.
Upon demand by Seller, Buyer shall reimburse Seller for one-half of all such
payments.
12. Termination.
12.1 Termination and Abandonment. This Agreement may be terminated
and the transactions contemplated by this Agreement may be abandoned at any time
prior to the Closing:
(a) by mutual written consent of Buyer, Parent and Seller; or
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(b) by Buyer or Parent and Seller if the Closing shall not have
occurred on or before June 30, 1996; provided, however, that the right to
terminate this Agreement under this Section 12.1(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement shall
have been the cause of, or resulted in, the failure of the Closing to occur on
or before such date; or
(c) by Buyer or Parent and Seller if any court of competent
jurisdiction shall have issued an order, decree or ruling or taken any other
action enjoining or otherwise prohibiting the transactions contemplated under
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable.
12.2 Survival; Expenses. (a) If this Agreement is terminated and
the transactions contemplated hereby are not consummated as described above,
this Agreement shall become void and of no further force and effect, except for
the provisions of this Section 12.2, Section 7.4(b) and Article 13. None of the
parties hereto shall have any liability in respect of a termination of this
Agreement, except to the extent that such termination results from a breach of
the representations, warranties, covenants or agreements of Parent and Seller,
on the one hand, or Buyer, on the other hand, under this Agreement.
(b) Except as otherwise specifically provided herein, the parties
shall bear their respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of agents, representatives,
counsel, actuaries and accountants.
13. Miscellaneous.
13.1 Public Announcements. No party shall issue any news release or
make any public announcement concerning this Agreement or any of the
transactions contemplated hereby without the advance approval thereof by Parent
and Buyer; provided, however, that any party may make any public disclosure that
it reasonably believes, upon the advice of counsel, is required by applicable
federal or state securities laws, in which case the disclosing party shall use
commercially reasonable efforts to advise the other party or parties prior to
making such disclosure. Subject to the prior sentence, Parent and Buyer shall
cooperate with each other in the development and distribution of all news
releases and other public announcements with respect to this Agreement or any of
the transactions contemplated hereby.
13.2 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission, sent by overnight courier or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when actually received by the relevant party as follows:
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if to Buyer, or, after the Closing, any Company, to:
GNA CORPORATION
Two Union Square
601 Union Street
Seattle, Washington 98111-0490
Attention: Geoff Stiff
Facsimile: 206-583-2882
with copies to:
General Electric Capital Corporation
260 Long Ridge Road
Stamford Connecticut 06927-5000
Attention: General Counsel
Facsimile: 203-357-3365
and
Weil Gotshal & Manges
100 Crescent Ct. Suite 1300
Dallas, Texas 75201
Attention: David Spuria, Esq.
Facsimile: 214-746-7777
if to Parent, Seller or, prior to Closing, any Company, to:
Aon Corporation
123 North Wacker Drive
Chicago, IL 60606
Attention: Raymond I. Skilling, Esq.
Facsimile: (312) 701-3080
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attention: Thomas A. Cole and
Frederick C. Lowinger
Facsimile: (312) 853-7036
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Any party may by notice given in accordance with this Section 13.2 to
the other parties designate another address or Person for receipt of notices
hereunder.
13.3 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) contains the entire agreement among the parties with respect to
the transactions contemplated hereby, and supersedes all prior agreements and
understandings, written or oral, with respect thereto.
13.4 Waivers and Amendments; Noncontractual Remedies; Preservation of
Remedies. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof. No waiver on the part of
any party of any such right, power or privilege, and no single or partial
exercise of any such right, power or privilege, shall preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
The rights and remedies herein provided are cumulative and, except as provided
in Section 13.11, are not exclusive of any rights or remedies that any party may
otherwise have at law or in equity.
13.5 Governing Law. This Agreement and the rights and obligations of
the parties hereto shall be governed by, and construed and enforced in
accordance with, the laws of the State of the State of Illinois, without giving
effect to the conflicts of laws principles thereof.
13.6 Binding Effect; Assignment Limited. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and permitted assigns and legal
representatives.
(b) Neither this Agreement, nor any right hereunder, may be assigned
by any party without the written consent of the other parties hereto, except
that Buyer may assign all or any portion of its interest in this Agreement to
any one or more wholly-owned Subsidiaries of Buyer; provided that,
notwithstanding any such assignment, Buyer shall remain liable to perform all
obligations hereunder.
13.7 No Third-Party Beneficiaries. Except for Section 10.5, nothing
in this Agreement is intended or shall be construed to give any Person, other
than the parties hereto, any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision contained herein.
13.8 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original and which together shall constitute one and
the same
70
<PAGE>
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
13.9 Schedules. (a) The Schedules hereto are a part of this
Agreement as if fully set forth herein.
(b) Any item appearing in either the Seller Disclosure Schedule or
the Company Disclosure Schedule pursuant to any one Section of this Agreement
shall be deemed to have been listed in such disclosure schedules with respect to
any other Section of this Agreement where such listing may be deemed to be
required, and subject to Section 8.1 all disclosures in the Seller Disclosure
Schedule or the Company Disclosure Schedule shall be deemed to refer solely to
matters as they exist at the date of this Agreement, unless a different date is
specified in such disclosure schedule.
13.10 Headings. The article, section and paragraph headings in this
Agreement are for convenience only, and shall not control or affect the meaning
or construction of any provision of this Agreement.
13.11 Remedies. The parties hereto agree that money damages or other
remedies at law would not be sufficient or adequate remedy for any breach or
violation of, or a default under, this Agreement by them and that, in addition
to all other remedies available to them, each of them shall be entitled to an
injunction restraining such breach, violation or default or threatened breach,
violation or default and to any other equitable relief, including specific
performance, without bond or other security being required.
13.12 Invalidity of Provisions. The invalidity or unenforceability
of any provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including that
provision, in any other jurisdiction. If any restriction or provision of this
Agreement is held unreasonable, unlawful or unenforceable in any respect, such
restriction or provision shall be interpreted, revised or applied in a manner
that renders it lawful and enforceable to the fullest extent possible under law.
71
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
Aon CORPORATION
By: /s/ Harvey N. Medvin
____________________________________
Name: Harvey N. Medvin
Title: Executive Vice President, CFO
and Treasurer
COMBINED INSURANCE COMPANY OF AMERICA
By: /s/ Harvey N. Medvin
____________________________________
Name: Harvey N. Medvin
Title: Executive Vice President, CFO
and Treasurer
THE LIFE INSURANCE COMPANY OF VIRGINIA
By: /s/ Paul E. Rutledge III
____________________________________
Name: Paul E. Rutledge III
Title: President
FORTH FINANCIAL RESOURCES, LTD.
By: /s/ John L. Knowles
____________________________________
Name: John L. Knowles
Title: President
72
<PAGE>
NEWCO PROPERTIES, INC..
By: /s/ Jerome S. Hanner
____________________________________
Name: Jerome S. Hanner
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Edward D. Stewart
________________________________
Name: Edward D. Stewart
Title: Executive Vice President
73
<PAGE>
EXHIBIT 11
Aon Corporation and Subsidiaries
CONSOLIDATED NET INCOME PER SHARE COMPUTATION
<TABLE>
<CAPTION>
(millions except per share data) Years Ended December 31
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
EARNINGS PER SHARE
Net income.................................. $402.8 $360.0 $323.8
Preferred stock dividends................... 24.7 26.8 24.5
------ ------ ------
Net income less preferred stock dividends. $378.1 $333.2 $299.3
====== ====== ======
Average common shares issued................ 110.8 107.1 105.0
Net effect of treasury stock activity....... (2.8) (4.4) (3.7)
Weighted average effect of Series B
preferred stock........................... - 2.8 4.1
Net effect of dilutive stock compensation
plans based on the treasury stock method.. 0.7 0.7 1.0
------ ------ ------
Average common and common equivalent
shares outstanding.................... 108.7 106.2 106.4
====== ====== ======
Net income per share (1)................. $ 3.48 $ 3.14 $ 2.81
====== ====== ======
</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>
Years Ended December 31,
----------------------------------------
(millions except ratios) 1995 1994 1993 1992(1) 1991
------- ------ ------ -------- -------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income
tax(2) $ 458.0 $ 397.0 $ 331.6 $ 179.1 $ 242.4
Add back fixed charges:
Interest on indebtedness 55.5 46.4 42.3 41.9 40.7
Interest on ESOP 5.3 5.9 6.5 6.9 7.2
Portion of rents representative
of interest factor 21.4 28.7 26.1 19.2 15.4
------- ------- ------- ------- -------
Income as adjusted $ 540.2 $ 478.0 $ 406.5 $ 247.1 $ 305.7
======= ======= ======= ======= =======
Fixed charges:
Interest on indebtedness $ 55.5 $ 46.4 $ 42.3 $ 41.9 $ 40.7
Interest on ESOP 5.3 5.9 6.5 6.9 7.2
Portion of rents representative
of interest factor 21.4 28.7 26.1 19.2 15.4
------- ------- ------- ------- -------
Total fixed charges $ 82.2 $ 81.0 $ 74.9 $ 68.0 $ 63.3
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 6.6 5.9 5.4 3.6 4.8
======= ======= ======= ======= =======
Ratio of earnings to fixed
charges (3) 8.4 7.6 7.4 5.3 6.2
======= ======= ======= ======= =======
</TABLE>
(1) Income from continuing operations before provision for income taxes excludes
the cumulative effect of changes in accounting principles.
(2) Income statement data has been reclassified to reflect continuing operations
for the years ended 1991 through 1994.
(3) The calculation of this ratio of earnings to fixed charges reflects the
addition of the income from discontinued operations before the provision for
income tax component for the years ended 1991 through 1995.
<PAGE>
Exhibit 12(b)
Aon Corporation and Consolidated Subsidiaries
Combined With Unconsolidated Subsidiaries
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
(millions except ratios) 1995 1994 1993 1992(1) 1991
------ ------ ------ --------- -----
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income
tax (2) $ 458.0 $ 397.0 $ 331.6 $ 179.1 $ 242.4
Add back fixed charges:
Interest on indebtedness 55.5 46.4 42.3 41.9 40.7
Interest on ESOP 5.3 5.9 6.5 6.9 7.2
Portion of rents representative
of interest factor 21.4 28.7 26.1 19.2 15.4
------- ------- ------- ------- -------
INCOME AS ADJUSTED $ 540.2 $ 478.0 $ 406.5 $ 247.1 $ 305.7
======= ======= ======= ======= =======
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:
Interest on indebtedness: $ 55.5 $ 46.4 $ 42.3 $ 41.9 $ 40.7
Preferred stock dividends 37.5 48.4 47.5 20.3 3.5
------- ------- ------- ------- -------
INTEREST AND DIVIDENDS 93.0 94.8 89.8 62.2 44.2
Interest on ESOP 5.3 5.9 6.5 6.9 7.2
Portion of rents representative
of interest factor 21.4 28.7 26.1 19.2 15.4
------- ------- ------- ------- -------
TOTAL FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS $ 119.7 $ 129.4 $ 122.4 $ 88.3 $ 66.8
======= ======= ======= ======= =======
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS 4.5 3.7 3.3 2.8 4.6
======= ======= ======= ======= =======
Ratio of earnings to combined
fixed charges and preferred
stock dividends (3) 5.8 4.8 4.5 4.1 5.9
======= ======= ======= ======= =======
</TABLE>
(1) Income from continuing operations before provision for income taxes
excludes the cumulative effect of changes in accounting principles.
(2) Income statement data has been reclassified to reflect continuing operations
for the years ended 1991 through 1994.
(3) This calculation of ratio of earnings to combined fixed charges and
preferred stock dividends reflects the addition of the income from
discontinued operations before the provision for income tax component for
the years ended 1991 through 1995.
<PAGE>
Aon Corporation's Operating Companies
Aon Corporation is a family of insurance brokerage, consulting and consumer
insurance companies serving clients and policyholders through global
distribution networks owned by Aon subsidiary companies. Aon's talented
professionals provide innovative risk management, insurance services and
consulting solutions for commercial and industrial enterprises, financial
institutions, insurance organizations, municipalities and individuals. In 1995,
Aon Corporation reported $3.5 billion in total revenues, an increase of 14
percent over 1994. Earnings from continuing operations rose 13 percent to $304
million in 1995.
Brokerage and Consulting Companies
In early 1996, Aon's brokerage and consulting operation changed its name from
Rollins Hudig Hall Group to Aon GROUP. As the second-largest and fastest-growing
international brokerage and consulting organization, Aon Group offers commercial
insurance brokerage, reinsurance and wholesale brokerage, alternative risk
solutions, risk management, employee benefit and human resources consulting, and
managing general underwriting services. Aon Group has 14,000 employees in more
than 350 offices around the world. In 1995, Aon Group revenue increased to $1.7
billion for a 20 percent gain over 1994.
Aon RISK SERVICES
Aon SPECIALTY GROUP
Aon RE WORLDWIDE
Aon CONSULTING WORLDWIDE
Insurance Underwriting Companies
Aon's insurance businesses serve consumers in North America, Europe, Latin
America and the Pacific by providing a variety of insurance products, including
accident and health coverage, traditional life insurance, extended warranties
and credit insurance. The career sales forces of Aon's subsidiaries market
insurance products through global distribution networks that are directly owned
by the company, to efficiently respond to policyholders' needs for quality
products. In 1995, revenue from insurance underwriting operations totaled $1.6
billion, an increase of 9 percent over 1994.
COMBINED INSURANCE
RYAN GROUP
Aon WARRANTY GROUP
VIRGINIA SURETY / LONDON GENERAL
---------------------------------
LIFE OF VIRGINIA / UNION FIDELITY
(Inside Cover - Page 1)
Aon Corporation Annual Report 1995
<PAGE>
Photographs located in the top third of the page from left to right illustrating
a football player, scenes of London, a global view of the earth, an airplane,
and the Great Wall of China.
Aon Group is a leading provider of insurance solutions for niche markets,
including sporting events, entertainment, aviation, construction, environmental,
marine, energy, fine arts, directors and officers liability, media, financial
institutions and municipalities.
Aon Group offers clients access to the London and other international specialty
markets.
Since 1987, Aon Re Worldwide has grown from approximately $20 million
in revenues to $190 million in 1995.
Aon Consulting instituted Playing to Win(R) culture change programs in 1995 for
a major international airline and for other multinational corporations.
Aon expanded in Asia with the creation of Aon/China in Beijing and the
acquisition of the remaining interest in its joint venture Asian brokerage and
consulting network.
GROWTH IN Aon's BROKERAGE AND CONSULTING REVENUE
Since 1991, the compound average growth rate of Aon's global brokerage and
consulting revenue exceeds 40%.
Aon brokerage and consulting revenue, bar graph (lower left corner) representing
$400 million, $727 million, $1,215 million, $1,422 million and $1,701 million in
revenue for the years ended 1991, 1992, 1993, 1994 and 1995, respectively.
Aon RISK SERVICES
Aon Risk Services is the new name for Aon's global retail insurance brokerage
and risk management services. Through a worldwide distribution system, Aon Risk
Services provides a full array of risk services, including insurance placement,
specialized brokerage services, program development and administration, premium
financing services, risk management and loss control consulting.
Aon SPECIALTY GROUP
Aon Specialty Group delivers highly specialized insurance products and services
for professional groups, service businesses, governments, health care providers
and commercial organizations. Aon Specialty Group also provides specialized
managing general underwriting and wholesale brokerage services for insurance
organizations.
(Inside Cover - Page 2)
Aon Corporation Annual Report 1995
<PAGE>
Photographs located in the top third of the page from left to right depicting an
automobile on the assembly line and a collection of computer equipment.
In 1995, Aon Consulting assessed and recruited workforces for major automobile
manufacturers.
Aon helped found the World Insurance Network, a comprehensive global electronic
network linking insurance companies and brokers to reduce costs and enhance
service for clients.
Aon RE WORLDWIDE
Aon Re Worldwide is the second-largest reinsurance intermediary in the world.
Aon Re Worldwide serves the alternative market with reinsurance placement,
alternative risk services, captive management services and catastrophe
information forecasting.
Aon CONSULTING WORLDWIDE
Aon Consulting Worldwide is one of the world's largest integrated human
resources consulting organizations. Our innovative professionals link people
strategies with business strategies to benefit clients through expertise in the
areas of employee benefits, human resources, change management and compensation.
COMBINED INSURANCE COMPANY OF AMERICA
Combined Insurance Company of America is a leading underwriter of supplemental
disability accident, health and life insurance for individual consumers.
Combined Insurance products are sold by several thousand career agents in North
America, Europe, Latin America and the Pacific.
RYAN GROUP
Ryan Group is a major marketer of extended warranties and credit-related life
and disability products for the automotive industry. Ryan Group also pioneered
specialized training services for this industry.
(Inside Cover - Page 3)
Aon Corporation Annual Report 1995
<PAGE>
Photographs located in the top third of the page from left to right depicting a
hand with a pen signing paper, three individuals discussing insurance, an
automobile, a cellular phone, and a cappuccino machine.
With more than 5 million policyholders, Combined Insurance Company of America
has more individual accident and health policies in force than any other U.S.
company.
Combined Insurance career agents provide insurance protection for individuals in
North America, Europe, Latin America and the Pacific.
Ryan Group is North America's largest independent marketer of automotive
extended warranties.
Aon Warranty Group is one of the world's largest independent providers and
administrators of consumer warranties.
Virginia Surety Company and London General are among the world's largest
underwriters of consumer extended warranties.
Aon WARRANTY GROUP
Aon Warranty Group, a recognized leader in specialty consumer warranty programs
for electronics, appliances, personal computers, cellular telephones and
automobiles, serves manufacturers, distributors and wholesalers in North America
and in Europe.
VIRGINIA SURETY/LONDON GENERAL
Aon's specialized property and casualty underwriting units, Virginia Surety
Company in North America and London General Insurance Company in Europe, are
among the world's largest underwriters of consumer extended warranties.
- -------------------------------
LIFE OF VIRGINIA/UNION FIDELITY
In late 1995, Aon entered into agreements to sell Life of Virginia and Union
Fidelity. These sales are expected to close in the first half of 1996.
COMPARATIVE TOTAL RETURNS
The five-year total return on Aon common stock was 21% compared with 16.6% for
the S&P 500 Stock Index, and 5.2% for the S&P Insurance Brokerage Index.
Aon Corporation, S&P 500 Stock Index, and S&P Insurance Brokerage Index, bar
graph representing the five year total return on Aon common stock of 21%, the
S&P 500 Stock Index of 16.6%, and the S&P Insurance Brokerage Index of 5.2%.
(Inside Cover - Page 4)
Aon Corporation Annual Report 1995
<PAGE>
Brokerage and Consulting
In early 1996, Aon changed the name of Rollins Hudig Hall Group, its brokerage
and consulting operation, to Aon Group. This change emphasizes Aon's continuing
evolution into an interdependent organization offering innovative brokerage,
risk management and specialized consulting services worldwide. Aon Group is now
the world's second-largest and fastest-growing international brokerage and
consulting organization. Aon Group is a global network of specialized insurance
services and consulting companies that work with dedication and imagination to
meet the diverse and challenging needs of clients.
The major operating subsidiaries also have changed their names to reflect the
strength and market leadership of Aon Group. Our global retail brokerage and
risk management business now operates as Aon Risk Services.
Aon Consulting Worldwide, which provides consulting and administrative services
in employee benefits, human resources, change management and compensation, is
one of the world's largest integrated human resources consulting organizations.
These newly named operations join Aon Specialty Group and Aon Re Worldwide to
comprise Aon Group. Aon has become a name to which businesses increasingly turn
for innovative business solutions anywhere in the world.
United States brokerage and consulting revenue, line graph representing retail
brokerage revenue of $267.5 million for 1991, $337.7 million for 1992, $535.7
million for 1993, $630.0 million for 1994, and $718.8 million for 1995;
reinsurance and wholesale brokerage revenue of $60.1 million for 1991, $86.9
million for 1992, $189.3 million for 1993, $247.1 million for 1994, and $279.7
million for 1995; and consulting revenue of $52.9 million for 1991, $70.2
million for 1992, $130.0 million for 1993, $155.9 million for 1994, and $177.8
million for 1995.
International brokerage and consulting revenue, line graph representing retail
brokerage revenue of $12.0 million for 1991, $169.5 million for 1992, $204.5
million for 1993, $199.3 million for 1994, and $274.9 million for 1995;
reinsurance and wholesale brokerage revenue of $7.4 million for 1991, $62.0
million for 1992, $91.7 million for 1993, $123.5 million for 1994, and $177.3
million for 1995; and consulting revenue of $0.0 million for 1991, $0.4 million
for 1992, $63.8 million for 1993, $66.3 million for 1994, and $72.8 million for
1995.
6
Aon Corporation Annual Report 1995
<PAGE>
Insurance Underwriting
Combined Insurance remains a cornerstone of Aon's insurance underwriting
business. With Ryan Group and Aon Warranty Group, it provides the global
distribution networks that are key to Aon's growth in specialized insurance
underwriting. Aon's insurance underwriting companies, working with its global
brokerage and consulting business, are paving the way for expanded international
opportunities, especially in South America and the Pacific.
The late 1995 agreements to sell Life of Virginia and Union Fidelity demonstrate
Aon's commitment to directly controlling its distribution channels and
significantly reducing its exposure to the interest rate risk historically
associated with capital accumulation business.
With the sale of Life of Virginia, Aon will have a significant reduction in
policy liabilities and related invested assets. The charts below illustrate key
1995 financial statement values apportioned between continuing and discontinued
businesses.
Aon believes in the future of the consumer insurance business, especially in
disability coverages, traditional whole life products, extended warranty and
credit-related protections.
Aon's insurance underwriting businesses continue to meet the changing needs of
individuals throughout the world by offering innovative products, distributed
through directly owned and managed networks.
