Aon 10-Q 2023-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-7933

Aon plc

(Exact Name of Registrant as Specified in Its Charter)

Metropolitan Building, James Joyce Street, Dublin 1, Ireland D01 K0Y8

(Address of principal executive offices) (Zip Code)

+353 1 266 6000

(Registrant’s Telephone Number,

Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of class A ordinary shares of Aon plc, $0.01 nominal value, outstanding as of July 27, 2023: 202,866,793

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

This report contains certain statements related to future results, or states our intentions, beliefs, and expectations or predictions for the future, all of which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent management’s expectations or forecasts of future events. Forward-looking statements are typically identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “project,” “intend,” “plan,” “probably,” “potential,” “looking forward,” “continue,” and other similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will,” and “would.” You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. For example, we may use forward-looking statements when addressing topics such as: market and industry conditions, including competitive and pricing trends; changes in our business strategies and methods of generating revenue; the development and performance of our services and products; changes in the composition or level of our revenues; our cost structure and the outcome of cost-saving or restructuring initiatives; the outcome of contingencies; dividend policy; the expected impact of acquisitions, dispositions, and other significant transactions or the termination thereof; litigation and regulatory matters; pension obligations; cash flow and liquidity; expected effective tax rate; expected foreign currency translation impacts; potential changes in laws or future actions by regulators; and the impact of changes in accounting rules. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Potential factors, which may be revised or supplemented in subsequent reports filed or furnished with the Securities and Exchange Commission, that could impact results include:

• changes in the competitive environment, due to macroeconomic conditions (including impacts from instability in the banking or commercial real estate sectors) or otherwise, or damage to our reputation;

• fluctuations in currency exchange, interest or inflation rates that could impact our financial condition or results;

• changes in global equity and fixed income markets that could affect the return on invested assets;

• changes in the funded status of our various defined benefit pension plans and the impact of any increased pension funding resulting from those changes;

• the level of our debt and the terms thereof reducing our flexibility or increasing borrowing costs;

• rating agency actions that could limit our access to capital and our competitive position;

• our global tax rate being subject to a variety of different factors, including the adoption and implementation in the European Union, the United States, the United Kingdom, or other countries of the Organization for Economic Co-operation and Development tax proposals or other pending proposals in those and other countries, which could create volatility in that tax rate;

• changes in our accounting estimates and assumptions on our financial statements;

• limits on our subsidiaries’ ability to pay dividends or otherwise make payments to us;

• the impact of legal proceedings and other contingencies, including those arising from acquisition or disposition transactions, errors and omissions and other claims against us;

• the impact of, and potential challenges in complying with, laws and regulations of the jurisdictions in which we operate, particularly given the global nature of operations and the possibility of differing or conflicting laws and regulations, or the application or interpretation thereof, across such jurisdictions;

• the impact of any regulatory investigations brought in Ireland, the United Kingdom, the United States, and other countries;

• failure to protect intellectual property rights or allegations that we have infringed on the intellectual property rights of others;

• general economic and political conditions in the countries in which we do business around the world;

• the failure to retain, attract and develop experienced and qualified personnel;

• international risks associated with our global operations, including impacts from military conflicts or political instability, such as the ongoing Russian war in Ukraine;

• the effects of natural or man-made disasters, including the effects of the COVID-19 pandemic and other health pandemics and the impacts of climate change;

• any system or network disruption or breach resulting in operational interruption or improper disclosure of confidential, personal, or proprietary data, and resulting liabilities or damage to our reputation;

• our ability to develop, implement, update and enhance new technology;

• the actions taken by third parties that perform aspects of our business operations and client services;

• the extent to which we are exposed to certain risks, including lawsuits, related to our actions we may take in being responsible for making decisions on behalf of clients in our investment businesses or in other advisory services that we currently provide, or will provide in the future;

• our ability to continue, and the costs and risks associated with, growing, developing and integrating acquired business, and entering into new lines of business or products;

• our ability to secure regulatory approval and complete transactions, and the costs and risks associated with the failure to consummate proposed transactions;

• changes in commercial property and casualty markets, commercial premium rates or methods of compensation;

• our ability to develop and implement innovative growth strategies and initiatives intended to yield cost savings and the ability to achieve such growth or cost savings; and

• the effects of Irish law on our operating flexibility and the enforcement of judgments against us.

