<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1999
REGISTRATION NO. 333-74483
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM F-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
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WILLIS CORROON GROUP WILLIS CORROON PARTNERS WILLIS CORROON
LIMITED CORPORATION
(Exact Name of Registrant (Exact Name of Registrant (Exact Name of Registrant
Parent Guarantor as Guarantor as Specified in Issuer as Specified in
Specified in its Charter) its Charter) its Charter)
ENGLAND AND WALES DELAWARE DELAWARE
(State or other (State or other (State or other
jurisdiction of jurisdiction of jurisdiction of
incorporation or incorporation or incorporation or
organization) organization) organization)
6411 6411 6411
(Primary Standard (Primary Standard (Primary Standard
Industrial Industrial Industrial
Classification Code Classification Code Classification Code
Number) Number) Number)
NONE 62-1761909 13-5654526
(I.R.S. Employer (I.R.S. Employer (I.R.S. Employer
Identification Number) Identification Number) Identification Number)
</TABLE>
--------------------------
TEN TRINITY SQUARE
LONDON EC3P 3AX
ENGLAND
(011) 44-171-488-8111
(Address, including zip code, and telephone number,
including area code, of registrant parent guarantor's principal executive
offices)
------------------------------
BART R. SCHWARTZ, ESQ.
26 CENTURY BOULEVARD
P.O. BOX 305026
NASHVILLE, TN 37214
(615) 872-3000
(Address, including zip code, and telephone number,
including area code, of registrant issuer's principal executive offices)
(Name, address, including zip code,
and telephone number, including area code, of agent for service)
------------------------------
WITH A COPY TO:
EDWARD P. TOLLEY III, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration number of the earlier effective
Registration Statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Registration Statement number of the earlier effective Registration Statement
for the same offering. / /
--------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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SUBJECT TO COMPLETION, DATED JULY 23, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
Prospectus
$550,000,000
[LOGO]
WILLIS CORROON CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING 9% SENIOR SUBORDINATED
NOTES DUE 2009 FOR 9% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
UNCONDITIONALLY GUARANTEED ON A SENIOR SUBORDINATED BASIS BY WILLIS CORROON
GROUP LIMITED AND WILLIS CORROON PARTNERS
THE EXCHANGE OFFER
- - Willis Corroon Corporation will exchange all outstanding notes that are
validly tendered and not validly withdrawn for an equal principal amount of
exchange notes that are freely tradeable.
- - You may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
- - The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended. We do not currently intend to extend the expiration
date.
THE EXCHANGE NOTES
- - The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the outstanding notes, except that the exchange
notes will be freely tradeable.
LISTING OF EXCHANGE NOTES
- - We have applied for listing of the exchange notes on the Luxembourg Stock
Exchange.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 16 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
--------------------------------------
The exchange notes are only being offered in the United Kingdom to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
business and neither this prospectus nor any other document issued in connection
with the offering may be passed on to any person in the United Kingdom unless
that person is sufficiently expert to understand the risks involved as described
in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom the document may
otherwise lawfully be issued or passed on. All applicable provisions of the
Financial Services Act 1986 must be complied with in respect of anything done in
relation to the exchange notes in, from or otherwise involving the United
Kingdom.
------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------------------
The date of this prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 16
Forward Looking Statements............ 30
Presentation of Currency and Financial
Information; Exchange Rates......... 31
The Tender Offer and Related
Financings.......................... 32
Use of Proceeds....................... 35
Capitalization........................ 36
Unaudited Condensed Pro Forma
Consolidated Financial
Information......................... 37
Selected Historical Consolidated
Financial Data...................... 43
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 44
Supplemental Constant Currency
Financial Data...................... 64
Business.............................. 67
Management............................ 89
Shareholders.......................... 94
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Certain Relationships and Related
Transactions........................ 98
Description of the Senior Credit
Facilities.......................... 99
Description of Preference Shares...... 102
The Exchange Offer.................... 104
Description of the Notes.............. 116
Registration Rights Agreement......... 177
United States Federal Income Tax
Consequences of the Exchange Offer.. 181
United States Federal Income Tax
Consequences to Non-U.S. Holders.... 181
Material United Kingdom Tax
Consequences of Payments by Willis
Corroon Group as Guarantor.......... 184
Material United Kingdom Tax
Consequences of the Exchange Offer.. 184
Book-Entry; Delivery and Form......... 185
Plan of Distribution.................. 189
Legal Matters......................... 190
Experts............................... 190
Where You Can Find More Information... 190
Listing and General Information....... 191
Index to Financial Statements......... F-1
Appendix A............................ A-1
</TABLE>
i
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS KEY INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU.
FOR A MORE COMPLETE UNDERSTANDING OF THE EXCHANGE OFFER, WE ENCOURAGE YOU TO
READ THIS PROSPECTUS IN ITS ENTIRETY. IN THIS PROSPECTUS, "WILLIS CORROON,"
"WE," "US" OR "OUR" REFERS TO WILLIS CORROON GROUP LIMITED AND ITS CONSOLIDATED
SUBSIDIARIES, EXCLUDING OUR "ASSOCIATES," ENTITIES IN WHICH WILLIS CORROON
MAINTAINS AN OWNERSHIP INTEREST OF AT LEAST 20% BUT NO MORE THAN 50%. UNLESS
OTHERWISE SPECIFICALLY INDICATED, ALL MARKET INFORMATION OR OTHER STATEMENTS
PRESENTED IN THIS PROSPECTUS REGARDING WILLIS CORROON'S POSITION RELATIVE TO ITS
COMPETITION ARE BASED UPON STATISTICAL DATA OR INFORMATION, INCLUDING BROKERAGE
REVENUES, PUBLISHED IN BUSINESS INSURANCE (JULY 20, 1998). FOR PURPOSES OF THE
BUSINESS INSURANCE RANKINGS, BROKERAGE REVENUES ARE DEFINED AS GROSS REVENUES
GENERATED BY INSURANCE BROKERAGE, CONSULTING AND RELATED SERVICES.
WILLIS CORROON
We are the third largest insurance broker in the world. We provide a
broad range of value-added risk management consulting and insurance brokering
services to some 50,000 clients worldwide. We trace our history to 1828 and we
are a leading insurance broker in the U.K., the U.S. and, directly and through
our associates, in many other countries. We are a recognized leader in providing
specialized risk management advisory and other services on a global basis to
clients in various industries.
We and our associates serve a diverse base of clients located in more
than 125 countries. With approximately 12,000 employees around the world and a
network of more than 250 offices in 69 countries, in each case including our
associates, we believe we are one of only three insurance brokers in the world
possessing the global operating presence, broad product expertise and extensive
distribution network necessary to effectively meet the global risk management
needs of many of our clients. For the twelve months ended December 31, 1998, our
Reported Revenues were L718.2 million ($1,192.2 million).
INDUSTRY OVERVIEW
Insurance brokers, such as Willis Corroon, provide essential services
to users of insurance and reinsurance products. Such users include corporations,
public institutions and insurance carriers. Brokers distribute insurance
products and provide highly specialized, and often highly technical, value-added
risk management consulting services. Through its knowledge of the insurance
market and risk
1
<PAGE>
management techniques, the broker provides value to its clients and the
insurance carriers with whom the broker deals by:
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VALUE TO CLIENTS VALUE TO INSURANCE CARRIERS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
- - assisting clients in their analysis of risk; - assessing a potential insurance user's risk management
- - helping clients formulate appropriate strategies to needs, structuring an appropriate insurance program to
manage those risks; meet those needs and placing risks to be insured with
- - negotiating insurance policy terms and conditions; an insurance carrier;
- - placing risks to be insured with insurance carriers - acting as a principal distribution channel for
through its distribution network and taking advantage insurance products; and
of its ability to place insurance at rates often lower - providing access to insurance buyers that most
than the client could achieve on its own; and insurance companies are not equipped to reach on their
- - providing specialized self-insurance consulting and own.
other risk management consulting services apart from
its traditional intermediary role.
</TABLE>
There are three main subsectors of the brokerage industry:
- retail brokering, which involves business and services transacted
between brokers and commercial or individual customers;
- wholesale brokering, which involves business and services transacted
between two brokers, or agents, when one broker uses the services or
products of another broker; and
- reinsurance brokering, which involves placing reinsurance coverage for
primary insurance and reinsurance carriers.
Industry revenue has been relatively stable in recent years. According
to BUSINESS INSURANCE, the 192 largest commercial insurance brokers globally
reported brokerage revenues totaling $16.7 billion in 1997. Recent consolidation
among the largest insurance brokers, however, has significantly altered the
industry's competitive dynamics. Significant factors in broker consolidation
include:
- the increased need by clients for products and services with a global
scope; and
- better economies of scale available to larger firms.
As a result, the insurance brokerage industry is now led by its three global
participants: Marsh & McLennan Companies, Inc. (with approximately 35% of the
worldwide market comprised of the 192 brokers in 1997 referred to above, 9% of
which is attributable to Sedgwick Group plc, a company acquired by Marsh &
McLennan in 1998), Aon Corporation (with approximately 24%) and Willis Corroon
(with approximately 7%). The industry is highly fragmented beyond these three
brokers with the next largest broker having less than a 3% share of the $16.7
billion market.
RECENT MANAGEMENT INITIATIVES
In 1996, we developed and launched a series of initiatives referred to
as the "change program." The change program was designed to enhance revenues,
improve efficiency and transition
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us from a traditional commission-based insurance broker to a more comprehensive
professional advisory services firm. As part of the change program, we
established certain key initiatives to:
- enhance operating efficiencies;
- intensify efforts to develop existing and new accounts;
- increase cross-selling of both existing and new products and services
to our existing clients; and
- maximize leverage in placing insurance with insurance carriers.
In addition, we developed initiatives focused on maximizing the talent and
expertise of our brokers and consultants. Accordingly, we:
- developed improved techniques for recruitment and assessment;
- instituted a new incentive structure for brokers in the U.S.;
- implemented a new and more frequent appraisal process, including peer
review;
- created new training and development programs;
- invested in technology to enhance communication among employees; and
- formed practice groups to share knowledge on specific industry or
product areas.
Currently, each of our business units has developed an action plan setting out
the implementation of the initiatives which make up the change program. These
action plans are presented annually to the board of directors of Willis Corroon
Group and there are related follow-up reports and presentations during the year.
For a complete discussion of our recent management initiatives, see
"Business--Recent Management Initiatives."
COMPETITIVE STRENGTHS
We believe that the following will enable us to develop our business in
that we have:
- a strong franchise with leading market positions;
- a strong global presence;
- an extensive and diverse client base;
- a broad array of client-oriented services and products;
- management with experience and incentives; and
- strong sponsorship.
For a complete discussion of our competitive strengths, see
"Business--Competitive Strengths."
BUSINESS STRATEGY
Our strategic objectives are to continue to grow revenues and cash flow
and to enhance our position as a leading global provider of risk management
services. The key elements of this strategy are to:
- capitalize on our strong global franchise;
- emphasize value-added services;
3
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- increase operating efficiencies; and
- pursue strategic growth opportunities.
For a complete discussion of our business strategy, see
"Business--Business Strategy."
THE ISSUER
Willis Corroon Corporation was incorporated in Delaware on December 20,
1928 and is an indirect, wholly-owned subsidiary of Willis Corroon Group
Limited. Willis Corroon Corporation is a holding company for the operations of
Willis Corroon's subsidiaries in North America. Willis Corroon Corporation's
principal executive offices are located at 26 Century Boulevard, P.O. Box
305026, Nashville, TN 37214, and its telephone number is (615) 872-3000.
THE GUARANTORS
Willis Corroon Group Limited is a company with limited liability
organized under the laws of England and Wales. Its principal executive offices
are located at Ten Trinity Square, London EC3P 3AX, England, and its telephone
number is (011) 44-171-488-8111. Willis Corroon Partners is a Delaware general
partnership, the 99.9% general partner of which is Willis Corroon Group Limited
and the 0.1% general partner of which is Willis Group Limited, a wholly-owned
subsidiary of Willis Corroon Group Limited. Willis Corroon Partners, formed on
November 11, 1998, has no independent operations, and its sole activity is to
hold the capital stock of Willis Corroon Corporation. Each of Willis Corroon
Group and Willis Corroon Partners have jointly and severally, fully and
unconditionally, guaranteed the outstanding notes and will jointly and
severally, fully and unconditionally, guarantee the exchange notes.
THE TENDER OFFER AND RELATED FINANCINGS
KKR 1996 Fund (Overseas), Limited Partnership, an Alberta Canada
limited partnership, formed Trinity Acquisition plc, a public limited company
organized under the laws of England and Wales, in order to make a cash tender
offer for all of the issued and outstanding ordinary shares of Willis Corroon
Group. Trinity Acquisition completed the acquisition procedure on November 10,
1998 and assumed ownership and control of Willis Corroon Group. The outstanding
notes were offered in connection with the tender offer in order to refinance
certain interim financings. See "The Tender Offer and Related Financings." Where
financial data is presented on a pro forma basis, it reflects the following
transactions, including three recent acquisitions, as though they had taken
place at the beginning of the period reflected in the financial data:
- the offering of the outstanding notes and the application of the
proceeds from that offering;
- the 50% interest in Gruppo Ital Brokers, which was acquired in July
1998, and its merger with our existing Italian operation;
- the 30% interest in Assurandrgruppen A/S, which was acquired in
September 1998; and
- the increased investment in our Spanish associate from 48% to 60% and
the reorganization of the existing Spanish and Portuguese operations in
July 1998.
RECENT DEVELOPMENTS
On May 14, 1999, we issued our results for the first quarter of 1999 as
measured against the corresponding period in the prior year. For the complete
text of the report containing our first quarter results, see Appendix A to this
prospectus.
4
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SUMMARY OF TERMS OF THE EXCHANGE OFFER
On February 2, 1999, Willis Corroon Corporation completed the private
offering of the outstanding notes. References to "notes" in this prospectus are
references to both the outstanding notes and the exchange notes.
Willis Corroon Corporation, Willis Corroon Partners and Willis Corroon
Group entered into an exchange and registration rights agreement with the
initial purchasers in the private offering in which we agreed to deliver to you
this prospectus and Willis Corroon Corporation agreed to complete the exchange
offer within 270 days after the date of original issuance of the outstanding
notes. In the exchange offer you are entitled to exchange your outstanding notes
for exchange notes which are identical in all material respects to the
outstanding notes except that:
- the exchange notes have been registered under the Securities Act;
- the exchange notes are not entitled to registration rights under the
exchange and registration rights agreement; and
- certain contingent interest rate provisions are no longer applicable.
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The Exchange Offer................ Willis Corroon Corporation is offering to exchange up to
$550 million aggregate principal amount of exchange
notes for up to $550 million aggregate principal amount
of outstanding notes. Outstanding notes may be exchanged
only in integral multiples of $1,000.
Resales........................... Based on an interpretation by the staff of the
Securities and Exchange Commission, the Commission, set
forth in no-action letters issued to third parties, we
believe that the exchange notes issued pursuant to the
exchange offer in exchange for outstanding notes may be
offered for resale, resold and otherwise transferred by
you (unless you are an "affiliate" of Willis Corroon
within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that
you are acquiring the exchange notes in the ordinary
course of your business and that you have not engaged
in, do not intend to engage in, and have no arrangement
or understanding with any person to participate in, a
distribution of the exchange notes.
Each participating broker-dealer that receives exchange
notes for its own account pursuant to the exchange offer
in exchange for outstanding notes that were acquired as
a result of market-making or other trading activity must
acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. See
"Plan of Distribution."
Any holder of outstanding notes who
- is an affiliate of Willis Corroon,
- does not acquire exchange notes in the ordinary course
of its business, or
- tenders in the exchange offer with the intention to
participate, or for the purpose of participating, in a
distribution of exchange notes,
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cannot rely on the position of the staff of the
Commission enunciated in Exxon Capital Holdings
Corporation, Morgan Stanley & Co. Incorporated or
similar no-action letters and, in the absence of an
exemption therefrom, must comply with the registration
and prospectus delivery requirements of the Securities
Act in connection with the resale of the exchange notes.
Expiration Date; Withdrawal
of Tenders...................... The exchange offer will expire at 5:00 p.m., New York
City time, on , 1999, or such later date and
time to which Willis Corroon Corporation extends the
expiration date. A tender of outstanding notes pursuant
to the exchange offer may be withdrawn at any time prior
to the expiration date. Any outstanding notes not
accepted for exchange for any reason will be returned
without expense to the tendering holder promptly after
the expiration or termination of the exchange offer.
Certain Conditions to the
Exchange Offer.................. The exchange offer is subject to customary conditions,
which Willis Corroon Corporation may waive. Please read
the section captioned "The Exchange Offer--Certain
Conditions to the Exchange Offer" of this prospectus for
more information regarding the conditions to the
exchange offer.
Procedures for Tendering
Outstanding Notes............... If you wish to accept the exchange offer, you must
complete, sign and date the accompanying letter of
transmittal, or a facsimile of the letter of
transmittal, according to the instructions contained in
this prospectus and the letter of transmittal. You must
also mail or otherwise deliver the letter of
transmittal, or a facsimile of the letter of
transmittal, together with the outstanding notes and any
other required documents, to the exchange agent at the
address set forth on the cover page of the letter of
transmittal. If you hold outstanding notes through The
Depository Trust Company, DTC, and wish to participate
in the exchange offer, you must comply with the
Automated Tender Offer Program procedures of DTC, by
which you will agree to be bound by the letter of
transmittal. By signing, or agreeing to be bound by, the
letter of transmittal, you will represent to us that,
among other things:
- any exchange notes that you receive will be acquired
in the ordinary course of your business;
- you have no arrangement or understanding with any
person or entity to participate in a distribution of the
exchange notes;
- if you are a broker-dealer that will receive exchange
notes for your own account in exchange for outstanding
notes that were acquired as a result of market-making
activities, that you will deliver a prospectus, as
required by law, in connection with any resale of such
exchange notes;
- you are not an "affiliate," as defined in Rule 405 of
the Securities Act, of Willis Corroon or, if you are an
affiliate, you will comply with any applicable
registration and prospectus delivery requirements of
the Securities Act; and
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- if you are a person in the United Kingdom, that your
ordinary activities involve you in acquiring, holding,
managing or disposing of investments, as principal or
agent, for the purposes of your business.
Special Procedures for
Beneficial Owners............... If you are a beneficial owner of outstanding notes which
are not registered in your name, and you wish to tender
such outstanding notes in the exchange offer, you should
contact the registered holder promptly and instruct such
registered holder to tender on your behalf. If you wish
to tender on your own behalf, you must, prior to
completing and executing the letter of transmittal and
delivering your outstanding notes, either make
appropriate arrangements to register ownership of the
outstanding notes in your name or obtain a properly
completed bond power from the registered holder.
Guaranteed Delivery
Procedures...................... If you wish to tender your outstanding notes and your
outstanding notes are not immediately available or you
cannot deliver your outstanding notes, the letter of
transmittal or any other documents required by the
letter of transmittal or comply with the applicable
procedures under DTC's Automated Tender Offer Program
prior to the expiration date, you must tender your
outstanding notes according to the guaranteed delivery
procedures set forth in this prospectus under "The
Exchange Offer--Guaranteed Delivery Procedures."
Effect on Holders of Outstanding
Notes........................... As a result of the making and consummation of the
exchange offer, we will have fulfilled a covenant
contained in the registration rights agreement and,
accordingly, there will be no increase in the interest
rate on the outstanding notes under the circumstances
described in the registration rights agreement. If you
are a holder of outstanding notes and you do not tender
your outstanding notes in the exchange offer, you will
continue to be entitled to all the rights and
limitations applicable to the outstanding notes in the
indenture, except as noted above.
To the extent that outstanding notes are tendered and
accepted in the exchange offer, the trading market for
outstanding notes could be adversely affected.
Consequences of Failure to
Exchange........................ All untendered outstanding notes will continue to be
subject to the restrictions on transfer provided for in
the outstanding notes and in the indenture. In general,
the outstanding notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws.
Other than in connection with the exchange offer, Willis
Corroon Corporation does not currently anticipate that
it will register the outstanding notes under the
Securities Act.
U.S. Federal Income
Tax Considerations.............. The exchange of outstanding notes for exchange notes in
the exchange offer will not be a taxable event for U.S.
federal
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income tax purposes. See "Certain United States Federal
Income Tax Consequences of the Exchange Offer."
Use of Proceeds................... We will not receive any cash proceeds from the issuance
of exchange notes pursuant to the exchange offer.
Exchange Agent.................... The Bank of New York is the exchange agent for the
exchange offer. The address and telephone number of the
exchange agent are set forth in the section captioned
"Exchange Offer-- Exchange Agent" of this prospectus.
<CAPTION>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
<S> <C>
Issuer............................ Willis Corroon Corporation
Securities Offered................ $550,000,000 in principal amount of 9% Senior
Subordinated Notes due 2009.
Maturity Date..................... February 1, 2009.
Interest.......................... Annual rate: 9%
Payment frequency: every six months on February 1 and
August 1.
First payment: August 1, 1999.
Optional Redemption............... On or after February 1, 2004, Willis Corroon Corporation
may redeem some or all of the notes at the redemption
prices listed in the section entitled "Description of
the Notes--Optional Redemption."
At any time on or prior to February 1, 2002, Willis
Corroon Corporation may redeem up to $192,500,000 of the
notes with the proceeds of certain public or private
offerings of equity at the price listed in the section
entitled "Description of the Notes--Optional
Redemption."
Change of Control................. Upon the occurrence of a change of control, you will
have the right to require Willis Corroon Corporation to
repurchase your notes at a price equal to 101% of the
principal amount together with accrued and unpaid
interest, if any, to the date of repurchase. See
"Description of the Notes--Repurchase at the Option of
Holders--Change of Control."
Ranking and Guarantees............ The outstanding notes are, and the exchange notes when
issued will be, guaranteed by Willis Corroon Group
Limited and Willis Corroon Partners. The notes and the
guarantees are unsecured senior subordinated debts.
The notes and the guarantees rank behind all of Willis
Corroon Corporation's current and future indebtedness
and the current and future indebtedness of Willis
Corroon Group and Willis Corroon Partners (other than
trade payables), except indebtedness that expressly
provides that it is not senior to the notes or the
guarantees and certain other types of indebtedness. See
"Description of the Notes--Subordination."
Assuming Willis Corroon Corporation had completed the
offering of the notes on December 31, 1998 and applied
the proceeds as intended, Willis Corroon Corporation:
- would have had $460.1 million (L277.2 million) of
senior secured debt to which the notes would be
subordinated; and
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- would have had no senior subordinated debt with which
the notes would rank equally.
Certain Covenants................. Willis Corroon Corporation issued the outstanding notes
and will issue the exchange notes under an indenture
with The Bank of New York, the trustee. The indenture,
among other things, restricts our ability and the
ability of our subsidiaries to:
- borrow money;
- pay dividends on stock, purchase stock or issue
certain types of stock;
- make investments;
- use assets as security in other transactions;
- sell certain assets or merge with or into other
companies; and
- guarantee other indebtedness.
For more details, see "Description of the Notes--Certain
Covenants."
Absence of a Public Market for the
Exchange Notes.................. The exchange notes generally will be freely transferable
but will also be new securities for which there will not
initially be a market. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the exchange notes. We have applied for
listing of the exchange notes on the Luxembourg Stock
Exchange. We understand that the initial purchasers in
the private offering of the outstanding notes intend to
make a market in the exchange notes. However, they are
not obligated to do so, and any market making with
respect to the exchange notes may be discontinued
without notice.
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF WILLIS CORROON
The summary consolidated financial data presented below for the three
years ended December 31, 1997 and the periods January 1 to September 1, 1998 and
September 2 to December 31, 1998 and as of the end of the four years in the
period ended December 31, 1998 have been derived from, and should be read in
conjunction with, the audited consolidated financial statements of Willis
Corroon and the notes thereto included elsewhere in this prospectus. Willis
Corroon prepares its consolidated financial statements in accordance with U.K.
GAAP, which differ in certain respects from U.S. GAAP. Under U.K. GAAP, the
acquisition of Willis Corroon by Trinity Acquisition has no impact on the
historical amounts reported subsequently by Willis Corroon and, accordingly,
combined amounts for the year ended December 31, 1998 are presented. Under U.S.
GAAP, the purchase of Willis Corroon by Trinity Acquisition established a new
basis of accounting from September 2, 1998 for the purchased assets and
liabilities. Accordingly, under U.S. GAAP, it is not appropriate to present
combined amounts for the year ended December 31, 1998. Reconciliations of net
income and shareholders' equity reflecting the significant differences between
U.K. GAAP and U.S. GAAP are set forth in those financial statements. See
Appendix A of this prospectus for Willis Corroon's results for the three month
period ended March 31, 1999.
<TABLE>
<CAPTION>
JANUARY 1 TO SEPTEMBER 2 TO
YEAR ENDED DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
------------------------------- ------------- ---------------
1995 1996 1997 1998 1998
--------- --------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
AMOUNTS IN ACCORDANCE WITH
U.K. GAAP:
STATEMENT OF INCOME DATA:
Continuing operations
Operating revenues....... L 706.4 L 725.0 L 692.0 L 468.8 L 249.2
Operating income before
exceptional items(b)... 79.4 87.8 92.1 56.8 26.0
Share of profit of
associates............. 6.8 3.5 1.9 7.7 (1.4)
Interest expense......... (7.2) (2.2) (0.7) (2.0) (1.2)
Income / (loss) before
tax.................... 62.4 91.6 95.5 (1.3) 17.1
Total operations
Net income / (loss)...... 29.0 54.2 56.9 (15.6) (25.7)
BALANCE SHEET DATA (AT END
OF PERIOD):
Total assets(c)............ 3,703.7 3,377.2 3,304.3 4,589.0
Total long-term debt(d).... 61.9 17.9 34.0 276.4
Total shareholders'
equity................... 120.6 151.9 124.6 89.0
OTHER FINANCIAL DATA:
EBITDA(e).................. 110.6 115.8 116.7 80.0 33.5
Adjusted EBITDA(f)......... 106.2 127.0 130.5 92.0 47.0
EBITDA margin(g)........... 14.7% 15.5% 16.6% 15.4% 14.0%
Cash flow from
operations............... L 103.0 L 63.7 L 113.4 L 127.5 L (97.7)
Cash flow from investing... 53.6 5.9 (69.5) (28.8) (31.9)
Cash flow from financing... (54.3) (43.3) 15.0 32.7 36.2
Depreciation and
amortization............. 24.4 24.5 22.7 15.5 8.9
Capital expenditures....... 21.6 28.9 26.5 20.1 9.8
Ratio of earnings to fixed
charges(h)............... 4.3x 7.6x 10.5x -- 10.9x
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1998 1998
-- ---------
<S> <C>
AMOUNTS IN ACCORDANCE WITH
U.K. GAAP:
STATEMENT OF INCOME DATA:
Continuing operations
Operating revenues.......L 718.0 $ 1,191.9(a)
Operating income before
exceptional items(b)...82.8 137.4
Share of profit of
associates.............6.3 10.5
Interest expense.........(3.2) (5.3)
Income / (loss) before
tax....................15.8 26.2
Total operations
Net income / (loss)......(41.3) (68.6)
BALANCE SHEET DATA (AT END
OF PERIOD):
Total assets(c)............4,589.0 7,617.7
Total long-term debt(d)....276.4 458.8
Total shareholders'
equity...................89.0 147.7
OTHER FINANCIAL DATA:
EBITDA(e)..................113.5 188.4
Adjusted EBITDA(f).........139.0 230.7
EBITDA margin(g)...........14.9% 14.9%
Cash flow from
operations...............L 29.8 $ 49.5
Cash flow from investing...(60.7) (100.3)
Cash flow from financing...68.9 114.4
Depreciation and
amortization.............24.4 40.5
Capital expenditures.......29.9 49.6
Ratio of earnings to fixed
charges(h)...............2.9x 2.9x
</TABLE>
See Notes to Summary Historical and Unaudited Pro Forma Consolidated Financial
Information
10
<PAGE>
<TABLE>
<CAPTION>
JANUARY 1 TO SEPTEMBER 2 TO
YEAR ENDED DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
------------------------------- ------------- ---------------
1995 1996 1997 1998 1998
--------- --------- --------- ------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
AMOUNTS IN ACCORDANCE WITH
U.S. GAAP:
STATEMENT OF INCOME DATA:
Continuing operations
Operating revenues....... L 706.4 L 725.0 L 692.0 L 468.8 L 249.2
Operating income......... 1.9 68.7 61.2 7.6 9.1
Interest expense......... (7.2) (2.2) (0.7) (2.0) (1.2)
Income / (loss) before
tax.................... 1.5 74.7 66.5 (5.1) 5.2
Share of profit of
associates, net of
tax.................... 6.0 2.9 1.6 7.6 (3.0)
Total operations
Net income / (loss)...... (18.0) 37.7 36.2 (19.0) (35.9)
BALANCE SHEET DATA (AT END
OF PERIOD):
Total assets(c)............ 4,376.0 3,953.5 3,763.4 5,369.9
Total long-term debt(d).... 61.9 17.9 34.0 276.4
Total shareholders'
equity................... 587.3 560.2 583.6 875.4
OTHER FINANCIAL DATA:
EBITDA(e).................. 110.6 115.8 116.7 80.0 33.5
Adjusted EBITDA(f)......... 106.2 127.0 130.5 92.0 47.0
EBITDA margin(g)........... 14.7% 15.5% 16.6% 15.4% 14.0%
Cash flow from
operations............... L 88.7 L 36.2 L 89.9 L 119.1 L (126.4)
Cash flow from investing... (37.3) (10.3) (60.4) 36.5 (27.4)
Cash flow from financing... (82.5) (71.3) (12.0) 19.4 27.9
Depreciation and
amortization............. 42.9 42.4 40.4 27.5 15.4
Capital expenditures....... 21.6 28.9 26.5 20.1 9.8
Ratio of earnings to fixed
charges(h)............... 1.0x 6.4x 7.6x -- 4.8x
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1998 1998
-- ---------
<S> <C>
AMOUNTS IN ACCORDANCE WITH
U.S. GAAP:
STATEMENT OF INCOME DATA:
Continuing operations
Operating revenues.......
Operating income.........
Interest expense.........
Income / (loss) before
tax....................
Share of profit of
associates, net of
tax....................
Total operations
Net income / (loss)......
BALANCE SHEET DATA (AT END
OF PERIOD):
Total assets(c)............L5,369.9 $ 8,914.0(a)
Total long-term debt(d)....276.4 458.8
Total shareholders'
equity...................875.4 1,453.2
OTHER FINANCIAL DATA:
EBITDA(e)..................
Adjusted EBITDA(f).........
EBITDA margin(g)...........
Cash flow from
operations...............
Cash flow from investing...
Cash flow from financing...
Depreciation and
amortization.............
Capital expenditures.......
Ratio of earnings to fixed
charges(h)...............
</TABLE>
See Notes to Summary Historical and Unaudited Pro Forma Consolidated Financial
Information
11
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF WILLIS CORROON
The following table sets forth summary pro forma statement of income
data, supplemental financial data and balance sheet data for Willis Corroon. The
pro forma consolidated financial information is derived from, and should be read
in conjunction with, the "Unaudited Condensed Pro Forma Consolidated Financial
Information" and the notes thereto included elsewhere in this prospectus. The
pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The pro forma statement of
income data give effect to the application of the proceeds from the sale of the
outstanding notes and the recent acquisitions as if those transactions had
occurred as of January 1, 1998. The pro forma balance sheet data give effect to
the application of the proceeds from the sale of the outstanding notes and the
recent acquisitions as if those transactions had occurred as of December 31,
1998. The pro forma financial data do not purport to represent what the
financial position or results of operations of Willis Corroon would actually
have been had such transactions in fact occurred on the assumed dates or to
project the financial position or results of operations of Willis Corroon for
any future period or date.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1998 1998
--------- ---------
<S> <C> <C>
(IN MILLIONS)
AMOUNTS IN ACCORDANCE WITH U.K. GAAP:
STATEMENT OF INCOME DATA:
Continuing operations
Operating revenues...................................................................... L735.3 $ 1,220.6(a)
Operating income before exceptional items(b)............................................ 86.0 142.8
Share of profit of associates........................................................... 6.7 11.1
Interest expense........................................................................ (53.4) (88.6)
Income / (loss) before tax.............................................................. (30.8) (51.1)
Total operations
Net income / (loss)..................................................................... (74.9) (124.3)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets(c)........................................................................... 4,589.0 7,617.7
Total long-term debt(d)................................................................... 598.3 993.2
Total shareholders' equity................................................................ 89.0 147.7
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges(h)..................................................... -- --
AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
STATEMENT OF INCOME DATA:
Continuing operations
Operating revenues...................................................................... L735.3 $ 1,220.6
Operating income........................................................................ 15.9 26.4
Interest expense........................................................................ (53.4) (88.6)
Income / (loss) before tax.............................................................. (50.5) (83.8)
Share of profit of associates, net of tax............................................... 4.9 8.1
Total operations
Net income / (loss)..................................................................... (91.9) (152.5)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets(c)........................................................................... 5,379.3 8,929.6
Total long-term debt(d)................................................................... 607.7 1,008.8
Total shareholders' equity................................................................ 875.4 1,453.2
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges(h)..................................................... -- --
</TABLE>
See Notes to Summary Historical and Unaudited Pro Forma Consolidated Financial
Information
12
<PAGE>
NOTES TO SUMMARY HISTORICAL AND UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(a) U.S. dollar amounts have been translated at the noon buying rate on December
31, 1998 of $1.66 = L1.00 solely for your convenience.
(b) Exceptional items charged against operating income from continuing
operations for the year ended December 31, 1995 consisted of losses of L16.6
million relating to properties that were surplus to operational
requirements. For the period January 1 to September 1, 1998, exceptional
items charged against operating income totalled L35.8 million and consisted
of provisions of L25.0 million for claims and costs associated with the
review of personal pension plans sold between 1988 and 1994 and costs of
L10.8 million incurred in connection with the acquisition of Willis Corroon
by Trinity Acquisition. For the period September 2 to December 31, 1998
exceptional items charged against operating income totalled L5.0 million and
consisted of debt issuance costs incurred in connection with the acquisition
of Willis Corroon by Trinity Acquisition. See Note 4 of the Notes to the
Consolidated Financial Statements. Under U.S. GAAP, such items are not
described as exceptional items.
(c) As an intermediary, Willis Corroon holds funds on a fiduciary basis for the
account of third parties, typically as a result of premiums received from
clients that are in transit to insurance carriers and claims due to clients
that are in transit from insurance carriers. These fiduciary amounts are
included in total assets but are not generally available to service Willis
Corroon's indebtedness or for other general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(d) Under U.K. GAAP, debt issuance costs of L9.4 million ($15.6 million) are
netted from the calculation of total debt and amortized over the life of the
debt. Under U.S. GAAP, such costs are recorded as an asset and amortized
over the life of the debt. Total long-term debt does not give effect to
dollar denominated intercompany debt owed to Trinity Acquisition pursuant to
group intercompany notes, which are subordinated in right of payment to the
notes, and which are offset by note receivables in the form of corresponding
pound sterling denominated Trinity intercompany notes. In addition, total
long-term debt does not give effect to a L92.9 million interest free
convertible loan owed to Trinity Acquisition, which was converted into
equity of Willis Corroon Group Limited on February 3, 1999.
(e) EBITDA is defined as operating income from continuing operations before
exceptional items and depreciation and amortization, plus share of profit of
associates. Willis Corroon's share of profit of associates was L6.8 million,
L3.5 million, L1.9 million and L6.3 million ($10.4 million) for 1995, 1996,
1997 and 1998 respectively. EBITDA is presented because management believes
that it is a useful indicator of a company's ability to incur and service
debt. EBITDA should not be considered by investors as an alternative to
operating income or net income, as determined in accordance with either U.K.
GAAP or U.S. GAAP, as an indicator of Willis Corroon's performance, nor as
an alternative to cash flows from operating activities, investing activities
or financing activities (as determined in accordance with either U.K. GAAP
or U.S. GAAP) as a measure of liquidity. Because all companies do not
calculate EBITDA identically, this presentation of EBITDA may not be
comparable to other similarly entitled measures of other companies. For U.S.
GAAP purposes, EBITDA has been defined so as to exclude:
- non-cash adjustments for pension costs of L1.7 million, L(12.1) million
and L(7.6) million ($(12.9) million) for 1995, 1996 and 1997,
respectively, and L(1.6) million and L(1.7) million for the periods
January 1 to September 1, 1998 and September 2 to December 31, 1998,
respectively, and
13
<PAGE>
- non-cash adjustments for revaluation of forward exchange contracts of
L(2.0) million, L10.9 million and L(5.6) million ($(9.5) million) for
1995, 1996 and 1997, respectively, and L0.2 million and L(3.7) million for
the periods January 1 to September 1, 1998, and September 2 to December
31, 1998, respectively.
The EBITDA data presented is, therefore, the same under U.S. GAAP as under
U.K. GAAP.
(f) As set forth in the following table, Adjusted EBITDA represents actual
EBITDA, adjusted to give effect to the following items:
- the dispositions described on page 46 under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" as if
they had occurred on January 1, 1995;
- pension review claims and costs relating to the review of personal pension
plans sold between 1988 and 1994;
- costs relating to Willis Corroon's brokers' contribution to the Lloyd's
Reconstruction and Renewal Plan;
- severance costs incurred in connection with the change program;
- other expenses relating to consulting costs incurred in connection with
the change program, costs relating to acquisitions of broker teams and
costs in connection with Willis Corroon's investment in the World
Insurance Network; and
- costs relating to the 1998 Projects described under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------------------------------------------
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO YEAR ENDED
DECEMBER 31, SEPTEMBER 1, DECEMBER 31, DECEMBER 31,
------------------------------- ----------------- ----------------- ---------------
1995 1996 1997 1998 1998 1998
--------- --------- --------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Operating income from continuing
operations before exceptional
items.............................. L 79.4 L 87.8 L 92.1 L56.8 L26.0 L 82.8
Share of profit of associates........ 6.8 3.5 1.9 7.7 (1.4) 6.3
Depreciation and amortization........ 24.4 24.5 22.7 15.5 8.9 24.4
--------- --------- --------- ----- ----- -------
EBITDA............................... L110.6 L115.8 L116.7 L80.0 L33.5 L 113.5
Adjustments for dispositions......... (6.1) (9.8) (4.1) 0.6 -- 0.6
Other adjustments before exceptional
items:
Pension Review..................... 1.0 0.2 2.3 -- -- --
Lloyd's Reconstruction and Renewal
Plan............................. -- 2.6 2.2 1.3 0.7 2.0
Severance.......................... -- 11.3 3.4 4.6 5.0 9.6
Other expenses..................... 0.7 6.9 10.0 4.4 6.1 10.5
1998 Projects...................... -- -- -- 1.1 1.7 2.8
--------- --------- --------- ----- ----- -------
Adjusted EBITDA...................... L106.2 L127.0 L130.5 L92.0 L47.0 L 139.0
--------- --------- --------- ----- ----- -------
--------- --------- --------- ----- ----- -------
</TABLE>
Adjusted EBITDA is presented because management believes that it is a useful
indicator to investors of Willis Corroon's ability to incur future debt and
to pay interest and principal on the notes, in each case based on Willis
Corroon's present expense structure and ongoing operations. Adjusted EBITDA
should not be considered by investors as an alternative to operating income
or net
14
<PAGE>
income, as determined in accordance with either U.K. GAAP or U.S. GAAP, as
an indicator of Willis Corroon's performance, nor as an alternative to cash
flows from operating activities, investing activities or financing
activities, as determined in accordance with either U.K. GAAP or U.S. GAAP,
as a measure of liquidity. Because all companies do not calculate EBITDA
identically, this presentation of Adjusted EBITDA may not be comparable to
EBITDA, Adjusted EBITDA or other similarly entitled measures of other
companies. Investors should not conclude from the presentation of Adjusted
EBITDA that additional costs arising from the same or similar items will not
be incurred in the future. The Pension Review, Lloyd's Reconstruction and
Renewal Plan and the change program are on-going and could result in
additional costs being incurred in the future.
(g) EBITDA margin represents EBITDA (less share of profit of associates) as a
percentage of Operating Revenues. EBITDA margin is presented because
management believes that it is a useful indicator to investors of Willis
Corroon's profitability.
(h) The ratio of earnings to fixed charges is computed by dividing earnings from
continuing operations by fixed charges. For these purposes, "earnings"
consists of income before taxation less the retained equity in share of
profits of associates and fixed charges. "Fixed charges" consists of
interest expense (including amortization of debt issuance costs) and the
interest element of operating lease rentals. After taking an exceptional
charge of L25 million in the period from January 1 to September 1, 1998 for
the estimated cost in connection with the pension review (see "--U.K.
Pension Review"), a L10.8 million exceptional charge for payment of fees and
expenses relating to the purchase of Willis Corroon Group by Trinity
Acquisition and a non-cash exceptional charge of L29.6 million on the
closure of Professional Liability Underwriting Management, earnings under
U.K. GAAP and U.S. GAAP for the period January 1 to September 1, 1998 and
the year ended December 31, 1998 on a pro forma basis were inadequate to
cover fixed charges. The amounts of the deficiencies were L7.1 million and
L35.1 million ($58.3 million), respectively, on a U.K. GAAP basis and L10.9
million and L54.8 million ($91.0 million), respectively, on a U.S. GAAP
basis.
15
<PAGE>
RISK FACTORS
BEFORE YOU PARTICIPATE IN THE EXCHANGE OFFER, YOU SHOULD BE AWARE THAT
THERE ARE VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY
CONSIDER THESE RISK FACTORS, TOGETHER WITH THE OTHER INFORMATION IN THIS
PROSPECTUS, BEFORE DECIDING TO PARTICIPATE IN THE EXCHANGE OFFER.
FAILURE TO EXCHANGE--IF YOU CHOOSE NOT TO EXCHANGE YOUR OUTSTANDING NOTES, THE
PRESENT TRANSFER RESTRICTIONS WILL REMAIN IN FORCE AND THE MARKET PRICE OF
YOUR OUTSTANDING NOTES COULD DECLINE.
If you do not exchange your outstanding notes for exchange notes under
the exchange offer, then you will continue to be subject to the transfer
restrictions on the outstanding notes as set forth in the offering memorandum
distributed in connection with the offering of the outstanding notes. In
general, the outstanding notes may not be offered or sold unless they are
registered or exempt from registration under the Securities Act and applicable
state securities laws. Except as required by the registration rights agreement,
we do not intend to register resales of the outstanding notes under the
Securities Act. You should refer to "Prospectus Summary--Summary of Terms of the
Exchange Offer" and "The Exchange Offer" for information about how to tender
your outstanding notes.
The tender of outstanding notes under the exchange offer will reduce
the principal amount of the outstanding notes outstanding, which may have an
adverse effect upon, and increase the volatility of, the market price of the
outstanding notes due to a reduction in liquidity.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
ABILITY TO OPERATE OUR BUSINESS AND OUR ABILITY TO BORROW MONEY IN THE
FUTURE, THEREBY PREVENTING US FROM FULFILLING OUR OBLIGATIONS UNDER THE
NOTES.
As a result of the offering of the outstanding notes and debt incurred
in connection with recent acquisitions, Willis Corroon has a substantial amount
of debt. The following chart shows certain important credit statistics and is
presented assuming that the offering of the outstanding notes and recent
acquisitions had taken place on December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Total long-term debt (net of L9.4 million of issuance costs and excluding unused commitments)... L598.3 million
Shareholders' equity............................................................................ L89.0 million
Debt to equity ratio (U.K. GAAP)................................................................ 6.7 to 1.0
Debt to equity ratio (U.S. GAAP)................................................................ 0.7 to 1.0
</TABLE>
Our high level of debt presents the following risks to you:
- our ability to satisfy our obligations with respect to the notes may be
impaired in the future;
- we may have difficulty borrowing money in the future for working
capital, capital expenditures, acquisitions or other purposes;
- we will need to use a large portion of the money earned by our
subsidiaries to pay principal and interest on the senior credit
facilities, the notes and on other debt, which will reduce the amount
of money available to us to finance our operations and other business
activities;
- we may have a much higher level of debt than our competitors, which may
put us at a competitive disadvantage;
- our debt level makes us more vulnerable to economic downturns and
adverse developments in our business;
16
<PAGE>
- our debt level reduces our flexibility in responding to changing
business and economic conditions, including increased competition in
the insurance brokerage industry; and
- our debt level limits our ability to pursue other business
opportunities, borrow more money for operations or capital in the
future and implement our business strategies.
ADDITIONAL BORROWINGS AVAILABLE--DESPITE CURRENT INDEBTEDNESS LEVELS, WE MAY
STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD INCREASE THE
IMPACT OF THE RISKS DESCRIBED ABOVE.
Subject to restrictions in our senior credit facilities and in the
indenture governing the notes, we may borrow more money for working capital,
capital expenditures, acquisitions or for other purposes. If new debt is added
to our current debt levels, the related risks that we now face could intensify.
ABILITY TO SERVICE DEBT--OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL. IF WE ARE UNABLE TO GENERATE THE SIGNIFICANT AMOUNT OF
CASH THAT WE REQUIRE TO SERVICE OUR INDEBTEDNESS, WE MAY NOT BE ABLE TO MAKE
PAYMENTS ON THE NOTES.
Our ability to make payments on or to refinance our indebtedness,
including the notes, and to fund planned capital expenditures will depend on our
ability to generate cash in the future. This, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond our control. See "--Premiums and Commissions."
After taking an exceptional charge of L25 million in the period from
January 1 to September 1, 1998 for the estimated cost in connection with the
pension review (see "--U.K. Pension Review"), a L10.8 million exceptional charge
for payment of fees and expenses relating to the purchase of Willis Corroon
Group by Trinity Acquisition and a non-cash exceptional charge of L29.6 million
on the closure of Professional Liability Underwriting Management, earnings under
U.K. GAAP and U.S. GAAP for the period from January 1 to September 1, 1998 were
inadequate to cover fixed charges. The amounts of the deficiencies were L7.1
million under U.K. GAAP and L10.9 million under U.S. GAAP. After giving pro
forma effect to the offering of the outstanding notes and the recent
acquisitions, our interest expense for the year ended December 31, 1998 would
have been L53.4 million. Pro forma earnings under U.K. GAAP and U.S. GAAP for
the year ended December 31, 1998 were inadequate to cover fixed charges. The
amounts of the deficiencies were L35.1 million under U.K. GAAP and L54.8 million
under U.S. GAAP.
We cannot assure you that our business will generate sufficient cash
flow, that currently anticipated cost savings and operating improvements will be
realized on schedule, or that future borrowings will be available to us under
our senior credit facilities in an amount sufficient to enable us to pay our
indebtedness, including the notes, and/or to fund our other liquidity needs. See
"--Implementation of Business Strategy."
CONTRACTUAL SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR
TO OUR EXISTING DEBT AND POSSIBLY TO ALL OUR FUTURE DEBT. IN ADDITION, THE
GUARANTEES ARE JUNIOR TO ALL THE GUARANTORS' EXISTING DEBT AND POSSIBLY TO
ALL THEIR FUTURE DEBT.
The notes are contractually subordinated in right of payment to all
senior indebtedness of Willis Corroon Corporation and the guarantees are
contractually subordinated in right of payment to all senior indebtedness of
Willis Corroon Group and Willis Corroon Partners. Assuming the offering of the
outstanding notes and the recent acquisitions had occurred on December 31, 1998,
Willis Corroon Corporation would have had approximately $460.1 million (L277.2
million) of senior indebtedness, excluding unused commitments, all of which
would have been secured, and Willis Corroon Group and Willis Corroon Partners
would have had no senior indebtedness, excluding their guarantees of a credit
17
<PAGE>
agreement. The indenture permits Willis Corroon Corporation to borrow certain
additional debt, which may be senior indebtedness.
If Willis Corroon Corporation is declared bankrupt or insolvent, or if
there is a payment default under any senior indebtedness, we are required to pay
the lenders under the senior credit facilities and any other creditors who are
holders of senior indebtedness in full before we pay you. Accordingly, we may
not have enough assets remaining after payments to holders of such senior
indebtedness to pay you. In addition, under certain circumstances, Willis
Corroon Corporation may not pay any amount on the notes if certain senior
indebtedness, including debt under the senior credit facilities, is not paid
when due or any other default on such senior indebtedness exists. See
"Description of the Notes-- Subordination."
Further, the senior credit facilities prohibit Willis Corroon
Corporation from repurchasing any notes prior to maturity, even though the
indenture requires us to offer to repurchase notes in certain circumstances. If
Willis Corroon Corporation, Willis Corroon Group or Willis Corroon Partners make
certain asset sales or if a change of control occurs when Willis Corroon
Corporation is prohibited from repurchasing notes, Willis Corroon Corporation
could ask its lenders under the senior credit facilities if it may repurchase
the notes or it could attempt to refinance the borrowings that contain such
prohibitions. If Willis Corroon Corporation does not obtain such a consent or
repay such borrowings, it would be unable to repurchase the notes. Willis
Corroon Corporation's failure to repurchase tendered notes at a time when such
repurchase is required by the indenture would constitute an event of default
under the indenture which, in turn, would constitute a default under the senior
credit facilities. In such circumstances, the subordination provisions in the
indenture would restrict payments to you. See "Description of the Senior Credit
Facilities" and "Description of the Notes--Subordination."
ASSET ENCUMBRANCES--IF WE DEFAULT UNDER OUR SENIOR DEBT, OUR SENIOR LENDERS CAN
FORECLOSE ON THE ASSETS WE HAVE PLEDGED TO SECURE PAYMENT OF THE SENIOR
CREDIT FACILITIES TO YOUR EXCLUSION.
In addition to being contractually subordinated to all existing and
future senior indebtedness, our obligations under the notes are unsecured while
our obligations under the senior credit facilities are secured by the pledge of
all of the capital stock of Willis Corroon Corporation, Willis Corroon Group and
certain direct subsidiaries of Willis Corroon Corporation and Willis Corroon
Group and a pledge of all the partnership interests of Willis Corroon Partners.
The pledge of stock owned by Willis Corroon Group is supported by a general lien
(known as a floating charge in the U.K.) filed in the U.K. against Willis
Corroon Group's assets. If we default under the senior credit facilities, the
lenders could declare all of the funds borrowed by Willis Corroon Corporation
under the senior credit facilities, together with accrued interest, immediately
due and payable. If we were unable to repay such indebtedness, the lenders could
foreclose on the pledged stock of our subsidiaries to your exclusion, even if an
event of default exists under the indenture at such time. Furthermore, under the
guarantees, if all shares of Willis Corroon Group or partnership interests of
Willis Corroon Partners are sold to persons pursuant to an enforcement of the
pledge of shares in Willis Corroon Group or the pledge of the partnership
interests in Willis Corroon Partners for the benefit of the senior lenders, then
the applicable guarantor will be released from its guarantee automatically and
immediately upon the sale. See "Description of the Notes--Guarantee."
HOLDING COMPANY STRUCTURE--BECAUSE EACH OF US IS A HOLDING COMPANY, THE
CREDITORS OF OUR SUBSIDIARIES IN A BANKRUPTCY WILL BE PAID FROM THE
SUBSIDIARIES' ASSETS BEFORE YOU HAVE ANY CLAIM TO SUCH ASSETS.
Willis Corroon Corporation is a holding company with assets at December
31, 1998 with a book value of $255 million, excluding the stock of its
subsidiaries and intercompany receivables. In addition, Willis Corroon Group is
a holding company with no significant assets other than
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- its 99.9% general partnership interest in Willis Corroon Partners and
the stock of Willis Corroon Partners' subsidiaries, including Willis
Corroon Corporation and Willis Corroon Corporation's subsidiaries, and
- the stock of Willis Corroon Group's U.K. and other subsidiaries.
Willis Corroon Partners is also a holding company with no significant assets
other than the stock of Willis Corroon Corporation and Willis Corroon
Corporation's subsidiaries. As a holding company, each of Willis Corroon
Corporation, Willis Corroon Group and Willis Corroon Partners is dependent upon
dividends or other intercompany transfers of funds from its respective
subsidiaries to meet its debt service and other obligations. Generally,
creditors of a subsidiary will have a superior claim to the assets and earnings
of such subsidiary than the claims of creditors of its parent company, except to
the extent the claims of the parent's creditors are guaranteed by the
subsidiary. The notes therefore will be effectively subordinated to creditors of
the direct and indirect subsidiaries of Willis Corroon Corporation and the
guarantees will be effectively subordinated to creditors of all of the direct
and indirect subsidiaries of Willis Corroon Group and Willis Corroon Partners,
other than Willis Corroon Corporation.
As of December 31, 1998:
- Willis Corroon Corporation's subsidiaries had total liabilities,
including payables in respect of insurance broking transactions but
excluding their guarantees under the senior credit facility agreement,
of L1,103.3 million; and
- Willis Corroon Group's subsidiaries, other than Willis Corroon
Partners, Willis Corroon Corporation and Willis Corroon Corporation's
subsidiaries, had total liabilities, including payables in respect of
insurance broking transactions but excluding their guarantees under the
senior credit facilities, of L2,345.0 million.
Although the indenture limits the ability of Willis Corroon
Corporation's, Willis Corroon Group's and Willis Corroon Partners' subsidiaries
to incur indebtedness and issue preferred stock, there are certain significant
qualifications and exceptions. The indenture does not limit such subsidiaries
from incurring liabilities that are excluded from the definitions of
indebtedness or preferred stock under the indenture. See "Description of the
Notes--Certain Covenants--Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock."
HOLDING COMPANY STRUCTURE--BECAUSE EACH OF US IS A HOLDING COMPANY, YOUR ABILITY
TO RECEIVE PAYMENTS ON THE NOTES IS DEPENDENT ON OUR ABILITY TO RECEIVE
DIVIDENDS FROM OUR SUBSIDIARIES, WHICH IN TURN DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
We expect to obtain the money to pay the principal and interest on the
notes, the senior credit facilities and other debt from the operations of our
subsidiaries and associates. We also expect TA II Limited, a company with
limited liability organized under the laws of England and Wales, and an indirect
parent of Willis Corroon, to obtain the money to pay dividends on its preference
shares from the same sources. Our ability to meet our expenses thus depends on
the future performance of our subsidiaries and associates, which will be
affected by financial, business, economic and other factors. We will not be able
to control many of these factors, such as economic conditions in the markets
where our subsidiaries operate and pressure from competitors. We cannot be
certain that the money earned by our subsidiaries will be sufficient to allow us
to pay principal and interest on our debt, including the notes, and meet our
other obligations. If we do not have enough money, we may be required to
refinance all or part of our existing debt, including the notes, sell assets or
borrow more money. We cannot guarantee that we will be able to refinance our
debt, sell assets or borrow more money on terms acceptable to us. In addition,
the terms of existing or future debt agreements, including the senior credit
facilities and the indenture, may restrict us from adopting any of these
alternatives.
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In addition, the ability of Willis Corroon Corporation's, Willis
Corroon Group's and Willis Corroon Partners' subsidiaries to pay dividends and
make other payments to them may be restricted by, among other things, applicable
corporate and other laws and regulations and agreements of the subsidiaries.
Although the indenture limits the ability of such subsidiaries to enter into
consensual restrictions on their ability to pay dividends and make other
payments, such limitations are subject to a number of significant qualifications
and exceptions. See "Description of the Notes--Certain Covenants--Dividend and
Other Payment Restrictions Affecting Subsidiaries."
U.K. INSOLVENCY LAW AND FRAUDULENT TRANSFER CONSIDERATIONS--U.K. INSOLVENCY LAW
IS MORE FAVORABLE TO SECURED CREDITORS THAN COMPARABLE U.S. LAW PROVISIONS
AND MAY INTERFERE WITH PAYMENTS UNDER WILLIS CORROON GROUP'S GUARANTEE.
U.K. insolvency and administrative laws generally are more favorable to
secured creditors than comparable provisions of U.S. laws and afford debtors
only limited protection from such creditors. As a result, your ability to
realize upon your claims against Willis Corroon Group may be more limited than
with a U.S. guarantor. In addition, under U.K. insolvency law, the liabilities
of Willis Corroon Group under its guarantee will be paid in the event of a
bankruptcy or similar proceeding only after repayment of certain debts of Willis
Corroon Group which are entitled to priority under U.K. law. Such debts may
include:
- amounts owed to U.K. Inland Revenue;
- amounts owed to U.K. Customs and Excise;
- amounts owed under U.K. Social Security contributions;
- amounts owed in respect of occupational pension schemes;
- amounts owed to employees; and
- liquidation expenses.
Under U.K. insolvency law, a court may rescind or vary a transaction
entered into by a company at less than fair value, if the company was insolvent
at the time of, or as a consequence of, the transaction and enters into a formal
insolvency process within two years of the completion of the transaction. The
basis for such rescission or variation could be a lack of fair consideration in
a transaction. A court generally will not intervene if the company entered the
transaction in good faith for the purposes of carrying on its business and there
were reasonable grounds for believing the transaction would benefit the company.
We believe that the guarantee by Willis Corroon Group was not issued at less
than fair value and that the guarantee was issued in good faith for the purposes
of carrying on Willis Corroon Group's business. Furthermore, we believe that
there are reasonable grounds for believing that the offering of the outstanding
notes would benefit Willis Corroon Group. We cannot provide any assurance,
however, that the issuance of the guarantee by Willis Corroon Group will not be
challenged by a liquidator or administrator or that a court would support our
analysis.
U.K. FINANCIAL ASSISTANCE LAW--WILLIS CORROON GROUP'S GUARANTEE MAY BE DECLARED
INVALID IF WILLIS CORROON GROUP DOES NOT COMPLY WITH U.K. FINANCIAL
ASSISTANCE LAW. IF ITS GUARANTEE IS DECLARED INVALID, WILLIS CORROON GROUP
WILL NOT BE OBLIGATED TO MAKE PAYMENTS IN RESPECT OF THE NOTES.
The provision of the guarantee by Willis Corroon Group and certain
terms of the exchange and registration rights agreement and the purchase
agreement relating to the issuance of the outstanding notes may have constituted
unlawful financial assistance under U.K. law. However, the Companies Act 1985 of
Great Britain provides an exemption procedure which can be used in certain
circumstances to approve actions which may otherwise constitute unlawful
financial assistance. Willis Corroon Group has sought to comply with this
procedure. The procedure requires certain statutory
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declarations by the directors of Willis Corroon Group relating to the solvency
of Willis Corroon Group and a report by the auditors of Willis Corroon Group as
to the reasonableness of such declarations in the circumstances. It is also
necessary that Willis Corroon Group had net assets which were not reduced as a
result of giving the financial assistance or, to the extent that they were
reduced, the assistance was provided out of distributable profits only. However,
if any of the requirements of the exemption procedure are not satisfied, and in
particular if the giving of the guarantee or the entry by Willis Corroon Group
into the exchange and registration rights agreement or the purchase agreement
reduced the net assets of Willis Corroon Group, then such guarantee or the entry
by Willis Corroon Group into the exchange and registration rights agreement or
the purchase agreement, as the case may be, would be invalid. We believe that
the requirements of the exemption procedure have been complied with.
Furthermore, we believe that the issue of the guarantee and the entry by Willis
Corroon Group into the exchange and registration rights agreement and/or the
purchase agreement did not result in a reduction of the net assets of Willis
Corroon Group, because we believe that the liabilities under the guarantee and
the exchange and registration rights agreement and the purchase agreement were
not likely to be or not certain to be incurred. However, we can provide no
assurance that a court or a liquidator would concur with our view.
U.S. FRAUDULENT TRANSFER CONSIDERATIONS--U.S. BANKRUPTCY OR FRAUDULENT
CONVEYANCE LAW MAY INTERFERE WITH THE PAYMENT OF THE NOTES.
Under the U.S. federal bankruptcy law and comparable provisions of
state fraudulent transfer laws, an obligation of Willis Corroon Corporation,
including the notes, could be voided, or subordinated to all other debts of
Willis Corroon Corporation if, among other things, at the time it issued the
notes Willis Corroon Corporation,
- incurred such debt with the intent of hindering, delaying or defrauding
current or future creditors; or
- received less than reasonably equivalent value or fair consideration
for incurring such debt; and
- was insolvent or was rendered insolvent by reason of such
incurrence;
- was engaged, or about to engage, in a business or transaction
for which the assets remaining with Willis Corroon Corporation
constituted unreasonably small capital to carry on its
business;
- intended to incur, or believed that it would incur, debts
beyond its ability to pay as such debts matured; or
- was a defendant in an action for money damages, or had a
judgment for money damages docketed against it if, in either
case, after final judgment the judgment was unsatisfied.
The measure of insolvency for purposes of the foregoing considerations
will vary depending upon the law of the jurisdiction that is being applied in
any such proceeding. Generally, however, Willis Corroon Corporation would be
considered insolvent if, at the time it incurred the indebtedness, either
- the sum of its debts, including contingent liabilities, is greater than
its assets, at fair valuation, or
- the present fair saleable value of its assets is less than the amount
required to pay the probable liability on its total existing debts and
liabilities, including contingent liabilities, as they become absolute
and matured.
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On the basis of our analysis, internal cash flow projections, estimated
values of Willis Corroon Corporation's assets and liabilities and other factors,
we believe that at the time Willis Corroon Corporation initially incurred
indebtedness represented by the outstanding notes, Willis Corroon Corporation
- was not insolvent nor rendered insolvent as a result of the issuance of
the notes,
- was in possession of sufficient capital to run its businesses
effectively,
- was incurring debts within its ability to pay as the same matured or
became due and
- had sufficient assets to satisfy any probable money judgment against it
in any pending action.
There can be no assurance, however, as to what standard a court would apply in
making such determinations or that a court passing on such questions would reach
the same conclusions.
LACK OF PUBLIC MARKET--YOU MAY NOT BE ABLE TO SELL YOUR EXCHANGE NOTES.
There is no existing market for the exchange notes, and there can be no
assurance as to the liquidity of any markets that may develop for the exchange
notes, your ability to sell your exchange notes or the prices at which you would
be able to sell your exchange notes. Future trading prices of the exchange notes
will depend on many factors, including, among other things, prevailing interest
rates, our operating results and the market for similar securities. We
understand that the initial purchasers of the outstanding notes currently intend
to make a market in the exchange notes. However, they are not obligated to do so
and any market making may be discontinued at any time without notice. The
outstanding notes are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages system, PORTAL, of the Nasdaq Stock Market,
Inc. and are listed on the Luxembourg Stock Exchange. We have applied for
listing of the exchange notes on the Luxembourg Stock Exchange.
Historically, the market for non-investment grade debt has been subject
to disruptions that have caused volatility in prices. It is possible that the
market for the exchange notes will be subject to disruptions. Any such
disruptions may have a negative effect on you, as a holder of the exchange
notes, regardless of our prospects and financial performance.
FINANCING CHANGE OF CONTROL OFFER--WE MAY NOT BE ABLE TO FINANCE A CHANGE OF
CONTROL OFFER REQUIRED BY THE INDENTURE, WHICH MAY CONSTITUTE AN EVENT OF
DEFAULT UNDER THE INDENTURE. THIS EVENT MAY CAUSE THE ACCELERATION OF OUR
SENIOR DEBT, WHICH, IN TURN, MAY CAUSE US TO FAIL TO MAKE PAYMENTS ON THE
NOTES.
Upon a change of control under the indenture, Willis Corroon
Corporation will be required to offer to purchase all of the notes then
outstanding at 101% of their principal amount, plus accrued interest to the date
of repurchase. If a change of control were to occur, we can provide no assurance
that Willis Corroon Corporation would have sufficient funds to pay the purchase
price for the notes then outstanding, and we can provide no assurance that
Willis Corroon Corporation would be able to obtain third party financing on
favorable terms, if at all. In addition, the senior credit facilities restrict
Willis Corroon Corporation's ability to repurchase the notes, including pursuant
to an offer in connection with a change of control. A change of control under
the indenture will result in an event of default under the senior credit
facilities and may cause the acceleration of other senior indebtedness, if any,
in which case the subordination provisions of the notes would require payment in
full of the senior credit facilities and any other senior indebtedness before
repurchase of the notes. See "Description of the Notes-- Repurchase at the
Option of Holders--Change of Control" and "Description of the Senior Credit
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Facilities." The inability to repay senior indebtedness, if accelerated, and to
purchase all of the tendered notes, would constitute an event of default under
the indenture.
PREMIUMS AND COMMISSIONS--WE DO NOT CONTROL THE PREMIUMS ON WHICH OUR
COMMISSIONS ARE BASED AND CHANGES IN THESE PREMIUMS MAY AFFECT OUR ABILITY
TO SERVICE AND REPAY OUR DEBT, INCLUDING THE NOTES.
Willis Corroon is primarily engaged in insurance brokerage activities,
and derives most of its revenues from commissions and fees for brokering and
consulting services. Willis Corroon does not determine insurance premiums on
which commissions are generally based. Historically, premiums have been cyclical
in nature and have varied widely based on market conditions. Since the late
1980s, general premium levels have been depressed as a result of a number of
factors, including:
- the expanded underwriting capacity of insurance carriers;
- consolidation of both insurance intermediaries and insurance carriers;
and
- increased competition.
In addition, as traditional risk-bearing insurance carriers continue to
outsource the production of premium revenue to non-affiliated agents or brokers
such as Willis Corroon, such insurance carriers may seek to further reduce their
expenses by reducing the commission rates payable to such insurance agents or
brokers. Such a reduction would reduce our revenues and therefore, our ability
to service and repay our indebtedness, including the notes. We cannot predict
the timing or extent of future changes in commission rates or premiums and
therefore cannot predict the effect, if any, that such changes would have on our
operations. See "Business--Industry Overview."
SOVEREIGN/WFUM--THE OUTCOME OF THE RUN-OFF OF THE BUSINESS OF ONE OF OUR
SUBSIDIARIES IS UNCERTAIN AND MAY AFFECT OUR ABILITY TO REPAY THE NOTES OR
MAKE PAYMENTS UNDER THE GUARANTEES.
In July 1997, an unexpected adverse arbitration award was rendered
against Sovereign Marine & General Insurance Company Limited in respect of a
dispute between Sovereign and one of its reinsurers regarding the enforceability
of certain reinsurance arranged by Willis Faber (Underwriting Management)
Limited. The directors of Sovereign were unable to secure Willis Corroon Group's
support for unlimited financial backing and, as a consequence, placed Sovereign
into provisional liquidation. From 1972 Sovereign's underwriting activities were
managed by Willis Faber (Underwriting Management), another wholly owned
subsidiary of Willis Corroon Group, which also provided underwriting agency and
other services to third-party insurance companies called the stamp companies.
Willis Faber (Underwriting Management) has been administering the
business it arranged on behalf of Sovereign and the other stamp companies,
referred to as handling the "run-off" of the business, since 1991, when
Sovereign ceased underwriting new business. Although the run-off of this
business is expected to be conducted in an orderly manner, it may ultimately
prove to be a lengthy and expensive process.
Further, following the publication of the award, issues have been
raised about the enforceability of other reinsurance put in place by Willis
Faber (Underwriting Management) on behalf of Sovereign and the stamp companies.
Accordingly, there can be no assurance that there will be no further arbitration
or litigation with respect to reinsurance arranged by Willis Faber (Underwriting
Management). Also, if the provisional liquidators or the stamp companies
determine that they have valid claims against Willis Corroon Group, they may
seek to bring claims directly against Willis Corroon Group
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and hold it responsible for the liabilities of its subsidiaries. Claims could
also be made against Willis Faber (Underwriting Management) and broking
subsidiaries that arranged reinsurance on behalf of Sovereign and the stamp
companies.
If either the costs of the run-off of the Sovereign business are
greater than expected or any of the foregoing claims are successful, it might
affect our ability to repay the notes or make payments under the guarantees. See
"Business--Legal Proceedings--Sovereign/Willis Faber (Underwriting Management)."
U.K. PENSION REVIEW--WE MUST MAKE PAYMENTS AS A RESULT OF THE U.K. PENSION
REVIEW. HOWEVER, THE AMOUNT WE MUST PAY IS UNCERTAIN AND IF IT IS MORE THAN
WE ANTICIPATE, IT MAY AFFECT OUR ABILITY TO REPAY THE NOTES OR MAKE PAYMENTS
UNDER THE GUARANTEES.
As is the case for many companies involved in selling personal pension
plans to individuals in the United Kingdom from 1988 to 1994, we face
liabilities as a result of the "pension transfers and opt-outs review" initiated
by the U.K. government. Sellers of personal pension plans have since been
subject to liabilities based on claims that they allegedly "mis-sold" pension
products or gave improper advice. In particular, companies that engaged in this
business, such as our independent financial advisory business, Willis Corroon
Financial Planning Limited, are required to compensate individuals who withdrew
from their previous or existing company pension plans or who were otherwise
advised to set up personal pension plans, to the extent that following
withdrawal, and the consequent loss of the employer contribution, such
individual's personal pension plan did not produce returns equal to those that
would have been achievable with an employer's company-sponsored plan. Whether
compensation is due to a particular individual, and the amount thereof, is
dependent on the subsequent performance of the pension plan sold and the
relative cost to reinstate such individual into his or her prior company pension
plan.
We initially allocated L5.0 million for Phase I "priority" cases
(individuals who were nearing retirement, had retired or died). Following
proposals by the U.K. regulator with respect to Phase II, or non-priority cases,
we reserved a further L25.0 million to cover both the estimated costs of
approximately 8,000 Phase II cases, which are now subject to review, and the
estimated additional cost of completing the Phase I reviews. However, there is
uncertainty as to the number of Phase II cases which may require compensation
and the amount of that compensation, which is dependent upon U.K. interest rates
prevailing at the time it is offered. Although we believe our provisions are
reasonable, with the uncertainties of the Phase II review and the suggestions of
further retrospective reviews of other business transacted by the life assurance
industry and independent financial advisors, there remains a possibility that
the provisions made will be insufficient. We expect to pay out these established
provisions over the next three years; however, if, our provisions are
insufficient, our financial position may be adversely affected which, in turn,
may impair our ability to make payments under the guarantee.