Mortgage backed securities-continuing operations, other fixed
maturities-continuing operations, other invested assets-continuing operations,
mortgage backed securities-discontinued operations, other fixed
maturities-discontinued operations, and other invested assets-discontinued
operations, pie chart representing 0.6%, 31.8%, 16.1%, 18.5%, 21.3% and 11.7%,
respectively of the total 1995 invested assets.
Future policy benefits and unearned and advance premiums-continuing operations,
policy and contract claims-continuing operations, other policyholder
funds-continuing operations, future policy benefits and unearned and advance
premiums-discontinued operations, policy and contract claims-discontinued
operations, other policyholder funds-discontinued operations, pie chart
representing 24.3%, 8.3%, 2.9%, 8.4%, 1.8%, and 54.3%, respectively of the total
1995 policy liabilities.
Life-continuing operations, accident and health-continuing operations, extended
warranty and specialty-continuing operations, life-discontinued operations, and
accident and health-discontinued operations, pie chart representing 9.3%, 36.9%,
14.2%, 27.2%, and 12.4%, respectively of the total 1995 insurance underwriting
revenue.
7
Aon Corporation Annual Report 1995
<PAGE>
Management's Analysis of Operating Results and Financial Condition
CONSOLIDATED
General
In fourth quarter 1995, Aon reached definitive agreements to sell two of its
domestic insurance subsidiaries, Union Fidelity Life Insurance Company (UFLIC)
and The Life Insurance Company of Virginia (LOV) (see note 3). Pending the
receipt of the required regulatory consents, the sale of UFLIC and LOV is
expected to close during the first half of 1996. Consequently, their results are
classified in the consolidated statements of income as discontinued operations.
For purposes of the following consolidated results discussions (1995 compared to
1994 and 1994 compared to 1993), comparisons against prior years' results are
based on continuing operations.
Revenue and Income Before Income Tax
Consolidated Results for 1995 Compared to 1994
Total revenue amounted to $3,466 million, an increase of 14%. This increase was
primarily due to the growth in brokerage commissions and fees resulting from
business combination activity and internal growth. Brokerage commissions and
fees increased 19% to $1,628 million.
Premiums earned of $1,427 million increased 8% in 1995. Extended warranty
premiums earned increased $87 million or 46% reflecting a higher volume of new
business in the electronic and appliance lines. The continued phase-out of
certain specialty liability programs partially offset this increase. There was
also continued growth in Combined Insurance Company of America's (CICA) direct
sales international business.
Net investment income of $329 million increased 28% for the year. Net investment
income on insurance brokerage and consulting short-term investments totaled $73
million in 1995 compared to $47 million the prior year. Higher levels of short-
term investments, primarily due to brokerage acquisition activity and internal
growth, contributed to the increase.
Net realized investment gains of $13 million decreased 31% from 1994 levels.
Revenues excluding realized investment gains increased 14% or $431 million when
compared to 1994.
Commissions and general expenses (excluding interest expense) increased 15% for
the year, primarily due to growth in the brokerage businesses. Benefits to
policyholders increased 12% when compared to 1994, primarily due to a higher
volume of new extended warranty business. Partially offsetting this increase was
the reduction in benefits on specialty liability products, which primarily
reflected the runoff of certain specialty programs. Interest expense increased
14%, primarily due to higher levels of short-term borrowings for the year.
Amortization of intangibles, which include deferred policy acquisition costs,
increased $24 million or 9%, primarily due to continued growth in operations.
Overall, benefit and expense margins for the insurance underwriting segment did
not suggest any significant shift in operating trends in 1995. Total benefits
and expenses increased 14% or $364 million over 1994. Income before income tax
increased $61 million or 15%, largely due to growth in the insurance brokerage
and consulting businesses, and to a lesser extent, growth in the insurance
underwriting extended warranty business.
Fourth quarter revenue increased 10% when compared to 1994 to $895 million
reflecting brokerage business combination activity and internal growth. Benefits
and expenses of $798 million increased 13% for the quarter. Income before income
tax decreased $6 million or 6%, reflecting a lower level of realized investment
gains in 1995. Excluding these gains, income before income tax increased 7%.
Revenue and Income Before Income Tax
Consolidated Results for 1994 Compared to 1993
Total revenue amounted to $3,041 million in 1994, an increase of 10%. Brokerage
commissions and fees increased 17% to $1,370 million resulting from business
combination activity and internal growth. Premiums and policy fees were $1,322
million or 4% above 1993. A higher volume of new business in the extended
warranty line was partially offset by the anticipated decrease in specialty
liability premiums earned which reflected reduced underwriting of certain
specialty liability programs. Net investment income of $257 million increased
13% for the year.
Benefits to policyholders increased slightly when compared to 1993. However,
benefit ratios were lower. Commissions and general expenses (excluding interest
expense) increased 12% for the year, primarily reflecting brokerage growth.
Total benefits and expenses increased 8% over 1993. Income before income tax
increased by 20% or $65 million due largely to growth in the brokerage
businesses and the continued favorable phase-out of certain specialty liability
underwriting programs.
MAJOR LINES OF BUSINESS
General
With the execution of sale agreements for UFLIC and LOV in 1995, Aon
reclassified its operating segments to reflect the focus of its continuing
operations. Beginning in fourth quarter 1995, insurance underwriting operations
are presented as one segment based on the related nature, distribution channels
and markets of the continuing products. Insurance underwriting primarily
includes life, accident and health insurance and extended warranty products.
Prior period segments have been reclassified to conform to the 1995
presentation. Supplemental revenue and income before income tax information,
consistent with prior segmentation, is located on page 13.
9
Aon Corporation Annual Report 1995
<PAGE>
Management's Analysis of Operating Results and Financial Condition
For purposes of the major lines of business discussion, comparisons of 1995
revenue and income before income tax to 1994 are based on continuing operations.
A discussion of discontinued operations performance follows the major lines of
business section.
Continuing Operations
Insurance Brokerage and Consulting Services
In early 1996, Aon's commercial brokerage and consulting operation changed its
name from Rollins Hudig Hall Group to Aon Group. Aon Group offers retail
insurance brokerage, reinsurance and wholesale brokerage, and consulting
services.
In 1995, Aon invested approximately $160 million related to business
combinations in its brokerage and consulting businesses. These business
combinations were financed primarily by internal funds and the issuance of
common stock. The major 1995 acquisitions include: Berkely-ARM, Inc., a
reinsurance and wholesale brokerage firm specializing in providing insurance
products to the travel industry; purchase of the remaining 50% interest in HHL
Holdings Limited (HHL), a joint venture Asian brokerage and consulting network;
and Morency Weible Sapa, a retail operation specializing in construction
business coverages.
Total brokerage revenue, which includes investment income, was $1,701 million in
1995, up 20%. Acquisitions accounted for approximately one-third of this revenue
growth. Domestic revenue of $1,176 million was up 14% while international
revenue increased 35%. Pretax income was $205 million in 1995, up 29% from $159
million in 1994. Domestic pretax income was up 27% from 1994. International
pretax income rose 34%.
Retail brokerage benefited from integration efficiencies and growth from
acquisition activity, in particular the late 1994 acquisition of Energy
International Inc., the late 1995 acquisition of the remaining interest in HHL
and various other business combinations. Domestic retail brokerage results
continued to be influenced by a highly competitive property and casualty pricing
environment.
Reinsurance and wholesale income improved due to internal growth, international
expansion of alternative market services, and to a lesser extent, the inclusion
of a full year of operating results for acquisitions completed in fourth quarter
1994.
In the consulting line, expansion of the integrated human resources consulting
programs marketed primarily through a 1994 acquisition, Pecos River Learning
Centers Inc., and to a lesser extent, the acquisition of Hutchison & Associates,
Inc., in mid-1995, partially offset slow growth in benefit plan product sales.
Insurance Underwriting
The insurance underwriting line of business provides a variety of direct sales
life and accident and health products, credit insurance and extended warranty
products to individuals. Revenue was $1,640 million in 1995, up 9% from $1,509
million in 1994. Domestic revenue of $1,188 million was up 7% while
international revenue rose 12%. Traditional life business in Europe and the
Pacific is continuing to runoff as planned. In addition, a higher volume of new
business in the electronic and appliance extended warranty lines offset the
runoff of certain specialty liability programs in 1995.
Pretax income was $246 million in 1995, up 5% from $235 million last year.
Domestic and international pretax income rose 5% and 4%, respectively. Benefit
and expense margins did not suggest any significant shift in operating trends.
Combined's direct sales accident and health business improved in part due to
good general expense controls and to strong international health product sales,
offset in part by slightly higher claims cost.
Corporate and Other
Revenue consists primarily of investment income on capital, service fee revenue
from the placement of insurance premium and retail auto financing services and
realized investment gains. Allocation of investment income to the insurance
underwriting segment is based on the invested assets which underlie policyholder
liabilities for the insurance underwriting product line. Excess invested assets
and related investment income, which do not underlie these liabilities, are
reported in this segment. Expenses include interest and other financing
expenses, corporate administrative costs, and goodwill amortization associated
with acquisitions.
Revenue increased 14% over 1994 to $125 million. Realized investment gains
declined $6 million in 1995 when compared to 1994. Excluding these gains from
both years, revenue increased 23% reflecting growth in financing service fees
and a higher level of income received from private placement equity holdings.
Higher short-term interest expense, due to an increased volume of short-term
borrowings that were principally used to finance the repurchase of Aon's 8%
cumulative perpetual preferred stock (8% preferred stock), partially offset the
revenue increase.
Pretax income of $7 million increased $4 million in 1995. Excluding realized
investment gains from both years, pretax income increased $10 million. The
increase primarily reflects improved investment yields, due in part, to higher
levels of income received from private placement equity holdings and changes in
investment mix. In addition, financing costs and goodwill amortization related
to acquisitions grew more slowly when compared to the growth in investment
income.
10
Aon Corporation Annual Report 1995
<PAGE>
Management's Analysis of Operating Results and Financial Condition
Major Lines of Business--Continuing Operations
<TABLE>
<CAPTION>
(millions)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INSURANCE BROKERAGE AND CONSULTING SERVICES
Years ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------
Revenue:
Retail brokerage $ 994 $ 829 $ 740
Reinsurance and wholesale 457 371 281
Consulting 250 222 194
----------------------
Total revenue 1,701 1,422 1,215
----------------------
Operating expenses 1,448 1,216 1,039
Amortization of intangibles 48 47 48
----------------------
Total expenses 1,496 1,263 1,087
----------------------
Income before income tax $ 205 $ 159 $ 128
----------------------
Identifiable assets $3,301 $2,967 $2,706
==========================================================================================
INSURANCE UNDERWRITING*
Years ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------
Revenue:
Combined direct sales $1,014 $ 976 $ 939
Extended warranty and specialty 386 316 326
Other 240 217 200
----------------------
Total revenue 1,640 1,509 1,465
----------------------
Benefits to policyholders 699 626 622
Operating expenses 488 458 451
Amortization of intangibles 207 190 180
----------------------
Total benefits and expenses 1,394 1,274 1,253
----------------------
Income before income tax $ 246 $ 235 $ 212
----------------------
Identifiable assets $3,736 $3,119 $2,771
==========================================================================================
CORPORATE AND OTHER*
Years ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------
Revenue:
Investment income on capital and other $ 86 $ 71 $ 44
Premium and auto financing service revenue 26 20 17
Realized investment gains 13 19 30
----------------------
Total revenue 125 110 91
----------------------
Operating expenses 46 45 45
Interest expense 37 33 29
Amortization of intangibles 35 29 25
----------------------
Total expenses 118 107 99
----------------------
Income before income tax $ 7 $ 3 $ (8)
----------------------
Identifiable assets $2,990 $2,837 $2,443
==========================================================================================
</TABLE>
*Reclassified to conform to the 1995 presentation (see note 13).
11
Aon Corporation Annual Report 1995
<PAGE>
Management's Analysis of Operating Results and Financial Condition
Geographic Segments--Continuing Operations
<TABLE>
<CAPTION>
(millions)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Years ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------
Domestic $ 2,449 $2,208 $2,011
European 769 635 575
Other 248 198 185
-----------------------
Revenue $ 3,466 $3,041 $2,771
===========================================================================
INCOME BEFORE INCOME TAX
Years ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------
Domestic $ 328 $ 279 $ 214
European 81 78 72
Other 49 40 46
-----------------------
Income before income tax $ 458 $ 397 $ 332
===========================================================================
IDENTIFIABLE ASSETS
As of December 31 1995 1994 1993
- ---------------------------------------------------------------------------
Domestic $ 6,427 $6,086 $5,331
European 2,921 2,343 2,100
Other 679 494 489
-----------------------
Identifiable assets $10,027 $8,923 $7,920
===========================================================================
</TABLE>
Financing Services Operations
In the U.S., Aon offers financing services to commercial clients of Aon Group
and other independent organizations for their liability and casualty premiums
through Cananwill Inc., and offers auto financing and leasing for individual
purchasers in partnership with retail auto dealers through Premier Auto Finance,
Inc. In agreements entered into with financial institutions, certain receivables
generated by these activities are sold with limited recourse. Total service fee
revenue rose to $26 million, a 30% increase over 1994.
Geographic Segments
International operations are composed of insurance brokerage and consulting
services, insurance underwriting products of CICA, Ryan Group credit insurance,
and extended warranty products. Overall, international results were modestly
influenced by favorable foreign exchange rates in 1995. Total international
revenue increased 22% to $1,017 million primarily reflecting the improvement in
brokerage revenue relating to internal growth and acquisitions. Total 1995
European revenue of $769 million rose 21%, while all other international revenue
increased 25% when compared to prior year.
International pretax income increased 10% to $130 million, while pretax income
from European operations, excluding realized investment gains and losses,
increased 10% when compared to 1994. Other international pretax income rose 23%
or $9 million in 1995.
Domestic revenue increased 11%, primarily reflecting internal growth and
brokerage acquisition activity. Domestic pretax income increased 18%, primarily
on the strength of acquisition activity and overall expense controls.
12
Aon Corporation Annual Report 1995
<PAGE>
Management's Analysis of Operating Results and Financial Condition
Discontinued Operations
Discontinued operations are composed principally of capital accumulation
products and direct response and credit disability products. Substantially all
of the revenue and income before income tax generated from discontinued
operations is domestic. These amounts have been segregated as "Income From
Discontinued Operations" in the consolidated statements of income. 1995 and 1994
revenues of $1,145 million and $1,116 million increased 3% and 4%, respectively,
when compared to prior years, due to modest increases in premiums and policy
fees.
Income before income tax, excluding realized investment losses of $9 million,
$13 million and $3 million in 1995, 1994 and 1993, respectively, improved 5% in
1995 and 3% in 1994 when compared to prior years. Improved 1995 results were in
part due to favorable claims experience at LOV and improved interest spreads.
Strong growth in third party business was offset by the continued runoff of the
medicare supplement line. The effective operating income tax rate was 35% in
1995, 1994 and 1993, respectively. Realized investment losses were credited at a
36% tax rate for the three years.
Insurance underwriting supplemental revenue and income before income tax
information, consistent with prior segmentation, is as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
CONTINUING OPERATIONS:
Life
Combined direct sales $ 132 $ 130
Other 121 103
- -------------------------------------------------------------------------
Total revenue $ 253 $ 233
=========================================================================
Income before income tax $ 37 $ 32
=========================================================================
Accident and health
Combined direct sales $ 882 $ 846
Other 119 114
- -------------------------------------------------------------------------
Total revenue $1,001 $ 960
=========================================================================
Income before income tax $ 156 $ 150
=========================================================================
Extended warranty and specialty revenue $ 386 $ 316
=========================================================================
Income before income tax $ 53 $ 53
=========================================================================
DISCONTINUED OPERATIONS:
Life
Capital accumulation products $ 542 $ 530
Other 197 184
- -------------------------------------------------------------------------
Total revenue $ 739 $ 714
=========================================================================
Income before income tax $ 91 $ 81
=========================================================================
Accident and health
Direct response and Group $ 316 $ 314
Other 21 22
- -------------------------------------------------------------------------
Total revenue $ 337 $ 336
=========================================================================
Income before income tax $ 28 $ 28
=========================================================================
</TABLE>
Income Tax and Net Income
Net income for 1995 was $403 million or $3.48 per share compared to $360 million
or $3.14 per share in 1994. Dividends on the 8% preferred stock, 6.25%
Cumulative Convertible Exchangeable Preferred Stock (6.25% preferred stock) and
redeemable preferred stock of $25 million and $27 million in 1995 and 1994,
respectively, have been deducted from net income to compute earnings per share.
Net income for fourth quarter 1995 amounted to $93 million or $0.80 per share
compared to $86 million or $0.74 per share for 1994.
Operating income (including discontinued operations) amounted to $400 million or
$3.45 per share, up from $356 million or $3.10 per share in 1994. Operating
income excludes after-tax realized investment gains in 1995 and 1994. Operating
income from continuing operations, which also excludes realized investment
gains, was $295 million or $2.49 per share in 1995 compared to $256 million or
$2.16 per share in 1994. The effective operating income tax rate on continuing
operations was 33.7% in 1995 and 32.4% in 1994, while realized investment gains
were taxed at a 36% rate for both years.
Average shares outstanding for 1995 increased 2% primarily due to the issuance
of common shares related to business combinations and offset, in part, by net
treasury stock repurchases for employee benefit plans.
LIQUIDITY
The accompanying consolidated statements of financial position as of December
31, 1995 and 1994, and the related consolidated statements of stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995, reflect Aon's financial position and cash flows including discontinued
operations. Accordingly, for purposes of the following discussions relating to
Aon's liquidity and capital resources, comparisons of 1995 to 1994 are
reflective of both continuing and discontinued operations.
Aon's operating subsidiaries anticipate that there will be adequate liquidity to
meet their needs in the foreseeable future. Aon's liquidity needs are primarily
for servicing its debt and for the payment of dividends on stock issues.
Dividends from Aon's subsidiaries are the primary source for meeting these
requirements. There are certain regulatory restrictions relating to dividend
capacity of insurance subsidiaries that are discussed in note 8. Insurance
subsidiaries' statutory capital and surplus as of December 31, 1995 again
exceeded the risk-based capital target set by the National Association of
Insurance Commissioners by a satisfactory level. At December 31, 1995, Aon had
short-term back-up lines of credit available of $500 million.
The businesses of Aon continue to provide substantial positive cash flow.
Brokerage cash flow has been used primarily for acquisitions and related debt
servicing. Due to the contractual nature of its policyholder liabilities, which
are intermediate to long-term in nature, Aon's insurance underwriting
subsidiaries have invested primarily in investment grade fixed maturities and
equity securities.
13
Aon Corporation Annual Report 1995
<PAGE>
Management's Analysis of Operating Results and Financial Condition
Aon measures capital accumulation product asset and liability durations
(included in discontinued operations) to determine its net exposure to changes
in interest rates. The duration match associated with interest-sensitive
products is closely monitored. Because there is a reasonable duration match
between these investments and their related liabilities, changes in prevailing
interest rates can, to a large extent, be matched by congruent changes in
credited interest rates. However, mismatches do occur. Aon adjusts its duration
mismatch subject to market conditions and its outlook on interest rate trends.
Aon's exposure to interest-sensitive products will be substantially diminished
following the sale of LOV because LOV's products are principally interest-
sensitive and investment-type. As a result, the need for close monitoring of the
duration matching associated with interest-sensitive products will also be
substantially reduced. Non-interest-sensitive insurance products do not require
as close monitoring of duration matching.
As of December 31, 1995, LOV's interest-sensitive assets and associated
insurance liabilities were closely matched with the aggregate estimated duration
variance of less than one year. Through the use of derivative financial
instruments (see note 11), Aon improved its overall asset and liability duration
match. Given Aon's bond portfolio's average life of 6.1 years, access to lines
of credit, and an uninterrupted trend in Aon's positive cash flow, Aon expects
sufficient cash flow to meet both short-term and long-term cash needs.
Future cash flow to service debt and pay dividends will be enhanced by the
completion of the sale of UFLIC and LOV in the first half of 1996. Sales
proceeds are expected to generate approximately $1,400 million before taxes and
other costs of sale. The after-tax proceeds in excess of the carrying value of
the companies sold will generate a statutory gain at CICA, the parent company of
LOV and UFLIC. Subject to regulatory approval, the statutory gain will be
available for dividend to Aon. It is anticipated that CICA will reinvest
remaining proceeds, primarily in non-affiliated invested assets. The potential
uses of a dividend to Aon are: the pay down of short-term borrowings to maintain
its current debt to equity ratio; the buy back of capital stock; and other
general corporate purposes, including acquisitions. In the short-term, some of
these uses may yield returns that are lower than could have been received from
the subsidiaries being sold.
Cash provided by operating activities in 1995 decreased $86 million from 1994 to
$610 million. This decrease primarily reflects the timing of estimated federal
income tax payments and the timing of investment income cash flows.
Investment activities used $624 million, up $263 million from prior year
primarily due to higher levels of brokerage short-term investments as well as
growth in unearned extended warranty liabilities.
Cash totalling $377 million was used in 1995 for financing activities. Aon
repurchased $46 million of treasury stock, net of reissued shares. In 1995, Aon
purchased and retired 3 million shares of its 8% preferred stock at a total cost
of $75 million which was primarily funded by additional short-term borrowings. A
reduced level of funds available from capital accumulation products, included in
discontinued operations, reduced cash flows by $200 million. Cash was used to
pay dividends of $146 million on common stock, $16 million on 8% preferred
stock, $7 million on 6.25% preferred stock and $2 million on redeemable
preferred stock.
On November 15, 1995, the Financial Accounting Standards Board (FASB) issued a
Special Report, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities." In accordance with the
provisions in that report, Aon chose to reclassify its held to maturity
securities, substantially all of which relate to discontinued operations, to
available for sale (see note 3). To minimize the volatility of the changes in
this component of stockholders' equity, Aon enters into derivatives to hedge its
available for sale asset positions. In administering its hedging programs, Aon
performs analyses that have demonstrated that Aon achieves a high degree of
correlation.