Any or all of our forward-looking statements may turn out to be inaccurate, and there are no guarantees about our performance. The factors identified above are not exhaustive. Aon and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, readers should not place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We are under no (and expressly disclaim any) obligation to update or alter any forward-looking statement that we may make from time to time, whether as a result of new information, future events, or otherwise. Further information about factors that could materially affect Aon, including our results of operations and financial condition, is contained in the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

These factors may be revised or supplemented in our subsequent periodic filings with the SEC.

Table of Contents

The below definitions apply throughout this report unless the context requires otherwise:

Part I Financial Information

Aon plc

Condensed Consolidated Statements of Income

(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

Aon plc

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

Aon plc

Condensed Consolidated Statements of Financial Position

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EXECUTIVE SUMMARY OF SECOND QUARTER 2023 FINANCIAL RESULTS

Aon plc is a leading global professional services firm providing a broad range of risk and human capital solutions. Through our experience, global reach, and comprehensive analytics, we help clients meet rapidly changing, increasingly complex, and interconnected challenges related to risk and people. We are committed to accelerating innovation to address unmet and evolving client needs, so that our clients are better informed, better advised, and able to make better decisions to protect and grow their business. Management remains focused on strengthening Aon and uniting the firm with one portfolio of capability enabled by data and analytics and one operating model to deliver additional insight, connectivity, and efficiency.

Financial Results

The following is a summary of our second quarter of 2023 financial results.

• Revenue increased $194 million, or 7%, to $3.2 billion compared to the prior year period reflecting organic revenue growth of 6% and a 2% favorable impact from fiduciary investment income, partially offset by a 1% unfavorable impact from foreign currency translation. For the first six months of 2023, revenue increased $395 million, or 6%, to $7.0 billion compared to the prior year period due primarily to organic revenue growth of 7% and a 2% favorable impact from fiduciary investment income, partially offset by a 2% unfavorable impact from foreign currency translation and a 1% unfavorable impact from acquisitions, divestitures, and other.

• Total operating expenses in the second quarter increased 2% to $2.3 billion compared to the prior year period due primarily to an increase in expense associated with 6% organic revenue growth and investments in long-term growth, partially offset by a decrease in certain legal settlements in the prior year period of $58 million that did not repeat in the second quarter of 2023. Operating expenses for the first six months of 2023 were $4.7 billion, an increase of $147 million compared to the prior year period primarily due to an increase in expense related to 7% organic revenue growth and investments in long-term growth, partially offset by a $77 million favorable impact from foreign currency translation and a decrease in certain legal settlements in the prior year period of $58 million that did not repeat in the first six months of 2023.

• Operating margin increased to 26.5% from 23.5% in the prior year period. The increase was driven by organic revenue growth of 6%, partially offset by an increase in operating expenses as listed above. Operating margin for the first six months of 2023 increased to 32.8% from 31.1% in the prior period. The increase was primarily driven by organic revenue growth of 7%, partially offset by an increase in operating expenses as listed above.

• Due to the factors set forth above, Net income increased $61 million, or 12%, to $575 million compared to the prior year period. For the first six months of 2023, Net income increased $92 million, or 6%, to $1.7 billion compared to the first six months of 2022.

• Diluted earnings per share was $2.71 compared to $2.33 per share for the prior year period. During the first six months of 2023, diluted earnings per share was $7.79 compared to $7.07 per share for the prior period.

• Cash flows provided by operations for the first six months of 2023 was flat at $1.1 billion compared to the prior year period, primarily due to strong operating income growth, offset in part by higher cash tax payments.

We focus on four key metrics not presented in accordance with U.S. GAAP that we communicate to shareholders: organic revenue growth, adjusted operating margin, adjusted diluted earnings per share, and free cash flow. These non-GAAP metrics should be viewed in addition to, not instead of, our Condensed Consolidated Financial Statements. The following is our measure of performance against these four metrics for the second quarter of 2023:

• Organic revenue growth is a non-GAAP measure defined under the caption “Review of Consolidated Results — Organic Revenue Growth.” Organic revenue growth was 6% for the second quarter of 2023, driven by ongoing strong retention, management of the renewal book, and net new business generation. Organic revenue growth was 7% for the first six months of 2023, driven by ongoing strong retention and net new business generation.

• Adjusted operating margin, a non-GAAP measure defined under the caption “Review of Consolidated Results — Adjusted Operating Margin,” was 27.3% for the second quarter of 2023 compared to 26.2% in the prior year period. The increase in adjusted operating margin primarily reflects organic revenue growth and increased fiduciary investment income, partially offset by increased expenses and investments in long-term growth. For the first six months of 2023, adjusted operating margin was 33.6% compared to 32.7% for the prior year period. The increase primarily reflects organic revenue growth and increased fiduciary investment income, partially offset by increased expenses and investments in long-term growth.