REGULATION--WE ARE SUBJECT TO INSURANCE INDUSTRY REGULATION WORLDWIDE AND OUR
FAILURE TO COMPLY WITH, OR THE IMPLEMENTATION OF CHANGES TO, SUCH REGULATION
COULD HAVE AN ADVERSE EFFECT ON OUR ABILITY TO GENERATE CASH FLOW, AND
THEREBY RESTRICT OUR ABILITY TO MAKE PAYMENTS ON THE NOTES OR UNDER THE
GUARANTEES.
Our operations worldwide are subject to numerous governmental and
quasi-governmental regulations. Although we believe that we are substantially in
compliance with such regulations, changes in legislation or regulations and
actions by regulators, including changes in administration and enforcement
policies, may from time to time require operational improvements or
modifications at various locations or the payment of fines and penalties, or
both. See "Business--Regulation."
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The U.K. government's Department of Customs & Excise has issued its
proposals to change the way in which value added tax, VAT, can be received by
partially exempt groups, which include Willis Corroon and other companies in the
insurance industry. We have made representations against the proposals, in
common with professional advisors and others in the industry. If the proposals
were implemented as drafted, the cost to us could be approximately L4 million
before taxes per year although there would be various steps which could be taken
to mitigate this cost.
PUT AND CALL ARRANGEMENTS--WE HAVE ENTERED INTO SIGNIFICANT PUT AND CALL
ARRANGEMENTS WHICH MAY REQUIRE US TO PAY SUBSTANTIAL AMOUNTS TO PURCHASE
SHARES IN ONE OF OUR ASSOCIATES.
In connection with many of our investments in our associates, we retain
rights to increase our ownership percentage of such associates over time and, in
certain cases, the existing owners also have a right to put their shares to us
at prices based on formulae related to earnings and, in certain cases, revenue
at the date of exercise.
Between 2001 and 2012, we are subject to a put arrangement whereby, if
fully exercised, we would have the obligation to buy shares of Gras Savoye,
other than those held by management, possibly bringing our ownership interest
from 33% to 90%. Management shareholders of Gras Savoye (approximately 10%
thereof) do not have general put rights between 2001 and 2012, but have certain
put rights on their death, disability or retirement pursuant to which payments
are not expected to exceed L15 million if the full 10% is exercised. From 2001
to 2005, the incremental 57% of Gras Savoye may be put to Willis Corroon at a
price equal to the greater of approximately 800 million French francs (L86.1
million at December 31, 1998 exchange rates) for the full 57% or a price
determined by a contractual formula based on earnings and revenue. After 2005,
the put price is determined solely by the formula. The shareholders may put
their shares individually at any time during the put period. We can provide no
assurance that such amounts will not be greater. The obligation to make such
repurchases could reduce our liquidity and, consequently, impair our ability to
meet our obligations under the guarantees. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
COMPETITION--THE COMPETITIVE NATURE OF OUR INDUSTRY AND THE STRENGTH OF OUR
COMPETITORS COULD IMPAIR OUR ABILITY TO HONOR OUR OBLIGATIONS UNDER THE
NOTES AND THE GUARANTEES.
Willis Corroon faces competition in all fields in which it operates.
Competition in the insurance brokering and risk management businesses is based
on global capability, product breadth, innovation, quality of service and price.
We compete with the two other providers of global risk management services as
well as with numerous regional and local firms. Insurance companies also compete
with our brokers by directly soliciting insureds without the assistance of an
independent broker or agent. Competition for premiums is intense in all our
business lines and in every insurance market. Competition on premium rates has
also exacerbated the pressures caused by a continuing reduction in demand in
some classes of business. For example, insureds are currently retaining a
greater proportion of their risk portfolios than previously. Industrial and
commercial companies are increasingly relying upon captive insurance companies,
self-insurance pools, risk retention groups, mutual insurance companies and
other mechanisms for funding their risks, rather than buying insurance. Willis
Corroon provides management and similar services for such alternative risk
transfer programs. Additional competitive pressures arise from the entry of new
market participants, such as banks, accounting firms and insurance carriers
themselves, offering risk management or transfer services. We can offer no
assurance that we can successfully respond to these competitive pressures or
that we will be successful in otherwise realizing or maintaining any of our
competitive advantages. If we are unsuccessful in responding to such pressures
or if we do not maintain our competitive advantage, our revenues may
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decline. If our revenues are insufficient to meet our financial obligations in
general, we may be unable to meet our obligations under the notes or the
guarantees. See "Business--Competition."
KEY PERSONNEL--THE LOSS OF ANY MEMBER OF OUR SENIOR MANAGEMENT OR A SIGNIFICANT
NUMBER OF OUR BROKERS COULD NEGATIVELY AFFECT OUR BUSINESS WHICH, IN TURN,
MAY IMPAIR OUR ABILITY TO MAKE PAYMENTS ON THE NOTES OR UNDER THE
GUARANTEES.
Our success depends to a substantial extent not only on the ability and
experience of our senior management, but also on the individual brokers and
teams that service our clients and maintain client relationships. The insurance
brokerage industry has in the past experienced intense competition for the
services of leading individual brokers and brokerage teams, and we have lost key
individuals and teams to competitors in the past. While we maintain
non-competition agreements with substantially all our senior managers and
brokers and 358 of our key employees invested in the shares of TA I Limited, we
will continue to be subject to the risk that such individuals or teams may leave
Willis Corroon. The loss of the services of one or more such persons or teams
could have a negative impact on our business and therefore, adversely affect our
ability to meet our obligations under the notes.
YEAR 2000--OUR OPERATIONS AND FINANCIAL RESULTS, AND THEREFORE OUR ABILITY TO
MEET OUR OBLIGATIONS UNDER THE NOTES AND THE GUARANTEES, MAY BE NEGATIVELY
AFFECTED BY THE YEAR 2000 PROBLEM.
The "year 2000 problem" relates to computer systems that are designed
using two digits, rather than four, to represent a given year. Therefore, such
systems may recognize "00" as the year 1900 rather than 2000, possibly resulting
in major system failures or miscalculations and causing disruptions in our
operations. Also, our operations could be disrupted by reason of any failure by
our clients, insurance carriers or other third parties with whom we conduct
business to achieve their own year 2000 compliance in a timely fashion.
We have conducted a review of our computer systems to identify the
systems that could be affected by the year 2000 problem and are nearing
completion of our plan to be year 2000 compliant prior to December 31, 1999. As
part of the program, we retained outside consultants, who, working with our
information technology staff, have tested computer systems and identified
problem areas. We do not expect to exceed the L4.2 million we budgeted for
expenditures related to our year 2000 compliance program.
We are developing business continuity plans aimed at minimizing the
impact of unforeseen problems during the year-end transition period (December
31, 1999 to January 10, 2000). All business critical applications are being
tested for compliance in a simulated year 2000 environment. Leave has been
cancelled for key systems support staff during December and January. It is our
intention to close the processing systems in advance of normal year-end, and
follow this with a controlled restart of systems from 9 a.m. on January 1, 2000.
Priority will be given to business critical systems. We are continuing to
monitor suppliers regarding product viability. Discussions on year 2000
readiness are underway with our strategic insurers. We have received inquiries
from our clients regarding our year 2000 compliance efforts and it is likely
that our clients will require us to confirm that we are year 2000 compliant
substantially in advance of December 31, 1999.
Willis Corroon is dependent on a variety of third parties with which it
has business relationships, including electrical power, telephone, water and
other necessary utilities. We are not aware currently of any material
non-compliance by these parties that will materially affect our business
operations; however, we do not control these systems and cannot assure that they
will be converted in a timely fashion. While we believe that we will be taking
appropriate steps to achieve our year 2000
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compliance in a timely fashion, there can be no assurance that our computers, or
those of third parties with whom we conduct business, will be year 2000
compliant prior to December 31, 1999, or that the costs incurred will not
materially exceed amounts budgeted.
Our planning for year 2000 compliance also covers contingency planning
to handle the most reasonably likely worst-case scenario. Our contingency plans
cover the potential risks to our information technology infrastructure, fuel
supplies for uninterrupted power supply generators, building control systems,
desk top systems, business critical systems and interfaces with banks and the
London insurance market. Compliance testing of our contingency plans for
interfaces with the London insurance market is required by our regulator and
testing is expected to be completed by June 30, 1999 with a monitoring review in
October 1999.
INTERNATIONAL OPERATIONS--OUR SIGNIFICANT INTERNATIONAL OPERATIONS EXPOSE US TO
EXCHANGE RATE FLUCTUATIONS.
A significant portion of our operations is conducted outside the United
Kingdom. Accordingly, we are subject to legal, economic and market risks
associated with operating in foreign countries, including:
- devaluations and fluctuations in currency exchange rates;
- imposition of limitations on conversion of foreign currencies into
pounds or dollars or remittance of dividends and other payments by
foreign subsidiaries;
- imposition or increase of withholding and other taxes on remittances
and other payments by subsidiaries;
- hyperinflation in certain foreign countries;
- imposition or increase of investment and other restrictions by foreign
governments;
- longer payment cycles;
- greater difficulties in accounts receivable collection; and
- the requirement of complying with a wide variety of foreign laws.
In particular we transact business in more than 125 countries and in
more than 100 currencies. Historically, we have reported our operating results
in pounds sterling. Outside the U.K., we predominantly generate revenues and
expenses in the local currency. Thus the exchange exposure, excluding economic
exposure, is restricted to translation exposure on the profits of the
operations. In the U.K., however, we earn revenue in a number of different
currencies but expenses are almost entirely incurred in sterling. This mismatch
creates an exchange exposure and arises mainly from Global Specialties and
Global Reinsurance which serve their clients world-wide primarily from a U.K.
base of operations. In 1998, approximately 22% of our total operating revenues
were earned in sterling, 63% in U.S. dollars and 15% in other currencies.
However, in 1998, 44% of Willis Corroon's total operating expenses were incurred
in sterling, 47% in U.S. dollars and 9% in other currencies. As such, when
sterling appreciates, which it has in recent years, the revenue associated with
non-sterling business is translated into fewer pounds, while expenses, incurred
in sterling, are not impacted. As a result, if sterling appreciates, all other
things being equal, revenues, profits and margins decline.
27
<PAGE>
Given these facts, the strength of sterling in recent years has had a
material negative impact on our reported results. We can provide no assurance
that such risks will not have a material adverse effect on Willis Corroon in the
future, and therefore, on our ability to meet our obligations under the notes.
INTRODUCTION OF THE EURO--OUR OPERATIONS AND FINANCIAL RESULTS, AND THEREFORE
OUR ABILITY TO MEET OUR OBLIGATIONS UNDER THE NOTES AND THE GUARANTEES, MAY
BE NEGATIVELY AFFECTED BY THE INTRODUCTION OF THE EURO.
On January 1, 1999, the euro replaced the currencies of eleven member
states of the European Union, including countries in which we operate. There can
be no assurance that the introduction of the euro will not increase the
volatility of the exchange rates for sterling or result in the future
appreciation of sterling. The United Kingdom government has stated that it will
not participate in the European Economic and Monetary Union at its commencement,
although it is possible that under certain circumstances it may participate at a
later date. If the United Kingdom were to participate in the single currency,
the pound sterling would be replaced by the euro. It is not clear on what terms
the United Kingdom would participate in the European Economic and Monetary
Union.
We have made certain amendments to our systems software necessary for
us to be able to place, settle and account for business in euros, while
retaining the flexibility to continue to transact business in the existing
national currency units if necessary. We have incurred approximately L0.9
million in connection with our efforts to be euro compliant and believe that all
necessary steps have been taken and tested, and staff trained in the changes to
working practices.
While we believe that we have taken appropriate steps to become euro
compliant in a timely fashion, we can provide no assurance that our efforts to
do so have been completed or that the costs we may still incur will not
materially exceed amounts budgeted.
IMPLEMENTATION OF BUSINESS STRATEGY--IF WE DO NOT SUCCESSFULLY MEET OUR
STRATEGIC OBJECTIVES TO INCREASE REVENUES AND CASH FLOWS, OUR ABILITY TO
MAKE INTEREST PAYMENTS ON THE NOTES MAY BE IMPAIRED.
Willis Corroon's strategic objectives are to grow revenues and cash
flow and enhance its position as a leading provider of risk management services.
To achieve these objectives, we implemented the change program and seek to:
- capitalize on our strong global franchise by cross-selling existing and
new products and services to our existing clients;
- capitalize on our strong global franchise by targeting new clients in
need of Willis Corroon's global reach and specialized services;
- emphasize our value-added, fee-based risk management services;
- increase operating efficiencies through specific cost reduction
measures; and
- strengthen our global franchise through selective acquisitions and
strategic investments.
If the change program and other initiatives do not produce improved
results as and when expected, there will be less cash available to support the
business after paying interest expense on the indebtedness, and consequently
operating results may decrease, adversely affecting our ability to meet
28
<PAGE>
our obligations under the notes. In addition, there can be no assurance that
further implementation of the change program across our business units or any
other strategies that we have described in this prospectus will be successful or
will improve operating results. Other conditions may exist, such as unforeseen
costs and expenses or an economic downturn, that may offset any improved
operating results that are attributable to such business strategies. Further,
any growth through acquisitions and investments will be dependent upon
identifying suitable acquisition or investment candidates and successfully
consummating such transactions at reasonable costs. See "--Competition" and
"Business--Business Strategy."
29
<PAGE>
FORWARD LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical facts
included in this prospectus, including, without limitation, statements regarding
Willis Corroon's future financial position, strategy, projected costs and plans
and objectives of management for future operations, including the benefits
expected to be derived from the implementation of the change program, may be
deemed to be forward-looking statements. Although Willis Corroon believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from
Willis Corroon's expectations ("cautionary statements") are disclosed under
"Risk Factors" and elsewhere in this prospectus, including, without limitation,
in conjunction with the forward-looking statements included in this prospectus.
All forward-looking statements attributable to Willis Corroon or persons acting
on its behalf are expressly qualified in their entirety by the cautionary
statements.
30
<PAGE>
PRESENTATION OF CURRENCY AND FINANCIAL INFORMATION; EXCHANGE RATES
In this prospectus, unless otherwise specified or unless the context
otherwise requires, all references to "pounds sterling", "sterling", "pound",
"L" and "pence" are to the lawful currency of the United Kingdom of Great
Britain and Northern Ireland. In this prospectus, unless otherwise specified or
unless the context otherwise requires, all references to "dollars" or "$" are to
United States dollars. The consolidated financial statements of Willis Corroon
are prepared in pounds sterling. Amounts stated in dollars, unless otherwise
indicated, have been translated from pounds sterling at an assumed rate solely
for the convenience of the reader, and should not be construed as
representations that amounts in pounds sterling actually represent such dollar
amounts or could be converted into dollars at the rate indicated. Except as
otherwise indicated, such dollar amounts have been translated from pounds
sterling at the rate of L1.00 = $1.66, the noon buying rate in the City of New
York for cable transfers in pounds sterling as announced by the Federal Reserve
Bank of New York for customs purposes on December 31, 1998.
The following table sets forth, for the periods and dates indicated,
certain information concerning the noon buying rate for pounds sterling
expressed in dollars per L1.00. No representation is made that the pounds
sterling or dollar amounts referred to herein could have been or could in the
future be converted into dollars or pounds sterling, as the case may be, at any
particular rate or at all. On - 1999, the noon buying rate was L1.00 =
$ - .
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD END AVERAGE(A) HIGH LOW
- ------------------------------------------------------------------------- --------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
1993..................................................................... 1.48 1.50 1.59 1.42
1994..................................................................... 1.57 1.54 1.64 1.46
1995..................................................................... 1.55 1.58 1.62 1.53
1996..................................................................... 1.71 1.56 1.71 1.51
1997..................................................................... 1.64 1.64 1.69 1.60
1998..................................................................... 1.66 1.66 1.72 1.61
1999 (through -, 1999)................................................... - - - -
</TABLE>
- ------------------------
(a) The average of the noon buying rates on the last day of each month during
relevant period.
Unless otherwise indicated, financial information in this prospectus
has been prepared in accordance with accounting principles generally accepted in
the U.K. U.K. GAAP differs in certain respects from U.S. generally accepted
accounting principles. For a discussion of the most significant differences
between U.K. GAAP and U.S. GAAP relevant to Willis Corroon Corporation and
Willis Corroon Group, see Note 31 of the Notes to the Consolidated Financial
Statements of Willis Corroon included elsewhere in this prospectus.
Unless otherwise specifically stated in this document, none of the
accounts or financial information in this document constitutes statutory
accounts of Willis Corroon Group within the meaning of section 240(5) of the
Companies Act 1985 of Great Britain. Statutory accounts of Willis Corroon Group
relating to each completed financial period up to December 31, 1998 to which the
financial information in this document relates have been delivered to the
Registrar of Companies in England and Wales. The auditors of Willis Corroon
Group at the relevant time have made a report of the kind required by Section
235 of the Companies Act 1985 with respect to such statutory accounts and each
such report was an unqualified report and contained no statement under section
237(2) or (3) of the Companies Act 1985 (accounting records or returns
inadequate, accounts not agreeing with records or returns or failure to obtain
necessary information or explanations).
Certain amounts and percentages included in this prospectus have been
rounded and accordingly may not total.
Apart from the consolidated financial statements of Willis Corroon
Group, we do not publish separate financial statements for Willis Coroon
Corporation or Willis Corroon Partners.
31
<PAGE>
THE TENDER OFFER AND RELATED FINANCINGS
THE TENDER OFFER
On July 27, 1998, Warburg Dillon Read (a division of UBS AG), Chase
Manhattan plc and HSBC Investment Bank plc announced an offer on behalf of
Trinity Acquisition, based on the terms and subject to the conditions described
in the offer to purchase dated July 27, 1998 and the related acceptance forms,
for
- all of the outstanding ordinary shares of 12.5 pence each of Willis
Corroon Group for 200 pence per Willis Corroon ordinary share in cash
without interest and
- all of the American Depositary Shares, or ADSs, each representing five
Willis Corroon ordinary shares and evidenced by American Depositary
Receipts, of Willis Corroon Group for L10.00 per Willis Corroon ADS in
cash without interest.
The directors of Willis Corroon Group who were not connected with the
tender offer unanimously recommended that all holders of Willis Corroon ordinary
shares and Willis Corroon ADSs accept the tender offer.
Under the tender offer, certain holders of Willis Corroon ordinary
shares who validly accepted the tender offer were entitled to elect to receive
loan notes instead of some or all of the cash consideration to which they would
otherwise have been entitled. The loan notes are unsecured, and are guaranteed
as to principal and interest by The Chase Manhattan Bank, and such guarantees
are supported by letters of credit issued under a credit agreement. As of the
completion of the tender offer, loan notes in an aggregate principal amount of
L3,176,384 were outstanding.
Prior to the announcement of the tender offer, Trinity Acquisition
agreed to purchase 9.9% of Willis Corroon Group's issued share capital from
Philips & Drew Fund Management Limited, conditional on the expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
On September 2, 1998, having received valid acceptances from, or acquired Willis
Corroon ordinary shares from, holders of approximately 54% of Willis Corroon
Group's issued share capital, Trinity Acquisition determined that all the other
conditions to the tender offer had been satisfied or waived and declared the
tender offer "unconditional" as to acceptances. On September 25, 1998, Trinity
Acquisition announced it had received acceptances from holders of more than 90%
of Willis Corroon Group's issued share capital subject to the tender offer, and
commenced the compulsory acquisition procedure under the United Kingdom
Companies Act 1985 to acquire the remaining issued and outstanding share capital
of Willis Corroon Group. The compulsory acquisition procedure was completed on
November 10, 1998.
THE OUTSTANDING NOTES AND THE REFINANCINGS
The net proceeds from the issuance and sale of the outstanding notes,
which were approximately $534.4 million (approximately L321.9 million) after
deduction of underwriting discounts and other expenses, were applied towards the
repayment of amounts outstanding under a $575 million subordinated bridge
facility, entered into on November 19, 1998, and provided by The Chase Manhattan
Bank. The proceeds of borrowings under the subordinated bridge facility and the
credit agreement on November 19, 1998 were applied:
- to refinance amounts outstanding under a tender offer facility
agreement;
32
<PAGE>
- to refinance a $575 million senior subordinated promissory note loaned
by the KKR 1996 Fund (Overseas), Limited to Trinity Acquisition to
finance in part the tender offer and for other corporate purposes;
- to refinance other existing indebtedness; and
- to pay related fees and expenses.
The subordinated bridge facility had a final maturity on November 19,
2008, with no interim amortization. The loans thereunder accrued interest on the
date repaid at a rate of 9.375% per annum, which rate was due to increase over
time.
The tender offer facility consisted of a $475 million, nine month
delayed draw term loan, which was entered into on July 22, 1998. The term loan
was used by Trinity Acquisition to purchase the shares tendered in the tender
offer. In addition, a portion of the revolving credit facility, which is part of
the credit agreement, was available to Willis Corroon Corporation after Trinity
Acquisition had purchased more than 50% of the shares of Willis Corroon Group
and was used to fund its working capital requirements and to refinance a portion
of Willis Corroon's existing indebtedness. Amounts outstanding under the tender
offer facility agreement were incurred periodically from September to October
1998, accrued interest on the date repaid at a rate equal to 7.8% per annum and
had a final maturity on April 22, 1999.
Amounts outstanding under the senior subordinated promissory note were
periodically incurred from September to November 1998, accrued interest on the
date repaid at a rate equal to 9.375% per annum and had a final maturity on
September 14, 2009.
The indebtedness that was refinanced in connection with the offering of
the outstanding notes and the recent acquisitions consisted of an estimated
L87.6 million under short-term revolving credit facilities used for working
capital, which accrued interest at a rate per annum equal to, at the borrower's
election, the cost of funds for U.S. dollar deposits at the London interbank
offered rates, LIBOR, for one, two, three or six months, plus a margin ranging
from 0.18% to 0.35%, and matured in October and November 1998.
33
<PAGE>
The following chart illustrates the final corporate structure of Willis
Corroon:
[LOGO]
(1) Indirect, wholly-owned subsidiary of TA II Limited.
(2) Trinity Acquisition, Willis Corroon Group Limited, Willis Corroon Partners,
the U.S. subsidiaries and certain U.K. subsidiaries are guarantors of the
senior credit facilities.
(3) Guarantor of the notes.
34
<PAGE>
USE OF PROCEEDS
Willis Corroon will not receive any cash proceeds from the issuance of
the exchange notes. In consideration for issuing the exchange notes as
contemplated in this prospectus, Willis Corroon will receive in exchange a like
principal amount of outstanding notes, the terms of which are identical in all
material respects to the exchange notes. The outstanding notes surrendered in
exchange for the exchange notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the exchange notes will not result in any
change in the capitalization of Willis Corroon. See "The Tender Offer and
Related Financings--The Outstanding Notes and the Refinancings" for a discussion
of the use of proceeds from the sale of the outstanding notes.
35
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of Willis Corroon as of December 31, 1998, calculated in
accordance with U.K. GAAP and U.S. GAAP on a historical basis and as of December
31, 1998, calculated in accordance with U.K. GAAP and U.S. GAAP on a pro forma
basis after giving effect to the application of the proceeds from the sale of
the outstanding notes and the recent acquisitions as if they had been
consummated on such date. This table should be read in conjunction with
"Unaudited Condensed Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of Willis Corroon and the
notes thereto included elsewhere herein.
Other than as a result of the application of the proceeds from the sale
of the outstanding notes, there has been no material change in the
capitalization of Willis Corroon since December 31, 1998, other than as
described in note (e) below.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL PRO FORMA
-------------------------------------------- ---------------------
<CAPTION>
U.K. GAAP U.S. GAAP U.K. GAAP
-------------------- ---------------------- ---------------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
DEBT(A):
Revolving credit
facility(c)......... L 6.1 $ 10.1(b) L 6.1 $ 10.1(b) L 6.1 $ 10.1(b)
Term loan
facilities(d)....... 270.3 448.7 270.3 448.7 270.3 448.7
Notes................. -- -- -- -- 321.9 534.4
--------- --------- ---------- ---------- --------- ----------
Total debt(e)......... L276.4 $ 458.8 L276.4 $ 458.8 L598.3 $ 993.2
--------- --------- ---------- ---------- --------- ----------
SHAREHOLDERS' EQUITY:
Share capital......... 53.6 89.0 53.6 89.0 53.6 89.0
Share premium / paid
in capital.......... 28.5 47.3 850.4 1,411.7 28.5 47.3
Revaluation
reserve(f).......... 14.9 24.7 -- -- 14.9 24.7
Retained earnings
(deficit)........... (8.0) (13.3) (28.6) (47.5) (8.0) (13.3)
--------- --------- ---------- ---------- --------- ----------
Total shareholders'
equity.............. 89.0 147.7 875.4 1,453.2 89.0 147.7
--------- --------- ---------- ---------- --------- ----------
TOTAL
CAPITALIZATION...... L365.4 $ 606.5 L1,151.8 $ 1,912.0 L687.3 $ 1,140.9
--------- --------- ---------- ---------- --------- ----------
--------- --------- ---------- ---------- --------- ----------
<CAPTION>
<S> <C>
U.S. GAAP
--------------
<S> <C>
DEBT(A):
Revolving credit
facility(c).........L 6.1 $ 10.1(b)
Term loan
facilities(d).......270.3 448.7
Notes.................331.3 550.0
-- ----------
Total debt(e).........L 607.7 $ 1,008.8
-- ----------
SHAREHOLDERS' EQUITY:
Share capital.........53.6 89.0
Share premium / paid
in capital..........850.4 1,411.7
Revaluation
reserve(f)..........-- --
Retained earnings
(deficit)...........(28.6) (47.5)
-- ----------
Total shareholders'
equity..............875.4 1,453.2
-- ----------
TOTAL
CAPITALIZATION......L1,483.1 $ 2,462.0
-- ----------
-- ----------
</TABLE>
- ------------------------
(a) Under U.K. GAAP, debt issuance costs are netted from the calculation of
total debt and amortized over the life of the debt. Under U.S. GAAP, such
costs are recorded as an asset and amortized over the life of the debt. As
of December 31, 1998, there was $575 million outstanding under the
subordinated bridge facility which was accounted for as a current liability.
The proceeds of the issuance of the outstanding notes were used to repay a
portion of the subordinated bridge facility.
(b) U.S. dollar amounts have been translated at the noon buying rate on December
31, 1998 of $1.66 = L1.00 solely for your convenience.
(c) The revolving credit facility provides for revolving loans of up to $150
million for working capital and general corporate purposes. The balance
outstanding on the revolving credit facility was repaid on February 11,
1999. See "Description of the Senior Credit Facilities."
(d) The term loan facilities were borrowed by Willis Corroon Corporation on
November 19, 1998 and consisted of (i) a $50 million tranche A facility,
(ii) a $150 million tranche B facility, (iii) a $150 million tranche C
facility and (iv) a $100 million tranche D facility. Willis Corroon
Corporation has amended the amounts allocated to the various tranches. See
"Description of the Senior Credit Facilities."
(e) Total debt does not give effect to dollar denominated intercompany debt owed
to Trinity Acquisition pursuant to group intercompany notes, which are
subordinated in right of payment to the notes, and which are offset by note
receivables in the form of corresponding pound sterling denominated Trinity
Acquisition intercompany notes. In addition, total debt does not give effect
to a L92.9 million interest free convertible loan owed to Trinity
Acquisition, which was converted into equity of Willis Corroon on February
3, 1999. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
(f) Under U.K. GAAP, it is permissible to revalue fixed assets to market value
and to credit the gain to the revaluation reserve. Willis Corroon has
revalued properties in this manner. Revaluations are not permitted under
U.S. GAAP.
36
<PAGE>
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited condensed pro forma consolidated financial
statements of Willis Corroon are based on the consolidated financial statements
of Willis Corroon Group, which are prepared in accordance with U.K. GAAP,
included elsewhere in this prospectus. The Unaudited Condensed Pro Forma
Consolidated Statement of Income for the year ended December 31, 1998 gives pro
forma effect to the application of the proceeds of the sale of the outstanding
notes and the recent acquisitions as if they had occurred on January 1, 1998 and
the Unaudited Condensed Pro Forma Consolidated Balance Sheet at December 31,
1998 gives pro forma effect to the application of the proceeds of the sale of
the outstanding notes as if it had occurred on December 31, 1998. The pro forma
adjustments are based upon available information and certain assumptions that
management believes are reasonable. The pro forma consolidated financial
statements do not purport to represent what Willis Corroon's results of
operations or financial condition would actually have been had the application
of the proceeds of the sale of the outstanding notes and the recent acquisitions
in fact occurred on such date or to project the results of operations of Willis
Corroon for any future period or the financial condition of Willis Corroon for
any future date.
The Pro Forma Consolidated Financial Statements should be read in
conjunction with Willis Corroon's consolidated financial statements included
elsewhere in this prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
37
<PAGE>
WILLIS CORROON GROUP LIMITED
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- ---------------------
<S> <C> <C> <C> <C>
(IN MILLIONS)
AMOUNTS IN ACCORDANCE WITH U.K. GAAP:
ASSETS
CURRENT ASSETS
Cash and short-term deposits............................. L 317.1 L 331.3(b) L 317.1 $ 526.4(a)
(9.4)(b)
(321.9)(c)
Investments.............................................. 281.6 -- 281.6 467.5
Receivables.............................................. 2,559.2 -- 2,559.2 4,248.3
Loan to parent company................................... 1,235.4 -- 1,235.4 2,050.7
---------- ------------- ---------- ---------
Total current assets................................... 4,393.3 -- 4,393.3 7,292.9
FIXED ASSETS
Tangible assets.......................................... 141.6 -- 141.6 235.1
Intangible assets--Goodwill.............................. 19.7 -- 19.7 32.7
Investments.............................................. 34.4 -- 34.4 57.0
---------- ------------- ---------- ---------
Total fixed assets..................................... 195.7 -- 195.7 324.8
---------- ------------- ---------- ---------
TOTAL ASSETS............................................. 4,589.0 -- 4,589.0 7,617.7
---------- ------------- ---------- ---------
---------- ------------- ---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables........................................... 2,860.3 -- 2,860.3 4,748.1
Due to parent company.................................... 714.1 22.1(c) 736.2 1,222.1
Corporate tax............................................ 17.7 -- 17.7 29.4
Accruals and deferred income............................. 67.6 -- 67.6 112.2
Existing bank overdrafts................................. 6.3 -- 6.3 10.5
Subordinated bridge facility............................. 344.0 (344.0)(c) 0.0 0.0
Term loans............................................... 2.4 -- 2.4 4.0
Other.................................................... 103.3 -- 103.3 171.4
---------- ------------- ---------- ---------
Total current liabilities.............................. 4,115.7 (321.9) 3,793.8 6,297.7
NONCURRENT LIABILITIES
Term loans............................................... 270.3 -- 270.3 448.7
Revolving credit facility................................ 6.1 -- 6.1 10.1
Senior subordinated notes................................ -- 321.9(d) 321.9 534.4
---------- ------------- ---------- ---------
Total long-term debt................................... 276.4 321.9 598.3 993.2
Other.................................................... 5.0 -- 5.0 8.3
---------- ------------- ---------- ---------
Total noncurrent liabilities........................... 281.4 321.9 603.3 1,001.5
PROVISIONS FOR LIABILITIES AND CHARGES................... 94.8 -- 94.8 157.4
MINORITY INTERESTS....................................... 8.1 -- 8.1 13.4
---------- ------------- ---------- ---------
Total liabilities and minority interests............... 4,500.0 -- 4,500.0 7,470.0
SHAREHOLDERS' EQUITY
Share capital............................................ 53.6 -- 53.6 89.0
Share premium............................................ 28.5 -- 28.5 47.3
Revaluation reserve...................................... 14.9 -- 14.9 24.7
Retained earnings (deficit).............................. (8.0) -- (8.0) (13.3)
---------- ------------- ---------- ---------
Total shareholders' equity............................. 89.0 -- 89.0 147.7
---------- ------------- ---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... L 4,589.0 -- L 4,589.0 $ 7,617.7
---------- ------------- ---------- ---------
---------- ------------- ---------- ---------
AMOUNTS IN ACCORDANCE WITH U.S. GAAP (f):
Total assets............................................. L 5,369.9 L 9.4(g) L 5,379.3 $ 8,929.6
Total long-term debt..................................... 276.4 331.3 607.7 1,008.8
Total shareholders' equity............................... 875.4 -- 875.4 1,453.2
---------- ------------- ---------- ---------
---------- ------------- ---------- ---------
</TABLE>
See Notes to the Unaudited Condensed Pro Forma Consolidated Balance Sheet
38
<PAGE>
NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) U.S. dollar amounts have been translated at the noon buying rate on December
31, 1998 of $1.66 = L1.00 solely for your convenience.
(b) Represents cash proceeds from the offering of outstanding notes as described
in the table below. Under U.K. GAAP, debt issuance costs are netted against
the related debt and amortized over the life of the debt.
<TABLE>
<CAPTION>
DEBT COSTS NET DEBT
--------- --------- ------------------------
<S> <C> <C> <C> <C>
(IN MILLIONS)
New debt:
Notes offering.................................... L331.3 L 9.4 L 321.9 $ 534.4
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
(c) Represents the net proceeds from the outstanding notes that were used to
refinance a portion of the subordinated bridge facility. See "The Tender
Offer and Related Financings--The Outstanding Notes and the Refinancings."
<TABLE>
<CAPTION>
AMOUNT
--------------------
<S> <C> <C>
(IN MILLIONS)
Use of proceeds:
Repayment of subordinated bridge facility.............................. L321.9 $ 534.4
--------- ---------
--------- ---------
</TABLE>
The balance of the total outstanding amount of the subordinated bridge
facility of L344.0 million ($571.0 million) was repaid by borrowing a
further L22.1 million ($36.7 million) from Trinity Acquisition.
(d) Represents the net new debt incurred in connection with the offering of
outstanding notes. See note (b) above.
(e) Total long-term debt does not give effect to dollar denominated intercompany
debt owed to Trinity Acquisition pursuant to group intercompany notes, which
are subordinated in right of payment to the notes, and which are offset by
note receivables in the form of corresponding pound sterling denominated
Trinity intercompany notes. In addition, total long-term debt does not give
effect to a L92.9 million interest free convertible loan owed to Trinity
Acquisition, which was converted into equity of Willis Corroon Group Limited
on February 3, 1999.
(f) U.K. GAAP differs in certain respects from U.S. GAAP. Summaries of the
significant differences as they apply to the historical financial statements
of Willis Corroon are set forth in Note 31 of the Notes to the Consolidated
Financial Statements included elsewhere in this prospectus. Following the
purchase of Willis Corroon Group by Trinity Acquisition, under U.S. GAAP,
the effects of the purchase accounting adjustments made in the financial
statements of Trinity Acquisition are required to be pushed down into the
financial statements of Willis Corroon. These pushed down adjustments are
already included in the historical amounts at December 31, 1998 in the table
below.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ ---------------------
<S> <C> <C> <C> <C>
(IN MILLIONS)
Shareholders' equity under U.K. GAAP................ L 89.0 L -- L 89.0 $ 147.7
U.S. GAAP adjustments:
Fixed assets
Intangible assets-goodwill........................ 793.7 -- 793.7 1,317.5
Current assets
Current asset investments......................... 0.8 -- 0.8 1.3
Revaluation of forward exchange contracts......... 2.7 -- 2.7 4.5
Pension costs..................................... (16.3) -- (16.3) (26.9)
Debt issuance costs............................... -- 9.4 9.4 15.6
Noncurrent liabilities
Senior subordinated notes......................... -- (9.4) (9.4) (15.6)
Provisions for liabilities and charges
Deferred tax on above adjustments................. 5.5 -- 5.5 9.1
----------- ------------ --------- ----------
Shareholders' equity under U.S. GAAP................ L875.4 L -- L875.4 $ 1,453.2
----------- ------------ --------- ----------
----------- ------------ --------- ----------
</TABLE>
(g) The pro forma adjustment to the total assets under U.S. GAAP is the debt
issuance costs (L9.4 million--see note (b)).
39
<PAGE>
WILLIS CORROON GROUP LIMITED
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA ACQUISITION
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ------------- ------------- ----------------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
AMOUNTS IN ACCORDANCE WITH U.K. GAAP:
CONTINUING OPERATIONS
Commissions and fees......................... L677.7 L -- L17.3(d) L695.0 $1,153.7(a)
Interest and investment income............... 40.3 -- -- 40.3 66.9
----------- ------------- ------ --------- -----------
TOTAL OPERATING REVENUES..................... 718.0 -- 17.3 735.3 1,220.6
Operating expenses........................... (635.2) -- (14.1)(d) (649.3) (1077.8)
----------- ------------- ------ --------- -----------
OPERATING INCOME
Continuing operations before exceptional
items...................................... 82.8 -- 3.2 86.0 142.8
Exceptional items............................ (40.8) -- -- (40.8) (67.8)
----------- ------------- ------ --------- -----------
Continuing operations........................ 42.0 -- 3.2 45.2 75.0
Discontinued operations...................... -- -- -- -- --
Gain on disposal of operations............... (29.3) -- -- (29.3) (48.6)
Share of profit of associates................ 6.3 -- 0.4(e) 6.7 11.1
Interest expense............................. (3.2) (50.2)(b) -- (53.4) (88.6)
----------- ------------- ------ --------- -----------
INCOME/(LOSS) BEFORE TAXATION................ 15.8 (50.2) 3.6 (30.8) (51.1)
Taxation..................................... (54.4) 15.6(c) (1.1)(c) (39.9) (66.3)
----------- ------------- ------ --------- -----------
INCOME/(LOSS) AFTER TAXATION................. (38.6) (34.6) 2.5 (70.7) (117.4)
Minority interests........................... (2.7) -- (1.5) (4.2) (6.9)
----------- ------------- ------ --------- -----------
NET INCOME/(LOSS)............................ L(41.3) L(34.6) L 1.0 L(74.9) $(124.3)
----------- ------------- ------ --------- -----------
----------- ------------- ------ --------- -----------
AMOUNTS IN ACCORDANCE WITH U.S. GAAP (f):
Net income/(loss).......................... L(54.9) L(37.8) L 0.8 L(91.9) $(152.5)
----------- ------------- ------ --------- -----------
----------- ------------- ------ --------- -----------
</TABLE>
See Notes to the Unaudited Condensed Pro Forma Consolidated Statements of Income
40
<PAGE>
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME
(a) U.S. dollar amounts have been translated at the noon buying rate on December
31, 1998 of $1.66 = L1.00 solely for your convenience.
(b) The pro forma adjustment for interest expense reflects (1) the elimination
of the historical interest expense and (2) the interest expense that would
have been incurred on the notes, the term loans and borrowings under the
revolving credit facility as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
--------------------
<S> <C> <C>
(IN MILLIONS)
Elimination of historical interest expense.......................................... L 3.2 $ 5.3
Interest expense on $1,000 million of new debt using the actual blended interest
rate at December 31, 1998 of 8.6% (including the actual 9% per annum rate on the
notes and commitment fees)........................................................ (51.5) (85.5)
Amortization of deferred financing costs on new debt................................ (1.9) (3.2)
--------- ---------
Total interest adjustment........................................................... L(50.2) $ (83.4)
--------- ---------
--------- ---------
</TABLE>
The effect of a 1/8% change in the average blended interest rate would be to
change interest expense by L0.8 million ($1.3 million).
A commitment fee of 0.5% of the undrawn amount under the revolving credit
agreement is payable quarterly in arrears. If the revolving credit agreement
remains undrawn, the amount of the commitment fee is L0.5 million ($0.8
million).
(c) Taxation expense is adjusted to reflect the tax provision effect of the pro
forma interest adjustments at the U.K. statutory rate of corporation tax of
31%.
(d) This adjustment adds the results of (1) the 50% interest in Gruppo Ital
Brokers, which was acquired in July 1998, and (2) the increased investment
in our Spanish associate from 48% to 60% and the reorganization of the
existing Spanish and Portuguese operations in July 1998 as if the
acquisitions and reorganization had occurred on January 1, 1998.
(e) This adjustment adds the result of the 30% interest in Assurandrgruppen,
which was acquired in September 1998, as if the acquisition had occurred on
January 1, 1998.
41
<PAGE>
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(f) U.K. GAAP differs in certain respects from U.S. GAAP. Summaries of the
significant differences as they apply to the historical financial statements
of Willis Corroon are set forth in Note 31 of the Notes to the Consolidated
Financial Statements included elsewhere herein. Following the purchase of
Willis Corroon Group by Trinity Acquisition, under U.S. GAAP, the effects of
the purchase accounting adjustments made in the financial statements of
Trinity Acquisition are required to be pushed down into the financial
statements of Willis Corroon.
<TABLE>
<CAPTION>
PRO FORMA ACQUISITION
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Net income/(loss) under U.K. GAAP............. L(41.3) L (34.6) L 1.0 L(74.9) $ (124.3)
U.S. GAAP adjustments:
Goodwill amortization....................... (18.5) 18.5(i) (0.2) (20.8) (34.5)
(20.6)(ii)
Goodwill amortization adjustment on
disposal.................................. 9.6 -- -- 9.6 15.9
Revaluation of forward exchange contracts... (3.5) -- -- (3.5) (5.8)
Pension costs............................... (3.3) (1.7)( ii) -- (5.0) (8.3)
Deferred tax on above adjustments........... 2.1 0.6 -- 2.7 4.5
----------- ------ ----- --------- ---------
Net income/(loss) under U.S. GAAP............. L(54.9) L(37.8) L0.8 L(91.9) $ (152.5)
----------- ------ ----- --------- ---------
----------- ------ ----- --------- ---------
</TABLE>
----------------------------
(i) Reversal of historical amortization of goodwill and expirations.
(ii) Full year amortization of pushed down goodwill over 40 years.
(iii) Revised full year pension cost pushed down.
42
<PAGE>
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for and as of
the end of the five years in the period ended December 31, 1998 have been
derived from, and should be read in conjunction with, the audited consolidated
financial statements of Willis Corroon and the notes thereto that are included
elsewhere in this prospectus. Willis Corroon prepares its consolidated financial
statements in accordance with U.K. GAAP, which differs in certain respects from
U.S. GAAP. Reconciliations of net income and shareholders' equity reflecting the
significant differences between U.K. GAAP and U.S. GAAP are set forth in those
financial statements. Under U.K. GAAP, the acquisition of Willis Corroon by
Trinity Acquisition has no impact on the historical amounts reported
subsequently by Willis Corroon and, accordingly, combined amounts for the years
ended December 31, 1998 are presented. Under U.S. GAAP, the purchase of Willis
Corroon by Trinity Acquisition established a new basis of accounting for the
purchased assets and liabilities from September 2, 1998. Accordingly, under U.S.
GAAP, it is not appropriate to present combined amounts for the year ended
December 31, 1998. See Appendix A of this prospectus for Willis Corroon's
results for the three month period ended March 31, 1999.
<TABLE>
<CAPTION>
YEAR
ENDED
JANUARY 1 TO SEPTEMBER 2 TO DECEMBER
YEAR ENDED DECEMBER 31, SEPTEMBER 1, DECEMBER 31, 31,
------------------------------------------ --------------- --------------- ---------
1994 1995 1996 1997 1998 1998 1998
--------- --------- --------- --------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
AMOUNTS IN ACCORDANCE WITH U.K. GAAP:
STATEMENT OF INCOME DATA:
Continuing operations
Operating revenues.................... L 709.7 L 706.4 L 725.0 L 692.0 L468.8 L 249.2 L 718.0
Operating income before exceptional
items(b)............................ 57.9 79.4 87.8 92.1 56.8 26.0 82.8
Share of profit of associates......... 5.9 6.8 3.5 1.9 7.7 (1.4) 6.3
Interest expense...................... (6.4) (7.2) (2.2) (0.7) (2.0) (1.2) (3.2)
Income / (loss) before tax............ 8.3 62.4 91.6 95.5 (1.3) 17.1 15.8
Total operations
Net income / (loss)................... 0.1 29.0 54.2 56.9 (15.6) (25.7) (41.3)
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................ 2,253.3 3,703.7 3,377.2 3,304.3 4,589.0 4,589.0
Total long-term debt.................... 115.1 61.9 17.9 34.0 276.4 276.4
Total shareholders' equity.............. 150.2 120.6 151.9 124.6 89.0 89.0
OTHER FINANCIAL DATA:
Depreciation and amortization........... 28.8 24.4 24.5 22.7 15.5 8.9 24.4
Capital expenditures.................... 35.3 21.6 28.9 26.5 20.1 9.8 29.9
Ratio of earnings to fixed charges(c)... 1.4x 4.3x 7.6x 10.5x -- 10.9x 2.9x
AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
STATEMENT OF INCOME DATA:
Continuing operations
Operating revenues.................... L 709.7 L 706.4 L 725.0 L 692.0 L468.8 L 249.2
Operating income...................... 42.1 1.9 68.7 61.2 7.6 9.1
Interest expense...................... (6.4) (7.2) (2.2) (0.7) (2.0) (1.2)
Income / (loss) before tax............ 43.1 1.5 74.7 66.5 (5.1) 5.2
Share of profit of associates, net of
tax................................. 5.4 6.0 2.9 1.6 7.6 (3.0)
Total operations
Net income / (loss)................... 16.2 (18.0) 37.7 36.2 (19.0) (35.9)
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................ 2,915.2 4,376.0 3,953.5 3,763.4 5,369.9 L5,369.9
Total long-term debt.................... 115.1 61.9 17.9 34.0 276.4 276.4
Total shareholders' equity.............. 629.1 587.3 560.2 583.6 875.4 875.4
OTHER FINANCIAL DATA:
Depreciation and amortization........... 47.6 42.9 42.4 40.4 27.5 15.4
Capital expenditures.................... 35.3 21.6 28.9 26.5 20.1 9.8
Ratio of earnings to fixed charges(c)... 3.4x 1.0x 6.4x 7.6x -- 4.8x
<CAPTION>
1998
---------
<S> <C>
AMOUNTS IN ACCORDANCE WITH U.K. GAAP:
STATEMENT OF INCOME DATA:
Continuing operations
Operating revenues.................... $ 1,191.9(a)
Operating income before exceptional
items(b)............................ 137.4
Share of profit of associates......... 10.5
Interest expense...................... (5.3)
Income / (loss) before tax............ 26.2
Total operations
Net income / (loss)................... (68.6)
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................ 7,617.7
Total long-term debt.................... 458.8
Total shareholders' equity.............. 147.7
OTHER FINANCIAL DATA:
Depreciation and amortization........... 40.5
Capital expenditures.................... 49.6
Ratio of earnings to fixed charges(c)... 2.9x
AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
STATEMENT OF INCOME DATA:
Continuing operations
Operating revenues....................
Operating income......................
Interest expense......................
Income / (loss) before tax............
Share of profit of associates, net of
tax.................................
Total operations
Net income / (loss)...................
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................ $ 8,914.0
Total long-term debt.................... 458.8
Total shareholders' equity.............. 1,453.2
OTHER FINANCIAL DATA:
Depreciation and amortization...........
Capital expenditures....................
Ratio of earnings to fixed charges(c)...
</TABLE>
- ----------------------------------
(a) U.S. dollar amounts have been translated at the noon buying rate on December
31, 1998 of $1.66 = L1.00 solely for your convenience.
(b) Exceptional items charged against continuing operations' operating income
for the year ended December 31, 1995 consisted of losses of L16.6 million
relating to properties that were surplus to operational requirements. For
the period January 1 to September 1, 1998, exceptional items charged against
operating income totalled L35.8 million and consisted of provisions of L25.0
million for claims and costs associated with the review of personal pensions
plans sold between 1988 and 1994 and costs of L10.8 million incurred in
connection with the acquisition of Willis Corroon by Trinity Acquisition.
For the period September 2 to December 31, 1998 exceptional items charged
against operating income totalled L5.0 million and consisted of debt
issuance costs incurred in connection with the acquisition of Willis Corroon
by Trinity Acquisition. See Note 4 of the Notes to the Consolidated
Financial Statements.
(c) The ratio of earnings to fixed charges is computed by dividing earnings from
continuing operations by fixed charges. For these purposes, "earnings"
consists of income before taxation less the retained equity in share of
profits of associates and fixed charges. "Fixed charges" consists of
interest expense (including amortization of debt issuance costs) and the
interest element of operating lease rentals. Due to the exceptional charges
referred to in (b) above, the earnings under U.K. GAAP and U.S. GAAP for the
period January 1 to September 1, 1998 were inadequate to cover fixed
charges. The amount of the deficiencies were L7.1 million under U.K. GAAP
and L10.9 million under U.S. GAAP.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION GENERALLY RELATES TO THE HISTORICAL
CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF WILLIS CORROON AND
SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS OF
WILLIS CORROON INCLUDED ELSEWHERE HEREIN. FOR INFORMATION REGARDING THE PRO
FORMA FINANCIAL CONDITION OF WILLIS CORROON, SEE "UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION" AND "--LIQUIDITY AND CAPITAL RESOURCES." THE
FOLLOWING DISCUSSION AND ANALYSIS IS BASED ON THE CONSOLIDATED FINANCIAL
STATEMENTS OF WILLIS CORROON, WHICH ARE PREPARED IN ACCORDANCE WITH U.K. GAAP.
THE PRINCIPAL DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP AS THEY RELATE TO
WILLIS CORROON ARE DISCUSSED IN NOTE 31 OF THE NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS OF WILLIS CORROON INCLUDED ELSEWHERE HEREIN.
OVERVIEW
Willis Corroon generates revenue from:
- commissions and fees on insurance placements;
- fees from consulting and other services; and
- interest earned on premiums held prior to remission to the insurer and
on claims held prior to payment to the insured.
Although commissions and interest have traditionally been the greatest sources
of revenues, fee income, from both insurance placements and consulting and other
services, has been increasing as a percentage of total revenues in recent years,
while commission income has been declining largely because of (1) increased
demand by clients for fee-generating risk management consulting services and (2)
pressure on insurance premium rates (and therefore brokerage commissions) due to
competitive factors impacting the insurance industry. Willis Corroon expects
this trend toward increasing fee income to continue. See "Business--Industry
Overview."
Willis Corroon is a holding company, with two groups of subsidiary
companies, one based in North America and one based in the U.K. From an
operating standpoint, Willis Corroon conducts its activities through five
business units:
- North American Operations;
- U.K. Retail;
- Global Specialties;
- Global Reinsurance; and
- International.
See "Business."
During fiscal 1998, 41% of Willis Corroon's total revenues were derived
from North American Operations, 22% were from Global Specialties, 18% were from
U.K. Retail, 10% were from Global Reinsurance and 9% were from International
operations. In terms of 1998 EBITDA (defined as operating income from continuing
operations before exceptional items and depreciation and amortization, plus
share of profit of associates), Global Specialties and U.K. Retail produced a
higher percentage of EBITDA than revenues and North American Operations produced
a lower percentage.
In December 1995, John Reeve became Executive Chairman and the changes
started in 1994, including cost controls and disposals of non-core businesses,
were refocused and expanded with
44
<PAGE>
the development of the change program. The initiatives under the change program
were launched in 1996 and are designed to enhance revenues, improve efficiency
and change Willis Corroon from a traditional commission-based insurance broker
to a more comprehensive professional advisory services firm. As part of the
change program, Willis Corroon has established certain key initiatives to:
- enhance operating efficiencies;
- intensify its efforts to develop existing and new accounts; and
- increase cross-selling of both existing and new products and services
to its existing clients, thereby creating direct economic benefits for
clients, carriers and Willis Corroon.
Willis Corroon also intends to streamline administrative processes with a
selected number of insurance carriers and also work closely with certain
insurance carriers to generate new product and service ideas. In addition,
Willis Corroon has developed initiatives focused on maximizing the talent and
expertise of its brokers and consultants in order to more efficiently manage
these resources. Accordingly, Willis Corroon has developed improved techniques
for recruitment and assessment; implemented a new and more frequent appraisal
process, including peer review; created new training and development programs;
implemented a new incentive structure for producers in the U.S.; invested in
technology to enhance communication and knowledge sharing among employees; and
formed practice groups to share knowledge on specific industry or product areas.
Willis Corroon expects that the change program will be substantially
completed by 2001. During 1998, Willis Corroon incurred approximately L12.0
million in severance and external consulting costs in connection with the change
program and Willis Corroon expects that costs incurred in 1999 in connection
with the change program will be approximately the same amount. Willis Corroon
expects to continue to incur severance and external consulting costs through to
the end of the change program and expects to receive significant benefits, only
a portion of which have been realized to date, over the following three to five
years. Willis Corroon expects to fund these change program costs out of cash
flow from operations. For a discussion of the change program, its objectives and
its results, see "Business-- Recent Management Initiatives."
Since 1995, Willis Corroon has incurred a number of non-recurring
expenses in its continuing operations, a portion of which relate to the change
program. These expenses include the following:
- PENSION REVIEW PROVISIONS--the provisions made for claims and costs
associated with the review of personal pension plans sold between 1988
and 1994. Willis Corroon recorded provisions of L1.0 million, L0.2
million and L2.3 million for such claims and costs in 1995, 1996 and
1997, respectively and in 1998 recorded, as an exceptional item, a
further L25.0 million provision for such claims. See "Business--Legal
Proceedings."
- LLOYD'S RECONSTRUCTION AND RENEWAL PLAN EXPENSES--the cost of Willis
Corroon's brokers' contribution to the Lloyd's Reconstruction and
Renewal Plan. See "Results of Operations-- Fiscal 1997 compared with
Fiscal 1996" for a discussion of the Lloyd's Reconstruction and Renewal
Plan. Willis Corroon incurred L2.6 million, L2.2 million and L2.0
million of such expenses in 1996, 1997 and 1998, respectively. There
were no such expenses in 1995. Willis Corroon expects to continue to
incur such expenses in 1999 and 2000.
- SEVERANCE PROVISIONS--the provisions recorded for severance costs
incurred as part of the change program. Willis Corroon incurred L11.3
million, L3.4 million and L9.6 million of such
45
<PAGE>
severance costs in 1996, 1997 and 1998, respectively. There were no
provisions for severance costs connected with the change program
recorded in 1995.
- OTHER EXPENSES--consulting expenses primarily incurred in connection
with the change program and costs incurred in connection with Willis
Corroon's investment in World Insurance Network, a project set up by
the then six largest brokers in the world to establish a secure and
reliable medium for electronic commerce between insurance and
reinsurance carriers, brokers and clients. Additionally, the 1997 and
1998 expenses included costs related to the acquisition of broker
teams. Willis Corroon incurred L0.7 million, L6.9 million, L10.0
million and L10.5 million of such expenses in 1995, 1996, 1997 and
1998, respectively. Expenses for 1998 also included, as an exceptional
item, L15.8 million in expenses arising out of the acquisition of
Willis Corroon by Trinity Acquisition.
- 1998 PROJECTS--costs incurred in connection with (1) the European
Economic and Monetary Union project to convert Willis Corroon's
operating systems and procedures to be able to handle business
denominated, accounted or settled in the euro, which was introduced as
a trading currency on January 1, 1999; (2) the Peoplesoft project,
which aims to provide replacement year 2000 and European Economic and
Monetary Union compliant computer systems for the finance and human
resources functions; (3) the Strategic Insurer Relations project in
connection with Willis Corroon's efforts to enhance strategic relations
with certain insurers; and (4) the Knowledge Management project, which
provides an Intranet site containing information such as market and
competitor news. Willis Corroon incurred L2.8 million of expenses in
connection with such 1998 Projects in the year ended December 31, 1998.
These non-recurring expenses affected Willis Corroon's actual reported
results, offsetting the benefits in both margin and EBITDA improvement. While
Willis Corroon will continue to incur additional severance and other costs
relating to the change program in the future, these expenses are expected to
decline as the remainder of the change program is implemented.
In addition to these non-recurring expenses, in recent years Willis
Corroon has completed a number of dispositions and acquisitions as part of its
efforts to focus its operations out of non-core or non-profitable businesses and
to expand its global capabilities. The following identifies the operations sold
or closed from 1995 through 1998:
- HEDDINGTON BROKERS LIMITED--an associate based in Bermuda in which
Willis Corroon had a 50% interest, that was sold in 1995;
- IRPC/PPC--two consulting companies, previously part of U.K. Retail,
that were sold in 1996;
- WF CORROON--a benefits consulting operation, previously part of North
American Retail and U.K. Retail, that was sold in 1996;
- CONSUMER BENEFIT LIFE INSURANCE COMPANY/MANAGEMENT SCIENCE ASSOCIATES
--two North American retail business operations that were sold in 1996;
- WILLIS FABER & DUMAS (AGENCIES) LIMITED--a Lloyd's members' agent that
was sold in October 1997; and
- PROFESSIONAL LIABILITY UNDERWRITING MANAGEMENT--part of North American
Operations that was closed in the second quarter of 1998.
46
<PAGE>
In addition, in 1995 Willis Corroon sold its remaining interest in
Gryphon Holdings, Inc., a discontinued operation which had been accounted for as
an associate.
During the same period, Willis Corroon has continued to expand its
global presence through the following acquisitions and strategic investments:
- GRAS SAVOYE--Willis Corroon acquired a 33% interest in Gras Savoye &
Cie, France's leading insurance broker, in December 1997;
- JASPERS WUPPESAHL--Willis Corroon's then existing German associate, C.
Wuppesahl & Co. Assekuranzmakler, merged with Jaspers Industrie
Assekuranz GmbH & Co., KG in January 1998 to create the third largest
insurance broker in Germany, in which Willis Corroon now has a 44.6%
interest;
- YORK WILLIS CORROON--Willis Corroon increased its investment in its
Brazilian associate from 30% to 100% in April 1997;
- WILLIS CORROON SCHEUER--Willis Corroon increased its investment in its
Netherlands associate from 40% to 100% in January 1997;
- WILLIS CORROON RICHARD OLIVER PTY LTD--Willis Corroon increased its
investment in its Australian associate from 49.75% to 100% in January
1997;
- WILLIS NATIONAL--in August 1997 Willis Corroon combined the operations
of Willis Corroon Financial Planning Limited, its U.K. financial
advisory business, with the independent financial advisory business of
Abbey National plc to form a joint venture 51% owned by Willis Corroon
within U.K. Retail;
- GRUPPO ITAL BROKERS--Willis Corroon acquired a 50% interest in an
Italian subsidiary in July 1998; and
- ASSURANDRGRUPPEN--Willis Corroon acquired a 30% interest in a Danish
associate in September 1998.
- S&C WILLIS CORROON--Willis Corroon increased its investment in its
Spanish associate from 48% to 60% and reorganized its existing Spanish
and Portuguese operations in July 1998.
In addition, Willis Corroon is in the process of combining all of its
existing Spanish and Portuguese operations. Willis Corroon has also announced
arrangements which are expected to result in Willis Corroon having a 45%
interest in a Venezuelan retail broker and an estimated 75% interest in a
Venezuelan reinsurance broker.
These acquisitions and dispositions also affect the actual trends in
operating revenues and EBITDA on a continuing operations basis. Because the
impact of the dispositions has exceeded the impact of the acquisitions since
1995, the growth rates in the businesses currently operated by Willis Corroon
are not apparent from Willis Corroon's financial statements. Reported operating
revenues from continuing operations have grown from L706.4 million in 1995 to
L718.0 million in 1998, an annual growth rate of 0.5%. However, if the operating
revenues from businesses sold or closed from 1995 through 1998 are excluded,
adjusted operating revenues increased from L640.9 million to L717.9 million, an
annual growth rate of 3.9%. Operating income before exceptional items has grown
from L79.4 million in 1995 to L82.8 million in 1998, an annual growth rate of
1.4%. See footnote (b) of Notes to Summary Historical and Unaudited Pro Forma
Consolidated Financial Information of Willis Corroon for a description of
exceptional items. Cash flows from operations, investing and financing in
47
<PAGE>
1995 were an inflow of L88.7 million, outflow L37.3 million and outflow of L82.5
million, respectively, and in 1998 were an outflow of L7.3 million, an outflow
of L9.1 million and an inflow of L47.3 million, respectively. Net income in 1995
was L29.0 million and in 1998 was a loss of L41.3 million. Reported EBITDA has
grown from L110.6 million in 1995 to L113.5 million in 1998, an annual growth
rate of 0.8%. Excluding the effect of the nonrecurring items referred to above
and businesses sold or closed from 1995 through 1998, adjusted EBITDA has grown
from L106.2 million to L139.0 million, an annual growth rate of 9.3%. See
footnote (f) of Notes to the Summary Historical and Unaudited Pro Forma
Consolidated Financial Information of Willis Corroon for a description of how
Adjusted EBITDA is calculated and its relevance for investors.
For a further discussion of historical results from 1995 through 1998
assuming constant currency rates in all periods presented, see "Supplemental
Constant Currency Financial Data." As discussed above, since 1995, Willis
Corroon has incurred a number of non-recurring expenses in its continuing
operations, a portion of which relate to the change program and in recent years
has completed a number of dispositions and acquisitions as part of its efforts
to focus its operations away from non-core or non-profitable businesses and
expand its global capabilities. Adjusting for these items, Operating
Revenues--Constant Currency would have grown from L605.6 million in 1995 to
L720.0 million in 1998, a 5.9% annual growth rate since 1995. Operating
Income--Constant Currency would have grown from L61.9 million in 1995 to L108.9
million in 1998, a 20.7% annual growth rate.
In connection with many of its investments in associates, Willis
Corroon retains rights to increase its ownership percentage of such associates
over time and, in certain cases, the existing owners also have a right to put
their shares to Willis Corroon. See "--Liquidity and Capital Resources." Willis
Corroon typically obtains representation on the boards of directors which allows
it to exercise influence over the associates' businesses. Willis Corroon's
Consolidated Statement of Income includes an item captioned "Share of Profit of
Associates." This item reflects Willis Corroon's share of the pre-tax profits of
its associates, entities in which it owns more than 20% but no more than 50%.
This amount on the income statement, however, does not reflect the cash flow
from the associates. Willis Corroon typically receives a cash dividend,
generally based on a percentage of net income, if positive. Willis Corroon's
Consolidated Statement of Cash Flows includes the line entitled "Dividends from
Associates".
Like many insurance brokers, Willis Corroon earns revenue in an uneven
fashion during the year, primarily due to the timing of insurance policy
renewals. Although the majority of revenue and profit has historically been
earned in the first quarter and substantially all of such revenue and profit has
historically been earned in the first half of the year, in recent years Willis
Corroon's revenues and profits have been spread more equally throughout the
year. For example, in 1994, Willis Corroon earned 72% of its annual operating
income in the first quarter and 95% in the first half, as compared to 45% in the
first quarter and 62% in the first half of 1998. The trend of declining premiums
has contributed to the shifting of revenue into later in the year ("re-phasing")
as clients delay purchasing long-term policies in order to benefit from
declining rates. In addition, contingent commissions, which are generally based
on volume placements or on the profitability of a risk class, have increased in
recent years and are typically paid at the end of the year, further adding to
revenue and profit in the fourth quarter. Expenses are incurred on a relatively
even basis throughout the year. As a result of these re-phasing differences,
period to period comparisons that are based on less than full year periods may
not be valid.
In recent years, operating revenues have not been significantly
influenced by inflation. However, with Willis Corroon's staff and related costs
generally accounting for approximately 65% of Willis Corroon's total operating
expenses, Willis Corroon is affected by general inflationary pressures in each
of the countries in which it operates.
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As an intermediary, Willis Corroon holds funds in a fiduciary capacity
for the account of third parties, typically as the result of premiums received
from clients that are in transit to insurance carriers and claims due to clients
that are in transit from insurance carriers. Premiums which are held on account
of or due from policyholders are reported as assets of Willis Corroon with a
corresponding liability due to the insurance carriers. Claims held by or due to
Willis Corroon which are due to clients are also shown as both assets and
liabilities of Willis Corroon. All such balances due or payable are included in
"receivables" and "trade payables" on the balance sheet. Willis Corroon earns
interest on such funds during the time between the receipt of the cash and the
time the cash is paid out. Fiduciary cash must be kept in certain regulated bank
accounts subject to guidelines, which generally emphasize capital preservation
and liquidity, and is not generally available to service Willis Corroon's debt
or for other corporate purposes. Therefore, despite short-term deposits and cash
of L317.1 million and investments of L281.6 million at December 31, 1998, Willis
Corroon had minimal excess cash which it could access at such date. See
"--Liquidity and Capital Resources."
Although Willis Corroon discontinued its U.K. underwriting operations
in 1991, it is still required to handle the administration of claims arising
from insurance business previously written by Willis Faber (Underwriting
Management) on behalf of Sovereign and third party insurance carriers. Sovereign
was placed into provisional liquidation on July 11, 1997. See "Risk
Factors--Sovereign/ WFUM" and "Business--Legal Proceedings."
The strength of sterling in recent years has had a material impact on
Willis Corroon's reported results, both by reducing revenues and reducing
margins due to Willis Corroon's large sterling expense base. The discussion set
forth below under "--Results of Operations" discusses both actual results of
Willis Corroon's operating units and results on a "constant currency" basis,
assuming, for the TWO applicable periods being compared, that the currency
exchange rates used in the later period for (1) recording the non-sterling
transactions of U.K. based subsidiaries at achieved rates of exchange and (2)
translating the results of non-U.K. based subsidiaries at average rates of
exchange, were also in effect in the earlier period. Willis Corroon believes
that when comparing results of two periods, it is relevant to consider changes
on the basis of constant currency exchange rates. See "Supplemental Constant
Currency Financial Data" for an analysis of historical results from 1995 through
1998 assuming constant currency rates in ALL periods presented. Willis Corroon
Group is considering changing its reporting currency from pounds sterling to
U.S. dollars. No decision has been made as to this matter.
RECENT DEVELOPMENTS
On May 14, 1999, we issued our results for the first quarter of 1999 as
measured against the corresponding period in the prior year. For the complete
text of the report containing our first quarter results, see Appendix A to this
prospectus.
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED WITH FISCAL 1997
The consolidated statement of income of Willis Corroon included
elsewhere in this prospectus has been presented separately for the period from
January 1, 1998 to September 1, 1998, the effective date of the acquisition by
Trinity Acquisition of Willis Corroon, and for the period from September 2, 1998
to December 31, 1998 in accordance with the requirements of the U.S. Securities
and Exchange Commission. Management believes that it is more appropriate to
present financial data on a combined basis because, under U.K. GAAP, the
acquisition does not change the basis of accounting for Willis Corroon. The
discussion set forth below of Willis Corroon's performance is based on the
combined period ended December 31, 1998 compared with the year ended December
31, 1997 which management believes is more meaningful for investors.
49
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The following table summarizes the combined results for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
JANUARY 1 TO SEPTEMBER 2 TO YEAR ENDED
SEPTEMBER 1, DECEMBER 31, DECEMBER 31,
1998 1998 1998
----------------- ---------------- --------------
<S> <C> <C> <C>
(IN MILLIONS)
Continuing Operations
Commissions and fees......................................... L441.9 L235.8 L677.7
Interest and investment income............................... 26.9 13.4 40.3
------- ------- -------
468.8 249.2 718.0
Discontinued Operations...................................... -- 0.2 0.2
------- ------- -------
Total operating revenues..................................... 468.8 249.4 718.2
Net operating expenses....................................... (412.0) (223.4) (635.4)
------- ------- -------
Operating income before exceptional items.................... 56.8 26.0 82.8
Exceptional items............................................ (35.8) (5.0) (40.8)
------- ------- -------
Operating income............................................. 21.0 21.0 42.0
Share of profit of associates................................ 7.7 (1.4) 6.3
Loss on closure/disposal of operations....................... (28.0) (1.3) (29.3)
Interest expense............................................. (2.0) (1.2) (3.2)
------- ------- -------
Income/(loss) before taxation................................ (1.3) 17.1 15.8
Taxation..................................................... (13.5) (40.9) (54.4)
------- ------- -------
Income/(loss) after taxation................................. (14.8) (23.8) (38.6)
Minority interests........................................... (0.8) (1.9) (2.7)
------- ------- -------
Net income/(loss)............................................ (15.6) (25.7) (41.3)
------- ------- -------
------- ------- -------
</TABLE>
SUMMARY
Operating revenues increased by L24.2 million (3.5%) from L694.0
million in fiscal 1997 to L718.2 million in fiscal 1998. In constant currency
terms, operating revenues increased by 6%. Excluding the adverse effects of
foreign currency exchange rate movements (L12.8 million), the loss of operating
revenues from businesses sold (L8.5 million) and the operating revenues gained
from acquisitions (L23.8 million), operating revenues were 3.2% higher in fiscal
1998 than in fiscal 1997.
Income before taxation and exceptional items decreased by L7.4 million
(8%) from L93.3 million in fiscal 1997 to L85.9 million in fiscal 1998. In
constant currency terms, income before taxation and exceptional items decreased
by 4%. Excluding the adverse effects of foreign currency exchange rate movements
(L4.1 million), the loss of income from businesses sold (L4.7 million), the
income gained from acquisitions (L13.8 million) and also excluding the adverse
effects of higher non-recurring expenses (L8.2 million), income before interest,
taxation and exceptional items decreased by 1%. Three exceptional charges were
made in fiscal 1998. A further provision amounting to L25.0 million was made as
an exceptional item for costs expected to be incurred in connection with the
pension review; L15.8 million was incurred by Willis Corroon in connection with
the offer by Trinity Acquisition for all of the issued share capital of Willis
Corroon Group; and a L29.3 million loss on disposal (which included a goodwill
write-off of L29.6 million) was incurred almost entirely upon the closure of
Professional Liability Underwriting Management, Willis Corroon's professional
liability wholesale operation in the U.S. After these exceptional charges,
income before taxation decreased by L79.7 million (83%) from L95.5 million in
fiscal 1997 to L15.8 million in fiscal 1998.
Net income decreased by L98.2 million (173%) from L56.9 million in
fiscal 1997 to a loss of L41.3 million in fiscal 1998, partly as the result of
the exceptional charges referred to above. In addition,
50
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the tax charge for fiscal 1998 included L33.1 million written off in respect of
U.K. advance corporation tax and deferred tax balances (see "--Taxation.")