With a carrying value of $8 billion, Aon's total fixed maturity portfolio for
both continuing and discontinued operations is invested primarily in investment
grade holdings (96%) and has a fair value which is 102% of amortized cost.
At December 31, 1995 and 1994, Aon's fixed maturity portfolio includes mortgage-
backed securities with an amortized cost of $2 billion and $3 billion,
respectively. The amortized cost and fair value of Aon's mortgage-backed
securities are also presented in note 4. Substantially all of the mortgage-
backed securities included in Aon's fixed maturities portfolio at December 31,
1995 relate to discontinued operations. Upon the finalization of the sale, Aon's
interest in and exposure to certain market risks associated with mortgage-backed
securities will be minimal.
The following table summarizes Aon's mortgage-backed securities held at December
31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
Par Amortized Fair
(millions) As of December 31, 1995 Value Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Collateralized mortgage obligations
(CMOs):
Principally targeted amortization classes $ 40 $ 37 $ 38
Principally sequential pay class 1,735 1,730 1,730
- --------------------------------------------------------------------------------
Total collateralized mortgage obligations 1,775 1,767 1,768
Mortgage-backed pass-through securities 264 266 267
- --------------------------------------------------------------------------------
Total mortgage-backed securities $2,039 $2,033 $2,035
================================================================================
Par Amortized Fair
(millions) As of December 31, 1995 Value Cost Value
- --------------------------------------------------------------------------------
Collateralized mortgage obligations
(CMOs):
Principally targeted amortization classes $ 323 $ 315 $ 291
Principally sequential pay class 2,429 2,401 2,160
- --------------------------------------------------------------------------------
Total collateralized mortgage obligations 2,752 2,716 2,451
Mortgage-backed pass-through securities 349 352 345
- --------------------------------------------------------------------------------
Total mortgage-backed securities $3,101 $3,068 $2,796
================================================================================
</TABLE>
Aon does not have any CMO residuals, interest only, inverse floating or
principal only type securities. CMO's have been acquired as alternatives to
mortgage-backed pass-through securities. Aon's insurance subsidiaries have
generally acquired shorter tranche CMO's classified in the form of sequential
pay-
14
Aon Corporation Annual Report 1995
<PAGE>
Management's Analysis of Operating Results and Financial Condition
ment, targeted amortization classes (TACs) or support TACs.
Historically, fair values for CMO's are established each quarter based primarily
on information received from broker-dealer market makers. However, at December
31, 1995, the fair value for all mortgage-backed securities relating to
discontinued operations is based on the underlying purchase agreements. 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 securities.
Aon maintained investment loss reserves related to mortgage loans, real estate
ventures and limited partnerships, totalling $31 million in 1995, down $5
million from the year-end 1994 level of $36 million. These reserves are a
product of Aon's continuing review of the characteristics and risks of its
investment portfolio and current environmental and economic conditions.
Assets and liabilities held under special contracts, which relate primarily to
discontinued operations, increased $712 million from 1994, primarily relating to
increased funds in variable life and annuity programs. The net investment income
generated from these assets is not included in the consolidated statements of
income.
Aon maintains well-capitalized operating companies. The financial strength of
these companies permits an overall diversified investment portfolio for
stability in volatile financial markets.
Aon invests in broad asset categories related to its diversified operations.
Investments are managed with the objective of maximizing earnings while matching
asset and liability durations and considering regulatory requirements.
Investment characteristics mirror liability characteristics of the respective
operating units. Aon's insurance brokerage and consulting businesses invest
fiduciary funds in short-term obligations. Investments underlying interest-
sensitive capital accumulation insurance products are primarily intermediate-
term obligations, while indemnity and other types of non-interest sensitive
insurance liabilities are supported by longer-term instruments. Longer-term
assets also include private equity investments that are expected to generate
returns in excess of those available in the public capital markets.
Through Aon Advisors, Aon manages funds and provides consulting services on
behalf of clients in addition to our operating units. This includes acting as
investment advisor to mutual funds which are among the investment options
available to purchasers of LOV annuities.
CAPITAL RESOURCES
In 1995, short-term borrowings increased $109 million to satisfy Aon's short-
term cash needs. This increase was used primarily to finance the repurchases of
8% preferred stock and common stock as well as acquisition related activities.
The credit agreements providing lines of credit for commercial paper contain no
restrictive covenants.
In 1989, Aon Corporation unconditionally guaranteed loan agreements to purchase
Aon common stock for the employee stock ownership plan (ESOP) (see note 5).
Based on certain provisions in the loan agreements relating to the sale of
principal subsidiaries, Aon may be required to refinance the remaining principal
balance of $57 million on these loans during 1996.
Commencing November 1, 1996, any remaining outstanding shares of Aon's 6.25%
preferred stock (see note 8) that have not been previously converted into common
stock are exchangeable at Aon's option for 6.25% convertible subordinated
debentures, the interest expense on which would be tax deductible. Given the
current market value of Aon stock and the option to convert the 6.25% preferred
stock to debt, it is anticipated that the holders of the 6.25% preferred stock
will most likely exercise their option to convert shares held into 1.22 shares
of common stock. At December 31, 1995, 2,136,000 shares of 6.25% preferred stock
were outstanding.
Aon Corporation continues to maintain an internal lending program with its
various subsidiaries where the parent company is able to borrow or lend funds.
As of December 31, 1995, Aon Corporation held notes payable to its subsidiaries
of approximately $450 million. Generally, these notes have competitive interest
rates. The portion of the notes payable related to UFLIC and LOV will be assumed
by the remaining insurance companies following completion of the sale.
In 1995, stockholders' equity per common share increased to $22.77, up from
$18.30 in 1994. The principal factors influencing this increase were net income,
a $266 million increase in net unrealized investment gains and dividends.
15
Aon Corporation Annual Report 1995
<PAGE>
Consolidated Statements of Financial Position
<TABLE>
<CAPTION>
(millions) As of December 31 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
INVESTMENTS
Fixed maturities
Available for sale-at fair value (amortized cost: 1995-$7,572; 1994-$4,318) $ 7,687.1 $4,160.3
Held to maturity-at amortized cost (fair value: 1994-$2,750) - 2,983.8
Equity securities-at fair value (cost: 1995-$928; 1994-$989) 1,006.3 939.3
Mortgage loans on real estate
(net of reserve for losses: 1995-$26; 1994-$30) 632.0 567.5
Real estate
(net of accumulated depreciation: 1995-$8; 1994-$8) 36.5 35.6
Policy loans 226.3 214.9
Other long-term investments 112.6 97.9
Short-term investments 938.3 783.2
--------------------
Total investments 10,639.1 9,782.5
====================================================================================================
CASH 115.3 508.8
RECEIVABLES
Insurance brokerage and consulting services receivables
(net of allowance for doubtful accounts: 1995-$47; 1994-$45) 2,264.1 1,882.0
Premiums and other
(net of allowance for doubtful accounts: 1995-$4; 1994-$3) 580.2 637.7
Accrued investment income 152.4 133.5
--------------------
Total receivables 2,996.7 2,653.2
====================================================================================================
DEFERRED POLICY ACQUISITION COSTS 1,261.5 1,181.6
COST OF INSURANCE AND RENEWAL RIGHTS PURCHASED
(net of accumulated amortization: 1995-$625; 1994-$567) 640.1 678.6
EXCESS OF COST OVER NET ASSETS PURCHASED
(net of accumulated amortization: 1995-$157; 1994-$121) 957.6 869.4
PROPERTY AND EQUIPMENT AT COST
(net of accumulated depreciation: 1995-$307; 1994-$281) 307.8 266.5
ASSETS HELD UNDER SPECIAL CONTRACTS 2,307.2 1,595.1
OTHER ASSETS 510.5 386.2
====================================================================================================
TOTAL ASSETS (note 3) $19,735.8 $17,921.9
====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
Aon Corporation Annual Report 1995
<PAGE>
<TABLE>
<CAPTION>
(millions) As of December 31 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
POLICY LIABILITIES
Future policy benefits $ 1,475.1 $1,434.5
Policy and contract claims 970.9 944.2
Unearned and advance premiums 1,646.2 1,428.4
Other policyholder funds 5,464.2 5,503.3
---------------------
Total policy liabilities 9,556.4 9,310.4
=====================================================================================
GENERAL LIABILITIES
Insurance premiums payable 2,722.8 2,408.7
Commissions and general expenses 562.4 526.6
Accrued income taxes
Current 107.1 200.9
Deferred 225.5 129.3
Short-term borrowings 352.7 243.9
Notes payable 497.5 495.5
Debt guarantee of employee stock ownership plan 56.8 65.5
Liabilities held under special contracts 2,307.2 1,595.1
Other liabilities 623.7 638.6
---------------------
TOTAL LIABILITIES (note 3) 17,012.1 15,614.5
=====================================================================================
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE PREFERRED STOCK 50.0 50.0
STOCKHOLDERS' EQUITY
Preferred stock-$1 par value
Authorized-25 shares; issued
8% cumulative perpetual preferred stock 6.0 9.0
6.25% cumulative convertible exchangeable preferred stock 2.1 2.1
Common stock-$1 par value
Authorized-300 shares; issued 111.4 110.6
Paid-in additional capital 431.8 485.2
Net unrealized investment gains (losses) 123.1 (142.8)
Net foreign exchange gains (losses) 1.8 (19.7)
Retained earnings 2,212.1 1,998.1
Less treasury stock at cost (shares: 1995-3.1; 1994-2.9) (97.3) (72.9)
Less deferred compensation (117.3) (112.2)
---------------------
TOTAL STOCKHOLDERS' EQUITY 2,673.7 2,257.4
=====================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,735.8 $17,921.9
=====================================================================================
</TABLE>
17
Aon Corporation Annual Report 1995
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
(millions except per share data) Years ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Brokerage commissions and fees $1,628.2 $1,369.6 $1,173.2
Premiums earned 1,426.5 1,322.3 1,277.4
Net investment income (note 4) 329.4 257.1 227.2
Realized investment gains (note 4) 13.1 19.1 29.6
Other income 68.5 73.1 63.4
----------------------------
Total revenue 3,465.7 3,041.2 2,770.8
============================================================================================
BENEFITS AND EXPENSES
Commissions and general expenses 1,982.3 1,719.2 1,534.4
Benefits to policyholders 698.5 626.2 622.2
Interest expense 37.3 32.7 29.3
Amortization of deferred policy acquisition costs 207.5 189.3 178.7
Amortization of intangible assets 82.1 76.8 74.6
----------------------------
Total benefits and expenses 3,007.7 2,644.2 2,439.2
============================================================================================
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX 458.0 397.0 331.6
Provision for income tax (note 6) 154.3 128.5 103.7
----------------------------
INCOME FROM CONTINUING OPERATIONS 303.7 268.5 227.9
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX (note 3): 99.1 91.5 95.9
----------------------------
NET INCOME $ 402.8 $ 360.0 $ 323.8
============================================================================================
Net income available for common stockholders $ 378.1 $ 327.6 $ 291.0
============================================================================================
PER SHARE
Income from continuing operations $ 2.57 $ 2.28 $ 1.91
Income from discontinued operations 0.91 0.86 0.90
----------------------------
Net income $ 3.48 $ 3.14 $ 2.81
----------------------------
Cash dividends paid on common stock $ 1.34 $ 1.26 $ 1.18
============================================================================================
AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 108.7 106.2 106.4
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
18
Aon Corporation Annual Report 1995
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK Balance at January 1 $ 11.1 $ 13.8 $ 15.2
Retirement of preferred stock (3.0) (1.3) (0.4)
Conversion of preferred stock to common stock - (1.4) (1.0)
------------------------------
8.1 11.1 13.8
===============================================================================================
COMMON STOCK Balance at January 1 110.6 70.0 68.3
Shares issued for business combinations 0.8 5.3 0.7
Effect of three-for-two stock split - 35.3 -
Conversion of preferred stock to common stock - - 1.0
------------------------------
111.4 110.6 70.0
===============================================================================================
PAID-IN ADDITIONAL CAPITAL Balance at January 1 485.2 605.7 600.9
Stock awards and options 19.2 10.8 20.6
Adjustment for business combinations (0.6) 1.9 1.4
Retirement and conversion of preferred stock (72.0) (97.9) (17.2)
Effect of three-for-two stock split - (35.3) -
------------------------------
431.8 485.2 605.7
===============================================================================================
NET UNREALIZED INVESTMENT GAINS (LOSSES) Balance at January 1 (142.8) 50.3 32.9
Effect of a change in accounting principles at January 1 - 148.2 -
Net unrealized investment gains (losses) 265.9 (341.3) 17.4
------------------------------
123.1 (142.8) 50.3
===============================================================================================
NET FOREIGN EXCHANGE GAINS (LOSSES) Balance at January 1 (19.7) (61.0) (39.1)
Net foreign exchange gains (losses) 21.5 41.3 (21.9)
------------------------------
1.8 (19.7) (61.0)
===============================================================================================
RETAINED EARNINGS Balance at January 1 1,998.1 1,784.9 1,603.2
Net income 402.8 360.0 323.8
Dividends to stockholders (170.4) (162.0) (151.0)
Loss on treasury stock reissued (21.7) - -
Adjustment for business combinations 3.7 27.6 10.4
Retirement of preferred stock (0.4) (12.4) (1.5)
------------------------------
2,212.1 1,998.1 1,784.9
===============================================================================================
TREASURY STOCK Balance at January 1 (72.9) (69.3) (79.7)
Cost of shares acquired (71.8) (26.6) (0.6)
Shares reissued at average cost 47.4 73.0 11.0
Conversion of common stock to redeemable preferred stock - (50.0) -
------------------------------
(97.3) (72.9) (69.3)
===============================================================================================
DEFERRED COMPENSATION Balance at January 1 (112.2) (106.6) (97.8)
Issuance of stock awards (21.2) (18.3) (18.3)
Debt guarantee of employee stock ownership plan 8.7 7.0 5.8
Amortization of deferred compensation 7.4 5.7 3.7
------------------------------
(117.3) (112.2) (106.6)
===============================================================================================
STOCKHOLDERS' EQUITY AT DECEMBER 31 $2,673.7 $2,257.4 $2,287.8
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
19
Aon Corporation Annual Report 1995
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 402.8 $ 360.0 $ 323.8
Adjustments to reconcile net income to cash
provided by operating activities
Policy liabilities 445.4 298.6 273.0
Deferred policy acquisition costs (410.3) (414.5) (325.9)
Amortization of deferred policy acquisition costs 302.7 276.2 257.7
Amortization of intangible assets 94.2 92.2 91.4
Other amortization and depreciation 63.7 57.3 50.7
Other operating assets and liabilities (284.6) 31.8 (39.3)
Realized investment gains (4.3) (5.8) (26.6)
---------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 609.6 695.8 604.8
============================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of short-term investments-net (126.9) 143.4 (160.2)
Sale or maturity of fixed maturities
Held to maturity-Maturities 3.9 49.2 116.8
Calls and prepayments 142.0 727.6 2,021.7
Sales 3.0 - 60.4
Available for sale-Maturities 121.2 109.5 13.9
Calls and prepayments 249.5 312.2 484.3
Sales 2,425.8 883.9 496.1
Sale or maturity of other investments 1,480.8 979.2 925.4
Purchase of fixed maturities-Held to maturity - (734.8) (2,171.7)
Purchase of fixed maturities-Available for sale (3,222.1) (1,591.2) (1,326.8)
Purchase of other investments (1,493.9) (1,141.6) (990.3)
Acquisition of subsidiaries (109.6) (22.0) (96.3)
Property and equipment and other (97.9) (76.9) (47.1)
---------------------------------
CASH USED BY INVESTING ACTIVITIES (624.2) (361.5) (673.8)
============================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock transactions-net (46.4) (15.4) 11.4
Issuance of short-term borrowings-net 108.8 75.3 53.5
Issuance of long-term debt 20.1 99.7 149.6
Repayment of long-term debt (12.5) (128.0) (192.8)
Interest sensitive life, annuity and investment contracts-Deposits 1,287.5 1,557.5 1,376.0
Interest sensitive life, annuity and investment contracts-Withdrawals (1,487.6) (1,362.4) (1,089.9)
Retirement of preferred stock (75.4) (58.3) (7.3)
Cash dividends to stockholders (171.3) (162.3) (151.0)
---------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (376.8) 6.1 149.5
============================================================================================================
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2.1) 4.6 (4.4)
INCREASE (DECREASE) IN CASH (393.5) 345.0 76.1
CASH AT BEGINNING OF YEAR 508.8 163.8 87.7
---------------------------------
CASH AT END OF YEAR $ 115.3 $ 508.8 $ 163.8
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
20
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
AND PRACTICES
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include the
accounts of Aon Corporation and its operating subsidiaries (Aon). These
statements include informed estimates and assumptions that affect the amounts
reported. Actual results could differ from the amounts reported. All material
intercompany accounts and transactions have been eliminated. Consistent with
financial statement presentation, amounts disclosed in these notes to
consolidated financial statements pertain to continuing operations as they
relate to income statement amounts and total operations as they relate to
statements of financial position or cash flow amounts.
Brokerage Commissions and Fees
In general, commission income is recognized at the later of the billing or
effective date of the related insurance policies. Contingent commissions,
certain life insurance commissions and commissions on premiums billed directly
by insurance companies are generally recognized as income when received.
Commissions on premium adjustments, including policy cancellations, are
recognized as they occur. Fees for claim administration services, benefit
consulting, reinsurance services and other services are recognized when the
services are rendered.
Recognition of Premium Revenue
In general, for accident and health, extended warranty and credit products,
premiums collected are reported as earned in proportion to insurance protection
provided over the period covered by the policies. For life products, other than
credit, premiums are recognized as revenue when due.
Reinsurance
Reinsurance premiums, commissions, and expense reimbursements on reinsured
business are accounted for on a basis consistent with those used in accounting
for the original policies issued and the terms of the reinsurance contracts.
Premiums and benefits ceded to other companies have been reported as a reduction
of premium revenue and benefits. Expense reimbursements received in connection
with reinsurance ceded have been accounted for as a reduction of the related
policy acquisition costs or, to the extent such reimbursements exceed the
related acquisition costs, as other revenue. All reinsurance receivables and
prepaid reinsurance premium amounts are reported as assets.
Income Tax
Deferred income tax has been provided for the effects of temporary differences
between financial reporting and tax bases of assets and liabilities and has been
measured using the enacted marginal tax rates and laws that are currently in
effect.
Earnings Per Share
Earnings per share are computed based on the weighted average number of common
and common equivalent shares outstanding during the respective period. Common
shares outstanding include 3,267,000 shares, 3,386,000 shares, and 3,476,000
shares held by the employee stock ownership plan in 1995, 1994 and 1993,
respectively. Common equivalent shares include dilutive stock awards and stock
options and, prior to 1995, Series B conversion preferred stock. The 8%
cumulative perpetual preferred stock (8% preferred stock), the 6.25% cumulative
convertible exchangeable preferred stock (6.25% preferred stock) and the
redeemable preferred stock are not considered common equivalent shares.
Accordingly, the dividends on the 8%, 6.25% and redeemable preferred stock in
1995 and 1994 and the dividends on the 8% and 6.25% preferred stocks in 1993
have been deducted from net income to compute earnings per share. There is no
material difference between primary and fully diluted per share amounts. Income
available for common stockholders is net of dividends on all preferred stock.
Investments
Fixed maturities that are available for sale are carried at fair value. Fixed
maturities, where the intent is to hold to maturity, are carried generally at
amortized cost. The amortized cost of fixed maturities is adjusted for
amortization of premiums to the first call date and the accretion of discounts
to maturity that are included in net investment income. Included in fixed
maturities are investments in collateralized mortgage obligations (CMOs) whose
amortized cost is determined using the interest method including anticipated
prepayments. Prepayment assumptions are obtained from dealer surveys. The
retrospective adjustment method is used to adjust for prepayment activity.
Equity securities are valued at fair value. Unrealized gains and temporary
unrealized losses on fixed maturities available for sale and equity securities
are excluded from income and are recorded directly to stockholders' equity, net
of related deferred income taxes and adjustments to amortization of deferred
policy acquisition costs. Aon has not categorized any fixed maturities or equity
securities as trading securities. Mortgage loans are carried at amortized cost,
net of reserves. Real estate is carried generally at cost less accumulated
depreciation. Policy loans are carried at unpaid principal balance. Other long-
term investments are carried generally at cost. Realized investment gains or
losses are computed using specific costs of securities sold.
21
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
Investments that have declines in fair value below cost that are judged to be
other than temporary, are written down to estimated fair values and reported as
realized investment losses. Additionally, as a result of the adoption of
Financial Accounting Standards Board (FASB) Statement No. 114, "Accounting by
Creditors for Impairment of a Loan," the 1995 reserve for mortgage loan losses
is based on discounted cash flows using the loan's initial effective interest
rate. Prior to 1995, the reserve related to loans was based on past credit loss
experience and current economic conditions. Reserves for certain other long-term
investments are established based on an evaluation of the respective investment
portfolio and current economic conditions. Writedowns and reserves are included
in realized investment gains and losses in the statements of income. In general,
Aon ceases to accrue investment income where interest or dividend payments are
in arrears.
Accounting policies relating to derivative financial instruments are discussed
in note 11.
Deferred Policy Acquisition Costs
Costs of acquiring new and renewal business, principally the excess of new
commissions over renewal commissions, underwriting, and sales expenses that vary
with and are primarily related to the production of new business, are deferred.
For continuing long-duration life and health products, amortization of deferred
policy acquisition costs is related to and based on the expected premium
revenues of the policies. In general, such amortization is adjusted to reflect
current withdrawal experience. Expected premium revenues are estimated by using
the same assumptions used in estimating future policy benefits. For extended
warranty and short-duration health insurance, costs of acquiring and renewing
business, which are deferred, are amortized as the related premium is earned.