• Adjusted diluted earnings per share, a non-GAAP measure defined under the caption “Review of Consolidated Results — Adjusted Diluted Earnings per Share,” was $2.76 per share for the second quarter of 2023 and $7.93 per share for the first six months of 2023, compared to $2.63 and $7.47 per share for the respective prior year periods.

• Free cash flow, a non-GAAP measure defined under the caption “Review of Consolidated Results — Free Cash Flow,” decreased in the first six months of 2023 by $77 million from the prior year period, to $986 million, reflecting flat cash flows from operations and a $77 million increase in capital expenditures.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE

For many companies, the management of ESG risks and opportunities has become increasingly important, and ESG-related challenges, such as extreme weather events, supply chain disruptions, cyber events, regulatory changes, ongoing public health impacts, and the increased focus on workforce resilience in various work environments, continue to create volatility and uncertainty for our clients. At Aon, helping clients manage risk - including ESG risk - is at the core of what we do. Aon offers a wide range of risk assessment, consulting, and advisory solutions, many of which are significant parts of our core business offerings, designed to address and manage ESG issues for clients, and to enable our clients to create more sustainable value. We see significant opportunity in enhancing our impact and delivering innovative client solutions on ESG matters.

REVIEW OF CONSOLIDATED RESULTS

Summary of Results

Our consolidated results are as follows (in millions):

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We are exposed to potential fluctuations in earnings, cash flows, and the fair values of certain of our assets and liabilities due to changes in interest rates and foreign exchange rates. To manage the risk from these exposures, we enter into a variety of derivative instruments. We do not enter into derivatives or financial instruments for trading or speculative purposes.

The following discussion describes our specific exposures and the strategies we use to manage these risks. Refer to Note 2 “Summary of Significant Accounting Principles and Practices” in the Notes to Consolidated Financial Statements as discussed in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our accounting policies for financial instruments and derivatives.

Foreign Exchange Risk

We are subject to foreign exchange rate risk. Our primary exposures include exchange rates between the U.S. dollar and the euro, the British pound, the Canadian dollar, the Australian dollar, the Indian rupee, and the Japanese yen. We use over-the-counter options and forward contracts to reduce the impact of foreign currency risk to our financial statements.

Additionally, some of our non-U.S. brokerage subsidiaries receive revenue in currencies that differ from their functional currencies. Our U.K. subsidiaries earn a portion of their revenue in U.S. dollars, euro, and Japanese yen, but most of their expenses are incurred in British pounds. At June 30, 2023, we have hedged approximately 45% of our U.K. subsidiaries’ expected exposures to U.S. dollar, euro, and Japanese yen transactions for the years ending December 31, 2023 and 2024, respectively. We generally do not hedge exposures beyond three years.

We also use forward and option contracts to economically hedge foreign exchange risk associated with monetary balance sheet exposures, such as intercompany notes and short-term assets and liabilities that are denominated in a non-functional currency and are subject to remeasurement.

The translated value of revenues and expenses from our international brokerage operations are subject to fluctuations in foreign exchange rates. If we were to translate prior year results at current quarter exchange rates, diluted net income per share would have an unfavorable $0.05 impact and an unfavorable $0.19 impact during the three and six months ended June 30, 2023, respectively. Further, adjusted diluted earnings per share, a non-GAAP measure as defined and reconciled under the caption “Review of Consolidated Results — Adjusted Diluted Earnings Per Share,” would have an unfavorable $0.05 impact and an unfavorable $0.19 impact during the three and six months ended June 30, 2023, respectively, if we were to translate prior year results at current quarter exchange rates.

Interest Rate Risk

Our fiduciary investment income is affected by changes in international and domestic short-term interest rates. We monitor our net exposure to short-term interest rates and, as appropriate, hedge our exposure with various derivative financial instruments. This activity primarily relates to brokerage funds held on behalf of clients in the U.S. and in continental Europe. A decrease in global short-term interest rates adversely affects our fiduciary investment income.

Evaluation of disclosure controls and procedures. We have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report of June 30, 2023. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective such that the information relating to Aon, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in appropriate statute, SEC rules and forms, and is accumulated and communicated to Aon’s management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. No changes in Aon’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2023 that have materially affected, or that are reasonably likely to materially affect, Aon’s internal control over financial reporting.