COMMISSIONS AND FEES--CONTINUING OPERATIONS
Commissions and fees earned from Willis Corroon's continuing operations
increased by L25.7 million (3.9%) from L652.0 million in fiscal 1997 to L677.7
million in fiscal 1998. In constant currency terms, commissions and fees
increased by 5.9%. Excluding the effects of businesses sold (L8.0 million) and
businesses acquired (L24.3 million), commissions and fees increased by 3.4% in
constant currency terms predominantly from improved results in North American
Retail and Global Broking Services.
NORTH AMERICAN OPERATIONS: Commissions and fees earned by Willis
Corroon's North American Retail operations increased by L13.8 million (5.5%)
from L249.7 million in fiscal 1997 to L263.5 million in fiscal 1998. In constant
currency terms, commissions and fees increased by 7.2%, due in part to various
initiatives implemented as part of the change program, which significantly
enhanced new business gains and improved performance in obtaining renewed
business. Commissions and fees earned by the Willis Corroon's U.S. Wholesale
operations decreased by L2.0 (6.5%) million from L30.6 million in fiscal 1997 to
L28.6 million in fiscal 1998. In constant currency terms, such commissions and
fees decreased by 5.3%. Of this reduction, L1.2 million was attributable to
Professional Liability Underwriting Management, Willis Corroon's professional
liability wholesale operation, which was closed in the second quarter of 1998.
Excluding the effect of this closure, commissions and fees of Willis Corroon's
U.S. Wholesale operations decreased by 1.4% in constant currency terms,
primarily due to a continuing decline in the public entity and schools
businesses.
U.K. RETAIL: Commission and fees earned by Willis Corroon's U.K.
Retail operations increased by L5.0 million (4.4%) from L113.8 million in fiscal
1997 to L118.8 million in fiscal 1998. In constant currency terms, commissions
and fees increased by 4.5%. Of this increase, L7.4 million was attributable to
the Willis National joint venture, which was formed in August 1997. Excluding
the effects of the formation of Willis National, commissions and fees decreased
by 1.9% in constant currency terms due to competition in soft markets and delay
or cancellation of construction contracts.
51
<PAGE>
GLOBAL SPECIALTIES: Commissions and fees earned by the business units
of Global Specialties increased by L5.7 million (4.2%) from L134.5 million in
fiscal 1997 to L140.2 million in fiscal 1998. In constant currency terms,
commissions and fees increased by 4.9%. Premium rate reductions continued to
affect most business areas. Global Broking Services, however, reported a 15.7%
increase in constant currency terms in commissions and fees as a result of
strong new business gains and improved focus on renewals.
GLOBAL REINSURANCE: Commissions and fees earned by Willis Corroon's
Global Reinsurance business unit decreased by L2.3 million (3.3%) from L68.7
million in fiscal 1997 to L66.4 million in fiscal 1998. In constant currency
terms, commissions and fees decreased by 0.7%. Expansion in the U.S. and Europe
was offset by a disposal of part of the French portfolio to Gras Savoye
following Willis Corroon Group's investment in Gras Savoye.
INTERNATIONAL: Commission and fees earned by Willis Corroon's
International operations increased by L12.4 million (25.9%) from L47.8 million
in fiscal 1997 to L60.2 million in fiscal 1998. In constant currency terms,
commissions and fees increased by 39.4%. Excluding the effect of the acquisition
of Gruppo Ital Brokers, which was acquired in July 1998 and other acquisitions,
commissions and fees increased by 0.3% in constant currency terms.
WILLIS FABER & DUMAS (AGENCIES) LIMITED): Willis Faber & Dumas Agencies
was sold in October 1997 to a company owned by its management. Commissions and
fees earned during fiscal 1997 totalled L6.7 million.
INTEREST AND INVESTMENT INCOME
Interest and investment income from continuing operations was L40.0
million in fiscal 1997 and L40.3 million in fiscal 1998. In constant currency
terms, interest and investment income increased by 4%.
OPERATING EXPENSES
Operating expenses for Willis Corroon's continuing operations before
exceptional items increased by L35.5 million (5.9%) from L599.9 million in
fiscal 1997 to L635.4 million in fiscal 1998, due to the increase in expenses
from businesses acquired (L18.3 million) exceeding the reduction in expenses
from businesses sold (L3.7 million). Excluding favorable foreign exchange rate
movements (L8.9 million), the effects of acquisitions and dispositions and
higher non-recurring costs (L8.2 million, primarily severance costs incurred as
part of the change program), operating expenses increased by 3.9% in constant
currency terms.
In common with most other U.K. independent financial advisors, Willis
Corroon Financial Planning has been carrying out a review, in accordance with
guidelines issued by its regulator, of pension advice previously given. In this
connection, a further provision of L25.0 million was made as an exceptional item
during fiscal 1998. At December 31, 1998, the remaining balance of such
provision amounted to L20.8 million.
ASSOCIATES
Willis Corroon's share of income before taxation from associates
increased by L4.4 million (232%) from L1.9 million in fiscal 1997 to L6.3
million in fiscal 1998. Adjusting for the increase (L5.1 million) due to
investments in Gras Savoye and Jaspers Wuppesahl, which were acquired in
December 1997 and January 1998, respectively, and, increased investments in some
of the associates creating subsidiaries Willis Corroon's share of income from
associates was in line with 1997.
52
<PAGE>
INTEREST PAYABLE
Interest payable increased by L2.5 million from L0.7 million in fiscal
1997 to L3.2 million in fiscal 1998 as a consequence of new debt incurred to
finance investments made in December 1997 in Gras Savoye and in January 1998 in
Jaspers Wuppesahl.
DISPOSALS
During fiscal 1998, the loss on disposals amounted to L29.3 million,
consisting mainly of goodwill written of on the closure of Professional
Liability Underwriting Management.
DISCONTINUED OPERATIONS--UNDERWRITING
Willis Corroon's U.K. underwriting operations, which consisted of
Sovereign, an insurance company, and Willis Faber (Underwriting Management), an
underwriting agent, were discontinued in 1991. Sovereign was placed into
provisional liquidation in July 1997. Following the provisional liquidation of
Sovereign, the net assets of Sovereign and its subsidiaries, amounting to L5.9
million and attributable goodwill of L4.1 million, were written off in fiscal
1997 against provisions previously established.
TAXATION
The tax charge for fiscal 1998 amounted to L54.4 million after writing
off U.K. advance corporation tax of L9.7 million and deferred tax asset balances
of L23.4 million. The timing of the recoverability of these assets was uncertain
and, accordingly, it was judged appropriate under U.K. GAAP to write off the
amounts. Excluding these write-offs and the Professional Liability Underwriting
Management goodwill write-off of L29.6 million and costs of L15.8 million
incurred in connection with the offer by Trinity Acquisition for Willis Corroon
Group, for which no tax relief is available and, the further provisions
amounting to L25.0 million in respect of costs expected to be incurred in
connection with the pension review, the effective tax rate for fiscal 1998 was
36.0% compared with an effective tax rate of 39.9% in fiscal 1997.
DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP
The net loss for 1998 of L41.3 million and net income for 1997 of L56.9
million, both under U.K. GAAP, compare with a net loss of L54.9 million and net
income of L36.2 million, respectively, under U.S. GAAP.
The differences arise principally from the differing accounting
treatment for goodwill, forward foreign exchange contracts in respect of future
income, pensions and related deferred taxation. Details of the reconciling
differences are given in Note 31 of Notes to the Financial Statements.
FISCAL 1997 COMPARED WITH FISCAL 1996
SUMMARY
Total operating revenues decreased by L36.7 million (5.0%) from L730.7
million in fiscal 1996 to L694.0 million in fiscal 1997. In constant currency
terms, operating revenues decreased by 1%. The decrease in operating revenues
was due to the adverse impact of foreign exchange rate movements (L26.9 million)
and the loss of operating revenue from businesses sold (L39.8 million), which
revenue was not wholly replaced by operating revenue from businesses acquired
and subsidiaries previously accounted for as associates (L21.4 million).
Further, commissions earned by Willis Faber & Dumas Agencies, which was sold in
October 1997, were L10.0 million lower in fiscal 1997 than in fiscal 1996.
Operating revenues of discontinued operations decreased by L3.7 million from
L5.7 million in fiscal 1996
53
<PAGE>
to L2.0 million in fiscal 1997. Adjusting for each of these factors, operating
revenues of continuing operations were 3% higher in constant currency terms in
fiscal 1997 than in fiscal 1996.
Income before taxation increased by L3.9 million (4%) from L91.6
million in fiscal 1996 to L95.5 million in fiscal 1997. In constant currency
terms, income before taxation increased by 14%. Excluding the adverse effects of
foreign currency exchange rate movements (L8.0 million), the loss of income from
businesses sold (L5.7 million), income gained from acquisitions (L1.7 million)
and also excluding the effects of lower non-recurring expenses (L3.1 million),
income before tax increased by 14% in constant currency terms, primarily due to
the impact of the change program. Willis Corroon's share of profit of associates
was L1.6 million lower in fiscal 1997 than in fiscal 1996 mainly because two
associates, Richard Oliver in Australia and Scheuer in the Netherlands, became
subsidiaries on January 1, 1997 whereas they had been accounted for as
associates during all of fiscal 1996. Willis Corroon reported a gain from the
disposal of continuing operations of L2.2 million in fiscal 1997 as the result
of the sale of Willis Corroon's interest in Willis Faber & Dumas Agencies, which
was sold in October 1997, and Willis Corroon France SA, which was sold in
December 1997 to Gras Savoye at the time Willis Corroon acquired its 33%
interest in Gras Savoye. The gain on disposal also gives effect to a write-off
of goodwill of L2.5 million. Net income increased by L2.7 million (5%) from
L54.2 million in fiscal 1996 to L56.9 million in fiscal 1997.
LLOYD'S RECONSTRUCTION AND RENEWAL PLAN
During fiscal 1996, an agreement was reached with the individuals who
comprise the various Lloyd's underwriting syndicates for the reconstruction and
renewal of the Lloyd's insurance market. As part of this plan, Lloyd's members'
agencies and Lloyd's brokers, among others, agreed to contribute financially to
the establishment of Equitas Reinsurance Limited which would reinsure the
outstanding liabilities of such individuals for the 1992 and earlier
underwriting years of account. In return, most of such individuals agreed to
cease litigation against Lloyd's.
Willis Corroon's subsidiary, Willis Faber & Dumas Agencies, a Lloyd's
members agent, agreed to make a one-time contribution to the settlement of L3.4
million and Willis Corroon's broking operations agreed to contribute an annual
levy for five years beginning in 1996 based on the volume of business transacted
with Lloyd's. For fiscal 1996, this levy amounted to L2.6 million.
Following the settlement, underwriting syndicates were able to close
and declare profits on those underwriting years of account that had been held
open, in some cases for several years. Profit commission then became payable to
Willis Faber & Dumas Agencies based on the syndicate profits of the individuals
managed by them. This profit commission amounted to L14.5 million in fiscal
1996.
As a result of the settlement, Willis Corroon's operating revenue in
fiscal 1996 benefitted by L14.5 million and Willis Corroon's income before
taxation for fiscal 1996 benefitted by L8.2 million, after deducting related
provisions of L0.3 million.
COMMISSIONS AND FEES--CONTINUING OPERATIONS
Commissions and fees earned by Willis Corroon's continuing operations
decreased by L31.2 million (4.6%) from L683.2 million earned in fiscal 1996 to
L652.0 million in fiscal 1997. In constant currency terms, commissions and fees
decreased by 1.0%. Excluding the effects of businesses sold (L48.5 million) and
businesses acquired (L18.3 million), commissions and fees increased by 4% in
constant currency terms.
NORTH AMERICAN OPERATIONS: Commissions and fees earned by Willis
Corroon's North American Retail operations decreased by L28.9 million (10.4%)
from L278.6 million in fiscal 1996 to L249.7 million in fiscal 1997. In constant
currency terms, commissions and fees decreased by 6%.
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<PAGE>
Excluding the effect of businesses sold in 1996 (L24.5 million), commissions and
fees increased by 3% in constant currency terms. Competition among brokers for
the business of middle market companies was intense, exacerbating the
consequences of progressively reducing premium rates which have been on a
downward trend for well over a decade. Commissions and fees earned by Willis
Corroon's U.S. Wholesale operations decreased by L6.5 million (17.5%) from L37.1
million in fiscal 1996 to L30.6 million in fiscal 1997. In constant currency
terms, U.S. Wholesale commissions and fees decreased by 14%, principally due to
the competitiveness of the U.S. insurance market place.
U.K. RETAIL: Commissions and fees earned by Willis Corroon's U.K.
Retail operations decreased by L1.9 million (1.6%) from L115.7 million in fiscal
1996 to L113.8 million in fiscal 1997. In constant currency terms, commissions
and fees decreased by 2%. Excluding the effects of disposals (L13.4 million) and
the acquisition of a 51% interest in Willis National in August 1997 (L5.4
million), commissions and fees increased by 6% in constant currency terms,
mainly arising from strong growth achieved by Willis Corroon's principal U.K.
direct brokering company, reflecting the benefit of the change program
initiatives.
GLOBAL SPECIALTIES: Commissions and fees earned by the business units
of Global Specialties increased by L3.0 million (2.3%) from L131.5 million in
fiscal 1996 to L134.5 million in fiscal 1997. In constant currency terms,
commissions and fees increased by 5%. Despite falling insurance premium rates
across most business areas, increased new business gains, particularly from a
strengthened space risks team in Aerospace, as well as the Energy and Global
Broking Services business units, contributed to this growth.
GLOBAL REINSURANCE: Commissions and fees earned by Willis Corroon's
Global Reinsurance business unit increased by L5.6 million (8.9%) from L63.1
million in fiscal 1996 to L68.7 million in fiscal 1997. In constant currency
terms, commissions and fees increased by 7% against a background of reduced
reinsurance premium rates and increased risk retention by clients, predominantly
from the U.S. portfolio supported by new business in Europe and Australia.
INTERNATIONAL: Commissions and fees earned by Willis Corroon's
International operations increased by L9.2 million (23.8%) from L38.6 million in
fiscal 1996 to L47.8 million in fiscal 1997. In constant currency terms,
commissions and fees increased by 35%. Of this increase, L12.9 million was
attributable to Willis Corroon increasing its holdings in both Richard Oliver
and Scheuer to 100% on January 1, 1997. Excluding this effect, commissions and
fees increased by 18% in constant currency terms, particularly from business
growth in Eastern Europe.
WILLIS FABER & DUMAS (AGENCIES) LIMITED: Willis Faber & Dumas Agencies
was sold in October 1997 to a company owned by its management. Commissions and
fees earned during fiscal 1997 totalled L6.9 million compared with L18.6 million
in fiscal 1996 which included L14.5 million following implementation of the
Lloyd's Reconstruction and Renewal Plan.
INTEREST AND INVESTMENT INCOME
Interest and investment income from continuing operations decreased by
L1.8 million (4.5%) from L41.8 million in fiscal 1996 to L40.0 million in fiscal
1997.
OPERATING EXPENSES
Operating expenses from continuing operations decreased by L37.3
million (5.9%) from L637.2 million in fiscal 1996 to L599.9 million in fiscal
1997, largely due to the favorable impact of currency exchange rate movements
(L18.7 million), the reduction in expenses from businesses sold (L45.7 million)
being greater than the increase in expenses arising from businesses acquired and
associates becoming subsidiaries (a total of L20.0 million). Severance costs in
fiscal 1997 were L7.9
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<PAGE>
million lower than in fiscal 1996, the total contribution to the Lloyd's
Reconstruction and Renewal Plan was L0.4 million lower and other non-recurring
costs were L3.1 million lower in fiscal 1997 than in fiscal 1996. Adjusting for
each of these factors, operating expenses were 2% higher in constant currency
terms.
In common with most other U.K. independent financial advisors, Willis
Corroon Financial Planning has been carrying out a review, in accordance with
guidelines issued by its regulator, of pension advice previously given and, in
connection therewith, a charge of L2.3 million was taken during fiscal 1997. See
"Business--Legal Proceedings." In October 1997, Willis Corroon Financial
Planning merged with Abbey National Independent Financial Advisers Limited to
form Willis National in which Willis Corroon holds a 51% interest.
ASSOCIATES
Willis Corroon's share of income before taxation from associates
decreased by L1.6 million (45.7%) from L3.5 million in fiscal 1996 to L1.9
million in fiscal 1997. Excluding the reduction (L1.5 million) due to Richard
Oliver and Scheuer, both of which ceased to be accounted for as associates from
the beginning of January 1, 1997 when they became consolidated subsidiaries,
Willis Corroon's share of income before taxation from associates decreased by
L0.1 million.
INTEREST PAYABLE
Interest payable decreased by L1.5 million from L2.2 million in fiscal
1996 to L0.7 million in fiscal 1997. Willis Corroon operated throughout most of
fiscal 1997 without any material borrowings until the acquisition of Gras Savoye
on December 30, 1997.
DISPOSALS
During fiscal 1997, the gain on disposals amounted to L2.2 million
after writing off goodwill of L2.5 million. The principal business disposed of
was Willis Faber & Dumas Agencies.
DISCONTINUED OPERATIONS--UNDERWRITING
Willis Corroon's U.K. underwriting operations, consisting of Sovereign,
an insurance company, and Willis Faber (Underwriting Management), an agent, were
discontinued in 1991. On July 11, 1997, Sovereign was placed into provisional
liquidation. Following the provisional liquidation of Sovereign, the net assets
of Sovereign and its subsidiaries, amounting to L5.9 million and attributable
goodwill of L4.1 million, were written off against provisions previously
established.
TAXATION
The tax charge of L38.1 million in fiscal 1997 produced an effective
tax rate of 39.9%, the same as in fiscal 1996. The benefit arising from the
reduction in the rate of U.K. corporation tax from 33% to 31% during fiscal 1997
was more than offset by the related write down of deferred tax assets
established in prior periods. The provisional liquidation of Sovereign resulted
in a write off of a deferred tax asset amounting to L2.7 million which was no
longer considered recoverable. Adjusting for these items, the effective tax rate
in fiscal 1997 would have been 36.5%.
DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP
Net income for 1997 and 1996 of L56.9 million and L54.2 million,
respectively, under U.K. GAAP compare with net income of L36.2 million and L36.7
million, respectively, under U.S. GAAP.
56
<PAGE>
The differences arise principally from the differing accounting
treatment for goodwill, forward foreign exchange contracts in respect of future
income, pensions and related deferred taxation. Details of the reconciling
differences are given in Note 31 of Notes to the Financial Statements.
FINANCIAL RISK MANAGEMENT
FOREIGN EXCHANGE RISK MANAGEMENT
Approximately 50% of Willis Corroon's operating revenues earned in the
United Kingdom arise in currencies other than sterling. Willis Corroon manages
this exchange exposure to foreign currency revenues by entering into foreign
currency forward exchange contracts, that allow us to fix the rates at which we
exchange currencies in the future, and options to purchase currencies in the
future at fixed rates, principally in U.S. dollars with lesser amounts in
Japanese, German, French and Italian currencies. In fiscal 1998, Willis Corroon
achieved a rate of $1.59 = L1.00 from the sale of U.S. dollar-denominated
revenues earned in the United Kingdom compared with a rate of $1.59 achieved in
fiscal 1997 and $1.54 in fiscal 1996. Together with the rates achieved in other
hedged currencies, there was an adverse impact of L2.7 million on total
operating revenues in fiscal 1998 and an adverse impact of L5.6 million in
fiscal 1997, when compared with the exchange rates achieved in the preceding
year.
Willis Corroon is also exposed to the exchange effects of translating
the net income of non-U.K.-based subsidiaries into sterling. Willis Corroon does
not hedge this exposure. The average rate of exchange for the U.S. dollar
against sterling moved from $1.56 in fiscal 1996 to $1.64 in fiscal 1997 and to
$1.66 in fiscal 1998. Together with movements in other currencies, the effect of
translating the income before taxation of non-U.K.-based subsidiaries into
pounds sterling reduced Willis Corroon's net income before taxation in fiscal
1998 by L1.4 million and by L2.4 million in fiscal 1997, when compared with the
exchange rates prevailing in the preceding year.
The table below provides information about Willis Corroon's foreign
currency forward exchange contracts which are sensitive to exchange rate risk.
The table summarizes at December 31, 1998 the sterling equivalent amounts of
each currency bought and sold forward and the weighted average contractual
exchange rates. All forward exchange contracts mature within two years.
<TABLE>
<CAPTION>
SETTLEMENT DATE BEFORE DECEMBER 31,
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 2000
---------------------------------- ------------------------------------
<CAPTION>
AVERAGE AVERAGE
CONTRACT CONTRACTUAL CONTRACT CONTRACTUAL
AMOUNT EXCHANGE RATE AMOUNT EXCHANGE RATE
----------- --------------------- ------------- ---------------------
(L
MILLIONS) (DENOMINATION PER L) (L MILLIONS) (DENOMINATION PER L)
<S> <C> <C> <C> <C>
FOREIGN CURRENCY SOLD
US Dollars............................. 41.5 1.58 21.4 1.59
Japanese Yen........................... 5.6 191.51 4.3 84.37
Deutschemarks.......................... 2.3 2.75 5.1 2.70
French Francs.......................... 1.6 8.33 -- --
Italian Lire........................... 1.4 2,537.25 -- --
FOREIGN CURRENCY BOUGHT
Deutschemarks.......................... (10.4) 2.80 -- --
----------- -----
Total.................................. 42.0 30.8
----------- -----
----------- -----
Fair Value (1)......................... 2.2 0.5
----------- -----
----------- -----
</TABLE>
- ------------------------
(1) Represents the difference between the contract amount and the cash flow in
sterling which would have been receivable had the foreign currency forward
exchange contracts been entered into on December 31, 1998 at the forward
exchange rates prevailing at that date.
57
<PAGE>
INTEREST RATE RISK MANAGEMENT
Willis Corroon manages its exposure to declines in interest rates,
which can have an adverse effect on interest and investment income, through the
use of fixed interest deposits and borrowings, swaps, forward rate agreements
and other financial instruments. The maximum hedging period is normally three
years. Interest rate exposure is managed within parameters agreed by Willis
Corroon Group's directors, which stipulate that at least 25% of the forecast
interest income for each of the next three years is hedged. Average interest
rates of 7.5% on sterling funds and 6.1% on U.S. dollar funds were achieved in
fiscal 1998, compared with 7.0% and 6.2% respectively in fiscal 1997 and 7.3%
and 5.9% respectively in fiscal 1996. When compared with average interest rates
prevailing during the year, Willis Corroon's hedging activities added L2.6
million to Willis Corroon's income before taxation in fiscal 1998 and L2.5
million in fiscal 1997.
The table below provides information about Willis Corroon's derivative
instruments which are sensitive to changes in interest rates, including interest
rate swaps and forward rate agreements. For interest rate swaps, the table
presents notional principal amounts and average interest rates analyzed by
expected maturity dates. Notional principal amounts are used to calculate the
contractual payments to be exchanged under the contracts. The duration of
interest rate swaps varies between one and five years, with an average re-fixing
period of three months. Average variable rates are based on interest rates set
at December 31, 1998 or, in the case of interest rate swaps not yet started, at
the rates prevailing at December 31, 1998. The information is presented in
sterling, which is Willis Corroon's reporting currency; the actual currencies of
the instruments are indicated in parentheses.
<TABLE>
<CAPTION>
EXPECTED TO MATURE BEFORE DECEMBER 31,
-----------------------------------------------------
1999 2000 2001 2002 2006 TOTAL FAIR VALUE(1)
--------- --------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
(L MILLION, EXCEPT PERCENTAGES)
INTEREST RATE SWAPS
Principal ($)................................ 97 170 119 16 -- 402 5.1
Fixed rate receivable.................... 6.45% 6.43% 5.73% 5.78% -- 6.20%
Variable rate payable.................... 5.28% 5.20% 5.06% 5.06% -- 5.17%
Principal ($)................................ -- -- -- -- 273 273 0.8
Fixed rate payable....................... -- -- -- -- 5.10% 5.10%
Variable rate receivable................. -- -- -- -- 5.06% 5.06%
Principal (L)................................ 55 62 35 14 -- 166 4.4
Fixed rate receivable.................... 7.92% 7.22% 6.52% 6.88% -- 7.27%
Variable rate payable.................... 6.75% 6.55% 6.13% 6.13% -- 6.49%
Principal (Deutschemarks).................... 4 7 7 -- -- 18 0.3
Fixed rate receivable.................... 4.55% 4.65% 4.23% -- -- 4.48%
Variable rate payable.................... 3.65% 3.48% 3.36% -- -- 3.48%
Principal (Deutschemarks).................... -- 4 -- -- -- 4 (0.1)
Fixed rate payable....................... -- 4.61% -- -- -- 4.61%
Variable rate receivable................. -- 3.56% -- -- -- 3.56%
Principal (Italian Lire)..................... 2 -- 3 -- -- 5 0.1
Fixed rate receivable.................... 7.11% -- 4.69% -- -- 5.77%
Variable rate payable.................... 4.59% -- 3.25% -- -- 3.85%
Principal (Japanese Yen)..................... 7 -- 4 -- -- 11 0.1
Fixed rate receivable.................... 1.45% -- 1.70 -- -- 1.54%
Variable rate payable.................... 0.40% -- 0.22% -- -- 0.33%
FORWARD RATE AGREEMENTS
Principal (L)................................ 56 -- -- -- -- 56 0.2
Fixed rate receivable.................... 7.02% -- -- -- -- 7.02%
Variable rate payable.................... 6.13% -- -- -- -- 6.13%
</TABLE>
- ------------------------
(1) Represents the net present value of the expected cash flows discounted at
current market rates of interest.
58
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Willis Corroon's Statement of Consolidated Cash Flows is presented on
the basis of total funds as opposed to "own funds." As discussed under
"--Overview" above, Willis Corroon holds funds for the account of third parties,
typically premiums received from clients and claims received from insurance
carriers that are in transit to insurance carriers or clients, respectively.
These amounts of fiduciary cash must be kept in certain regulated bank accounts
and are not generally available to service Willis Corroon's debt or for other
corporate purposes. Insurance broking transactions typically generate large cash
flows and the timing of such cash flows can affect significantly the net cash
balances held at the year-end.
Willis Corroon's net cash inflow on a total funds basis before
management of liquid resources and financing was L14.8 million in fiscal 1996
with a net cash outflow of L6.2 million in fiscal 1997 and net cash outflow of
L95.4 million in fiscal 1998. See "Consolidated Financial
Statements--Consolidated Statements of Cash Flows."
Cash and liquid resources, net of overdrafts, decreased from L663.0
million at December 31, 1996 to L616.7 million at December 31, 1997 and
decreased to L596.4 million at December 31, 1998. Of the decrease in fiscal
1996, liquid resources of L25.6 million were transferred with businesses sold
and exchange adjustments, principally relating to the increasing strength of
sterling, accounted for L47.7 million.
In assessing Willis Corroon's "own funds", as opposed to fiduciary
funds, and working capital, Willis Corroon takes into account differing
regulations in different countries and states. The following table shows net
working capital of L30.9 million at December 31, 1997 and L32.2 million at
December 31, 1998, in each case on the assumption that uncollected brokerage
(commissions owing to Willis Corroon included within premiums due from clients)
is treated as an element of "own funds" working capital. On this basis, Willis
Corroon's "own funds" working capital has consistently been between
approximately L30 million to L60 million since 1995.
<TABLE>
<CAPTION>
CONSOLIDATED "OWN FUNDS"(A)
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1997 1998
-------------- -------------- -------------- --------------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C>
Fixed assets..................................... L154.0 L195.7 L154.0 L195.7
Trade receivables (excluding uncollected
brokerage)..................................... 2,431.6 2453.0 84.7 111.2
Uncollected brokerage............................ 101.6 106.2 101.6 106.2
Investments, deposits and cash (b)............... 617.1 598.7 69.4 71.8
-------------- -------------- ------- -------
Total assets..................................... 3,304.3 3353.6 409.7 484.9
Trade payables................................... (3,050.0) (3053.9) (155.4) (185.2)
Net debt......................................... (34.5) (107.8) (34.5) (107.8)
Provisions (c)................................... (90.0) (94.8) (90.0) (94.8)
-------------- -------------- ------- -------
Net assets....................................... 129.8 97.1 129.8 97.1
-------------- -------------- ------- -------
-------------- -------------- ------- -------
Net working capital (d).......................... L(516.8) L(494.7) L30.9 L32.2
-------------- -------------- ------- -------
-------------- -------------- ------- -------
</TABLE>
- ------------------------
(a) "Own Funds" are based on management's estimates and assumes that uncollected
brokerage is treated as an element of "Own Funds" working capital.
(b) Investments, deposits and cash in own funds is to a large extent matched by
liabilities within Willis Corroon's captive insurance companies. The
remainder was used to service local working capital requirements and
therefore Willis Corroon had minimal excess cash in each of the periods
reflected above.
59
<PAGE>
(c) For an analysis of provisions, see Note 21 of the Notes to the Consolidated
Financial Statements of Willis Corroon included elsewhere herein.
(d) Trade receivables and uncollected brokerage, less trade payables.
During fiscal 1996, Willis Corroon disposed of the following non-core
operations and proceeds from these disposals, less acquisitions, contributed
L16.2 million to Willis Corroon's net cash inflow:
- L20.7 million from the sale of Consumer Benefit Life Insurance Company;
- L6.1 million from the sale of WF Corroon with further consideration and
payments for work in progress due in subsequent years;
- L5.0 million from the sale of Management Science Associates;
- L3.8 million in respect of other businesses sold;
- less L19.4 million of cash held within businesses sold, net of businesses
acquired.
During fiscal 1997, the net cash outflow for acquisitions and disposals
amounted to L63.0 million and consisted of:
- L48.3 million for Willis Corroon's 33% interest in Gras Savoye, of which
L15.2 million was deferred until July 1998;
- L8.2 million, L4.3 million and L2.1 million for the increased investment
in Richard Oliver, Scheuer and York Willis Corroon respectively;
- L4.9 million inflow in respect of further consideration from the sale in
fiscal 1996 of WF Corroon, net of L1.0 million in respect of other
businesses acquired and sold;
- less L5.0 million of cash held within businesses sold.
During fiscal 1998, the net cash outflow for acquisitions less proceeds
from disposals amounted to L32.3 million and consisted of L13.9 million for the
30% interest in Jaspers Wuppesahl, L5.0 million for the 30% interest in
Assurandrgruppen, L12.4 million for the 50% interest in Gruppo Ital Brokers and
L1.0 million for other acquisitions, net of disposal proceeds.
In connection with many of its investments in associates, Willis
Corroon retains rights to increase its ownership percentage of such associates
over time, typically to a majority or 100% ownership position. Willis Corroon
increased its ownership in Jaspers Wuppesahl from 30% to 44.6% on January 4,
1999 for L10.4 million and has additional call rights whereby it may increase
its ownership to over 50% by 2012. In addition, in certain instances, the other
owners of the associates have a right, typically at a price calculated pursuant
to a formula based on revenues or earnings, to put some or all of their shares
in the associates to Willis Corroon.
Willis Corroon has a put obligation in connection with its stake in
Gras Savoye, the largest broker in France and the ninth largest broker in the
world, in which Willis Corroon has a 33% interest. As part of the Gras Savoye
transaction, Willis Corroon entered into a put arrangement, whereby the other
shareholders in Gras Savoye (primarily two families, two insurance companies and
Gras Savoye's executive management team) could put their shares to Willis
Corroon. From 2001 to 2012, Willis Corroon would be obligated to buy the shares
of such shareholders to the extent that such shareholders put their shares,
potentially increasing its ownership from 33% to 90% if all shareholders put
their shares, at a price determined by a contractual formula based on earnings
and revenue. Management shareholders of Gras Savoye (approximately 10% thereof)
do not have general put rights between 2001 and 2012, but have certain put
rights on their death, disability or retirement pursuant to which payments are
not expected to exceed L15 million. From 2001 to 2005, the incremental 57% of
Gras Savoye may be put to Willis Corroon at a price equal to the greater of
approximately 800 million French francs (L86.1 million at December 31, 1998
exchange rates), for the full 57%, or a price based on the formula. After 2005,
the put
60
<PAGE>
price is determined solely by the formula. The shareholders may put their shares
individually at any time during the put period.
While the management of neither Willis Corroon nor Gras Savoye expects
significant exercises of the puts, on a separate or aggregate basis, in the near
to medium term, nevertheless, management believes that, should the aggregate
amount of shares be put to Willis Corroon, sufficient funds would be available
to satisfy this obligation. Also, Willis Corroon believes that the price to be
paid under the put options is reasonable in light of its valuation of Gras
Savoye. The minimum price of approximately 800 million French francs from 2001
to 2005, for the full 57%, represents a multiple of 1.2 times Gras Savoye's L113
million of 1997 revenues and 8.4 times Gras Savoye's L16.4 million of 1997
operating income. In addition Willis Corroon has a call option to move to
majority ownership under certain circumstances and in any event by 2009. Upon
exercising this call option, the remaining Gras Savoye shareholders have a put.
In connection with the Willis National joint venture, the holder of 49%
of the shares in Willis National Holdings Limited has an option to purchase
Willis Corroon's 51% interest in that company at any time between June and
September 1999 based on a profitability formula as set out in the shareholders'
agreement between the two companies.
During fiscal 1998, cash payments in connection with the renegotiated
arrangements for administering the Sovereign run-off amounted to L12.0 million,
which included pre-funding of estimated administrative costs through 2001.
Accordingly, no significant additional cash payments for administrative costs
are expected in fiscal 1999. Cash payments in connection with Willis Corroon's
on-going pension review amounted to L8.0 million in fiscal 1998 with further
payments expected to total approximately L20.5 million over the next three
fiscal years. There are also a number of legal proceedings against Willis
Corroon, which together are not expected to have a material effect on Willis
Corroon's financial position. See "Business--Legal Proceedings."
Capital expenditures for fiscal years 1996, 1997 and 1998 were L28.9
million, L26.5 million, and L29.9 million, respectively. Willis Corroon has
funded its requirements for capital expenditures by cash generated internally
from operations and from external financing and expects to continue to do so in
the future. Willis Corroon intends to evaluate acquisition opportunities from
time to time.
Willis Corroon has conducted a review of its computer systems to
identify the systems that could be affected by the year 2000 problem and is
nearing completion of its plan to be year 2000 compliant prior to December 31,
1999. The cost of undertaking this work is not expected to exceed L4.2 million,
most of which has already been incurred. The cost of upgrading computer systems
to deal with the single currency requirement of European Economic and Monetary
Union was L0.9 million. Willis Corroon does not expect either the year 2000
issues or European Economic and Monetary Union will have a material adverse
impact on its financial position or results of operations.
Willis Corroon entered into a credit agreement on July 22, 1998. The
credit agreement, as amended, is comprised of a term loan facility under which
portions, or tranches, of the loan mature on four different dates, and a
revolving credit facility in the amounts set forth below:
- the $125 million tranche A facility;
- the $125 million tranche B facility;
- the $100 million tranche C facility;
- the $100 million tranche D facility; and
- the $150 million revolving credit facility.
61
<PAGE>
Borrowings under the term loan portions of the credit agreement were borrowed in
full on November 19, 1998
- to refinance outstandings under the tender offer facility agreement,
- to finance the repayment of certain existing indebtedness of Willis
Corroon,
- to make an intercompany loan to Trinity Acquisition, and
- to finance the payment of fees and expenses incurred in connection with
the tender offer by Trinity Acquisition for the outstanding shares of
Willis Corroon.
The revolving credit portion is available for working capital requirements and
general corporate purposes, subject to certain limitations. The revolving credit
facility will be available on a revolving basis for loans denominated in U.S.
dollars, pounds sterling and certain other currencies and for letters of credit,
including to support loan note guarantees. For a further description of the
credit agreement, see "Description of the Senior Credit Facilities."
Willis Corroon Corporation has entered into an interest rate swap
agreement pursuant to which its LIBOR-based floating rate interest payment
obligations on the full amount of the term loans under the credit agreement have
been swapped for fixed rate interest payment obligations, resulting in an
effective base rate of 5.099% per annum, plus the applicable margin, until the
final maturity of such term loans. The swap agreement provides for a reduction
of the notional amount of the swap obligation on a semi-annual basis and, to the
extent the actual amount outstanding under the term loans exceeds the notional
amount at any time, Willis Corroon Corporation would then become exposed to the
risk of increased interest rates on such excess.
In connection with the refinancing of the tender offer facility and the
senior subordinated promissory note on November 19, 1998, Willis Corroon
Corporation made
- a loan to Trinity Acquisition of the net proceeds from borrowings under
the subordinated bridge facility, the intercompany subordinated note and
- a loan to Trinity Acquisition of the net proceeds from borrowings under
the term loans under the credit agreement, the intercompany bank note,
the proceeds of which loans were used by Trinity Acquisition to repay the senior
subordinated promissory note, the tender offer facility and certain existing
debt of Willis Corroon. Such loans to Trinity Acquisition generally mirror the
terms and maturity dates of the applicable underlying loans. The intercompany
subordinated note currently bears interest at a rate equal to the interest rate
on the notes, plus 70 basis points, and the intercompany bank note bears
interest at a rate equal to the interest rate for the credit agreement, plus 25
basis points. In addition, the indenture permits Willis Corroon Group and its
subsidiaries to
- make loans to Trinity Acquisition in exchange for notes issued by Trinity
Acquisition, so long as the proceeds of such loans are immediately used to
make a loan to Willis Corroon Group or its subsidiaries, and
- issue notes in favor of Trinity Acquisition in consideration of a loan
from, or the issuance of a note by, Trinity Acquisition.
Willis Corroon Group and its subsidiaries may pay interest on any intercompany
note issued in favor of Trinity, and may make loans or pay dividends to Trinity
Acquisition in an amount sufficient to enable Trinity Acquisition to pay
interest and principal then due on any intercompany note issued by Trinity
Acquisition, intercompany subordinated note or intercompany bank note, in each
case so long as such amounts are immediately repaid to Willis Corroon Group or
its subsidiaries. The aggregate amount of intercompany notes issued in favor of
Trinity Acquisition outstanding is currently approximately $1,025
62
<PAGE>
million, the aggregate amount of intercompany notes issued by Trinity
Acquisition outstanding is currently approximately L614 million ($1,043
million).
TA II Limited will be relying wholly on Willis Corroon to provide funds
sufficient for TA II Limited to pay dividends on the preference shares. The
preference shares (with an aggregate liquidation preference of approximately
$270 million) carry the right to a cumulative dividend of 8.5% per annum,
excluding the amount of any associated tax credits, on a fixed amount of $25 per
preference share. TA II Limited has the option to satisfy 1% per annum of this
cumulative dividend by the issuance of additional preference shares. The
dividend is payable in dollars semi-annually on June 30 and December 31 of each
year with the first dividend being payable on June 30, 1999. If the cash
dividend has not been paid on three or more consecutive dividend payment dates,
the holders of the preference shares have the right to appoint two directors to
the board of TA II Limited. The preference shares may be redeemed at any time by
TA II Limited by payment of a fixed amount of $25 per share plus any accrued and
unpaid dividends. The preference shares are required to be redeemed in full by
payment of a fixed amount of $25 per share plus any accrued and unpaid dividends
on the earlier of
- the thirteenth anniversary of the first date on which the preference
shares were issued and
- the date that is six months after the scheduled maturity date of the
notes,
or on the sale of all or substantially all of the business of Willis Corroon,
including, without limitation, whether in a single transaction or series of
transactions and whether by sale of shares, sale of assets or otherwise. Holders
of preference shares have a preferential right to receive out of surplus assets
arrears and accruals of dividends and $25 per share, but do not have any further
right to participate in surplus assets. For a further description of the
preference shares, see "Description of Preference Shares."
The notes will mature on February 1, 2009 and interest will be payable
thereon semiannually on February 1 and August 1 of each year, commencing August
1, 1999.
63
<PAGE>
SUPPLEMENTAL CONSTANT CURRENCY FINANCIAL DATA
THIS PRESENTATION AND ANALYSIS IS INTENDED TO DEMONSTRATE THE IMPACT OF
EXCHANGE RATES AND THE CHANGE PROGRAM ON DESIGNATED FINANCIAL LINE ITEMS ON A
HISTORICAL BASIS AND THEREBY PROVIDE INVESTORS WITH SUPPLEMENTAL DATA WITH WHICH
TO ASSESS MANAGEMENT'S PERFORMANCE SINCE MR. REEVE'S ARRIVAL IN LATE 1995. THIS
PRESENTATION AND ANALYSIS IS INTENDED TO SUPPLEMENT THE PRESENTATION AND
ANALYSIS OF OUR ACTUAL HISTORICAL RESULTS SET FORTH ELSEWHERE IN THIS
PROSPECTUS. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." OUR BUSINESS AND OUR ABILITY TO GENERATE CASH FLOW
SUFFICIENT TO MEET OUR FIXED CHARGE OBLIGATIONS WILL CONTINUE TO BE AFFECTED BY
MOVEMENTS IN EXCHANGE RATES WHICH HAVE BEEN ELIMINATED IN THE PRESENTATION AND
ANALYSIS OF OPERATING REVENUES AND OPERATING INCOME ON A CONSTANT CURRENCY
BASIS.
We and our associates transact business with some 50,000 clients in
more than 125 countries and in over 100 currencies. Historically, we have
reported our operating results in pounds sterling. Sterling, however, accounted
for only approximately 22% of our revenues in 1998 and thus our reported
revenues are directly impacted by movements in world currencies in relation to
the pound. As the pound has appreciated in value relative to most major
currencies in recent years, our revenues have been negatively impacted. In
addition, while only approximately 22% of our revenues in 1998 were in sterling,
approximately 44% of our expenses in 1998 were in pounds sterling. This is due
to the fact that a number of our units, especially Global Specialties and Global
Reinsurance, serve their clients worldwide primarily from their U.K. base of
operations. Accordingly, when the pound appreciates, which it has in recent
years, the revenues associated with non-sterling business are translated into
fewer pounds, while expenses, incurred in sterling, are not impacted. As a
result, as the pound appreciates, both revenues and margins decline on a
reported basis. Accordingly, we have implemented a comprehensive hedging
strategy to manage our exposure to currency movements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Risk Management." Because we derive a significant portion
of our revenues and cash flow in U.S. dollars and other currencies and a
disproportionate amount of our expenses in sterling, we financed the tender
offer, offering and sale of the notes and related financings in U.S. dollars.
Willis Corroon Group transacts business in over 100 currencies. All
historical results, including Operating Revenues and Operating Income, are
reported in sterling. There are two methods of translating the results into
sterling:
- AVERAGE RATE METHOD: The profit and loss account of the subsidiary or
associate is translated into sterling using the average rates of
exchange for the relevant period. This method is used where the company
is a subsidiary or associate preparing its accounts in currency other
than sterling.
- ACHIEVED RATE METHOD: A subsidiary or associate which prepares accounts
in sterling and trades in a currency other than sterling will translate
foreign currency transactions at the achieved rate. For example, if a
business generates revenue in a currency other than sterling the
achieved rate used is either the rate the funds where sold into
sterling at after being received or if still in foreign currency at the
period end then the closing rate. The achieved rate for the period is
the weighted average of rates used to translate funds and the period
closing rate weighted by the value of the transactions. This method is
used where the company is subsidiary or associate preparing its
accounts in sterling, but transacting a significant amount of business
in a currency other than sterling the achieved rate method is used.
64
<PAGE>
The average rates of exchange and the achieved rates of exchange for five of the
major currencies for 1995 to 1998 are shown in footnote (a) to the table below.
The company uses constant exchange rates for internal budgeting and reporting
purposes. These are also shown in footnote (a).
To prepare the results at constant exchange rates rather than actual
exchange rates the same methodology is used in all material respects for
deriving the reported results, except that the constant exchange rates are used.
The profit and loss accounts of the subsidiaries that prepare accounts in
currencies other than sterling are translated into sterling using the constant
average rates. Foreign currency transactions by companies reporting in sterling
are translated at the constant achieved rate of exchange.
Although there can be no assurance that, if the exchange rates used in
this analysis had actually prevailed over all the periods presented, the results
would have been comparable to those presented, we believe that the trends
indicated would have been comparable. We believe that the constant currency
analysis by itself allows for a comparison that excludes the impact of exchange
rates over all the periods presented and provides investors supplemental data
with which to assess our operating results since 1995 on a more comparable
basis.
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------------------------
YEAR ENDED JANUARY 1- SEPTEMBER 2-
DECEMBER 31, SEPTEMBER 1, DECEMBER 31, TOTAL
------------------------------- --------------- --------------- ---------
1995 1996 1997 1998 1998 1998
--------- --------- --------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Reported Operating Revenues.............. L706.4 L725.0 L692.0 L468.8 L249.2 L718.0
Adjustments to Constant Exchange Rates... (37.4) (39.0) (10.9) 0.3 1.8 2.1
Operating Revenues--Constant Currency.... 669.0 686.0 681.1 469.1 251.0 720.1
Reported Operating Income................ 79.4 87.8 92.1 56.8 26.0 82.8
Reported Margin.......................... 11.2% 12.1% 13.3% 12.1% 10.4% 11.5%
Adjustments to Constant Exchange Rates... (13.3) (10.9) (3.1) 0.6 0.0 0.6
Operating Income--Constant Currency...... 66.1 76.9 89.0 57.4 26.0 83.4
Margin--Constant Currency................ 9.9% 11.2% 13.1% 12.2% 10.4% 11.6%
<CAPTION>
PRO FORMA
---------------
YEAR ENDED
DECEMBER 31,
---------------
1998
---------------
<S> <C>
Reported Operating Revenues.............. L735.3
Adjustments to Constant Exchange Rates... 2.5
Operating Revenues--Constant Currency.... 737.8
Reported Operating Income................ 86.0
Reported Margin.......................... 11.7%
Adjustments to Constant Exchange Rates... 0.7
Operating Income--Constant Currency...... 86.7
Margin--Constant Currency................ 11.8%
</TABLE>
- ------------------------
(a) The average rates of exchange and achieved rates of exchange for the five
major currencies are shown in the following table. The constant exchange
rates used in the constant currency analysis are also shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------ CONSTANT
1995 1996 1997 1998 RATES
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
(DENOMINATION PER POUND STERLING)
AVERAGE RATES:
Deutschemark............................................ 2.26 2.35 2.84 2.91 2.84
French Franc............................................ 7.87 7.99 9.56 9.77 9.50
Italian Lire............................................ 2,570.80 2,408.64 2,789.09 2,875.71 2,820.72
Japanese Yen............................................ 148.29 170.03 198.38 216.55 197.55
U.S. Dollar............................................. 1.58 1.56 1.64 1.66 1.67
ACHIEVED RATES:
Deutschemark............................................ 2.31 2.44 2.28 2.60 2.66
French Franc............................................ 8.15 7.99 8.38 8.92 8.85
Italian Lire............................................ 2,537.01 2,474.20 2,724.97 2,771.21 2,759.19
Japanese Yen............................................ 156.53 163.83 169.64 190.51 184.50
U.S. Dollar............................................. 1.51 1.54 1.59 1.59 1.60
</TABLE>
(b) Reported margin is defined as Reported Operating Income divided by Reported
Operating Revenues.
(c) Margin--Constant Currency is defined as Operating Income--Constant Currency
divided by Operating Revenues--Constant Currency.
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As detailed above, Operating Revenues--Constant Currency have grown
from L669.0 million in 1995 to L720.1 million in 1998, a 2.5% annual growth rate
since 1995 (in an environment of significantly declining primary insurance and
reinsurance premium rates), which compares to a 0.5% annual growth rate for
Operating Revenues from continuing operations on a reported basis. Operating
Income--Constant Currency has grown from L66.1 million in 1995 to L83.4 million
in 1998, a 8.1% annual growth rate, which compares to a 1.4% annual growth rate
for Operating Income on a reported basis. We have improved our Operating Income
Margin--Constant Currency by 170 basis points from 9.9% in 1995 to 11.6% in 1998
(also in an environment of declining premium rates and intense industry
competition), which compares to 30 basis points, from 11.2% in 1995 to 11.5% in
1998, for Operating Income Margin on a reported basis.
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BUSINESS
GENERAL
We are the third largest insurance broker in the world. We provide a
broad range of value-added risk management consulting and insurance brokering
services to some 50,000 clients worldwide. We trace our history to 1828 and we
are a leading insurance broker in the U.K., the U.S. and, directly and through
our associates, in many countries. We are a recognized leader in providing
specialized risk management advisory and other services on a global basis to
clients in various industries, including the construction, aerospace, marine and
energy industries. In our capacity as an advisor and insurance broker, we act as
an intermediary between our clients and insurance carriers by:
- advising our clients on their risk management requirements, many of
which are highly complex;
- helping clients determine the best means of managing their risks; and
- ultimately negotiating and placing insurance risks with insurance
carriers through our global distribution network.
We also provide other value-added services, including employee benefits
consulting, claims administration, management of subsidiaries whose purpose is
to provide insurance for a related entity or entities and self-insurance
consulting. We do not underwrite insurance risks for our own account.
We and our associates serve a diverse base of clients located in more
than 125 countries. Such clients include major multinational and middle-market
companies in a variety of industries, as well as public institutions. Many of
our client relationships span decades. With approximately 12,000 employees
around the world and a network of more than 250 offices in 69 countries, in each
case including our associates, we believe we are one of only three insurance
brokers in the world possessing the global operating presence, broad product
expertise and extensive distribution network necessary to effectively meet the
global risk management needs of many of our clients. For the twelve months ended
December 31, 1998, our Reported Revenues were L718.2 million ($1,192.2 million).
INDUSTRY OVERVIEW
Insurance brokers, such as Willis Corroon, provide essential services
to users of insurance and reinsurance products. Such users include corporations,
public institutions and insurance carriers. Brokers distribute insurance
products and provide highly specialized (and often highly technical) value-added
risk management consulting services. Through its knowledge of the insurance
market and risk management techniques, the broker provides value to its clients
and the insurance carriers with whom the broker deals by:
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<TABLE>
<CAPTION>
VALUE TO CLIENTS VALUE TO INSURANCE CARRIERS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
- - assisting clients in their analysis of risk; - assessing a potential insurance user's risk management
- - helping clients formulate appropriate strategies to needs, structuring an appropriate insurance program to
manage those risks; meet those needs and placing the insurance risks to be
- - negotiating insurance policy terms and conditions; insured with an insurance carrier;
- - placing insurance risks to be insured with insurance - acting as a principal distribution channel for
carriers through its distribution network and taking insurance products; and
advantage of its ability to place insurance at rates - providing access to insurance buyers that most
often lower than the client could achieve on its own; insurance companies are not equipped to reach on their
and own.
- - providing specialized self-insurance consulting and
other risk management consulting services apart from
its traditional intermediary role.
</TABLE>
The broker serves an important role in the distribution of insurance
products. Willis Corroon believes that the percentage of insurance policies
underwritten worldwide that are placed through insurance brokers has been
relatively stable in recent years. According to the Independent Insurance Agents
of America, Inc., in 1997 approximately 77% of commercial insurance in the U.S.
was sold through insurance brokers.
There are three main subsectors of the brokerage industry:
- retail brokering, which involves business and services transacted
between brokers and commercial or individual customers,
- wholesale brokering, which involves business and services transacted
between two brokers, or agents, when one broker uses the services or
products of another broker and
- reinsurance brokering, which involves placing reinsurance coverage for
primary insurance and reinsurance carriers.
Insurance brokers generate revenue from
- commissions and fees on insurance placements,
- fees from consulting and other services and
- interest earned on premiums held prior to payment to the insurer and on
claims held prior to payment to the insured.
Commissions and interest have historically been the greatest sources of revenues
for insurance brokers. However, in recent years, fee income, from both insurance
placements and consulting and other services, has been increasing as a
percentage of total revenues while commission income has been declining largely
because of declining insurance premium rates due to competition among insurance
carriers. Willis Corroon expects this trend toward increased fee income to
continue.
Industry revenue has been relatively stable in recent years and,
according to BUSINESS INSURANCE, the 192 largest commercial insurance brokers
globally reported brokerage revenues totalling
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$16.7 billion in 1997. Recent consolidation among the largest insurance brokers,
however, has significantly altered the industry competitive dynamics.
Significant factors in broker consolidation include:
- the increased need by clients for products and services on a global
scope; and
- better economies of scale available to larger firms.
As a result, the insurance brokerage industry is now led by its three global
participants: Marsh & McLennan Companies, Inc. (with approximately 35% of the
worldwide market comprised of the 192 brokers in 1997 referred to above, 9% of
which is attributable to Sedgwick Group plc, a company acquired by Marsh &
McLennan in 1998), Aon Corporation (with approximately 24%), and Willis Corroon
(with approximately 7%). The industry is highly fragmented beyond these three
brokers with the next largest broker having less than a 3% share of the $16.7
billion market.
Another trend in the industry is the increasing diversification of
products and services offered by major insurance brokerage companies. In recent
years, the largest brokers have added a variety of new products and services in
order to meet the increasingly complex risk management needs of its clients.
Some of these new products and services represent the unbundling of the
traditional brokerage package, such as employee benefits consulting, captive
insurance company management, self-insurance consulting and alternative risk
financing solutions. This diversification is in response to
- clients' increasing focus on the complex risks faced in the operation
of their increasingly global businesses and
- clients' desire to retain more of the risks themselves.
As a result, the complexity of the risks managed has increased, while the
proportion insured by traditional underwriters has decreased. This has led to an
increased need for, and the development by brokerage firms of the capability to
provide, services, in addition to their traditional role as an intermediary,
that deliver expert solutions to clients with complex risk problems.
RECENT MANAGEMENT INITIATIVES
In 1996, Willis Corroon developed and launched a series of initiatives
referred to as the "change program." The change program was designed to enhance
revenues, improve efficiency and transition Willis Corroon from a traditional
commission-based insurance broker to a more comprehensive professional advisory
services firm. As part of the change program, Willis Corroon established certain
key initiatives to:
- enhance operating efficiencies;
- intensify efforts to develop existing and new accounts;
- increase cross-selling of both existing and new products and services
to its existing clients; and
- maximize leverage in placing insurance with insurance carriers.
In addition, Willis Corroon developed initiatives focused on maximizing the
talent and expertise of its brokers and consultants. Accordingly, Willis
Corroon:
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- developed improved techniques for recruitment and assessment;
- instituted a new incentive structure for brokers in the U.S.;
- implemented a new and more frequent appraisal process, including peer
review;
- created new training and development programs;
- invested in technology to enhance communication among employees; and
- formed practice groups to share knowledge on specific industry or
product areas.
The change program's primary objective is to implement business
practices which have been proven in other industries in order to improve our
transactional business. There are a variety of examples from our business units,
including:
- in our U.K. Retail business, where the change program is furthest
advanced, market research into client needs and buying patterns enabled
us to segment our operations into different units, each of which
focuses on the provision of products and services targeted on specific
market sectors. Accompanied by back office reorganization, this is
creating greater value for clients and is delivering improved service
at considerably lower cost;
- in our North American Retail business, a new regional structure was
established, designed both to flatten the organization and to enable
heads of branch offices to focus more directly on revenue generation
and client service. At the same time, a commercial brokerage growth
initiative was launched with the objective of enhancing revenue growth;
and
- our Global Specialties business units have been focusing on
re-engineering their client service activities with the objective of
delivering enhanced service at lower cost.
An important initiative throughout Willis Corroon has been the
concentration of our placement of clients' risk among a smaller number of
insurers. The following three types of benefits flow from this:
- our clients, Willis Corroon and the selected carriers all gain the
economic benefits from a higher volume of business transacted between
us;
- selectively, in partnership with chosen carriers, administrative
processes involving both the intermediary and carrier can be
re-engineered to remove duplication and inefficiencies in order to
deliver improved client service at lower cost; and
- the intermediary's knowledge of client needs can be pooled with
carriers' underwriting expertise to generate new product and service
ideas.
Each business unit has developed an action plan setting out the
implementation of the initiatives which make up the change program. The action
plans are presented annually to the board of directors of Willis Corroon Group,
with follow-up reports and presentations during the year. It is anticipated that
the change program will continue over the period until 2001; however, it is
likely that the process of change will continue well beyond that time.
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<PAGE>
Willis Corroon believes that the change program is primarily responsible for:
- the 2.5% annual growth in Operating Revenues--Constant Currency from
1995 to 1998 (5.9% if operating revenues from businesses sold or closed
from 1995 through 1998 are excluded and 3.8% if additionally the impact
of the recent acquisitions and the incremental investment in Willis
Corroon Richard Oliver Pty Ltd and Willis Corroon Scheuer are excluded)
and
- the 8.1% annual growth in Operating Income--Constant Currency from 1995
to 1998 (20.7% if the effects of non-recurring items and businesses
sold or closed from 1995 through 1998 are excluded and 15.6% if
additionally the impact of the recent acquisitions and the incremental
investment in Willis Corroon Richard Oliver Pty Ltd and Willis Corroon
Scheuer are excluded)
despite the downward trend of insurance premium rates in recent years. See
"Supplemental Constant Currency Financial Data" for an explanation of the
adjustments and the presentation of constant currency data. Willis Corroon
estimates that in 1997, the change program initiatives increased its profit
before tax by L27 million with more than half of this improvement generated from
revenue enhancements. Willis Corroon has implemented the change program in
varying stages across its business units and expects the change program to
generate significant additional benefits in the future, although there can be no
assurance that this will be the case.
COMPETITIVE STRENGTHS
STRONG FRANCHISE WITH LEADING MARKET POSITIONS. Willis Corroon is the
third largest insurance broker in the world and has leading market positions in
the U.K., the U.S. and, directly and through its associates, in many other
European countries. Willis Corroon is a recognized leader in providing
specialized risk management advisory and other services on a global basis to
clients in a variety of industries. For example, Willis Corroon believes that it
is the leading insurance broker to the construction industry in the United
States, one of the largest surety brokers in North America and a market leader
in providing risk management services to the aerospace, marine and energy
industries. Willis Corroon is also the largest reinsurance broker serving Japan.
Willis Corroon's strong global franchise and leading market positions:
- provide an extensive platform for selling new and existing products and
services to its existing clients;
- allow Willis Corroon to meet better the risk management needs of its
existing clients and help attract new clients;
- create economies of scale and other efficiencies; and
- attract talented professionals.
STRONG GLOBAL PRESENCE. Willis Corroon believes it is one of only
three insurance brokers in the world with the global operating platform, broad
product expertise and insurance brokering distribution capabilities necessary to
effectively meet the global risk management needs of large multinational and
certain other clients. Willis Corroon has approximately 12,000 employees around
the world and a network of more than 250 offices in 69 countries, in each case
including associates. This strong global franchise enables Willis Corroon and
its associates to serve over 50,000 clients located in more than 125 countries
worldwide. Management estimates that, together with its associates, Willis
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Corroon enjoys leading market positions in the U.K., the U.S., France, Denmark,
Greece, Germany, Italy, Poland, Spain and Sweden. In 1997 Willis Corroon placed
insurance with over 4,000 insurance carriers, none of which individually
accounted for more than 7% of the total premiums placed by Willis Corroon on
behalf of its clients. Willis Corroon's worldwide franchise enables it to
provide high quality services on a local basis with the resources of a global
firm.
EXTENSIVE AND DIVERSE CLIENT BASE. Willis Corroon's clients operate in
many businesses and industries throughout the world and generally range in size
from major multinational corporations to middle market companies. Many of Willis
Corroon's client relationships span decades, such as its 20-year relationship
with Allied Signal Inc. and its relationship with The Tokio Marine and Fire
Insurance Co., Limited (the largest non-life insurance company in Japan), which
dates back 100 years. In the United States, Willis Corroon serves approximately
10% of the Fortune 1,000 companies, with an average relationship of more than
ten years. Willis Corroon's largest client accounted for less than 2% of Willis
Corroon's total revenues in 1998, and Willis Corroon's 80 largest clients
accounted for less than 10% of such revenues. This diversified client base
provides a stable source of revenue and also offers significant additional
revenue opportunities as Willis Corroon provides these clients with additional
products and services and cross-sells existing products and services across its
many areas of expertise.
BROAD ARRAY OF CLIENT-ORIENTED SERVICES AND PRODUCTS. In order to
serve its extensive client base, Willis Corroon offers a broad range of services
and products designed to address their specific risk management needs. With its
specialized product and industry teams around the world, Willis Corroon helps
its clients assess the risks they encounter in their operations worldwide, from
employee benefits and healthcare to the specialized risks of the aerospace
industry. If the client desires to insure against these risks, Willis Corroon
negotiates policy terms and places an appropriate insurance policy with an
insurance underwriter using its significant placing power. If the client,
however, wishes to retain some portion of the risk, Willis Corroon can help the
client establish and maintain its own self-insurance or captive insurance
program. As a result of Willis Corroon's ability to meet its clients' risk
management needs, management believes that Willis Corroon enjoys a reputation
for exceptional customer service throughout its product offerings. In an
independent 1998 survey covering 143 U.S. insurance brokers, Willis Corroon's
North American operations received the highest overall customer satisfaction
rating.
EXPERIENCED AND INCENTIVIZED MANAGEMENT. Willis Corroon's Executive
Chairman, John Reeve, joined Willis Corroon in late 1995 and is responsible for
instituting significant strategic and operating changes which have improved
operating results and positioned Willis Corroon for further growth. Willis
Corroon's top seven executives have an average of 27 years of experience in the
insurance brokerage and insurance industries and an average of 20 years of
experience with Willis Corroon itself. 358 key employees invested directly in
the equity of Willis Corroon's ultimate parent company, TA I Limited. The
investment by these employees, together with options granted to them at the time
of investment, is expected to represent between 14% and 20% of TA I Limited's
ordinary share capital on a fully diluted basis. This broad distribution of
equity throughout the organization should help Willis Corroon to retain and
attract highly qualified managers, brokers and consultants.
STRONG SPONSORSHIP. Kohlberg Kravis Roberts & Co. L.P. is a leading
investment firm with significant investment experience in the insurance
industry. In addition to the KKR 1996 Fund (Overseas), Limited Partnership, six
major insurance companies, Guardian Royal Exchange, Royal & SunAlliance
Insurance Group, The Chubb Corporation, The Hartford Financial Services Group,
Inc., Travelers Property Casualty Corp. and The Tokio Marine and Fire Insurance
Co., Limited, collectively invested approximately L203 million (approximately
$346 million) in the common and preferred equity of Willis Corroon's parent
corporations. The investment by these major insurance carriers represents a
significant expression of confidence in Willis Corroon's future business
prospects. In addition, Willis Corroon believes that such investment highlights:
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<PAGE>
(1) the importance of the role played by the global insurance
broker to the insurance industry generally; and
(2) the importance of Willis Corroon individually as an
independent alternative in a rapidly consolidating industry.
BUSINESS STRATEGY
Willis Corroon's strategic objectives are to continue to grow revenues
and cash flow and to enhance its position as a leading global provider of risk
management services. The key elements of this strategy are:
CAPITALIZE ON STRONG GLOBAL FRANCHISE. As one of only three insurance
brokers providing risk management services on a global basis, Willis Corroon is
well positioned to take advantage of the increased demand for global risk
management expertise. Willis Corroon intends to capitalize on its strong global
franchise by:
(1) cross-selling both existing and new products and services to
its existing clients; and
(2) targeting new clients in need of Willis Corroon's global
reach and specialized expertise and knowledge.
To implement these objectives, Willis Corroon is improving the quality of its
risk management consultants by:
- investing in the training and development of its staff;
- recruiting teams of risk management professionals with particular
geographical or product expertise and client relationships;
- implementing a new incentive structure which has a greater emphasis on
business development and profitability; and
- implementing programs and upgrading information systems to share
product and client knowledge throughout the organization.
Willis Corroon also seeks to work more closely with selected insurance
carriers to develop new products and services for its clients. While these
initiatives continue to be developed and implemented, Willis Corroon has begun
to see improvements. For example, revenues from North American Retail's sale of
new business increased 17% ($12.6 million) in 1998 compared to 1997.
EMPHASIZE VALUE-ADDED SERVICES. Willis Corroon seeks to offer
value-added, fee-based risk management services, such as risk management
consulting advice, including captive insurance company management and
self-insurance consulting, employee benefits consulting, and claims
administration to complement its existing insurance brokerage business. These
fee-based services have increased as a percentage of Willis Corroon's total
revenues and, unlike typical insurance brokerage commissions, are not directly
tied to insurance premium rates, which have been declining in recent years. For
fiscal 1997, the percentage of Willis Corroon's total revenues from fees,
including from insurance placements and consulting and other services, was
approximately 26%, as compared to
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approximately 13% in 1993. Willis Corroon believes that by emphasizing these
value-added risk management consulting services it can
- increase the quality and scope of services it offers to its clients
worldwide,
- reduce Willis Corroon's exposure to fluctuations in insurance premium
rates and
- continue to enhance revenue growth and operating profit margins despite
recent trends toward decreasing insurance premiums and brokerage
commissions.
INCREASE OPERATING EFFICIENCIES. In addition to its revenue growth and
improved client service initiatives, Willis Corroon's change program includes a
number of cost reduction measures designed to streamline work processes to
increase efficiency without impacting client service. Thus far, these
initiatives have reduced headcount in continuing operations by over 1,100
employees, or more than 10% of the workforce. Also, Willis Corroon reorganized
its U.K. Retail operations from a regional focus to a market segment focus and
reduced the number of U.K. Retail offices from 33 to 28 since January 1, 1996.
Other on-going initiatives include
- reducing real estate, travel, entertainment and other operating
expenses,
- further streamlining back-office functions and consolidating offices
and
- reducing purchasing costs by implementing vendor programs.
Additionally, Willis Corroon intends to reduce the number of insurance carriers
with which it does business in order to create direct economic benefits for
clients, carriers and Willis Corroon. Willis Corroon also intends to streamline
administrative processes with a selected number of insurance carriers and work
closely with certain insurance carriers to generate new product and service
ideas. Willis Corroon reduced expenses from continuing operations by
approximately L10 million in 1997 due to the change program and believes that
the change program is responsible in large part for the 20.7% annual growth in
Operating Income--Constant Currency (adjusted for non-recurring items and
businesses sold or closed from 1995 through 1998 and 15.6% if additionally the
impact of the recent acquisitions and the incremental investment in Willis
Corroon Richard Oliver Pty Ltd and Willis Corroon Scheuer are excluded), despite
the downward trend of insurance premium rates. Willis Corroon seeks to continue
to increase operating efficiencies and reduce operating costs in the future.
PURSUE STRATEGIC GROWTH OPPORTUNITIES. Willis Corroon intends to
strengthen its global franchise through selective acquisitions and strategic
investments. Willis Corroon believes that the consolidation in the brokerage and
risk management consulting industry, coupled with the importance of a global
presence, will provide Willis Corroon opportunities to acquire smaller brokers
that have a strong regional or local market position or possess specialized
product expertise which complements Willis Corroon's existing products. In
addition to acquiring controlling interests in smaller brokers, Willis Corroon
has also expanded internationally through strategic minority investments in, and
developing a close working relationship with, other brokers. For example, in
1997, Willis Corroon acquired a one-third stake in Gras Savoye, the largest
broker in France and the ninth largest broker in the world, and early in 1998 a
30% interest in Jaspers Wuppesahl, which Willis Corroon believes is the third
largest broker in Germany. This interest increased to approximately 45% in
January 1999. Willis Corroon also acquired a 50% interest in 1998 in a leading
Italian broker, Gruppo Ital Brokers, a 30% interest in Assurandrgruppen, the
leading broker in Denmark, a reinsurance brokering, and consulting operation in
Germany, and has announced planned acquisitions in Venezuela. In 1997 and 1998,
Willis Corroon increased its existing investments in Brazil, Sweden, Spain,
Australia and Holland. In connection with
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these investments, Willis Corroon assumes an active role in management and
generally retains the right to obtain ownership interests in excess of 50% over
time. These and future strategic investments should significantly enhance Willis
Corroon's global presence and enable it to better leverage its global platform.
BUSINESS UNITS
Willis Corroon conducts its activities through five units:
- North American operations;
- U.K. Retail;
- Global Specialties;
- Global Reinsurance; and
- International,
the operations of each of which are detailed below.
NORTH AMERICAN OPERATIONS
(41% OF 1998 OPERATING REVENUES)
Willis Corroon's North American operations, which consist of North
American Retail and U.S. Wholesale, provide risk management, insurance brokerage
and related services to a wide variety of clients in the United States and
Canada. Headquartered in Nashville, Tennessee, North American operations operate
through a network of more than 100 offices located in 38 states in the U.S. and
six offices in Canada. In addition, two other U.K.-based units, Global
Specialties and Global Reinsurance also have operations in the U.S.
NORTH AMERICAN RETAIL
(90% OF NORTH AMERICAN OPERATIONS 1998 OPERATING REVENUES)
North American Retail provides risk management, insurance brokerage and
related services directly to corporations through 77 local offices in the U.S.
and six offices in Canada. North American Retail's clients include both
middle-market and major multinational companies. Approximately 45% of North
American Retail's revenues are generated by providing property/casualty
brokerage services to middle-market companies. The balance of the unit's
revenues come from serving the complex risk management needs of multinational
corporations and from its other consulting and brokerage services.
Other consulting brokerage services are supplied to certain clients
through four divisions:
- construction;
- employee benefits;
- healthcare; and
- advanced risk management services.
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North American Retail's construction division specializes in providing risk
management, insurance and surety bonding services to the construction industry.
This division provides services to approximately 20% of the Engineering New
Record Top 400 contractors (a listing of the largest 400 North American
contractors based on revenue). Willis Corroon believes it is the largest
construction insurance and surety broker (obtaining surety bonds, which
guarantee the performance of a contractor's obligations under construction and
other contracts) in North America. North American Retail's employee benefits
division helps clients with the design and implementation of benefits and
compensation plans. Its healthcare division provides insurance and consulting
services to local healthcare professionals. Willis Corroon believes it is the
fourth largest healthcare insurance broker/consultant in the United States.
North American Retail's advanced risk management services division provides
actuarial consulting, captive management services and a wide range of other risk
consulting activities to large clients.