To the extent that unrealized gains or losses on available for sale securities
related to universal life-type policies and investment products included in
discontinued operations would result in an adjustment of deferred policy
acquisition costs had those gains or losses actually been realized, the related
deferred policy acquisition cost adjustments are recorded along with the
unrealized gains or losses included in stockholders' equity with no effect on
income from discontinued operations.
Other Intangible Assets
In general, the excess of cost over net assets purchased relating to business
acquisitions is being amortized into income over periods not exceeding forty
years using the straight-line method. The cost of insurance and renewal rights
purchased of certain subsidiaries is being amortized over a range of 11 to 25
years.
Property and Equipment
Property and equipment are generally depreciated using the straight-line method
over their estimated useful lives.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair values for
financial instruments. The carrying amounts in the consolidated statements of
financial position for cash and cash equivalents and short-term investments
approximate their fair value. Fair value for fixed maturity and equity
securities is based on quoted market prices or, if they are not actively traded,
on estimated values obtained from independent pricing services. However, the
fair value for fixed maturity and equity securities relating to the discontinued
operations are based on the underlying purchase agreements. The fair value for
mortgage loans and policy loans is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Fair value of derivatives is based on
quoted prices for exchange-traded instruments or the cost to terminate or offset
with other contracts.
In general, other long-term investments are comprised of real estate joint
ventures and limited partnerships. It was not practicable to estimate the fair
value of other long-term investments because of the lack of quoted market prices
and the inability to estimate fair value without incurring excessive costs. In
addition, the determination of the fair value of investment commitments was
deemed impractical due to the inability to estimate future cash flows.
Fair value for liabilities for investment-type contracts primarily related to
the discontinued operations is estimated using discounted cash flow calculations
based on interest rates currently being offered for similar contracts with
maturities consistent with those remaining for the contracts being valued. The
fair value for notes payable is based on quoted market prices for the publicly
traded portion and on estimates using discounted cash flow analyses based on
current borrowing rates for similar types of borrowing arrangements for the non-
publicly traded portion.
Assets and Liabilities Held Under Special Contracts
Assets held under special contracts primarily relate to discontinued operations
and principally represent designated funds of group pension, variable life,
annuity, and unit-linked policyholders. These assets are offset by liabilities
that represent such policyholders' equity in those assets. The net investment
income generated from these assets is not included in the consolidated
statements of income.
22
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
Future Policy Benefits, Unearned Premiums, and Policy and Contract Claims
Future policy benefit liabilities on non-universal life-type and accident and
health products have been provided on the net level premium method. The
liabilities are calculated based on assumptions as to investment yield,
mortality, morbidity, and withdrawal rates that were determined at the date of
issue, and provide for possible adverse deviations. Interest assumptions are
graded and range from 9.3% to 5.0% at December 31, 1995. Withdrawal assumptions
are based principally on insurance subsidiaries' experience and vary by plan,
year of issue, and duration.
Policyholder liabilities on universal life-type and investment products of the
discontinued operations are generally based on policy account values. Interest
credit rates for these products range from 7.0% to 5.0% at December 31, 1995.
Unearned premiums generally are calculated using the pro rata method based on
gross premiums. However, in the case of credit and extended warranty products,
the unearned premiums are calculated such that the premiums are earned over the
period of risk in a reasonable relationship to anticipated claims.
Policy and contract claim liabilities represent estimates for reported claims,
as well as provisions for losses incurred, but not yet reported. These claim
liabilities are based on historical experience and are estimates of the ultimate
amount to be paid when the claims are settled. Changes in the estimated
liability are reflected in income as the estimates are revised.
Foreign Currency Translation
In general, foreign revenues and expenses are translated at average exchange
rates. Foreign assets and liabilities are translated at year end exchange rates.
Net foreign exchange gains and losses on translation are generally reported in
stockholders' equity, net of deferred income tax (credit) of $1 million, ($11)
million and ($33) million at December 31, 1995, 1994 and 1993, respectively.
Accounting Changes
In 1995, Aon adopted FASB Statement Nos. 114 and 118 which relate to accounting
by creditors for impairment of a loan. Implementation of these Statements did
not have a material effect on Aon's financial statements.
Aon adopted FASB Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" in 1994, which requires categorization of fixed
maturities either as held to maturity, available for sale or trading and equity
securities as available for sale or trading. On November 15, 1995, the FASB
issued a Special Report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities." In accordance
with provisions in that Special Report, Aon chose to reclassify all held to
maturity securities, substantially all of which relate to discontinued
operations, to available for sale (see note 3).
In 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." 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.
2. BUSINESS COMBINATIONS
Pooling of Interests Method
In 1995, 1994 and 1993, Aon issued 1,404,000 shares, 5,546,000 shares and
1,044,000 shares of common stock, respectively, for mergers with insurance
brokerage and consulting organizations. In connection with several of the
mergers, 700,000 shares are being held in escrow at December 31, 1995 pending
the resolution of contingencies. Aon's prior period financial statements have
not been restated because the effect of the above mergers was not material.
Purchase Method
During 1995, 1994 and 1993, subsidiaries of Aon acquired certain insurance
brokerage and consulting services operations that were financed primarily by
internal funds and the reissuance of common stock from treasury. Pursuant to a
1994 purchase agreement with one of the brokerage operations, over the next five
years, Aon is contingently liable to issue up to 249,000 additional shares of
common stock based on a formula relating to future earnings of that operation.
The aggregate cost of these acquisitions was $110 million, $22 million and $176
million in 1995, 1994 and 1993, respectively. The pro forma results of these
operations, as if the acquisitions had occurred as of the beginning of the year,
have an immaterial effect on Aon's consolidated revenue and net income. In
accordance with a 1992 purchase agreement, securities with a value of $125
million are being held in escrow. The escrowed securities will be released on a
pre-determined schedule between 1997 and 2007.
3. DISCONTINUED OPERATIONS
In the fourth quarter 1995, Aon reached definitive agreements to sell its
domestic direct response life and health subsidiary, Union Fidelity Life
Insurance Company (UFLIC), headquartered in Trevose, Pennsylvania, and its
capital accumulation life insurance subsidiary, The Life Insurance Company of
Virginia (LOV), headquartered in Richmond, Virginia, to General Electric Capital
Corporation (GE Capital). Sales proceeds will approximate $1.4 billion before
taxes and other costs of sale. Pending the receipt of the required regulatory
consents by Combined Insurance Company of America (the parent company), the sale
of these two subsidiaries is expected to close during the first half of 1996.
Any gain or loss is expected to be immaterial.
23
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
For 1995, 1994 and 1993, the discontinued operations had revenues of $1,145
million, $1,116 million and $1,074 million, respectively. The revenues and
corresponding benefits and expenses were reported on a net basis in the
consolidated statements of income, and were net of taxes of $53 million, $49
million and $52 million in 1995, 1994 and 1993, respectively. Income from
discontinued operations in 1995 includes $15 million, net of taxes, that was
earned in the fourth quarter, subsequent to the commitment to the plan to
dispose.
Included in discontinued operations is pretax interest expense of $18 million,
$14 million and $13 million in 1995, 1994 and 1993, respectively. The allocation
of interest expense was based on the ratio of discontinued net assets to the
total of consolidated equity and debt. Pretax interest expense of $2 million was
included in post-measurement date discontinued operating income.
The assets and liabilities after reinvestment of net sales proceeds of
discontinued operations included in the consolidated statement of financial
position at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(millions)
- ---------------------------------------------------------------------------------
<S> <C>
Investments $5,470
Deferred policy acquisition costs 630
Intangible assets 150
Assets held under special contracts 2,020
Receivables and other assets 260
- ---------------------------------------------------------------------------------
Total Assets $8,530
=================================================================================
Policy liabilities $6,170
Liabilities held under special contracts 2,020
General and other liabilities 340
- ---------------------------------------------------------------------------------
Total Liabilities $8,530
=================================================================================
</TABLE>
Due to the planned 1996 sale of LOV and UFLIC, net unrealized gains on
discontinued available for sale investments are not reflected in Aon's
stockholders' equity as of December 31, 1995. Accordingly, net unrealized gains
during 1995 were not impacted by the transfer of $2,856 million of discontinued
held to maturity investments to available for sale.
4. INVESTMENTS
The components of net investment income from continuing operations are as
follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $164 $132 $130
Equity securities 59 56 41
Short-term investments 86 58 45
Other 28 19 17
- ---------------------------------------------------------------------------------
Gross investment income 337 265 233
Investment expenses 8 8 6
- ---------------------------------------------------------------------------------
Net investment income $329 $257 $227
=================================================================================
</TABLE>
Realized gains (losses) on investments from continuing operations are as
follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities available for sale:
Gross gains $ 8 $ 12 $ -
Gross losses (3) (4) -
Fixed maturities held to maturity:
Gross gains - - 15
Gross losses - - (1)
Equity securities 12 31 44
Other (4) (20) (28)
- ---------------------------------------------------------------------------------
Total before tax 13 19 30
Less applicable tax 5 7 11
- ---------------------------------------------------------------------------------
Total net realized investment gains $ 8 $ 12 $ 19
=================================================================================
</TABLE>
The components of net unrealized gains (losses) are as follows:
<TABLE>
<CAPTION>
(millions) As of December 31 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized investment gains (losses):
Fixed maturities available for sale $115 $(158) $ -
Equity securities 78 (50) 81
Deferred tax credit (charge) (70) 35 (31)
Deferred policy acquisition costs - 30 -
- ---------------------------------------------------------------------------------
Net unrealized investment gains (losses) $123 $(143) $ 50
=================================================================================
</TABLE>
The changes in net unrealized investment gains (losses) are as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
Fixed maturities:
Available for sale $273 $(403) $ 28
Held to maturity 234 (351) 81
Equity securities 128 (131) 31
- ---------------------------------------------------------------------------------
Total $635 $(885) $140
=================================================================================
</TABLE>
The cumulative effect of the adoption of Statement No. 115 on January 1, 1994,
increased stockholders' equity by $148 million (net of adjustments to deferred
policy acquisition costs of $14 million and deferred income taxes of $83
million) to reflect the net unrealized fixed maturities holding gains on
securities previously carried at amortized cost; there was no effect on net
income as a result of the adoption.
24
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
The amortized cost and fair value of investments in fixed maturities and equity
securities are as follows:
<TABLE>
<CAPTION>
As of December 31, 1995 Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government
and agencies $ 151 $ 4 $ - $ 155
States and political
subdivisions 444 31 - 475
Foreign governments 798 34 - 832
Corporate securities 4,046 57 (11) 4,092
Mortgage-backed
securities 2,033 2 - 2,035
Other fixed maturities 100 1 (3) 98
- ------------------------------------------------------------------------
Total fixed maturities 7,572 129 (14) 7,687
Total equity securities 928 120 (42) 1,006
- ------------------------------------------------------------------------
Total available for sale $8,500 $249 $ (56) $8,693
========================================================================
As of December 31, 1994 Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ------------------------------------------------------------------------
Available for sale:
U.S. government
and agencies $ 189 $ 2 $ (4) $ 187
States and political
subdivisions 393 17 (3) 407
Foreign governments 608 13 (11) 610
Corporate securities 1,581 37 (83) 1,535
Mortgage-backed
securities 1,478 3 (123) 1,358
Other fixed maturities 69 - (6) 63
- ------------------------------------------------------------------------
Total fixed maturities 4,318 72 (230) 4,160
Total equity securities 989 50 (100) 939
- ------------------------------------------------------------------------
Total available for sale $5,307 $122 $(330) $5,099
========================================================================
As of December 31, 1994 Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ------------------------------------------------------------------------
Held to maturity:
U.S. government
and agencies $ 3 $ - $ - $ 3
States and political
subdivisions 3 - - 3
Corporate securities 1,388 15 (97) 1,306
Mortgage-backed
securities 1,590 1 (153) 1,438
- ------------------------------------------------------------------------
Total held to maturity $2,984 $ 16 $(250) $2,750
========================================================================
</TABLE>
The amortized cost and fair value of fixed maturities, by contractual maturity,
as of December 31, 1995 are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
(millions) Cost Value
- ------------------------------------------------------------------------
<S> <C> <C>
Available for sale:
Due in one year or less $ 220 $ 222
Due after one year through five years 1,425 1,455
Due after five years through ten years 2,472 2,521
Due after ten years 1,422 1,454
Mortgage-backed securities 2,033 2,035
- ------------------------------------------------------------------------
Total available for sale $7,572 $7,687
========================================================================
</TABLE>
Securities on deposit for regulatory authorities as required by law amounted to
$320 million at December 31, 1995 and $296 million at December 31, 1994. As
required by the by-laws of Lloyd's brokers, assets subject to floating charges
for the benefit of insurance creditors amounted to $566 million and $594 million
at December 31, 1995 and 1994, respectively. Aon maintains premium trust bank
accounts for premiums collected from insureds but not yet remitted to insurance
companies of $495 million and $475 million at December 31, 1995 and 1994,
respectively.
At December 31, 1995 and 1994, respectively, Aon had $72 million and $118
million of non-income producing investments.
<TABLE>
<CAPTION>
5. DEBT AND LEASE COMMITMENTS
Notes Payable
The following is a summary of notes payable:
(millions) As of December 31 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
6.3% debt securities, due January 2004 $100 $100
6.7% debt securities, due June 2003 150 150
6.875% debt securities, due October 1999 100 100
7.4% debt securities, due October 2002 100 100
Notes payable, due in varying installments,
with interest at 4% to 8% 48 46
- ------------------------------------------------------------------------
Total notes payable $498 $496
========================================================================
</TABLE>
25
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
Interest is payable semiannually on all debt securities. In addition, the debt
securities are not redeemable by Aon prior to maturity and contain no sinking
fund provisions. Maturities of notes payable are $14 million, $10 million, $21
million, $102 million and $1 million in 1996, 1997, 1998, 1999 and 2000,
respectively. In addition, Aon has credit agreements providing lines of credit
for commercial paper. The available commercial paper back-up lines of credit
totaled $500 million at December 31, 1995.
Information related to notes payable and short-term borrowings is as follows:
<TABLE>
<CAPTION>
(millions except interest rates)
Years ended December 31 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $54 $44 $41
Weighted average interest rates--short-term
borrowings 5.9% 4.5% 3.4%
===============================================================================
</TABLE>
Guaranteed Debt
During 1989, Aon's employee stock ownership plan (ESOP) entered into loan
agreements amounting to $90 million to purchase Aon common stock. The loans are
unconditionally guaranteed by Aon and therefore the unpaid balance of the loans
is reflected as debt in the accompanying statements of financial position. An
equivalent amount, representing deferred compensation, is recorded as a
deduction from stockholders' equity. Based on certain provisions in the loan
agreements relating to the sale of principal subsidiaries, Aon may be required
to refinance the remaining principal balance of $57 million on these loans
during 1996. The ESOP paid $14 million, $13 million and $12 million in 1995,
1994 and 1993, respectively, in loan principal and interest from contributions
made by Aon to the ESOP as well as dividend proceeds of common stock held by the
ESOP. The loans have an interest rate of 8.35% and serially mature through 1999.
Interest expense incurred by the ESOP related to these loans amounted to $5
million, $6 million and $7 million in 1995, 1994 and 1993, respectively. Future
contributions, as determined by Aon's Board of Directors, plus dividends earned
on shares held by the ESOP will be used to service the loans.
Lease Commitments
Aon has noncancelable operating leases for certain office space, equipment and
automobiles. Future minimum rental payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year at
December 31, 1995 related to continuing operations are as follows:
<TABLE>
<CAPTION>
(millions) Minimum Lease Payments
- ------------------------------------------------------------------------------
<S> <C>
1996 $102
1997 91
1998 81
1999 72
2000 61
Later years 206
- ------------------------------------------------------------------------------
Total minimum payments required $613
==============================================================================
</TABLE>
Rental expenses in continuing operations for all operating leases for the years
ended December 31, 1995, 1994 and 1993, amounted to $103 million, $93 million
and $102 million, respectively.
6. INCOME TAX
Aon and its principal domestic subsidiaries are included in a consolidated life-
nonlife federal income tax return. Aon's foreign subsidiaries file various
income tax returns in their foreign jurisdictions. A reconciliation of the
income tax provisions for continuing operations based on the statutory corporate
tax rate to the provisions reflected in the consolidated financial statements is
as follows:
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Tax-exempt investment income (3.8) (4.0) (3.9)
State income taxes 2.8 2.3 2.2
Other--net (0.3) (0.9) (2.0)
- ------------------------------------------------------------------------------
Effective tax rate 33.7% 32.4% 31.3%
==============================================================================
</TABLE>
The provision for income tax for continuing operations is made up of the
following components:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $111 $ 59 $ 49
Foreign 45 62 38
State 20 14 11
- -------------------------------------------------------------------------------
Total current $176 $135 $ 98
===============================================================================
Deferred (credit):
Federal $(17) $ 1 $ 11
Foreign (4) 3 (7)
State (1) (10) 2
- -------------------------------------------------------------------------------
Total deferred (22) (6) 6
- -------------------------------------------------------------------------------
Provision for income tax $154 $129 $104
===============================================================================
</TABLE>
Significant components of Aon's deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
(millions) As of December 31 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Policy acquisition costs $298 $291
Unrealized investment gains 70 -
Other--net 197 148
- -------------------------------------------------------------------------------
Total deferred tax liabilities 565 439
- -------------------------------------------------------------------------------
Deferred tax assets:
Insurance reserve amounts 217 196
Unrealized investment losses - 45
Other--net 122 69
- -------------------------------------------------------------------------------
Total deferred tax assets 339 310
- -------------------------------------------------------------------------------
Net deferred tax liabilities $226 $129
===============================================================================
</TABLE>
26
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
As of December 31, 1994, the deferred tax asset relating to unrealized
investment losses is net of a $30 million valuation allowance that was provided
directly in stockholders' equity in 1994. In 1995, this valuation allowance was
reversed.
Prior to 1984, the life insurance companies were required to accumulate certain
untaxed amounts in a memorandum "policyholders' surplus account." Under the Tax
Reform Act of 1984, the "policyholders' surplus account" balances were "capped"
at December 31, 1983 and the balances will be taxed only to the extent
distributed to stockholders or when they exceed certain prescribed limits. As of
December 31, 1995, the combined "policyholders' surplus account" of Aon's life
insurance subsidiaries approximates $363 million. Aon's life insurance
subsidiaries do not intend to make any taxable distributions or exceed the
prescribed limits in the foreseeable future; therefore, no income tax provision
has been made. However, if such taxes were assessed, the amount of tax payable
would be $127 million.
The amount of income taxes paid for 1995, 1994 and
1993 was $256 million, $167 million and $130 million, respectively.
7. REINSURANCE AND CLAIM RESERVES
Aon's insurance subsidiaries are involved in both the cession and assumption of
reinsurance with other companies. Aon's reinsurance consists primarily of short-
duration contracts that are entered into with numerous automobile dealerships,
financial institutions and insurers. Aon's insurance subsidiaries would remain
liable to the extent that the reinsuring companies were unable to meet their
obligations.
A summary of reinsurance activity is as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Ceded premiums earned $316 $319 $296
Ceded premiums written 369 340 322
Assumed premiums earned 83 91 121
Assumed premiums written 101 99 114
Ceded benefits to policyholders 153 170 125
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
Activity in the liability for policy contract claims is summarized as follows:
(millions) Years ended December 31 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities at beginning of year $681 $686 $669
Incurred losses:
Continuing operations-current year 726 596 606
Continuing operations-prior year (71) (59) (40)
Discontinued operations 361 386 344
- -------------------------------------------------------------------------
Total 1,016 923 910
- -------------------------------------------------------------------------
Payment of claims:
Current year (651) (582) (523)
Prior years (331) (346) (370)
- -------------------------------------------------------------------------
Total (982) (928) (893)
- -------------------------------------------------------------------------
Liabilities at end of year
(net of insurance recoverables):
1995--$256, 1994--$263,
1993--$235) $ 715 $ 681 $ 686
=========================================================================
</TABLE>
Prior years' incurred losses reflect continued favorable
development.
8. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable Preferred Stock
In 1994, Aon issued 1,000,000 shares of redeemable preferred stock to a former
officer in exchange for 1,500,000 shares of Aon common stock. Dividends are
cumulative at an annual rate of $2.55 per share. The shares of redeemable
preferred stock will be redeemable at the option of Aon or the holders, in whole
or in part, at $50.00 per share no sooner than February 9, 1999.
Common Stock
Aon repurchased 1,979,000, 844,000 and 16,000 shares in 1995, 1994 and 1993,
respectively, of its common stock, primarily to provide shares for stock
compensation plans and the 1994 conversion of Series B conversion preferred
stock.
Series B Conversion Preferred Stock
At December 1, 1994, 1,439,000 shares of Series B conversion preferred stock
were outstanding and each share of stock was automatically converted, pursuant
to the stock's terms, into one and one half shares of common stock issued from
treasury. Dividends were cumulative at an annualized rate of $3.04 per share.
Aon repurchased 1,210,000 shares and 151,000 shares of its outstanding stock for
$58 million and $7 million in 1994 and 1993, respectively. These shares were
canceled and retired.
8% Cumulative Perpetual Preferred Stock
At December 31, 1995, 5,998,900 shares of cumulative 8% perpetual preferred
stock are outstanding. In 1995, 3,001,100 shares were purchased and retired at a
total cost of $75 million. Dividends are cumulative at the annual rate of $2.00
per share. At its option, Aon may redeem all or any part of the stock at any
time on or after November 1, 1997 at a redemption price of $25.00 per share plus
all accrued and unpaid dividends. The holders of the stock have limited voting
rights.