Part II Other Information

Item 1. Legal Proceedings

See Note 14 “Claims, Lawsuits, and Other Contingencies” to our Financial Statements contained in Part I, Item 1 of this report, which is incorporated by reference herein.

The risk factors set forth in the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 reflect certain risks associated with existing and potential lines of business and contain “forward-looking statements” as discussed in “Information Concerning Forward-Looking Statements” elsewhere in this report. Readers should consider them in addition to the other information contained in this report as our business, financial condition or results of operations could be adversely affected if any of these risks actually occur.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following information relates to the purchase of equity securities by Aon or any affiliated purchaser during each month within the second quarter of 2023:

(1)Does not include commissions paid to repurchase shares.

(2)The Repurchase Program was established in April 2012 with $5.0 billion in authorized repurchases and was increased by $5.0 billion in authorized repurchases in each of November 2014, June 2017, and November 2020, and by $7.5 billion in February 2022 for a total of $27.5 billion in repurchase authorizations.

Unregistered Sales of Equity Securities

We did not make any unregistered sales of equity in the second quarter of 2023.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Special Awards

On July 26, 2023 (the “Grant Date”), the Organization and Compensation Committee (the “Committee”) of the Board of Directors of the Company approved one-time special awards (the “Special Awards”) to each of Christa Davies, the Company’s Executive Vice President and Chief Financial Officer, and Eric Andersen, the Company’s President (each of Ms. Davies and Mr. Andersen, a “Recipient” and together, “Recipients”), under the Aon plc 2011 Incentive Plan, as amended and restated.

In approving the Special Awards, the Committee considered the best interests of shareholders and the Company’s objectives of aligning compensation with performance, promoting retention of the Recipients, ensuring leadership continuity for the Company, delivering against our key financial metrics and driving significant shareholder value creation. The Committee considered Ms. Davies’ leadership of the Company’s Aon Business Services strategy to drive efficiency, innovation, and client service across the Company, and Mr. Andersen’s performance and responsibility for driving the Company’s growth initiatives across its solution lines. The Committee believes that the Special Awards will strengthen the Company’s Aon United strategy and promote the alignment of Ms. Davies’ and Mr. Andersen’s compensation and long-term shareholder value creation.

The Special Awards are in the form of 50,000 PSUs, which at target convert on a one-to-one basis to class A ordinary shares of the Company, with 0% to 200% of the target PSUs to vest on March 31, 2028 (the “Vesting Date”) based on the price of the Company’s class A ordinary shares from the Grant Date through the Vesting Date (the “Performance Period”). No PSUs will vest if the average closing price of class A ordinary shares of the Company for the 90 consecutive trading days ending on the Vesting Date is below $475 (the “Performance Hurdle”). Subject to achieving the Performance Hurdle, the number of PSUs to vest will be based upon the highest trading day average closing price of the class A ordinary shares of the Company for any 90 consecutive trading days during the Performance Period (the “Average Share Price”), as follows: (i) entry (50%) if the Average Share Price is $475, (ii) target (100%) if the Average Share Price is $500 and (iii) stretch (200%) if the Average Share Price is at least $550. If Average Share Price is between the entry, target and stretch levels, a proportionate number of PSUs between those levels will be earned.

The Special Award will be forfeited by a Recipient in the event of such Recipient’s retirement or voluntary resignation, including for good reason, prior to the Vesting Date. On or prior to March 31, 2026, upon a termination of a Recipient by the Company without cause, or upon death or disability, such Recipient will be eligible to earn a prorated portion (based on completed days of service during the Performance Period) of the target level of units, subject to achievement of the Performance Hurdle. If such a termination, or death of disability, occurs after March 31, 2026, then the Recipient will be eligible to earn a prorated portion (based on completed days of service during the Performance Period) of the level of achievement of performance at termination date, subject to achievement of the Performance Hurdle. In the event a change in control is consummated prior to the Vesting Date, the performance conditions will be tested at the time of such change in control utilizing the purchase share price. To the extent the performance conditions are achieved as of such date, the Special Award will remain subject to the time vesting requirements; provided, however, that in the event (i) the Special Award is not assumed by the buyer in such change-in-control transaction, or (ii) the Special Award is assumed, but the Recipient is terminated involuntarily without cause, or the Recipient resigns with good reason, during the two-year period immediately following such change in control, then the Special Award shall immediately vest.

The description of the Special Awards in this Part II, Item 5 is qualified in its entirety by reference to the Form of Performance Share Unit Agreement, which is filed as Exhibit 10.8 hereto and is incorporated herein by reference.