Many of North American Retail's client relationships have existed for
decades, such as its relationships with AT&T, Texaco and GE Capital. In
addition, Willis Corroon serves approximately 10% of the Fortune 1000 companies
in the United States. In an independent 1998 survey covering 143 U.S. insurance
brokers, Willis Corroon received the highest overall customer satisfaction
rating.
During 1997, as part of the change program, North American Retail
introduced a new regional structure, with six regions in the United States and
one region for Canada, designed to streamline the existing management structure,
focus more decision making closer to the customer, and reduce back office costs
by concentrating administrative resources at the national and regional level.
Additionally, North American Retail implemented specific programs designed to
enhance revenues, such as increased cross-selling of products to its existing
clients.
U.S. WHOLESALE
(10% OF NORTH AMERICAN OPERATIONS 1998 OPERATING REVENUES)
The second, and much smaller, component of Willis Corroon's North
American operations is U.S. Wholesale. Wholesale brokering is typically
transacted between two brokers or agents and occurs when a broker has a client
with a risk coverage need that falls outside its area of expertise. In these
cases, a broker may call in a wholesale broker with such specific expertise to
place the business and then receive a fee.
U.S. Wholesale primarily serves its clients through three operating
entities. As a wholesale broker and program manager, Public Entities National
Company provides access to specialized coverage for governmental entities,
schools and other municipality and public entities. Willis Corroon believes that
the Stewart Smith Group is the fourth largest excess and surplus lines broker in
the United States, providing specialist advice and market expertise in property
and casualty insurance placement in a variety of industries, including
manufacturing, real estate/habitational, transportation, financial services,
utilities, entertainment, aerospace and construction. Special Program
Management, a unit of the Stewart Smith Group, is an industry leader for placing
specialty directors & officers coverage and related products to the
high-technology industry. U.S. Wholesale's professional liability wholesale
operation, Professional Liability Underwriting Management, was closed in the
second quarter of 1998.
U.K. RETAIL
(18% OF 1998 OPERATING REVENUES)
Willis Corroon's U.K. Retail operation provides risk management and
insurance brokerage services to clients in the U.K. through 28 offices located
in the United Kingdom to industrial and individual clients. U.K. Retail arranges
similar risk management and insurance brokerage services for U.K.-based clients
outside the United Kingdom through North American Retail, overseas subsidiaries
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and associates. U.K. Retail has numerous long-standing relationships with both
middle-sized and larger companies throughout the U.K., such as BAT Industries,
British Steel and Cadbury Schweppes.
In 1997, U.K. Retail established three new divisions (Willis Corroon
Corporate, Willis Risk Solutions and Willis Corroon Commercial) to provide
differentiated services according to client needs and buying preferences.
Willis Corroon Corporate provides a wide range of integrated risk
transfer and risk and loss management services to larger U.K.-based corporate
clients. The division assists clients in reducing the cost of managing their
risks by providing comprehensive risk management services, elements of which are
available on an "unbundled" basis if required.
Willis Risk Solutions is a professional services business delivering
expert solutions to major, typically multinational, corporate and professional
clients with complex risk problems. Willis Risk Solutions service is tailored to
individual client needs and ranges from strategic risk assessment to
transactional risk transfer and alternative risk financing solutions. The
service includes the development and management of captive insurance companies,
specialist insurance services, due diligence on mergers and acquisitions and
project finance, and evaluating risks associated with new business ventures.
Willis Risk Solutions is increasingly focused on providing more advisory and
consulting services. Through Willis Risk Solutions, Willis Corroon is one of the
largest managers of captive insurance companies in Europe.
Willis Corroon Commercial provides traditional insurance brokerage
services primarily to smaller companies. In a new venture announced in February
1998, Willis Corroon Commercial stated that it would be entering into franchise
partnerships with local U.K. insurance brokers to handle the insurance
requirements of small companies and individuals, utilizing specialized
electronic systems linking the franchised brokers directly to the commercial
panel of insurance carriers. These small companies and individuals represent a
very large market in the U.K. (more than 60% of commercial insurance premiums in
the U.K. are paid by companies with less than L10 million in revenue).
Accordingly, Willis Corroon Commercial believes that the franchise program
provides a significant opportunity for growth, and had ten franchise agreements
in place at December 31, 1998. It expects to have 26 in place by the end of
1999.
In addition to these services, U.K. Retail provides advice and services
to corporate and individual clients on personal finance matters such as pension
planning and investment products through Willis National Limited, a joint
venture in which Willis Corroon has a 51% interest and Abbey National has the
remaining 49%, the second largest independent financial advisor in the United
Kingdom, according to information published in MONEY MARKETING (August 7, 1997).
U.K. Retail also has teams which provide services in numerous specialty
areas, such as construction, freight, credit insurance, transport, hotel and
leisure, and professional indemnity through its other three divisions (Willis
Construction Risk Specialists, Willis Corroon Cargo and Scotland/ Ireland).
During 1997, U.K. Retail completed the implementation of certain
structural changes initiated towards the end of 1996 under the change program,
and reorganized into seven major divisions from its prior regional focus. In
connection with the reorganization, U.K. Retail centralized most of its
back-office functions, closed five offices and reduced headcount by
approximately 13%. The change program continued in 1998 with rationalization.
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GLOBAL SPECIALTIES
(22% OF 1998 OPERATING REVENUES)
The Global Specialties unit provides specialist brokerage and
consulting services to clients throughout the world for the risks of specific
industrial and commercial activities. In these operations, Willis Corroon has
extensive specialized experience handling diverse lines of coverage, including
the complex insurance programs for insurance companies and Lloyd's syndicates,
and acting as an intermediary between retail brokers and insurers. Global
Specialties increasingly provides consulting services on risk management with
the objective of assisting clients to reduce the overall cost of risk. Global
Specialties serves clients in more than 100 countries, primarily from its U.K.
offices, although the unit also serves clients from offices in the U.S.
The Global Specialties unit is organized into three distinct business
areas:
- Global Broking Services;
- Willis Corroon Aerospace; and
- Willis Faber Marine.
Global Broking Services provides solutions to problems in the
industrial, financial and professional sectors for large, complex, unusual and
niche risks around the world. Global Broking Services operates through five
business sub-units. The Global Property and Casualty unit designs and obtains
innovative property coverage solutions for large or unusual exposures in a
variety of industries, including mining and metals, chemicals and
pharmaceuticals, telecommunications, offshore energy and construction, refining,
power stations and other utilities, transport authorities and motor
manufacturers and also handles the design, implementation and servicing of
reinsurance protections for captive insurance companies. The Global Property and
Casualty unit also provides comprehensive liability programs for coverage
against environmental liability, libel and slander, and medical malpractice. The
Global Financial Risks unit obtains directors and officers insurance, as well as
errors and omissions insurance for professional firms and other insurance
brokers. The Global Financial Risks unit is also a leader in designing and
obtaining insurance coverage for political risk, including confiscation and
expropriation. Crime, computer fraud and unauthorized trading risks are also
covered on a worldwide basis. The Fine Art, Jewelry, and Specie unit provides
specialist risk management and insurance services to fine art, diamond and
jewelry businesses and operators of armored cars. Coverage is also obtained for
the physical risks of financial institutions and similar operations, including
vault and bullion risks. The Contingency Risks unit specializes in producing
packages to protect corporations, groups and individuals against special
contingencies such as kidnap and ransom, extortion, detention, political
repatriation and product contamination. The Bloodstock unit services the
insurance needs of the bloodstock and livestock industry and also arranges the
reinsurance of bloodstock and livestock related business of insurance companies
worldwide.
Willis Corroon Aerospace is a market leader in the provision of
insurance brokerage and risk management services to clients in the aerospace
industry, including aircraft manufacturers, air cargo handlers and shippers,
airport managers and other general aviation companies. Advisory services
provided by Aerospace include claims recovery and collections, contract and
leasing risk management, safety services and markets information. Aerospace is a
leading provider of risk transfer and advisory services for space vehicle
launches and is also a leading reinsurance broker of aerospace risks.
Aerospace's clients are spread throughout the world and include 250 airlines and
more than 45% of the world's 30 leading non-American airports by passenger
movement. Other clients include those introduced from other intermediaries as
well as insurers seeking reinsurance.
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<PAGE>
Willis Faber Marine provides marine insurance brokerage services,
including hull, cargo and general marine liabilities. Marine's clients include
direct buyers, other insurance intermediaries and insurance and reinsurance
companies. Marine insurance brokerage is Willis Corroon's oldest line of
business. Other services of Marine include claims collection and recoveries.
Global Specialties is diversified from a geographical perspective. The
unit's 1998 revenues were generated in the following geographical regions: 27%
in the U.K.; 22% in North America and the Caribbean; 26% in continental Europe;
12% in Japan and the Far East; 5% in South America; 4% in the Middle East; and
4% in the rest of the world. In addition, this unit is diversified from a
customer perspective, with no client accounting for more than 2% of its revenues
in 1998.
Under the change program, in 1998 Global Specialties has, among other
things, reduced headcount by approximately 9%, merged its energy sub-unit into
Global Broking Services to better focus its sales efforts and focused on
cross-selling with Willis Corroon's other business lines.
GLOBAL REINSURANCE
(10% OF 1998 OPERATING REVENUES)
The Global Reinsurance unit, operating under the trade name Willis
Faber Re, provides international reinsurance brokerage services. These services
are provided to insurance underwriters to reinsure all or a portion of the risks
insured by them and to reinsurance underwriters to further reinsure their risks.
Willis Corroon is one of the world's largest intermediaries for international
reinsurance and has a significant market share in a number of major reinsurance
markets. It is the largest reinsurance broker serving Japan.
Global Reinsurance provides its clients, both insurance and reinsurance
companies, with reinsurance transaction services as well as ancillary services
such as risk analysis, modeling and consulting. The unit also provides
reinsurance brokerage services to healthcare professionals and institutions. The
U.K. operation represents clients in more than 90 countries and has
long-standing relationships with leading insurers in Asia, Middle East, Latin
America and in Western Europe. One such relationship, with The Tokio Marine and
Fire Insurance Co., Limited, has existed for 100 years.
Willis Corroon believes that from 1996 to 1998 premium rates in the
global reinsurance market have decreased annually by approximately 20%. Global
Reinsurance is developing new sources of revenue in addition to its traditional
reinsurance brokerage services, investing in new capabilities and expanding its
global reach. For example, in 1998 Global Reinsurance established Cordis
Consulting Limited to market its capabilities in actuarial and catastrophe
modeling as consulting products rather than as a part of its reinsurance
package, and acquired Mansfeld, Hubener & Partner GmbH to provide a local
presence in Germany (the largest European reinsurance market). In 1997 Willis
Corroon launched Willis Corroon Asset Management Limited which manages funds
invested in a new class of financial instruments linked to insurance and
reinsurance risks.
Additionally, under the change program, Willis Corroon has been
integrating various reinsurance business units globally (eight business units
have merged between 1995 and 1998 to culminate in the creation of Willis Faber
Re) and has gained more synergy, teamwork, and sharing of knowledge among top
professionals around the world. Additionally, the headcount in the Global
Reinsurance's U.K. operations has been reduced by approximately 25% since 1995.
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<PAGE>
INTERNATIONAL
(9% OF 1998 OPERATING REVENUES)
Willis Corroon's International unit consists of a network of
subsidiaries and associates other than those in the U.S. or U.K. controlled by
the other business units. These operations are located in 59 countries
worldwide, consisting of 21 countries in Europe, 13 in the Asia/Pacific region
and 25 elsewhere in the world. The services provided are generally focused
according to the characteristics of each market and are not identical in every
office, but generally include direct risk management and insurance brokerage,
specialist and reinsurance brokerage and employee benefits consulting.
As part of its on-going strategy, Willis Corroon has significantly
strengthened International's market share and operations through a number of
acquisitions and strategic investments in recent years. The most significant of
these was the acquisition of a 33% interest in Gras Savoye, France's leading
insurance broker and the ninth largest broker in the world. In addition, in
January 1998, Willis Corroon's associate in Germany, C. Wuppesahl & Co.
Assekuranzmakler, merged with Jaspers Industries Assekuranz GmbH & Co. KG to
create Jaspers Wuppesahl, the third largest insurance broker in Germany in which
Willis Corroon now has an interest of approximately 45%.
In July 1998, Willis Corroon acquired 50% of Gruppo Ital Brokers, which
will be merged with UTA Willis Corroon SpA, in which Willis Corroon has a 50%
interest, creating the third largest broker in Italy. Willis Corroon also
acquired a 30% interest in Assurandrgruppen the leading broker in Denmark. Also,
Willis Corroon has announced planned acquisitions in Venezuela. In addition, in
1997 and 1998 Willis Corroon entered into a joint venture in Indonesia and
increased its existing investments in Brazil, Sweden, Spain, Australia and
Holland. Finally, Willis Corroon is the first non-Japanese broker to be awarded
a domestic license in Japan. The investments in 1997 and 1998 have improved the
market positions of Willis Corroon and its associates worldwide.
The following is a list of the associate investments currently held by
Willis Corroon:
<TABLE>
<CAPTION>
COMPANY COUNTRY % OWNERSHIP
- ----------------------------------------------------------- ----------- -------------------
<S> <C> <C>
EUROPE
Gras Savoye & Cie France 33%
Jaspers Wuppesahl Industrie
Assekuranz GmbH & Co., KG Germany 45%
Assurandrgruppen A/S Denmark 30%
ASIA/PACIFIC
Multi-Risk Consultants (Thailand) Limited Thailand 25%
Willis Faber (Malaysia) Sdn Bhd Malaysia 30%
Willis Faber Insurance Brokers (B) Sdn Bhd Brunei 38%
REST OF WORLD
Al-Futtaim Willis Faber (Private) Limited Dubai 49%
Herzfeld & Levy S.A. Argentina 20%
</TABLE>
In connection with many of its investments in associates, Willis
Corroon retains rights to increase its ownership percentage of such associates
over time, typically to a majority or 100% ownership position. In addition, in
certain instances, the other owners of the associates have a right, typically
pursuant to some price formula of revenues or earnings, to put some or all of
their shares in the associates to Willis Corroon. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
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<PAGE>
In addition to its strategic investments in associates, Willis Corroon
has acquired a controlling interest in a variety of smaller brokers. The
following is a list of International subsidiaries in which Willis Corroon has a
controlling interest:
<TABLE>
<CAPTION>
COMPANY COUNTRY % OWNERSHIP
- ---------------------------------------------------- ------------------ -----------------
<S> <C> <C>
EUROPE
Mansfeld, Hubener & Partner GmbH Germany 100%
Willis Corroon AB Sweden 74%
Willis Corroon Gothia AB Sweden 63%
Willis Corroon Global Financial Risks AB Sweden 72%
OY Willis Corroon AB Finland 74%
Willis Corroon Italia SpA Italy 50%
S&C Willis Corroon Correduria de Seguros y
Reaseguros SA Spain 60%
Surplus Corredores de Reaseguros SA Spain 100%
Willis Corroon Corretores de Seguros Limitada Portugal 100%
Willis Corroon (Management) Luxembourg SA Luxembourg 100%
Willis Corroon Belgium SA Belgium 80%
Willis Corroon Nederlands BV Netherlands 100%
Willis Corroon Hellas (Insurance Brokers) SA Greece 100%
Willis Corroon Kendriki SA Greece 100%
Willis Corroon CIS Russia 100%
Willis Corroon Polska Poland 70%
Willis Corroon sro Czech Republic 100%
Willis Corroon Hungary Kft Hungary 80%
ASIA/PACIFIC
Willis Corroon China (Hong Kong) Ltd. Hong Kong 100%
Willis Corroon (Taiwan) Ltd. Taiwan 100%
Willis Corroon (Pte) Limited Singapore 100%
REST OF THE WORLD
Willis Faber & Dumas (Mexico) Intermediario
de Reaseguro SA de CV Mexico 100%
Willis Faber Corretaje de Reaseguros Venezuela 100%
Willis Faber do Brasil Consultoria e Participacoes Brazil 100%
SA
York Willis Corroon Corretores de Seguros SA Brazil 100%
Willis Faber Chile Limitada Chile 100%
Richard Oliver International Pty Ltd (formerly Australia 100%
Willis Corroon Richard Oliver Pty Ltd)
Willis Corroon Limited New Zealand 99%
Willis S.A. Argentina 60%
</TABLE>
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<PAGE>
SIGNIFICANT SUBSIDIARIES
Solely for purposes of compliance with Luxembourg Stock Exchange
listing requirements, the following sets forth certain information pertaining to
the significant subsidiaries (as defined by such exchange) of Willis Corroon
(other than Willis Corroon Partners and Willis Corroon Corporation):
<TABLE>
<CAPTION>
COUNTRY OF
COMPANY REGISTRATION ACTIVITY % OWNERSHIP
- ---------------------------------------------- ----------------------- ------------------------- ---------------
<S> <C> <C> <C>
Willis Corroon Europe B.V. Netherlands Holding Company 100%
Willis Faber & Dumas Limited(1) England and Wales Lloyd's Broker 100%
Willis Corroon Limited(2) England and Wales Lloyd's Broker 100%
Willis Corroon Group Services Limited(3) England and Wales Service Company 100%
Willis National Limited(4) England and Wales Financial Intermediary 51%
Friars Street Insurance Limited Guernsey Captive Insurer 100%
</TABLE>
- ------------------------------
(1) Profit arising out of ordinary activities, after tax, for the financial year
ended December 31, 1997 amounted to L14.9 million and the amount of
dividends received from Willis Faber & Dumas Limited in the course of that
financial year was L14.0 million.
(2) Profit arising out of ordinary activities, after tax, for the financial year
ended December 31, 1997 amounted to L6.0 million and the amount of dividends
received from Willis Corroon Limited in the course of that financial year
was L5.3 million.
(3) Profit arising out of ordinary activities, after tax, for the financial year
ended December 31, 1997 amounted to L1.3 million. No dividends were received
from Willis Corroon Group Services Limited in the course of that financial
year.
(4) Willis National Limited did not trade during the financial year ended
December 31, 1997.
Willis Corroon Europe B.V. and Friars Street Insurance Limited do not
publish separate financial statements.
Willis Corroon Corporation shareholders' equity at December 31, 1998
consisted of 10,000 authorized shares of common stock, par value $0.01 per
share, of which 3,339 shares were issued and outstanding. Other than
- the senior credit facilities,
- the outstanding notes and
- intercompany notes,
all as disclosed in this prospectus, Willis Corroon Corporation has no other
long-term debt.
Willis Corroon Partners' capital at December 31, 1998 consisted of
partnership interests of which Willis Corroon Group has a 99.9% interest and
Willis Group Limited has a 0.1% interest. Other than
- the guarantee of the senior credit facilities,
- the guarantee of the outstanding notes and
- intercompany notes,
all as disclosed in this prospectus, Willis Corroon Partners has no other
long-term debt.
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<PAGE>
SEGMENT INFORMATION
The following tables show total operating revenues of Willis Corroon by
category of activity and geographical location for each of the three years ended
December 31, 1998. The information has been prepared in accordance with U.K.
GAAP.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
TOTAL OPERATING REVENUES 1996 1997 1998
- ----------------------------------------------------------------------------------- --------- --------- ---------
<CAPTION>
(L MILLIONS)
<S> <C> <C> <C>
BY ACTIVITY
Continuing operations -- Insurance brokering and risk management................... L725.0 L692.0 L718.0
Discontinued operations -- Underwriting (Sovereign/Willis Faber (Underwriting
Management))..................................................................... 5.7 2.0 0.2
--------- --------- ---------
730.7 694.0 718.2
--------- --------- ---------
--------- --------- ---------
BY GEOGRAPHICAL AREA(1)
United Kingdom..................................................................... 319.5 305.1 305.3
North America...................................................................... 371.3 336.6 351.4
Rest of the World.................................................................. 39.9 52.3 61.5
--------- --------- ---------
730.7 694.0 718.2
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------------
(1) The geographical analysis is based on the location of the operating
subsidiaries which does not necessarily reflect the original source of the
business.
CUSTOMERS
Willis Corroon's clients operate on a global and local scale in a
multitude of businesses and industries throughout the world and generally range
in size from major multinational corporations to middle market companies.
Further, many of Willis Corroon's client relationships span decades, such as its
20-year relationship with Allied Signal Inc. and its relationship with The Tokio
Marine and Fire Insurance Co., Limited which dates back 100 years. In the United
States, Willis Corroon serves approximately 10% of the Fortune 1,000 companies,
with an average relationship of more than ten years. No one client accounted for
more than 2% of revenues for fiscal year 1998 and Willis Corroon's 80 largest
clients accounted for less than 10% of 1998 revenues. Additionally, Willis
Corroon places insurance with over 4,000 insurance carriers, none of which
individually accounted for more than 8% of the total premiums placed by Willis
Corroon on behalf of its clients in 1998.
EMPLOYEES
At December 31, 1998, Willis Corroon had approximately 9,400 employees,
including approximately 3,900 in the U.K., 4,400 in the U.S. and 1,100 in the
rest of the world and its associates had approximately 2,600 employees. Willis
Corroon is not involved in any material dispute with employees and management
believes that relations with employees are good.
COMPETITION
Willis Corroon faces competition in all fields in which it operates.
Competition in the insurance brokering and risk management businesses is based
on global capability, product breadth, innovation, quality of service and price.
Willis Corroon competes with the two other providers of global risk management
services as well as with numerous regional and local firms. Insurance companies
also compete with Willis Corroon's brokers by directly soliciting insureds
without the assistance of an independent broker or agent. Competition for
premiums is intense in all Willis Corroon's business lines and in every
insurance market. Competition on premium rates has also exacerbated the
pressures caused by a continuing reduction in demand in some classes of
business. For example, insurers are
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<PAGE>
currently retaining a greater proportion of their risk portfolios than
previously. Industrial and commercial companies are increasingly relying upon
captive insurance companies, self-insurance pools, risk retention groups, mutual
insurance companies and other mechanisms for funding their risks, rather than
buying insurance. Willis Corroon provides management and similar services for
such alternative risk transfer programs. Additional competitive pressures arise
from the entry of new market participants, such as banks, accounting firms and
insurance carriers themselves, offering risk management or transfer services.
Willis Corroon believes that it is well-positioned to compete across the breadth
of the products and services Willis Corroon offers.
REGULATION
Many of Willis Corroon's activities are subject to regulatory
supervision in the various countries and jurisdictions in which they are based
or undertaken. In the United Kingdom, many Company entities are subject to
regulatory supervision. For example, Lloyd's brokers are regulated by the
Council of Lloyd's and, together with the insurance broking subsidiaries, are
regulated pursuant to the Insurance Brokers (Registration) Act 1977. In
addition, Willis National and Willis Corroon Asset Management Limited are
regulated by the Financial Services Authority pursuant to the provisions of the
Financial Services Act 1986. Finally, the insurance companies which are in
run-off are regulated by HM Treasury.
The Society of Lloyd's and Financial Services Authority generally
regulate the conduct of business and financial position of their respective
members through the establishment of required levels of net worth and other
financial criteria; Lloyd's by-laws and Financial Services Authority rules
describe the methods by which Lloyd's brokers, independent financial advisors
and investment managers, respectively, shall conduct business. The Insurance
Brokers (Registration) Act requires, among other things, that insurance brokers
be enrolled with a central professional body and comply with its rules in the
conduct of their business. The Insurance Brokers (Registration) Act and Lloyd's
generally requires that Willis Corroon maintain amounts of fiduciary cash in
regulated bank accounts subject to guidelines which generally emphasize capital
preservation and liquidity.
Willis Corroon's activities in connection with insurance brokering
services and third party administration within the United States are subject to
regulation and supervision by state authorities. Although the scope of
regulation and form of supervision may vary from jurisdiction to jurisdiction,
insurance laws in the United States are often complex and generally grant broad
discretion to supervisory authorities in adopting regulations and supervising
regulated activities. Such supervision generally includes the licensing of
insurance brokers and agents and third party administrators and the regulation
of the handling and investment of client funds held in a fiduciary capacity.
Willis Corroon's continuing ability to provide insurance brokering and third
party administration in the jurisdictions in which it currently operates is
dependent upon its compliance with the rules and regulations promulgated from
time to time by the regulatory authorities in each of these jurisdictions.
All companies carrying on similar activities in a given jurisdiction
are subject to such regulation, and Willis Corroon does not consider that such
controls adversely affect its competitive position.
PROPERTIES
Willis Corroon owns and leases a number of properties for use as
offices throughout the world and believes that its properties are generally
suitable and adequate for the purposes for which they are used. The principal
properties are located in the United Kingdom and the United States. Willis
Corroon's headquarters at Ten Trinity Square in London is a landmark building
owned by Willis Corroon. Willis Corroon Corporation's principal office in the
United States is at 26 Century Boulevard, Nashville, Tennessee, a leasehold
property.
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<PAGE>
LEGAL PROCEEDINGS
GENERAL. Willis Corroon has extensive operations and Willis Corroon
and its subsidiaries are subject to claims and litigation in the ordinary course
of business resulting principally from alleged errors and omissions in
connection with their businesses. Most of the claims are covered by professional
indemnity insurance and many of the defenses to these claims are being conducted
by Willis Corroon's insurers. In respect of any self-insured deductibles
applicable to such claims, Willis Corroon has established provisions which are
believed to be adequate in the light of current information and legal advice.
These provisions may be adjusted from time to time according to developments.
Willis Corroon does not expect the outcome of such claims, either individually
or in the aggregate, to have a material effect on Willis Corroon's operations or
financial position.
SOVEREIGN/WILLIS FABER (UNDERWRITING MANAGEMENT). Sovereign Marine &
General Insurance Company Limited (in provisional liquidation), a wholly owned
subsidiary of Willis Corroon Group, operated as an insurance company in the U.K.
and from 1972 Sovereign's underwriting activities were managed by another wholly
owned subsidiary of Willis Corroon Group, Willis Faber (Underwriting Management)
Limited. Willis Faber (Underwriting Management) also provided underwriting
agency and other services to the third-party insurance companies called the
stamp companies, some of which are long-standing clients of Willis Corroon. As
an underwriting agent, Willis Faber (Underwriting Management) did not retain any
underwriting risks for its own account. As part of its services as agent, Willis
Faber (Underwriting Management) arranged insurance and reinsurance business on
behalf of Sovereign and the stamp companies in the following main classes of
insurance: marine, non-marine, casualty and aviation. Willis Faber (Underwriting
Management) also arranged for reinsurance for Sovereign and the stamp companies
through third party brokers, as well as through brokers within Willis Corroon.
In 1991, Sovereign ceased underwriting new business and Willis Faber
(Underwriting Management) ceased arranging new business on behalf of Sovereign
and the stamp companies. Since that time, Willis Faber (Underwriting Management)
has been administering the business it arranged on behalf of Sovereign and the
other stamp companies, referred to as handling the "run-off" of the business.
In July 1997, an unexpected adverse arbitration award was rendered
against Sovereign in respect of a dispute between Sovereign and one of its
reinsurers regarding the enforceability of certain reinsurance that Willis Faber
(Underwriting Management) had arranged. The award is confidential and
non-binding as to third parties. As a result of the award, the directors of
Sovereign determined that Sovereign could not continue to trade unless Willis
Corroon Group provided unlimited financial support. The directors of Willis
Corroon Group decided that, in the interests of Willis Corroon Group's
shareholders, such support for Sovereign could not be justified. Accordingly,
Sovereign was placed into provisional liquidation on July 11, 1997. It is
expected that the provisional liquidators and Sovereign's creditors will
ultimately enter into an arrangement that will resolve Sovereign's liabilities
and its creditors' claims and provide for the orderly winding up of Sovereign's
business, although there can be no assurance that this will be the case. Willis
Corroon and the provisional liquidators have agreed to certain arrangements,
including the new structure to replace Willis Faber (Underwriting Management)
described below, for the future run-off of the Sovereign business. Willis
Corroon has similar agreements with certain of the stamp companies regarding
arrangements for, and funding the costs of, the ongoing run-off of Sovereign.
Willis Faber (Underwriting Management) made provisions in 1991 and
Willis Corroon made provisions in 1995, in each case to cover the estimated
expenses for administering the run-off by Willis Faber (Underwriting Management)
which, based on the knowledge at that time, were expected to cover the handling
of the run-off to 2025. At December 31, 1998, the remaining provisions for these
costs were L20.8 million. Although the run-off of this business is expected to
be conducted in an orderly manner, it may ultimately prove to be a lengthy and
expensive process. As indicated above, Willis Corroon, the
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<PAGE>
provisional liquidators and certain of the stamp companies have entered into
arrangements pursuant to which a new subsidiary of Willis Corroon now provides
run-off services. Those services have in turn been sub-contracted to a third
party with experience in running off pools with an insolvent member. In the case
of the provisional liquidators, the services are provided directly by such third
party to Sovereign. The arrangement with the provisional liquidators and the
arrangements with certain of the stamp companies include the agreement by Willis
Corroon to fund, subject to certain agreed guidelines as to timing and amount,
certain costs of the ongoing run-off. The amounts to be funded under the
arrangements are currently within the aggregate of the provisions as of December
31, 1998. However, there can be no assurance that the provisions will be
adequate to cover the actual run-off costs over time.
Following the publication of the adverse arbitration award, Sovereign
and certain of the stamp companies have expressed concern about the
enforceability of other reinsurance put in place by Willis Faber (Underwriting
Management) on behalf of Sovereign and the stamp companies. In addition, a
reinsurer which participates on numerous reinsurance contracts has advised
Sovereign, the stamp companies and Willis Faber (Underwriting Management) that
it is in the process of adopting a number of legal positions, similar to those
taken in the Sovereign arbitration, with the intended effect of having its
contractual obligations under the reinsurance contracts reassessed with respect
to enforceability and amount. Accordingly, there can be no assurance that there
will be no further arbitration or litigation with respect to reinsurance
arranged by Willis Faber (Underwriting Management). The provisional liquidators
and the stamp companies have generally reserved their rights in respect of
potential claims, and Willis Faber (Underwriting Management), Willis Corroon
Group and certain broking subsidiaries of Willis Corroon Group are in the
process of negotiating standstill agreements which will preserve the rights of
such potential claimants with respect to their possible claims while
circumstances are being investigated. Although the Sovereign arbitration award
is non-binding as to third parties, other arbitrations may arise in the future.
Further, if the provisional liquidators or the stamp companies determine that
they have valid claims against Willis Corroon Group, they may seek to bring
claims directly against Willis Corroon Group and hold it responsible for the
liabilities of its subsidiaries. Although such claims are generally difficult to
successfully maintain under English law, there can be no assurance that claims
will not be made or, if made, that such claims could not succeed. Claims could
also be made against Willis Faber (Underwriting Management) and broking
subsidiaries that arranged reinsurance on behalf of Sovereign and the stamp
companies. Those Willis Corroon companies with insurance protection have
notified their insurance providers of certain potential claims. Willis Corroon
Group and its subsidiaries have not made any financial provisions in respect of
possible future claims in respect of reinsurance placed by Willis Faber
(Underwriting Management). Willis Corroon Group does not know whether any such
claims will be made; the validity and amount of such claims and the extent, if
any, to which they will be covered by insurance, after giving effect to the
applicable deductibles, exclusions and limits, can be assessed only when and if
such claims are made.
Willis Corroon Group and its subsidiaries plan to continue to deal with
the foregoing matters in a manner designed to assist an orderly run-off of the
obligations of Sovereign and of the other stamp companies while limiting the
costs of resolution. It is possible that the foregoing matters or other
circumstances may lead Willis Corroon Group to place Willis Faber (Underwriting
Management) in provisional liquidation. Willis Corroon Group does not believe
the resolution of these matters, including any possible provisional liquidation
of Willis Faber (Underwriting Management), will have a material adverse impact
on its consolidated results of operation or financial condition, although there
can be no assurance this will be the case. However, if our consolidated results
of operations or financial conditions are adversely affected, Willis Corroon
Group may not be able to make payments under its guarantee.
PENSION REVIEW. For a description of the implications of the "pension
transfers and opt-outs review" initiated by the U.K. government, see "Risk
Factors--U.K. Pension Review."
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<PAGE>
HUGHES LITIGATION. In September 1990, Hughes Aircraft Co. filed suit
in Los Angeles County Superior Court against certain London insurance companies,
seeking coverage for environmental liabilities associated with groundwater
contamination at its Tucson, Arizona facility. Also named as a defendant was
Stewart Smith West, Inc., which is a subsidiary of Willis Corroon Group and the
successor to Haidinger Hayes, Inc., a surplus line broker that assisted in the
acquisition by Hughes Aircraft of various excess liability policies from 1952 to
1965. In addition, Willis Faber Property Holdings Limited, the successor to a
London broker which assisted in the acquisition of the excess policies and which
is an indirect subsidiary of Willis Corroon Group, has been brought into the
suit. The claims against Stewart Smith and Willis Faber alleged that Stewart
Smith and Willis Faber failed to preserve the identity of insurers participating
in excess general liability insurance placed on Hughes Aircraft's behalf during
the period from 1952 to 1965. Hughes Aircraft alleged that Stewart Smith and
Willis Faber should bear any liability that Hughes Aircraft's insurers, whose
identities are unknown, would have borne, due to the alleged breach of duty by
the two subsidiaries of Willis Corroon Group in failing to retain the identity
of the insurers. In addition, Hughes Aircraft has asserted a claim for $6
million, alleging that Stewart Smith should pay for the costs it has incurred in
attempting to reconstruct the missing policies.
In May 1998, the judge ordered a bifurcation of the case under which
the claim against Willis Faber was tried separately from the claims against
Stewart Smith. On June 4, 1998, a jury found in favor of Hughes Aircraft in its
case against Willis Faber, finding that Willis Faber failed to retain the
identity of the excess general liability insurers. Judgment was entered on this
verdict, subject to appeal. The judgment requires Willis Faber to bear any
liability that Hughes Aircraft's insurers, whose identities are unknown, would
have borne. However, the judgment does not address the issue of causation, i.e.,
whether the conduct of Willis Faber actually caused injury to Hughes Aircraft.
This issue will turn on a number of factors, including, without limitation,
whether Hughes' Aircraft ultimate exposure in relation to underlying claims made
against it implicates the "missing" coverage. While the claim against Stewart
Smith is dependent upon different facts than the claim against Willis Faber,
evidence presented in the Willis Faber case has already established that Stewart
Smith did receive the currently missing information as to the identity of the
excess general liability insurers from Willis Faber. On October 16 and 20, 1998,
the trial judge heard and subsequently granted two motions on behalf of Hughes
Aircraft in relation to the Stewart Smith action. The judge granted Hughes
Aircraft's motion for the summary adjudication that Stewart Smith had breached a
duty to retain in perpetuity the identity and percentages of excess insurance
procured by Stewart Smith for Hughes Aircraft. The judge also granted a motion
in limine to preclude any evidence or argument that Hughes Aircraft is
comparatively negligent.
On October 30, 1998, a settlement in principle was reached with Hughes
Aircraft, with the involvement and prior approval of Willis Corroon's errors and
omissions insurer. Under the settlement in principle:
(a) a final, non-appealable judgment has been entered against
Willis Faber;
(b) a declaratory judgment, which Willis Corroon will explicitly
have the right to appeal, has been entered against Stewart Smith;
(c) payment of $3.5 million has been made, L1 million of which
has been funded by the Company in respect of the deductible applicable
under the pertinent errors and omissions insurance policy described
below, and the balance of which has been funded by Willis Corroon's
errors and omissions insurer; and
(d) Hughes Aircraft has agreed that it may recover no more than
L13 million against both Willis Faber and Stewart Smith for toxic tort
claims, known or unknown, relating to any of the Hughes Aircraft sites.
Willis Corroon expects a final, definitive settlement agreement to be
executed in the near future. Willis Corroon has an errors and omissions
insurance policy with limits of L20 million, which have been eroded to some
extent by the expenses of defending this litigation to date, and a L1 million
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<PAGE>
deductible. Willis Corroon believes that its errors and omissions insurer, into
which this risk has been reinsured and which has assumed and controlled the
defense of this litigation, is obligated to pay under this policy in response to
any claims submitted and properly established by Hughes Aircraft, up to the
agreed-upon L13 million cap described above.
BACCALA & SHOOP. Prior to 1984, Baccala and Shoop Insurance Services,
a subsidiary of Willis Corroon Group, acted as managing general agent for
certain insurance issuing companies, including three subsidiaries of The
Hartford Financial Services Group, Inc. Since Baccala and Shoop ceased active
operations in 1983, issuing companies (including Hartford) have notified Baccala
and Shoop of potential errors and omissions claims against Baccala and Shoop. In
August 1987, Baccala and Shoop, the Issuer and Hartford entered into a
Standstill Agreement, amended in 1994, pursuant to which the statutes of
limitations on Hartford's claims against Baccala and Shoop were tolled
indefinitely in exchange for Hartford's agreement to forbear filing complaints
against Baccala and Shoop based on such potential claims. Since 1983, Willis
Corroon has paid approximately $7.9 million in settlement of errors and
omissions claims brought by certain other issuing companies, including issuing
companies that went into liquidation. There has been no notification of
additional potential claims from Hartford or other issuing companies since 1992.
Hartford has not stated what it believes to be its total aggregate losses
potentially attributable to Baccala and Shoop. For accounting purposes, the
Issuer has established provisions in connection with the Baccala and
Shoop-related claims, and believes such provisions to be adequate. However,
there can be no assurance that the provisions will be adequate to cover claims
over time.
ENFORCEABILITY OF CIVIL LIABILITIES
Willis Corroon Group is a company with limited liability organized
under the laws of England and Wales. Certain of the directors and executive
officers of Willis Corroon Group and its subsidiaries, and certain of the
independent auditors named in this prospectus, are non-residents of the United
States and all or a substantial portion of the assets of Willis Corroon Group
and such persons are located outside the United States. As a result, it may not
be possible for investors to effect service of process within the United States
upon Willis Corroon Group or such persons, or to enforce against any of them
judgments of U.S. courts predicated upon civil liabilities under U.S. federal
securities laws. Willis Corroon Group has been advised by its English
solicitors, Clifford Chance, that there is also doubt as to the enforceability
in England in original actions, or in actions for the enforcement of judgments
of U.S. courts, of liabilities that are predicated upon the civil liabilities
provisions of the federal securities laws of the United States.
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<PAGE>
MANAGEMENT
DIRECTORS OF TA I LIMITED, TA II LIMITED, TA III PLC AND TRINITY ACQUISITION
The following table sets forth certain information regarding the
directors of TA I Limited, the ultimate parent of Willis Corroon Group, as well
as TA II Limited, TA III plc and Trinity Acquisition (ages as of December 31,
1998).
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------ ------------------ ------------------------------------
<S> <C> <C>
Henry R. Kravis 55 Director
George R. Roberts 55 Director
Perry Golkin 45 Director
Todd A. Fisher 33 Director
Scott C. Nuttall 26 Director
John Reeve 54 Director
James R. Fisher 43 Director
Raymond G. Viault 54 Director
</TABLE>
Henry R. Kravis is a founding partner of KKR and, since January 1,
1996, has been a managing member of KKR & Co. L.L.C., the limited liability
company which is the general partner of Kohlberg Kravis Roberts & Co. L.P. Mr.
Kravis is also a general partner of KKR Associates, L.P. and a director of
Accuride Corporation, Amphenol Corporation, Borden, Inc., The Boyds Collection,
Ltd., BRW Acquisition, Inc., Evenflo Company, Inc., The Gillette Company, IDEX
Corporation, KinderCare Learning Centers, Inc., KSL Recreation Corporation,
MedCath Incorporated, Neway Anchorlok International Inc., Owens-Illinois, Inc.,
PRIMEDIA, Inc., Randalls Food Markets, Inc., Regal Cinemas, Inc., Safeway Inc.,
Sotheby's Holdings, Inc., Spalding Holdings Corporation, TI Group plc and U.S.
Natural Resources, Inc.
George R. Roberts is a founding partner of Kohlberg Kravis Roberts &
Co. L.P. and, since January 1, 1996, has been a managing member of KKR & Co.
L.L.C. Mr. Roberts is also a general partner of KKR Associates, L.P. and a
director of Accuride Corporation, Amphenol Corporation, Borden, Inc., The Boyds
Collection, Ltd., BRW Acquisition, Inc., Evenflo Company, Inc., IDEX
Corporation, KinderCare Learning Centers, Inc., KSL Recreation Corporation,
MedCath Incorporated, Neway Anchorlok International Inc., Owens-Illinois Group,
Inc., Owens-Illinois, Inc., PRIMEDIA, Inc., Randalls Food Markets, Inc., Regal
Cinemas, Inc., Safeway Inc., Spalding Holdings Corporation and U.S. Natural
Resources, Inc.
Perry Golkin has been a member of KKR & Co. L.L.C. since January 1,
1996. Mr. Golkin was a general partner of Kohlberg Kravis Roberts & Co. L.P.
from 1995 to January 1996. Prior to 1995, he was an executive of Kohlberg Kravis
Roberts & Co. L.P. He is a general partner of KKR Associates, L.P. He is a
member of the board of directors of BRW Acquisition, Inc., PRIMEDIA, Inc., RR
Holding Company Ltd. and Walter Industries, Inc.
Todd A. Fisher has been an executive of Kohlberg Kravis Roberts & Co.
L.P. since June 1993. Mr. Fisher was an associate at Goldman Sachs & Co. from
July 1992 to June 1993. He is a member of the board of directors of Accuride
Corporation, Layne Christensen Company and BRW Acquisition, Inc.
Scott C. Nuttall has been an executive of Kohlberg Kravis Roberts & Co.
L.P. since November 1996. Mr. Nuttall was an executive at The Blackstone Group
from January 1995 to November 1996. Prior to 1995, he attended the Wharton
School of Business at the University of Pennsylvania.
John Reeve joined the board of directors of Willis Corroon Group on
September 19, 1995 and became Executive Chairman of Willis Corroon Group on
December 1, 1995. He was managing director of Sun Life Corporation plc between
April 1989 and October 1995. He is also a non-executive director of
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<PAGE>
Temple Bar Investment Trust plc and a member of the executive committee and
board of directors of the International Insurance Society, Inc.
James R. Fisher heads Fisher Capital Corp. LLC. From 1986 through March
1997, Mr. Fisher was a senior executive of American Re Corporation and served
most recently as Senior Vice President and Chief Financial Officer of American
Re-Insurance Company and America Re Corporation, President of American Re
Financial Products, and President and Chief Executive Officer of American Re
Asset Management.
Raymond G. Viault joined the board of directors of Willis Corroon Group
on January 1, 1997 and resigned on October 30, 1998. He has been vice chairman
and a director of General Mills, Inc., since January 1996. He was formerly the
president and chief executive officer of Kraft Jacobs Suchard.
TA I Limited, TA II Limited, TA III plc and Trinity Acquisition have no
executive officers. Mr. Kravis and Mr. Roberts are first cousins.
DIRECTORS AND EXECUTIVE OFFICERS OF WILLIS CORROON GROUP
The following table sets forth certain information regarding the
directors and executive officers of Willis Corroon Group (ages as of December
31, 1998).
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ----------- ----------------------------------------------------------------------
<S> <C> <C>
John Reeve 54 Executive Chairman; Director
Richard J. S. Bucknall 50 Chief Executive of Global Specialties (excluding
Willis Faber Re), also Executive responsible for discontinued U.K.
underwriting activities; Director
Michael P. Chitty 47 Company Secretary
Thomas Colraine 40 Group Finance Director; Director
Brian D. Johnson 56 Executive responsible for North American Retail;
Director
Patrick Lucas 59 Managing Partner of Gras Savoye; Non-executive Director
George F. Nixon 58 Chairman of U.K. Retail and Executive
responsible for Willis Corroon International
Holdings-Europe; Director
John M. Pelly 45 Chairman of Willis Faber Re; Director
Kenneth H. Pinkston 56 Group Executive Director responsible for
North American Retail, U.S. Wholesale, Asia-Pacific
and rest of the world; Director
</TABLE>
Richard J.S. Bucknall joined the board of directors of Willis Corroon
Group on November 1, 1998. He has been chief executive of Willis Corroon's
Global Specialties unit since 1998 and has also been the executive responsible
for discontinued U.K. underwriting since 1998. Mr. Bucknall has 32 years of
experience in the insurance brokerage industry, of which 13 years have been at
Willis Corroon.
Michael P. Chitty has been Company Secretary since January 1, 1995.
From April 1983 to October 1990 he was Secretary and from October 1990 to
December 1994 he was Joint Secretary. Mr. Chitty has 22 years of experience in
the insurance brokerage industry, all 22 years of which have been at Willis
Corroon.
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<PAGE>
Thomas Colraine has been the Group Finance Director since September
1997 and joined the board of directors of Willis Corroon Group on August 31,
1997. From January 1995 to October 1996, he was chief financial officer of
Willis Corroon's North American Operations and was change program director from
October 1996 to September 1997. Mr. Colraine has 10 years of experience in the
insurance brokerage industry, all 10 years of which have been at Willis Corroon.
Brian D. Johnson joined the board of directors of Willis Corroon Group
on January 1, 1993. He is an actuary and has been the executive responsible for
Willis Corroon's North American retail activities since 1997. Mr. Johnson has 35
years of experience in the insurance brokerage industry, of which 33 years have
been at Willis Corroon.
Patrick Lucas joined the board of directors of Willis Corroon Group on
April 15, 1998 as a non-executive director. He has been Managing Partner of Gras
Savoye since 1991, and Chairman and Chief Executive Officer of Gras Savoye S.A.
and Gras Savoye Reassurance since 1979 and 1976 respectively. He is a former
Chairman of the Federation Francaise des Courtiers en Assurance (the French
professional organization of insurance brokers). Mr. Lucas has 33 years of
experience in the insurance brokerage industry.
George F. Nixon joined the board of directors of Willis Corroon Group
on January 1, 1993. He has been the executive responsible for Willis Corroon's
U.K. retail activities since 1988 and has been chairman of the Company's
European Retail Advisory Board since 1993. He is also a director of World
Insurance Network Limited. Mr. Nixon has 42 years of experience in the insurance
brokerage industry, of which 34 years have been at Willis Corroon.
John M. Pelly joined the board of directors of Willis Corroon Group on
November 1, 1998. He has been chairman and chief executive of Willis Faber Re
since 1997. Mr. Pelly has 26 years of experience in the insurance brokerage
industry, all 26 years of which have been at Willis Corroon.
Kenneth H. Pinkston joined the board of directors of Willis Corroon
Group on January 1, 1993. He has had executive overview responsibility for North
American Retail since 1995, for U.S. Wholesale since 1993 and for Asia-Pacific
and the rest of the world since 1997. He is also a director of SunTrust Bank,
Nashville. Mr. Pinkston has 35 years of experience in the insurance brokerage
industry, of which 27 years have been at Willis Corroon.
DIRECTORS AND EXECUTIVE OFFICERS OF WILLIS CORROON CORPORATION
The following table sets forth certain information regarding the
directors and executive officers of Willis Corroon Corporation (ages as of
December 31, 1998).
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ----------- ----------------------------------------------------------------------
<S> <C> <C>
Kenneth H. Pinkston 56 Group Executive Director responsible for North American
Retail, U.S. Wholesale, Asia-Pacific and rest of the world;
Director;
Brian D. Johnson 56 Executive responsible for North American Retail; Director
Charles D. Hamilton 43 Senior Vice President, Director of Finance and
Administration; Director
Bart R. Schwartz 46 Senior Vice President, Corporate Secretary and General
Counsel; Director
Kimberly G. Windrow 41 Senior Vice President, Director of Human Resources,
North America; Director
</TABLE>
91
<PAGE>
Charles D. Hamilton joined Willis Corroon Corporation on October 27,
1986 as a risk management consultant. On January 1, 1989 he became Vice
President and Chief Financial Officer of Public Entities National Company and
Willis Corroon Corporation's US wholesale operation. He became Vice President
and Chief Administrative Officer of Willis Corroon Corporation in March 1995. He
became Senior Vice President and Chief Financial Officer of Willis Corroon
Corporation on October 1, 1996 and on February 2, 1997 he became Senior Vice
President and Chief Financial Officer of Willis Corroon North America.
Bart R. Schwartz joined Willis Corroon Corporation on July 25, 1994 as
Senior Vice President and Deputy General Counsel. On January 1, 1995 he became
Senior Vice President of Willis Corroon Corporation and Assistant Secretary of
Willis Corroon Group. On May 21, 1996 he became Senior Vice President, Secretary
and General Counsel of Willis Corroon Corporation, a position he still holds.
Kimberly G. Windrow joined Willis Corroon Corporation on June 6, 1988
as Human Resource Manager. On January 1, 1992 she became Employee Relations
Manager. On May 21, 1996, she became Human Resource Services Director. On
October 1, 1997 she became Human Resource Director and on January 26, 1999, she
became Senior Vice President for Willis Corroon Corporation. She is also a
director of Willis Corroon Corporation.
DIRECTORS AND EXECUTIVE OFFICERS OF WILLIS CORROON PARTNERS
Willis Corroon Partners has no directors or executive officers, and its
operations are managed solely by its general partners.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF WILLIS CORROON GROUP AND
WILLIS CORROON CORPORATION
The aggregate compensation paid to all directors and executive officers
of Willis Corroon Group and Willis Corroon Corporation, who held office during
1998, for services in such capacities for the year ended December 31, 1998 was
L3,078,862, which included contributions made to the pension plans in respect of
such directors and executive officers of Willis Corroon Group and Willis Corroon
Corporation of L564,621. For the year ended December 31, 1998, the highest paid
director received L744,472, including pension plan contributions of
approximately L220,000.
Each non-executive director of Willis Corroon Group who is not an
employee of Willis Corroon received an aggregate annual fee of either L21,000 or
$39,000, payable in quarterly installments, for the year ended December 31,
1998. Also, such directors receive attendance fees of L500 or $925 for committee
meetings of Willis Corroon Group's board (L1,000 or $1,600 if they are Chairman
of the committee) and a daily travel allowance of L650 or $1,000 for attending
meetings of the board or its committees outside their country of residence.
Directors who are also employees of Willis Corroon receive no remuneration for
serving as directors.
The compensation and other employment terms and conditions of the
directors of Willis Corroon Group was determined in 1998 by the remuneration
committee of Willis Corroon Group's board of directors which during 1998 was
comprised of Messrs. Rodgers, Schreyer and Sykes (all former non-executive
directors). The remuneration committee determined basic salaries and benefits as
well as performance-related incentives. The Executive Chairman of Willis Corroon
Group determines the compensation and benefits for the executive officers of
Willis Corroon Group.
Partners and employees of Kohlberg Kravis Roberts & Co. L.P. who serve
as directors and officers of TA I Limited, TA II Limited, TA III plc or Trinity
Acquisition do not receive additional
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<PAGE>
compensation for service in such capacities, other than customary directors'
fees. See "Certain Relationships and Related Transactions."
1998 STOCK OPTION PLAN
TA I Limited has adopted the 1998 Share Purchase and Option Plan for
Key Employees of TA I Limited providing for the grant of time-based vesting
options, performance-based vesting options, and various other share-based grants
to employees of TA I Limited and its subsidiaries to purchase ordinary shares of
TA I Limited. The 1998 Plan is intended (i) to promote the long term financial
interests and growth of TA I Limited and its subsidiaries by attracting and
retaining management personnel with the training, experience and ability to
enable them to make a substantial contribution to the success of TA I Limited's
business; (ii) to motivate management personnel by means of growth-related
incentives to achieve long range goals; and (iii) to further the alignment of
interests of participants with those of the shareholders of TA I Limited through
opportunities for increased share ownership in TA I Limited.
As of the closing date of the management equity offering, 10,988,483
time- and performance-based options have been granted. There are 30 million
ordinary shares of TA I Limited available to be granted under the 1998 Plan. It
is expected that under the 1998 Plan, unless otherwise provided by the Board of
Directors of TA I Limited, time-based options would become exercisable in five
equal annual installments beginning on the second anniversary of the date of
grant and performance-based options would become exercisable to the extent, if
any, that performance goals based on Willis Corroon's cash flow and EBITDA are
achieved and thereafter in four equal annual installments, beginning on the
third anniversary of the date of grant. The exercisability of the options may
accelerate or terminate based on the circumstances surrounding an optionee's
termination of employment, and time-based options will (and performance-based
options may, in the discretion of the Board of Directors of TA I Limited), fully
accelerate upon a change in control of Willis Corroon. Unless sooner terminated
by TA I Limited's Board of Directors, the 1998 Plan will expire ten years after
its adoption. Such termination will not affect the validity of any grant
outstanding on the date of termination.
The Board of Directors of TA I Limited will administer the 1998 Plan,
including, without limitation, the determination of the employees to whom grants
will be made, the number of shares of ordinary shares of TA I Limited subject to
each grant, and the various terms of such grants. The Board of Directors of TA I
Limited may from time to time amend the terms of any grant, but, except for
adjustments made upon a change in the ordinary shares of TA I Limited by reason
of a stock split, spin-off, stock dividend, stock combination or
reclassification, recapitalization, reorganization, consolidation, change of
control, or similar event, such action shall not adversely affect the rights of
any participant under the 1998 Plan with respect to the options without such
participant's consent. The Board of Directors of TA I Limited will retain the
right to amend, suspend or terminate the 1998 Plan.
93
<PAGE>
SHAREHOLDERS
BENEFICIAL OWNERSHIP
TA I Limited owns 100% of the issued and outstanding ordinary shares of
TA II Limited, which owns 100% of the issued and outstanding shares of TA III
plc, which owns 100% of the issued and outstanding shares of Trinity
Acquisition, which owns 100% of the issued and outstanding ordinary shares of
Willis Corroon Group. The following sets forth information with respect to the
beneficial ownership of the voting and non-voting ordinary shares of TA I
Limited as of the date of this prospectus (without giving effect to any options
issued under the 1998 Plan) by (1) each person who is known by Willis Corroon
Group to beneficially own more than 5% of the TA I Limited ordinary shares, as
well as each member of the consortium, consisting of Guardian Royal Exchange,
Royal & SunAlliance Insurance Group, The Chubb Corporation, The Hartford
Financial Services Group, Inc., Travelers Property Casualty Corp. and The Tokio
Marine and Fire Insurance Co., Limited, who are the limited partners of the
direct parent of TA I Limited (referred to in this prospectus as the
consortium), (2) each of TA I Limited's directors and each of the directors and
executive officers of Willis Corroon Group and Willis Corroon Corporation and
(3) all directors and executive officers of Willis Corroon Group and Willis
Corroon Corporation as a group.
Unless otherwise indicated, the address of each person named in the
table below is Willis Corroon Group Limited, Ten Trinity Square, London EC3P
3AX, England. The amounts and percentages of TA I ordinary shares beneficially
owned are reported on the basis of regulations of the Securities and Exchange
Commission governing the determination of beneficial ownership of securities.
Under the rules of the Commission, a person is deemed to be a "beneficial owner"
of a security if that person has or shares "voting power," which includes the
power to vote or to direct the voting of such security, or "investment power,"
which includes the power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities of
which that person has a right to acquire beneficial ownership within 60 days.
Under these rules, more than one person may be deemed to be a beneficial owner
of the same securities and a person may be deemed to be a beneficial owner of
securities as to which such person has no economic interest. The percentage of
TA I ordinary share capital outstanding is based on 119,089,975 TA I ordinary
shares outstanding on the date of this prospectus.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PERCENTAGE OF TA I
OF TA I ORDINARY ORDINARY
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES SHARES OUTSTANDING
- ------------------------------------------------------------- -------------------------- -------------------------
<S> <C> <C>
KKR 1996 Overseas, Limited(1)................................ 92,002,916 77.3%
Henry R. Kravis(1)........................................... 92,002,916 77.3%
George R. Roberts(1)......................................... 92,002,916 77.3%
Perry Golkin(1).............................................. 92,002,916 77.3%
Todd A. Fisher(1)............................................ 92,002,916 77.3%
Scott C. Nuttall(1).......................................... 92,002,916 77.3%
James R. Fisher(2)........................................... -- --
Raymond G. Viault............................................ -- --
Guardian Royal Exchange(3)................................... 4,000,000 3.4%
Royal & SunAlliance Insurance Group(4)....................... 4,000,000 3.4%
The Chubb Corporation(5)..................................... 4,000,000 3.4%
The Hartford Financial Services Group, Inc.(6)............... 3,333,333 2.8%
Travelers Property Casualty Corp.(7)......................... 4,000,000 3.4%
The Tokio Marine and Fire Insurance Co., Limited(8).......... 1,000,000 0.8%
John Reeve(9)................................................ 140,000 *
Richard J.S. Bucknall........................................ 60,000 *
Michael P. Chitty............................................ 12,000 *
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PERCENTAGE OF TA I
OF TA I ORDINARY ORDINARY
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES SHARES OUTSTANDING
- ------------------------------------------------------------- -------------------------- -------------------------
<S> <C> <C>
Thomas Colraine.............................................. 52,375 *
Brian D. Johnson............................................. 100,000 *
Patrick Lucas................................................ -- *
George F. Nixon.............................................. 100,000 *
John M. Pelly................................................ 100,000 *
Kenneth H. Pinkston.......................................... 40,000 *
Charles D. Hamilton(10)...................................... 6,000 *
Bart R. Schwartz(10)......................................... 62,409 *
Kimberly G. Windrow(10)...................................... 2,500 *
All directors and executive officers of Willis Corroon Group
and Willis Corroon Corporation as a group (12 persons)..... 675,284 *
All directors and executive officers of Willis Corroon Group
and Willis Corroon Corporation together with other
employees as a group (358 persons)(11)..................... 4,720,812 4.0%
</TABLE>
- ------------------------
* Less than 1%.
(1) TA I ordinary shares shown as owned by KKR 1996 Overseas, Limited are owned
of record by Profit Sharing (Overseas), Limited Partnership. KKR 1996
Overseas, Limited is the general partner of KKR Associates II (1996),
Limited Partnership, which is the general partner of KKR 1996 Fund
(Overseas), Limited Partnership, which is the general partner of Profit
Sharing (Overseas), Limited Partnership, which beneficially owns
approximately 77% of the issued and outstanding TA I ordinary shares.
Messrs. Henry R. Kravis, George R. Roberts, James H. Greene, Jr., Paul E.
Raether, Michael W. Michelson, Michael T. Tokarz, Perry Golkin, Robert I.
McDonnell, Clifton S. Robbins, Scott M. Stuart and Edward A. Gilhuly, as
owners of KKR 1996 Overseas, Limited, may be deemed to share beneficial
ownership of any shares beneficially owned by KKR 1996 Overseas, Limited but
disclaim such beneficial ownership. Messrs. Todd A. Fisher and Scott C.
Nuttall are directors of TA I Limited and are executives of Kohlberg Kravis
Roberts & Co. L.P. Messrs. Fisher and Nuttall are also limited partners of
KKR Associates II (1996), Limited Partnership. Messrs. Fisher and Nuttall
disclaim beneficial ownership of any TA I ordinary shares beneficially owned
by Kohlberg Kravis Roberts & Co. L.P. and KKR Associates II (1996), Limited
Partnership. The address of KKR 1996 Overseas, Limited and each individual
listed above is c/o Kohlberg Kravis Roberts & Co., L.P., 9 West 57th Street,
New York, New York 10019.
(2) Fisher Capital Corp. LLC, of which Mr. James R. Fisher is an executive, is
the beneficial owner of 181,071 TA I ordinary shares. Mr. Fisher disclaims
beneficial ownership of such TA I ordinary shares. The address of Mr. Fisher
and Fisher Capital Corp. LLC is 8 South River Road, Cranbury, NJ 08512.
(3) TA I ordinary shares shown as owned by Guardian Royal Exchange are owned of
record by its affiliate Guardian Royal Exchange Assurance plc, and its
address is Royal Exchange, London EC2V 3LS.
(4) The address of Royal & SunAlliance Insurance Group is 1 Cornhill, London,
EC3V 3QR.
(5) The address of The Chubb Corporation is 15 Mountain View, Warren, New Jersey
07059.
(6) TA I ordinary shares shown as owned by The Hartford Financial Services
Group, Inc. are owned of record by its affiliate Nutmeg Insurance Company,
and its address is 690 Asylum Avenue, Hartford, Connecticut 06115.
(7) TA I ordinary shares shown as owned by Travelers Property Casualty Corp. are
owned of record by its affiliate Travelers Casualty and Surety Company and
its address is One Tower Square, 10 CR Hartford, Connecticut 06183.
(8) The address of The Tokio Marine and Fire Insurance Co., Limited is West 14th
Floor, Otemachi First Square, 5-1, Otemachi 1-Chome, Chiyoda-ku, Tokyo,
100-0004 Japan.
(9) 120,000 of the 140,000 TA I ordinary shares shown as owned by John Reeve are
held by a family trust of which John Reeve is a beneficiary.
(10) The address for such person is c/o Willis Corroon Corporation, 26 Century
Boulevard, P.O. Box 305026, Nashville, TN 37214.
(11) An additional 1,815,593 TA I ordinary shares are held in trust on behalf of
the directors, executive officers and other employees of Willis Corroon
Corporation and Willis Corroon Group subject to vesting. Such shares were
issued in connection with the cancellation of unvested incentive awards
owned by such employees prior to the tender offer. If all of such TA I
ordinary shares were vested on the date hereof, such directors, executive
officers and employees of Willis Corroon Corporation and Willis Corroon
Group would beneficially own approximately 5.5% of the outstanding TA I
ordinary shares in the aggregate.
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SHAREHOLDER RIGHTS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
Pursuant to a shareholder rights agreement dated as of July 22, 1998
among TA I Limited, TA II Limited, Profit Sharing (Overseas), Limited
Partnership and the members of the consortium referred to above, the holders of
ordinary shares in TA I Limited and preference shares of TA II Limited are
subject to rights of, and restrictions on, transfer, as well as the other
provisions described below.
Pursuant to a shareholder rights agreement, each member of the
consortium has the right to require a proposed acquirer of any of the TA I
Limited ordinary shares held by Profit Sharing (Overseas), Limited Partnership
or any of its affiliates to purchase a specified percentage of such member's
holding of TA I Limited ordinary shares on similar terms. Additionally, if
Profit Sharing (Overseas), Limited Partnership or any of its affiliates receives
a bona fide offer from a third party to purchase a majority of the TA I Limited
ordinary shares then owned by them, they may require each member of the
consortium to sell a similar proportion of their TA I Limited ordinary shares to
such third party on similar terms.
If, at any time prior to a public offering in the U.S. or a listing in
the U.K. or on another major stock exchange of the TA I Limited ordinary shares,
a member of the consortium receives a bona fide offer to purchase any of its TA
I Limited ordinary shares from an offeror, the shareholder rights agreement
requires that such member of the consortium first offer such TA I Limited
ordinary shares on equivalent terms to the other members of the consortium. Any
of the TA I Limited ordinary shares of such member of the consortium which were
the subject of any such bona fide offer and which were not purchased by the
other members of the consortium must be reoffered to those members of the
consortium which exercised their right of first refusal and purchased some of
such shares when such shares were initially offered. No member of the consortium
may, however, accept such offer to the extent it would cause such member
(together with its affiliates) beneficially to own more than 9.9% in aggregate
of the TA I Limited ordinary shares. Any remaining TA I Limited ordinary shares
must then be offered to Profit Sharing (Overseas), Limited Partnership which can
purchase such TA I Limited ordinary shares or elect to find another purchaser
for such TA I Limited ordinary shares. Any TA I Limited ordinary shares not
purchased by Profit Sharing (Overseas), Limited Partnership or its elected
purchaser may be sold to the third party that had initially made the bona fide
offer.
In the event of a transfer from Profit Sharing (Overseas), Limited
Partnership to a third party which would result in Profit Sharing (Overseas),
Limited Partnership and its affiliates having transferred legal and beneficial
ownership of more than 25% but less than 50% of the TA I Limited ordinary shares
subscribed by Profit Sharing (Overseas), Limited Partnership the shareholder
rights agreement requires that a pro rata amount of the preference shares held
by each member of the consortium but not such member's transferees (other than
affiliates) must first have been redeemed or transferred, and if a transfer
would result in Profit Sharing (Overseas), Limited Partnership and its
affiliates having transferred legal and beneficial ownership of more than 50% of
the TA I Limited ordinary shares, all of the preference shares held by each
member of the consortium but not such member's transferees (other than
affiliates) must first have been redeemed.
Under the shareholder rights agreement, prior to September 2, 2000,
none of Profit Sharing (Overseas), Limited Partnership, its affiliates nor TA I
Limited or any of its subsidiaries may enter into a transaction that would
result in a "sale of the business" (as defined in the shareholder rights
agreement) nor may Profit Sharing (Overseas), Limited Partnership and its
affiliates transfer in excess of 50% of the TA I Limited original ordinary
shares, unless the group comprised of TA I Limited, TA II Limited, TA III plc
and Trinity Acquisition is experiencing financial difficulties of the type
described by the shareholder rights agreement and the holders of 60% or more of
the then outstanding preference shares have consented in writing to such
transaction. Additionally, the shareholder rights agreement provides that for
three years from September 2, 2000, if Profit Sharing (Overseas), Limited
Partnership, any of its affiliates or TA I
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Limited or any of its subsidiaries receives a written, unsolicited offer from a
third party to enter into a transaction which would result in a sale of the
business, then the members of the consortium have the right to match the
unsolicited offer, and such offer may not be accepted if any member of the
consortium makes an offer at the same price and on the same terms in writing
within 35 days of being notified of the unsolicited offer. In addition, if
during such period Profit Sharing (Overseas), Limited Partnership or TA I
Limited or any of its subsidiaries proposes to enter into a transaction which
would result in a sale of the business other than pursuant to a unsolicited
offer, it must first allow the members of the consortium to make an offer to
enter into a similar transaction within 30 days, but if Profit Sharing
(Overseas), Limited Partnership or TA I Limited decides to refuse such offer, or
if no member of the consortium makes any such offer, then Profit Sharing
(Overseas), Limited Partnership or TA I Limited or any of its subsidiaries, as
the case may be, will be free to enter into a transaction resulting in a sale of
the business, provided that a definitive agreement is entered into within
specified time periods at the same or a higher price. These provisions will also
apply to the entering into of a transaction or series of related transactions,
whether pursuant to an unsolicited offer or a proposal by Profit Sharing
(Overseas), Limited Partnership or any of its affiliates to enter into such a
transaction, whereby Profit Sharing (Overseas), Limited Partnership and its
affiliates would transfer at least 30% of the then issued TA I Limited ordinary
shares to a single person or a group of persons acting in concert.
The shareholder rights agreement also provides that Profit Sharing
(Overseas), Limited Partnership must use its best efforts to ensure that TA I
Limited has an independent director, and to remove and replace such director if
so requested by the holders of at least 60% of the then outstanding preference
shares, until (1) no member of the consortium owns at least 75% of the
preference shares originally purchased by it and (2) the members of the
consortium collectively own in aggregate less than $80 million in redemption
value of the group comprised of TA I Limited, TA II Limited, TA III plc and
Trinity Acquisition preference shares. In the event that the members of the
consortium have the right to appoint directors to the board of TA II Limited
pursuant to the articles of association of TA II Limited and provided that the
members of the consortium still hold at least a majority of the preference
shares originally issued to them, and for so long as those conditions prevail,
the members of the consortium are also entitled to nominate two directors for
appointment to the board of TA I Limited. In any such event, Profit Sharing
(Overseas), Limited Partnership shall use its best efforts to expand the size of
the board of directors of TA I Limited by two and to cause the newly created
directorships to be filled with such nominees.
Pursuant to a registration rights agreement dated as of July 22, 1998,
as amended, among TA I Limited, TA II Limited and the members of the consortium
named therein, such members, as holders of TA I Limited ordinary shares and
preference shares, have certain rights to require the issuer of such securities
to register such securities under the Securities Act.
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CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
As of the issuance of the outstanding notes, KKR 1996 Fund (Overseas),
Limited Partnership beneficially owned approximately 77% of the share capital of
TA I Limited, which is the parent of TA II Limited, which is the parent of TA
III plc, which is the parent of Trinity Acquisition, which owns all of the
issued and outstanding share capital of Willis Corroon Group. The general
partner of KKR 1996 Fund (Overseas), Limited Partnership is KKR Associates II
(1996), Limited Partnership, a limited partnership of which the general partner
is KKR 1996 Overseas, Limited, a company owned by Messrs. Kravis, Roberts and
Golkin and other members of the limited liability company which is the general
partner of Kohlberg Kravis Roberts & Co. L.P. KKR 1996 Overseas, Limited has
sole voting and investment power with respect to the share capital owned by KKR
1996 Fund (Overseas), Limited Partnership.
From time to time, Kohlberg Kravis Roberts & Co. L.P. may receive
customary fees in connection with divestitures, acquisitions and certain other
transactions involving Willis Corroon Group and its subsidiaries. In connection
with the completion of the tender offer by Trinity Acquisition for Willis
Corroon Group, Kohlberg Kravis Roberts & Co. L.P. has received aggregate fees of
$7.5 million from Trinity Acquisition and Fisher Capital Corp. LLC has received
aggregate fees of $2.0 million from Trinity Acquisition. In addition, Kohlberg
Kravis Roberts & Co. L.P. and Fisher Capital Corp. LLC render management,
consulting, and certain other services to Willis Corroon Group and its
subsidiaries for annual fees payable quarterly in arrears. It is expected that
such annual fees will initially be in an amount of $1 million, in the case of
Kohlberg Kravis Roberts & Co. L.P., and $350,000, in the case of Fisher Capital
Corp. LLC. Partners and employees of Kohlberg Kravis Roberts & Co. L.P. and
Fisher Capital Corp. LLC who also serve as directors and officers of Willis
Corroon Group do not receive additional compensation for service in such
capacity, other than customary directors' fees.
As of the date of this prospectus, the consortium beneficially owned
approximately 17% of the share capital of TA I Limited in the aggregate. Willis
Corroon has, and Willis Corroon will, place premiums with the members of the
consortium in the ordinary course of Willis Corroon's business.