6.25% Cumulative Convertible Exchangeable Preferred Stock
At December 31, 1995, 2,136,000 shares of 6.25% cumulative convertible
exchangeable preferred stock are outstanding. Dividends are cumulative at the
annual rate of $3.125 per share. The stock is convertible at any time at the
option of the holder into 1.22 shares of common stock for each share held. The
stock is exchangeable at Aon's option, in whole but not in part, on any dividend
payment date commencing November 1, 1996 for 6.25% convertible subordinated
debentures due November 1, 2022 at the rate of $50.00 principal amount of the
debentures for each share. At its option, Aon may redeem all or any part of the
outstanding stock, on or after November 1, 1996 at prices ranging from $51.875
per share in 1996 declining to $50.00 per share in 2002 and thereafter, plus
accrued and unpaid dividends. The holders of the stock have limited voting
rights.
27
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
Dividends
A summary of dividends incurred is as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Redeemable preferred stock $ 2 $ 2 $ -
Common stock 145 129 118
Series B conversion
preferred stock - 6 8
8% cumulative perpetual
preferred stock 16 18 18
6.25% cumulative convertible
exchangeable preferred stock 7 7 7
- ----------------------------------------------------------------------
Total dividends incurred $170 $162 $151
======================================================================
</TABLE>
Statutory Capital and Surplus
Generally, the capital and surplus of Aon's insurance subsidiaries available for
transfer to the parent company are limited to the amounts that the insurance
subsidiaries' statutory capital and surplus exceed minimum statutory capital
requirements; however, payments of the amounts as dividends may be subject to
approval by regulatory authorities. See note 6 for possible tax effects of
distributions made out of untaxed earnings.
Net statutory income of the insurance subsidiaries, including LOV and UFLIC, is
summarized as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Life insurance $197 $ 272 $ 255
Property casualty 58 34 62
======================================================================
</TABLE>
Statutory capital and surplus of the insurance subsidiaries is summarized as
follows:
<TABLE>
<CAPTION>
(millions) As of December 31 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Life insurance $766 $ 714
Property casualty 296 284
======================================================================
</TABLE>
9. EMPLOYEE BENEFITS
Savings and Profit Sharing Plans
Certain of Aon's subsidiaries maintain a contributory savings plan for the
benefit of United States salaried and commissioned employees and a contributory
profit sharing plan for the benefit of Canadian salaried employees and
commissioned agents. The company contribution for the savings plan is based on a
match of 100% of employee contributions up to a maximum of 3% of eligible
compensation. Provisions made for these plans in continuing operations were $14
million in 1995 and $13 million in 1994 and 1993, respectively.
Employee Stock Ownership Plan
Certain of Aon's subsidiaries maintain a leveraged ESOP for the benefit of the
United States salaried and certain commissioned employees. Shares are allocated
to eligible employees over a period of ten years through 1998. Contributions to
the ESOP charged to continuing operations amounted to $11 million, $9 million
and $8 million in 1995, 1994 and 1993, respectively.
Domestic Pension Plan
Certain of Aon's subsidiaries maintain a non-contributory defined benefit
pension plan providing retirement benefits for salaried employees and certain
commissioned employees in the United States based on years of service and
salary. Aon's funding policy is to contribute amounts to the plan sufficient to
meet the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional amounts as Aon determines to
be appropriate from time to time.
A summary of the components of net periodic pension cost for the defined benefit
plans in 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plan:
Service cost-benefit earned $ 17 $ 21 $ 19
Interest cost on projected
benefit obligation 19 17 16
Actual return on plan assets (66) (3) (27)
Net amortization and deferral 44 (18) 6
- ----------------------------------------------------------------------
Net periodic pension cost $ 14 $ 17 $ 14
======================================================================
</TABLE>
The weighted average assumptions used in accounting for the defined benefit
plan were:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Assumed discount rate 7.5% 8.5% 7.0%
Rate of compensation increase 5.0% 5.0% 5.0%
Expected long-term rate
of return on plan assets 9.0% 9.0% 9.0%
======================================================================
</TABLE>
During 1993, the Aon Pension Plan was amended to include certain additional
amounts of compensation in determining plan benefits and in 1994 to reduce the
maximum amount of compensation that can be considered under the plan as required
by law. Further, the Pension Plan was amended in 1994 to provide increases in
benefits to current pensioners. Net periodic pension cost for 1994 decreased $2
million and increased $2 million in 1993 as a result of these amendments. There
were no amendments in 1995 that affected the net periodic pension cost.
The following table sets forth the funded status and amounts recognized in the
consolidated statements of financial position for Aon's U.S. defined benefit
pension plan.
<TABLE>
<CAPTION>
(millions) As of December 31 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $218 $ 183
Accumulated benefit obligation 224 189
- ----------------------------------------------------------------------
Projected benefit obligation 286 228
Plan assets at fair value 282 228
- ----------------------------------------------------------------------
Plan assets less than projected
benefit obligation (4) -
Unrecognized net gain (26) (14)
Unrecognized prior service cost 2 2
Unrecognized net transition assets - (3)
- ----------------------------------------------------------------------
Pension cost included in other liabilities $(28) $ (15)
======================================================================
</TABLE>
28
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
Plan assets include marketable equity securities, deposit administration
insurance contracts, and corporate and government debt securities. Included are
securities issued by Aon totaling $28 million and $18 million in 1995 and 1994,
respectively. In addition, $186 million and $143 million of plan assets are held
under a special contract with a subsidiary of Aon in 1995 and 1994,
respectively.
Foreign Pension Plans
Certain of Aon's foreign subsidiaries maintain contributory and non-contributory
defined benefit pension plans for employees outside of the United States that
provide retirement benefits based on service and salary. Material plans are
maintained in the United Kingdom and The Netherlands. The funding policy for
these plans is to contribute the amounts required by the plan provisions or
applicable regulations, although additional amounts may be contributed from time
to time.
A summary of the components of net periodic pension cost in continuing
operations for the material defined benefit plans, grouped by country, is as
follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
United Kingdom:
Service cost-benefit earned $ 11 $ 8 $ 8
Interest cost on projected
benefit obligation 15 10 8
Actual loss (return) on plan assets (29) 6 (11)
Net amortization and deferral 11 (20) -
- -------------------------------------------------------------------------------
Net periodic pension cost $ 8 $ 4 $ 5
- -------------------------------------------------------------------------------
The Netherlands:
Service cost-benefit earned $ 4 $ 2 $ 2
Interest cost on projected
benefit obligation 9 8 7
Actual return on plan assets (11) (9) (10)
Net amortization and deferral - 1 -
- -------------------------------------------------------------------------------
Net periodic pension cost (credit) $ 2 $ 2 $ (1)
===============================================================================
</TABLE>
The weighted average assumptions used in accounting for these defined benefit
plans were:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
United Kingdom:
Assumed discount rate 9.0% 9.0% 7.3%
Rate of compensation increase 7.0% 7.0% 5.0%
Expected long-term rate of
return on plan assets 10.0% 10.0% 10.0%
- -------------------------------------------------------------------------------
The Netherlands:
Assumed discount rate 7.0% 7.0% 7.0%
Rate of compensation increase 4.0% 4.0% 4.0%
Expected long-term rate of
return on plan assets 7.0% 7.0% 7.0%
===============================================================================
</TABLE>
The following table sets forth the funded status and the amounts recognized in
the 1995 and 1994 consolidated statements of financial position for Aon's
foreign defined benefit pension plans.
<TABLE>
<CAPTION>
United Kingdom:
(millions) As of December 31 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation $192 $172
Plan assets at fair value 212 179
- -------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 20 7
Unrecognized net loss 4 14
Unrecognized prior service cost 1 1
Unrecognized net transition obligation 1 1
Adjustment to recognize minimum liability - (4)
- -------------------------------------------------------------------------------
Prepaid pension cost included in other assets $ 26 $ 19
- -------------------------------------------------------------------------------
</TABLE>
The Netherlands:
<TABLE>
<CAPTION>
(millions) As of December 31 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation $140 $123
Plan assets at fair value 168 146
- -------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 28 23
Unrecognized net loss 19 18
- -------------------------------------------------------------------------------
Prepaid pension cost included in other assets $ 47 $ 41
- -------------------------------------------------------------------------------
</TABLE>
Postretirement Benefits Other Than Pensions
Aon sponsors defined benefit postretirement health and welfare plans that cover
both salaried and nonsalaried employees in the U.S., as well as certain other
salaried employees in Canada. In the U.S., one plan provides medical benefits,
prior to and subsequent to Medicare eligibility, and the other provides life
insurance benefits. In Canada, the plans provide both extended health care
benefits and life insurance benefits. The postretirement health care plans are
contributory, with retiree contributions adjusted annually; the life insurance
plans are noncontributory. The employer's liability for future plan cost
increase is limited in any year to 5% per annum. All plans are funded on a pay-
as-you go basis.
The following table sets forth the plans' combined funded status:
<TABLE>
<CAPTION>
(millions) As of December 31, 1995 Medical Life
- -------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $15 $ 8
Fully eligible active plan participants 8 4
Other active plan participants 9 2
- -------------------------------------------------------------------------------
32 14
Unrecognized prior service 22 6
Unrecognized net gain 20 5
- -------------------------------------------------------------------------------
Accrued postretirement benefit liability $74 $25
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
(millions) As of December 31, 1994 Medical Life
- -------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $16 $ 6
Fully eligible active plan participants 7 4
Other active plan participants 8 2
- -------------------------------------------------------------------------------
31 12
Unrecognized prior service 26 8
Unrecognized net gain 22 6
- -------------------------------------------------------------------------------
Accrued postretirement benefit liability $79 $26
===============================================================================
</TABLE>
29
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
Net periodic postretirement benefit cost in continuing operations includes the
following components:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1 $ 1 $ 3
Interest cost 3 4 5
Amortization of prior service (7) (6) (5)
- ---------------------------------------------------------------------
Net periodic postretirement
benefit cost (credit) $(3) $(1) $ 3
=====================================================================
</TABLE>
For measurement purposes in 1995, 1994 and 1993, a 10.5%, 11.5% and 12.5%,
respectively, annual rate of increase in the per capita cost of covered health
care benefits (trend rate) adjusted for actual current year cost experience was
assumed, decreasing gradually to 6% in year 2000 and remaining the same
thereafter. However, with the employer funding increase cap limited to 5% per
year, net employer trend rates are effectively limited to 5% per year in the
future.
Increasing the assumed health care cost trend rates by one percentage point
would result in a negligible change in the accumulated postretirement benefit
obligation (APBO) as of December 31, 1995 because of the 5% cap on future
employer funding increases for domestic medical plans.
Assumptions used in determining the APBO are summarized below:
<TABLE>
<CAPTION>
As of December 31 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average discount rate 7.5% 8.5% 7.0%
Weighted-average rate of
compensation increase 5.0% 5.0% 5.5%
=====================================================================
</TABLE>
10. STOCK COMPENSATION PLANS
Stock Award Plan
In 1994, Aon's stockholders approved an amendment to the Aon Stock Award Plan
that increased the aggregate number of shares of common stock that Aon can award
from 1,350,000 to 3,350,000 shares. Generally, the award plan requires the
employees to complete three continuous years of service before the award begins
to vest in increments until the completion of a ten year period of continuous
employment. All awarded shares are issued as they become vested. With certain
limited exceptions, any break in continuous employment will cause forfeiture of
all unvested awards. The compensation cost associated with each award is
deferred and amortized over the period of continuous employment using the
straight line method.
Aon common stock awards outstanding consist of the following:
<TABLE>
<CAPTION>
(thousands) Years ended December 31 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Shares outstanding at beginning
of year 2,169 1,672 1,269
Granted 709 726 539
Vested and exercised (216) (214) (107)
Canceled (53) (15) (29)
- ---------------------------------------------------------------------
Shares outstanding at end of year 2,609 2,169 1,672
=====================================================================
</TABLE>
Stock Option Plan
Under a nonqualified stock option plan, options to purchase common stock were
granted to certain officers and employees of Aon and its subsidiaries at 100% of
market value on the date of grant. Common stock options outstanding consisted of
the following:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994
- ---------------------------------------------------------------------
No. of Price No. of Price
(shares in thousands) Shares Range Shares Range
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
at beginning of year 3,346 $14-36 2,699 $14-36
Granted 1,086 32-38 1,134 31-36
Exercised (747) 14-29 (353) 14-26
Canceled (210) 17-36 (134) 14-36
- ---------------------------------------------------------------------
Options outstanding
at end of year 3,475 $20-38 3,346 $14-36
- ---------------------------------------------------------------------
Options exercisable
at end of year 425 $20-35 648 $14-32
- ---------------------------------------------------------------------
Options available for
grant at end of year 1,450 2,326
=====================================================================
</TABLE>
11. FINANCIAL INSTRUMENTS
Financial Risk Management
Aon is exposed to market risk from changes in interest rates and foreign
currency exchange rates. To manage the volatility related to these exposures,
Aon enters into various derivative transactions that have the effect of
minimizing these risks by creating offsetting market exposures. If Aon did not
use derivative contracts, its exposure and market risk would be higher. The
derivative financial instruments held by Aon are held for purposes other than
trading.
Derivative transactions are governed by a uniform set of policies and procedures
covering areas such as authorization, counterparty exposure and hedging
practices. Positions are monitored using techniques such as market value and
sensitivity analyses.
In addition to creating market risks that offset the underlying business
exposures, derivative instruments also give rise to credit risks due to possible
non-performance by counterparties. The credit risk is generally limited to the
fair value of those contacts that are favorable to Aon. Aon has limited its
credit risk by restricting investments in derivative contracts to a diverse
group of highly rated major financial institutions and by using exchange-traded
instruments. Aon closely monitors the credit worthiness of, and exposure to, its
counterparties and considers its credit risk to be minimal. At December 31, 1995
and 1994, Aon placed securities in escrow amounting to $1 million and $21
million, respectively, relating to these derivative contracts.
30
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
Interest Rate Risk Management
Aon uses interest rate derivative contracts to manage the interest rate risk
associated with assets and liabilities underlying its underwriting businesses.
Interest rate derivatives are also utilized to manage the company's funding and
other corporate risks.
Interest rate swap agreements have been used primarily to manage asset and
liability durations relating to the discontinued capital accumulation annuity
business. Exchange-traded Eurodollar futures, used in conjunction with basis
rate swaps, are used to manage asset liability durations related to various
other crediting arrangements emanating from other insurance businesses. As of
December 31, 1995 and 1994, these swap agreements had the net effect of
lengthening liability durations. Variable rates received on interest rate and
basis rate swap agreements correlate with crediting rates paid on outstanding
liabilities. The net effect of swap payments is settled periodically and
reported in income. There is no settlement of underlying notional amounts.
Exchange-traded treasury futures and options are used primarily as a hedge
against the value of Aon's available for sale fixed maturity investments. Aon
sells futures as well as writes call options and limits its risk on these
written options to a spread by purchasing call options. Exchange-traded futures
and options are valued and settled daily. The premium that Aon pays for
purchased options and receives for written options represents the cost basis of
the option until it expires or is closed.
Aon also enters into interest rate swap agreements, sells exchange-traded
interest rate futures and purchases interest rate caps to limit its interest
expense on short-term borrowings. The premium that Aon pays for interest rate
caps represents the cost basis of the position until it expires or is closed.
Aon performs frequent analyses to measure the degree of correlation associated
with its derivative programs. Aon assesses the adequacy of the correlation
analyses results in determining whether the derivatives qualify for hedge
accounting. Realized gains and losses on derivatives that qualify as hedges are
deferred and reported as an adjustment of the cost basis of the hedged item.
Deferred gains and losses are amortized into income over the life of the hedged
item. Outstanding derivatives that are hedges of items carried at fair value are
reflected in the financial statements with the derivative fair value reported as
unrealized gains and losses directly in stockholders' equity.
Foreign Exchange Risk Management
Aon uses foreign currency futures, options, and forward contracts to hedge
against the effects of foreign currency fluctuations on the translation of the
financial statements of Aon's foreign operations. Generally, realized and
unrealized gains and losses on those derivatives are recorded directly to
stockholders' equity, as a component of net unrealized foreign exchange gains
and losses.
Certain of Aon's foreign brokerage subsidiaries receive revenues in currencies
that differ from the currency in which their operating costs are denominated. To
reduce the variability of cash flows from these operations, foreign forward
exchange contracts having settlement dates that are primarily less than one year
are used. Related gains or losses on these contracts are reflected as an
adjustment to the expense component on the statement of income when the
currencies are exchanged to settle expense commitments. Contracts entered into
require no up-front premium and settle at the expiration of the related
contract.
Notional and Other Data
The following are the notional amounts of Aon's outstanding derivatives grouped
by the types of risks being managed:
<TABLE>
<CAPTION>
(millions) As of December 31 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest rate and asset/liability duration management
Eurodollar futures sold $820 $ 50
Treasury futures sold - 866
Call options - 1,089
Interest rate swaps-pay fixed 260 750
Interest rate swaps-receive fixed 10 10
Basis rate swaps-pay and receive variable 70 -
Interest rate management for anticipated transactions
Interest rate caps 72 58
Interest rate swaps-pay fixed - 41
Foreign currency management-forwards 62 37
================================================================================
</TABLE>
During 1995 and 1994, Aon amortized $3 million of net deferred gains relating to
derivatives into income. Deferred losses related to anticipated transactions
were immaterial at December 31, 1995 and 1994.
The interest rates on Aon's principal outstanding swaps at December 31 are
presented below:
<TABLE>
<CAPTION>
Pay Receive
Fixed Variable
- --------------------------------------------------------------------------------
<S> <C> <C>
1995 7.9-8.3% 5.4%
1994 7.7-8.3% 7.8%
================================================================================
</TABLE>
As of December 31, 1995, the principal swaps have maturities ranging from
September 1999 to October 2000 and variable rates based on five-year treasury
rates. Basis rate swaps mature in December 2000 and require payments based on
the three month LIBOR index and provide for receipts based on the two-year
treasury rate. Eurodollar futures, with maturities ranging from March 1996 to
September 2000, effectively convert the variable rate basis swap payments to
fixed payments.
Other Financial Instruments
Aon has certain investment commitments to provide capital and fixed-rate loans
as well as certain forward contract purchase commitments. The investment
commitments, which would be collateralized by related properties of the
underlying investments, involve varying elements of credit and market risk.
Investment commitments outstanding at December 31, 1995 and 1994 totaled $196
million and $134 million, respectively.
31
Aon Corporation Annual Report 1995
<PAGE>
Notes to Consolidated Financial Statements
Subsidiaries of Aon have entered into agreements with financial institutions,
whereby the subsidiaries sold certain receivables, with limited recourse.
Agreements provide for sales of receivables on a continuing basis through
November 1996. As of December 31, 1995 and 1994, the maximum commitment
contained in these agreements was $752 million and $525 million, respectively.
Accounts receivable sold in 1995, 1994 and 1993 amounted to $1,253 million,
$1,095 million and $879 million, respectively. Outstanding receivables of $687
million and $512 million, remained to be collected at December 31, 1995 and
1994, respectively. Aon's credit risk relates to amounts that may be due under
recourse provisions that could exceed recorded estimates. At December 31, 1995
and 1994, this exposure was approximately $42 million and $34 million,
respectively.
Fair Value of Financial Instruments
Accounting standards require the disclosure of fair values for certain financial
instruments. The fair value disclosures are not intended to encompass the
majority of policy liabilities, various other non-financial instruments, or
other intangible items related to Aon's business. Accordingly, care should be
exercised in deriving conclusions about Aon's business or financial condition
based on the fair value disclosures. The carrying value and fair value of
certain of Aon's financial instruments are as follows:
<TABLE>
<CAPTION>
As of December 31 1995 1994
- ----------------------------------------------------------------
Carrying Fair Carrying Fair
(millions) Value Value Value Value
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Fixed maturities and
equity securities
(note 4) $8,693 $8,693 $8,083 $7,849
Mortgage loans on
real estate 632 684 568 557
Policy loans 226 223 215 212
Cash, short-term and
other long-term
investments and
receivables 4,163 4,163 4,043 4,043
Derivatives 1 1 -- --
Liabilities:
Investment type
insurance contracts $3,666 $3,711 $3,830 $3,745
Short-term borrowings,
premium payables
and commissions
and general expenses 3,638 3,638 3,179 3,179
Notes payable 498 513 496 453
Derivatives -- 24 8 12
================================================================
</TABLE>
As of December 31, 1995, the principal differences between carrying value and
fair value in the forgoing table, related to mortgage loans on real estate,
policy loans and investment type insurance contracts, primarily represent
discontinued operations.
12. LITIGATION
Aon and its subsidiaries are subject to numerous claims and lawsuits that arise
in the ordinary course of business. Some of these cases are being litigated in
jurisdictions which have judicial precedents and evidentiary rules which are
generally believed to favor individual plaintiffs against corporate defendants.
The damages that may be claimed in these and other jurisdictions are
substantial, including in many instances claims for punitive or extraordinary
damages. Accruals for these lawsuits have been provided to the extent that
losses are deemed probable and are estimable. Although the ultimate outcome of
these suits cannot be ascertained and liabilities in indeterminate amounts may
be imposed on Aon or its subsidiaries, on the basis of present information,
availability of insurance coverages, and advice received from counsel, it is the
opinion of management that the disposition or ultimate determination of such
claims and lawsuits will not have a material adverse effect on the consolidated
financial position of Aon.
13. SEGMENT INFORMATION
Aon Corporation is a multinational holding company. Its businesses serve
consumers and commercial operations in North America, Latin and South America,
Europe, Asia and the Pacific markets. With the planned 1996 sale of UFLIC and
LOV (see note 3), Aon reclassified its operating segments to reflect the focus
of the company's continuing operations. Aon's continuing operations are
concentrated into two core businesses. Insurance brokerage and consulting
services provide services for commercial, industrial and insurance company
clients. Insurance underwriting provides life, accident and health insurance and
extended warranty products for individual consumers, delivered through
controlled distribution channels. Beginning in fourth quarter 1995, insurance
underwriting operations are presented as one segment based on the related
nature, distribution channels and markets of the continuing products. Prior
period segments have been reclassified to conform to the 1995 presentation.