Andersen Employment Agreement

Also on July 26, 2023, Aon Corporation, a wholly owned subsidiary of the Company, entered into an Employment Agreement with Mr. Andersen (the “Employment Agreement”). Pursuant to the terms and conditions of the Employment Agreement, Mr. Andersen will continue to serve as President of the Company and Aon Corporation. The Employment Agreement is effective as of July 1, 2023, and expires on June 30, 2026, unless earlier terminated or extended. The Employment Agreement supersedes Mr. Andersen’s Letter Agreement confirming certain terms and conditions of his at-will employment dated as of May 11, 2018.

Pursuant to the Employment Agreement, Mr. Andersen is entitled to continue to receive a base salary of no less than $1,250,000 per year, which shall be reviewed annually on the Company’s regular executive salary review schedule, and shall be subject to adjustment at the discretion of the Company’s Chief Executive Officer and the Committee. In addition, Mr. Andersen will continue to be eligible for a target annual incentive bonus of no less than 200% of his base salary for 2023 and subsequent calendar years, payable pursuant to and in accordance with the Aon ISP in a combination of cash and restricted share units of the Company’s class A ordinary shares. The Employment Agreement provides that Mr. Andersen will continue to be eligible to participate in the Company’s LPP and that Mr. Andersen will receive a Special Award.

In the event of Mr. Andersen’s death or termination of employment due to his incapacity or disability during the term of the Employment Agreement, he or his heirs, executors or the administrators of his estate (as applicable) shall receive: (1) his accrued base salary through and including the date of his employment termination; (2) any unpaid annual bonus earned for the completed year (or other performance period) prior to Mr. Andersen’s employment termination; (3) any prorated annual incentive bonus (based on the target annual incentive for the bonus year in which his employment terminates) through and including the date of his employment termination; (4) other employee benefits to which he is entitled in accordance with the terms of such benefit plans and programs; and (5) payment or vesting of any long-term incentive awards that have been granted to him prior to the date of his employment termination, to the extent that such payment or vesting is provided for in the terms of the award agreements.

If the Company terminates Mr. Andersen’s employment for “cause” (as defined in the Employment Agreement), he will be entitled to receive: (1) his accrued base salary through and including the date of his employment termination, and (2) other vested employee benefits to which he is entitled upon his termination of employment, in accordance with the terms of such benefit plans and programs.

The Company may notify Mr. Andersen that his employment will be terminated upon the expiration of the Employment Period (as defined in the Employment Agreement); provided that the Company shall provide Mr. Andersen with a minimum of three hundred and sixty-five (365) days’ advance notice (“Notice”) of such termination. If the Employment Period expires prior to the end of the Notice period, Mr. Andersen will be converted to an at-will employee upon the expiration of the Employment Period and the termination shall be treated as a qualifying termination under the Aon plc Amended and Restated Senior Executive Combined Severance and Change in Control Plan (the “SE Plan”).

The Employment Agreement also provides that, if the Company removes Mr. Andersen from the role of President and/or reduces his substantive duties (“Company Removal”), or if Mr. Andersen notifies the Company in writing that he no longer wishes to perform the duties and responsibilities of President (“Executive Notification”), Mr. Andersen will remain employed through the Employment Period (with approval of the Chief Executive Officer in the case of Executive Notification) and shall be entitled to receive: (1) his base salary and annual incentive target bonus through the duration of the Employment Period; (2) pro rata vesting of any outstanding LPP awards through the duration of the Employment Period or through the date of Notification (as applicable); (3) continued vesting of any outstanding ISP awards; and (4) other employee benefits to which he is entitled at the date of Company Removal or Executive Notification (as applicable). In the event of Company Removal, Mr. Andersen would also be entitled to receive pro rata vesting of the Special Award through the duration of the Employment Period. The removal of Mr. Andersen from his role as President, Executive Notification, and/or any reduction in his duties by the Company is deemed not to be a qualifying termination under the SE Plan.

Mr. Andersen is subject to confidentiality provisions and non-competition and non-solicitation covenants that apply during his employment and for a period of two years following the termination of his employment without regard to the reason for such termination, each as set forth in the Employment Agreement.

The description of the Employment Agreement in this Part II, Item 5 is qualified in its entirety by reference to the full text of the Employment Agreement, a copy of which is attached hereto as Exhibit 10.7 and incorporated herein by reference.

Exhibits — The exhibits filed with this report are listed on the attached Exhibit Index.

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Exhibit Index