R.J.S. Bucknall, G.F. Nixon and J.M. Pelly (directors of Willis Corroon
Group) and Mrs. E.H. Rendle (an affiliate of M.R. Rendle, a former non-executive
director of Willis Corroon Group) during 1998 were Underwriting Members of
Lloyd's. Insurance brokering subsidiaries of Willis Corroon Group place risks
with the syndicates in which the directors or certain of their affiliates
participate in the normal course of their brokering activities on the same basis
as such subsidiaries do with other Lloyd's syndicates. Willis Corroon Group has
given J. Reeve a guarantee in respect of the performance obligations of Willis
Faber & Dumas Limited, his employing company, in respect of an unfunded pension
scheme established for him and Willis Corroon Group has guaranteed the
performance obligations of Willis Corroon Corporation in respect of the pension
benefits for B.D. Johnson and K.H. Pinkston under the Willis Corroon Executive
Supplemental Plan, an unfunded pension plan.
J. M. Pelly and M. P. Chitty, an executive officer of Willis Corroon
Group, are directors of Sovereign. See "Risk Factors--Sovereign/WFUM."
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DESCRIPTION OF THE SENIOR CREDIT FACILITIES
To provide the senior financing required to complete the tender offer,
Trinity Acquisition entered into a tender offer facility, dated as of July 22,
1998, among Trinity Acquisition, as borrower, the lenders thereunder and The
Chase Manhattan Bank, as administrative agent and collateral agent, providing up
to $475 million in term loans and loan notes. In addition, to provide the
long-term senior financing required to refinance the tender offer facility and
to provide a senior revolving credit facility for the general corporate purposes
of Trinity Acquisition and its subsidiaries, Trinity Acquisition entered into a
second credit agreement, dated as of July 22, 1998, for a permanent credit
facility, among Trinity Acquisition, as guarantor, Willis Corroon Corporation,
as borrower, Willis Corroon Group, as guarantor, the lenders thereunder and The
Chase Manhattan Bank, as administrative agent and collateral agent, providing up
to $450 million in term loans and $150 million in revolving credit facilities.
GENERAL
The credit agreement, as amended, is comprised of a term loan facility
under which portions, or tranches, of the loan mature on four different dates,
and a revolving credit facility in the amounts set forth below:
- a $125 million tranche A facility,
- a $125 million tranche B facility,
- a $100 million tranche C facility,
- a $100 million tranche D facility and
- a $150 million revolving credit facility.
Borrowings under the term loan portions of the credit agreement were borrowed in
full on November 19, 1998
- to refinance outstanding indebtedness under the tender offer facility
agreement and certain other outstanding indebtedness of Trinity
Acquisition,
- to finance the repayment of certain existing indebtedness of Willis
Corroon,
- to make an intercompany loan to Trinity Acquisition, and
- to finance the payment of fees and expenses incurred in connection with
the tender offer.
The revolving credit facility is available for working capital requirements and
general corporate purposes, subject to certain limitations. The revolving credit
facility is available for loans denominated in U.S. dollars, pounds sterling and
certain other currencies and for letters of credit, including to support loan
note guarantees.
AMORTIZATION; PREPAYMENTS
The final maturity of the loans under the tranche A facility will be
the seventh anniversary of November 19, 1998 (the "Initial Funding Date"), with
interim amortization commencing on the thirtieth month after such Initial
Funding Date. The final maturity of the loans under the tranche B facility will
be the eighth anniversary of the Initial Funding Date, with nominal interim
amortization. The final maturity of the loans under the tranche C facility will
be the ninth anniversary of the Initial Funding Date, with nominal interim
amortization. The final maturity of the loans under the tranche D facility
collectively with the other term loans under the credit agreement will be nine
years and six months after the Initial Funding Date, with nominal interim
amortization. The revolving credit facility will be available until the seventh
anniversary of the Initial Funding Date, and extensions of credit outstanding
thereunder on such seventh anniversary will mature on such date.
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Certain mandatory prepayments of term loans under the credit agreement
will be required with the proceeds of certain non-ordinary course asset sales
and other dispositions of property, to the extent not reinvested and subject to
other exceptions, and, for each fiscal year in which the ratio of consolidated
total debt to consolidated adjusted EBITDA, as defined in the credit agreement,
is equal to or greater than 3.0:1.0, 50% of excess cash flow, as defined in the
credit agreement, to the extent not reinvested and subject to other exceptions.
In addition, certain prepayments of the revolving credit facility will be
required in the event that the aggregate dollar equivalent of all loans and
letter of credit outstandings thereunder exceed 105% of the aggregate available
commitments, which are denominated in dollars.
INTEREST RATES; FEES
Loans under the credit agreement bear interest at a rate per annum
equal to, at the applicable borrower's election, either
- a base rate determined by reference to the highest of an announced
prime rate, the U.S. federal funds effective rate plus 1/2% or a rate
for certificates of deposit plus 1% (loans with interest based on the
foregoing being referred to herein as "Base Rate Loans") or
- the cost of funds for U.S. dollar deposits at LIBOR for one, two, three
or six months (or certain other periods to the extent available,
subject to certain conditions) as the applicable borrower may elect,
adjusted for certain additional costs (loans with interest based on the
foregoing being referred to herein as "LIBOR Loans"),
plus, in each case, a margin which will be subject to adjustment depending on
the ratio of consolidated total debt to consolidated adjusted EBITDA from time
to time. The applicable margin for LIBOR Loans under the permanent facility
agreement will range, based on such performance pricing adjustments, from 2.25%
to 0.875%, in the case of revolving credit loans and tranche A loans, from 2.50%
to 1.75%, in the case of tranche B loans, from 2.75% to 2.00%, in the case of
tranche C loans, and from 3.00% to 2.25%, in the case of tranche D loans, in
each with applicable margins for Base Rate Loans being 1.25% lower than the
margins for LIBOR Loans at the corresponding performance pricing levels.
A commitment fee calculated based on the available unused commitments
under the credit agreement is payable quarterly in arrears at a per annum rate
of 0.50%, subject, in the case of commitments under the revolving credit
facility, to adjustment in a range from 0.50% to 0.25% depending on the ratio of
consolidated total debt to consolidated adjusted EBITDA from time to time.
Fees in respect of letters of credit or loan note guarantees are
calculated at a rate per annum equal to
- in the case of letters of credit, the applicable margin for LIBOR Loans
then applicable to utilizations under the revolving credit facility,
less 0.25%, and
- in the case of loan note guarantees, 2.25%,
based on the maximum amount of each letter of credit or loan note guarantee,
payable quarterly in arrears and upon the termination of the revolving credit
facility. In addition, a fronting fee calculated at a rate equal to 0.25% of the
maximum amount of each letter of credit or loan note guarantee is payable for
the account of the issuing bank in respect thereof, payable quarterly in arrears
and upon the termination of the revolving credit facility.
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GUARANTEE; SECURITY
All obligations of the borrower under the credit agreement are
guaranteed by Trinity Acquisition and its U.K. and U.S. subsidiaries, including
Willis Corroon Group, with certain exceptions.
Obligations under the credit agreement are secured by a pledge of
capital stock of certain subsidiaries of Trinity Acquisition, including capital
stock of Willis Corroon Group, its direct subsidiaries (with certain
exceptions), Willis Corroon Corporation and its direct U.S. subsidiaries, the
partnership interests of Willis Corroon Partners, as well as, in some
circumstances, certain intercompany notes and certain non-cash proceeds of asset
sales, in each case subject to exceptions and conditions set forth in the credit
agreement. The pledge of stock owned by Willis Corroon Group is supported by a
general lien, known as a floating charge in the U.K., filed in the U.K. against
Willis Corroon Group's assets.
CERTAIN COVENANTS
The credit agreement contains numerous operating and financial
covenants, including, without limitation, requirements in the case of the credit
agreement to maintain minimum ratios of adjusted EBITDA to interest and maximum
levels of indebtedness in relation to adjusted EBITDA. In addition, the credit
agreement includes covenants relating to the delivery of financial statements,
reports and notices, limitations on liens, limitations on sales and other
disposals of assets, limitations on indebtedness and other liabilities,
limitations on capital expenditures, limitations on investments, mergers,
acquisitions, loans and advances, limitations on dividends and other
distributions, limitations on prepayment, redemption or amendment of the notes,
maintenance of property, environmental matters, employee benefit matters,
maintenance of insurance, nature of business, compliance with applicable laws,
corporate existence and rights, payment of taxes and access to information and
properties.
EVENTS OF DEFAULT
The credit agreement contains events of default after expiration of
applicable grace periods, including failure to make payments under the credit
agreement, breach of covenants, breach of representations and warranties,
certain events relating to employee benefit plans, invalidity of certain loan
documents, default under other agreements or conditions relating to
indebtedness, including the notes, certain events of liquidation, moratorium,
insolvency, bankruptcy or similar events, certain litigation or other
proceedings, certain events relating to changes in control and certain issuances
by TA II Limited of equity or debt securities.
Upon the occurrence of an event of default, the banks will be able to
terminate the commitments under the credit agreement, and declare all amounts,
including accrued interest, under the credit agreement to be due and payable and
take certain other actions, including enforcement of rights in respect of the
collateral securing the credit agreement.
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DESCRIPTION OF PREFERENCE SHARES
In connection with the tender offer by Trinity Acquisition for the
outstanding shares of Willis Corroon Group, six of the world's leading insurance
companies invested in the preference shares of TA II Limited. See "The Tender
Offer and Related Financings."
The preference shares have an aggregate liquidation preference of
approximately $270 million and carry the right to a cumulative dividend of 8.5%
per annum, excluding the amount of any associated tax credits, on a fixed amount
of $25 per preference share. TA II Limited has the option to satisfy 1% per
annum of this cumulative dividend by the issuance of additional preference
shares. The dividend is payable in dollars semi-annually on June 30 and December
31 of each year with the first dividend being payable on June 30, 1999. If the
cash dividend has not been paid on three or more consecutive dividend payment
dates, the holders of the preference shares have the right to appoint two
directors to the board of TA II Limited. The preference shares may be redeemed
at any time by TA II Limited by payment of a fixed amount of $25 per share plus
any accrued and unpaid dividends. The preference shares are required to be
redeemed in full by payment of a fixed amount of $25 per share plus any accrued
and unpaid dividends on the earlier of
- the thirteenth anniversary of the first date on which the preference
shares were issued and
- the date that is six months after the scheduled maturity date of the
notes,
or on the sale of all or substantially all of the business of Willis Corroon,
including, without limitation, whether in a single transaction or series of
transactions and whether by sale of shares, sale of assets or otherwise. Holders
of preference shares have a preferential right to receive out of surplus assets
arrears and accruals of dividends and $25 per share, but do not have any further
right to participate in surplus assets.
The following is a brief description of each of the members of the
consortium:
GUARDIAN ROYAL EXCHANGE provides general, health, and life insurance
and related services, including asset management, to its 7.5 million customers
worldwide. Net premium income in 1998 was L4.1 billion. Guardian Royal Exchange
has approximately 17,500 employees. The board of Guardian Royal Exchange has
recommended to shareholders a cash and share offer from Sun Life and Provincial
Holdings plc for the entire company.
ROYAL & SUNALLIANCE INSURANCE GROUP is the U.K.'s largest general
insurer, with 1998 net premium income exceeding L9.7 billion. Royal &
SunAlliance Insurance Group provides general and life insurance products and
services and asset management and administrative services. In addition to the
U.K., Royal & SunAlliance Insurance Group operates in the United States, Canada,
Scandinavia, and more than 100 countries worldwide, including 16 nations in
Europe.
THE CHUBB CORPORATION is a global leader in providing business and
personal property and liability insurance. The company concentrates on specialty
commercial lines and insuring high value homes and their contents. Founded in
1882, Chubb is headquartered in Warren, New Jersey, and has more than 110
offices in 30 countries worldwide. In 1998, Chubb had net written premiums of
$5.5 billion.
THE HARTFORD FINANCIAL SERVICES GROUP, INC. is one of the oldest
insurance and financial services firms in the U.S., with 1998 revenues of $15.0
billion and assets of $150.6 billion. The company is a leading writer of
commercial property and casualty insurance, and is the number one annuity writer
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in the U.S. It is also one of the largest writers of personal automobile and
homeowners insurance through independent agents. The company has 25,000
employees worldwide and offices in 15 countries.
TRAVELERS PROPERTY CASUALTY CORP. is one of the oldest and largest
insurance groups in the U.S. The company writes all forms of property casualty
insurance for businesses and individuals, primarily through independent agents.
Its 1998 net written premiums were approximately $8.1 billion. Travelers
Property Casualty Corp. is headquartered in Hartford, Connecticut and has
approximately 20,000 employees.
THE TOKIO MARINE AND FIRE INSURANCE CO., LIMITED is the largest
casualty insurance firm in Japan, with 1997/8 net premiums of Y1,336.0 billion
($10.1 billion). The company writes marine, fire, casualty, automobile and
allied lines of insurance, principally covering risks in Japan, and also offers
life insurance. The company is headquartered in Tokyo, Japan and has
approximately 13,750 employees.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into an exchange and registration rights agreement with
the initial purchasers of the outstanding notes in which we agreed, under
certain circumstances, to file a registration statement relating to an offer to
exchange the outstanding notes for exchange notes. We also agreed to use our
reasonable best efforts to cause such offer to be consummated within 270 days
following the original issue of the outstanding notes. The exchange notes will
have terms substantially identical to the outstanding notes; except that the
exchange notes will not contain terms with respect to transfer restrictions,
registration rights and additional interest for failure to observe certain
obligations in the registration rights agreement. The outstanding notes were
issued on February 2, 1999.
Under the circumstances set forth below, we will use our reasonable
best efforts to cause the Securities and Exchange Commission to declare
effective a shelf registration statement with respect to the resale of the
outstanding notes and keep the statement effective for up to two years after the
effective date of the shelf registration statement. These circumstances include:
- if any changes in law, Commission rules or regulations or applicable
interpretations thereof by the staff of the Commission do not permit us
to effect the exchange offer as contemplated by the registration rights
agreement;
- if any outstanding notes validly tendered in the exchange offer are not
exchanged for exchange notes within 270 days after the original issue
of the outstanding notes;
- if any initial purchaser of the outstanding notes so requests, but only
with respect to any outstanding notes not eligible to be exchanged for
exchange notes in the exchange offer; or
- if any holder of the outstanding notes notifies us that it is not
permitted to participate in the exchange offer or would not receive
fully tradable exchange notes pursuant to the exchange offer.
If we fail to comply with certain obligations under the registration
rights agreement, we will be required to pay additional interest to holders of
the outstanding notes. Please read the section captioned "Registration Rights
Agreement" for more details regarding the registration rights agreement.
Each holder of outstanding notes that wishes to exchange such
outstanding notes for transferable exchange notes in the exchange offer will be
required to make the following representations:
- any exchange notes will be acquired in the ordinary course of its
business;
- such holder has no arrangement with any person to participate in the
distribution of the exchange notes;
- such holder is not our "affiliate," as defined in Rule 405 of the
Securities Act, or if it is our affiliate, that it will comply with
applicable registration and prospectus delivery requirements of the
Securities Act; and
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- if such holder is a person in the United Kingdom, that its ordinary
activities involve it in acquiring, holding, managing or disposing of
investments, as principal or agent, for the purposes of its business.
RESALE OF EXCHANGE NOTES
Based on interpretations of the Commission staff set forth in no action
letters issued to unrelated third parties, we believe that exchange notes issued
under the exchange offer in exchange for outstanding notes may be offered for
resale, resold and otherwise transferred by any exchange note holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act, if:
- such holder is not an "affiliate" of Willis Corroon within the meaning
of Rule 405 under the Securities Act;
- such exchange notes are acquired in the ordinary course of the holder's
business;
- the holder does not intend to participate in the distribution of such
exchange notes; and
- if such holder is a person in the United Kingdom, that its ordinary
activities involve it in acquiring, holding, managing or disposing of
investments, as principal or agent, for the purposes of its business.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
- cannot rely on the position of the staff of the Commission enunciated
in "Exxon Capital Holdings Corporation" or similar interpretive
letters; and
- must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale
transaction.
This prospectus may be used for an offer to resell, resale or other
retransfer of exchange notes only as specifically set forth in this prospectus.
With regard to broker-dealers, only broker-dealers that acquired the outstanding
notes as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for outstanding notes, where such
outstanding notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
Please read the section captioned "Plan of Distribution" for more details
regarding the transfer of exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal, Willis Corroon Corporation will
accept for exchange any outstanding notes properly tendered and not withdrawn
prior to the expiration date. Willis Corroon Corporation will issue $1,000
principal amount of exchange notes in exchange for each $1,000 principal amount
of outstanding notes surrendered under the exchange offer. Outstanding notes may
be tendered only in integral multiples of $1,000.
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The form and terms of the exchange notes will be substantially
identical to the form and terms of the outstanding notes except the exchange
notes will be registered under the Securities Act, will not bear legends
restricting their transfer and will not provide for any additional interest upon
failure of Willis Corroon to fulfill its obligations under the registration
rights agreement to file, and cause to be effective, a registration statement.
The exchange notes will evidence the same debt as the outstanding notes. The
exchange notes will be issued under and entitled to the benefits of the same
indenture that authorized the issuance of the outstanding notes. Consequently,
both series will be treated as a single class of debt securities under that
indenture. For a description of the indenture, see "Description of the Notes"
below.
The exchange offer is not conditioned upon any minimum aggregate
principal amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $550 million aggregate principal
amount of the outstanding notes are outstanding. This prospectus and the letter
of transmittal are being sent to all registered holders of outstanding notes.
There will be no fixed record date for determining registered holders of
outstanding notes entitled to participate in the exchange offer.
Willis Corroon Corporation intends to conduct the exchange offer in
accordance with the provisions of the registration rights agreement, the
applicable requirements of the Securities Act and the Securities Exchange Act of
1934 and the rules and regulations of the Commission. Outstanding notes that are
not tendered for exchange in the exchange offer will remain outstanding and
continue to accrue interest and will be entitled to the rights and benefits such
holders have under the indenture relating to the outstanding notes and the
registration rights agreement.
Willis Corroon Corporation will be deemed to have accepted for exchange
properly tendered outstanding notes when it has given oral or written notice of
the acceptance to the exchange agent. The exchange agent will act as agent for
the tendering holders for the purposes of receiving the exchange notes from us
and delivering the exchange notes to such holders. Subject to the terms of the
registration rights agreement, Willis Corroon Corporation expressly reserves the
right to amend or terminate the exchange offer, and not to accept for exchange
any outstanding notes not previously accepted for exchange, upon the occurrence
of any of the conditions specified below under the caption "--Certain Conditions
to the Exchange Offer."
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important that you read the section labeled "--Fees and Expenses" below for more
details regarding fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
, 1999, unless in its sole discretion, Willis Corroon Corporation
extends it.
In order to extend the exchange offer, Willis Corroon Corporation will
notify the exchange agent orally or in writing of any extension. Willis Corroon
Corporation will notify the registered holders of outstanding notes of the
extension no later than 9:00 a.m., New York City time, on the business day after
the previously scheduled expiration date.
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Willis Corroon Corporation reserves the right, in its sole discretion:
- to delay accepting for exchange any outstanding notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding notes not previously accepted if any of
the conditions set forth below under "--Certain Conditions to the
Exchange Offer" have not been satisfied, by giving oral or written
notice of such delay, extension or termination to the exchange agent;
or
- subject to the terms of the registration rights agreement, to amend the
terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If Willis Corroon Corporation amends
the exchange offer in a manner that it determines to constitute a material
change, Willis Corroon Corporation will promptly disclose such amendment in a
manner reasonably calculated to inform the holders of outstanding notes of such
amendment.
Without limiting the manner in which the it may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, Willis Corroon Corporation shall have no obligation to
publish, advertise, or otherwise communicate any such public announcement, other
than by making a timely release to a financial news service.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, Willis Corroon
Corporation will not be required to accept for exchange, or exchange any
exchange notes for, any outstanding notes, and Willis Corroon Corporation may
terminate the exchange offer as provided in this prospectus before accepting any
outstanding notes for exchange if in it's reasonable judgment:
- the exchange notes to be received will not be tradeable by the holder,
without restriction under the Securities Act, the Securities Exchange
Act of 1934 and without material restrictions under the blue sky or
securities laws of substantially all of the states of the United
States;
- the exchange offer, or the making of any exchange by a holder of
outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the Commission; or
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in Willis Corroon Corporation's judgment, would reasonably
be expected to impair the ability of Willis Corroon to proceed with the
exchange offer.
In addition, Willis Corroon Corporation will not be obligated to accept
for exchange the outstanding notes of any holder that has not made to it
- the representations described under "--Purpose and Effect of the
Exchange Offer," "--Procedures for Tendering" and "Plan of
Distribution" and
- such other representations as may be reasonably necessary under
applicable Commission rules, regulations or interpretations to make
available to Willis Corroon
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Corporation an appropriate form for registration of the exchange notes
under the Securities Act.
Willis Corroon Corporation expressly reserves the right, at any time or
at various times, to extend the period of time during which the exchange offer
is open. Consequently, it may delay acceptance of any outstanding notes by
giving oral or written notice of such extension to their holders. During any
such extensions, all outstanding notes previously tendered will remain subject
to the exchange offer, and Willis Corroon Corporation may accept them for
exchange. Willis Corroon Corporation will return any outstanding notes that it
does not accept for exchange for any reason without expense to their tendering
holder as promptly as practicable after the expiration or termination of the
exchange offer.
Willis Corroon Corporation expressly reserves the right to amend or
terminate the exchange offer, and to reject for exchange any outstanding notes
not previously accepted for exchange, upon the occurrence of any of the
conditions of the exchange offer specified above. Willis Corroon Corporation
will give oral or written notice of any extension, amendment, non-acceptance or
termination to the holders of the outstanding notes as promptly as practicable.
In the case of any extension, such notice will be issued no later than 9:00
a.m., New York City time, on the business day after the previously scheduled
expiration date.
These conditions are for the sole benefit of Willis Corroon Corporation
and Willis Corroon Corporation may assert them regardless of the circumstances
that may give rise to them or waive them in whole or in part at any or at
various times in its sole discretion. If Willis Corroon Corporation fails at any
time to exercise any of the foregoing rights, this failure will not constitute a
waiver of such right. Each such right will be deemed an ongoing right that
Willis Corroon Corporation may assert at any time or at various times.
In addition, Willis Corroon Corporation will not accept for exchange
any outstanding notes tendered, and will not issue exchange notes in exchange
for any such outstanding notes, if at such time any stop order will be
threatened or in effect with respect to the registration statement of which this
prospectus constitutes a part or the qualification of the indenture under the
Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender such outstanding notes in
the exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of
the letter of transmittal; have the signature on the letter of
transmittal guaranteed if the letter of transmittal so requires; and
mail or deliver such letter of transmittal or facsimile to the exchange
agent prior to the expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
- the exchange agent must receive outstanding notes along with the letter
of transmittal; or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such outstanding notes into the
exchange agent's account at DTC
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according to the procedure for book-entry transfer described below or a
properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the exchange agent must receive any
physical delivery of the letter of transmittal and other required documents at
the address set forth below under "--Exchange Agent" prior to the expiration
date.
The tender by a holder that is not withdrawn prior to the expiration
date will constitute an agreement between such holder and Willis Corroon
Corporation in accordance with the terms and subject to the conditions set forth
in this prospectus and in the letter of transmittal.
The method of delivery of outstanding notes, the letter of transmittal
and all other required documents to the exchange agent is at the holder's
election and risk. Rather than mail these items, Willis Corroon Corporation
recommends that holders use an overnight or hand delivery service. In all cases,
holders should allow sufficient time to assure delivery to the exchange agent
before the expiration date. Holders should not send the letter of transmittal or
outstanding notes to Willis Corroon. Holders may request their respective
brokers, dealers, commercial banks, trust companies or other nominees to effect
the above transactions for them.
Any beneficial owner whose outstanding notes are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact the registered holder promptly and instruct it
to tender on the owner's behalf. If such beneficial owner wishes to tender on
its own behalf, it must, prior to completing and executing the letter of
transmittal and delivering its outstanding notes, either:
- make appropriate arrangements to register ownership of the outstanding
notes in such owner's name; or
- obtain a properly completed bond power from the registered holder of
outstanding notes.
The transfer of registered ownership may take considerable time and may
not be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal
described below must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or another "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act, unless the outstanding notes tendered
pursuant thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of an eligible guarantor institution.
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes listed on the outstanding notes, such
outstanding notes must be endorsed or accompanied by a properly completed bond
power. The bond power must be signed by the registered holder as the registered
holder's name appears on the outstanding notes and an eligible guarantor
institution must guarantee the signature on the bond power.
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If the letter of transmittal or any outstanding notes or bond powers
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the letter of transmittal.
The exchange agent and DTC have confirmed that any financial
institution that is a participant in DTC's system may use DTC's Automated Tender
Offer Program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the outstanding notes to the exchange
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent. The term "agent's message" means a
message transmitted by DTC, received by the exchange agent and forming part of
the book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering outstanding notes that
are the subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of
the letter of transmittal, or, in the case of an agent's message
relating to guaranteed delivery, that such participant has received and
agrees to be bound by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against such participant.
Willis Corroon Corporation will determine in its sole discretion all
questions as to the validity, form, eligibility (including time of receipt),
acceptance of tendered outstanding notes and withdrawal of tendered outstanding
notes. Willis Corroon Corporation's determination will be final and binding.
Willis Corroon Corporation reserves the absolute right to reject any outstanding
notes not properly tendered or any outstanding notes the acceptance of which
would, in the opinion of Willis Corroon Corporation's counsel, be unlawful.
Willis Corroon Corporation also reserves the right to waive any defects,
irregularities or conditions of tender as to particular outstanding notes.
Willis Corroon Corporation's interpretation of the terms and conditions of the
exchange offer, including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of outstanding notes must be cured within such time
as Willis Corroon Corporation shall determine. Although Willis Corroon
Corporation intends to notify holders of defects or irregularities with respect
to tenders of outstanding notes, neither it, the exchange agent nor any other
person will incur any liability for failure to give such notification. Tenders
of outstanding notes will not be deemed made until such defects or
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned to the exchange
agent without cost to the tendering holder, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.
In all cases, Willis Corroon Corporation will issue exchange notes for
outstanding notes that it has accepted for exchange under the exchange offer
only after the exchange agent timely receives:
- outstanding notes or a timely book-entry confirmation of such
outstanding notes into the exchange agent's account at DTC; and
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- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the letter of transmittal, each tendering holder of
outstanding notes will represent to Willis Corroon Corporation that, among other
things:
- any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person or
entity to participate in the distribution of the exchange notes;
- if the holder is not a broker-dealer, that it is not engaged in and
does not intend to engage in the distribution of the exchange notes;
- if the holder is a broker-dealer that will receive exchange notes for
its own account in exchange for outstanding notes that were acquired as
a result of market-making activities, that it will deliver a
prospectus, as required by law, in connection with any resale of such
exchange notes;
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of Willis Corroon or, if the holder is an affiliate, it
will comply with any applicable registration and prospectus delivery
requirements of the Securities Act; and
- if the holder is a person in the United Kingdom, that its ordinary
activities involve it in acquiring, holding, managing or disposing of
investments, as principal or agent, for the purposes of its business.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with
respect to the outstanding notes at DTC for purposes of the exchange offer
promptly after the date of this prospectus; and any financial institution
participating in DTC's system may make book-entry delivery of outstanding notes
by causing DTC to transfer such outstanding notes into the exchange agent's
account at DTC in accordance with DTC's procedures for transfer. Holders of
outstanding notes who are unable to deliver confirmation of the book-entry
tender of their outstanding notes into the exchange agent's account at DTC or
all other documents required by the letter of transmittal to the exchange agent
on or prior to the expiration date must tender their outstanding notes according
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their outstanding notes but whose outstanding
notes are not immediately available or who cannot deliver their outstanding
notes, the letter of transmittal or any other required documents to the exchange
agent or comply with the applicable procedures under DTC's Automated Tender
Offer Program prior to the expiration date may tender if:
- the tender is made through an eligible guarantor institution;
- prior to the expiration date, the exchange agent receives from such
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery (by
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facsimile transmission, mail or hand delivery) or a properly
transmitted agent's message and notice of guaranteed delivery:
- setting forth the name and address of the holder, the
registered number(s) of such outstanding notes and the
principal amount of outstanding notes tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three (3) New York Stock Exchange
trading days after the expiration date, the letter of
transmittal, or a facsimile of the letter of transmittal,
together with the outstanding notes or a book-entry
confirmation, and any other documents required by the letter
of transmittal will be deposited by the eligible guarantor
institution with the exchange agent; and
- the exchange agent receives such properly completed and executed letter
of transmittal, or a facsimile of the letter of transmittal, as well as
all tendered outstanding notes in proper form for transfer or a
book-entry confirmation, and all other documents required by the letter
of transmittal, within three (3) New York Stock Exchange trading days
after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery
will be sent to holders who wish to tender their outstanding notes according to
the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of outstanding
notes may withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice, which may be by
telegram, telex, facsimile transmission or letter, of withdrawal at one
of the addresses set forth below under "--Exchange Agent;" or
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any such notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn;
- identify the outstanding notes to be withdrawn (including the principal
amount of such outstanding notes); and
- where certificates for outstanding notes have been transmitted, specify
the name in which such outstanding notes were registered, if different
from that of the withdrawing holder.
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If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
guarantor institution unless such holder is an eligible guarantor
institution.
If outstanding notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn
outstanding notes and otherwise comply with the procedures of such facility.
Willis Corroon Corporation will determine all questions as to the validity, form
and eligibility, including time of receipt, of such notices, and our
determination shall be final and binding on all parties. Willis Corroon
Corporation will deem any outstanding notes so withdrawn not to have validity
tendered for exchange for purposes of the exchange offer. Any outstanding notes
that have been tendered for exchange but that are not exchanged for any reason
will be returned to their holder without cost to the holder, or, in the case of
outstanding notes tendered by book-entry transfer into the exchange agent's
account at DTC according to the procedures described above, such outstanding
notes will be credited to an account maintained with DTC for outstanding notes,
as soon as practicable after withdrawal, rejection of tender or termination of
the exchange offer. Properly withdrawn outstanding notes may be retendered by
following one of the procedures described under "--Procedures for Tendering"
above at any time on or prior to the expiration date.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent addressed as follows:
<TABLE>
<S> <C>
FOR DELIVERY BY REGISTERED OR CERTIFIED FOR OVERNIGHT DELIVERY ONLY OR BY HAND:
MAIL:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
New York, New York 10286 New York, New York 10286
Attn: Marcia Brown, Attn: Marcia Brown,
Corporate Trust Operations, 7E Corporate Trust Operations, 7E
</TABLE>
BY FACSIMILE TRANSMISSION:
The Bank of New York
(212) 815-4699
Attn: Marcia Brown,
Corporate Trust Operations, 7E
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
Willis Corroon Corporation will bear the expenses of soliciting
tenders. The principal solicitation is being made by mail; however, we may make
additional solicitation by telegraph, telephone or in person by our officers and
regular employees and those of our affiliates.
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We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. Willis Corroon Corporation will, however, pay
the exchange agent reasonable and customary fees for its services and reimburse
it for its related reasonable out-of-pocket expenses.
Willis Corroon Corporation will pay the cash expenses to be incurred in
connection with the exchange offer. The expenses are estimated in the aggregate
to be approximately $ - . They include:
- Commission registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
Willis Corroon Corporation will pay all transfer taxes, if any,
applicable to the exchange of outstanding notes under the exchange offer. The
tendering holder, however, will be required to pay any transfer taxes (whether
imposed on the registered holder or any other person) if:
- certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
- tendered outstanding notes are registered in the name of any person
other than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.
TRANSFER TAXES
Holders who tender their outstanding notes for exchange will not be
required to pay any transfer taxes. However, holders who instruct Willis Corroon
Corporation to register exchange notes in the name of, or request that
outstanding notes not tendered or not accepted in the exchange offer be returned
to, a person other than the registered tendering holder will be required to pay
any applicable transfer tax.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of outstanding notes who do not exchange their outstanding
notes for exchange notes under the exchange offer will remain subject to the
restrictions on transfer of such outstanding notes:
- as set forth in the legend printed on the notes as a consequence of the
issuance of the outstanding notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
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- otherwise set forth in the offering memorandum distributed in
connection with the private offering of the outstanding notes.
In general, you may not offer or sell the outstanding notes unless they
are registered under the Securities Act or the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the outstanding notes under the Securities Act. Based on
interpretations of the Commission staff, exchange notes issued pursuant to the
exchange offer may be offered for resale, resold or otherwise transferred by
their holders, other than any such holder that is our "affiliate" within the
meaning of Rule 405 under the Securities Act, without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holders acquired the exchange notes in the ordinary course of the
holders' business and the holders have no arrangement or understanding with
respect to the distribution of the exchange notes to be acquired in the exchange
offer. Any holder who tenders in the exchange offer for the purpose of
participating in a distribution of the exchange notes:
- cannot rely on the applicable interpretations of the Commission; and
- must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale
transaction.
ACCOUNTING TREATMENT
Willis Corroon Corporation will record the exchange notes in its
accounting records at the same carrying value as the outstanding notes, which is
the aggregate principal amount as reflected in Willis Corroon Corporation's
accounting records on the date of exchange. Accordingly, Willis Corroon
Corporation will not recognize any gain or loss for accounting purposes in
connection with the exchange offer. Willis Corroon Corporation will record the
expenses of the exchange offer as incurred.
OTHER
Participation in the exchange offer is voluntary, and you should
carefully consider whether to accept. You are urged to consult your financial
and tax advisors in making your own decision on what action to take.
Willis Corroon Corporation may in the future seek to acquire untendered
outstanding notes in open market or privately negotiated transactions, through
subsequent exchange offers or otherwise. Willis Corroon Corporation has no
present plans to acquire any outstanding notes that are not tendered in the
exchange offer or to file a registration statement to permit resales of any
untendered outstanding notes.
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DESCRIPTION OF THE NOTES
GENERAL
The outstanding notes were issued and the exchange notes will be issued
under an indenture, dated as of February 2, 1999, between Willis Corroon Group,
Willis Corroon Partners, Willis Corroon Corporation and The Bank of New York, as
trustee, a copy of the form of which has been filed as an exhibit to the
registration statement of which this prospectus is a part. The Indenture is
limited in aggregate principal amount to $550.0 million. Upon the issuance of
the exchange notes, or the effectiveness of a shelf registration statement, the
Indenture will be subject to and governed by the Trust Indenture Act of 1939.
The terms of the notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act. The following summary
of the material provisions of the Indenture does not purport to be complete and
is qualified in its entirety by reference to the provisions of the Indenture,
including the definitions therein of certain terms used below. The definitions
of certain terms used in the following summary are set forth below under
"--Certain Definitions." For purposes of this summary,
- the term "Willis Corroon Group" refers only to Willis Corroon Group
Limited and not to any of its Subsidiaries,
- the term "Willis Corroon Corporation" refers only to Willis Corroon
Corporation and not to any of its Subsidiaries and
- the term "closing date" refers to November 19, 1998, the date on which
a subordinated bridge agreement among Willis Corroon Group, Willis
Corroon Partners, Willis Corroon Corporation, the lenders and the Chase
Manhattan Bank, as administrative agent was executed.
The outstanding notes are and the exchange notes will be general
unsecured obligations of Willis Corroon Corporation and will be subordinated in
right of payment to all existing and future Senior Indebtedness of Willis
Corroon Corporation. As of December 31, 1998, after giving effect to the
offering of the outstanding notes and the recent acquisitions, the aggregate
amount of Willis Corroon Corporation's outstanding Senior Indebtedness would
have been approximately L277.2 million, all of which would have been secured,
and Willis Corroon Corporation would have had no Senior Subordinated
Indebtedness outstanding other than the notes. The Indenture will permit the
incurrence of additional Senior Indebtedness in the future. See "Risk
Factors--Substantial Leverage and Debt Service."
Willis Corroon Group and Willis Corroon Partners, as primary obligors
and not merely as sureties, will jointly and severally irrevocably and
unconditionally guarantee, on a senior subordinated basis, the performance and
full and punctual payment when due, whether at maturity, by acceleration or
otherwise, of all obligations of Willis Corroon Corporation under the Indenture
and the notes, whether for payment of principal of or interest on or liquidated
damages in respect of the notes, expenses, indemnification or otherwise, on the
terms set forth in the Indenture by executing the Indenture.
Sovereign Marine & General Insurance Company Limited, in provisional
liquidation, was an Unrestricted Subsidiary on the date of issuance of the
outstanding notes. Under certain circumstances, Willis Corroon Group will be
able to designate other current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be guarantors or be subject to
any of the restrictive covenants set forth in the Indenture.
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SUBORDINATION
The payment of the Subordinated Note Obligations will be subordinated
in right of payment, as set forth in the Indenture, to the prior payment in full
in cash or cash equivalents of all Senior Indebtedness, whether outstanding on
the date of the Indenture or thereafter incurred. Upon any distribution to
creditors of Willis Corroon Corporation in a liquidation or dissolution of
Willis Corroon Corporation or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to it or its property, an assignment
for the benefit of creditors or any marshalling of its assets and liabilities,
the holders of Senior Indebtedness will be entitled to receive payment in full
in cash or cash equivalents of such Senior Indebtedness and all outstanding
Letter of Credit Obligations will be fully cash collateralized before the
Holders of the notes will be entitled to receive any payment with respect to the
Subordinated Note Obligations, and until all Senior Indebtedness is paid in full
in cash or cash equivalents, any distribution to which the Holders of the notes
would be entitled shall be made to the holders of Senior Indebtedness, except
that Holders of the notes may receive
(1) shares of stock and any debt securities that are
subordinated at least to the same extent as the notes to
(a) Senior Indebtedness and
(b) any securities issued in exchange for Senior
Indebtedness and
(2) payments made from the trusts described under "--Legal
Defeasance and Covenant Defeasance".
Willis Corroon Corporation also may not make any payment upon or in
respect of the Subordinated Note Obligations, except in such subordinated
securities or from the trust described under "--Legal Defeasance and Covenant
Defeasance", if
- a default in the payment of the principal of, premium, if any, or
interest on, or of unreimbursed amounts under drawn letters of credit
or in respect of bankers' acceptances or fees relating to letters of
credit or bankers' acceptances constituting, Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of
grace, a payment default, or
- any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its
maturity without further notice, except such notice as may be required
to effect such acceleration, or the expiration of any applicable grace
periods, a non-payment default, and the Trustee receives a payment
blockage notice with respect to such default from a representative of
holders of such Designated Senior Indebtedness.
Payments on the notes, including any missed payments, may and shall be resumed:
- in the case of a payment default, upon the date on which such default
is cured or waived or shall have ceased to exist or such Designated
Senior Indebtedness shall have been discharged or paid in full in cash
or cash equivalents and all outstanding Letter of Credit Obligations
shall have been fully cash collateralized; and
- in case of a nonpayment default, the earlier of
(x) the date on which such nonpayment default is
cured or waived,
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(y) 179 days after the date on which the applicable
Payment Blockage Notice is received, each such period, the
PAYMENT BLOCKAGE PERIOD, or
(z) the date such payment blockage period shall be
terminated by written notice to the Trustee from the requisite
holders of such Designated Senior Indebtedness necessary to
terminate such period or from their representative.
No new payment blockage period may be commenced until 365 days have elapsed
since the effectiveness of the immediately preceding payment blockage notice.
However, if any payment blockage notice within such 365-day period is given by
or on behalf of any holders of Designated Senior Indebtedness, other than the
agent under the Senior Credit Facilities, the agent under the Senior Credit
Facilities may give another payment blockage notice within such period. In no
event, however, may the total number of days during which any payment blockage
period or periods is in effect exceed 179 days in the aggregate during any 365
consecutive day period. No nonpayment default that existed or was continuing on
the date of delivery of any payment blockage notice to the trustee shall be, or
be made, the basis for a subsequent payment blockage notice unless such default
shall have been cured or waived for a period of not less than 90 days.
If Willis Corroon Corporation fails to make any payment on the notes
when due or within any applicable grace period, whether or not on account of the
payment blockage provision referred to above, such failure would constitute an
Event of Default under the Indenture and would enable the Holders of the notes
to accelerate the maturity of the notes.
The Indenture will further require that Willis Corroon Corporation
promptly notify holders of Senior Indebtedness if payment of the notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the
event of insolvency, bankruptcy, administration, reorganization, receivership or
similar proceedings relating to Willis Corroon Corporation, Holders of the notes
may recover less ratably than creditors of Willis Corroon Corporation who are
holders of Senior Indebtedness. At December 31, 1998, after giving effect to the
offering of the outstanding notes and the recent acquisition, the aggregate
amount of Willis Corroon Corporation's outstanding Senior Indebtedness would
have been approximately $460.1 million (L277.2 million) (excluding unused
commitments), all of which would have been secured and Willis Corroon
Corporation would have had no Senior Subordinated Indebtedness outstanding other
than the notes. Willis Corroon Group and Willis Corroon Partners would have had
no Senior Indebtedness (excluding guarantees in respect of the Senior Credit
Facilities) and no Senior Subordinated Indebtedness (excluding the guarantees).
As of December 31, 1998, Willis Corroon Corporation's subsidiaries had total
liabilities, including payables in respect of insurance broking transactions but
excluding their guarantees under the permanent facility agreement, of L1,103.3
million and Willis Corroon Group's Subsidiaries (other than Willis Corroon
Partners, Willis Corroon Corporation and its subsidiaries) had total
liabilities, including payables in respect of insurance broking transactions but
excluding their guarantees under the permanent facility agreement, of L2,345.0
million. The Indenture permits Willis Corroon Corporation to incur additional
indebtedness, including additional Senior Indebtedness under the Senior Credit
Facilities, subject to certain limitations. Although the Indenture contains
limitations on the amount of additional Indebtedness that Willis Corroon Group
and its Subsidiaries may incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any case, such Indebtedness may be
Senior Indebtedness. See "--Certain Covenants--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock."
"DESIGNATED SENIOR INDEBTEDNESS" means:
- Senior Indebtedness under the Senior Credit Facilities; and
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- any other Senior Indebtedness permitted under the Indenture the
principal amount of which is $25.0 million or more and that has been
designated by Willis Corroon Group as Designated Senior Indebtedness.
"SENIOR INDEBTEDNESS" means:
(1) the Obligations under the Senior Credit Facilities; and
(2) the Obligations under any other Indebtedness permitted to be
incurred by Willis Corroon Corporation under the terms of the Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment
to the notes,
including, with respect to clauses (1) and (2), interest accruing subsequent to
the filing of, or which would have accrued but for the filing of, a petition for
bankruptcy, in accordance with and at the rate specified in the documents
evidencing or governing such Senior Indebtedness, whether or not such interest
is an allowable claim in such bankruptcy proceeding. Notwithstanding anything to
the contrary in the foregoing, Senior Indebtedness will not include:
- any liability for federal, state, local or other taxes owed or owing by
Willis Corroon Corporation;
- any obligation of Willis Corroon Corporation to its direct or indirect
parent corporations or to any of its Subsidiaries;
- any accounts payable or trade liabilities, including obligations in
respect of funds held for the account of third parties, arising in the
ordinary course of business, including guarantees thereof or
instruments evidencing such liabilities, other than obligations in
respect of letters of credit under the Senior Credit Facilities;
- any Indebtedness that is incurred in violation of the Indenture;
- Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to Willis Corroon Corporation;
- any Indebtedness, guarantee or obligation of Willis Corroon Corporation
which is subordinate or junior to any other Indebtedness, guarantee or
obligation of Willis Corroon Corporation;
- Indebtedness evidenced by the notes;
- Indebtedness evidenced by the Group Intercompany Notes or Convertible
Loans; and
- Capital Stock of Willis Corroon Corporation.
"Senior Indebtedness" of Willis Corroon Group or any guarantor of the
notes has a correlative meaning.
"SUBORDINATED NOTE OBLIGATIONS" means any principal of, premium, if
any, and interest on the notes payable pursuant to the terms of the notes or
upon acceleration, together with and including any amounts received upon the
exercise of rights of rescission or other rights of action, including claims for
damages, or otherwise, to the extent relating to the purchase price of the notes
or amounts corresponding to such principal, premium, if any, or interest on the
notes.
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The notes will rank senior in right of payment to all Subordinated
Indebtedness of Willis Corroon Corporation. At the issuance of the outstanding
notes, Willis Corroon Corporation had no Subordinated Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The notes are limited in aggregate principal amount to $550,000,000 and
will mature at par on February 1, 2009. Interest on the notes will accrue at the
rate of 9% per annum and will be payable semi-annually in arrears on February 1
and August 1, commencing on August 1, 1999, to Holders of record on the
immediately preceding January 15 and July 15. Interest on the notes will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of issuance of the outstanding notes. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the notes will be payable at the
office or agency of Willis Corroon Corporation maintained for such purpose
within the City and State of New York or, at the option of Willis Corroon
Corporation, payment of interest may be made by check mailed to the Holders of
the notes at their respective addresses set forth in the register of Holders;
PROVIDED that all payments of principal, premium, if any, and interest with
respect to notes represented by one or more permanent global notes registered in
the name of or held by DTC or its nominee will be made by wire transfer of
immediately available funds to the accounts specified by the Holder or Holders
thereof. Until otherwise designated by Willis Corroon Corporation, Willis
Corroon Corporation's office or agency in New York will be the office of the
trustee maintained for such purpose. The notes will be issued in denominations
of $1,000 and integral multiples thereof. If certificated notes are issued,
Willis Corroon Corporation will appoint Kredietbank S.A. Luxembourgeoise, or
such other Person located in Luxembourg and reasonably acceptable to the
Trustee, as an additional paying and transfer agent. Upon the issuance of
certificated notes, holders of the notes will be able to receive principal,
premium, if any, and interest with respect to the notes and will be able to
transfer certificated notes at the Luxembourg office of such paying and transfer
agent, subject to the right of Willis Corroon Corporation to mail payments in
accordance with the terms of the Indenture.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of
Holders," Willis Corroon Corporation is not required to make mandatory
redemption or sinking fund payments with respect to the notes.
OPTIONAL REDEMPTION
Except as described below, the notes are not redeemable at Willis
Corroon Corporation's option until February 1, 2004. From and after February 1,
2004, Willis Corroon Corporation may redeem the notes, in whole or in part, upon
not less than 30 nor more than 60 days' prior notice published in a leading
newspaper having a general circulation in New York (which is expected to be the
WALL STREET JOURNAL) and, so long as the notes are listed on the Luxembourg
Stock Exchange and the rules of such stock exchange shall so require, a
newspaper having a general circulation in Luxembourg (which is expected to be
the LUXEMBURGER WORT), or, in the case of certificated notes, by being so
published and also mailed by first-class mail to each Holder's registered
address, at the redemption prices (expressed as percentages of principal amount)
set forth below, plus accrued and unpaid interest thereon, if any, to the
applicable redemption date, subject to the right of Holders of record on the
relevant record date to
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receive interest due on the relevant interest payment date, if redeemed during
the twelve-month period beginning on February 1 of each of the years indicated
below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- -------------------------------------------------------------------------- ------------------
<S> <C>
2004...................................................................... 104.500%
2005...................................................................... 103.000%
2006...................................................................... 101.500%
2007 and thereafter....................................................... 100.000%
</TABLE>
In addition, on or prior to February 1, 2002, Willis Corroon
Corporation may, at its option, redeem up to 35% of the aggregate principal
amount of notes issued under the Indenture at a redemption price equal to 109%
of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the redemption date, subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date, with the net proceeds of one or more Equity Offerings of
Willis Corroon Corporation or any direct or indirect parent of Willis Corroon
Corporation to the extent such net proceeds are contributed to Willis Corroon
Corporation, or used to repay to Willis Corroon Corporation amounts outstanding
in respect of the Trinity Intercompany Notes; PROVIDED that at least 65% of the
aggregate principal amount of notes remains outstanding immediately after the
occurrence of each such redemption; PROVIDED FURTHER that each such redemption
occurs within 90 days of the date of closing of each such Equity Offering. The
Trustee shall select the notes to be purchased in the manner described under
"--Repurchase at the Option of Holders--Asset Sales-- Selection and Notice."
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, Willis Corroon Corporation will make an
offer to purchase all of the notes pursuant to the offer described below (the
"CHANGE OF CONTROL OFFER") at a price in cash (the "CHANGE OF CONTROL PAYMENT")
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase, subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date. Within 30 days following any Change of Control, Willis
Corroon Corporation will publish notice of such in a leading newspaper having a
general circulation in New York (which is expected to be the WALL STREET
JOURNAL), and, so long as the notes are listed on the Luxembourg Stock Exchange
and the rules of such stock exchange shall so require, a newspaper having a
general circulation in Luxembourg (which is expected to be the LUXEMBURGER
WORT), or, in the case of certificated notes, mail a notice to each Holder, and
so long as the notes are listed on the Luxembourg Stock Exchange and the rules
of such stock exchange shall so require, will publish notice in a newspaper
having a general circulation in Luxembourg (which is expected to be the
LUXEMBURGER WORT), with a copy to the Trustee, with the following information:
(1) a Change of Control Offer is being made pursuant to the
covenant entitled "CHANGE OF CONTROL," and that all notes properly
tendered pursuant to such Change of Control Offer will be accepted for
payment;
(2) the purchase price and the purchase date, which will be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed (the "CHANGE OF CONTROL PAYMENT DATE");
(3) any note not properly tendered will remain outstanding and
continue to accrue interest;
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(4) unless Willis Corroon Corporation defaults in the payment of
the Change of Control Payment, all notes accepted for payment pursuant to
the Change of Control Offer will cease to accrue interest on the Change
of Control Payment Date;
(5) Holders electing to have any notes purchased pursuant to a
Change of Control Offer will be required to surrender the notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
notes completed, to the paying agent specified in the notice, which, if
certificated notes are issued, will include a paying agent in Luxembourg,
at the address specified in the notice prior to the close of business on
the third business day preceding the Change of Control Payment Date;
(6) Holders will be entitled to withdraw their tendered notes
and their election to require Willis Corroon Corporation to purchase such
notes, PROVIDED that the paying agent, which, if Certificated Notes are
issued, will include a paying agent in Luxembourg, receives, not later
than the close of business on the last day of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the name
of the Holder of the notes, the principal amount of notes tendered for
purchase, and a statement that such Holder is withdrawing his tendered
notes and his election to have such notes purchased; and
(7) that Holders whose notes are being purchased only in part
will be issued new notes equal in principal amount to the unpurchased
portion of the notes surrendered, which unpurchased portion must be equal
to $1,000 in principal amount or an integral multiple thereof.
While the notes are in global form and Willis Corroon Corporation makes
an offer to purchase all of the notes pursuant to the Change of Control Offer, a
Holder may exercise its option to elect for the purchase of the notes through
the facilities of DTC, Euroclear and Cedel, subject to their rules and
regulations.
Prior to complying with the provisions of this covenant, but in any
event within 30 days following a Change of Control, Willis Corroon Corporation
will either repay all its outstanding Senior Indebtedness that prohibits it from
repurchasing notes in a Change of Control Offer or obtain the requisite
consents, if any, under any outstanding Senior Indebtedness in each case
necessary to permit the repurchase of the notes required by this covenant.
Willis Corroon Corporation will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws or regulations are applicable in connection
with the repurchase of the notes pursuant to a Change of Control Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of the Indenture, Willis Corroon Corporation will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations described in the Indenture by virtue thereof.
On the Change of Control Payment Date, Willis Corroon Corporation will,
to the extent permitted by law,
(1) accept for payment all notes or portions thereof properly
tendered pursuant to the Change of Control Offer,
(2) deposit with the paying agent an amount equal to the
aggregate Change of Control Payment in respect of all notes or portions
thereof so tendered and
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(3) deliver, or cause to be delivered, to the Trustee for
cancellation the notes so accepted together with an officers' certificate
stating that such notes or portions thereof have been tendered to and
purchased by Willis Corroon Corporation.
The paying agent will promptly mail to each Holder of the notes the Change of
Control Payment for such notes, and the Trustee will promptly authenticate and
mail to each Holder a new note equal in principal amount to any unpurchased
portion of the notes surrendered, if any, PROVIDED, that each such new note will
be in a principal amount of $1,000 or an integral multiple thereof. Willis
Corroon Corporation will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The Senior Credit Facilities will, and future credit agreements or
other agreements relating to Senior Indebtedness to which Willis Corroon Group
or Willis Corroon Corporation becomes a party may, prohibit Willis Corroon
Corporation from purchasing any notes as a result of a Change of Control and/or
provide that certain change of control events with respect to Willis Corroon
Corporation would constitute a default thereunder. In the event a Change of
Control occurs at a time when Willis Corroon Corporation is prohibited from
purchasing the notes, Willis Corroon Group or Willis Corroon Corporation could
seek the consent of its lenders to permit the purchase of the notes or could
attempt to refinance the borrowings that contain such prohibition. If Willis
Corroon Group or Willis Corroon Corporation does not obtain such a consent or
repay such borrowings, Willis Corroon Corporation will remain prohibited from
purchasing the notes. In such case, Willis Corroon Corporation's failure to
purchase tendered notes would constitute an Event of Default under the
Indenture. If, as a result thereof, a default occurs with respect to any Senior
Indebtedness, the subordination provisions in the Indenture would restrict
payments to the Holders under certain circumstances.
The existence of a Holder's right to require Willis Corroon Corporation
to repurchase such Holder's notes upon the occurrence of a Change of Control may
deter a third party from seeking to acquire Willis Corroon Group or Willis
Corroon Corporation in a transaction that would constitute a Change of Control.
ASSET SALES
The Indenture provides that Willis Corroon Group will not, and will not
permit any Restricted Subsidiary to, cause, make or suffer to exist an Asset
Sale, unless
(1) Willis Corroon Group or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at
least equal to the fair market value (as determined in good faith by
Willis Corroon Group) of the assets sold or otherwise disposed of and
(2) except in the case of Permitted Asset Swap, at least 75% of
the consideration therefor received by Willis Corroon Group or such
Restricted Subsidiary, as the case may be, is in the form of cash or Cash
Equivalents; PROVIDED that the amount of
(a) any liabilities (as shown on Willis Corroon
Group's, or such Restricted Subsidiary's, most recent balance
sheet or in the notes thereto) of Willis Corroon Group or any
Restricted Subsidiary, other than liabilities that are by
their terms subordinated to the notes, that are assumed by the
transferee of any such assets,
(b) any securities received by Willis Corroon Group
or such Restricted Subsidiary from such transferee that are
converted by Willis Corroon Group or
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such Restricted Subsidiary into cash (to the extent of the
cash received) within 180 days following the closing of such
Asset Sale and
(c) any Designated Noncash Consideration received by
Willis Corroon Group or any Restricted Subsidiary in such
Asset Sale having an aggregate fair market value, taken
together with all other Designated Noncash Consideration
received pursuant to this clause (c) that is at that time
outstanding, not to exceed the greater of
(x) $100.0 million or
(y) 10% of Total Revenues at the time of the
receipt of such Designated Noncash Consideration
with the fair market value of each item of Designated Noncash
Consideration being measured at the time received and without giving
effect to subsequent changes in value,
shall be deemed to be cash for purposes of this provision and for no other
purpose.
Within 365 days after Willis Corroon Group's or any Restricted
Subsidiary's receipt of the Net Proceeds of any Asset Sale, Willis Corroon Group
or such Restricted Subsidiary, at its option, may apply the Net Proceeds from
such Asset Sale
(1) to permanently reduce
(x) Obligations under the Senior Credit Facilities,
and to correspondingly reduce commitments with respect
thereto,
(y) other Senior Indebtedness or Senior Subordinated
Indebtedness (and to correspondingly reduce commitments with
respect thereto), PROVIDED that if Willis Corroon Corporation
shall so reduce Obligations under Senior Subordinated
Indebtedness, it will equally and ratably reduce Obligations
under the notes if the notes are then prepayable or, if the
notes may not then be prepaid, Willis Corroon Corporation
shall make an offer (in accordance with the procedures set
forth below for an Asset Sale Offer) to all Holders to
purchase their notes at 100% of the principal amount thereof,
plus the amount of accrued but unpaid interest, if any, on the
amount of notes that would otherwise be prepaid, or
(z) Indebtedness of a Restricted Subsidiary, other
than Indebtedness owed to Willis Corroon Group or another
Restricted Subsidiary,
(2) to an investment in any one or more businesses, PROVIDED
that such investment in any business may be in the form of the
acquisition of Capital Stock so long as it results in Willis Corroon
Group or a Restricted Subsidiary, as the case may be, owning all the
Capital Stock of such business, capital expenditures or acquisitions of
other assets in each case, used or useful in a Similar Business and/or
(3) to an investment in any one or more businesses, PROVIDED
that such investment in any business may be in the form of the
acquisition of Capital Stock so long as it results in Willis Corroon
Group or a Restricted Subsidiary, as the case may be, owning all the
Capital Stock of such business, properties or assets that replace the
businesses, properties and assets that are the subject of such Asset
Sale.
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Any Net Proceeds from the Asset Sale that are not invested or applied as
provided and within the time period set forth in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $15.0 million, Willis Corroon Corporation
shall make an offer to all Holders of the notes (an "ASSET SALE OFFER") to
purchase the maximum principal amount of notes, that is an integral multiple of
$1,000, that may be purchased out of the Excess Proceeds at an offer price in
cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date fixed for the closing of such offer, in
accordance with the procedures set forth in the Indenture. Willis Corroon
Corporation will commence an Asset Sale Offer with respect to Excess Proceeds
within ten business days after the date that Excess Proceeds exceeds $15.0
million by mailing the notice required pursuant to the terms of the Indenture,
with a copy to the Trustee. To the extent that the aggregate amount of notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
Willis Corroon Corporation may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the notes to be purchased in the manner described under "--Selection and Notice"
below. Upon completion of any such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
Pending the final application of any Net Proceeds pursuant to this
covenant, Willis Corroon Group or the applicable Restricted Subsidiary may apply
such Net Proceeds temporarily to reduce Indebtedness outstanding under a
revolving credit facility or otherwise invest such Net Proceeds in Cash
Equivalents or Investment Grade Securities.
Willis Corroon Corporation will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws or regulations are applicable in connection
with the repurchase of the notes pursuant to an Asset Sale Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of the Indenture, Willis Corroon Corporation will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations described in the Indenture by virtue thereof.
The Senior Credit Facilities will, and future credit agreements or
other agreements relating to Senior Indebtedness to which Willis Corroon
Corporation becomes a party may, prohibit Willis Corroon Corporation from
purchasing any notes pursuant to this Asset Sales covenant. In the event Willis
Corroon Corporation is prohibited from purchasing the notes, Willis Corroon
Corporation could seek the consent of its lenders to the purchase of the notes
or could attempt to refinance the borrowings that contain such prohibition. If
Willis Corroon Corporation does not obtain such a consent or repay such
borrowings, it will remain prohibited from purchasing the notes. In such case,
Willis Corroon Corporation's failure to purchase tendered notes would constitute
an Event of Default under the Indenture. If, as a result thereof, a default
occurs with respect to any Senior Indebtedness, the subordination provisions in
the Indenture would restrict payments to the Holders of the notes under certain
circumstances.
SELECTION AND NOTICE. If less than all of the notes are to be redeemed
at any time or if more notes are tendered pursuant to an Asset Sale Offer than
Willis Corroon Corporation is required to purchase, selection of such notes for
redemption or purchase, as the case may be, will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such notes are listed, or, if such notes are not so listed, on
a pro rata basis, by lot or by such other method as the Trustee shall deem fair
and appropriate; PROVIDED that no notes of $1,000 or less shall be purchased or
redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of notes to be purchased or redeemed at such
Holder's registered address. If any note is to be purchased or
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redeemed in part only, any notice of purchase or redemption that relates to such
note shall state the portion of the principal amount thereof that has been or is
to be purchased or redeemed.
A new note in principal amount equal to the unpurchased or unredeemed
portion of any note purchased or redeemed in part will be issued in the name of
the Holder thereof upon cancellation of the original note. On and after the
purchase or redemption date unless Willis Corroon Corporation defaults in
payment of the purchase or redemption price, interest shall cease to accrue on
notes or portions thereof purchased or called for redemption.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. Willis Corroon Group will not, and
will not permit any Restricted Subsidiary to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on
account of Willis Corroon Group's or any Restricted Subsidiary's Equity
Interests, including any dividend or distribution payable in connection
with any merger or consolidation (other than
(A) dividends or distributions by Willis Corroon
Group payable in Equity Interests (other than Disqualified
Stock) of Willis Corroon Group or in options, warrants or
other rights to purchase such Equity Interests or
(B) dividends or distributions by a Restricted
Subsidiary so long as, in the case of any dividend or
distribution payable on or in respect of any class or series
of securities issued by a Subsidiary other than a Wholly Owned
Subsidiary, Willis Corroon Group or a Restricted Subsidiary
receives at least its pro rata share of such dividend or
distribution in accordance with its Equity Interests in such
class or series of securities);
(2) purchase, redeem, defease or otherwise acquire or retire for
value any Equity Interests of Willis Corroon Group or any direct or
indirect parent of Willis Corroon Group;
(3) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value in each case, prior to
any scheduled repayment, or maturity, any Subordinated Indebtedness,
other than
(x) Indebtedness permitted under clauses (g), (h) and
(q) of the covenant described under "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock"
or
(y) the purchase, repurchase or other acquisition of
Subordinated Indebtedness purchased in anticipation of
satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date
of purchase, repurchase or acquisition;
(4) make any Restricted Investment; or
(5) pay any principal of or interest on any Group Intercompany
Note unless such amount is immediately repaid to Willis Corroon Group or
a Restricted Subsidiary in respect of the principal of, or interest on,
any Trinity Intercompany Note or pay any amount in respect of a
Convertible Loan
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(all such payments and other actions set forth in clauses (1) through (5) above
being collectively referred to as "Restricted Payments"), unless, at the time of
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) immediately after giving effect to such transaction on a pro
forma basis, Willis Corroon Group could incur $1.00 of additional
Indebtedness under the provisions of the first paragraph of
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock"; and
(c) such Restricted Payment, together with the aggregate amount
of all other Restricted Payments made by Willis Corroon Group and its
Restricted Subsidiaries after the Closing Date (including Restricted
Payments permitted by clauses (1), (2) (with respect to the payment of
dividends on Refunding Capital Stock pursuant to clause (b) thereof), (4)
(only to the extent that amounts paid pursuant to such clause are greater
than amounts that could have been paid pursuant to such clause if $6
million and $12 million were substituted in such clause for $12.5 million
and $25 million, respectively), (6), (9), (10) and (14) of the next
succeeding paragraph, but excluding all other Restricted Payments
permitted by the next succeeding paragraph), is less than the sum of
(1) 50% of the Consolidated Net Income of Willis
Corroon Group for the period (taken as one accounting period)
from January 1, 1999, to the end of Willis Corroon Group's
most recently ended fiscal quarter for which internal
financial statements are available at the time of such
Restricted Payment, or, in the case such Consolidated Net
Income for such period is a deficit, minus 100% of such
deficit, PLUS
(2) 100% of the aggregate net cash proceeds and the
fair market value, as determined in good faith by the board of
directors, of marketable securities and Qualified Proceeds
received by Willis Corroon Group or Willis Corroon Corporation
since immediately after the Closing Date from the issue or
sale of
(x) Equity Interests of Willis Corroon Group
or Willis Corroon Corporation, including Retired
Capital Stock (as defined below), but excluding cash
proceeds, marketable securities and Qualified
Proceeds received from the sale of
(A) Equity Interests
(a) to members of
management, directors or consultants of
Willis Corroon Group or Willis Corroon
Corporation, any direct or indirect parent
corporation of Willis Corroon Corporation
and Willis Corroon Group's Subsidiaries
after the Closing Date to the extent such
amounts have been applied to Restricted
Payments made in accordance with clause (4)
of the next succeeding paragraph or
(b) pursuant to the
Contribution Agreement and
(B) Designated Preferred Stock
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and, to the extent actually contributed to Willis
Corroon Group or Willis Corroon Corporation, Equity
Interests of Willis Corroon Group's direct or
indirect parent corporations (excluding contributions
of the proceeds from the sale of Designated Preferred
Stock of such corporations) or
(y) debt securities (other than that portion
of the Convertible Loan made with the proceeds of
Interim Refinancing Indebtedness) of Willis Corroon
Group or Willis Corroon Corporation that have been
converted into such Equity Interests of Willis
Corroon Group or Willis Corroon Corporation;
PROVIDED, HOWEVER, that this clause (2) shall not
include the proceeds from Refunding Capital Stock (as
defined below), Equity Interests or convertible debt
securities of Willis Corroon Group or Willis Corroon
Corporation sold to a Restricted Subsidiary or Willis
Corroon Group, as the case may be, Disqualified Stock
or debt securities that have been converted into
Disqualified Stock, PLUS
(3) 100% of the aggregate amount of cash, marketable
securities and Qualified Proceeds contributed to the capital
of Willis Corroon Group or Willis Corroon Corporation
following the Closing Date (other than by a Restricted
Subsidiary or Willis Corroon Group), PLUS
(4) 100% of the aggregate amount received in cash,
the fair market value of marketable securities and Qualified
Proceeds (other than Restricted Investments) received by means
of
(A) the sale or other disposition (other
than to Willis Corroon Group or a Restricted
Subsidiary) of Restricted Investments made by Willis
Corroon Group and its Restricted Subsidiaries and
repurchases and redemptions of such Restricted
Investments from Willis Corroon Group and its
Restricted Subsidiaries and repayments of loans or
advances which constitute Restricted Investments by
Willis Corroon Group and its Restricted Subsidiaries
or
(B) the sale (other than to Willis Corroon
Group or a Restricted Subsidiary) of the stock of an
Unrestricted Subsidiary or a distribution from an
Unrestricted Subsidiary (other than in each case to
the extent the Investment in such Unrestricted
Subsidiary was made by Willis Corroon Group or a
Restricted Subsidiary pursuant to clauses (7) or (11)
below or to the extent such Investment constituted a
Permitted Investment) or a dividend from an
Unrestricted Subsidiary PLUS
(5) in the case of the redesignation of an
Unrestricted Subsidiary as, or an associate becoming, a
Restricted Subsidiary, the fair market value of the Investment
in such Unrestricted Subsidiary or associate, as the case may
be, as determined by the board of directors in good faith or
if, in the case of an Unrestricted Subsidiary, such fair
market value may exceed $25 million, in writing by an
independent investment banking firm of nationally recognized
standing, at the time of the redesignation of such
Unrestricted Subsidiary as a Restricted Subsidiary, other than
an Unrestricted Subsidiary to the extent the Investment in
such Unrestricted Subsidiary or such associate was made by
Willis Corroon
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Group or a Restricted Subsidiary pursuant to clauses (7) or
(11) below or to the extent such Investment constituted a
Permitted Investment.