The segment information located on pages 11 and 12 is incorporated herein by
reference.
32
Aon Corporation Annual Report 1995
<PAGE>
Reports by Independent Auditors and Management
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
Aon CORPORATION
We have audited the accompanying consolidated statements of financial position
of Aon Corporation as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aon Corporation at
December 31, 1995 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
As discussed in note 4, the Company changed its method of accounting for certain
investments in 1994.
/S/ Ernst & Young LLP
Chicago, Illinois
February 8, 1996
REPORT BY MANAGEMENT
The management of Aon Corporation is responsible for the integrity and
objectivity of the financial statements and other financial information in the
annual report. The statements have been prepared in conformity with generally
accepted accounting principles. These statements include informed estimates and
judgments for those transactions not yet complete or for which the ultimate
effects cannot be measured precisely. Financial information elsewhere in this
report is consistent with that in the financial statements. The consolidated
financial statements have been audited by our independent auditors. Their role
is to render an independent professional opinion on Aon's financial statements.
Management maintains a system of internal control designed to meet its
responsibilities for reliable financial statements. The system is designed to
provide reasonable assurance, at appropriate costs, that assets are safeguarded
and that transactions are properly recorded and executed in accordance with
management's authorization. Judgments are required to assess and balance the
relative costs and expected benefits of those controls. It is management's
opinion that its system of internal control, as of December 31, 1995, was
effective in providing reasonable assurance that its financial statements were
free of material misstatement. In addition, management supports and maintains a
professional staff of internal auditors who coordinate audit coverage with the
independent auditors and conduct an extensive program of financial and
operational audits.
The Board of Directors selects an Audit Committee from among its members. No
member of the Audit Committee is an employee of Aon. The Audit Committee is
responsible to the Board for reviewing the accounting and auditing procedures
and financial practices of Aon and for recommending appointment of the
independent auditors. The Audit Committee meets periodically with management,
internal auditors and independent auditors to review the work of each and
satisfy itself that those parties are properly discharging their
responsibilities. Both the independent auditors and the internal auditors have
free access to the Committee, without the presence of management, to discuss the
adequacy of internal control and to review the quality of financial reporting.
33
Aon Corporation Annual Report 1995
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(millions except common stock and per share data) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA*
Brokerage commissions and fees $ 1,628 $ 1,370 $ 1,173 $ 697 $ 375
Premiums earned 1,427 1,322 1,278 1,275 1,214
Net investment income 329 257 227 223 215
Realized investment gains 13 19 30 24 27
Other income 69 73 63 59 94
-------------------------------------------------------------------------
Total revenue 3,466 3,041 2,771 2,278 1,925
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 304 $ 269 $ 228 $ 134 $ 185
Income from discontinued operations 99 91 96 72 57
Net income 403 360 324 127 242
Operating income from continuing operations** 295 256 214 171 165
Operating income*** 400 356 312 265 239
==============================================================================================================================
PER SHARE DATA
Income from continuing operations $ 2.57 $ 2.28 $ 1.91 $ 1.24 $ 1.89
Income from discontinued operations 0.91 0.86 0.90 0.69 0.58
Net income 3.48 3.14 2.81 1.17 2.47
Operating income from continuing operations** 2.49 2.16 1.79 1.60 1.68
Operating income*** 3.45 3.10 2.70 2.49 2.44
==============================================================================================================================
BALANCE SHEET DATA
ASSETS
Investments $ 10,639 $ 9,783 $ 9,652 $ 9,088 $ 8,360
Other 9,097 8,139 6,627 5,202 3,273
-------------------------------------------------------------------------
Total assets $ 19,736 $ 17,922 $ 16,279 $ 14,290 $ 11,633
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities $ 9,556 $ 9,310 $ 8,776 $ 7,759 $ 7,342
Notes payable 554 561 594 556 501
General liabilities 6,902 5,744 4,621 3,871 2,015
-------------------------------------------------------------------------
Total liabilities 17,012 15,615 13,991 12,186 9,858
Redeemable preferred stock 50 50 -- -- --
Stockholders' equity 2,674 2,257 2,288 2,104 1,775
-------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 19,736 $ 17,922 $ 16,279 $ 14,290 $ 11,633
==============================================================================================================================
COMMON STOCK DATA
Dividends paid per share $ 1.34 $ 1.26 $ 1.18 $ 1.11 $ 1.05
Stockholders' equity per share 22.77 18.30 18.95 17.48 17.39
Price range 50 7/8-31 3/8 35 3/4-29 1/4 39-30 7/8 36-26 1/8 27 7/8-19 7/8
Market price at year-end 49.875 32.000 32.250 36.000 26.375
Common stockholders 13,520 14,163 14,615 14,746 15,168
Shares outstanding (in millions) 108.3 107.7 101.6 100.0 97.9
==============================================================================================================================
*Income statement data has been reclassified to reflect continuing operations.
**Operating income from continuing operations excludes after-tax realized investment gains, a retroactive tax charge in 1993 of
$5.4 million, the 1992 cumulative effect of changes in accounting principles of $79.6 million, and 1992 special charges of
$54.3 million.
***Operating income excludes after-tax realized investment gains, a retroactive tax charge in 1993 of $5.4 million, the 1992
cumulative effect of changes in accounting principles of $79.6 million, and 1992 special charges of $61.4 million.
</TABLE>
34
Aon Corporation Annual Report 1995
<PAGE>
Quarterly Financial Data
<TABLE>
<CAPTION>
(millions except common stock and per share data) 1Q 2Q 3Q 4Q 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA*
Brokerage commissions and fees $ 419.7 $ 394.7 $ 394.5 $ 419.3 $ 1,628.2
Premiums earned 335.7 364.7 358.1 368.0 1,426.5
Net investment income 80.9 77.5 86.6 84.4 329.4
Realized investment gains 1.1 (0.6) 8.8 3.8 13.1
Other income 15.8 15.6 17.7 19.4 68.5
---------------------------------------------------------------------
Total revenue 853.2 851.9 865.7 894.9 3,465.7
---------------------------------------------------------------------
Income from continuing operations 90.5 71.7 77.0 64.5 303.7
Income from discontinued operations 20.7 27.0 23.0 28.4 99.1
Net income 111.2 98.7 100.0 92.9 402.8
Operating income from continuing operations** 89.8 72.0 71.4 62.0 295.2
Operating income*** 110.8 97.8 99.1 92.3 400.0
========================================================================================================================
PER SHARE DATA
Income from continuing operations $ 0.77 $ 0.60 $ 0.66 $ 0.54 $ 2.57
Income from discontinued operations 0.19 0.25 0.21 0.26 0.91
Net income 0.96 0.85 0.87 0.80 3.48
Operating income from continuing operations** 0.76 0.60 0.61 0.52 2.49
Operating income*** 0.96 0.84 0.86 0.80 3.45
========================================================================================================================
COMMON STOCK DATA
Dividends paid per share $ 0.32 $ 0.34 $ 0.34 $ 0.34 $ 1.34
Stockholders' equity per share 19.79 21.63 21.89 22.77 22.77
Price range 37 1/2-31 3/8 38-35 5/8 41 3/4-36 1/4 50 7/8-40 1/2 50 7/8-31 3/8
Average dividend yield 3.7% 3.7% 3.4% 3.0% 3.3%
Shares outstanding (in millions) 108.0 107.1 108.0 108.3 108.3
Average monthly trading volume (in millions) 1.4 1.8 2.1 3.1 2.1
========================================================================================================================
(millions except common stock and per share data) 1Q 2Q 3Q 4Q 1994
- ------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA*
Brokerage commissions and fees $ 342.2 $ 336.1 $ 336.7 $ 354.6 $ 1,369.6
Premiums earned 315.2 331.2 327.2 348.7 1,322.3
Net investment income 61.2 60.1 63.5 72.3 257.1
Realized investment gains (2.6) 1.9 3.8 16.0 19.1
Other income 19.6 17.3 16.7 19.5 73.1
---------------------------------------------------------------------
Total revenue 735.6 746.6 747.9 811.1 3,041.2
---------------------------------------------------------------------
Income from continuing operations 74.1 63.0 61.8 69.6 268.5
Income from discontinued operations 25.0 25.2 24.9 16.4 91.5
Net income 99.1 88.2 86.7 86.0 360.0
Operating income from continuing operations** 75.8 61.7 59.4 59.3 256.2
Operating income*** 98.0 87.1 85.6 85.6 356.3
========================================================================================================================
PER SHARE DATA
Income from continuing operations $ 0.64 $ 0.53 $ 0.52 $ 0.58 $ 2.28
Income from discontinued operations 0.24 0.24 0.24 0.16 0.86
Net income 0.88 0.77 0.76 0.74 3.14
Operating income from continuing operations** 0.66 0.52 0.50 0.48 2.16
Operating income*** 0.87 0.76 0.75 0.73 3.10
========================================================================================================================
COMMON STOCK DATA
Dividends paid per share $ 0.30 $ 0.32 $ 0.32 $ 0.32 $ 1.26
Stockholders' equity per share 18.88 18.73 18.75 18.30 18.30
Price range 35-30 32 3/8-32 35 3/4-32 3/8 34-29 1/4 35 3/4-29 1/4
Average dividend yield 3.7% 4.0% 3.8% 4.0% 3.9%
Shares outstanding (in millions) 101.1 101.8 102.1 107.7 107.7
Average monthly trading volume (in millions) 1.6 1.1 1.5 1.9 1.5
========================================================================================================================
</TABLE>
*Income statement data has been reclassified to reflect continuing operations.
**Operating income from continuing operations excludes after-tax realized
investment gains of $8.5 million and $12.3 million in 1995 and 1994,
respectively.
***Operating income excludes after-tax realized investment gains of $2.8 million
and $3.7 million in 1995 and 1994, respectively.
35
Aon Corporation Annual Report 1995
<PAGE>
<TABLE>
<CAPTION>
AON CORPORATION SUBSIDIARIES
<S> <C>
==========================================================================================
CORPORATION JURISDICTION
- ------------------------------------------------------------------------------------------
A. J. Norcott & Company (Holdings) Limited United Kingdom
- ------------------------------------------------------------------------------------------
A. J. Norcott & Partners (Northern) Limited United Kingdom
- ------------------------------------------------------------------------------------------
A. J. Norcott & Partners (Scotland) Limited United Kingdom
- ------------------------------------------------------------------------------------------
A. J. Norcott & Partners Limited United Kingdom
- ------------------------------------------------------------------------------------------
A. J. Norcott Benefit Consultants Limited United Kingdom
- ------------------------------------------------------------------------------------------
A.H. Laseur B.V. Netherlands
- ------------------------------------------------------------------------------------------
AMLT, Inc. Alabama
- ------------------------------------------------------------------------------------------
AOPA Insurance Agency, Inc. Maryland
- ------------------------------------------------------------------------------------------
AOPA Insurance Agency, Inc. Texas
- ------------------------------------------------------------------------------------------
APS International Limited United Kingdom
- ------------------------------------------------------------------------------------------
APS Life & Pensions Limited United Kingdom
- ------------------------------------------------------------------------------------------
APS Overseas Investments Limited United Kingdom
- ------------------------------------------------------------------------------------------
ARM COVERAGE INC. New York
- ------------------------------------------------------------------------------------------
ARS Holdings, Inc. Illinois
- ------------------------------------------------------------------------------------------
ARS Holdings, Inc. Louisiana
- ------------------------------------------------------------------------------------------
Acedale Co. Ltd. Hong Kong
- ------------------------------------------------------------------------------------------
Adams & Porter Financial Services, Inc. Texas
- ------------------------------------------------------------------------------------------
Adams & Porter Services, Inc. Texas
- ------------------------------------------------------------------------------------------
Advantage Plus Insurance Services, Inc. Illinois
- ------------------------------------------------------------------------------------------
Adviser 151 Limited United Kingdom
- ------------------------------------------------------------------------------------------
Agricola Training Limited United Kingdom
- ------------------------------------------------------------------------------------------
Agricola Underwriting Limited United Kingdom
- ------------------------------------------------------------------------------------------
Agricultural Risk Management North America, Inc. Kansas
- ------------------------------------------------------------------------------------------
Agricultural Risk Management, Limited United Kingdom
- ------------------------------------------------------------------------------------------
Airscope Insurance Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Alpenbeck Limited United Kingdom
- ------------------------------------------------------------------------------------------
American Associates, Inc. Texas
- ------------------------------------------------------------------------------------------
American Attorneys' Protection Plan Co. Illinois
- ------------------------------------------------------------------------------------------
American Combined Life Insurance Company Illinois
- ------------------------------------------------------------------------------------------
American Combined Life Insurance Company Nebraska
- ------------------------------------------------------------------------------------------
American Insurance Brokers, Ltd. Indiana
- ------------------------------------------------------------------------------------------
American National General Agencies, Inc. Colorado
- ------------------------------------------------------------------------------------------
Anchor Reinsurance Company, Ltd. Bermuda
- ------------------------------------------------------------------------------------------
Anchor Underwriting Managers, Ltd. Bermuda
- ------------------------------------------------------------------------------------------
Anscor Insurance Brokers Inc. Philippines
- ------------------------------------------------------------------------------------------
Aon Advisors (U.K.) Limited United Kingdom
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Aon Advisors, Inc. Virginia
- ------------------------------------------------------------------------------------------
Aon Asset Management Fund, Inc. Virginia
- ------------------------------------------------------------------------------------------
Aon Aviation, Inc. Illinois
- ------------------------------------------------------------------------------------------
Aon Broker Services, Inc. Illinois
- ------------------------------------------------------------------------------------------
Aon Capital Corporation Delaware
- ------------------------------------------------------------------------------------------
Aon Capital Management, Inc. Delaware
- ------------------------------------------------------------------------------------------
Aon Captive Management, Ltd. U.S. Virgin Islands
- ------------------------------------------------------------------------------------------
Aon Consultants Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Consulting Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Direct Group, Inc. California
- ------------------------------------------------------------------------------------------
Aon Direct Group, Inc. Pennsylvania
- ------------------------------------------------------------------------------------------
Aon Entertainment, Ltd. California
- ------------------------------------------------------------------------------------------
Aon Entertainment, Ltd. New York
- ------------------------------------------------------------------------------------------
Aon Entertainment, Ltd. (Divertissement Aon, Ltee.) Canada
- ------------------------------------------------------------------------------------------
Aon Financial Institutions Services, Inc. Illinois
- ------------------------------------------------------------------------------------------
Aon H&R, Inc. New York
- ------------------------------------------------------------------------------------------
Aon Holdings Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Insurance Management Services - Virgin Islands, Inc. U.S. Virgin Islands
- ------------------------------------------------------------------------------------------
Aon Insurance Management Services, Inc. Delaware
- ------------------------------------------------------------------------------------------
Aon Insurance Management of Texas, Inc. Texas
- ------------------------------------------------------------------------------------------
Aon Insurance Services California
- ------------------------------------------------------------------------------------------
Aon Insurance Services, Inc. Pennsylvania
- ------------------------------------------------------------------------------------------
Aon Intermediaries (Bermuda) Ltd. Bermuda
- ------------------------------------------------------------------------------------------
Aon Managed Care, Inc. California
- ------------------------------------------------------------------------------------------
Aon Nominees Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Overseas Holdings Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Partnership Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Re (Bermuda) Ltd. Bermuda
- ------------------------------------------------------------------------------------------
Aon Re Accident & Health Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Re Aviation Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Re Inc. Illinois
- ------------------------------------------------------------------------------------------
Aon Re International Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Re Latinoamericana, S.A. Mexico
- ------------------------------------------------------------------------------------------
Aon Re Non-Marine Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Re North American Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Re Panama, S.A. Panama
- ------------------------------------------------------------------------------------------
Aon Re Seascope Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Re Services, Inc. Delaware
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Aon Re Worldwide Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Re Worldwide, Inc. Delaware
- ------------------------------------------------------------------------------------------
Aon Reengineering & Consulting Services, Inc. Delaware
- ------------------------------------------------------------------------------------------
Aon Risk Consultants (Bermuda ) Ltd. Bermuda
- ------------------------------------------------------------------------------------------
Aon Risk Consultants (Europe) Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Risk Consultants, Inc. Illinois
- ------------------------------------------------------------------------------------------
Aon Risk Resources Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Risk Resources, Inc. Delaware
- ------------------------------------------------------------------------------------------
Aon Risk Services (Bermuda) Ltd. Bermuda
- ------------------------------------------------------------------------------------------
Aon Risk Services (Europe) S.A. Luxembourg
- ------------------------------------------------------------------------------------------
Aon Risk Services (Vermont) Inc. Vermont
- ------------------------------------------------------------------------------------------
Aon Risk Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Risk Services, Inc. Delaware
- ------------------------------------------------------------------------------------------
Aon Risk Services, Inc. U.S.A. New York
- ------------------------------------------------------------------------------------------
Aon Risk Technologies, Inc. Delaware
- ------------------------------------------------------------------------------------------
Aon Service Corporation Illinois
- ------------------------------------------------------------------------------------------
Aon Specialty Group of Tennessee, Inc. Tennessee
- ------------------------------------------------------------------------------------------
Aon Specialty Group, Inc. Delaware
- ------------------------------------------------------------------------------------------
Aon Specialty Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Technical Insurance Services, Inc. Illinois
- ------------------------------------------------------------------------------------------
Aon UK Limited United Kingdom
- ------------------------------------------------------------------------------------------
Aon Warranty Group, Inc. Illinois
- ------------------------------------------------------------------------------------------
Artscope Insurance Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Artscope International Insurance Services Agency GmbH Germany
- ------------------------------------------------------------------------------------------
Artscope International Insurance Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Ascom B.V. Netherlands
- ------------------------------------------------------------------------------------------
Asia Area Underwriters Ltd. Hong Kong
- ------------------------------------------------------------------------------------------
Assigned Settlement, Inc. Virginia
- ------------------------------------------------------------------------------------------
Assurantie Groep Langeveldt c.v. Netherlands
- ------------------------------------------------------------------------------------------
Atlantic Underwriters Agency, Incorporated Kentucky
- ------------------------------------------------------------------------------------------
Attorneys' Advantage Insurance Agency, Inc. Illinois
- ------------------------------------------------------------------------------------------
Auto Conduit Corporation, The Delaware
- ------------------------------------------------------------------------------------------
Automotive Development Centers, Inc. Illinois
- ------------------------------------------------------------------------------------------
B.V. Assurantiekantoor Langeveldt-Schroder Netherlands
- ------------------------------------------------------------------------------------------
BRIC, Inc. North Carolina
- ------------------------------------------------------------------------------------------
Banker's Acceptance, L.P. Illinois
- ------------------------------------------------------------------------------------------
Bankers Insurance Service Corp. Illinois
- ------------------------------------------------------------------------------------------
Bauer & Associates, Inc. Michigan
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
BenefitsMedia, Inc. Tennessee
- ------------------------------------------------------------------------------------------
Berkely Agency Ltd. New York
- ------------------------------------------------------------------------------------------
Berkely Coverage Corporation New York
- ------------------------------------------------------------------------------------------
Berkely-ARM, Inc. New York
- ------------------------------------------------------------------------------------------
BerkelyCare, LTD. New York
- ------------------------------------------------------------------------------------------
Big Sky Finance, L.P. Illinois
- ------------------------------------------------------------------------------------------
Blanco Finance, L.P. Illinois
- ------------------------------------------------------------------------------------------
Blom & Van der Aa BV Netherlands
- ------------------------------------------------------------------------------------------
Blom & Van der Aa Holding BV Netherlands
- ------------------------------------------------------------------------------------------
Brennan Group, Inc., The Delaware
- ------------------------------------------------------------------------------------------
Bruno Sforni S.p.A. Italy
- ------------------------------------------------------------------------------------------
Bruns Ten Brink & Co. b.v. Netherlands
- ------------------------------------------------------------------------------------------
Bruns Ten Brink Groep b.v. Netherlands
- ------------------------------------------------------------------------------------------
Bruns Ten Brink Herverzekeringen b.v. Netherlands
- ------------------------------------------------------------------------------------------
Bryson Associates Incorporated Pennsylvania
- ------------------------------------------------------------------------------------------
C.I.C. Realty, Inc. Illinois
- ------------------------------------------------------------------------------------------
C.V. 'T Huys Ter Merwe Netherlands
- ------------------------------------------------------------------------------------------
CCC Agency, Inc. of Illinois Illinois
- ------------------------------------------------------------------------------------------
CIC - Atlanta, Inc. Illinois
- ------------------------------------------------------------------------------------------
CIC - Hilldale, Inc. Illinois
- ------------------------------------------------------------------------------------------
CIC - Wells, Inc. Illinois
- ------------------------------------------------------------------------------------------
CIC - Westmont, Inc. Illinois
- ------------------------------------------------------------------------------------------
CICA - 123, Inc. Illinois
- ------------------------------------------------------------------------------------------
CICA - Court, Inc. Illinois
- ------------------------------------------------------------------------------------------
CICA Realty Corporation Illinois
- ------------------------------------------------------------------------------------------
CICA Seguros de Mexico SA de CV Mexico
- ------------------------------------------------------------------------------------------
CICA Superannuation Nominees Pty. Ltd. Australia
- ------------------------------------------------------------------------------------------
CJP, Inc. Delaware
- ------------------------------------------------------------------------------------------
Cabinet Servet et Baud S.a.r.l. Annecy France
- ------------------------------------------------------------------------------------------
California Auto Finance, L.P. Illinois
- ------------------------------------------------------------------------------------------
California Group Services California
- ------------------------------------------------------------------------------------------
Camperdown 100 Limited United Kingdom
- ------------------------------------------------------------------------------------------
Camperdown 101 Limited United Kingdom
- ------------------------------------------------------------------------------------------
Cananwill Corporation Delaware
- ------------------------------------------------------------------------------------------
Cananwill, Inc. California
- ------------------------------------------------------------------------------------------
Cananwill, Inc. Pennsylvania
- ------------------------------------------------------------------------------------------
Catz & Lips B.V. Netherlands
- ------------------------------------------------------------------------------------------
Central States Acceptance, L.P. Illinois
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Cinema Completions International, Inc. Delaware
- ------------------------------------------------------------------------------------------
Citadel Insurance Company Texas
- ------------------------------------------------------------------------------------------
City and County Purchasing Group Unknown
- ------------------------------------------------------------------------------------------
Cole Booth Potter of New Jersey, Inc. New Jersey
- ------------------------------------------------------------------------------------------
Cole Booth Potter, Inc. Pennsylvania
- ------------------------------------------------------------------------------------------
Combined Administrative Services Corp. Illinois
- ------------------------------------------------------------------------------------------
Combined Insurance Company of America Illinois
- ------------------------------------------------------------------------------------------
Combined Insurance Company of Ireland Limited Ireland
- ------------------------------------------------------------------------------------------
Combined Insurance Company of New Zealand Limited New Zealand
- ------------------------------------------------------------------------------------------
Combined Life Assurance Company Limited United Kingdom
- ------------------------------------------------------------------------------------------
Combined Life Assurance Company of Europe Limited Ireland
- ------------------------------------------------------------------------------------------
Combined Life Insurance Company of Australia Limited Australia
- ------------------------------------------------------------------------------------------
Combined Life Insurance Company of New York New York
- ------------------------------------------------------------------------------------------
CompLogic, Inc. Rhode Island
- ------------------------------------------------------------------------------------------
Consumer Program Administrators, Inc. Illinois
- ------------------------------------------------------------------------------------------
Cooreman & Saverys IBC & Co. nv Belgium
- ------------------------------------------------------------------------------------------
Cooreman & Saverys N.V. Belgium