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would
have complied with the provisions of the Indenture;
(2) (a) the redemption, repurchase, retirement or other
acquisition of any Equity Interests ("RETIRED CAPITAL STOCK") or
Subordinated Indebtedness of Willis Corroon Group, or any Equity
Interests of any direct or indirect parent corporation of Willis
Corroon Group, in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted
Subsidiary or Willis Corroon Group) of, Equity Interests of
Willis Corroon Group or Willis Corroon Corporation (in each
case, other than any Disqualified Stock) ("REFUNDING CAPITAL
STOCK") and
(b) the declaration and payment of dividends on the
Refunding Capital Stock (other than Refunding Capital Stock
the proceeds of which were used to redeem, repurchase, retire
or otherwise acquire any Equity Interests of any direct or
indirect parent corporation of Willis Corroon Group) in an
aggregate amount per year no greater than the aggregate amount
of dividends per annum that was declarable and payable on such
Retired Capital Stock immediately prior to such retirement;
(3) the redemption, repurchase or other acquisition or
retirement of Subordinated Indebtedness of Willis Corroon Group or Willis
Corroon Corporation made by exchange for, or out of the proceeds of the
substantially concurrent sale of, new Indebtedness of Willis Corroon
Group or Willis Corroon Corporation, as the case may be, which is
incurred in compliance with "--Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock" so long as
(A) the principal amount of such new Indebtedness
does not exceed the principal amount of the Subordinated
Indebtedness being so redeemed, repurchased, acquired or
retired for value, PLUS the amount of any premium required to
be paid under the terms of the instrument governing the
Subordinated Indebtedness being so redeemed, repurchased,
acquired or retired,
(B) such Indebtedness is subordinated to Senior
Indebtedness and the notes at least to the same extent as such
Subordinated Indebtedness so purchased, exchanged, redeemed,
repurchased, acquired or retired for value,
(C) such Indebtedness has a final scheduled maturity
date equal to or later than the final scheduled maturity date
of the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired and
(D) such Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the remaining Weighted
Average Life to Maturity of the Subordinated Indebtedness
being so redeemed, repurchased, acquired or retired;
(4) a Restricted Payment to pay for the repurchase, retirement
or other acquisition or retirement for value of common Equity Interests
of Willis Corroon Group, any of its direct or
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indirect parent corporations or Willis Corroon Corporation held by any
future, present or former employee, director or consultant of Willis
Corroon Group, any of its Subsidiaries or any of its direct or indirect
parent corporations pursuant to any management equity plan or stock
option plan or any other management or employee benefit plan or
agreement; PROVIDED, HOWEVER, that the aggregate Restricted Payments made
under this clause (iv) do not exceed in any calendar year $12.5 million
(with unused amounts in any calendar year being carried over to
succeeding calendar years subject to a maximum (without giving effect to
the following proviso) of $25.0 million in any calendar year); PROVIDED
FURTHER that such amount in any calendar year may be increased by an
amount not to exceed
(A) the cash proceeds from the sale of Equity
Interests of Willis Corroon Group, Willis Corroon Corporation
and, to the extent contributed to Willis Corroon Group or
Willis Corroon Corporation, Equity Interests of any of Willis
Corroon Group's direct or indirect parent corporations, in
each case to members of management, directors or consultants
of Willis Corroon Group, any of its Subsidiaries or any of its
direct or indirect parent corporations that occurs after the
Closing Date, to the extent the cash proceeds from the sale of
such Equity Interests have not otherwise been applied to the
payment of Restricted Payments by virtue of clause (c) of the
preceding paragraph, plus
(B) the cash proceeds of key man life insurance
policies received by Willis Corroon Group and its Restricted
Subsidiaries after the Closing Date less
(C) the amount of any Restricted Payments previously
made pursuant to clauses (A) and (B) of this clause (4);
and PROVIDED FURTHER that cancellation of Indebtedness owing to Willis
Corroon Group or Willis Corroon Corporation from members of management of
Willis Corroon Group, any of its direct or indirect parent corporations
or any Restricted Subsidiary in connection with a repurchase of Equity
Interests of Willis Corroon Group, any of its direct or indirect parent
corporations or Willis Corroon Corporation will not be deemed to
constitute a Restricted Payment for purposes of this covenant or any
other provision of the Indenture;
(5) the declaration and payment of dividends to holders of any
class or series of Disqualified Stock of Willis Corroon Group, Willis
Corroon Corporation or any other guarantor issued in accordance with the
covenant described under "--Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock" to the extent such dividends are included
in the definition of Fixed Charges;
(6) (A) the declaration and payment of dividends to
holders of any class or series of Designated Preferred Stock
(other than Disqualified Stock) issued by Willis Corroon Group
or Willis Corroon Corporation after the Closing Date,
(B) the declaration and payment of dividends to a
direct or indirect parent corporation of Willis Corroon Group,
the proceeds of which will be used to fund the payment of
dividends to holders of any class or series of Designated
Preferred Stock (other than Disqualified Stock) of such parent
corporation issued after the Closing Date, PROVIDED that the
amount of dividends paid pursuant to this clause (B) shall not
exceed the aggregate amount of cash actually contributed to
Willis Corroon Group from the sale of such Designated
Preferred Stock, or
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(C) the declaration and payment of dividends on
Refunding Capital Stock in excess of the dividends declarable
and payable thereon pursuant to clause (2); PROVIDED, HOWEVER,
in each case, that for the most recently ended four full
fiscal quarters for which internal financial statements are
available immediately preceding the date of issuance of such
Designated Preferred Stock or the declaration of such
dividends on Refunding Capital Stock, after giving effect to
such issuance or declaration on a pro forma basis, Willis
Corroon Group and its Restricted Subsidiaries would have had a
Fixed Charge Coverage Ratio of at least 2.00 to 1.00;
(7) Investments in Unrestricted Subsidiaries and associates (or
Persons that become associates as a result of such Investments) having an
aggregate fair market value, taken together with all other Investments
made pursuant to this clause (7) that are at that time outstanding,
without giving effect to the sale of an Unrestricted Subsidiary to the
extent the proceeds of such sale do not consist of cash, marketable
securities and/or Qualified Proceeds or do consist of distributions made
pursuant to clause (13) below, not to exceed $25.0 million at the time of
such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value);
(8) repurchases of Equity Interests deemed to occur upon
exercise of stock options if such Equity Interests represent a portion of
the exercise price of such options;
(9) the payment of dividends on Willis Corroon Group's Common
Stock or Willis Corroon Corporation's Common Stock, following the first
public offering of Willis Corroon Group's Common Stock, Willis Corroon
Corporation's Common Stock or the Common Stock of any of its direct or
indirect parent corporations after the Closing Date, of up to 6% per
annum of the net proceeds received by Willis Corroon Group or Willis
Corroon Corporation in such public offering, other than public offerings
with respect to Willis Corroon Group's Common Stock or Willis Corroon
Corporation's Common Stock registered on Form S-8;
(10) a Restricted Payment to pay for the repurchase, retirement
or other acquisition or retirement for value of common Equity Interests
of Willis Corroon Group or any direct or indirect parent corporation of
Willis Corroon Group in existence on the Closing Date and which are not
held by Kohlberg Kravis Roberts & Co. L.P., the Consortium or any of
their Affiliates on the Closing Date (including any Equity Interests
issued in respect of such Equity Interests as a result of a stock split,
recapitalization, merger, combination, consolidation or otherwise, but
excluding any management equity plan or stock option plan or similar
agreement), PROVIDED that Willis Corroon Group and its Restricted
Subsidiaries shall be permitted to make Restricted Payments under this
clause only if after giving effect thereto, Willis Corroon Group would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first sentence of
the covenant described under "--Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock"; PROVIDED FURTHER that
notwithstanding the foregoing, Willis Corroon Group and the Restricted
Subsidiaries shall be permitted to make Restricted Payments in an amount
not to exceed $20.0 million to pay for the repurchase, retirement or
other acquisition or retirement for value of common Equity Interests of
Willis Corroon Group or any direct or indirect parent corporation of
Willis Corroon Group held by the Consortium;
(11) Investments that are made with Excluded Contributions;
(12) other Restricted Payments in an aggregate amount not to
exceed $25.0 million;
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(13) the distribution, as a dividend or otherwise, of shares of
Capital Stock of, or Indebtedness owed to Willis Corroon Group or a
Restricted Subsidiary of Willis Corroon Group by, Unrestricted
Subsidiaries, with the exception of Investments in Unrestricted
Subsidiaries acquired pursuant to clause (10) of the definition of
Permitted Investments;
(14) cash dividends or other distributions on Willis Corroon
Group's Capital Stock used to, or loans the proceeds of which will be
used to,
(A) fund the payment of dividends (at a rate per
annum not to exceed 8 1/2%) on the Consortium Preferred Stock,
whether such dividends have accrued during the then-current
fiscal year or any previous fiscal year, or
(B) repay amounts outstanding under the Guaranteed
Loan Notes;
(15) loans in respect of Interim Refinancing Indebtedness or the
declaration and payment of dividends on the Closing Date to Trinity
Acquisition in an amount equal to the aggregate outstanding principal
amount of and accrued and unpaid interest on, the Interim Financings and
indebtedness of Willis Corroon Group and its Subsidiaries existing on the
Closing Date and required to be repaid under the Senior Credit
Facilities, the proceeds of which were used by Trinity Acquisition to
repay the Interim Financings and such other indebtedness;
(16) the declaration and payment of dividends to, or the making
of loans to, Trinity Acquisition in an amount not to exceed the amount of
principal and interest then due and payable on the Interim Refinancing
Indebtedness, PROVIDED that the full amount of such dividend or loan is
immediately repaid in cash to Willis Corroon Group or any Restricted
Subsidiary;
(17) the declaration and payment of dividends by Willis Corroon
Group to, or the making of loans to, its parent corporation in amounts
required for Willis Corroon Group's direct or indirect parent
corporations to pay
(A) franchise taxes and other fees, taxes and
expenses required to maintain their corporate existence,
(B) federal, state and local income taxes, and
analogous taxes in the United Kingdom to the extent such
income taxes are attributable to the income of Willis Corroon
Group and the Restricted Subsidiaries, and, to the extent of
the amounts actually received from its Unrestricted
Subsidiaries, in amounts required to pay such taxes to the
extent attributable to the income of such Unrestricted
Subsidiaries,
(C) customary salary, bonus and other benefits
payable to officers and employees of any direct or indirect
parent corporation of Willis Corroon Group to the extent such
salaries, bonuses and other benefits are attributable to the
ownership or operation of Willis Corroon Group and its
Subsidiaries and
(D) general corporate overhead expenses of any direct
or indirect parent corporation of Willis Corroon Group to the
extent such expenses are attributable to the ownership or
operation of Willis Corroon Group and its Subsidiaries;
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(18) cash dividends or other distributions on Willis Corroon
Group's Capital Stock used to, or the making of loans to Trinity
Acquisition the proceeds of which will be used to, fund the payment of
fees and expenses incurred in connection with the Transactions (as
defined in the Indenture) or owed to Affiliates, in each case to the
extent permitted by the covenant described under "--Transactions with
Affiliates";
(19) distributions or payments of Receivables Fees;
(20) the making of loans in respect of Trinity Intercompany
Notes;
(21) the declaration and payment of dividends to, or the making
of loans to, Trinity Acquisition in an amount not to exceed the amount of
principal and interest then due and payable on the Trinity Intercompany
Notes, provided that the full amount of such dividend or loan is
immediately repaid in cash to Willis Corroon Group or any Restricted
Subsidiary; or
(22) cash dividends or other distributions on Willis Corroon
Group's Capital Stock used to, or loans made to Trinity Acquisition to,
fund the payment of net amounts required to be paid pursuant to any
Trinity Hedging Obligations.
As of the issuance of the outstanding notes, all of Willis Corroon
Group's Subsidiaries (other than Sovereign Marine and General Insurance Company,
in provisional liquidation) will be Restricted Subsidiaries. Willis Corroon
Group will not permit any Unrestricted Subsidiary to become a Restricted
Subsidiary except pursuant to the second to last sentence of the definition of
"Unrestricted Subsidiary". For purposes of designating any Restricted Subsidiary
as an Unrestricted Subsidiary, all outstanding Investments by Willis Corroon
Group and its Restricted Subsidiaries (except to the extent repaid) in the
Subsidiary so designated will be deemed to be Restricted Payments in an amount
determined as set forth in the last sentence of the definition of "Investment".
Such designation will be permitted only if a Restricted Payment in such amount
would be permitted at such time, whether pursuant to the first paragraph of this
covenant or under clauses (7), (11) and (12), and if such Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries
will not be subject to any of the restrictive covenants set forth in the
Indenture.
LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED
STOCK. Willis Corroon Group will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
(collectively, "INCUR" and collectively, an "INCURRENCE") with respect to any
Indebtedness (including Acquired Indebtedness) and that Willis Corroon Group
will not issue any shares of Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; PROVIDED,
HOWEVER, that Willis Corroon Group may incur Indebtedness (including Acquired
Indebtedness) or issue shares of Disqualified Stock, and Willis Corroon
Corporation and any Restricted Subsidiary that is a guarantor may incur
Indebtedness, issue shares of Disqualified Stock and issue shares of preferred
stock, if the Fixed Charge Coverage Ratio for Willis Corroon Group's and its
Restricted Subsidiaries' most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock or
preferred stock is issued would have been at least 2.00 to 1.00, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock or preferred stock had been issued, as the case may be, and
the application of proceeds therefrom had occurred at the beginning of such
four-quarter period.
The foregoing limitations will not apply to:
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(a) the existence of Indebtedness under Credit Facilities on the
Closing Date together with the incurrence by Willis Corroon Group, Willis
Corroon Corporation or any other Restricted Subsidiary of Indebtedness
under Credit Facilities and the issuance and creation of letters of
credit and bankers' acceptances thereunder (with letters of credit and
bankers' acceptances being deemed to have a principal amount equal to the
face amount thereof), up to an aggregate principal amount of $675.0
million outstanding at any one time; PROVIDED, HOWEVER, that the
aggregate amount of Indebtedness incurred by Restricted Subsidiaries
(other than Willis Corroon Corporation or any guarantor) pursuant to this
clause (a) may not exceed $150.0 million outstanding at any one time;
(b) the incurrence by Willis Corroon Corporation of Indebtedness
represented by the notes;
(c) Existing Indebtedness (other than Indebtedness described in
clauses (a) and (b));
(d) Indebtedness (including Capitalized Lease Obligations)
incurred by Willis Corroon Group or any of its Restricted Subsidiaries,
to finance the purchase, lease or improvement of property (real or
personal) or equipment, whether through the direct purchase of assets or
the Capital Stock of any Person owning such assets, in an aggregate
principal amount which, when aggregated with the principal amount of all
other Indebtedness then outstanding and incurred pursuant to this clause
(d) and including all Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this
clause (d), does not exceed the greater of
(x) $50.0 million and
(y) 5% of Total Revenues;
(e) Indebtedness incurred by Willis Corroon Group or any of its
Restricted Subsidiaries constituting reimbursement obligations with
respect to letters of credit issued in the ordinary course of business,
including without limitation letters of credit in respect of workers'
compensation claims, or other Indebtedness with respect to reimbursement
type obligations regarding workers' compensation claims; PROVIDED,
HOWEVER, that upon the drawing of such letters of credit or the
incurrence of such Indebtedness, such obligations are reimbursed within
30 days following such drawing or incurrence;
(f) Indebtedness arising from agreements of Willis Corroon
Group or a Restricted Subsidiary providing for indemnification,
adjustment of purchase price or similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary, other than guarantees of Indebtedness incurred by
any Person acquiring all or any portion of such business, assets or a
Subsidiary for the purpose of financing such acquisition; PROVIDED,
HOWEVER, that
(1) such Indebtedness is not reflected on the balance
sheet of Willis Corroon Group or any Restricted Subsidiary
(contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for
purposes of this clause (1)) and
(2) the maximum assumable liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds
including noncash
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proceeds (the fair market value of such noncash proceeds being
measured at the time received and without giving effect to any
subsequent changes in value) actually received by Willis
Corroon Group and its Restricted Subsidiaries in connection
with such disposition;
(g) Indebtedness of Willis Corroon Group to a Restricted
Subsidiary; PROVIDED that any such Indebtedness is subordinated in right
of payment to the notes; PROVIDED FURTHER that any subsequent issuance or
transfer of any Capital Stock or any other event which results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
other subsequent transfer of any such Indebtedness (except to Willis
Corroon Group or another Restricted Subsidiary) shall be deemed, in each
case to be an incurrence of such Indebtedness;
(h) Indebtedness of a Restricted Subsidiary to Willis Corroon
Group or another Restricted Subsidiary; PROVIDED that
(1) any such Indebtedness is made pursuant to an
intercompany note and
(2) if a guarantor incurs such Indebtedness to a
Restricted Subsidiary that is not Willis Corroon Corporation
or a guarantor such Indebtedness is subordinated in right of
payment to the guarantee of such guarantor; PROVIDED FURTHER
that any subsequent transfer of any such Indebtedness (except
to Willis Corroon Group or another Restricted Subsidiary)
shall be deemed, in each case to be an incurrence of such
Indebtedness;
(i) shares of preferred stock of a Restricted Subsidiary issued
to Willis Corroon Group or another Restricted Subsidiary; PROVIDED that
any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any other subsequent transfer of any such shares
of preferred stock (except to Willis Corroon Group or another Restricted
Subsidiary) shall be deemed in each case to be an issuance of such shares
of preferred stock;
(j) Hedging Obligations (excluding Hedging Obligations entered
into for speculative purposes);
(k) obligations in respect of performance and surety bonds and
completion guarantees provided by Willis Corroon Group or any Restricted
Subsidiary in the ordinary course of business;
(l) Indebtedness of any guarantor in respect of such
guarantor's guarantee;
(m) Indebtedness and Disqualified Stock of Willis Corroon Group
or any of its Restricted Subsidiaries not otherwise permitted hereunder
in an aggregate principal amount or liquidation preference, which when
aggregated with the principal amount and liquidation preference of all
other Indebtedness and Disqualified Stock then outstanding and incurred
pursuant to this clause (m), does not at any one time outstanding exceed
the sum of
(x) $250 million and
(y) 100% of the net cash proceeds received by Willis
Corroon Group or Willis Corroon Corporation since immediately
after the Closing Date from the issue or sale of Equity
Interests of Willis Corroon Group, any of its direct or
indirect
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parent corporations or Willis Corroon Corporation or net cash
proceeds contributed to the capital of Willis Corroon Group or
Willis Corroon Corporation (in each case other than proceeds
of Disqualified Stock or sales of Equity Interests to Willis
Corroon Group or any of its Subsidiaries) as determined in
accordance with clauses (c)(2) and (c)(3) of the first
paragraph of "--Limitation on Restricted Payments" to the
extent such net cash proceeds have not been applied pursuant
to such clauses to make Restricted Payments or to make other
payments or exchanges pursuant to the second paragraph of
"--Limitation on Restricted Payments" or to make Permitted
Investments (other than Permitted Investments specified in
clauses (a) and (c) of the definition thereof,
(it being understood that any Indebtedness incurred under this
clause (m) shall cease to be deemed incurred or outstanding
for purposes of this clause (m) but shall be deemed to be
incurred for purposes of the first paragraph of this covenant
from and after the first date on which Willis Corroon Group
could have incurred such Indebtedness under the first
paragraph of this covenant without reliance upon this clause
(m));
(n) (1) any guarantee by Willis Corroon Group or Willis
Corroon Corporation of Indebtedness or other obligations of any
of its Restricted Subsidiaries so long as the incurrence of such
Indebtedness incurred by such Restricted Subsidiary is permitted
under the terms of the Indenture,
(2) any guarantee by a Restricted Subsidiary of
Indebtedness of Willis Corroon Group or Willis Corroon
Corporation or of the Trinity Hedging Obligations or the
Facility Hedging Obligations, PROVIDED that such guarantee is
incurred in accordance with the covenant described below under
"--Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries" or
(3) any guarantee by Willis Corroon Corporation of
the Trinity Hedging Obligations or the Facility Hedging
Obligations;
(o) the incurrence by Willis Corroon Group or any of its
Restricted Subsidiaries of Indebtedness which serves to refund or
refinance any Indebtedness incurred as permitted under the first
paragraph of this covenant and clauses (b), (c) and (d) above, this
clause (o) and clause (p) below or any Indebtedness issued to so refund
or refinance such Indebtedness including additional Indebtedness incurred
to pay premiums and fees in connection therewith (the "REFINANCING
INDEBTEDNESS") prior to its respective maturity; PROVIDED, HOWEVER, that
such Refinancing Indebtedness
(1) has a Weighted Average Life to Maturity at the
time such Refinancing Indebtedness is incurred which is not
less than the remaining Weighted Average Life to Maturity of
Indebtedness being refunded or refinanced,
(2) to the extent such Refinancing Indebtedness
refinances Indebtedness subordinated or PARI PASSU to the
notes, such Refinancing Indebtedness is subordinated or PARI
PASSU to the notes at least to the same extent as the
Indebtedness being refinanced or refunded and
(3) shall not include
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(x) Indebtedness of a Subsidiary that
refinances Indebtedness of Willis Corroon Group or
(y) Indebtedness of Willis Corroon Group or
a Restricted Subsidiary that refinances Indebtedness
of an Unrestricted Subsidiary;
and PROVIDED FURTHER that subclauses (1) and (2) of this clause (o)
will not apply to any refunding or refinancing of any Senior
Indebtedness;
(p) Indebtedness or Disqualified Stock of Persons that are
acquired by Willis Corroon Group or any Restricted Subsidiary or merged
into a Restricted Subsidiary in accordance with the terms of the
Indenture; PROVIDED that such Indebtedness or Disqualified Stock is not
incurred in contemplation of such acquisition or merger; and PROVIDED
FURTHER that after giving effect to such acquisition or merger, either
(1) Willis Corroon Group would be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first
sentence of this covenant or
(2) the Fixed Charge Coverage Ratio is greater than
immediately prior to such acquisition or merger.
Notwithstanding the foregoing, the second proviso of the immediately
preceding sentence shall not apply to Indebtedness outstanding on the
Closing Date of associates of Willis Corroon Group that are acquired by
Willis Corroon Group or any Restricted Subsidiary or merged into a
Restricted Subsidiary;
(q) Indebtedness in respect of the Group Intercompany Notes,
PROVIDED that any subsequent transfer of a Group Intercompany Note by
Trinity Acquisition to a Person other than Willis Corroon Group or a
Restricted Subsidiary shall be deemed to be an incurrence of such
Indebtedness:
(r) Indebtedness in respect of a Convertible Loan, PROVIDED that
any subsequent transfer of a Convertible Loan by Trinity Acquisition to a
Person other than Willis Corroon Group or a Restricted Subsidiary shall
be deemed to be an incurrence of such Indebtedness;
(s) Indebtedness under any BACS Facility entered into in the
ordinary course of business;
(t) Indebtedness incurred in relation to arrangements made in
the ordinary course of business to facilitate the operation of bank
accounts on a net balance basis for the calculation of interest;
(u) short-term Indebtedness from banks incurred in the ordinary
course of business pursuant to a facility required in order to comply
with, or otherwise falling within, paragraph 25(2) of the Lloyd's Brokers
By-law (No. 5 of 1988) (or any other by-law or regulation issued by
Lloyd's from time to time with which the relevant company is required to
comply); and
(v) any guarantee facility entered into in the ordinary course
of business and consistent with industry custom provided in relation to
employees of Willis Corroon Group or any Restricted Subsidiary who are
Lloyd's names.
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For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of permitted Indebtedness described in clauses (a) through (v) above
or is entitled to be incurred pursuant to the first paragraph of this covenant,
Willis Corroon Group shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof except as otherwise set
forth in clause (m). Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was incurred, in the case of term debt, or first committed, in
the case of revolving credit debt; PROVIDED that
- the U.S. dollar-equivalent principal amount of any such Indebtedness
outstanding or committed on the date of issuance of the outstanding
notes shall be calculated based on the relevant currency exchange rate
in effect on September 30, 1998, and
- if such Indebtedness is incurred to refinance other Indebtedness
denominated in a foreign currency, and such refinancing would cause the
applicable U.S. dollar-denominated restriction to be exceeded if
calculated at the relevant currency exchange rate in effect on the date
of such refinancing, such U.S. dollar-denominated restriction shall be
deemed not to have been exceeded so long as the principal amount of
such refinancing Indebtedness does not exceed the principal amount of
such Indebtedness being refinanced.
The principal amount of any Indebtedness incurred to refinance other
Indebtedness, if incurred in a different currency from the Indebtedness being
refinanced, shall be calculated based on the currency exchange rate applicable
to the currencies in which such respective Indebtedness is denominated that is
in effect on the date of such refinancing.
LIENS. Willis Corroon Group will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly create, incur, assume or
suffer to exist any Lien that secures obligations under any Senior Subordinated
Indebtedness or Subordinated Indebtedness on any asset or property of Willis
Corroon Group or such Restricted Subsidiary, or any income or profits therefrom,
or assign or convey any right to receive income therefrom, unless the notes are
equally and ratably secured, or senior to, in the event the Lien relates to
Subordinated Indebtedness, with the obligations so secured or until such time as
such obligations are no longer secured by a Lien.
In addition, no guarantor will directly or indirectly create, incur,
assume or suffer to exist any Lien that secures obligations under any Senior
Subordinated Indebtedness or Subordinated Indebtedness of such guarantor on any
asset or property of such guarantor or any income or profits therefrom, or
assign or convey any right to receive income therefrom, unless the guarantee of
such guarantor is equally and ratably secured, or senior to, in the event the
Lien relates to Subordinated Indebtedness, with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
MERGER, CONSOLIDATION OR SALE OF ALL OR SUBSTANTIALLY ALL
ASSETS. Neither Willis Corroon Group nor Willis Corroon Corporation may
consolidate or merge with or into or wind up into (whether or not Willis Corroon
Group or Willis Corroon Corporation, as the case may be, is the surviving
corporation), or
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sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to any Person unless
(1) Willis Corroon Group or Willis Corroon Corporation, as the
case may be, is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than Willis Corroon
Group or Willis Corroon Corporation, as the case may be) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will
have been made is a corporation organized or existing under the laws of
(A) in the case of Willis Corroon Group, the United
Kingdom or the United States, any state thereof, the District
of Columbia, or any territory thereof or
(B) in the case of Willis Corroon Corporation, the
United States, any state thereof, the District of Columbia, or
any territory thereof (Willis Corroon Group, Willis Corroon
Corporation or such Person, as the case may be, being herein
called the "SUCCESSOR COMPANY");
(2) the Successor Company, if other than Willis Corroon Group or
Willis Corroon Corporation, expressly assumes all the obligations of
Willis Corroon Group or Willis Corroon Corporation, as the case may be,
under the Indenture and the notes pursuant to a supplemental indenture or
other documents or instruments in form reasonably satisfactory to the
trustee;
(3) immediately after such transaction no Default or Event of
Default exists;
(4) immediately after giving pro forma effect to such
transaction, as if such transaction had occurred at the beginning of the
applicable four-quarter period,
(A) the Successor Company would be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first
sentence of the covenant described under "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock"
or
(B) the Fixed Charge Coverage Ratio for the Successor
Company and the Restricted Subsidiaries would be greater than
such Ratio for Willis Corroon Group and the Restricted
Subsidiaries immediately prior to such transaction;
(5) each guarantor, unless it is the other party to the
transactions described above, in which case clause (2) of the next
paragraph shall apply, shall have by supplemental indenture confirmed
that its guarantee shall apply to such Person's obligations under the
Indenture and the notes; and
(6) Willis Corroon Group or Willis Corroon Corporation, as the
case may be, shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger
or transfer and such supplemental indenture, if any, comply with the
Indenture.
The Successor Company will succeed to, and be substituted for, Willis Corroon
Group or Willis Corroon Corporation, as the case may be, under the Indenture and
the notes. Notwithstanding the foregoing clause (4),
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(a) any Restricted Subsidiary may consolidate with, merge into
or transfer all or part of its properties and assets to Willis Corroon
Group or Willis Corroon Corporation and
(b) Willis Corroon Group or Willis Corroon Corporation may merge
with an Affiliate incorporated solely for the purpose of reincorporating
Willis Corroon Group or Willis Corroon Corporation in another State of
the United States so long as the amount of Indebtedness of Willis Corroon
Group and the Restricted Subsidiaries is not increased thereby.
Subject to certain limitations described in the Indenture governing
release of a guarantee upon the sale or disposition of a guarantor, each
guarantor other than Willis Corroon Group will not, and Willis Corroon Group
will not permit any other guarantor to, consolidate or merge with or into or
wind up into (whether or not such guarantor is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, any Person unless
(1) such guarantor is the surviving corporation or the Person
formed by or surviving any such consolidation or merger (if other than
such guarantor) or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made is a corporation
organized or existing under the laws of
(A) the United Kingdom or
(B) the United States, any state thereof, the
District of Columbia, or any territory thereof (such guarantor
or such Person, as the case may be, being herein called the
"SUCCESSOR GUARANTOR");
(2) the Successor Guarantor, if other than such guarantor,
expressly assumes all the obligations of such guarantor under the
Indenture and such guarantor's guarantee pursuant to a supplemental
indenture or other documents or instruments in form reasonably
satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of
Default exists; and
(4) Willis Corroon Group shall have delivered to the Trustee an
Officers' certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture, if
any, comply with the Indenture.
Subject to certain limitations described in the Indenture, the Successor
Guarantor will succeed to, and be substituted for, such guarantor under the
Indenture and such guarantor's guarantee. Notwithstanding the foregoing, any
guarantor may merge into or transfer all or part of its properties and assets to
another guarantor.
TRANSACTIONS WITH AFFILIATES. Willis Corroon Group will not, and will
not permit any of its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate of Willis Corroon Group (each of the
foregoing, an "AFFILIATE TRANSACTION") involving aggregate payments or
consideration in excess of $5.0 million, unless
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(a) such Affiliate Transaction is on terms that are not
materially less favorable to Willis Corroon Group or the relevant
Restricted Subsidiary than those that would have been obtained in a
comparable transaction by Willis Corroon Group or such Restricted
Subsidiary with an unrelated Person and
(b) Willis Corroon Group delivers to the Trustee with respect to
any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10.0 million, a
resolution adopted by the majority of the Board of Directors approving
such Affiliate Transaction and set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (a)
above.
The foregoing provisions will not apply to the following:
(1) transactions between or among Willis Corroon Group and/or
any of its Restricted Subsidiaries;
(2) Restricted Payments permitted by the provisions of the
Indenture described above under the covenant "--Limitation on Restricted
Payments";
(3) the payment of customary annual management, consulting,
monitoring and advisory fees and related expenses to Kohlberg Kravis
Roberts & Co. L.P. and its Affiliates;
(4) the payment of reasonable and customary fees paid to, and
indemnity provided on behalf of, officers, directors, employees or
consultants of Willis Corroon Group, any of its direct or indirect parent
corporations or any Restricted Subsidiary;
(5) payments by Willis Corroon Group or any of its Restricted
Subsidiaries to Kohlberg Kravis Roberts & Co. L.P., and its Affiliates
made for any financial advisory, financing, underwriting or placement
services or in respect of other investment banking activities, including,
without limitation, in connection with acquisitions or divestitures which
payments are approved by a majority of the Board of Directors of Willis
Corroon Group in good faith;
(6) transactions in which Willis Corroon Group or any of its
Restricted Subsidiaries, as the case may be, delivers to the Trustee a
letter from an Independent Financial Advisor stating that such
transaction is fair to Willis Corroon Group or such Restricted Subsidiary
from a financial point of view or meets the requirements of clause (a) of
the preceding paragraph;
(7) payments or loans to employees or consultants of Willis
Corroon Group, any of its direct or indirect parent corporations or any
Restricted Subsidiary which are approved by a majority of the Board of
Directors of Willis Corroon Group in good faith;
(8) any agreement as in effect as of the Closing Date,
including, without limitation, each of the agreements entered into in
connection with the offering of outstanding notes and the recent
acquisitions, or any amendment thereto (so long as any such amendment is
not disadvantageous to the holders in any material respect) or any
transaction contemplated thereby;
(9) the existence of, or the performance by Willis Corroon Group
or any of its Restricted Subsidiaries of its obligations under the terms
of, any stockholders agreement (including any registration rights
agreement or purchase agreement related thereto) to which
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it is a party as of the Closing Date and any similar agreements which it
may enter into thereafter; PROVIDED, HOWEVER, that the existence of, or
the performance by Willis Corroon Group or any of its Restricted
Subsidiaries of obligations under any future amendment to any such
existing agreement or under any similar agreement entered into after the
Closing Date shall only be permitted by this clause (9) to the extent
that the terms of any such amendment or new agreement are not otherwise
disadvantageous to the Holders in any material respect;
(10) the Transactions (as defined in the Indenture) and the
payment of all fees and expenses related to the offering of outstanding
notes and the recent acquisitions;
(11) transactions with customers, clients, suppliers, or
purchasers or sellers of goods or services, in each case in the ordinary
course of business and otherwise in compliance with the terms of the
Indenture which are fair to Willis Corroon Group or its Restricted
Subsidiaries, in the reasonable determination of the Board of Directors
of Willis Corroon Group or the senior management thereof, or are on terms
at least as favorable as might reasonably have been obtained at such time
from an unaffiliated party;
(12) the issuance of Equity Interests (other than Disqualified
Stock) of Willis Corroon Group or Willis Corroon Corporation to any
Permitted Holder;
(13) any transaction between Willis Corroon Group or any
Restricted Subsidiary and any Associate, including any transaction
pursuant to which an Associate becomes a Restricted Subsidiary; and
(14) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. Willis
Corroon Group will not, and will not permit any of its Restricted Subsidiaries
(other than Willis Corroon Corporation) to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any such Restricted
Subsidiary to:
(a)
(1) pay dividends or make any other distributions to
Willis Corroon Group or any of its Restricted Subsidiaries
- on its Capital Stock or
- with respect to any other interest or participation
in, or measured by, its profits or
(2) pay any Indebtedness owed to Willis Corroon Group
or any of its Restricted Subsidiaries;
(b) make loans or advances to Willis Corroon Group or any of its
Restricted Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to
Willis Corroon Group or any of its Restricted Subsidiaries, except (in
each case) for such encumbrances or restrictions existing under or by
reason of:
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(1) contractual encumbrances or restrictions in
effect on the Closing Date, including, without limitation,
pursuant to Existing Indebtedness or the Senior Credit
Facilities and their related documentation;
(2) the Indenture and the notes;
(3) purchase money obligations for property acquired
in the ordinary course of business that impose restrictions of
the nature discussed in clause (c) above on the property so
acquired;
(4) applicable law or any applicable rule, regulation
or order;
(5) any agreement or other instrument of a Person
acquired by Willis Corroon Group or any Restricted Subsidiary
in existence at the time of such acquisition (but not created
in contemplation thereof), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets
of the Person, so acquired;
(6) contracts for the sale of assets, including,
without limitation customary restrictions with respect to a
Subsidiary pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary;
(7) secured Indebtedness otherwise permitted to be
incurred pursuant to the covenants described under
"--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" and "--Liens" that limit the right of the
debtor to dispose of the assets securing such Indebtedness;
(8) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the
ordinary course of business;
(9) other Indebtedness or Disqualified Stock of
Restricted Subsidiaries permitted to be incurred subsequent to
the Closing Date pursuant to the provisions of the covenant
described under "--Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock";
(10) customary provisions in joint venture agreements
and other similar agreements entered into in the ordinary
course of business;
(11) customary provisions contained in leases and
other agreements entered into in the ordinary course of
business;
(12) customary restrictions on fiduciary cash held by
Willis Corroon Group's Subsidiaries;
(13) any encumbrances or restrictions of the type
referred to in clauses (a), (b) and (c) above imposed by any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of the
contracts, instruments or obligations referred to in clauses
(1) through (12) above, PROVIDED that such amendments,
modifications, restatements, renewals,
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increases, supplements, refundings, replacements or
refinancings are, in the good faith judgment of Willis Corroon
Group's board of directors, no more restrictive with respect
to such dividend and other payment restrictions than those
contained in the dividend or other payment restrictions prior
to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing;
or
(14) restrictions created in connection with any
Receivables Facility that, in the good faith determination of
the board of directors of Willis Corroon Group or Willis
Corroon Corporation, as the case may be, are necessary or
advisable to effect such Receivables Facility.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED
SUBSIDIARIES. (a) Willis Corroon Group will not permit any Domestic Subsidiary
or U.K. Subsidiary of Willis Corroon Group that is not a Subsidiary of Willis
Corroon Corporation or any Domestic Subsidiary of Willis Corroon Corporation, in
each case, other than any such Restricted Subsidiary created in connection with
a Receivables Facility, to guarantee the payment of any Indebtedness of Willis
Corroon Group or Willis Corroon Corporation unless
(A) such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a
guarantee of payment of the notes by such Restricted Subsidiary except
that with respect to a guarantee of Indebtedness of Willis Corroon Group
or Willis Corroon Corporation
(1) if the notes are subordinated in right of payment
to such Indebtedness, the guarantee under the supplemental
indenture shall be subordinated to such Restricted
Subsidiary's guarantee with respect to such Indebtedness
substantially to the same extent as the notes are subordinated
to such Indebtedness under the Indenture and
(2) if such Indebtedness is by its express terms
subordinated in right of payment to the notes, any such
guarantee of such Restricted Subsidiary with respect to such
Indebtedness shall be subordinated in right of payment to such
Restricted Subsidiary's guarantee with respect to the notes
substantially to the same extent as such Indebtedness is
subordinated to the notes;
(B) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against
Willis Corroon Group or any other Restricted Subsidiary as a result of
any payment by such Restricted Subsidiary under its guarantee; and
(C) such Restricted Subsidiary shall deliver to the trustee an
opinion of counsel to the effect that
(1) such guarantee of the notes has been duly
executed and authorized and
(2) such guarantee of the notes constitutes a valid,
binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws
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(including, without limitation, all laws relating to
fraudulent transfers) and except insofar as enforcement
thereof is subject to general principles of equity;
PROVIDED that this paragraph (a) shall not be applicable to any guarantee of any
Restricted Subsidiary
(x) that
- existed at the time such Person became a Restricted
Subsidiary and
- was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted
Subsidiary or
(y) that guarantees the payment of Obligations of Willis Corroon
Group, Willis Corroon Corporation or any Restricted Subsidiary under the
Senior Credit Facilities or any other Senior Indebtedness and any
refunding, refinancing or replacement thereof, in whole or in part,
PROVIDED that such refunding, refinancing or replacement thereof
constitutes Senior Indebtedness and PROVIDED FURTHER that any such Senior
Indebtedness and any refunding, refinancing or replacement thereof is not
incurred pursuant to a registered offering of securities under the
Securities Act or a private placement of securities (including under Rule
144A) pursuant to an exemption from the registration requirements of the
Securities Act, which private placement provides for registration rights
under the Securities Act.
(b) Notwithstanding the foregoing and the other provisions of the
Indenture, any guarantee by a Restricted Subsidiary of the notes shall provide
by its terms that it shall be automatically and unconditionally released and
discharged upon
(A) any sale, exchange or transfer, to any Person not an
Affiliate of Willis Corroon Group, of all of Willis Corroon Group's or
Willis Corroon Corporation's Capital Stock in, or all or substantially
all the assets of, such Restricted Subsidiary, which sale, exchange or
transfer is not prohibited by the Indenture, or
(B) the release or discharge of the guarantee by such Restricted
Subsidiary that is a Subsidiary of Willis Corroon Corporation which
resulted in the creation of such guarantee, except a discharge or release
by or as a result of payment under such guarantee.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. Willis Corroon
Group will not, and will not permit Willis Corroon Corporation or any other
guarantor to, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness) that is subordinate in right of payment to any Indebtedness of
Willis Corroon Group, Willis Corroon Corporation or any guarantor, as the case
may be, unless such Indebtedness is either
(a) equal in right of payment with the notes or Willis Corroon
Group's or such other guarantor's guarantee, as the case may be, or
(b) subordinate in right of payment to the notes, or Willis
Corroon Group's or such other guarantor's guarantee, as the case may be.
REPORTS AND OTHER INFORMATION. Notwithstanding that neither Willis
Corroon Group nor Willis Corroon Corporation may be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the Securities and
Exchange Commission, the Indenture will require Willis Corroon Group to file
with the Commission (and make
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available to the Trustee and Holders of the notes (without exhibits), without
cost to each Holder, within 15 days after it files them with the Commission),
(a) within 90 days after the end of each fiscal year, annual
reports on Form 20-F, or any successor or comparable form, containing the
information required to be contained therein, or required in such
successor or comparable form;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, reports on Form 6-K, which will
contain all quarterly information that would be required to be contained
in Form 10-Q, or any successor or comparable form;
(c) promptly from time to time after the occurrence of an event
required to be therein reported, such other reports on Form 6-K, or any
successor or comparable form; and
(d) any other information, documents and other reports which
Willis Corroon Group would be required to file with the Commission if it
were subject to Section 13 or 15(d) of the Exchange Act;
PROVIDED that all such information may be prepared in accordance with GAAP but
shall contain a reconciliation to United States generally accepted accounting
principles and PROVIDED, FURTHER, that Willis Corroon Group shall not be so
obligated to file such reports with the Commission if the Commission does not
permit such filing, in which event Willis Corroon Group will make available such
information to prospective purchasers of notes, in addition to providing such
information to the Trustee and the Holders of the notes, in each case within 15
days after the time Willis Corroon Group would be required to file such
information with the Commission, if it were subject to Sections 13 or 15(d) of
the Exchange Act. Notwithstanding the foregoing, such requirements shall be
deemed satisfied prior to the commencement of the exchange offer or the
effectiveness of the shelf registration statement by the filing with the
Commission of the exchange offer registration statement and/or shelf
registration statement, and any amendments thereto, with such financial
information that satisfies Regulation S-X of the Securities Act, PROVIDED,
HOWEVER, that in order for the provisions of clause (a) above to be deemed
satisfied with respect to 1998, such exchange offer registration statement or
shelf registration statement must include audited financial statements for the
year 1998.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute Events of Default under the Indenture:
(1) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium, if any, on the
notes whether or not such payment shall be prohibited by the
subordination provisions relating to the notes;
(2) default for 30 days or more in the payment when due of
interest on or with respect to the notes whether or not such payment
shall be prohibited by the subordination provisions relating to the
notes;
(3) failure by Willis Corroon Group, Willis Corroon Corporation
or any guarantor for 30 days after receipt of written notice given by the
Trustee or the Holders of at least 30% in principal amount of the notes
then outstanding to comply with any of its other agreements in the
Indenture or the notes;
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(4) default under any mortgage, indenture or instrument under
which there is issued or by which there is secured or evidenced any
Indebtedness for money borrowed by Willis Corroon Group or any of its
Restricted Subsidiaries or the payment of which is guaranteed by Willis
Corroon Group or any of its Restricted Subsidiaries, other than
Indebtedness owed to Willis Corroon Group or a Restricted Subsidiary and
other than any Group Intercompany Note, PROVIDED that such Group
Intercompany Note is held by Trinity Acquisition at such time, whether
such Indebtedness or guarantee now exists or is created after the
issuance of the outstanding notes, if both
(A) such default either
- results from the failure to pay any such
Indebtedness at its stated final maturity
(after giving effect to any applicable grace
periods) or
- relates to an obligation other than the
obligation to pay principal of any such
Indebtedness at its stated final maturity and
results in the holder or holders of such
Indebtedness causing such Indebtedness to
become due prior to its stated maturity and
(B) the principal amount of such Indebtedness,
together with the principal amount of any other such
Indebtedness in default for failure to pay principal at stated
final maturity (after giving effect to any applicable grace
periods), or the maturity of which has been so accelerated,
aggregate $25 million or more at any one time outstanding;
(5) failure by Willis Corroon Group, Willis Corroon Corporation
or any of its Significant Subsidiaries to pay final judgments aggregating
in excess of $25 million, which final judgments remain unpaid,
undischarged and unstayed for a period of more than 60 days after such
judgment becomes final, and in the event such judgment is covered by
insurance, an enforcement proceeding has been commenced by any creditor
upon such judgment or decree which is not promptly stayed;
(6) certain events of bankruptcy or insolvency with respect to
Willis Corroon Group, Willis Corroon Corporation or any of its
Significant Subsidiaries; or
(7) the guarantee of any Significant Subsidiary shall for any
reason cease to be in full force and effect or be declared null and void
or any responsible officer of Willis Corroon Group or any guarantor that
is a Significant Subsidiary denies that it has any further liability
under its guarantee or gives notice to such effect, other than by reason
of the termination of the Indenture or the release of any such guarantee
in accordance with the Indenture.
If any Event of Default (other than of a type specified in clause (6)
above) occurs and is continuing under the Indenture, the Trustee or the Holders
of at least 30% in principal amount of the then outstanding notes may declare
the principal, premium, if any, interest and any other monetary obligations on
all the then outstanding notes to be due and payable immediately; PROVIDED,
HOWEVER, that, so long as any Indebtedness permitted to be incurred under the
Indenture as part of the Senior Credit Facilities shall be outstanding, no such
acceleration shall be effective until the earlier of
(1) acceleration of any such Indebtedness under the Senior
Credit Facilities or
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(2) five business days after the giving of written notice to
Willis Corroon Corporation and the administrative agent under the Senior
Credit Facilities of such acceleration.
Upon the effectiveness of such declaration, such principal and interest will be
due and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default arising under clause (6) of the first paragraph of this
section, all outstanding notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding notes may direct the Trustee in its
exercise of any trust or power. The Indenture provides that the Trustee may
withhold from Holders notice of any continuing Default or Event of Default,
except a Default or Event of Default relating to the payment of principal,
premium, if any, or interest, if it determines that withholding notice is in
their interest. In addition, the Trustee shall have no obligation to accelerate
the notes if in the best judgment of the Trustee acceleration is not in the best
interest of the Holders of such notes.
The Indenture provides that the Holders of a majority in aggregate
principal amount of the then outstanding notes issued thereunder by notice to
the Trustee may on behalf of the Holders of all of such notes waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest on, premium,
if any, or the principal of any such note held by a non-consenting Holder. In
the event of any Event of Default specified in clause (4) above, such Event of
Default and all consequences thereof (including without limitation any
acceleration or resulting payment default) shall be annulled, waived and
rescinded, automatically and without any action by the Trustee or the Holders,
if within 20 days after such Event of Default arose
(x) the Indebtedness or guarantee that is the basis for such
Event of Default has been discharged, or
(y) the holders thereof have rescinded or waived the
acceleration, notice or action (as the case may be) giving rise to such
Event of Default, or
(z) if the default that is the basis for such Event of Default
has been cured.
The Indenture provides that Willis Corroon Corporation is required to
deliver to the Trustee annually a statement regarding compliance with the
Indenture, and Willis Corroon Corporation is required, within five Business
Days, upon becoming aware of any Default or Event of Default or any default
under any document, instrument or agreement representing Indebtedness of Willis
Corroon Corporation or any guarantor, to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Willis
Corroon Corporation or any guarantor, shall have any liability for any
obligations of Willis Corroon Corporation or the guarantors under the notes, the
guarantees or the Indenture or for any claim based on, in respect of, or by
reason of such obligations or their creation. Each Holder by accepting a note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of Willis Corroon Corporation, Willis Corroon Partners
and Willis Corroon Group under the Indenture will terminate (other than certain
obligations) and will be released upon payment in full of all of the notes.
Willis Corroon Corporation may, at its option and at any time, elect to have all
of its obligations discharged with respect to the outstanding notes and have
each guarantor's obligation discharged with respect to its guarantee ("LEGAL
DEFEASANCE") and cure all then existing Events of Default except for
(1) the rights of Holders of outstanding notes to receive
payments in respect of the principal of, premium, if any, and interest on
such notes when such payments are due solely out of the trust created
pursuant to the Indenture,
(2) Willis Corroon Corporation's obligations with respect to
notes concerning issuing temporary notes, registration of such notes,
mutilated, destroyed, lost or stolen notes and the maintenance of an
office or agency for payment and money for security payments held in
trust,
(3) the rights, powers, trusts, duties and immunities of the
Trustee, and Willis Corroon Corporation's obligations in connection
therewith and
(4) the Legal Defeasance provisions of the Indenture.
In addition, Willis Corroon Corporation may, at its option and at any time,
elect to have its obligations and those of each guarantor released with respect
to certain covenants that are described in the Indenture ("COVENANT DEFEASANCE")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment on other
indebtedness, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance
with respect to the Notes:
(1) Willis Corroon Corporation must irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest due on the outstanding notes on the stated maturity
date or on the applicable redemption date, as the case may be, of such
principal, premium, if any, or interest on the outstanding notes;
(2) in the case of Legal Defeasance, Willis Corroon Corporation
shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that, subject to
customary assumptions and exclusions,
(A) Willis Corroon Corporation has received from, or
there has been published by, the United States Internal
Revenue Service a ruling or
(B) since the issuance of the outstanding notes,
there has been a change in the applicable U.S. federal income
tax law,
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in either case to the effect that, and based thereon such
opinion of counsel in the United States shall confirm that,
subject to customary assumptions and exclusions, the Holders
will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such Legal Defeasance and
will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Willis Corroon
Corporation shall have delivered to the Trustee an opinion of counsel in
the United States reasonably acceptable to the Trustee confirming that,
subject to customary assumptions and exclusions, the Holders will not
recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Covenant Defeasance and will be subject to such tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, with respect to certain
bankruptcy or insolvency Events of Default, on the 91st day after such
date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, the
Senior Credit Facilities or any other material agreement or instrument
(other than the Indenture) to which, Willis Corroon Corporation or any
guarantor is a party or by which Willis Corroon Corporation or any
guarantor is bound;
(6) Willis Corroon Corporation shall have delivered to the
Trustee an opinion of counsel to the effect that, as of the date of such
opinion and subject to customary assumptions and exclusions following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally under any applicable U.S. federal
or state law, and that the Trustee has a perfected security interest in
such trust funds for the ratable benefit of the Holders;
(7) Willis Corroon Corporation shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by
Willis Corroon Corporation with the intent of defeating, hindering,
delaying or defrauding any creditors of Willis Corroon Corporation or any
guarantor or others; and
(8) Willis Corroon Corporation shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel in the United
States (which opinion of counsel may be subject to customary assumptions
and exclusions) each stating that all conditions precedent provided for
or relating to the Legal Defeasance or the Covenant Defeasance, as the
case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
as to all notes issued thereunder, when either
(a) all such notes theretofore authenticated and delivered,
except lost, stolen or destroyed notes which have been replaced or paid
and notes for whose payment money has theretofore been deposited in
trust, have been delivered to the Trustee for cancellation; or
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(b) (1) all such notes not theretofore delivered to such
Trustee for cancellation have become due and payable by reason
of the making of a notice of redemption or otherwise or will
become due and payable within one year and Willis Corroon
Corporation or any guarantor has irrevocably deposited or caused
to be deposited with such Trustee as trust funds in trust solely
for the benefit of the Holders, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in
such amounts as will be sufficient without consideration of any
reinvestment of interest to pay and discharge the entire
indebtedness on such notes not theretofore delivered to the
Trustee for cancellation for principal, premium, if any, and
accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default with respect to
the Indenture or the notes shall have occurred and be
continuing on the date of such deposit or shall occur as a
result of such deposit and such deposit will not result in a
breach or violation of, or constitute a default under, any
other instrument to which Willis Corroon Corporation or any
guarantor is a party or by which Willis Corroon Corporation or
any guarantor is bound;
(3) Willis Corroon Corporation or any guarantor has
paid or caused to be paid all sums payable by it under such
Indenture; and
(4) Willis Corroon Corporation has delivered
irrevocable instructions to the Trustee under such Indenture
to apply the deposited money toward the payment of such notes
at maturity or the redemption date, as the case may be.
In addition, Willis Corroon Corporation must deliver an Officers' Certificate
and an opinion of counsel to the Trustee stating that all conditions precedent
to satisfaction and discharge have been satisfied.
WITHHOLDING TAXES
All payments made by Willis Corroon Group with respect to its guarantee
will be made without withholding or deduction for, or on account of, any present
or future taxes, duties, assessments or governmental charges of whatever nature
(collectively, "Taxes") imposed or levied by or on behalf of the United Kingdom
or any political subdivision thereof or any authority having power to tax
therein (each a "U.K. Tax Authority"), unless the withholding or deduction of
such Taxes is then required by law. If any deduction or withholding for, or on
account of, any Taxes of any U.K. Tax Authority, shall at any time be required
on any payments made by Willis Corroon Group with respect to its guarantee,
Willis Corroon Group will pay such additional amounts (the "Additional Amounts")
as may be necessary in order that the net amounts received in respect of such
payments by the Holders of the notes or the Trustee, as the case may be, after
such withholding or deduction, equal the respective amounts which would have
been received in respect of such payments in the absence of such withholding or
deduction, except that no such Additional Amounts will be payable with respect
to:
(1) any payments on a note held by or on behalf of a Holder or
beneficial owner who is liable for such Taxes in respect of such note by
reason of the Holder or beneficial owner having some connection with the
United Kingdom, including being a citizen or resident or national of, or
carrying on a business or maintaining a permanent establishment in, or
being physically present in, the United Kingdom, other than by the mere
holding of such note or enforcement of rights thereunder or the receipt
of payments in respect thereof;
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(2) any Taxes that are imposed or withheld by reason of the
failure of the Holder or beneficial owner of the note to comply with any
request by Willis Corroon Group to provide information concerning the
nationality, residence or identity of such Holder or beneficial owner or
to make any declaration or similar claim or satisfy any information or
reporting requirement, which is required or imposed by a statute, treaty,
regulation or administrative practice of the taxing jurisdiction as a
precondition to exemption from all or part of such Taxes; and
(3) any note presented for payment (where presentation is
required) more than 30 days after the relevant payment is first made
available for payment to the Holder.
Such Additional Amounts will also not be payable where, had the
beneficial owner of the note been the Holder of the note, he would not have been
entitled to payment of Additional Amounts by reason of clauses (1) to (3)
inclusive, above.
References to principal, interest, premium or other amounts payable in
respect of Willis Corroon Group's guarantee shall be deemed also to refer to any
Additional Amounts which may be payable.
Willis Corroon Group will also
(1) make such withholding or deduction and
(2) remit the full amount deducted or withheld to the relevant
authority in accordance with applicable law.
Upon request, Willis Corroon Group will provide the Trustee with documentation
satisfactory to the Trustee evidencing the payment of Additional Amounts. Copies
of such documentation will be made available to the Holders of the notes upon
request.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and Willis
Corroon Corporation may require a Holder to pay any taxes and fees required by
law or permitted by the Indenture. Willis Corroon Corporation is not required to
transfer or exchange any note selected for redemption. Also, Willis Corroon
Corporation is not required to transfer or exchange any note for a period of 15
days before a selection of notes to be redeemed.
If certificated notes are issued, Willis Corroon Corporation will
appoint and maintain a transfer agent in Luxembourg for so long as the notes are
listed on the Luxembourg Stock Exchange, at which office a holder of a
certificated note will be able to surrender its note for registration of
transfer. Willis Corroon Corporation will be able to at any time terminate the
appointment of a transfer agent and appoint additional or other transfer agents.
Notice of such termination or appointment and of any change in the specified
office of a transfer agent will be provided in the manner described below in
"--Notices."
The registered Holder of a note will be treated as the owner of the
note for all purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the
Indenture, any guarantee and the notes issued thereunder may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the notes then outstanding, including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, notes, and any existing default or compliance with any provision of the
Indenture or the notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding notes (including consents
obtained in connection with a purchase of or tender offer or exchange offer for
notes).
The Indenture provides that without the consent of each Holder
affected, an amendment or waiver may not, with respect to any notes held by a
non-consenting Holder:
(1) reduce the principal amount of notes whose Holders must
consent to an amendment, supplement or waiver,
(2) reduce the principal of or change the fixed maturity of any
such note or alter or waive the provisions with respect to the redemption
of the notes (other than provisions relating to the covenants described
above under the caption "--Repurchase at the Option of Holders"),
(3) reduce the rate of or change the time for payment of
interest on any note,
(4) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes, except a
rescission of acceleration of the notes by the Holders of at least a
majority in aggregate principal amount of such notes and a waiver of the
payment default that resulted from such acceleration, or in respect of a
covenant or provision contained in the Indenture or any guarantee which
cannot be amended or modified without the consent of all Holders,
(5) make any note payable in money other than that stated in
such notes,
(6) make any change in the provisions of the Indenture relating
to waivers of past Defaults or the rights of Holders to receive payments
of principal of or premium, if any, or interest on the notes,
(7) make any change in the foregoing amendment and waiver
provisions,
(8) impair the right of any Holder to receive payment of
principal of, or interest on such Holder's notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such Holder's notes or
(9) make any change in the subordination provisions of the
Indenture that would adversely affect the Holders.
Notwithstanding the foregoing, without the consent of any Holder,
Willis Corroon Corporation, any guarantor (with respect to a guarantee or the
Indenture to which it is a party) and the Trustee may amend or supplement the
Indenture, any guarantee or the notes:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in
place of certificated notes;
(3) to comply with the covenant relating to mergers,
consolidations and sales of assets;
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(4) to provide the assumption of Willis Corroon Corporation's or
any guarantor's obligations to Holders;
(5) to make any change that would provide any additional rights
or benefits to the Holders or that does not adversely affect the legal
rights under the Indenture of any such Holder;
(6) to add covenants for the benefit of the Holders or to
surrender any right or power conferred upon Willis Corroon Corporation;
(7) to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust
Indenture Act;
(8) to evidence and provide for the acceptance and appointment
under the Indenture of a successor Trustee pursuant to the requirements
thereof;
(9) to provide for the issuance of exchange notes or private
exchange notes, which are identical to exchange notes except that they
are not freely transferrable;
(10) to add a guarantor under the Indenture; or
(11) to provide that Trinity Acquisition be added as a guarantor
(along with Willis Corroon Group and Willis Corroon Partners).
The consent of the Holders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
NOTICES
Notices regarding the notes will be
- published in a leading newspaper having circulation in New York (which
is expected to be the WALL STREET JOURNAL), and, so long as the notes,
are listed on the Luxembourg Stock Exchange and the rules of such stock
exchange shall so require, a newspaper having a general circulation in
Luxembourg (which is expected to be the LUXEMBURGER WORT) or
- in the case of certificated notes, mailed to Holders by first-class
mail at their respective addresses as they appear on the registration
books of the Registrar, and, so long as the notes are listed on the
Luxembourg Stock Exchange and the rules of such stock exchange shall so
require, published in a newspaper having a general circulation in
Luxembourg (which is expected to be the LUXEMBURGER WORT).
Notices given by publication will be deemed given on the first date on which
publication is made and notices given by first-class mail, postage prepaid, will
be deemed given five calendar days after mailing.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of Willis Corroon Corporation, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Indenture provides that the Holders of a majority in principal
amount of the outstanding notes issued thereunder will have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee, subject to certain exceptions. The Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent person in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of such notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
GOVERNING LAW
The Indenture, the notes and the guarantees will be, subject to certain
exceptions, governed by and construed in accordance with the internal laws of
the State of New York, without regard to the choice of law rules thereof.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided. For purposes of the Indenture, unless otherwise specifically
indicated, the term "consolidated" with respect to any Person refers to such
Person consolidated with its Restricted Subsidiaries, and excludes from such
consolidation any Unrestricted Subsidiary as if such Unrestricted Subsidiary
were not an Affiliate of such Person.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person,
(1) Indebtedness of any other Person existing at the time such
other Person is merged with or into or became a Restricted Subsidiary of
such specified Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Restricted Subsidiary of such
specified Person, and
(2) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
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"ASSET SALE" means
(1) the sale, conveyance, transfer or other disposition, whether
in a single transaction or a series of related transactions, of property
or assets (including by way of a sale and leaseback) of Willis Corroon
Group or any Restricted Subsidiary (each referred to in this definition
as a "DISPOSITION") or
(2) the issuance or sale of Equity Interests of any Restricted
Subsidiary, whether in a single transaction or a series of related
transactions,
in each case, other than:
(a) a disposition of Cash Equivalents or Investment Grade
Securities or obsolete or worn out equipment in the ordinary course of
business or inventory or goods held for sale in the ordinary course of
business;
(b) the disposition of all or substantially all of the assets of
Willis Corroon Group in a manner permitted pursuant to the provisions
described above under "--Certain Covenants--Merger, Consolidation or Sale
of All or Substantially All Assets" or any disposition that constitutes a
Change of Control pursuant to the Indenture;
(c) the making of any Restricted Payment or Permitted Investment
that is permitted to be made, and is made, under the covenant described
above under "--Certain Covenants--Limitation on Restricted Payments";
(d) any disposition of assets or issuance or sale of Equity
Interests of any Restricted Subsidiary with an aggregate fair market
value of less than $2.5 million;
(e) any disposition of property or assets or issuance of
securities by a Restricted Subsidiary to Willis Corroon Group or by
Willis Corroon Group or a Restricted Subsidiary to a Restricted
Subsidiary;
(f) any exchange of like property pursuant to Section 1031 of
the Internal Revenue Code of 1986 for use in a Similar Business;
(g) the lease, assignment or sub-lease of any real or personal
property in the ordinary course of business;
(h) any financing transaction with respect to property built or
acquired by Willis Corroon Group or any Restricted Subsidiary after the
Closing Date, including, without limitation, sale-leasebacks and asset
securitizations;
(i) foreclosures on assets;
(j) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary (with the exception of
Investments in Unrestricted Subsidiaries acquired pursuant to clause
(b)(10) of the definition of Permitted Investments); and
(k) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
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"ASSOCIATE" means any Person engaged in a Similar Business of which at
least 20% but not more than 50% of the Voting Stock thereof is owned by Willis
Corroon Group or any Restricted Subsidiary.
"BACS FACILITY" means a facility created to make automated payments
through Banks' Automated Clearance System.
"CAPITAL STOCK" means
(1) in the case of a corporation, corporate stock,
(2) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock,
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and
(4) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"CAPITALIZED LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized and reflected as a
liability on a balance sheet (excluding the footnotes thereto) in accordance
with GAAP.
"CASH EQUIVALENTS" means
(1) United States dollars,
(2) pounds sterling,
(3) Euro,
(4) Japanese Yen,
(5) Canadian dollars,
(6) Australian dollars,
(7) securities issued or directly and fully guaranteed or
insured by the United States or United Kingdom government or any agency
or instrumentality thereof with maturities of 24 months or less from the
date of acquisition,
(8) certificates of deposit, time deposits and eurodollar time
deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year
and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500.0 million,
(9) repurchase obligations for underlying securities of the
types described in clauses (7) and (8) entered into with any financial
institution meeting the qualifications specified in clause (8) above,
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(10) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date
of acquisition,
(11) investment funds investing 95% of their assets in
securities of the types described in clauses (1)-(10) above,
(12) readily marketable direct obligations issued by any state
of the United States of America or any political subdivision thereof
having one of the two highest rating categories obtainable from either
Moody's or S&P with maturities of 24 months or less from the date of
acquisition and
(13) Indebtedness or preferred stock issued by Persons with a
rating of "A" or higher from S&P or "A2" or higher from Moody's with
maturities of 24 months or less from the date of acquisition.
Notwithstanding the foregoing, Cash Equivalents shall include amounts
denominated in currencies other than those set forth in clauses (1) through (6)
above, PROVIDED that such amounts are converted into any currency listed in
clauses (1) through (6) as promptly as practicable and in any event within ten
Business Days following the receipt of such amounts.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of Willis Corroon Group
and its Subsidiaries, taken as a whole, to any Person other than a Permitted
Holder; or
(2) Willis Corroon Group becomes aware of (by way of a report or any
other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) the acquisition by any Person or group (within the meaning
of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor
provision), including any group acting for the purpose of acquiring, holding or
disposing of securities (within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than the Permitted Holders, in a single transaction or in a
related series of transactions, by way of merger, consolidation or other
business combination or purchase of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act, or any successor provision) of 50% or more of
the total Voting Stock of Willis Corroon Group or any of its direct or indirect
parent corporations.
"CLOSING DATE" means November 19, 1998, the date on which the
Subordinated Bridge Agreement was executed.
"CONSOLIDATED DEPRECIATION AND AMORTIZATION EXPENSE" means with
respect to any Person for any period, the total amount of depreciation and
amortization expense and other noncash charges, excluding any noncash item that
represents an accrual or reserve for a cash expenditure for a future period, of
such Person and its Restricted Subsidiaries for such period on a consolidated
basis and otherwise determined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for
any period, the sum, without duplication, of:
(a) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, to the extent such expense was
deducted in computing Consolidated Net Income (including amortization of
original issue discount, non-cash interest payments, the
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interest component of Capitalized Lease Obligations and net payments, if
any, pursuant to Hedging Obligations, excluding amortization of deferred
financing fees),
(b) consolidated capitalized interest of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and
(c) the impact of any net payments or receipts related to
Trinity Hedging Obligations, PROVIDED that any reduction of interest
expense related to any net amounts to be received by Trinity are actually
received by Willis Corroon Group within 31 days of the end of the period
during which such reduction of interest expense was recorded; PROVIDED,
HOWEVER, that Receivables Fees shall be deemed not to constitute
Consolidated Interest Expense. Notwithstanding anything to the contrary
stated above, Consolidated Interest Expense shall not include interest
expense in respect of the Group Intercompany Notes; PROVIDED, HOWEVER,
that such interest expense shall be included in Consolidated Interest
Expense to the extent such interest expense is actually paid and not
immediately repaid to Willis Corroon Group or a Restricted Subsidiary in
respect of interest on any Trinity Intercompany Notes or Interim
Refinancing Indebtedness.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income, of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, and otherwise determined
in accordance with GAAP; PROVIDED, HOWEVER, that
(1) any net after-tax exceptional items, less all fees and
expenses relating thereto, shall be excluded,
(2) the Net Income for such period shall not include the
cumulative effect of a change in accounting principles during such
period,
(3) any net after-tax income (loss) from discontinued operations
and any net after-tax gains or losses on disposal of discontinued
operations shall be excluded,
(4) any net after-tax gains or losses (less all fees and
expenses relating thereto) attributable to asset dispositions other than
in the ordinary course of business, as determined in good faith by the
Board of Directors of Willis Corroon Group, shall be excluded,
(5) the Net Income for such period of any Person that is not a
Subsidiary, or is an Unrestricted Subsidiary, or that is accounted for by
the equity method of accounting, shall be excluded; PROVIDED that
Consolidated Net Income of Willis Corroon Group shall be increased by the
amount of dividends or distributions or other payments that are actually
paid in cash (or to the extent converted into cash) to the referent
Person or a Restricted Subsidiary thereof in respect of such period,
(6) the Net Income of any Person acquired in a pooling of
interests transaction shall not be included for any period prior to the
date of such acquisition,
(7) the Net Income for such period of any Restricted Subsidiary
(other than Willis Corroon Corporation and any guarantor) shall be
excluded if the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of its Net Income is not at
the date of determination wholly permitted without any prior governmental
approval (which has not been obtained) or, directly or indirectly, by the
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule, or governmental regulation
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applicable to that Restricted Subsidiary or its stockholders, unless such
restriction with respect to the payment of dividends or in similar
distributions has been legally waived; PROVIDED that Consolidated Net
Income of Willis Corroon Group shall be increased by the amount of
dividends or other distributions or other payments that could have been
paid in cash (or to the extent converted into cash) to the referent
Person or a Restricted Subsidiary thereof in respect of such period and
(8) the after-tax impact of any net payments or receipts related
to Trinity Hedging Obligations shall be included, PROVIDED that any
reduction of interest expense related to any net amounts to be received
by Trinity are actually received by Willis Corroon Group within 31 days
of the end of the period during which such reduction of interest expense
was recorded.
Notwithstanding the foregoing, for the purpose of the covenant described under
"Certain Covenants-- Limitation on Restricted Payments" only (other than clause
(c)(4) thereof), there shall be excluded from Consolidated Net Income any income
arising from any sale or other disposition of Restricted Investments made by
Willis Corroon Group and its Restricted Subsidiaries, any repurchases and
redemptions of Restricted Investments from Willis Corroon Group and the
Restricted Subsidiaries, any repayments of loans and advances which constitute
Restricted Investments by Willis Corroon Group or any Restricted Subsidiary, any
sale of the stock of an Unrestricted Subsidiary or any distribution or dividend
from an Unrestricted Subsidiary, in each case only to the extent such amounts
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (c)(4) thereof. Notwithstanding anything to the contrary
stated above, Consolidated Net Income shall not include
(x) net after-tax income (net of any interest expense in respect
of Group Intercompany Notes) relating to amounts received or accrued in
respect of the Trinity Intercompany Notes and loans made in respect of
Interim Refinancing Indebtedness or
(y) net after-tax income (or losses) relating to payments
received in respect of the Trinity Intercompany Notes or Interim
Refinancing Indebtedness or payments made in respect of the corresponding
Group Intercompany Note that are solely the result of exchange rate
fluctuations or
(z) net after-tax gain or loss relating to the impact of
Facility Hedging Obligations being marked-to-market.
"CONSORTIUM" means Guardian Royal Exchange, Royal & Sun Alliance
Insurance Group, The Chubb Corporation, The Hartford Financial Services Group,
Inc., The Tokio Marine and Fire Insurance Co., Limited and Travelers Property
Casualty Corp. and their respective Affiliates or any replacement insurance
company investors from time to time and their respective Affiliates.
"CONSORTIUM PREFERRED STOCK" means
(a) preferred stock of TA II Limited having a liquidation
preference of approximately $270,000,000 issued to the Consortium in
connection with the offering of the outstanding notes and the recent
acquisitions and
(b) any preferred stock that
(1) is issued in exchange for, or to replace or
refinance, all or a portion thereof,
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(2) is not subject to mandatory redemption or
redemption at the option of the holder thereof prior to the
date that is six months later than the maturity date of the
notes and
(3) may include, at the election of TA II Limited,
(A) provisions for required cash dividends,
at a rate per annum not in excess of 7 1/2%, or a
higher rate if the payment of cash dividends in
excess of 7 1/2% is stated in the provisions of such
preferred stock to be subject to the limitations set
forth in the Indenture,
(B) provisions for transferability,
(C) provisions for customary voting rights
and/or board representation upon the occurrence of
non-payment of dividends and
(4) other terms customary for public issuances of
preferred stock.
"CONTINGENT OBLIGATIONS" means, with respect to any Person, any
obligation of such Person guaranteeing any leases, dividends or other
obligations that do not constitute Indebtedness ("PRIMARY OBLIGATIONS") of any
other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent,
(1) to purchase any such primary obligation or any property
constituting direct or indirect security therefor,
(2) to advance or supply funds
(A) for the purchase or payment of any such primary
obligation or
(B) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, or
(3) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation
against loss in respect thereof.
"CONTRIBUTION AGREEMENT" means the Contribution Agreement dated as of
November 19, 1998, between Trinity Acquisition and Willis Corroon Group in a
form previously approved by the Administrative Agent under the Subordinated
Bridge Agreement.
"CONVERTIBLE LOAN" means an interest-free loan made by Trinity
Acquisition to Willis Corroon Group in exchange for a note that is convertible
at the option of Willis Corroon Group into common equity interests in Willis
Corroon Group, PROVIDED that the obligations of Willis Corroon Group under such
note are subordinated in right of payment to the notes in a form previously
approved by the Administrative Agent under the Subordinated Bridge Agreement
including, without limitation, that no payment may be made in respect of such
note prior to the date that is 91 days after the Maturity Date of such
agreement.
"CREDIT FACILITIES" means, with respect to Willis Corroon Group and
Willis Corroon Corporation, one or more debt facilities, including, without
limitation, the Senior Credit Facilities, or
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commercial paper facilities with banks or other institutional lenders or
indentures providing for revolving credit loans, term loans, receivables
financing, including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against receivables,
letters of credit or other long-term indebtedness, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced, including
increasing the amount borrowed thereunder, in whole or in part from time to
time.
"DEFAULT" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means the fair market value of
noncash consideration received by Willis Corroon Group or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate, setting
forth the basis of such valuation, executed by an executive vice president and
the principal financial officer of Willis Corroon Group or Willis Corroon
Corporation, less the amount of cash or Cash Equivalents received in connection
with a subsequent sale of such Designated Noncash Consideration.
"DESIGNATED PREFERRED STOCK" means preferred stock of Willis Corroon
Group, any of its direct or indirect parent corporations or Willis Corroon
Corporation (in each case other than Disqualified Stock) that is issued for cash
(other than to a Restricted Subsidiary) and is so designated as Designated
Preferred Stock, pursuant to an Officers' Certificate executed by an executive
vice president and the principal financial officer of Willis Corroon Group or
Willis Corroon Corporation, any of its direct or indirect parent corporations or
Willis Corroon Corporation, as the case may be, on the issuance date thereof,
the cash proceeds of which are excluded from the calculation set forth in clause
(c) of the first paragraph of the "--Certain Covenants--Limitation on Restricted
Payments" covenant.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital
Stock of such Person which, by its terms, or by the terms of any security into
which it is convertible or for which it is putable or exchangeable, or upon the
happening of any event, matures or is mandatorily redeemable, other than as a
result of a change of control or asset sale, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
other than as a result of a change of control or asset sale, in whole or in
part, in each case prior to the date 91 days after the earlier of the maturity
date of the notes or the date the notes are no longer outstanding; PROVIDED,
HOWEVER, that if such Capital Stock is issued to any plan for the benefit of
employees of Willis Corroon Group or its Subsidiaries or by any such plan to
such employees, such Capital Stock shall not constitute Disqualified Stock
solely because it may be required to be repurchased by Willis Corroon Group or
its Subsidiaries in order to satisfy applicable statutory or regulatory
obligations.
"DOMESTIC SUBSIDIARY" means, with respect to any Person, any
Restricted Subsidiary of such Person other than a Foreign Subsidiary.
"EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus
(a) provision for taxes based on income or profits of such
Person for such period deducted in computing Consolidated Net Income,
plus
(b) Consolidated Interest Expense of such Person for such period
paid by such Person or any of its Restricted Subsidiaries during such
period, in each case to the extent the same was deducted in calculating
such Consolidated Net Income, plus
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(c) Consolidated Depreciation and Amortization Expense of such
Person for such period to the extent such depreciation and amortization
were deducted in computing Consolidated Net Income, plus
(d) any expenses or charges related to any Equity Offering,
Permitted Investment, acquisition, including amounts paid in connection
with the acquisition or retention of one or more individuals comprising
teams engaged in a Similar Business, PROVIDED that such payments are made
at the time of such acquisition and are consistent with the customary
practice in the industry at the time of such acquisition,
recapitalization or Indebtedness permitted to be incurred by the
Indenture (whether or not successful), including such fees, expenses or
charges related to the offering of the outstanding notes and the recent
acquisitions and deducted in such period in computing Consolidated Net
Income, plus
(e) the amount of any restructuring charge deducted in such
period in computing Consolidated Net Income, including any one-time costs
incurred in connection with acquisitions after the Closing Date, plus
(f) without duplication, any non-recurring charges relating to
the Lloyd's Reconstruction and Renewal Plan, plus
(g) without duplication, any other non-cash charges reducing
Consolidated Net Income for such period, excluding any such charge that
represents an accrual or reserve for a cash expenditure for a future
period, plus
(h) the amount of any minority interest expense deducted in
calculating Consolidated Net Income, less, without duplication
(i) non-cash items increasing Consolidated Net Income of such
Person for such period, excluding any items which represent the reversal
of any accrual of, or cash reserve for, anticipated cash charges in any
prior period.
"EMU" means economic and monetary union as contemplated in the Treaty
on European Union.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"EQUITY OFFERING" means any public or private sale of common stock or
preferred stock of Willis Corroon Group, any of its direct or indirect parent
corporations or Willis Corroon Corporation (excluding Disqualified Stock), other
than
- public offerings with respect to Willis Corroon Group's Common Stock
registered on Form S-8 and
- any such public or private sale that constitutes an Excluded
Contribution.
"EURO" means the single currency of participating member states of the
EMU.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 and the rules
and regulations of the Commission promulgated thereunder.
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"EXCLUDED CONTRIBUTION" means net cash proceeds, marketable securities
or Qualified Proceeds, in each case, received by Willis Corroon Group or Willis
Corroon Corporation from
(a) contributions to its common equity capital (other than, in
the case of Willis Corroon Corporation, contributions by Willis Corroon
Group) and
(b) the sale (other than to a Subsidiary of Willis Corroon Group
or to any Willis Corroon Group or Subsidiary management equity plan or
stock option plan or any other management or employee benefit plan or
agreement) of Capital Stock (other than Disqualified Stock and Designated
Preferred Stock) of Willis Corroon Group or Willis Corroon Corporation,
in each case designated as Excluded Contributions pursuant to an officers'
certificate executed by an executive vice president and the principal financial
officer of Willis Corroon Group or Willis Corroon Corporation on the date such
capital contributions are made or the date such Equity Interests are sold, as
the case may be, which are excluded from the calculation set forth in clause (c)
of the first paragraph under "--Certain Covenants--Limitation on Restricted
Payments."
"EXISTING INDEBTEDNESS" means Indebtedness of Willis Corroon Group or
its Restricted Subsidiaries in existence on the Closing Date, plus interest
accruing thereon, after application of the net proceeds of the loans made under
the Subordinated Bridge Agreement.
"FACILITY HEDGING OBLIGATIONS" means Hedging Obligations of Willis
Corroon Group or Willis Corroon Corporation (other than Hedging Obligations
entered into for speculative purposes) having an aggregate notional amount at
any time outstanding not in excess of $1,175,000,000 less the notional amount of
any Trinity Hedging Obligations outstanding at such time.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for
any period, the ratio of EBITDA of such Person for such period to the Fixed
Charges of such Person for such period. In the event that Willis Corroon Group
or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness or issues or redeems Disqualified Stock or preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of Disqualified Stock or preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter period.
For purposes of making the computation referred to above, Investments,
acquisitions, dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP) that have been made by Willis Corroon
Group or any of its Restricted Subsidiaries during the four-quarter reference
period or subsequent to such reference period and on or prior to or
simultaneously with the Calculation Date shall be calculated on a pro forma
basis assuming that all such Investments, acquisitions, dispositions, mergers,
consolidations and discontinued operations (and the change in any associated
fixed charge obligations and the change in EBITDA resulting therefrom) had
occurred on the first day of the four-quarter reference period. If since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into Willis Corroon Group or any Restricted
Subsidiary since the beginning of such period) shall have made any Investment,
acquisition, disposition, merger, consolidation or discontinued operation that
would have required adjustment pursuant to this definition, then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma
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effect thereto for such period as if such Investment, acquisition, disposition,
merger, consolidation or discontinued operation had occurred at the beginning of
the applicable four-quarter period.
For purposes of this definition, whenever pro forma effect is to be
given to a transaction, the pro forma calculations shall be made in good faith
by a responsible financial or accounting officer of Willis Corroon Group. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on the Calculation Date had been the applicable rate for the entire
period (taking into account any Hedging Obligations applicable to such
Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by a responsible financial or
accounting officer of Willis Corroon Group to be the rate of interest implicit
in such Capitalized Lease Obligation in accordance with GAAP. For purposes of
making the computation referred to above, interest on any Indebtedness under a
revolving credit facility computed on a pro forma basis shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period. Interest on Indebtedness that may optionally be determined at an
interest rate based upon a factor of a prime or similar rate, a eurocurrency
interbank offered rate, or other rate, shall be deemed to have been based upon
the rate actually chosen, or, if none, then based upon such optional rate chosen
as Willis Corroon Group may designate.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum of
(a) Consolidated Interest Expense of such Person for such
period,
(b) all cash dividend payments (excluding items eliminated in
consolidation) on any series of
(1) Disqualified Stock,
(2) preferred stock and
(3) to the extent paid pursuant to clause (6)(B) of
the covenant described under "--Certain Covenants--Limitation
on Restricted Payments," other Capital Stock of such Person.
"FOREIGN SUBSIDIARY" means, with respect to any Person, any Restricted
Subsidiary of such Person that is not organized or existing under the laws of
the United States, any state thereof, the District of Columbia, or any territory
thereof.
"GAAP" means generally accepted accounting principles in the United
Kingdom which are in effect on the Closing Date. For the purposes of the
Indenture, the term "consolidated" with respect to any Person means such Person
consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary.
"GOVERNMENT SECURITIES" means securities that are
(a) direct obligations of the United States of America for the
timely payment of which its full faith and credit is pledged or
(b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America
the timely payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America,
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which, in either case, are not callable or redeemable at the option of the
issuers thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such Government Securities or a specific payment of principal of or
interest on any such Government Securities held by such custodian for the
account of the holder of such depository receipt; PROVIDED that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the Government Securities or the specific payment
of principal of or interest on the Government Securities evidenced by such
depository receipt.
"GROUP INTERCOMPANY NOTE" means a note issued by Willis Corroon Group
or a Restricted Subsidiary in favor of Trinity Acquisition
(a) in consideration of the issuance of a Trinity Intercompany
Note or
(b) in connection with a loan made by Trinity Acquisition to
Willis Corroon Group or such Restricted Subsidiary out of the proceeds
received from the issuance of a Trinity Intercompany Note,
PROVIDED, in each case, that the obligations of Willis Corroon Group or such
Restricted Subsidiary under such note are subordinated in right of payment to
the notes in a form previously approved by the administrative agent under the
Subordinated Bridge Agreement including, without limitation, that no payment
shall be made in respect of such note if any Default on the notes or any default
under the Senior Credit Facilities has occurred and is continuing.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"GUARANTEED LOAN NOTES" means loan notes of Trinity Acquisition issued
pursuant to the offer at the election of holders of the shares, having the terms
contained in the Guaranteed Loan Notes Instrument and guaranteed by The Chase
Manhattan Bank, acting through its London branch.
"GUARANTEED LOAN NOTES INSTRUMENT" means the Guaranteed Loan Notes
Instrument in the form of Exhibit J to the Senior Bridge Facility.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under
- currency exchange, interest rate or commodity swap agreements, currency
exchange, interest rate or commodity cap agreements and currency
exchange, interest rate or commodity collar agreements and
- other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange, interest rates or commodity
prices.
"HOLDER" means a holder of the notes.
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"INDEBTEDNESS" means, with respect to any Person,
(a) any indebtedness (including principal and premium) of such
Person, whether or not contingent
(1) in respect of borrowed money,
(2) evidenced by bonds, notes, debentures or similar
instruments or letters of credit or bankers' acceptances (or,
without double counting, reimbursement agreements in respect
thereof),
(3) representing the balance deferred and unpaid of
the purchase price of any property (including Capitalized
Lease Obligations), except any such balance that constitutes a
trade payable or similar obligation to a trade creditor, in
each case accrued in the ordinary course of business or
(4) representing any Hedging Obligations, if and to
the extent that any of the foregoing Indebtedness (other than
letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet (excluding the footnotes
thereto) of such Person prepared in accordance with GAAP,
(b) to the extent not otherwise included, any obligation by such
Person to be liable for, or to pay, as obligor, guarantor or otherwise,
on the Indebtedness of another Person, other than by endorsement of
negotiable instruments for collection in the ordinary course of business,
and
(c) to the extent not otherwise included, Indebtedness of
another Person secured by a Lien on any asset owned by such Person,
whether or not such Indebtedness is assumed by such Person; PROVIDED,
HOWEVER, that Contingent Obligations incurred in the ordinary course of
business shall be deemed not to constitute Indebtedness, and obligations
under or in respect of Receivables Facilities shall not be deemed to
constitute Indebtedness.
In addition, "Indebtedness" of any Person shall include Indebtedness
described in the foregoing paragraph that would not appear as a liability on the
balance sheet of such Person if
(1) such Indebtedness is the obligation of a partnership or a
joint venture that is not a Restricted Subsidiary (a "Joint Venture"),
(2) such Person or a Restricted Subsidiary is a general partner
of the Joint Venture (a "General Partner") and
(3) there is recourse, by contract or operation of law, with
respect to the payment of such Indebtedness to property or assets of such
Person or a Restricted Subsidiary; and such Indebtedness shall be
included in an amount not to exceed
(x) the greater of
(a) the net assets of the General Partner
and
(b) the amount of such obligations to the
extent that there is recourse by, contract or
operation of law, to the property or assets of
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such Person or a Restricted Subsidiary (other than
the General Partner) or
(y) if less than the amount determined pursuant to
clause (x) immediately above, the actual amount of such
Indebtedness that is recourse to such Person, if the
Indebtedness is evidenced by a writing and is for a
determinable amount and the related interest expense shall be
included in Consolidated Interest Expense to the extent paid
by Willis Corroon Group or its Restricted Subsidiaries.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal,
investment banking firm or consultant to Persons engaged in Similar Businesses
of nationally recognized standing that is, in the good faith judgment of Willis
Corroon Group or Willis Corroon Corporation, qualified to perform the task for
which it has been engaged.
"INTERIM FINANCINGS" means the Sponsor Promissory Note and the Senior
Bridge Facility.
"INTERIM REFINANCING INDEBTEDNESS" means indebtedness in respect of
loans made to Trinity Acquisition on the Closing Date by Willis Corroon
Corporation using the proceeds from the borrowing under the Subordinated Bridge
Agreement and the borrowing of term loans under the Senior Credit Facilities,
the proceeds of which were used
(a) directly or indirectly to repay the Interim Financings,
(b) to make a Convertible Loan, substantially all the proceeds
of which were used to repay indebtedness of Willis Corroon Group and its
Subsidiaries existing on the Closing Date and required to be repaid under
the Senior Credit Facilities and
(c) to pay related fees and expenses.
"INVESTMENT GRADE SECURITIES" means
(1) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or instrumentality
thereof (other than Cash Equivalents),
(2) debt securities or debt instruments with a rating of BBB-or
higher by S&P or Baa3 or higher by Moody's or the equivalent of such
rating by such rating organization, or, if no rating of S&P or Moody's
then exists, the equivalent of such rating by any other nationally
recognized securities rating agency, but excluding any debt securities or
instruments constituting loans or advances among Willis Corroon Group and
its Subsidiaries,
(3) investments in any fund that invests exclusively in
investments of the type described in clauses (1) and (2) which fund may
also hold immaterial amounts of cash pending investment and/or
distribution and
(4) corresponding instruments in countries other than the United
States or the United Kingdom customarily utilized for high-quality
investments.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of loans
(including guarantees), advances or capital contributions (excluding accounts
receivable, trade credit, advances to customers, commission, travel
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and similar advances to officers and employees, in each case made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
(excluding the footnotes) of Willis Corroon Group in the same manner as the
other investments included in this definition to the extent such transactions
involve the transfer of cash or other property. For purposes of the definition
of "Unrestricted Subsidiary" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments,"
(1) "Investments" shall include the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market
value of the net assets of a Subsidiary of Willis Corroon Group at the
time that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, Willis Corroon Group shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary in an
amount (if positive) equal to
(x) Willis Corroon Group's "Investment" in such
Subsidiary at the time of such redesignation less
(y) the portion (proportionate to Willis Corroon
Group's equity interest in such Subsidiary) of the fair market
value of the net assets of such Subsidiary at the time of such
redesignation; and
(2) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by Willis Corroon
Group.
"LETTER OF CREDIT OBLIGATIONS" means all Obligations in respect of
Indebtedness of Willis Corroon Group with respect to letters of credit issued
pursuant to the Senior Credit Facilities which Indebtedness shall be deemed to
consist of
(a) the aggregate maximum amount available to be drawn under all
such letters of credit (the determination of such aggregate maximum
amount to assume compliance with all conditions for drawing) and
(b) the aggregate amount that has been paid by, and not
reimbursed to, the issuers of such letters of credit.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction;
PROVIDED that in no event shall an operating lease be deemed to constitute a
Lien.
"MANAGEMENT GROUP" means the directors and executive officers of
Willis Corroon Corporation, Willis Corroon Group or its direct or indirect
parent corporations.
"MOODY'S" means Moody's Investors Service, Inc.
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"NET INCOME" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
"NET PROCEEDS" means the aggregate cash proceeds received by Willis
Corroon Group or any of its Restricted Subsidiaries in respect of any Asset
Sale, including, without limitation, any cash received upon the sale or other
disposition of any Designated Noncash Consideration received in any Asset Sale,
net of the direct costs relating to such Asset Sale and the sale or disposition
of such Designated Noncash Consideration, including, without limitation, legal,
accounting and investment banking fees, and brokerage and sales commissions, any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of principal, premium, if any, and interest on Senior Indebtedness
required (other than required by clause (1) of the second paragraph of
"--Repurchase at the Option of Holders--Asset Sales" to be paid as a result of
such transaction) and any deduction of appropriate amounts to be provided by
Willis Corroon Group as a reserve in accordance with GAAP against any
liabilities associated with the asset disposed of in such transaction and
retained by Willis Corroon Group after such sale or other disposition thereof,
including, without limitation, pension and other post-employment benefit
liabilities and liabilities related to environmental matters or against any
indemnification obligations associated with such transaction.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities, and guarantees of payment of such principal, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities, payable under the documentation governing any Indebtedness.
"OFFICER" means the Chairman of the Board, the President, any
Executive Vice President, Senior Vice President or Vice President, the Treasurer
or the Secretary of Willis Corroon Group, Willis Corroon Corporation or any
guarantor, as applicable.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of Willis
Corroon Group or Willis Corroon Corporation, as the case may be, by two Officers
of Willis Corroon Group or Willis Corroon Corporation, as applicable, one of
whom must be the principal executive officer, the principal financial officer,
the treasurer or the principal accounting officer of Willis Corroon Group or
Willis Corroon Corporation, as applicable, that meets the requirements set forth
in the Indenture.
"PERMITTED ASSET SWAP" means any one or more transactions in which
Willis Corroon Group or any Restricted Subsidiary exchanges assets for
consideration consisting of
(1) Equity Interests in or assets of a Person engaged in a
Similar Business and
(2) any cash or Cash Equivalents, provided that such cash or
Cash Equivalents will be considered Net Proceeds from an Asset Sale.
"PERMITTED HOLDERS" means Kohlberg Kravis Roberts & Co. L.P., its
Affiliates and the Management Group.
"PERMITTED INVESTMENTS" means
(a) with respect to fiduciary cash held by Willis Corroon Group
or its Restricted Subsidiaries, Investments in which it is customary for
Persons that are engaged in a Similar Business and that comply with all
applicable laws and regulations; and
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(b) in all other cases
(1) any Investment in Willis Corroon Group or any
Restricted Subsidiary;
(2) any Investment in cash and Cash Equivalents or
Investment Grade Securities;
(3) any Investment by Willis Corroon Group or any
Restricted Subsidiary of Willis Corroon Group in a Person that
is engaged in a Similar Business if as a result of such
Investment
(A) such Person becomes a Restricted
Subsidiary or
(B) such Person, in one transaction or a
series of related transactions, is merged,
consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets
to, or is liquidated into, Willis Corroon Group or a
Restricted Subsidiary;
(4) any Investment in securities or other assets not
constituting cash or Cash Equivalents and received in
connection with an Asset Sale made pursuant to the provisions
of "--Repurchase at the Option of Holders--Asset Sales" or any
other disposition of assets not constituting an Asset Sale;
(5) any Investment existing on the Closing Date;
(6) advances to employees not in excess of $15.0
million outstanding at any one time, in the aggregate;
(7) any Investment acquired by Willis Corroon Group
or any of its Restricted Subsidiaries
(A) in exchange for any other Investment or
accounts receivable held by Willis Corroon Group or
any such Restricted Subsidiary in connection with or
as a result of a bankruptcy, workout, reorganization
or recapitalization of the issuer of such other
Investment or accounts receivable or
(B) as a result of a foreclosure by Willis
Corroon Group or any of its Restricted Subsidiaries
with respect to any secured Investment or other
transfer of title with respect to any secured
Investment in default;
(8) Hedging Obligations permitted under clause (j) of
the covenant described in "--Certain Covenants--Limitation of
Incurrence of Indebtedness and Issuance of Disqualified Stock"
covenant;
(9) loans and advances to officers, directors and
employees for business-related travel expenses, moving
expenses and other similar expenses, in each case incurred in
the ordinary course of business;
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(10) any Investment in a Similar Business having an
aggregate fair market value, taken together with all other
Investments made pursuant to this clause (10) that are at that
time outstanding (without giving effect to the sale of an
Unrestricted Subsidiary to the extent the proceeds of such
sale do not consist of cash, marketable securities and/or
Qualified Proceeds), not to exceed the greater of
(A) $125.0 million or
(B) 12.5% of Total Revenues at the time of
such Investment (with the fair market value of each
Investment being measured at the time made and
without giving effect to subsequent changes in
value);
(11) Investments the payment for which consists of
Equity Interests of Willis Corroon Group, any of its direct or
indirect parent corporations or Willis Corroon Corporation
(exclusive of Disqualified Stock); PROVIDED, HOWEVER, that
such Equity Interests will not increase the amount available
for Restricted Payments under clause (c) of the first
paragraph under the covenant described in "--Certain
Covenants--Limitation on Restricted Payments;"
(12) additional Investments having an aggregate fair
market value, taken together with all other Investments made
pursuant to this clause (12) that are at that time outstanding
(without giving effect to the sale of an Unrestricted
Subsidiary to the extent the proceeds of such sale do not
consist of cash, marketable securities and/or Qualified
Proceeds or do consist of distributions made pursuant to
clause (13) of the second paragraph of the covenant described
in "--Certain Covenants--Limitation on Restricted Payments"),
not to exceed $50.0 million at the time of such Investment
(with the fair market value of each Investment being measured
at the time made and without giving effect to subsequent
changes in value);
(13) guarantees of Indebtedness permitted under the
covenant described in "--Certain Covenants--Limitation on
Incurrence of Indebtedness and Issuance of Disqualified
Stock;"
(14) any transaction to the extent it constitutes an
investment that is permitted and made in accordance with the
provisions of the second paragraph of the covenant described
under "--Certain Covenants--Transactions with Affiliates"
(except transactions described in clauses (2), (6), (7) and
(11) of such paragraph);
(15) Investments consisting of the licensing or
contribution of intellectual property pursuant to joint
marketing arrangements with other Persons;
(16) any Investment by Willis Corroon Group or any
Restricted Subsidiary in a Person that is an Associate on the
Closing Date; and
(17) Investments relating to any special purpose
Wholly Owned Subsidiary of Willis Corroon Group or Willis
Corroon Corporation organized in connection with a Receivables
Facility that, in the good faith determination of the
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board of directors of Willis Corroon Group, are necessary or
advisable to effect such Receivables Facility.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"PREFERRED STOCK" means any Equity Interest with preferential rights
of payment of dividends or upon liquidation, dissolution, or winding up.
"QUALIFIED PROCEEDS" means assets that are used or useful in, or
Capital Stock of any Person engaged in, a Similar Business; PROVIDED that the
fair market value of any such assets or Capital Stock shall be determined by the
board of directors in good faith, except that in the event the value of any such
assets or Capital Stock may exceed $25.0 million or more, the fair value shall
be determined in writing by an independent investment banking firm of nationally
recognized standing.
"RECEIVABLES FACILITY" means one or more receivables financing
facilities, as amended from time to time, pursuant to which Willis Corroon Group
and/or any of its Restricted Subsidiaries sells its accounts receivable to a
Person that is not a Restricted Subsidiary.
"RECEIVABLES FEES" means distributions or payments made directly or by
means of discounts with respect to any participation interest issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means, at any time, Willis Corroon Corporation
and any direct or indirect Subsidiary of Willis Corroon Group (including any
Foreign Subsidiary) that is not then an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon the occurrence of an Unrestricted Subsidiary ceasing to be an
Unrestricted Subsidiary, such Subsidiary shall be included in the definition of
"Restricted Subsidiary."
"S&P" means Standard and Poor's Ratings Group.
"SECURITIES ACT" means the Securities Act of 1933 and the rules and
regulations of the Commission promulgated thereunder.
"SENIOR BRIDGE FACILITY" means the Credit Agreement dated as of July
22, 1998, as amended and restated as of September 25, 1998, and as amended on
October 30, 1998 and November 13, 1998, among Trinity Acquisition, the lenders
party thereto and The Chase Manhattan Bank, as Administrative Agent.
"SENIOR CREDIT FACILITIES" means the Credit Agreement dated as of July
22, 1998, as amended and restated as of September 1, 1998, September 25, 1998
and February 19, 1999, and as amended on October 28, 1998, among Willis Corroon
Group, Willis Corroon Corporation, Trinity Acquisition, the Lenders from time to
time party thereto and The Chase Manhattan Bank, as Administrative Agent and
Collateral Agent, including any collateral documents, instruments and agreements
executed in connection therewith, and any amendments, supplements,
modifications, extensions, renewals, restatements or refundings thereof and any
indentures or credit facilities or commercial paper facilities with banks or
other institutional lenders that replace, refund or refinance any part of the
loans, notes, other credit facilities or commitments thereunder, including any
such
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replacement, refunding or refinancing facility or indenture that increases the
amount borrowable thereunder or alters the maturity thereof, PROVIDED, HOWEVER,
that in connection with any facilities which refund, replace or refinance such
Credit Agreement there shall not be more than one facility at any one time that
is identified as the Senior Credit Facilities and, if at any time there is more
than one facility which would constitute the Senior Credit Facilities, Willis
Corroon Corporation will designate to the Trustee which one of such facilities
will be the Senior Credit Facilities for purposes of the Indenture.
"SENIOR SUBORDINATED INDEBTEDNESS" means
(a) with respect to Willis Corroon Corporation, Indebtedness
which ranks equal in right of payment to the notes and
(b) with respect to any guarantor, Indebtedness which ranks
equal in right of payment to the guarantee of such guarantor.
"SIGNIFICANT SUBSIDIARY" means Willis Corroon Corporation and any
other Restricted Subsidiary that would be a "significant subsidiary" as defined
in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the
Securities Act, as such regulation is in effect on the date hereof.
"SIMILAR BUSINESS" means insurance brokering, risk management
consulting, insurance agency, employee benefit consulting and any activities or
businesses incidental or directly related or similar thereto, or any line of
business engaged in by Willis Corroon Group or its Subsidiaries on the date of
issuance of the outstanding notes or any business activity that is a reasonable
extension, development or expansion thereof or ancillary thereto.
"SPONSOR PROMISSORY NOTE" means the subordinated promissory note dated
as of July 22, 1998, issued by Trinity Acquisition in favor of an affiliate of
Kohlberg Kravis Roberts & Co. L.P. in an amount not to exceed $575,000,000.
"SUBORDINATED BRIDGE AGREEMENT" means the Senior Subordinated Loan
Agreement dated as of November 19, 1998, among Willis Corroon Group, Willis
Corroon Partners, Willis Corroon Corporation, the Lenders from time to time
party thereto and The Chase Manhattan Bank, as Administrative Agent.
"SUBORDINATED INDEBTEDNESS" means
(a) with respect to Willis Corroon Corporation, any Indebtedness
of Willis Corroon Corporation which is by its terms subordinated in right
of payment to the notes and
(b) with respect to any guarantor, any Indebtedness of such
guarantor which is by its terms subordinated in right of payment to the
guarantee of such guarantor.
"SUBSIDIARY" means, with respect to any Person,
(1) any corporation, association, or other business entity
(other than a partnership, joint venture, limited liability company or
similar entity) of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time of determination owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of
that Person or a combination thereof and
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(2) any partnership, joint venture, limited liability company or
similar entity of which
(x) more than 50% of the capital accounts,
distribution rights, total equity and voting interests or
general or limited partnership interests, as applicable, are
owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person or a
combination thereof whether in the form of membership,
general, special or limited partnership or otherwise and
(y) such Person or any Wholly Owned Restricted
Subsidiary of such Person is a controlling general partner or
otherwise controls such entity.
"TOTAL REVENUES" means the total operating revenues of Willis Corroon
Group and its Restricted Subsidiaries, as shown on the most recent annual income
statement of Willis Corroon Group.
"TRINITY HEDGING OBLIGATIONS" means Hedging Obligations of Trinity
Acquisition (other than Hedging Obligations entered into for speculative
purposes) having an aggregate notional amount at any time outstanding not in
excess of $1,175,000,000 less the notional amount of any Facility Hedging
Obligations outstanding at such time.
"TRINITY INTERCOMPANY NOTE" means any note issued by Trinity
Acquisition in favor of Willis Corroon Group or a Restricted Subsidiary
(a) in consideration of the issuance of a Group Intercompany
Note or
(b) in connection with the making of a loan to Trinity
Acquisition by Willis Corroon Group or such Restricted Subsidiary (other
than with respect to Interim Refinancing Indebtedness), PROVIDED that all
the proceeds received by Trinity Acquisition from such loan, if any, are
immediately used to make a loan to Willis Corroon Group or a Restricted
Subsidiary pursuant to a Group Intercompany Note.
"U.K. SUBSIDIARY" means, with respect to any Person, any Restricted
Subsidiary of such Person that is organized under the laws of England and Wales.
"UNRESTRICTED SUBSIDIARY" means
(1) Sovereign Marine & General Insurance Company Limited, in
provisional liquidation,
(2) any Subsidiary of Willis Corroon Group which at the time of
determination is an Unrestricted Subsidiary (as designated by the Board
of Directors of Willis Corroon Group, as provided below) and
(3) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of Willis Corroon Group may designate any Subsidiary of
Willis Corroon Group (including any existing Subsidiary and any newly acquired
or newly formed Subsidiary but excluding Willis Corroon Corporation) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Equity Interests or Indebtedness of, or owns or holds any Lien on, any
property of, Willis Corroon Group or any Subsidiary of Willis Corroon Group
(other than any Subsidiary of the Subsidiary to be so designated), PROVIDED that
(a) any Unrestricted Subsidiary (other than Sovereign) must be
an entity of which shares of the capital stock or other equity interests
(including partnership interests) entitled to cast at least a majority of
the votes that may be cast by all shares or equity interests having
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ordinary voting power for the election of directors or other governing
body are owned, directly or indirectly, by Willis Corroon Group,
(b) such designation complies with the covenants described under
"--Certain Covenants--Limitation on Restricted Payments" and
(c) each of
(1) the Subsidiary to be so designated and
(2) its Subsidiaries has not at the time of
designation, and does not thereafter, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly
liable with respect to any Indebtedness pursuant to which the
lender has recourse to any of the assets of Willis Corroon
Group or any of its Restricted Subsidiaries.
The Board of Directors of Willis Corroon Group may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that,
immediately after giving effect to such designation no Default or Event of
Default shall have occurred and be continuing and either
(1) Willis Corroon Group could incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
described under "--Certain Covenants-- Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" or
(2) the Fixed Charge Coverage Ratio for Willis Corroon Group and
its Restricted Subsidiaries would be greater than such ratio for Willis
Corroon Group and its Restricted Subsidiaries immediately prior to such
designation, in each case on a pro forma basis taking into account such
designation. Any such designation by the Board of Directors of Willis
Corroon Group shall be notified by Willis Corroon Group to the Trustee by
promptly filing with the Trustee a copy of the board resolution giving
effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing provisions.
"VOTING STOCK" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness or Disqualified Stock, as the case may be, at any date, the
quotient obtained by dividing
(1) the sum of the products of the number of years from the date
of determination to the date of each successive scheduled principal
payment of such Indebtedness or redemption or similar payment with
respect to such Disqualified Stock multiplied by the amount of such
payment, by
(2) the sum of all such payments.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" is any Wholly Owned Subsidiary
that is a Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such
Person, 100% of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
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REGISTRATION RIGHTS AGREEMENT
Willis Corroon Group, Willis Corroon Corporation, Willis Corroon
Partners (which are collectively referred to as the "Willis Corroon" for
purposes of this summary) and the initial purchasers under the issuance of
outstanding notes entered into an exchange and registration rights agreement on
February 2, 1999. Pursuant to the registration rights agreement, Willis Corroon
agreed to:
- file with the Commission on or prior to 100 days after the date of
issuance of the outstanding notes a registration statement on an
appropriate form under the Securities Act, relating to a registered
exchange offer for the outstanding notes under the Securities Act; and
- use its reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities
Act within 240 days after the issuance of the outstanding notes.
As soon as practicable after the effectiveness of the exchange offer
registration statement, Willis Corroon Corporation will offer to the holders of
Transfer Restricted Securities (as defined below) who are not prohibited by any
law or policy of the Commission from participating in the exchange offer the
opportunity to exchange their Transfer Restricted Securities for an issue of a
second series of notes that are identical in all material respects to the
outstanding notes (except that the exchange notes will not contain terms with
respect to transfer restrictions) and that would be registered under the
Securities Act. Willis Corroon Corporation will keep the exchange offer open for
not less than 20 business days (or longer, if required by applicable law) after
the date on which notice of the exchange offer is mailed to the holders of the
outstanding notes.
If
- because of any change in law or applicable interpretations thereof by
the staff of the Commission, Willis Corroon is not permitted to effect
the exchange offer as contemplated hereby,
- any outstanding notes validly tendered pursuant to the exchange offer
are not exchanged for exchange notes within 270 days after the issuance
of the outstanding notes,
- the initial purchasers so request with respect to outstanding notes not
eligible to be exchanged for exchange notes in the exchange offer,
- any applicable law or interpretations do not permit any holder of
outstanding notes to participate in the exchange offer or
- any holder of outstanding notes that participates in the exchange offer
does not receive freely transferable exchange notes in exchange for
tendered outstanding notes,
then Willis Corroon will file with the Commission a shelf registration statement
to cover resales of Transfer Restricted Securities by such holders who satisfy
certain conditions relating to the provision of information in connection with
the shelf registration statement. For purposes of the foregoing, "Transfer
Restricted Securities" means each outstanding note until:
- the date on which such outstanding note has been exchanged for a freely
transferable exchange note in the exchange offer;
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- the date on which such outstanding note has been effectively registered
under the Securities Act and disposed of in accordance with the shelf
registration statement; or
- the date on which such outstanding note is distributed to the public
pursuant to Rule 144 under the Securities Act or is salable pursuant to
Rule 144(k) under the Securities Act.
Willis Corroon will use its reasonable best efforts to have the
exchange offer registration statement or, if applicable, the shelf registration
statement declared effective by the Commission as promptly as practicable after
the filing thereof. Unless the exchange offer would not be permitted by a policy
of the Commission, Willis Corroon Corporation will commence the exchange offer
and will use its reasonable best efforts to consummate the exchange offer as
promptly as practicable, but in any event prior to 270 days after the issuance
of the outstanding notes. If applicable, Willis Corroon will use its reasonable
best efforts to keep the shelf registration statement effective for a period
until two years after the issuance of the outstanding notes or such shorter
period when all notes covered by the shelf registration statement have been sold
in the manner set forth and as contemplated in the shelf registration statement
or when the outstanding notes became eligible for resale pursuant to Rule 144
under the Securities Act without volume restrictions, if any.
If
(1) the applicable registration statement is not filed with the
Commission on or prior to 100 days after the issuance of the
outstanding notes (or, in the case of a shelf registration
statement required to be filed in response to a change in law or
applicable interpretations of the staff of the Commission, if
later, within 60 days after publication of the change in law or
interpretations, but in no event before 100 calendar days after the
issuance of the outstanding notes);
(2) the exchange offer registration statement or the shelf registration
statement, as the case may be, is not declared effective within 240
days after the issuance of the outstanding notes (or in the case of
a shelf registration statement required to be filed in response to
a change in law or applicable interpretations of the staff of the
Commission, if later, within 90 days after publication of the
change in law or interpretations, but in no event before 240 days
after the issuance of the outstanding notes);
(3) the exchange offer is not consummated on or prior to 270 days after
the issuance of the outstanding notes (other than in the event
Willis Corroon files a shelf registration statement); or
(4) the shelf registration statement is filed and declared effective
within the time periods specified in clause (2) above but shall
thereafter cease to be effective (at any time that Willis Corroon
is obligated to maintain the effectiveness thereof) without being
succeeded within 90 days by an additional registration statement
filed and declared effective
Willis Corroon will be obligated to pay liquidated damages to each holder of
Transfer Restricted Securities, during the period of one or more such
registration defaults, with respect to the first 90-day period immediately
following the occurrence of the first registration default in an amount equal to
one-quarter of one percent per annum, which rate will be increased by an
additional one-quarter of one percent per annum for each subsequent 90-day
period that any liquidated damages continue to accrue; provided that the rate at
which liquidated damages accrue may in no event exceed 1.0% per annum, in
respect of the notes constituting Transfer Restricted Securities held by such
holder until the applicable
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registration statement is filed, the exchange offer registration statement is
declared effective and the exchange offer is consummated or the shelf
registration statement is declared effective or again becomes effective, as the
case may be. All accrued liquidated damages shall be paid to holders in the same
manner as interest payments on the notes on semi-annual payment dates which
correspond to interest payment dates for the notes. Following the cure of all
registration defaults, the accrual of liquidated damages will cease.
Notwithstanding the foregoing, Willis Corroon may issue a notice that the shelf
registration statement is unusable pending the announcement of a material
corporate transaction and may issue any notice suspending use of the shelf
registration statement required under applicable securities laws to be issued
and, in the event that the aggregate number of days in any consecutive
twelve-month period for which all such notices are issued and effective exceeds
60 days in the aggregate, then Willis Corroon will be obligated to pay
liquidated damages to each holder of Transfer Restricted Securities in an amount
equal to one-quarter of one percent per annum, which rate will be increased by
an additional one-quarter of one percent per annum for each subsequent 90-day
period that liquidated damages continue to accrue; provided that the rate at
which liquidated damages accrue may in no event exceed 1.0% per annum, in
respect of the notes constituting Transfer Restricted Securities. Upon Willis
Corroon declaring that the shelf registration statement is usable after the
period of time described in the preceding sentence, the accrual of liquidated
damages will cease.
The registration rights agreement also provides that Willis Corroon
- shall make available for a period of 90 days after the consummation of
the exchange offer a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any
resale of any such exchange notes and
- shall pay expenses incident to the exchange offer and will indemnify
certain holders of the notes (including any broker-dealer) against
certain liabilities, including liabilities under the Securities Act.
A broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the exchange and
registration rights agreement (including certain indemnification rights and
obligations).
Each holder of the outstanding notes who wishes to exchange such
outstanding notes for exchange notes in the exchange offer will be required to
make certain representations, including representations that:
- any exchange notes to be received by it will be acquired in the
ordinary course of its business;
- it has no arrangement or understanding with any person to participate
in the distribution of the exchange notes;
- it is not an "affiliate" (as defined in Rule 405 under the Securities
Act) of Willis Corroon, or if it is an affiliate, that it will comply
with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable; and
- if it is a person in the United Kingdom, that its ordinary activities
involve it in acquiring, holding, managing or disposing of investments,
as principal or agent, for the purposes of its business.
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If the holder is not a broker-dealer, it will be required to represent
that it is not engaged in, and does not intend to engage in, the distribution of
the exchange notes. If the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for outstanding notes that were acquired
as a result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such exchange notes.
Holders of the outstanding notes will be required to make certain
representations to Willis Corroon (as described above) in order to participate
in the exchange offer and will be required to deliver information to be used in
connection with the shelf registration statement in order to have their
outstanding notes included in the shelf registration statement and benefit from
the provisions regarding liquidated damages set forth in the preceding
paragraphs. A holder who sells outstanding notes pursuant to the shelf
registration statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement which are applicable to such a
holder (including certain indemnification obligations).
For so long as the notes are outstanding, Willis Corroon Corporation
will continue to provide to holders of the notes and to prospective purchasers
of the notes the information required by Rule 144A(d)(4) under the Securities
Act.
The foregoing description of the registration rights agreement is a
summary only, does not purport to be complete and is qualified in its entirety
by reference to all provisions of the registration rights agreement. Willis
Corroon will provide a copy of the registration rights agreement to holders of
outstanding notes identified to Willis Corroon by the initial purchasers under
the offering of outstanding notes upon request.
Application will be made to list the exchange notes on the Luxembourg
Stock Exchange. The exchange notes will be accepted for clearance through the
accounts of the Euroclear Operator and Cedel Bank and they will have a new
common code and a new ISIN number, which will be transmitted to the Luxembourg
Stock Exchange. All documents prepared in connection with the exchange offer
will be available at the office of the special agent in Luxembourg and all
necessary actions and services in respect of the exchange offer may be done at
the office of the special agent in Luxembourg. The special agent appointed for
these purposes is Kredietbank S.A. Luxembourgeoise, 43, Boulevard Royal, L-2955
Luxembourg.
All notices relating to the exchange offer will be published in
accordance with the notice provisions of the indenture. See "Description of the
Notes--Notices." So long as the outstanding notes are listed on the Luxembourg
Stock Exchange and the rules of such stock exchange shall require, prior to the
commencement of the exchange offer, notice of the exchange offer will be given
to the Luxembourg Stock Exchange and will be published in a newspaper having a
general circulation in Luxembourg, which is expected to be the LUXEMBURGER WORT.
Such notice will, among other things, provide details of the conditions to the
exchange offer and the commencement and expected completion dates of the
exchange offer. So long as the notes are listed on the Luxembourg Stock Exchange
and the rules of such stock exchange shall require, notice of the results of the
exchange offer will be given to the Luxembourg Stock Exchange and will be
published in a newspaper having a general circulation in Luxembourg, which is
expected to be the LUXEMBURGER WORT, in each case, as promptly as practicable
following the completion of the exchange offer. Similar notice will also be
provided in connection with the payment of liquidated damages and the
declaration of the effective date of interest rates.
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UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
EXCHANGE OF NOTES
The following summary describes the material United States federal
income tax consequences of the exchange offer. The exchange of outstanding notes
for exchange notes in the exchange offer will not constitute a taxable event to
holders. Consequently, no gain or loss will be recognized by a holder upon
receipt of an exchange note, the holding period of the exchange note will
include the holding period the outstanding note and the basis of the exchange
note will be the same as the basis of the outstanding note immediately before
the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OUTSTANDING NOTES FOR
EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following summary describes the material United States federal
income tax consequences of the ownership of notes as of the date hereof by a
Non-U.S. Holder (as defined below). Except where noted it deals only with notes
held as capital assets by Non-U.S. Holders. As used herein the term "Non-U.S.
Holder" means any person or entity that is not a United States Holder ("U.S.
Holder"). A U.S. Holder is any beneficial owner of a note that is
(1) a citizen or resident of the United States,
(2) a corporation or partnership created or organized in or
under the laws of the United States or any political subdivision thereof,
(3) an estate the income of which is subject to U.S. federal
income taxation regardless of its source and
(4) a trust (x) that is subject to the supervision of a court
within the United States and the control of one or more United States
persons as described in section 7701(a)(30) or (y) that has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
The discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in United States federal income
tax consequences different from those discussed below. PERSONS CONSIDERING THE
PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT
OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE
LAWS OF ANY OTHER TAXING JURISDICTION.
Under present United States federal income and estate tax law, and
subject to the discussion below concerning backup withholding:
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(a) no withholding of United States federal income tax will be
required with respect to the payment by Willis Corroon Corporation or any
paying agent of principal or interest on a note owned by a Non-U.S.
Holder, provided that
(1) the beneficial owner does not actually or
constructively own 10% or more of the total combined voting
power of all classes of stock of Willis Corroon Corporation
entitled to vote within the meaning of section 871(h)(3) of
the Code and the regulations thereunder,
(2) the beneficial owner is not a controlled foreign
corporation that is related to Willis Corroon Corporation
through stock ownership,
(3) the beneficial owner is not a bank whose receipt
of interest on a note is described in section 881(c)(3)(A) of
the Code and
(4) the beneficial owner satisfies the statement
requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations
thereunder;
(b) no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-U.S. Holder
upon the sale, exchange, retirement or other disposition of a note; and
(c) a note beneficially owned by an individual who at the time
of death is a Non-U.S. Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the company
entitled to vote within the meaning of section 871(h)(3) of the Code and
provided that the interest payments with respect to such note would not
have been, if received at the time of such individual's death,
effectively connected with the conduct of a United States trade or
business by such individual.
It is unclear whether the payment of Liquidated Damages to a Non-U.S.
Holder would be subject to withholding of U.S. federal income tax.
To satisfy the requirement referred to in (a)(4) above, the beneficial
owner of such note, or a financial institution holding the note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Issuer with a statement to the effect that the beneficial owner is
not a U.S. Holder. Currently, these requirements will be met if
(1) the beneficial owner provides his name and address, and
certifies, under penalties of perjury, that he is not a U.S. Holder
(which certification may be made on an Internal Revenue Service ("IRS")
Form W-8 (or successor form)) or
(2) a financial institution holding the note on behalf of the
beneficial owner certifies, under penalties of perjury, that such
statement has been received by it and furnishes a paying agent with a
copy thereof.
Under recently finalized Treasury regulations (the "Final Regulations"), the
statement requirement referred to in (a)(4) above may also be satisfied with
other documentary evidence for interest paid after December 31, 1999 with
respect to an offshore account or through certain foreign intermediaries.
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If a Non-U.S. Holder is engaged in a trade or business in the United
States and interest on the note is effectively connected with the conduct of
such trade or business, the Non-U.S. Holder, although exempt from the
withholding tax discussed above, will be subject to United States federal income
tax on such interest on a net income basis in the same manner as if it were a
U.S. Holder. In addition, if such holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% (or lower applicable treaty rate)
of its effectively connected earnings and profits for the taxable year, subject
to adjustments. For this purpose, interest on a note will be included in such
foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or
other disposition of a note generally will not be subject to United States
federal income tax unless
(1) such gain or income is effectively connected with the
conduct of a trade or business in the United States by the Non-U.S.
Holder, or
(2) in the case of a Non-U.S. Holder who is an individual, such
individual is present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other disposition, and
certain other conditions are met.
Special rules may apply to certain Non-U.S. Holders, such as
"controlled foreign corporations," "passive foreign investment companies" and
"foreign personal holding companies," that are subject to special treatment
under the Code. Such entities should consult their own tax advisors to determine
the U.S. federal, state, local and other tax consequences that may be relevant
to them.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, no information reporting or backup withholding will be
required with respect to payments made by Willis Corroon Corporation or any
paying agent to Non-U.S. Holders if a statement described in (a)(4) above has
been received (and the payor does not have actual knowledge that the beneficial
owner is a United States Person).
In addition, backup withholding and information reporting will not
apply if payments of the principal, interest or premium on a note are paid or
collected by a foreign office of a custodian, nominee or other foreign agent on
behalf of the beneficial owner of such note, or if a foreign office of a broker
(as defined in applicable Treasury regulations) pays the proceeds of the sale of
a note to the owner thereof. If, however, such nominee, custodian, agent or
broker is, for United States federal income tax purposes, a United States
person, a controlled foreign corporation or a foreign person that derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the United States, or, for taxable years beginning after December
31, 1999, a foreign partnership in which one or more United States persons, in
the aggregate, own more than 50% of the income or capital interests in the
partnership or a foreign partnership which is engaged in a trade or business in
the United States, such payments will not be subject to backup withholding but
will be subject to information reporting, unless
(1) such custodian, nominee, agent or broker has documentary
evidence in its records that the beneficial owner is not a United States
person and certain other conditions are met or
(2) the beneficial owner otherwise establishes an exemption.
Payments of principal, interest and premium on a note paid to the
beneficial owner of a note by a United States office of a custodian, nominee or
agent, or the payment by the United States office of a broker of the proceeds of
sale of a note, will be subject to both backup withholding and information
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reporting unless the beneficial owner provides the statement referred to in
(a)(4) above and the payor does not have actual knowledge that the beneficial
owner is a United States person or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
MATERIAL UNITED KINGDOM TAX CONSEQUENCES OF PAYMENTS BY
WILLIS CORROON GROUP AS GUARANTOR
Under current law if Willis Corroon Group, as guarantor, makes any
payments in respect of interest on the notes (or other amounts due under the
notes other than repayment of principal) such payments may be subject to United
Kingdom withholding tax at the basic rate (currently 23%). Relief from such
withholding may be available pursuant to the provisions of any applicable double
taxation treaty. In particular, under the terms of the U.S./U.K. double taxation
treaty, Holders entitled to the benefit of that treaty would be able to recover
in full any U.K. tax withheld by making a claim on the appropriate form.
Alternatively, a claim may be made by a holder in advance of a payment in
respect of interest. If the claim is accepted by the U.K. Inland Revenue, it
will authorize subsequent payments to be made without deduction of U.K.
withholding tax. Claims for repayment must be made within six years of the end
of the U.K. year of assessment (generally April 5 in each year) to which the
interest relates and must be accompanied by the original statement provided by
the Company when the interest payment was made showing the amount of U.K. income
tax deducted. Because a claim is not considered until the U.K. Inland Revenue
receives the appropriate form from the Internal Revenue Service, forms should be
sent to the Internal Revenue Service, in the case of an advance claim well
before the relevant interest payment date or, in the case of a claim for
repayment of the tax, well before the end of the appropriate limitation period.
As described above, Willis Corroon Group has agreed, subject to
specific exceptions and limitations, to pay to the holders of the notes
Additional Amounts in respect of any applicable United Kingdom withholding tax
in order that the interest (and other amounts due under the notes) such holders
receive, net of any applicable United Kingdom withholding tax, will equal the
amounts which would have been receivable by such holders in the absence of such
United Kingdom withholding tax. See "Description of the Notes--Withholding
Taxes".
TRANSFER TAXES ON TRANSFER OF NOTES IN THE UNITED KINGDOM
Under current law the sale or transfer in the United Kingdom of the
notes will not be subject to stamp duty or stamp duty reserve tax or any other
transfer tax in the United Kingdom.
MATERIAL UNITED KINGDOM TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of outstanding notes for exchange notes in the exchange
offer may constitute a disposal for the purposes of taxation of capital gains or
a transfer for the purposes of the accrued income scheme for an individual
holder who is resident or ordinarily resident for tax purposes in the United
Kingdom or who carries on a trade, profession or vocation through a branch or
agency to which the note is attributable. The exchange of outstanding notes for
exchange notes will not constitute a taxable disposal for holders which are
companies within the charge to corporation tax or for holders which are exempt
from taxation.
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BOOK-ENTRY; DELIVERY AND FORM
The exchange notes will initially be represented by one or more
permanent global notes in definitive, fully registered book-entry form, without
interest coupons that will be deposited with, or on behalf of, DTC and
registered in the name of DTC or its nominee, on behalf of the acquirors of
exchange notes represented thereby for credit to the respective accounts of the
acquirors, or to such other accounts as they may direct, at DTC, or Morgan
Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System, or Cedel Bank, societe anonyme. See "The Exchange Offer--Book
Entry Transfer."
Except as set forth below, the global notes may be transferred, in
whole and not in part, solely to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the global notes may not be exchanged
for notes in physical, certificated form except in the limited circumstances
described below.
All interests in the global notes, including those held through
Euroclear or Cedel, may be subject to the procedures and requirements of DTC.
Those interests held through Euroclear or Cedel may also be subject to the
procedures and requirements of such systems.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are within the sole control of the respective
settlement systems and are subject to change by them. Willis Corroon Corporation
takes no responsibility for these operations or procedures, and investors are
urged to contact the relevant system or its participants directly to discuss
these matters.
DTC has advised Willis Corroon Corporation that it is
(1) a limited purpose trust company organized under the laws of
the State of New York,
(2) a "banking organization" within the meaning of the New York
Banking Law,
(3) a member of the Federal Reserve System,
(4) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended and
(5) a "clearing agency" registered pursuant to Section 17A of
the Exchange Act.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
participants include securities brokers and dealers, including the initial
purchasers under the offering of outstanding notes, banks and trust companies,
clearing corporations and certain other organizations. Indirect access to DTC's
system is also available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Investors who are not participants
may beneficially own securities held by or on behalf of DTC only through
participants or indirect participants.
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Willis Corroon Corporation expects that pursuant to procedures
established by DTC, ownership of the notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC, with
respect to the interests of participants, and the records of participants and
the indirect participants, with respect to the interests of persons other than
Participants.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the notes represented by a
global note to such persons may be limited. In addition, because DTC can act
only on behalf of its participants, who in turn act on behalf of persons who
hold interests through participants, the ability of a person having an interest
in notes represented by a global note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a global note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the notes represented by the global note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a global
note
- will not be entitled to have notes represented by a global note
registered in their names,
- will not receive or be entitled to receive physical delivery of
certificated notes, and
- will not be considered the owners or holders thereof under the
Indenture for any purpose.
Willis Corroon Corporation understands that under existing industry practice, in
the event that Willis Corroon Corporation requests any action of holders of
notes, or a holder that is an owner of a beneficial interest in a global note
desires to take any action, DTC would authorize the participants to take such
action and the participants would authorize holders owning through such
participants to take such action or would otherwise act upon the instruction of
such holders. Neither Willis Corroon Corporation nor the trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such notes.
Payments of the principal of, premium, if any, and interest on, any
notes represented by a global note registered in the name of DTC or its nominee
on a record date will be payable by the trustee to or at the direction of DTC or
its nominee. Accordingly, neither Willis Corroon Corporation nor the trustee has
or will have any responsibility or liability for the payment of such amounts to
owners of beneficial interests in a global note. Payments by the participants
and the indirect participants to the owners of beneficial interests in a global
note will be governed by standing instructions and customary industry practice
and will be the responsibility of the participants or the indirect participants
and DTC.
Transfers between participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its depositary. However, such cross-market transactions will require
delivery of instructions to Euroclear or Cedel, as the case may be, by the
counterparty in such system in
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accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the relevant global notes in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositaries for Euroclear or Cedel.
Although DTC, Euroclear and Cedel have agreed to the procedures
described above to facilitate transfers of interests in the global notes among
participants in DTC, Euroclear and Cedel, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither Willis Corroon Corporation nor the trustee
will have any responsibility for the performance by DTC, Euroclear or Cedel or
their participants or indirect participants of their obligations under the rules
and procedures governing their operations.
CERTIFICATED NOTES
If
- Willis Corroon Corporation notifies the trustee in writing that DTC is
no longer willing or able to act as a depositary or DTC ceases to be
registered as a clearing agency under the Exchange Act and a successor
depositary is not appointed within 90 days of such notice or cessation,
- Willis Corroon, at its option, notifies the trustee in writing that it
elects to cause the issuance of notes in definitive form under the
Indenture or
- upon the occurrence of certain other events as provided in the
Indenture,
then, upon surrender by DTC of the global notes, certificated notes will be
issued to each person that DTC identifies as the beneficial owner of the notes
represented by the global notes. Upon any such issuance, the trustee is required
to register such certificated notes in the name of such person or persons, or
the nominee of any thereof, and cause the same to be delivered thereto.
Neither Willis Corroon Corporation nor the trustee shall be liable for
any delay by DTC or any participant or indirect participant in identifying the
beneficial owners of the related notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from DTC for all
purposes, including with respect to the registration and delivery, and the
respective principal amounts, of the notes to be issued.
If certificated notes are issued, Willis Corroon will appoint
Kredietbank S.A. Luxembourgeoise, or such other person located in Luxembourg and
reasonably acceptable to the trustee, as an additional paying and transfer
agent. Upon the issuance of certificated notes, holders of the notes will be
able to transfer and exchange certificated notes at the Luxembourg office of
such paying and transfer agent, PROVIDED that all transfers and exchanges must
be effected in accordance with the terms of the Indenture and, among other
things, be recorded in the register maintained by the registrar.
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YEAR 2000
DTC management is aware that some computer applications, systems, and
the like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "year 2000
problems." DTC has informed its participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC ("DTC Services"), continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTC's plan includes a
testing phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed the Industry that it is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to:
(1) impress upon them the importance of such services being year
2000 compliant; and
(2) determine the extent of their efforts for year 2000
remediation (and, as appropriate, testing) of their services.
In addition, DTC is in the process of developing such contingency plans as it
deems appropriate.
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PLAN OF DISTRIBUTION
Until , 1999 (90 days after the date of this prospectus),
all dealers effecting transactions in the exchange notes, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes only where such outstanding notes were acquired
as a result of market-making activities or other trading activities. Willis
Corroon has agreed that it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale for a period of 90 days from the date on which the exchange offer is
consummated, or such shorter period as will terminate when all outstanding notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for exchange notes
and such exchange notes have been resold by such broker-dealers.
Willis Corroon will not receive any proceeds from any sale of exchange
notes by broker-dealers. Exchange notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days from the date on which the exchange offer is
consummated, or such shorter period as will terminate when all outstanding notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for exchange notes
and such exchange notes have been resold by such broker-dealers, Willis Corroon
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. Willis Corroon has agreed to pay all expenses
incident to the exchange offer other than commissions or concessions of any
brokers or dealers and the fees of any counsel or other advisors or experts
retained by the holders of outstanding notes, except as expressly set forth in
the registration rights agreement, and will indemnify the holders of outstanding
notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
The exchange of outstanding notes for exchange notes will not be
subject to stamp duty or stamp duty reserve tax or any other transfer tax in the
United Kingdom.
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LEGAL MATTERS
Certain legal matters with respect to the notes and the guarantees are
being passed upon on behalf of Willis Corroon by Simpson Thacher & Bartlett, New
York, New York. In addition, Heather Hunter, head of Willis Corroon Group's U.K.
legal department, London, England, is giving an opinion as to certain matters of
English Law with respect to the guarantee by Willis Corroon Group.
EXPERTS
The consolidated financial statements of Willis Corroon as of December
31, 1997 and 1998 and for the years ended December 31, 1996 and 1997 and periods
January 1 to September 1, 1998 and September 2 to December 31, 1998 appearing in
this prospectus and registration statement have been audited by Ernst & Young,
independent auditors, as set forth in their reports appearing elsewhere herein
and in the registration statement and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form F-4
under the Securities Act with respect to the exchange notes being offered
hereby. This prospectus, which forms a part of the registration statement, does
not contain all of the information set forth in the registration statement. You
should refer to the registration statement for further information. Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the registration statement, each such statement is
qualified by the provision in such exhibit to which reference is hereby made.
We are not currently subject to the informational requirements of the
Securities Exchange Act of 1934. As a result of this offering of these
securities, we will become subject to the informational requirements of the
Securities Exchange Act of 1934. Accordingly, we will file reports and such
other information with the Commission unless and until we obtain an exemption
from such requirement. The registration statement, such other reports and other
information can be inspected and copied at the Public Reference Section of the
Securities and Exchange Commission located at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington D.C. 20549 and at the regional public reference
facilities maintained by the Securities and Exchange Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material, including copies of all or any portion of the registration
statement, can be obtained from the Public Reference Section of the Securities
and Exchange Commission at prescribed rates by calling the Commission at
1-800-SEC-0330. Such material may be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov).
Furthermore, we agree that, even if we are not required to file
periodic reports and information with the Commission, for so long as any
exchange note remains outstanding we will furnish to you the information that
would be required to be furnished by us under Section 13 of the Securities
Exchange Act of 1934.
Prior to the consummation of the tender offer, Willis Corroon Group was
subject to the periodic reporting and other information requirements of the
Securities Exchange Act of 1934, and, in accordance therewith, filed reports and
other information with the Commission.
So long as the notes are listed on the Luxembourg Stock Exchange and
the rules of such stock exchange shall so require, copies of such information
will also be available during normal business hours on any weekday at the office
of Kredietbank S.A. Luxembourgeoise.
190
<PAGE>
LISTING AND GENERAL INFORMATION
1. Application has been made to list the exchange notes on the
Luxembourg Stock Exchange. A legal notice relating to the issue of the
outstanding notes and the Certificate of Incorporation and Bylaws of Willis
Corroon Corporation was deposited with the GREFFIER EN CHEF DU TRIBUNAL
D'ARRONDISSEMENT DE ET A LUXEMBOURG, where such documents may be examined or
copies obtained.
2. So long as the notes are listed on the Luxembourg Stock Exchange and
the rules of such stock exchange shall so require, copies of the Certificate of
Incorporation and Bylaws of Willis Corroon Corporation, the Memorandum and
Articles of Association of Willis Corroon Group, the Partnership Agreement of
Willis Corroon Partners and the Indenture will be available at the office of
Kredietbank S.A. Luxembourgeoise, 43, Boulevard Royal, L-2955 Luxembourg. So
long as the outstanding notes or the exchange notes are listed on the Luxembourg
Stock Exchange and the rules of such stock exchange shall so require, copies of
the consolidated financial statements of Willis Corroon (Willis Corroon
Corporation and Willis Corroon Partners do not publish separate financial
statements) for the year ended December 31, 1998 and subsequent years and any
and all annual and quarterly reports of Willis Corroon will be available during
normal business hours on any weekday at the office of Kredietbank S.A.
Luxembourgeoise, 43, Boulevard Royal, L-2955 Luxembourg. So long as the
outstanding notes or the exchange notes are listed on the Luxembourg Stock
Exchange and the rules of such stock exchange shall so require, copies of all
other material documents referenced herein that are entered into in connection
with the sale of the outstanding notes will be available during normal business
hours on any weekday at the office of Kredietbank S.A. Luxembourgeoise, 43,
Boulevard Royal, L-2955 Luxembourg.
3. Willis Corroon Corporation was incorporated under the laws of the
State of Delaware on December 20, 1928. Willis Corroon Group was registered as a
private limited company under the laws of England and Wales on November 10,
1998. Willis Corroon Partners was duly formed as a general partnership under the
laws of Delaware on November 11, 1998. The creation and issuance of the notes
was authorized on behalf of Willis Corroon Corporation by resolutions adopted by
the board of directors of Willis Corroon Corporation on January 26 and 28, 1999.
The guarantees of the notes were authorized on behalf of Willis Corroon Group by
a resolution of the Board of Directors of Willis Corroon Group on January 25,
1999 and on behalf of Willis Corroon Partners by a unanimous written consent of
the general partners of Willis Corroon Partners on January 27, 1999.
4. Willis Corroon Group accepts responsibility for the information
contained in this prospectus. To the best knowledge of Willis Corroon Group, the
information contained in this prospectus is in accordance with the facts and
does not omit anything likely to affect the import of this prospectus.
5. There has been no material adverse change in the financial position
of Willis Corroon since December 31, 1998.
6. Willis Corroon is not a party to any litigation that, in the
judgment of Willis Corroon Group, could be material in the context of the issue
of the notes, except as disclosed herein.
7. The Auditors of Willis Corroon Group are Ernst & Young, London, who
have audited Willis Corroon's financial statements for the years ended December
31, 1996 and 1997 and the periods January 1 to September 1, 1998 and September 2
to December 31, 1998.
8. Willis Corroon Corporation will not appoint a paying and transfer
agent in Luxembourg until such time, if any, as certificated notes are issued.
Willis Corroon Corporation has appointed Kredietbank S.A. Luxembourgeoise as its
special agent to act as an intermediary between Willis Corroon
191
<PAGE>
Corporation and the holders of the notes in Luxembourg until such time as Willis
Corroon Corporation is required to appoint a transfer and paying agent located
in Luxembourg as provided in this prospectus. So long as the outstanding notes
or the exchange notes are listed on the Luxembourg Stock Exchange and the rules
of such stock exchange so require, Willis Corroon Corporation shall maintain a
special agent so long as the outstanding notes or the exchange notes are in
global form and appoint and maintain a paying and transfer agent upon the
issuance of the certificated notes. Willis Corroon Corporation reserves the
right to vary such appointment.
9. The exchange notes have been accepted for clearance through the
Euroclear Operator and Cedel Bank. The global notes have been assigned the
following CUSIP number: 970620AC4; a Euroclear common code number of 009610391;
and an ISIN number of US970620AC42.
192
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Financial Statements
Consolidated Statement of Income......................................................................... F-3
Consolidated Balance Sheet............................................................................... F-4
Consolidated Statement of Movements in Shareholders' Equity.............................................. F-5
Consolidated Statement of Cash Flows..................................................................... F-6
Consolidated Statement of Total Recognized Gains and Losses.............................................. F-7
Notes to the Financial Statements........................................................................ F-8
</TABLE>
F-1
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT AUDITORS
TO: THE BOARD OF DIRECTORS
WILLIS CORROON GROUP LIMITED
We have audited the accompanying consolidated balance sheets of Willis
Corroon Group Limited as of December 31, 1997 and 1998, and the related
consolidated statements of income, movements in shareholders' equity, cash flows
and total recognized gains and losses for the years ended December 31, 1996 and
1997 and the periods January 1 to September 1, 1998 and September 2 to December
31, 1998. 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 United Kingdom auditing standards
which do not differ in any significant respect from United States 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Willis Corroon Group Limited at December 31, 1997 and 1998, and the consolidated
results of its operations and its consolidated cash flows for the years ended
December 31, 1996 and 1997 and the periods January 1 to September 1, 1998 and
September 2 to December 31, 1998, in conformity with accounting principles
generally accepted in the United Kingdom, which differ in certain respects from
those followed in the United States (see Note 31 of Notes to the Financial
Statements).
Ernst & Young
London, England
March 15, 1999
F-2
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, JANUARY 1 TO SEPTEMBER 2 TO
---------------------- SEPTEMBER 1, DECEMBER 31,
NOTE 1996 1997 1998 1998
--------- ---------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
<CAPTION>
(L MILLION)
<S> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS
Commissions and fees............................. 683.2 652.0 441.9 235.8
DISCONTINUED OPERATIONS
Underwriting premiums, commissions and fees...... 2.3 0.3 -- 0.2
---------- ---------- ------------- ---------------
3 685.5 652.3 441.9 236.0
Interest and investment income................... 5 45.2 41.7 26.9 13.4
---------- ---------- ------------- ---------------
TOTAL OPERATING REVENUES......................... 730.7 694.0 468.8 249.4
Operating expenses............................... (640.6) (603.7) (418.7) (223.2)
Underwriting claims.............................. (4.1) (1.0) -- --
Utilization of provisions........................ 1.8 2.8 6.7 (0.2)
---------- ---------- ------------- ---------------
OPERATING INCOME
Continuing operations
Before exceptional items......................... 87.8 92.1 56.8 26.0
Exceptional items................................ -- -- (35.8) (5.0)
---------- ---------- ------------- ---------------
87.8 92.1 21.0 21.0
Discontinued operations.......................... -- -- -- --
---------- ---------- ------------- ---------------
TOTAL OPERATING INCOME........................... 5 87.8 92.1 21.0 21.0
(Loss)/gain on closure/disposal of operations.... 2.5 2.2 (28.0) (1.3)
Share of profit of associates.................... 3.5 1.9 7.7 (1.4)
Net interest expense............................. 7 (2.2) (0.7) (2.0) (1.2)
---------- ---------- ------------- ---------------
INCOME/(LOSS) BEFORE TAXATION.................... 8 91.6 95.5 (1.3) 17.1
Taxation......................................... 9 (36.6) (38.1) (13.5) (40.9)
---------- ---------- ------------- ---------------
INCOME/(LOSS) AFTER TAXATION..................... 55.0 57.4 (14.8) (23.8)
Minority interests............................... (0.8) (0.5) (0.8) (1.9)
---------- ---------- ------------- ---------------
NET INCOME/(LOSS) (i)............................ 54.2 56.9 (15.6) (25.7)
Dividends........................................ 10 (27.6) (27.6) (22.2) --
---------- ---------- ------------- ---------------
RETAINED INCOME/(LOSS)........................... 26.6 29.3 (37.8) (25.7)
---------- ---------- ------------- ---------------
---------- ---------- ------------- ---------------
PER ORDINARY SHARE (i)
Net income/(loss)................................ 11 13.0p 13.6p (3.7)p (6.0)p
---------- ---------- ------------- ---------------
---------- ---------- ------------- ---------------
Average number of ordinary shares
outstanding (in millions)...................... 419.7 421.5 424.6 427.1
---------- ---------- ------------- ---------------
---------- ---------- ------------- ---------------
</TABLE>
- ------------------------
(i) A summary of the significant adjustments to net income that would be
required if United States generally accepted accounting principles were to
be applied instead of those generally accepted in the United Kingdom is set
forth in Note 31.
The Notes to the Financial Statements are an integral part of these
Financial Statements.
F-3
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
NOTE 1997 1998
----- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
(L MILLION)
ASSETS
CURRENT ASSETS
Cash and short-term deposits...................................... 359.4 317.1
Investments....................................................... 12 257.7 281.6
Receivables....................................................... 13 2,533.2 3,794.6
--------- ---------
Total current assets.......................................... 3,150.3 4,393.3
FIXED ASSETS
Intangible assets................................................. 14 -- 19.7
Tangible assets................................................... 15 134.8 141.6
Investments....................................................... 16 19.2 34.4
--------- ---------
Total fixed assets............................................ 154.0 195.7
--------- ---------
TOTAL ASSETS...................................................... 3,304.3 4,589.0
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables.................................................... 2,868.6 2,860.3
Corporate tax..................................................... 20.5 17.7
Accruals and deferred income...................................... 60.2 67.6
Bank loans and overdrafts......................................... 18 0.5 352.7
Dividends payable................................................. 7.1 --
Other............................................................. 17 89.9 817.4
--------- ---------
Total current liabilities..................................... 3,046.8 4,115.7
NONCURRENT LIABILITIES
Bank loans........................................................ 18 34.0 276.4
Other............................................................. 19 3.7 5.0
--------- ---------
Total noncurrent liabilities.................................. 37.7 281.4
PROVISIONS FOR LIABILITIES AND CHARGES............................ 21 90.0 94.8
MINORITY INTERESTS................................................ 5.2 8.1
--------- ---------
Total liabilities and minority interests...................... 3,179.7 4,500.0
SHAREHOLDERS' EQUITY (i)
Share capital..................................................... 52.9 53.6
Share premium..................................................... 21.4 28.5
Revaluation reserve............................................... 14.9 14.9
Retained earnings/(deficit)....................................... 35.4 (8.0)
--------- ---------
Total shareholders' equity.................................... 124.6 89.0
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................ 3,304.3 4,589.0
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(i) A summary of the significant adjustments to shareholders' equity that would
be required if United States generally accepted accounting principles were
to be applied instead of those generally accepted in the United Kingdom is
set forth in Note 31.
The Notes to the Financial Statements are an integral part of these
Financial Statements.