- ------------------------------------------------------------------------------------------
Coughlan General Insurances Limited Ireland
- ------------------------------------------------------------------------------------------
Courtiers D'Assurances Rollins Hudig Hall du Quebec, Inc. Canada
- ------------------------------------------------------------------------------------------
Crotty MacRedmond Insurance Limited Ireland
- ------------------------------------------------------------------------------------------
Cush Finance Group, L.P. Illinois
- ------------------------------------------------------------------------------------------
Customer Loyalty Institute Michigan
- ------------------------------------------------------------------------------------------
D. Hudig & Co. b.v. Netherlands
- ------------------------------------------------------------------------------------------
D.W.F.S., L.P. Illinois
- ------------------------------------------------------------------------------------------
DPR, Dansk Pensionsradgivning A/S Denmark
- ------------------------------------------------------------------------------------------
Dealer Development Services, Ltd. United Kingdom
- ------------------------------------------------------------------------------------------
Deanborne Limited United Kingdom
- ------------------------------------------------------------------------------------------
Dearborn Insurance Company Illinois
- ------------------------------------------------------------------------------------------
Direct Co., Inc. Michigan
- ------------------------------------------------------------------------------------------
Dobson Park L. G. Limited Guernsey
- ------------------------------------------------------------------------------------------
Dominion Mutual Insurance Brokers Ltd. Canada
- ------------------------------------------------------------------------------------------
Don Flower Aviation Underwriters, Inc. Kansas
- ------------------------------------------------------------------------------------------
Dreadnaught Insurance Company Limited Bermuda
- ------------------------------------------------------------------------------------------
DuPage Acceptance, L.P. Illinois
- ------------------------------------------------------------------------------------------
E. Lillie & Co. Limited United Kingdom
- ------------------------------------------------------------------------------------------
ERCO Services, Inc. Ohio
- ------------------------------------------------------------------------------------------
Elm Lane Limited United Kingdom
- ------------------------------------------------------------------------------------------
Energy Insurance International, Inc. Texas
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Equiscope Insurance Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Excess Underwriters Agency, Inc. New York
- ------------------------------------------------------------------------------------------
Expatriate Consultancy Limited, The United Kingdom
- ------------------------------------------------------------------------------------------
FFRL Re Corp. Virginia
- ------------------------------------------------------------------------------------------
Fabels-Versteeg b.v. Netherlands
- ------------------------------------------------------------------------------------------
Far East Agency Korea
- ------------------------------------------------------------------------------------------
Finance Associates, Inc. Texas
- ------------------------------------------------------------------------------------------
Forth Financial Resources (Hawaii), Ltd. Hawaii
- ------------------------------------------------------------------------------------------
Forth Financial Resources Insurance Agency of Massachusetts, Inc. Massachusetts
- ------------------------------------------------------------------------------------------
Forth Financial Resources of Alabama, Inc. Alabama
- ------------------------------------------------------------------------------------------
Forth Financial Resources of Ohio, Inc. Ohio
- ------------------------------------------------------------------------------------------
Forth Financial Resources of Oklahoma Agency, Inc. Oklahoma
- ------------------------------------------------------------------------------------------
Forth Financial Resources of Texas, Inc. Texas
- ------------------------------------------------------------------------------------------
Forth Financial Resources, Ltd. Virginia
- ------------------------------------------------------------------------------------------
Forth Financial Securities Corporation Virginia
- ------------------------------------------------------------------------------------------
France Fenwick Limited United Kingdom
- ------------------------------------------------------------------------------------------
Frank B. Hall & Co. Holdings (N.Z.) Limited New Zealand
- ------------------------------------------------------------------------------------------
Frank B. Hall (Reinsurance) France S.A. France
- ------------------------------------------------------------------------------------------
Frank B. Hall Iberica S.A. Spain
- ------------------------------------------------------------------------------------------
Frank B. Hall Ireland Ltd. Ireland
- ------------------------------------------------------------------------------------------
Frank B. Hall Management Services Pty. Ltd. Australia
- ------------------------------------------------------------------------------------------
Frank B. Hall Re (Latin America) Inc. Panama
- ------------------------------------------------------------------------------------------
Friis & Company, Inc. California
- ------------------------------------------------------------------------------------------
G.E.F. Insurance Ltd. U.S. Virgin Islands
- ------------------------------------------------------------------------------------------
GBV Gesellschaft Fur Betriebliche Beratung und verwaltung GmbH Germany
- ------------------------------------------------------------------------------------------
Gateway Alternatives, L.L.C. Delaware
- ------------------------------------------------------------------------------------------
Gateway Insurance Company, Ltd. Bermuda
- ------------------------------------------------------------------------------------------
Go Pro Agency, Inc. of San Antonio Texas
- ------------------------------------------------------------------------------------------
Go Pro Life Agency, Inc. of San Antonio Texas
- ------------------------------------------------------------------------------------------
Go Pro Underwriting Managers of Virginia, Inc. Virginia
- ------------------------------------------------------------------------------------------
Go Pro Underwriting Managers, Inc. Texas
- ------------------------------------------------------------------------------------------
Godolphin Bloodstock Limited United Kingdom
- ------------------------------------------------------------------------------------------
Godwins (Overseas) Limited United Kingdom
- ------------------------------------------------------------------------------------------
Godwins (Trustees) Limited United Kingdom
- ------------------------------------------------------------------------------------------
Godwins Acquisition Co. North Carolina
- ------------------------------------------------------------------------------------------
Godwins Australia Pty. Limited Australia
- ------------------------------------------------------------------------------------------
Godwins Booke & Dickenson Insurance Services California
- ------------------------------------------------------------------------------------------
Godwins Booke & Dickenson Insurance Services, Inc. Massachusetts
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Godwins Booke & Dickenson, Inc. Ohio
- ------------------------------------------------------------------------------------------
Godwins Employee Benefits Services (Texas), Inc. Texas
- ------------------------------------------------------------------------------------------
Godwins General Agency, Inc. Texas
- ------------------------------------------------------------------------------------------
Godwins Group Limited United Kingdom
- ------------------------------------------------------------------------------------------
Godwins International, Inc. Delaware
- ------------------------------------------------------------------------------------------
Godwins Investment Advisors, Inc. Florida
- ------------------------------------------------------------------------------------------
Godwins Limited United Kingdom
- ------------------------------------------------------------------------------------------
Godwins Nederland pensioen- en employee benefits adviseurs en Netherlands
actuarissen c.v
- ------------------------------------------------------------------------------------------
Godwins Nominees Pty. Limited Australia
- ------------------------------------------------------------------------------------------
Godwins Securities, Inc. Washington
- ------------------------------------------------------------------------------------------
Godwins of New York, Inc. New York
- ------------------------------------------------------------------------------------------
Godwins, Inc. Pennsylvania
- ------------------------------------------------------------------------------------------
Gotuaco del Rosario & Associates, Inc. Philippines
- ------------------------------------------------------------------------------------------
Group Organization, Inc. District of Columbia
- ------------------------------------------------------------------------------------------
H.Z. Financial, Limited Partnership Illinois
- ------------------------------------------------------------------------------------------
HHL (Holdings) Ltd. Hong Kong
- ------------------------------------------------------------------------------------------
HHL (Taiwan) Ltd. Taiwan
- ------------------------------------------------------------------------------------------
HHL (Thailand) Ltd. Thailand
- ------------------------------------------------------------------------------------------
HHL Employee Benefits Ltd. Thailand
- ------------------------------------------------------------------------------------------
HHL Ltd. Hong Kong
- ------------------------------------------------------------------------------------------
HHL Management Ltd. Hong Kong
- ------------------------------------------------------------------------------------------
HHL Pte Ltd. Singapore
- ------------------------------------------------------------------------------------------
HHL Re Ltd. Thailand
- ------------------------------------------------------------------------------------------
HHL Reinsurance Brokers Inc. Philippines
- ------------------------------------------------------------------------------------------
HHL Reinsurance Brokers Pte. Ltd. Singapore
- ------------------------------------------------------------------------------------------
HHL Reinsurance Services Ltd. Hong Kong
- ------------------------------------------------------------------------------------------
HLS Hudig-Langeveldt Stanner GmbH Germany
- ------------------------------------------------------------------------------------------
HR Strategies, Inc. Michigan
- ------------------------------------------------------------------------------------------
Hanseatische Assekuranz Kontor GmbH Germany
- ------------------------------------------------------------------------------------------
Hanseatische Assekuranz Vermittlungs AG Germany
- ------------------------------------------------------------------------------------------
Havag Hudig-Langeveldt GmbH Germany
- ------------------------------------------------------------------------------------------
Heinz Hahn GmbH Germany
- ------------------------------------------------------------------------------------------
Heli Agency Korea
- ------------------------------------------------------------------------------------------
Highplain Limited United Kingdom
- ------------------------------------------------------------------------------------------
Hodgson McCreery & Company Limited United Kingdom
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Berlin GmbH Germany
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Borghuis B.V. Netherlands
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Coens N.V. Belgium
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Janson Elffers B.V. Netherlands
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Kyoritsu Ltd. Japan
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Makelaardij in Assurantien bv Netherlands
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Merwestad bv Netherlands
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Nijmegen B.V. Netherlands
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Pensioenbureau B.V. Netherlands
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Reinsurance B.V. Netherlands
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Reinsurance Brokers C.V. Netherlands
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt S.A. France
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt SECA S.A. France
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Tilburg B.V. Netherlands
- ------------------------------------------------------------------------------------------
Hudig-Langeveldt Van Bruggen & De Laat B.V. Netherlands
- ------------------------------------------------------------------------------------------
Huntington T. Block Insurance Agency, Inc. District of Columbia
- ------------------------------------------------------------------------------------------
Huntington T. Block Insurance Agency, Inc. Ohio
- ------------------------------------------------------------------------------------------
IRISC L.L.C. Delaware
- ------------------------------------------------------------------------------------------
IRISC Limited United Kingdom
- ------------------------------------------------------------------------------------------
IRISC Specialty, Inc. Delaware
- ------------------------------------------------------------------------------------------
IRISC, Inc. New Jersey
- ------------------------------------------------------------------------------------------
ISPP Purchasing Group Missouri
- ------------------------------------------------------------------------------------------
Impact Forecasting, L.L.C. Illinois
- ------------------------------------------------------------------------------------------
Independent Dealer Services, Inc. Missouri
- ------------------------------------------------------------------------------------------
Independent Homeowner Services, Inc. Missouri
- ------------------------------------------------------------------------------------------
Independent Inspections, Inc. Illinois
- ------------------------------------------------------------------------------------------
Inmobiliaria Ramos Rosada, S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------
Insurance Brokers Service, Inc. Illinois
- ------------------------------------------------------------------------------------------
Insurance Underwriters Agency, Inc. Arizona
- ------------------------------------------------------------------------------------------
Insurmark Agency Corp. Ohio
- ------------------------------------------------------------------------------------------
Intassco Versicherungsmakler GmbH Austria
- ------------------------------------------------------------------------------------------
Integrated Insurance Industries, Inc. Delaware
- ------------------------------------------------------------------------------------------
Integrated Insurance Industries, Inc. Missouri
- ------------------------------------------------------------------------------------------
Intercept Corporation Illinois
- ------------------------------------------------------------------------------------------
Interims Limited United Kingdom
- ------------------------------------------------------------------------------------------
International Industrial Insurances Limited Ireland
- ------------------------------------------------------------------------------------------
International Shipowners Mutual Insurance Association Limited Bermuda
- ------------------------------------------------------------------------------------------
Interocean (Italia) S.p.A. Italy
- ------------------------------------------------------------------------------------------
Interocean Reinsurance Company, S.A. Panama
- ------------------------------------------------------------------------------------------
J.C.J. Van Dalen Beheer B.V. Netherlands
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
J.H. Blades & Co. (Agency), Inc. Texas
- ------------------------------------------------------------------------------------------
J.H. Blades & Co., Inc. Texas
- ------------------------------------------------------------------------------------------
J.H. Blades Insurance Services California
- ------------------------------------------------------------------------------------------
J.H. Blades, Inc. Oklahoma
- ------------------------------------------------------------------------------------------
J.H. Lea & Company, Inc. Illinois
- ------------------------------------------------------------------------------------------
JFS Fenchurch Limited United Kingdom
- ------------------------------------------------------------------------------------------
JFS Greig Fester Limited United Kingdom
- ------------------------------------------------------------------------------------------
James S. Kemper & Co. International, Limited Bermuda
- ------------------------------------------------------------------------------------------
James S. Kemper Insurance Services, Inc. Texas
- ------------------------------------------------------------------------------------------
Jenner Fenton Slade (Special Risks) Limited United Kingdom
- ------------------------------------------------------------------------------------------
Jenner Fenton Slade Group Limited United Kingdom
- ------------------------------------------------------------------------------------------
Jenner Fenton Slade Limited United Kingdom
- ------------------------------------------------------------------------------------------
Jenner Fenton Slade Political Risks Limited United Kingdom
- ------------------------------------------------------------------------------------------
Jenner Fenton Slade Reinsurance Brokers Limited United Kingdom
- ------------------------------------------------------------------------------------------
Jenner Fenton Slade Surety and Specie Limited United Kingdom
- ------------------------------------------------------------------------------------------
John Scott Insurance Brokers Limited United Kingdom
- ------------------------------------------------------------------------------------------
K & K Insurance Group, Inc. Indiana
- ------------------------------------------------------------------------------------------
K & K Insurance Specialties, Inc. Indiana
- ------------------------------------------------------------------------------------------
K & K Specialties, Inc. Indiana
- ------------------------------------------------------------------------------------------
Karl Alt & Co. GmbH Germany
- ------------------------------------------------------------------------------------------
Keeling & Company California
- ------------------------------------------------------------------------------------------
Key-Royal Automotive Company, Inc. Alabama
- ------------------------------------------------------------------------------------------
Keystone Insurance Management, Inc. Unknown
- ------------------------------------------------------------------------------------------
Kininmonth Limited Ireland
- ------------------------------------------------------------------------------------------
L & G LMX Limited United Kingdom
- ------------------------------------------------------------------------------------------
L & G Seascope Insurance Holdings Limited United Kingdom
- ------------------------------------------------------------------------------------------
Langeveldt Groep B.V. Netherlands
- ------------------------------------------------------------------------------------------
Langeveldt de Vos b.v. Netherlands
- ------------------------------------------------------------------------------------------
Laverack & Haines, Inc. New York
- ------------------------------------------------------------------------------------------
Lescorp Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin (C.I.) Limited Guernsey
- ------------------------------------------------------------------------------------------
Leslie & Godwin (Reinsurance) Copenhagen A/S Denmark
- ------------------------------------------------------------------------------------------
Leslie & Godwin (Scotland) Limited Scotland
- ------------------------------------------------------------------------------------------
Leslie & Godwin (U.K.) Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin (WFG) Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin AXL Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Aviation Holdings Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Aviation Limited United Kingdom
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Leslie & Godwin Aviation Reinsurance Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Financial Risks Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin GmbH Germany
- ------------------------------------------------------------------------------------------
Leslie & Godwin Group Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Insurance Brokers Ltd. Ontario
- ------------------------------------------------------------------------------------------
Leslie & Godwin Insurance Brokers, Inc. New York
- ------------------------------------------------------------------------------------------
Leslie & Godwin International Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Investments Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Marine Holdings Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Non-Marine Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Overseas Reinsurance Holdings Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Reinsurance Holdings Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Risk Management Limited United Kingdom
- ------------------------------------------------------------------------------------------
Leslie & Godwin Technical Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Life Insurance Company of Virginia, The Virginia
- ------------------------------------------------------------------------------------------
Life of Virginia Series Fund, Inc. Virginia
- ------------------------------------------------------------------------------------------
Lloyd Paulista Corretores de Seguros e Reaseguros S.A. Brazil
- ------------------------------------------------------------------------------------------
London General Holdings Limited United Kingdom
- ------------------------------------------------------------------------------------------
London General Insurance Company Limited United Kingdom
- ------------------------------------------------------------------------------------------
Lowndes Lambert Insurance Limited Ireland
- ------------------------------------------------------------------------------------------
Lumley JFS Limited United Kingdom
- ------------------------------------------------------------------------------------------
Lynn & Schaller Insurance Brokers, Inc. California
- ------------------------------------------------------------------------------------------
MTSA S.a.r.l., Annecy France
- ------------------------------------------------------------------------------------------
MacDonagh & Boland (International) Limited Ireland
- ------------------------------------------------------------------------------------------
MacDonagh & Boland Group Limited Ireland
- ------------------------------------------------------------------------------------------
MacDonagh Boland Beech Hill Limited Ireland
- ------------------------------------------------------------------------------------------
MacDonagh Boland Crotty MacRedmond Limited Ireland
- ------------------------------------------------------------------------------------------
MacDonagh Boland Cullen Duggan Limited Ireland
- ------------------------------------------------------------------------------------------
MacDonagh Boland Foley Woollam Limited Ireland
- ------------------------------------------------------------------------------------------
Macey Clifton Walters Limited United Kingdom
- ------------------------------------------------------------------------------------------
Macey Williams Insurance Services Limited Ireland
- ------------------------------------------------------------------------------------------
Macey Williams Insurance Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Macey Williams Limited Ireland
- ------------------------------------------------------------------------------------------
Madison Intermediaries Pty. Limited Australia
- ------------------------------------------------------------------------------------------
Madison Reinsurance Holdings, Inc. Illinois
- ------------------------------------------------------------------------------------------
Mahamy Company plc (Rollins Hudig Hall Iran) Iran
- ------------------------------------------------------------------------------------------
Maritime Underwriters, Ltd. Bermuda
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Marketing and Training Resources, Inc. Illinois
- ------------------------------------------------------------------------------------------
Martin Boyer Company, Inc. Illinois
- ------------------------------------------------------------------------------------------
Mayflower National Life Insurance Company Indiana
- ------------------------------------------------------------------------------------------
Media/Professional Insurance Agency, Inc. Missouri
- ------------------------------------------------------------------------------------------
Media/Professional International Limited United Kingdom
- ------------------------------------------------------------------------------------------
Minahan Reinsurance Management Limited United Kingdom
- ------------------------------------------------------------------------------------------
Morency, Weible & Sapa, Inc. Illinois
- ------------------------------------------------------------------------------------------
Motorists Service Corporation Delaware
- ------------------------------------------------------------------------------------------
Motorplan Limited United Kingdom
- ------------------------------------------------------------------------------------------
Muirfield Underwriters, Ltd. Delaware
- ------------------------------------------------------------------------------------------
N.V. Assurantiehuis Holding (Curacao) Netherland Antilles
- ------------------------------------------------------------------------------------------
NB Life Agents, Inc. New York
- ------------------------------------------------------------------------------------------
NSU Benefit Corporation Indiana
- ------------------------------------------------------------------------------------------
Nask bv Netherlands
- ------------------------------------------------------------------------------------------
National Benefits Corporation Pennsylvania
- ------------------------------------------------------------------------------------------
National Care Provider Insurance, Inc. California
- ------------------------------------------------------------------------------------------
National Product Care Company Illinois
- ------------------------------------------------------------------------------------------
National Sports Underwriters, Inc. Indiana
- ------------------------------------------------------------------------------------------
Nesdale Holdings Limited New Zealand
- ------------------------------------------------------------------------------------------
Newco Properties, Inc. Virginia
- ------------------------------------------------------------------------------------------
Nicholson Chamberlain Colls Australia Limited Australia
- ------------------------------------------------------------------------------------------
Nicholson Chamberlain Colls Group Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Chamberlain Colls Marine Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie (North America) Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Accident & Health Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Agencies Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Asia Pte. Ltd. Singapore
- ------------------------------------------------------------------------------------------
Nicholson Leslie Australia Holdings Limited Australia
- ------------------------------------------------------------------------------------------
Nicholson Leslie Aviation Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Aviation Reinsurance Brokers United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie BankAssure Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Bankscope Insurance Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Bankscope Marine Insurance Consultants United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Energy Resources Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Financial Institutions Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Group Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie International (Reinsurance Brokers) Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie International Limited United Kingdom
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Nicholson Leslie International Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Investments Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Italia S.P.A. Italy
- ------------------------------------------------------------------------------------------
Nicholson Leslie Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Management Services United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Marine Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Nominees Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Non-Marine Reinsurance Brokers Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie North American Reinsurance Brokers, Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Property Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Seascope Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Leslie Special Risks Limited United Kingdom
- ------------------------------------------------------------------------------------------
Nicholson Stewart-Brown Limited United Kingdom
- ------------------------------------------------------------------------------------------
North Derbyshire Finance Company Limited, The United Kingdom
- ------------------------------------------------------------------------------------------
Nova Reinsurance Brokers, Inc. Illinois
- ------------------------------------------------------------------------------------------
OLD BENEFITS CORPORATION Illinois
- ------------------------------------------------------------------------------------------
OUM & Associates of California, A Corporation California
- ------------------------------------------------------------------------------------------
OUM & Associates of New York, A Corporation New York
- ------------------------------------------------------------------------------------------
OUM & Associates of Ohio, A Corporation Ohio
- ------------------------------------------------------------------------------------------
OUM & Associates, Inc., A Corporation Washington
- ------------------------------------------------------------------------------------------
OUM Risk Consultants, Inc. Washington
- ------------------------------------------------------------------------------------------
Oak Brook Holding, Inc. Delaware
- ------------------------------------------------------------------------------------------
Oak Brook Life Insurance Company Arizona
- ------------------------------------------------------------------------------------------
Oceanic Adjusters Limited New York
- ------------------------------------------------------------------------------------------
Ogle & Waters, Inc. Florida
- ------------------------------------------------------------------------------------------
Ohrinsoo Agency Korea
- ------------------------------------------------------------------------------------------
Olandis Insurance Agency, Inc. Illinois
- ------------------------------------------------------------------------------------------
Olarescu & B. I. Davis Asesores y Corredores de Seguros S.A. Peru
- ------------------------------------------------------------------------------------------
Old RHH North, Inc. California
- ------------------------------------------------------------------------------------------
P M R Re, Inc. New York
- ------------------------------------------------------------------------------------------
P.I. Consultants Ltd. Hong Kong
- ------------------------------------------------------------------------------------------
PFS, L.P. Illinois
- ------------------------------------------------------------------------------------------
PLCM Group, Inc. Florida
- ------------------------------------------------------------------------------------------
PLCM Group, Inc. Illinois
- ------------------------------------------------------------------------------------------
PLCM Group, Inc. Pennsylvania
- ------------------------------------------------------------------------------------------
PT RNJ Ratna Nusa Jaya Indonesia
- ------------------------------------------------------------------------------------------
Pandimar Consultants, Inc. New York
- ------------------------------------------------------------------------------------------
Paribas Assurantien B.V. Netherlands
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Parker Risk Management (Barbados) Ltd. Barbados
- ------------------------------------------------------------------------------------------
Parker Risk Management (Bermuda) Ltd. Bermuda
- ------------------------------------------------------------------------------------------
Parker Risk Management (Cayman) Ltd. Cayman Islands
- ------------------------------------------------------------------------------------------
Parker Risk Management (Guernsey) Ltd. Guernsey
- ------------------------------------------------------------------------------------------
Parker Risk Management (S) Pte Ltd Singapore
- ------------------------------------------------------------------------------------------
Parker Risk Management, Inc. Colorado
- ------------------------------------------------------------------------------------------
Pat Ryan & Associates, B.V. Netherlands
- ------------------------------------------------------------------------------------------
Pecos River Learning Centers, Inc. Minnesota
- ------------------------------------------------------------------------------------------
Pernas HHL Malaysia
- ------------------------------------------------------------------------------------------
Piercey Auto Group Finance, L.P. Illinois
- ------------------------------------------------------------------------------------------
Pikes Peak Holding Company, Inc. Delaware
- ------------------------------------------------------------------------------------------
Powell & Company Georgia
- ------------------------------------------------------------------------------------------
Preferred Risk Strategies, A Corporation Washington
- ------------------------------------------------------------------------------------------
Premier Auto Finance, Inc. Delaware
- ------------------------------------------------------------------------------------------
Premier Auto Finance, L.P. Illinois
- ------------------------------------------------------------------------------------------
Product Care, Inc. Illinois
- ------------------------------------------------------------------------------------------
Production Life Insurance Company Arizona
- ------------------------------------------------------------------------------------------
Professional Sports Insurance Co. Ltd. Bermuda
- ------------------------------------------------------------------------------------------
Property Owners Database Limited United Kingdom
- ------------------------------------------------------------------------------------------
Provider Services, Ltd. Bermuda
- ------------------------------------------------------------------------------------------
Pyramid Services, Inc. Connecticut
- ------------------------------------------------------------------------------------------
RAMRO y Asociados, S.C. Mexico
- ------------------------------------------------------------------------------------------
RBH Acquisition Co. Delaware
- ------------------------------------------------------------------------------------------
RBH Equities, Inc. New York
- ------------------------------------------------------------------------------------------
RBH General Agencies (Canada) Inc. Quebec
- ------------------------------------------------------------------------------------------
RHH Captive Management Ltd. Bermuda
- ------------------------------------------------------------------------------------------
RHH Empreendimentos e Servicos Ltda. Brazil
- ------------------------------------------------------------------------------------------
RHH Europe, Inc. Delaware
- ------------------------------------------------------------------------------------------
RHH Financial Services Group of New York, Inc. New York
- ------------------------------------------------------------------------------------------
RHH Financial Services Group, Inc. California
- ------------------------------------------------------------------------------------------
RHH Financial Services Group, Inc. Illinois
- ------------------------------------------------------------------------------------------
RHH Financial Services Group, Inc. Pennsylvania
- ------------------------------------------------------------------------------------------
RHH Financial Services Group, Inc. Texas
- ------------------------------------------------------------------------------------------
RHH General Agency, Inc. Texas
- ------------------------------------------------------------------------------------------
RHH Hazard Limited United Kingdom
- ------------------------------------------------------------------------------------------
RHH Life Agency of Texas, Inc. Texas
- ------------------------------------------------------------------------------------------
RHH Special Risks, Inc. Illinois
- ------------------------------------------------------------------------------------------
RHH/Albert G. Ruben Insurance Services, Inc. California
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
RIP Services Limited Guernsey
- ------------------------------------------------------------------------------------------
Rae Liness & Duffus Limited Scotland
- ------------------------------------------------------------------------------------------
Regent Acceptance, L.P. New Jersey
- ------------------------------------------------------------------------------------------
Resource Insurance Services, Inc. Indiana
- ------------------------------------------------------------------------------------------
Retailer Acceptance, L.P. Illinois
- ------------------------------------------------------------------------------------------
Rockford Holding, Inc. Delaware
- ------------------------------------------------------------------------------------------
Rockford Life Insurance Company Arizona
- ------------------------------------------------------------------------------------------
Rolins Hudig Hall (Sweden) A.B Sweden
- ------------------------------------------------------------------------------------------
Rollins Financial Brokers, Inc. Oklahoma
- ------------------------------------------------------------------------------------------
Rollins Financial Services Co. Illinois
- ------------------------------------------------------------------------------------------
Rollins Heath (Japan) Ltd. Japan
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall & Co. (N.S.W.) Pty. Ltd. Australia
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall (Bermuda) Limited Bermuda
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall (Finland) OY Finland
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall (Hong Kong) Ltd. Hong Kong
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall (Nederland) Limited United Kingdom
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall (Norway) A/S Norway
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall (Scandinavia) A/S Norway
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall (Scandinavia) Holding A/S Denmark
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall (Singapore) Pte Ltd Singapore
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Agency of Texas, Inc. Texas
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Antillen N.V. Netherland Antilles
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Aruba N.V. Netherland Antilles
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Associates B.V. Netherlands
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Ceska Republika spol.s r.o. Czech Republic
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Co. Delaware
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Consulting Italia srl Italy
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Denmark A/S Denmark
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Employee Benefits of Ohio, Inc. Ohio
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Entertainment Brokers Ltd. United Kingdom
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Espana Correduria de Seguros, SA Spain
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Groep B.V. Netherlands
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Group, Inc. Delaware
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Healthcare Risk, Inc. Florida
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Holdings (Deutschland) GmbH Germany
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Holdings Limited Australia
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Holdings Limited United Kingdom
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Holdings bv Netherlands
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Insurance Brokers, Inc. Ontario
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall International b.v. Netherlands
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Italia S.p.A. Italy
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Limited United Kingdom
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Magyarorszag Biztositasi Alkusz Hungary
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Mexico Mexico
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Middle East United Arab Emirates
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Nederland Makelaars in Assurantien bv Netherlands
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Netherlands b.v. Netherlands
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Polska Ltd. Poland
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Pty. Ltd. Australia
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Risk Management Services A/S Denmark
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Sigorta Brokerlik ve Musavirlik AS Turkey
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Slovensko spol.s r.o. Slovak Republic
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Surety & Guarantee Limited United Kingdom
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall Vancouver Inc. British Columbia
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall do Brazil Corretora de Seguros Ltda. Brazil
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Alabama, Inc. Alabama
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Alaska, Inc. Alaska
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Arizona, Inc. Arizona
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Arkansas, Inc. Arkansas
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Canada Inc. Canada
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Central California, Inc. Insurance Services California
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Colorado, Inc. Colorado
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Connecticut, Inc. Connecticut
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Florida, Inc. Florida
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Georgia, Inc. Georgia
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Hawaii, Inc. Hawaii
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Idaho, Inc. Idaho
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Illinois, Inc. Illinois
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Indiana, Inc. Indiana
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Kansas, Inc. Kansas
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Latin America, Inc. Delaware
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Louisiana, Inc. Louisiana
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Massachusetts, Inc. Massachusetts
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Michigan, Inc. Michigan
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Minnesota, Inc. Minnesota
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Missouri, Inc. Missouri
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Montana, Inc. Montana
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Nebraska, Inc. Nebraska
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Nevada, Inc. Nevada
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of New Jersey, Inc. New Jersey
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of New York, Inc. New York
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Northern California, Inc. Insurance Services California
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Ohio, Inc. Ohio
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Oklahoma, Inc. Oklahoma
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Oregon, Inc. Oregon
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Pennsylvania, Inc. Pennsylvania
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Rhode Island, Inc. Rhode Island
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Southern California, Inc. California
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Tennessee, Inc. Tennessee
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Utah, Inc. Utah
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Virginia, Inc. Virginia
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Washington, D.C., Inc. District of Columbia
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Washington, Inc. Washington
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Wisconsin, Inc. Wisconsin
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of Wyoming, Inc. Wyoming
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of the Americas, Inc. Illinois
- ------------------------------------------------------------------------------------------
Rollins Hudig Hall of the Carolina's North Carolina
- ------------------------------------------------------------------------------------------
Rollins Risk & Benefit Management Services, Inc. Nevada
- ------------------------------------------------------------------------------------------
Rollins Technical Services Co. Illinois
- ------------------------------------------------------------------------------------------
Rollins Technology Brokers, Inc. California
- ------------------------------------------------------------------------------------------
Roundwise Limited United Kingdom
- ------------------------------------------------------------------------------------------
Ryan Dealer Group of Alabama, Inc. Alabama
- ------------------------------------------------------------------------------------------
Ryan Dealer Group of Arizona Insurance Services, Inc. Arizona
- ------------------------------------------------------------------------------------------
Ryan Dealer Group of Indiana, Inc. Indiana
- ------------------------------------------------------------------------------------------
Ryan Dealer Group of Massachusetts Insurance Agency, Inc. Massachusetts
- ------------------------------------------------------------------------------------------
Ryan Dealer Group of Mississippi, P.A. Mississippi
- ------------------------------------------------------------------------------------------
Ryan Dealer Group of New Mexico, Inc. New Mexico
- ------------------------------------------------------------------------------------------
Ryan Dealer Group of Ohio Agency, Inc. Ohio
- ------------------------------------------------------------------------------------------
Ryan Dealer Group of Washington, Inc. Washington
- ------------------------------------------------------------------------------------------
Ryan Dealer Group, Inc Texas
- ------------------------------------------------------------------------------------------
Ryan Dealer Group, Inc. Illinois
- ------------------------------------------------------------------------------------------
Ryan Dealer Group, Inc. Mississippi
- ------------------------------------------------------------------------------------------
Ryan Dealer Insurance Services of California, Inc. California
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Ryan Financial Services, Inc. Illinois
- ------------------------------------------------------------------------------------------
Ryan Insurance Group Espana, Correduria de Seguros, S.A. Spain
- ------------------------------------------------------------------------------------------
Ryan Insurance Group France S.A.R.L. France
- ------------------------------------------------------------------------------------------
Ryan Insurance Group, Inc. Delaware
- ------------------------------------------------------------------------------------------
Ryan Warranty Services Canada, Inc. Canada
- ------------------------------------------------------------------------------------------
Ryan Warranty Services Quebec, Inc. Ontario
- ------------------------------------------------------------------------------------------
Ryan Warranty Services of Florida, Inc. Florida
- ------------------------------------------------------------------------------------------
Ryan Warranty Services, Inc. Delaware
- ------------------------------------------------------------------------------------------
Ryan/CSI, Inc. Illinois
- ------------------------------------------------------------------------------------------
SIS Services of New York, Inc. New York
- ------------------------------------------------------------------------------------------
SLE International Underwriters, Inc. Delaware
- ------------------------------------------------------------------------------------------
SLE Underwriters, Inc. Delaware
- ------------------------------------------------------------------------------------------
SLE Worldwide Australia Pty Limited Australia
- ------------------------------------------------------------------------------------------
SLE Worldwide Canada Brokers, Ltd. Ontario
- ------------------------------------------------------------------------------------------
SLE Worldwide Limited United Kingdom
- ------------------------------------------------------------------------------------------
SLE Worldwide Mexico, Agente de Seguros, S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------
SLE Worldwide, Inc. Delaware
- ------------------------------------------------------------------------------------------
SRS Management Antilles N.V. Netherland Antilles
- ------------------------------------------------------------------------------------------
Saat Van Marwijk Beheer B.V. Netherlands
- ------------------------------------------------------------------------------------------
Saat Van Marwijk Noordwijk B.V. Netherlands
- ------------------------------------------------------------------------------------------
Safeguard Risk Services (Bermuda) Ltd. Bermuda
- ------------------------------------------------------------------------------------------
Safeguard Risk Services Antilles N.V. Netherland Antilles
- ------------------------------------------------------------------------------------------
Safeguard Risk Services b.v. Netherlands
- ------------------------------------------------------------------------------------------
Sang Woon Agency Korea
- ------------------------------------------------------------------------------------------
Scarborough & Company Illinois
- ------------------------------------------------------------------------------------------
Scarborough & Company, Inc. Delaware
- ------------------------------------------------------------------------------------------
Scarborough Insurance Agency of Massachusetts, Inc. Massachusetts
- ------------------------------------------------------------------------------------------
Seascope Cargo Insurance Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Seascope Insurance Holdings Limited United Kingdom
- ------------------------------------------------------------------------------------------
Seascope Insurance Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Seascope Marine Insurance Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Seascope Marine Limited United Kingdom
- ------------------------------------------------------------------------------------------
Seascope Reinsurance Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Select Direct Limited Scotland
- ------------------------------------------------------------------------------------------
Self-Insurers Service, Inc. Delaware
- ------------------------------------------------------------------------------------------
Service Protection, Inc. Illinois
- ------------------------------------------------------------------------------------------
Service Saver, Incorporated Florida
- ------------------------------------------------------------------------------------------
ServicePlan, Inc. Illinois
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Servicios Y Garantias Ryan S.L. Spain
- ------------------------------------------------------------------------------------------
Sherwood Insurance Services California
- ------------------------------------------------------------------------------------------
Shoreline Insurance Agency, Inc. Rhode Island
- ------------------------------------------------------------------------------------------
Singer Group, Inc., The Texas
- ------------------------------------------------------------------------------------------
Singer Plan, Inc. Delaware
- ------------------------------------------------------------------------------------------
Skyline Agency, Ltd., The Illinois
- ------------------------------------------------------------------------------------------
Square One, Inc. Texas
- ------------------------------------------------------------------------------------------
Steetley Leslie & Godwin Limited Guernsey
- ------------------------------------------------------------------------------------------
Sterling Life Insurance Company Arizona
- ------------------------------------------------------------------------------------------
Stichting Employee Fund Hudig-Langeveldt Groep B.V. Netherlands
- ------------------------------------------------------------------------------------------
Stichting Verum-HLG Netherlands
- ------------------------------------------------------------------------------------------
Stichting Werknemerscertificaten HLG Netherlands
- ------------------------------------------------------------------------------------------
Superannuation Fund (CICNZ) Limited New Zealand
- ------------------------------------------------------------------------------------------
Suras B.V. Netherlands
- ------------------------------------------------------------------------------------------
Surety & Guarantee Consultants Limited United Kingdom
- ------------------------------------------------------------------------------------------
TREV Properties Corporation Delaware
- ------------------------------------------------------------------------------------------
Tabma-Hall Insurance Services Pty. Limited Australia
- ------------------------------------------------------------------------------------------
Tarik Acceptance, L.P. Unknown
- ------------------------------------------------------------------------------------------
Texas Star Insurance Agency Texas
- ------------------------------------------------------------------------------------------
Texecur Versicherungs Vermittlungs GmbH Germany
- ------------------------------------------------------------------------------------------
The Auto Leasing Corporation Delaware
- ------------------------------------------------------------------------------------------
Trans Caribbean Insurance Services, Inc. American Samoa
- ------------------------------------------------------------------------------------------
U.S. Rating Bureau, Inc. Delaware
- ------------------------------------------------------------------------------------------
Underwriters Marine Services Limited United Kingdom
- ------------------------------------------------------------------------------------------
Underwriters Marine Services of Texas, Inc. Texas
- ------------------------------------------------------------------------------------------
Underwriters Marine Services, Inc. Louisiana
- ------------------------------------------------------------------------------------------
Union Fidelity Life Insurance Company Illinois
- ------------------------------------------------------------------------------------------
Universal Acceptance, L.P. Illinois
- ------------------------------------------------------------------------------------------
VOL Properties Corporation Delaware
- ------------------------------------------------------------------------------------------
Verum-HLG B.V. Netherlands
- ------------------------------------------------------------------------------------------
Virginia Surety Company, Inc. Illinois
- ------------------------------------------------------------------------------------------
Wacus/Hudig-Langeveldt GmbH Germany
- ------------------------------------------------------------------------------------------
Wacus/Hudig-Langeveldt, Kreditversicherungsmakler und Beratungs Germany
GmbH
- ------------------------------------------------------------------------------------------
Walker Persson & Partners Limited United Kingdom
- ------------------------------------------------------------------------------------------
Western Premier Auto Finance, L.P. Unknown
- ------------------------------------------------------------------------------------------
Wexford Underwriting Managers, Inc. Delaware
- ------------------------------------------------------------------------------------------
Wilfredo Armstrong S.A. Argentina
- ------------------------------------------------------------------------------------------
Worldwide Integrated Services Company Texas
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Aon Corporation of our report dated February 8, 1996, included in the 1995
Annual Report to Stockholders of Aon Corporation.
Our audits also included the financial statement schedules of Aon Corporation
listed in Item 14(a). These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, with respect to which the date is February 8, 1996, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein. As discussed in Note 4 to the consolidated
financial statements in the 1995 Annual Report to Stockholders of Aon
Corporation, the Company changed its method of accounting for certain
investments in 1994.
We also consent to the incorporation by reference in the Registration Statements
pertaining to the employer's stock option and savings plans (Form S-8 Nos.
2-79114, 2-82791, 33-27984, 33-42575 and 33-59037) and the right to offer
preferred stock (Form S-3 No. 33-57562) of Aon Corporation of our report dated
February 8, 1996, with respect to the consolidated financial statements
incorporated herein by reference, and our report, included in the preceding
paragraph with respect to the financial statement schedules included in this
Annual Report (Form 10-K) of Aon Corporation.
/s/ ERNST & YOUNG LLP
------------------
ERNST & YOUNG LLP
Chicago, Illinois
March 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND> This schedule contains summary financial information extracted from
Consolidated Statements of Financial Position and Consolidated Statements of
Income and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 7,687
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,006
<MORTGAGE> 632
<REAL-ESTATE> 37
<TOTAL-INVEST> 10,639
<CASH> 115
<RECOVER-REINSURE> 19
<DEFERRED-ACQUISITION> 1,262
<TOTAL-ASSETS> 19,736
<POLICY-LOSSES> 1,475
<UNEARNED-PREMIUMS> 1,646
<POLICY-OTHER> 971
<POLICY-HOLDER-FUNDS> 5,464
<NOTES-PAYABLE> 907<F1>
<COMMON> 111<F2>
50
8<F3>
<OTHER-SE> 2,555
<TOTAL-LIABILITY-AND-EQUITY> 19,736
1,427
<INVESTMENT-INCOME> 329
<INVESTMENT-GAINS> 13
<OTHER-INCOME> 1,697<F4>
<BENEFITS> 699
<UNDERWRITING-AMORTIZATION> 208
<UNDERWRITING-OTHER> 2,101
<INCOME-PRETAX> 458
<INCOME-TAX> 154
<INCOME-CONTINUING> 304
<DISCONTINUED> 99
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403
<EPS-PRIMARY> 3.48
<EPS-DILUTED> 3.48
<RESERVE-OPEN> 681
<PROVISION-CURRENT> 1,084<F5>
<PROVISION-PRIOR> (68)<F5>
<PAYMENTS-CURRENT> 651
<PAYMENTS-PRIOR> 331
<RESERVE-CLOSE> 715
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Includes short-term borrowings and debt guarantee of ESOP.
<F2> Common stock at par value.
<F3> Preferred stock at par value.
<F4> Includes brokerage commissions and fees and other income.
<F5> Includes discontinued operations.
</FN>
</TABLE>