F-4
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF MOVEMENTS IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ORDINARY SHARES
------------------------------
AUTHORIZED SHARE CAPITAL
At January 1, 1996, December 31, 1996, December 31, 1997 NUMBER (000) (L MILLION)
and December 31, 1998.............................................................. 528,000 66.0
ISSUED SHARE CAPITAL --------------- -------------
--------------- -------------
------------------------ SHARE REVALUATION RETAINED
ISSUED SHARE CAPITAL AND RESERVES ORDINARY SHARES PREMIUM(I) RESERVE(I) EARNINGS(II)
------------------------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
NUMBER
(000) (L MILLION)
AT JANUARY 1, 1996.......................... 419,299 52.4 17.0 14.9 36.3
Retained income............................. -- -- -- -- 26.6
Issued for acquisitions..................... 38 -- -- -- --
Issued under employee share plans........... 740 0.1 1.0 -- --
Goodwill on acquisitions eliminated (iii)... -- -- -- -- (1.1)
Goodwill reinstated on disposals............ -- -- -- -- 13.7
Exchange adjustments........................ -- -- -- -- (9.0)
----------- --- --- ----- -----
AT DECEMBER 31, 1996........................ 420,077 52.5 18.0 14.9 66.5
Retained income............................. -- -- -- -- 29.3
Issued for acquisitions..................... 1,545 0.2 1.8 -- --
Issued under employee share plans........... 1,352 0.2 1.6 -- --
Goodwill on acquisitions eliminated (iv).... -- -- -- -- (68.9)
Goodwill reinstated on disposals............ -- -- -- -- 6.6
Exchange adjustments........................ -- -- -- -- 1.9
----------- --- --- ----- -----
AT DECEMBER 31, 1997........................ 422,974 52.9 21.4 14.9 35.4
Retained income............................. -- -- -- -- (63.5)
Scrip dividends............................. 1,758 0.2 2.2 -- --
Issued under employee share plans........... 3,683 0.5 4.9 -- --
Goodwill on acquisitions eliminated (v)..... -- -- -- -- 0.2
Goodwill reinstated on disposals............ -- -- -- -- 30.4
Exchange adjustments........................ -- -- -- -- (10.5)
----------- --- --- ----- -----
AT DECEMBER 31, 1998........................ 428,415 53.6 28.5 14.9 (8.0)
----------- --- --- ----- -----
----------- --- --- ----- -----
</TABLE>
- ------------------------
(i) The share premium and revaluation reserve are not distributable.
(ii) Retained earnings at December 31, 1998 included L4.1 million (1997: L2.9
million, 1996: L4.9 million) in respect of associates.
(iii) Goodwill eliminated in 1996 comprised subsidiaries (L1.1 million).
(iv) Goodwill eliminated in 1997 comprised subsidiaries (L20.8 million) and
associates (L48.1 million).
(v) Goodwill eliminated in 1998 comprised adjustments relating to subsidiaries
acquired before December 31, 1997.
(vi) The cumulative amount of goodwill eliminated in 1998 and earlier financial
years, net of goodwill relating to subsidiaries sold, amounts to L542.1
million.
(vii) Trinity Acquisition plc ("Trinity Acquisition") has the right to convert
the preferred shares it holds in a non-U.K. subsidiary into 563,580 ordinary
shares of Willis Corroon Group Limited ("ordinary shares") at any time up to
December 31, 2002.
The Notes to the Financial Statements are an integral part of these
Financial Statements.
F-5
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- ---------------
NOTE 1996 1997 1998 1998
----- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(L MILLION)
NET CASH INFLOW FROM OPERATING ACTIVITIES............... 23 63.7 113.4 127.5 (97.7)
--------- --------- ------ -------
DIVIDENDS FROM ASSOCIATES............................... 1.5 0.9 1.9 0.5
--------- --------- ------ -------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid........................................... (2.0) (0.6) (1.8) (1.1)
Bank fees on borrowings................................. -- -- -- (9.6)
Interest element of finance lease rental payments....... (0.2) (0.1) (0.1) --
--------- --------- ------ -------
Net cash outflow for returns on investment and servicing
of finance............................................ (2.2) (0.7) (1.9) (10.7)
--------- --------- ------ -------
TAXATION................................................ (26.8) (23.7) (8.4) (18.5)
--------- --------- ------ -------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets....................... (28.9) (26.5) (20.1) (9.8)
Sale of tangible fixed assets........................... 13.1 4.7 2.4 1.0
Purchase of fixed asset investments..................... (0.9) (5.0) (1.9) --
--------- --------- ------ -------
Net cash (outflow)/inflow for capital expenditure and
financial investment.................................. (16.7) (26.8) (19.6) (8.8)
--------- --------- ------ -------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiaries................................ (1.2) (17.1) (1.5) (16.7)
Purchase of associates.................................. -- (35.6) (14.9) (5.7)
Sale of subsidiaries.................................... 36.4 10.5 5.0 1.6
Net cash transferred on purchase/sale of subsidiaries... (12.6) (0.5) 2.2 (2.3)
--------- --------- ------ -------
Net cash (outflow)/inflow for acquisitions and
disposals............................................. 22.6 (42.7) (9.2) (23.1)
--------- --------- ------ -------
EQUITY DIVIDENDS PAID................................... (27.3) (26.6) (19.8) (7.6)
--------- --------- ------ -------
CASH FLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND
FINANCING............................................. 14.8 (6.2) 70.5 (165.9)
--------- --------- ------ -------
MANAGEMENT OF LIQUID RESOURCES.......................... 25.2 2.8 (66.8) 122.2
--------- --------- ------ -------
FINANCING
Issue of ordinary shares................................ -- 0.3 0.7 4.0
Amounts due from parent company......................... -- -- -- (858.3)
Amounts due to parent company........................... -- -- -- 332.6
Convertible debentures.................................. -- -- -- (0.2)
Debt due within a year:
increase in short-term borrowings..................... -- -- -- 349.4
(decrease) in short-term borrowings................... (0.1) -- -- --
Debt due beyond a year:
increase in long-term borrowings...................... -- 15.7 32.6 307.9
(decrease) in long-term borrowings.................... (42.6) -- -- (99.2)
Capital element of finance lease rental payments........ (0.6) (1.0) (0.6) --
--------- --------- ------ -------
Net cash inflow/(outflow) from financing................ (43.3) 15.0 32.7 36.2
--------- --------- ------ -------
INCREASE/(DECREASE) IN CASH............................. (3.3) 11.6 36.4 (7.5)
--------- --------- ------ -------
--------- --------- ------ -------
</TABLE>
- ------------------------
(i) Acquisitions and disposals and financing activities not involving cash
consideration: The fair value of ordinary shares issued in connection with
acquisitions in 1997 amounted to L2.0 million.
(ii) The significant differences between the consolidated statement of cash
flows presented above and that required under U.S. GAAP are described in
Note 31.
F-6
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER JANUARY 1 TO SEPTEMBER 2 TO
31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
1996 1997 1998 1998
--------- --------- --------------- -----------------
<S> <C> <C> <C> <C>
(L MILLION)
NET INCOME
Parent and subsidiaries.................................... 51.3 55.4 (23.1) (22.6)
Associates................................................. 2.9 1.5 7.5 (3.1)
--- --- ----- -----
54.2 56.9 (15.6) (25.7)
CURRENCY TRANSLATION DIFFERENCES
Parent and subsidiaries.................................... (9.7) 1.4 (2.2) (7.8)
Associates................................................. 0.7 0.5 -- (0.5)
--- --- ----- -----
TOTAL RECOGNIZED GAINS AND LOSSES FOR THE FINANCIAL YEAR... 45.2 58.8 (17.8) (34.0)
--- --- ----- -----
--- --- ----- -----
</TABLE>
- ------------------------------
(i) A statement of Comprehensive Income under U.S. GAAP is set forth in Note 31
of Notes to the Financial Statements.
The Notes to the Financial Statements are an integral part of these
Financial Statements.
F-7
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1--ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated financial statements of Willis Corroon Group Limited (the
"Company") and its subsidiaries (together, the "Group") have been prepared on
the going concern basis under the historical cost convention as modified by the
revaluation of certain land and buildings. The Group's consolidated financial
statements comply with accounting standards applicable in the United Kingdom.
The Company was acquired by Trinity Acquisition effective September 2, 1998.
While this acquisition has no impact on the basis of accounting for the Company,
in accordance with the requirements of the U.S. Securities and Exchange
Commission, financial information for the periods January 1 to September 1,
1998, and September 2 to December 31, 1998 is presented separately. Under U.S.
GAAP, the acquisition establishes a new basis of accounting for the Company from
September 2, 1998 as described in Note 31.
BASIS OF CONSOLIDATION
The Group's consolidated financial statements incorporate those of the
Company and its subsidiaries based on financial statements drawn up to December
31. Significant inter-company transactions and balances are eliminated on
consolidation. Interests of outside shareholders in non-wholly owned
subsidiaries are shown as minority interests. Associates, being those entities
in which the Group has a long-term equity interest and over which it exercises
significant influence, are included on the basis of the Group's proportion of
the operating profit and loss, exceptional items, interest expense, taxation and
net assets (the equity method). The results of subsidiaries and associates
acquired or disposed of during the year are included from or to the relevant
dates of acquisition or disposal.
GOODWILL
Goodwill arising on acquisitions occurring after January 1, 1998 is
capitalized and amortized on a straight-line basis over its estimated useful
economic life, determined on the individual circumstances of each business
acquired but limited to a maximum of 20 years. Goodwill on acquisitions
completed before January 1, 1998 was eliminated against retained earnings and,
as permitted by Financial Reporting Standard 10, has not been reinstated. On
disposal of a business acquired before January 1, 1998, any goodwill which was
previously eliminated against retained earnings is reinstated and charged to the
income statement.
REVENUE RECOGNITION
The Group takes credit for commission (or fees negotiated instead of
commission) at the date when the insured is debited or at the inception date of
the policy, whichever is the later. Commissions on return and additional
premiums and adjustments are brought into account as and when these occur; other
fees and commissions are accounted for on a receivable basis.
INSURANCE BROKERING RECEIVABLES AND PAYABLES
Insurance brokers usually act as agents in placing the insurable risks of
their clients with insurers and, as such, generally are not liable as principals
for amounts arising from such transactions. Notwithstanding the legal
relationships with clients and insurers, insurance brokers are entitled to
retain investment income on any cashflows arising from insurance brokering
transactions; accounting standards require receivables and payables arising from
such transactions to be shown as assets and liabilities.
F-8
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
Debit and credit balances arising from insurance brokering transactions are
reported as separate assets or liabilities unless such balances are due to or
from the same party and the offset would survive the insolvency of that party,
in which case they are aggregated into a single net balance.
Funds held in connection with insurance brokering transactions are generally
required to be held in regulated bank accounts subject to local operating
guidelines and are not generally available for purposes other than settling
insurance brokering transactions.
CURRENCY TRANSLATION
Transactions in foreign currencies are recorded at the rate of exchange at
the date of the transaction, or, in the case of forward contracts in respect of
the current year's income, at the contracted rate. Assets and liabilities in
foreign currencies are translated into sterling at the rates of exchange ruling
at the balance sheet date. Exchange differences arising on the translation of
the net assets of overseas subsidiaries and associates, and the exchange
differences arising on foreign currency borrowings taken out to provide a hedge
against the exchange risk associated with those investments, are taken to
retained earnings.
The results of overseas subsidiaries and associates are translated into
sterling at average rates of exchange and the difference between average rates
and year end rates is taken to retained earnings. Other exchange differences are
taken to income.
DEPRECIATION
Depreciation is calculated on a straight line basis at rates estimated to
write down the value of assets over their expected useful lives. Depreciation on
freehold buildings and long leaseholds is provided at 2% per annum. Other
leaseholds are written off over the remaining period of the lease. Depreciation
on fixed plant, furniture, equipment and vehicles is provided at rates between
4% and 33 1/3% per annum. No depreciation is provided on freehold land.
DEFERRED TAX
Provision for deferred tax is made using the liability method for all timing
differences to the extent that it is probable that a liability will crystallize.
No provision is made for tax that would be payable on the disposal of revalued
properties until it is decided in principle to dispose of the asset.
PENSIONS
The regular cost of providing benefits is charged to operating income over
the employees' service lives on the basis of a constant percentage of
pensionable earnings. Variations from regular cost, arising from periodic
actuarial valuations, are allocated to operating income on a systematic basis
over the expected remaining service lives of current employees.
NOTE 2--MAJOR ACQUISITIONS AND DISPOSALS
YEAR ENDED DECEMBER 31, 1996
There were no material acquisitions in 1996.
CONSUMER BENEFIT LIFE INSURANCE COMPANY ("CBL")
During 1996, the Group disposed of its interest in CBL, a wholly owned
subsidiary company. The net proceeds of disposal were L20.7 million and the net
assets disposed of were L19.4 million. There was no
F-9
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--MAJOR ACQUISITIONS AND DISPOSALS (CONTINUED)
gain or loss on disposal after charging positive goodwill of L1.3 million which
had been previously included within retained earnings.
W F CORROON
During 1996, the Group disposed of its interests in W F Corroon, its
wholly-owned employee benefit consulting operations. The net proceeds of
disposal were L16.1 million and the net assets disposed of were L8.1 million.
There was no gain or loss on disposal after charging positive goodwill of L8.0
million which had been previously included within retained earnings.
YEAR ENDED DECEMBER 31, 1997
There were no material acquisitions of subsidiaries in 1997.
WILLIS FABER & DUMAS (AGENCIES) LIMITED ("WF&D AGENCIES")
WF&D Agencies, a Lloyd's members' agent, was disposed of in October 1997.
GRAS SAVOYE & CIE ("GRAS SAVOYE")
On December 30, 1997, the Group acquired a 33% interest in Gras Savoye for a
cash consideration of L47.8 million, of which L15.2 million was paid in July
1998. Goodwill eliminated against retained earnings amounted to L46.0 million.
YEAR ENDED DECEMBER 31, 1998
GRUPPO ITAL BROKERS
The Group acquired a 50% interest in Gruppo Ital Brokers in July 1998 for a
consideration of L13.0 million. Following this acquisition, a merger was
effected with the Group's existing Italian associate to form Willis Corroon
Italia SpA.
S&C WILLIS CORROON CORREDURIA DE SEGUROS Y REASEGUROS SA ("S&C WILLIS CORROON")
The Group increased its investment from 48% to 60% in July 1998 and
reorganized its existing Spanish and Portuguese operations.
PROFESSIONAL LIABILITY UNDERWRITING MANAGEMENT ("PLUM")
The Group's professional liability wholesale operation in the United States
was closed in May 1998. The loss on closure amounted to L30.3 million including
attributable goodwill which had previously been eliminated against retained
earnings.
F-10
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--MAJOR ACQUISITIONS AND DISPOSALS (CONTINUED)
The effect of acquiring subsidiaries (including major acquisitions), all of
which were accounted for under the purchase method of accounting, was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(L MILLION)
NET ASSETS ACQUIRED
Tangible assets.................................................... -- 3.9 4.3
Fixed asset investments............................................ -- 0.3 0.6
Receivables........................................................ 0.1 21.0 33.3
Cash and investments............................................... -- 4.7 3.2
Payables........................................................... -- (19.3) (34.9)
Provisions for liabilities and charges............................. -- (3.9) --
Minority interest.................................................. -- (3.5) (2.7)
Goodwill........................................................... 1.1 20.8 19.7
Net assets previously reported as associates....................... -- (2.6) (2.0)
--- --------- ---------
1.2 21.4 21.5
--- --------- ---------
--- --------- ---------
COST OF ACQUISITIONS
Cash............................................................... 1.2 17.1 17.5
Deferred consideration............................................. -- 2.3 4.0
Shares issued...................................................... -- 2.0 --
--- --------- ---------
1.2 21.4 21.5
--- --------- ---------
--- --------- ---------
</TABLE>
Had the acquisitions been consummated at January 1, 1998 and at the
beginning of the preceeding financial year, the unaudited consolidated pro forma
results for those years would have been:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(L MILLION, EXCEPT
PER SHARE AMOUNTS)
Total operating revenues.......................................... 724.4 735.5
Net income/(loss)................................................. 60.8 (39.1)
Net income/(loss) per ordinary share.............................. 13.6p (9.2)p
</TABLE>
The subsidiaries acquired during 1998 utilized L4.4 million of the Group's
net operating cash flow, paid Lnil in respect of net returns on investments and
servicing of finance, paid Lnil in respect of taxation and utilized L0.2 million
for capital expenditure.
The L18.2 million shown as "Purchase of subsidiaries" in the Consolidated
Statement of Cash Flows includes L0.7 million relating to deferred consideration
paid during 1998 in respect of acquisitions completed in 1997.
These acquisitions would have had no material impact on the results for
1996, 1997 and 1998 had they been consummated at the beginning both of the
respective years of acquisition and of the immediate preceding years.
F-11
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--MAJOR ACQUISITIONS AND DISPOSALS (CONTINUED)
The effect of the above, and other, disposals (including provisional
liquidation) was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS
------------------------------- ---------------
1996 1997 1998 1997
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
(L MILLION)
NET ASSETS DISPOSED OF
Tangible assets...................................... 0.9 0.6 0.6 --
Investments.......................................... 25.6 -- -- --
Receivables.......................................... 16.8 8.1 2.8 23.2
Current asset investments............................ -- -- -- 38.3
Deposits and cash.................................... 12.6 5.2 3.3 20.0
Payables............................................. (25.7) (11.0) (5.2) (9.9)
Insurance funds...................................... -- -- -- (73.0)
--------- --------- --------- -----
30.2 2.9 1.5 (1.4)
Minority interest.................................... -- -- (0.3) --
Goodwill written off................................. 13.7 2.5 30.1 4.1
Loss/gain on disposal................................ 2.5 2.2 (27.5) (2.7)
--------- --------- --------- -----
TOTAL PROCEEDS....................................... 46.4 7.6 3.8 --
--------- --------- --------- -----
--------- --------- --------- -----
SATISFIED BY
Cash................................................. 36.4 4.5 3.0 --
Deferred consideration............................... 10.0 3.1 0.8 --
--------- --------- --------- -----
46.4 7.6 3.8 --
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
Continuing operations sold during 1997 comprised WF&D Agencies which was
sold on October 20, 1997 and Willis Corroon France SA on December 30, 1997. The
contribution to Group income up to their respective dates of disposal was L5.1
million and L(0.5) million.
Discontinued operations disposed of comprise the net assets of Sovereign
Marine & General Insurance Company Limited ("Sovereign") and its subsidiaries.
Sovereign was placed into provisional liquidation on July 11, 1997.
The operations disposed of during 1998 utilized L1.2 million (1997:
contribution L2.7 million) of the Group's net operating cash flow and paid Lnil
in respect of returns on investments and servicing of finance, paid Lnil million
(1997: L3.1 million) in respect of taxation and utilized Lnil million for
capital expenditure.
The L6.6 million shown as "Sale of subsidiaries" in the Consolidated
Statement of Cash Flows includes L3.6 million relating to deferred consideration
received during 1998 in respect of disposals completed in prior years.
NOTE 3--SEGMENTAL ANALYSIS
The Group's continuing operations comprise its insurance broking and risk
management consulting activities, which included employee benefits consulting
operations up to November 1996 and Lloyd's members' agency operations up to
October 1997, the respective dates of disposal. The Group's discontinued
operations comprise its UK underwriting activities, which ceased underwriting in
1991, and include Sovereign up to July 11, 1997, when it was placed into
provisional liquidation, and Willis Faber (Underwriting Management) Limited
("WFUM").
F-12
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SEGMENTAL ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
CONTINUING DISCONTINUED
BUSINESS ANALYSIS OPERATIONS OPERATIONS TOTAL
- --------------------------------------------------------------------------- ----------- ----------------- ---------
<S> <C> <C> <C>
(L MILLION)
JANUARY 1 TO SEPTEMBER 1, 1998
COMMISSIONS AND FEES....................................................... 441.9 -- 441.9
Interest and investment income............................................. 26.9 -- 26.9
----------- --- ---------
TOTAL OPERATING REVENUES................................................... 468.8 -- 468.8
Operating expenses......................................................... (412.0) (6.7) (418.7)
Exceptional items.......................................................... (35.8) -- (35.8)
Utilization of provisions.................................................. -- 6.7 6.7
----------- --- ---------
OPERATING INCOME........................................................... 21.0 -- 21.0
----------- --- ---------
----------- --- ---------
SEPTEMBER 2 TO DECEMBER 31, 1998
COMMISSIONS AND FEES....................................................... 235.8 0.2 236.0
Interest and investment income............................................. 13.4 -- 13.4
----------- --- ---------
TOTAL OPERATING REVENUES................................................... 249.2 0.2 249.4
Operating expenses......................................................... (223.2) -- (223.2)
Exceptional items.......................................................... (5.0) -- (5.0)
Utilization of provisions.................................................. -- (0.2) (0.2)
----------- --- ---------
OPERATING INCOME........................................................... 21.0 -- 21.0
----------- --- ---------
----------- --- ---------
YEAR ENDED DECEMBER 31, 1997
COMMISSIONS AND FEES....................................................... 652.0 0.3 652.3
Interest and investment income............................................. 40.0 1.7 41.7
----------- --- ---------
TOTAL OPERATING REVENUES................................................... 692.0 2.0 694.0
Operating expenses......................................................... (599.9) (3.8) (603.7)
Underwriting claims........................................................ -- (1.0) (1.0)
Utilization of provisions.................................................. -- 2.8 2.8
----------- --- ---------
OPERATING INCOME........................................................... 92.1 -- 92.1
----------- --- ---------
----------- --- ---------
YEAR ENDED DECEMBER 31, 1996
COMMISSIONS AND FEES 683.2 2.3 685.5
Interest and investment income............................................. 41.8 3.4 45.2
----------- --- ---------
TOTAL OPERATING REVENUES................................................... 725.0 5.7 730.7
Operating expenses......................................................... (637.2) (3.4) (640.6)
Underwriting claims........................................................ -- (4.1) (4.1)
Utilization of provisions.................................................. -- 1.8 1.8
----------- --- ---------
OPERATING INCOME........................................................... 87.8 -- 87.8
----------- --- ---------
----------- --- ---------
</TABLE>
F-13
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SEGMENTAL ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
CONTINUING OPERATIONS
------------------------------------------------------------
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1 DECEMBER 31,
------------------------ --------------- -----------------
GEOGRAPHICAL ANALYSIS BY LOCATION OF CLIENT 1996 1997 1998 1998
- --------------------------------------------------------- ----------- ----------- --------------- -----------------
<S> <C> <C> <C> <C>
(L MILLION)
COMMISSIONS AND FEES
United Kingdom........................................... 175.0 164.7 110.2 54.9
North America............................................ 361.1 355.8 242.5 125.5
Rest of the World........................................ 147.1 131.5 89.2 55.4
----- ----- ----- -----
683.2 652.0 441.9 235.8
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The above table analyzes commissions and fees by the address of the client
from whom the business is derived. This does not necessarily reflect the
original source or location of the business.
F-14
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SEGMENTAL ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
CONTINUING OPERATIONS
----------------------------------------------------
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1 DECEMBER 31,
-------------------- ------------- ---------------
GEOGRAPHICAL ANALYSIS BY LOCATION OF COMPANY 1996 1997 1998 1998
- ----------------------------------------------------------- --------- --------- ------------- ---------------
<S> <C> <C> <C> <C>
(L MILLION)
COMMISSIONS AND FEES
United Kingdom............................................. 287.8 276.6 190.9 87.6
North America.............................................. 357.7 325.2 223.6 115.9
Rest of the World.......................................... 37.7 50.2 27.4 32.3
--------- --------- ------------- -------
683.2 652.0 441.9 235.8
--------- --------- ------------- -------
TOTAL OPERATING REVENUES
United Kingdom............................................. 314.9 303.6 209.0 96.2
North America.............................................. 370.2 336.1 231.5 119.8
Rest of the World.......................................... 39.9 52.3 28.3 33.2
--------- --------- ------------- -------
725.0 692.0 468.8 249.2
--------- --------- ------------- -------
OPERATING INCOME
United Kingdom............................................. 49.6 56.5 (4.5) 8.6
North America.............................................. 33.4 27.7 22.1 3.6
Rest of the World.......................................... 4.8 7.9 3.4 8.8
--------- --------- ------------- -------
87.8 92.1 21.0 21.0
--------- --------- ------------- -------
DEPRECIATION AND AMORTIZATION.............................. 24.5 22.7 15.5 8.9
--------- --------- ------------- -------
CAPITAL EXPENDITURE........................................ 28.9 26.5 20.1 9.8
--------- --------- ------------- -------
--------- --------- ------------- -------
</TABLE>
Commissions and fees earned by the Group's discontinued operations arose in the
United Kingdom.
<TABLE>
<CAPTION>
CONTINUING OPERATIONS
DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(L MILLION)
NET ASSETS
United Kingdom................................................................... 114.0 93.7 0.5
North America.................................................................... 65.3 74.5 84.8
Rest of the World................................................................ 18.9 6.1 40.2
--------- --------- ---------
198.2 174.3 125.5
--------- --------- ---------
TOTAL ASSETS
United Kingdom................................................................... 2,006.4 1,958.0 2,581.7
North America.................................................................... 1,199.6 1,256.6 1,843.3
Rest of the World................................................................ 80.8 83.7 167.9
--------- --------- ---------
3,286.8 3,298.3 4,592.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
Discontinued Operations: Net assets and total assets located in the United
Kingdom at December 31, 1998 amounted to L(28.4) million (1997: L(44.5) million,
1996: L(52.8) million) and L(3.9) million (1997: L6.0 million, 1996: 73.3
million), respectively and in North America at December 31, 1996 amounted to
L8.0 million and L17.1 million, respectively.
F-15
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--EXCEPTIONAL ITEMS
(I) PENSIONS REVIEW
In March 1998, the Financial Services Authority and the Personal Investment
Authority issued a consultation paper on proposals for phase 2 of the pension
transfers and opt outs review. The Group has approximately 8,000 transfer cases
to review and a small number of opt out cases. On the basis of both the Group's
experience of settling phase 1 priority cases and the assumptions set out in the
consultation paper, the Directors consider that, although there is still
uncertainty as to the eventual outcome, a further provision of L25.0 million is
a reasonable estimate to meet the costs of redress and related administration
for both phase 1 and phase 2. (See Note 21--Provisions for liabilities and
charges).
(II) COSTS IN CONNECTION WITH THE OFFER BY TRINITY ACQUISITION
Legal and professional costs and debt issuance costs written off by the
Group in connection with the acquisition by Trinity Acquisition of the whole of
the issued share capital of the Company amounted to L15.8 million.
(III) LOSS ON CLOSURE/DISPOSAL OF OPERATIONS
The Group's U.S. professional liability wholesale operation, ("PLUM"), was
closed in May 1998. The loss on closure amounted to L0.7 million before writing
off attributable goodwill. In accordance with FRS 10, goodwill attributable to
PLUM of L29.6 million, which had been previously eliminated directly against
retained earnings, has been reinstated and written off as a component of the
loss on closure. This accounting requirement does not affect the Group's net
assets; the net impact after tax of the closure of PLUM was to reduce net assets
by L0.4 million. The profit on disposal of other operations during 1998 amounted
to L1.0 million.
NOTE 5--OPERATING INCOME
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- ----------------- -----------------
1996 1997 1998 1998
--------- --------- ----------------- -----------------
<S> <C> <C> <C> <C>
(L MILLION)
OPERATING INCOME WAS ARRIVED AT AFTER (CREDITING)/ CHARGING:
Interest receivable........................................... (35.8) (30.0) (18.4) (8.7)
Investment income............................................. (9.4) (11.7) (8.5) (4.7)
--------- --------- ----- -----
INTEREST AND INVESTMENT INCOME................................ (45.2) (41.7) (26.9) (13.4)
--------- --------- ----- -----
AUDITORS' REMUNERATION
Audit fees.................................................. 1.1 1.1 0.7 0.4
Other services provided by Ernst & Young
(United Kingdom only)..................................... 0.1 0.4 0.2 0.2
DEPRECIATION AND AMORTIZATION ON
Owned assets................................................ 23.8 22.2 15.4 8.9
Finance leased assets....................................... 0.7 0.5 0.1 --
OPERATING LEASE RENTALS
Land and buildings.......................................... 34.1 28.1 19.2 9.3
Equipment................................................... 3.5 2.7 1.9 1.1
--------- --------- ----- -----
--------- --------- ----- -----
</TABLE>
F-16
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--EMPLOYEES
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
SALARIES AND ASSOCIATED EXPENSES 1996 1997 1998 1998
- -------------------------------------------------------------- --------- --------- --------------- -----------------
<S> <C> <C> <C> <C>
<CAPTION>
(L MILLION)
<S> <C> <C> <C> <C>
Salaries...................................................... 360.9 345.7 240.4 131.5
Social security costs......................................... 24.6 23.7 16.7 7.7
Other pension costs........................................... 20.7 20.2 14.2 6.2
--------- --------- ----- -----
406.2 389.6 271.3 145.4
--------- --------- ----- -----
--------- --------- ----- -----
</TABLE>
<TABLE>
<CAPTION>
AVERAGE FOR
--------------------------------------------------------
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
NUMBER OF GROUP EMPLOYEES 1996 1997 1998 1998
- -------------------------------------------------------------- --------- --------- --------------- -----------------
<S> <C> <C> <C> <C>
<CAPTION>
(NUMBER)
<S> <C> <C> <C> <C>
United Kingdom................................................ 4,444 3,938 3,910 3,777
North America................................................. 4,899 4,531 4,363 4,348
Rest of the World............................................. 621 893 942 1,179
--------- --------- ----- -----
9,964 9,362 9,215 9,304
--------- --------- ----- -----
--------- --------- ----- -----
</TABLE>
NOTE 7--NET INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, JANUARY 1 TO SEPTEMBER 2 TO
SEPTEMBER 1, DECEMBER 31,
------------------------ ----------------- -------------------
1996 1997 1998 1998
----- ----- ----------------- -------------------
<S> <C> <C> <C> <C>
<CAPTION>
(L MILLION)
<S> <C> <C> <C> <C>
Bank loans, overdrafts.......................................... 2.0 0.6 1.8 1.1
Interest payable by associates.................................. -- -- 0.1 0.1
Finance charges payable under finance leases.................... 0.2 0.1 0.1 0.0
-- -- -- --
2.2 0.7 2.0 1.2
-- -- -- --
-- -- -- --
</TABLE>
NOTE 8--INCOME BEFORE TAXATION
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
1996 1997 1998 1998
--------- --------- --------------- -----------------
<S> <C> <C> <C> <C>
<CAPTION>
(L MILLION)
<S> <C> <C> <C> <C>
United Kingdom................................................... 52.5 53.7 (4.9) 6.4
Other countries.................................................. 39.1 41.8 3.6 10.7
--- --- --- ---
91.6 95.5 (1.3) 17.1
--- --- --- ---
--- --- --- ---
</TABLE>
F-17
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--TAXATION
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
CHARGE FOR THE YEAR 1996 1997 1998 1998
- ---------------------------------------------------------------- --------- --------- --------------- -----------------
<S> <C> <C> <C> <C>
<CAPTION>
(L MILLION)
<S> <C> <C> <C> <C>
U.K. corporation tax at 31% (1997: 31.5% 1996: 33%)............. 20.9 16.2 11.9 (0.4)
U.S............................................................. 11.8 5.1 4.7 --
Rest of World................................................... 2.8 6.0 0.2 6.1
Deferred tax.................................................... 0.5 10.5 (3.4) 23.9
Advance corporation tax written off............................. -- -- -- 9.7
--- --- --- ---
36.0 37.8 13.4 39.3
Associates...................................................... 0.6 0.3 0.1 1.6
--- --- --- ---
Charge for the year............................................. 36.6 38.1 13.5 40.9
--- --- --- ---
--- --- --- ---
</TABLE>
The deferred tax charge for 1998 includes the write-off of U.K. deferred tax
assets amounting to L23.4 million. The timing of the recovery of these assets is
uncertain.
The deferred tax charge for 1997 included L1.1 million resulting from the
reduction in U.K. corporation tax rate from 33% to 31% and L2.7 million in
respect of discontinued operations which was no longer considered recoverable
following the provisional liquidation of Sovereign.
The total tax charge for 1998 includes a tax credit of L3.8 million relating
to exceptional items.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
------------------------ ------------- -----------------
RECONCILIATION OF U.K. STATUTORY RATE TO EFFECTIVE RATE 1996 1997 1998 1998
- -------------------------------------------------------------- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C>
<CAPTION>
% % % %
<S> <C> <C> <C> <C>
U.K. statutory rate........................................... 33.0 31.0 31.0 31.0
Adjusted for:
Rate change during the course of the year................... -- 0.5 -- --
Profits taxed at other than U.K. statutory rate:
U.S....................................................... 4.0 2.0 (92.3) 0.6
Rest of World............................................. (4.7) (1.5) 45.1 18.2
Capital gains not currently taxable or reduced by other
reliefs................................................... (2.0) (0.8) 50.1 (0.6)
Permanent differences and other items....................... 8.3 8.5 (111.6) 2.1
Prior year adjustments...................................... 1.3 0.2 -- (5.7)
Disallowable costs incurred by the company on the
acquisition............................................... -- -- (257.5) --
Disallowable consolidated goodwill eliminated on disposal... -- -- (703.5) --
--- --- ------------- ---
Effective rate................................................ 39.9 39.9 (1,038.7) 45.6
--- --- ------------- ---
--- --- ------------- ---
</TABLE>
The effective rate excludes the write-off of advance corporation tax and
deferred taxes.
F-18
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--DIVIDENDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER JANUARY 1 TO SEPTEMBER 2 TO
31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
1996 1997 1998 1998
--------- --------- --------------- -----------------
<S> <C> <C> <C> <C>
<CAPTION>
(L MILLION)
<S> <C> <C> <C> <C>
First interim................................................... 6.9 6.9 7.4 --
Second interim.................................................. 6.9 6.9 7.4 --
Third interim................................................... 6.9 6.9 7.4 --
Fourth interim.................................................. 6.9 6.9 -- --
--- --- --- ---
27.6 27.6 22.2 --
--- --- --- ---
--- --- --- ---
</TABLE>
NOTE 11--EARNINGS PER ORDINARY SHARE
Earnings per ordinary share have been calculated using net income and the
weighted average number of ordinary shares in issue during the periods January 1
to September 1, 1998 and September 2 to December 31, 1998 respectively of 424.6
million and 427.1 million respectively (1997: 418.4 million, 1996: 418.1
million) after excluding those ordinary shares on which dividends were waived.
The dilution arising from the issue of ordinary shares in accordance with
the Group's employee share plans and Willis Corroon Corporation's 7 1/2%
convertible subordinated debentures would not have been material.
NOTE 12--CURRENT ASSET INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(L MILLION)
Listed investments (market value L49.8 million (1997 : L55.9 million)).......................... 55.6 48.7
Unlisted investments............................................................................ 202.1 232.9
--------- ---------
257.7 281.6
--------- ---------
--------- ---------
</TABLE>
Listed investments mainly comprise U.K. and U.S. government securities which
were purchased with the intention of holding to maturity.
F-19
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(L MILLION)
DUE WITHIN ONE YEAR
Trade receivables......................................................................... 2,425.6 2,447.6
Less: provision for bad and doubtful debts................................................ 11.6 11.8
--------- ---------
2,414.0 2,435.8
Amounts owed by parent company............................................................ -- 965.1
Amounts owed by associates................................................................ 0.2 0.8
Corporate tax............................................................................. 2.8 2.0
Prepayments and accrued revenue........................................................... 26.0 54.1
Other receivables......................................................................... 38.8 35.0
--------- ---------
2,481.8 3,492.8
DUE AFTER MORE THAN ONE YEAR
Trade receivables......................................................................... 4.0 6.2
Amounts owed by parent company............................................................ -- 270.3
Deferred tax (see Note 22)................................................................ 14.4 --
Advance corporation tax recoverable....................................................... 7.4 --
Other receivables......................................................................... 25.6 25.3
--------- ---------
2,533.2 3,794.6
--------- ---------
--------- ---------
</TABLE>
The level of insurance brokering receivables is no indication of credit
risk, since the status of the insurance broker as agent means that generally the
credit risk is borne by the principals; nor is it an indication of future cash
flows as it is normal practice for insurance brokers to settle accounts with
clients, insurers, other intermediaries and market settlement bureaux on a net
basis. The simultaneous recording of an insurance brokering transaction between
client and insurer results in a high level of correlation between insurance
brokering receivables and payables.
NOTE 14--INTANGIBLE ASSETS
Goodwill arising on acquisition of subsidiaries during the year amounted to
L20 million. Amortization of goodwill amounted to L0.3 million.
F-20
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--TANGIBLE ASSETS
<TABLE>
<CAPTION>
FURNITURE
LAND AND EQUIPMENT
BUILDINGS AND VEHICLES TOTAL
----------- ------------- ---------
<S> <C> <C> <C>
(L MILLION)
YEAR ENDED DECEMBER 31, 1996
COST OR VALUATION
January 1, 1996............................................................... 88.3 148.0 236.3
Exchange adjustments.......................................................... (0.5) (5.6) (6.1)
Additions..................................................................... 2.7 26.2 28.9
Disposals..................................................................... (4.8) (25.9) (30.7)
----- ----- ---------
December 31, 1996............................................................. 85.7 142.7 228.4
----- ----- ---------
DEPRECIATION
January 1, 1996............................................................... (5.2) (87.3) (92.5)
Exchange adjustments.......................................................... 0.1 3.2 3.3
Provided in the year.......................................................... (4.4) (20.1) (24.5)
Disposals..................................................................... 2.0 15.4 17.4
----- ----- ---------
December 31, 1996............................................................. (7.5) (88.8) (96.3)
----- ----- ---------
NET BOOK VALUE
December 31, 1996............................................................. 78.2 53.9 132.1
----- ----- ---------
----- ----- ---------
YEAR ENDED DECEMBER 31, 1997
COST OR VALUATION
January 1, 1997............................................................... 85.7 142.7 228.4
Exchange adjustments.......................................................... (0.5) 0.8 0.3
Additions..................................................................... 7.3 19.2 26.5
Disposals..................................................................... (1.5) (30.4) (31.9)
Arising from acquisitions..................................................... 0.7 9.1 9.8
----- ----- ---------
December 31, 1997............................................................. 91.7 141.4 233.1
----- ----- ---------
DEPRECIATION
January 1, 1997............................................................... (7.5) (88.8) (96.3)
Exchange adjustments.......................................................... 0.4 (0.4) 0.0
Provided in the year.......................................................... (4.3) (18.4) (22.7)
Disposals..................................................................... 0.9 25.7 26.6
Arising from acquisitions..................................................... (0.5) (5.4) (5.9)
----- ----- ---------
December 31, 1997............................................................. (11.0) (87.3) (98.3)
----- ----- ---------
NET BOOK VALUE
December 31, 1997............................................................. 80.7 54.1 134.8
----- ----- ---------
----- ----- ---------
</TABLE>
F-21
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--TANGIBLE ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FURNITURE
LAND AND EQUIPMENT
BUILDINGS AND VEHICLES TOTAL
----------- ------------- ---------
<S> <C> <C> <C>
(L MILLION)
JANUARY 1 TO DECEMBER 31, 1998
COST OR VALUATION
January 1, 1998............................................................... 91.7 141.4 233.1
Exchange adjustments.......................................................... (0.3) (1.7) (2.0)
Additions..................................................................... 3.4 16.7 20.1
Disposals..................................................................... (1.8) (10.6) (12.4)
Arising from acquisitions..................................................... 1.3 4.7 6.0
----- ----- ---------
September 1, 1998............................................................. 94.3 150.5 244.8
Exchange and other adjustments................................................ 0.1 1.7 1.8
Additions..................................................................... 3.5 6.3 9.8
Disposals..................................................................... (1.8) (7.9) (9.7)
Arising from acquisitions..................................................... 0.0 0.1 0.1
----- ----- ---------
December 31, 1998............................................................. 96.1 150.7 246.8
DEPRECIATION
January 1, 1998............................................................... (11.0) (87.3) (98.3)
Exchange adjustments.......................................................... 0.1 0.9 1.0
Provided in the period........................................................ (3.0) (12.0) (15.0)
Disposals..................................................................... 1.5 8.1 9.6
Arising from acquisitions..................................................... -- (1.7) (1.7)
----- ----- ---------
September 1, 1998............................................................. (12.4) (92.0) (104.4)
Exchange adjustments.......................................................... (0.1) (0.8) (0.9)
Provided in the period........................................................ (1.7) (6.7) (8.4)
Disposals..................................................................... 1.5 7.0 8.5
----- ----- ---------
December 31, 1998............................................................. (12.7) (92.5) (105.2)
----- ----- ---------
NET BOOK VALUE
December 31, 1998............................................................. 83.4 58.2 141.6
----- ----- ---------
----- ----- ---------
</TABLE>
F-22
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--TANGIBLE ASSETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
NET BOOK VALUE OF LAND AND BUILDINGS 1996 1997 1998
- ------------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
(L MILLION)
Freehold: Land............................................................................. 17.4 17.3 18.4
Buildings......................................................................... 50.2 49.3 49.6
Leasehold: Long............................................................................ 0.4 0.2 0.1
Short........................................................................... 10.2 13.9 15.3
--- --- ---
78.2 80.7 83.4
--- --- ---
--- --- ---
</TABLE>
The Group's principal freehold properties were valued at December 31, 1995
on the basis of open market value for existing use. The carrying value of these
revalued properties, at December 31, 1998, was L60.5 million (1997: L60.5
million, 1996: L60.5 million), and the accumulated depreciation was L6.1 million
(1997: L4.0 million, 1996: L2.0). The historical cost was L61.6 million (1997:
L61.6 million, 1996: L61.6 million) and the accumulated depreciation was L21.0
million (1997: L18.6 million, 1996: L16.3 million).
No tax would be payable on the realization of revalued properties at their
net book value by virtue of available capital losses.
The net book value of assets held under finance leases included within
furniture, equipment and vehicles was Lnil (1997: L0.7 million, 1996: L1.6
million).
NOTE 16--INVESTMENTS
<TABLE>
<CAPTION>
OWN OTHER
ASSOCIATES SHARES INVESTMENTS TOTAL
------------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
(L MILLION)
YEAR ENDED DECEMBER 31, 1996
COST
January 1, 1996................................................. 6.0 10.7 1.5 18.2
Exchange adjustments............................................ (0.9) (0.7) (0.1) (1.7)
Additions....................................................... -- 0.3 0.9 1.2
Disposals....................................................... -- (1.4) -- (1.4)
Share of retained earnings of associates........................ 1.1 -- -- 1.1
----- ----- --- ---------
December 31, 1996............................................... 6.2 8.9 2.3 17.4
----- ----- --- ---------
PROVISIONS
January 1, 1996................................................. -- (4.2) -- (4.2)
Exchange adjustments............................................ -- 0.3 -- 0.3
Provided in the year............................................ -- -- (0.5) (0.5)
Amortization.................................................... -- (1.8) -- (1.8)
Disposals....................................................... -- 1.4 -- 1.4
----- ----- --- ---------
December 31, 1996............................................... -- (4.3) (0.5) (4.8)
----- ----- --- ---------
NET BOOK VALUE
December 31, 1996............................................... 6.2 4.6 1.8 12.6
----- ----- --- ---------
----- ----- --- ---------
</TABLE>
F-23
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
OWN OTHER
ASSOCIATES SHARES INVESTMENTS TOTAL
------------- ------------- --------------- ---------
(L MILLION)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
COST
January 1, 1997................................................. 6.2 8.9 2.3 17.4
Exchange adjustments............................................ (0.4) 0.2 -- (0.2)
Additions....................................................... 3.5 4.9 1.4 9.8
Net assets reclassified on becoming a subsidiary................ (2.6) -- -- (2.6)
Investment reclassified on becoming an associate................ 2.6 -- (2.6) --
Disposals....................................................... -- (0.6) -- (0.6)
Share of retained earnings of associates........................ 0.5 -- -- 0.5
----- ----- --- ---------
December 31, 1997............................................... 9.8 13.4 1.1 24.3
----- ----- --- ---------
PROVISIONS
January 1, 1997................................................. -- (4.3) (0.5) (4.8)
Exchange adjustments............................................ -- (0.1) -- (0.1)
Amortization.................................................... -- (1.3) -- (1.3)
Disposals....................................................... -- 0.6 -- 0.6
Other adjustments............................................... -- -- 0.5 0.5
----- ----- --- ---------
December 31, 1997............................................... -- (5.1) -- (5.1)
----- ----- --- ---------
NET BOOK VALUE
December 31, 1997............................................... 9.8 8.3 1.1 19.2
----- ----- --- ---------
----- ----- --- ---------
</TABLE>
F-24
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
OWN OTHER
ASSOCIATES SHARES TA I INVESTMENTS TOTAL
---------- ------ ---- ----------- -----
<S> <C> <C> <C> <C> <C>
(L MILLION)
JANUARY 1 TO DECEMBER 31, 1998
COST
January 1, 1998............................................................ 9.8 13.4 -- 1.1 24.3
Exchange adjustments....................................................... (1.8) (0.2) -- (0.2) (2.2)
Additions.................................................................. 14.7 0.2 -- 2.2 17.1
Transfer to subsidiary..................................................... (2.0) -- -- -- (2.0)
Disposals.................................................................. -- (4.0) -- -- (4.0)
Share of retained earnings of associates................................... 5.6 -- -- -- 5.6
--- ------ ---- --- -----
September 1, 1998.......................................................... 26.3 9.4 -- 3.1 38.8
Exchange adjustments....................................................... 0.5 0.1 -- 0.2 0.8
Additions.................................................................. 5.9 -- 3.6 -- 9.5
Disposals.................................................................. -- (1.3) -- -- (1.3)
Shares exchanged for cash.................................................. -- (8.2) -- -- (8.2)
Share of retained earnings of associates................................... (3.7) -- -- -- (3.7)
--- ------ ---- --- -----
December 31, 1998.......................................................... 29.0 -- 3.6 3.3 35.9
--- ------ ---- --- -----
PROVISIONS
January 1, 1998............................................................ -- (5.1) -- -- (5.1)
Amortization............................................................... (0.4) (1.0) -- -- (1.4)
Disposals.................................................................. -- 4.0 -- -- 4.0
--- ------ ---- --- -----
September 1, 1998.......................................................... (0.4) (2.1) -- -- (2.5)
Amortization............................................................... (0.3) (0.9) -- -- (1.2)
Disposals.................................................................. -- 1.3 -- -- 1.3
Other adjustments.......................................................... -- 1.7 (0.8) -- 0.9
--- ------ ---- --- -----
December 31, 1998.......................................................... (0.7) -- (0.8) -- (1.5)
--- ------ ---- --- -----
NET BOOK VALUE
December 31, 1998.......................................................... 28.3 -- 2.8 3.3 34.4
--- ------ ---- --- -----
--- ------ ---- --- -----
</TABLE>
At December 31, 1998, the Group's employee share ownership plans held
1,815,593 management ordinary shares in TA I Limited. These shares are not
listed on any stock exchange.
F-25
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--INVESTMENTS (CONTINUED)
A summarized statement of income and assets and liabilities based on the
latest information available, with respect to Willis Corroon Group's equity
accounted associates, is set out below:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
1996 1997 1998 1998
--------- --------- --------------- -----------------
<S> <C> <C> <C> <C>
<CAPTION>
(L MILLION)
<S> <C> <C> <C> <C>
Total operating revenues........................................ 53.3 35.2 123.0 52.9
Operating income................................................ 8.2 4.0 21.9 (5.4)
Net income...................................................... 6.2 3.7 21.6 (10.1)
--- --- ----- -----
--- --- ----- -----
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1997 1998
--------- ---------
(L MILLION)
<S> <C> <C>
Current assets............................................................... 384.8 430.2
Fixed assets................................................................. 77.5 80.9
--------- ---------
462.3 511.1
--------- ---------
--------- ---------
Current liabilities.......................................................... 384.4 424.9
Noncurrent liabilities....................................................... 40.4 44.9
Shareholders' equity......................................................... 37.5 41.3
--------- ---------
462.3 511.1
--------- ---------
--------- ---------
</TABLE>
Associates at December 31, 1998, which principally affected the Company's
financial position and results of operations, all of which are insurance brokers
and were accounted for under the equity accounting method, were:
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP OF
NAME OF ASSOCIATE COUNTRY COMMON STOCK
- -------------------------------------------------------------------- -------------------- ---------------------------
<S> <C> <C>
Gras Savoye & Cie................................................... France 33
Jaspers Wuppesahl Industrie Assekuranz
GmbH & Co., KG.................................................... Germany 30
Assurand /orgruppen A/S............................................. Denmark 30
</TABLE>
F-26
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
(L MILLION)
<S> <C> <C>
Amounts owed to parent company.................................................................. -- 714.1
Amounts owed to associates...................................................................... 0.4 --
Income tax and social security.................................................................. 2.4 2.6
Finance lease obligations....................................................................... 0.6 --
Other payables.................................................................................. 86.5 100.7
--- ---------
89.9 817.4
--- ---------
--- ---------
</TABLE>
Included within amounts owed to parent company, is an interest free convertible
loan of L92.9 million. This was converted into 46,464,949 ordinary shares in the
Company on February 3, 1999.
NOTE 18--BANK LOANS AND OVERDRAFTS
Bank loans and overdrafts due in less than one year includes a loan of $575
million (L348.5 million) under a fully drawn Subordinated Bridge Facility. This
short-term loan was repaid on February 2, 1999 and refinanced by the issue of
$550 million of unsecured Senior Subordinated Notes which mature in 2009 and
accrue interest at a rate of 9%.
The weighted average interest rate payable on short-term bank loans and
overdrafts outstanding at December 31, 1998, amounting to L350.3 million (1997:
L0.5 million) was 9.9% (1997: 4.9%).
Included within bank loans and overdrafts are L4.4 million of debt issuance
costs which were refunded after December 31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
BANK LOANS REPAYABLE IN MORE THAN ONE YEAR 1997 1998
- ------------------------------------------------------------------------------------------------ ----------- ---------
<S> <C> <C>
(L MILLION)
between one and two years....................................................................... -- 2.4
between two and three years..................................................................... 12.0 5.4
between three and four years.................................................................... -- 6.7
between four and five years..................................................................... 22.0 8.5
thereafter...................................................................................... -- 253.4
--- ---------
34.0 276.4
--- ---------
--- ---------
</TABLE>
The Group entered into a Senior Credit Facility agreement comprising Term Loans
of $450 million and a Revolving Credit Facility of $150 million. See Note 27.
The Term Loans were fully drawn down on November 19, 1998 and are arranged in
four tranches that are repayable between 2005 and 2008. The loans accrue
interest at LIBOR plus a variable margin. With effect from February 19, 1999 the
Group entered into a swap transaction to exchange the applicable LIBOR rate for
a fixed rate. At that date the weighted average interest rate was 7.7%.
The Revolving Credit Facility is available until 2005. At December 31, 1998, the
balance drawn on this facility was L6.1 million ($10.0 million) with interest
accruing at 7.8%.
F-27
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--OTHER NONCURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
----------- ---------
<S> <C> <C>
(L MILLION)
Trade payables................................................................................... 3.1 4.3
Accruals and deferred income..................................................................... 0.4 0.7
US dollar 7.5% convertible subordinated debentures............................................... 0.2 --
--- ---
3.7 5.0
--- ---
--- ---
</TABLE>
The US dollar 7.5% convertible subordinated debentures due in June 2005 were
repaid in the year.
NOTE 20--OPERATING LEASE COMMITMENTS
<TABLE>
<CAPTION>
LAND AND BUILDINGS
OTHER
-------------------- --------------------
DECEMBER 31,
------------------------------------------
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(L MILLION)
Payments committed to be made within one year for leases expiring:
in less than one year.......................................................... 2.2 2.5 0.2 0.6
between one and five years..................................................... 6.3 8.7 1.5 1.3
after five years............................................................... 15.4 13.1 -- --
--------- --------- --------- ---------
23.9 24.3 1.7 1.9
--------- --------- --------- ---------
Payments committed to be made after one year:
within two years............................................................... 22.8 22.4 1.3 1.2
between two and three years.................................................... 21.2 21.5 0.6 0.8
between three and four years................................................... 20.1 20.7 0.3 0.2
between four and five years.................................................... 18.7 16.9 0.1 0.1
thereafter..................................................................... 116.5 109.0 -- --
--------- --------- --------- ---------
199.3 190.5 2.3 2.3
--------- --------- --------- ---------
223.2 214.8 4.0 4.2
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-28
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
SURPLUS DISCONTINUED
CLAIMS PROPERTY OPERATIONS OTHER DEFERRED
PROVISIONS PROVISIONS(I) PROVISIONS(II) PROVISIONS(III) PROVISIONS TAX TOTAL
- ----------------------------------- --------------- --------------- --------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(L MILLION)
JANUARY 1, 1996.................... 35.6 32.1 40.5 6.2 -- 114.4
Charged to income.................. 2.9 3.9 -- (2.2) -- 4.6
Utilized in the year............... (5.8) (4.2) (1.8) (0.8) -- (12.6)
Exchange and other adjustments..... (3.2) (7.0) -- (0.3) -- (10.5)
----- ----- ----- --- ----- ---------
DECEMBER 31, 1996.................. 29.5 24.8 38.7 2.9 -- 95.9
Charged to income.................. 2.3 (1.6) (3.1) -- -- (2.4)
Utilized in the year............... (5.0) (3.0) (2.8) (0.1) -- (10.9)
Arising on acquisition............. 3.9 -- -- -- -- (3.9)
Exchange and other adjustments..... 3.4 -- -- 0.1 -- 3.5
----- ----- ----- --- ----- ---------
DECEMBER 31, 1997.................. 34.1 20.2 32.8 2.9 -- 90.0
Charged to income.................. 34.5 -- -- -- (3.4) 31.1
Transferred to payables............ -- -- (5.5) -- -- (5.5)
Transferred from receivables....... -- -- -- -- (14.4) (14.4)
Utilized in the period............. (10.9) (1.9) (6.7) -- -- (19.5)
Exchange and other adjustments..... (0.4) -- -- -- -- (0.4)
----- ----- ----- --- ----- ---------
SEPTEMBER 1, 1998.................. 57.3 18.3 20.6 2.9 (17.8) 81.3
Charged to income.................. (2.8) (0.3) -- -- 23.9 20.8
Utilized in the period............. (6.9) (1.1) 0.2 -- -- (7.8)
Exchange and other adjustments..... 0.6 -- -- -- (0.1) 0.5
----- ----- ----- --- ----- ---------
DECEMBER 31, 1998.................. 48.2 16.9 20.8 2.9 6.0 94.8
----- ----- ----- --- ----- ---------
----- ----- ----- --- ----- ---------
</TABLE>
- ------------------------
(i) The claims provisions include estimates for liabilities that may arise from
potential claims for errors and omissions, including claims arising from
the pension transfer and opt outs review, which may not be covered by
insurance arrangements.
(ii) Provisions for properties surplus to operational requirements.
(iii) Provisions for discontinued operations include estimates for future
operating costs of administering the run-off of the business previously
placed with Sovereign and certain other insurance companies.
F-29
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 22--DEFERRED TAX
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(L MILLION)
OPENING BALANCE................................................................................. (27.1) (14.4)
Transfer to/(from) income....................................................................... 10.5 20.5
Other adjustments............................................................................... 2.2 (0.1)
--------- ---------
CLOSING BALANCE................................................................................. (14.4)* 6.0
--------- ---------
--------- ---------
The deferred tax (assets)/liabilities arise from:
Capital allowances.............................................................................. 14.4 11.5
Short-term timing differences................................................................... (5.5) (5.1)
Provisions...................................................................................... (23.3) (0.4)
--------- ---------
(14.4) 6.0
--------- ---------
--------- ---------
</TABLE>
- ------------------------
* Included in receivables (Note 13)
NOTE 23--NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
RECONCILIATION OF OPERATING ACTIVITIES TO NET CASH FLOW YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
FROM OPERATING ACTIVITIES DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
- ----------------------------------------------------------- -------------------- --------------- ---------------
<S> <C> <C> <C> <C>
1996 1997 1998 1998
--------- --------- --------------- ---------------
<CAPTION>
(L MILLION)
<S> <C> <C> <C> <C>
Operating income from total operations..................... 87.8 92.1 21.0 21.0
Exceptional items.......................................... -- -- (0.4) (4.0)
Depreciation charges and loss on sale of tangible fixed
assets................................................... 24.7 22.7 15.0 8.7
Amortization of goodwill................................... -- -- 0.5 0.5
Decrease/(increase) in receivables......................... 82.2 34.4 2.0 (24.5)
(Decrease)/increase in payables............................ (106.0) (26.5) 78.4 (93.3)
Net movement on provisions and insurance funds............. (25.0) (9.3) 11.0 (6.1)
--------- --------- ----- ------
NET CASH INFLOW FROM OPERATING ACTIVITIES.................. 63.7 113.4 127.5 (97.7)
--------- --------- ----- ------
--------- --------- ----- ------
</TABLE>
F-30
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 23--NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
BORROWINGS
------------------------
CASH AND OVERDRAFTS DUE DUE AFTER
RECONCILIATION OF NET CASH FLOW TO ----------------------------------- LIQUID WITHIN MORE THAN
MOVEMENT IN NET FUNDS CASH OVERDRAFTS TOTAL RESOURCES ONE YEAR ONE YEAR NET FUNDS
- ------------------------------------------- --------- ------------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(L MILLION)
JANUARY 1, 1996............................ 84.9 (1.4) 83.5 681.3 (0.8) (63.7) 700.3
Cash flow before management of liquid
resources and financing.................. 14.1 0.7 14.8 -- -- -- 14.8
Management of liquid resources............. 25.2 -- 25.2 (25.2) -- -- --
Financing.................................. (43.3) -- (43.3) -- -- 43.3 --
Disposals.................................. -- -- -- (25.6) -- -- (25.6)
Foreign exchange........................... (2.8) -- (2.8) (44.9) -- 1.4 (46.3)
--------- --- --------- ----------- ----------- ----------- -----------
DECEMBER 31, 1996.......................... 78.1 (0.7) 77.4 585.6 (0.8) (19.0) 643.2
Cash flow before management of liquid
resources and financing.................. (6.5) 0.3 (6.2) -- -- -- (6.2)
Management of liquid resources............. 2.8 -- 2.8 (2.8) -- -- --
Financing.................................. 14.7 -- 14.7 -- 0.1 (14.8) --
Issue of share capital..................... 0.3 -- 0.3 -- -- -- 0.3
Provisional liquidation.................... -- -- -- (58.3) -- -- (58.3)
Foreign exchange........................... (0.8) -- (0.8) 4.0 -- (0.4) 2.8
--------- --- --------- ----------- ----------- ----------- -----------
DECEMBER 31, 1997.......................... 88.6 (0.4) 88.2 528.5 (0.7) (34.2) 581.8
Cash flow before management of
liquid resources and financing........... 77.0 (6.5) 70.5 -- -- -- 70.5
Management of liquid resources............. (66.8) -- (66.8) 66.8 -- -- --
Financing.................................. 32.0 -- 32.0 -- 0.6 (32.6) --
Issue of share capital..................... 0.7 -- 0.7 -- -- -- 0.7
Foreign exchange........................... (1.0) -- (1.0) (6.9) -- -- (7.9)
--------- --- --------- ----------- ----------- ----------- -----------
SEPTEMBER 1, 1998.......................... 130.5 (6.9) 123.6 588.4 (0.1) (66.8) 645.1
Cash flow before management of
liquid resources and financing........... (166.8) 0.9 (165.9) -- -- -- (165.9)
Management of liquid resources............. 122.2 -- 122.2 (122.2) -- -- --
Financing.................................. 32.2 -- 32.2 -- (92.9) 60.7 --
Issue of share capital..................... 4.0 -- 4.0 -- -- -- 4.0
Foreign exchange........................... 1.3 (0.2) 1.1 9.1 (6.9) -- 3.3
--------- --- --------- ----------- ----------- ----------- -----------
DECEMBER 31, 1998.......................... 123.4 (6.2) 117.2 475.3 (99.9) (6.1) 486.5
--------- --- --------- ----------- ----------- ----------- -----------
--------- --- --------- ----------- ----------- ----------- -----------
</TABLE>
F-31
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 23--NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
ANALYSIS OF CASH AND SHORT-TERM DEPOSITS AND LIQUID RESOURCES -------------------------------
AS SHOWN IN THE BALANCE SHEET 1996 1997 1998
- ------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
(L MILLION)
CASH
Cash and short-term deposits........................................................ 277.9 359.4 317.1
less short-term deposits classified as liquid resources............................. (199.8) (270.8) (193.7)
--------- --------- ---------
78.1 88.6 123.4
--------- --------- ---------
--------- --------- ---------
LIQUID RESOURCES
Current asset investments........................................................... 385.8 257.7 281.6
Short-term deposits................................................................. 199.8 270.8 193.7
--------- --------- ---------
585.6 528.5 475.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
As described in Note 27, deposits and cash totalling L66.3 million are
subject to a floating charge.
NOTE 24--PENSIONS
The Group operates two principal pension plans, one in the United Kingdom
and the other in the United States, covering substantially all employees in
those countries. Both plans are of the defined benefit type and are funded
externally. The pension cost of both plans is assessed in accordance with the
advice of professionally qualified actuaries, using the projected unit credit
method.
The most recent valuation of the U.K. plan, which was undertaken by a Group
employee, was at December 31, 1995 and of the U.S. plan at January 1, 1997. The
major assumption is that the rate of return on investments would exceed salary
inflation by between 2.25% and 4.0% per annum. The market value of the
investments at the respective dates of the latest actuarial valuations was L676
million and the actuarial value of the investments was sufficient to cover
approximately 110% of the benefits that had accrued to members after allowing
for expected future salary increases.
NOTE 25--EMPLOYEE SHARE PLANS
The Executive Option Scheme (1984) (the "1984 Plan") and the International
Executive Option Scheme (the "International Plan") expired in November 1994 from
which date no further options have been granted. Prior to that date, the 1984
Plan and the International Plan were open to those employees and Directors of
the Group who worked for at least 20 hours per week (or, in the case of
Directors, 25 hours per week) except, in the case of the 1984 Plan, those who
were within 18 months of their normal retirement date. The option price per
ordinary share was determined on the date of grant as the greater of (i) the
nominal value of an ordinary share and (ii) the middle market quotation of an
ordinary share derived from the Daily Official List of the London Stock Exchange
on the business day immediately preceding the date of the grant of the option.
No option would have been granted under the 1984 Plan and the International
Plan if immediately thereafter the aggregate number of ordinary shares issued or
issuable in respect of rights granted under the 1984 Plan and the International
Plan would have exceeded either the lower of 30,000,000 ordinary shares or 5% of
the issued share capital at the date of grant.
Options were normally exercisable between three and ten years after the date
of grant.
F-32
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 25--EMPLOYEE SHARE PLANS (CONTINUED)
The Willis Corroon Group plc Savings-Related Share Option Scheme 1995 (the
"1995 Plan") replaced the Savings-Related Share Option Scheme (the "1981 Plan")
which expired in November 1994 in respect of new grants. The 1995 Plan was open
to any U.K. employee with at least 6 months' continuous service with
participating Group companies (an "eligible employee").
An eligible employee was required to enter into a savings contract for a
period of three years to which he would have contributed 36 monthly payments of
between L5 and L250 in aggregate, or for a period of five or seven years to
which he would contribute 60 monthly payments of between L5 and L250 in
aggregate. He would then be entitled to exercise his option, the aggregate
subscription price of which must not have exceeded the total amount contributed
to the savings contract. The exercise price of any particular option was not
less than the higher of (i) 80% of the market value of ordinary shares on the
business day preceding the date an offer was made and (ii) the nominal value of
an ordinary share.
Options granted under the 1995 Plan and 1981 Plan were normally exercisable
only for a period of six months commencing on the expiration of the eligible
employee's savings contract.
The number of ordinary shares which could have been issued under the 1995
Plan did not at any time exceed 10% of the issued share capital of the Company
immediately prior to the date of grant when aggregated with the number of
ordinary shares issued or placed under option to subscribe in the previous ten
years under any other employee share plan adopted by the Company. In determining
the limit, no account was taken of ordinary shares where the right to acquire
such ordinary shares was released or lapsed without being exercised.
Options under the 1984 Plan, International Plan, 1981 Plan and 1995 Plan
lapsed on November 6, 1998.
The following tables show movements under the Company's employee share plans
since January 1996.
<TABLE>
<CAPTION>
EXECUTIVE SHARE OPTION PLANS
--------------------------------------------------------------------------------------
1984 PLAN INTERNATIONAL PLAN
------------------------------------------ ------------------------------------------
NO. OF WEIGHTED NO. OF WEIGHTED
ORDINARY AVERAGE ORDINARY AVERAGE
SHARES OPTION PRICE PRICE RANGE SHARES OPTION PRICE PRICE RANGE
----------- --------------- ------------ ----------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
(000) (P) (P) (000) (P) (P)
Outstanding January 1, 1996................. 10,104 237 149-473 3,421 207 149-296
Exercised................................... -- -- -- -- -- --
Cancelled................................... (1,232) 342 149-473 (208) 214 149-296
----------- -----------
Outstanding December 31, 1996............... 8,872 223 149-473 3,213 207 149-296
Exercised................................... -- -- -- -- -- --
Cancelled................................... (1,715) 257 149-378 (66) 244 152-296
----------- -----------
Outstanding December 31, 1997............... 7,157 215 149-296 3,147 206 149-296
Exercised................................... (1,374) 165 149-198 (13) 149 149
Cancelled................................... (5,783) 226 149-296 (3,134) 206 149-296
----------- --- ------------ ----------- --- ------------
Outstanding December 31, 1998............... -- -- -- -- -- --
----------- --- ------------ ----------- --- ------------
----------- --- ------------ ----------- --- ------------
</TABLE>
F-33
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 25--EMPLOYEE SHARE PLANS (CONTINUED)
<TABLE>
<CAPTION>
SAVINGS-RELATED OPTION PLANS
--------------------------------------------------------------------------------------
1981 PLAN 1995 PLAN
------------------------------------------ ------------------------------------------
NO. OF WEIGHTED NO. OF WEIGHTED
ORDINARY AVERAGE ORDINARY AVERAGE
SHARES OPTION PRICE PRICE RANGE SHARES OPTION PRICE PRICE RANGE
----------- --------------- ------------ ----------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
(000) (P) (P) (000) (P) (P)
Outstanding January 1, 1996................. 7,309 148 116-246 1,477 112 112
Granted..................................... -- -- -- 1,498 112 112
Exercised................................... (21) 117 116-119 (2) 112 112
Cancelled................................... (1,631) 159 116-246 (248) 112 112
----------- -----------
Outstanding December 31, 1996............... 5,657 145 116-246 2,725 112 112
Granted..................................... -- -- -- 1,999 100 100
Exercised................................... (207) 117 116-119 (23) 112 112
Cancelled................................... (1,053) 181 116-246 (363) 109 100-112
----------- -----------
Outstanding December 31, 1997............... 4,397 138 116-246 4,338 106 100-112
Exercised................................... (1,676) 130 116-186 (228) 111 100-112
Cancelled................................... (2,721) 143 116-246 (4,110) 106 100-112
----------- --- ------------ ----------- --- ------------
Outstanding December 31, 1998............... -- -- -- -- -- --
----------- --- ------------ ----------- --- ------------
----------- --- ------------ ----------- --- ------------
</TABLE>
The fair value of options granted during the year ended December 31, 1997
under the 1995 Plan was 30p (1996: 32p).
The weighted average fair value of options granted was estimated using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of 7% (1996: 6%), expected volatility of 30% (1996: 25%), risk-free
interest rate of 7% (1996: 7%) and expected life of 5 years (1996: 5 years).
F-34
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 25--EMPLOYEE SHARE PLANS (CONTINUED)
The following table shows the movements in options over ordinary shares
pursuant to the 1982 Share Option Plan of Stewart Wrightson Holdings plc
("Stewart Wrightson"). The options under that Plan were granted in substitution
for outstanding options over Stewart Wrightson shares, upon the acquisition of
that company in August 1987, from which date no further options were granted.
<TABLE>
<CAPTION>
1982 SHARE OPTION PLAN
--------------------------------------------
NO. OF WEIGHTED
ORDINARY AVERAGE
SHARES OPTION PRICE PRICE RANGE
------------- ------------- --------------
<S> <C> <C> <C>
(000) (P) (P)
Outstanding January 1, 1996.............................................. 38 298 298
Exercised................................................................ -- -- --
Cancelled................................................................ (38) 298 298
--
Outstanding December 31, 1996............................................ -- -- --
Exercised................................................................ -- -- --
Cancelled................................................................ -- -- --
--
Outstanding December 31, 1997............................................ -- -- --
Exercised................................................................ -- -- --
Cancelled................................................................ -- -- --
--
----- --------------
Outstanding December 31, 1998............................................ -- -- --
--
--
----- --------------
----- --------------
</TABLE>
The following table shows the movements in options over American Depositary
Shares ("ADS") of the Company, each ADS representing five ordinary shares,
pursuant to the Willis Corroon Corporation 1986 Long-Term Incentive Plan.
<TABLE>
<CAPTION>
1986 LONG-TERM INCENTIVE PLAN
----------------------------------------------
WEIGHTED
AVERAGE
NO. OF ADSS OPTION PRICE PRICE RANGE
--------------- ------------- --------------
<S> <C> <C> <C>
(000) ($) ($)
Outstanding January 1, 1996.......................................... 685 20.32 18.07-23.28
Exercised............................................................ -- -- --
Cancelled............................................................ (12) 20.73 18.59-22.52
---
Outstanding December 31, 1996........................................ 673 20.32 18.07-23.28
Exercised............................................................ -- -- --
Cancelled............................................................ (150) 19.04 18.59-22.52
---
Outstanding December 31, 1997........................................ 523 20.65 18.07-23.28
Exercised............................................................ -- -- --
Cancelled............................................................ (523) 20.65 18.07-23.28
--- ----- --------------
Outstanding December 31, 1998........................................ -- -- --
--- ----- --------------
--- ----- --------------
</TABLE>
On May 1, 1997, options over 2,217 ADSs were exercised at 62.5p per ADS
under the Herget Scheme and the balance of 2,233 ADSs were cancelled.
F-35
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 26--CAPITAL COMMITMENTS
Capital commitments to acquire fixed assets:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1998
----------- -----
<CAPTION>
(L MILLION)
<S> <C> <C>
Expenditure contracted for................................................... 5.9 3.5
-- --
-- --
</TABLE>
The Company and certain of its subsidiaries have call options over shares
not already owned in a number of subsidiary and associated companies which are
exercisable at various dates in the future at prices related to the then current
and historic profits before tax at the date of exercise. There also exist put
options which are exercisable at various dates in the future on a similar basis.
The exact amounts payable depend on the future level of profitability of the
companies concerned and exchange rates at the date of exercise. Based on current
projections of profitability and exchange rates, the potential amounts payable
arising from these options are not expected to exceed L160.1 million (1997:
L108.0 million). Most of this relates to amounts which may be payable under put
options, exercisable between 2001 and 2012, entered into with the shareholders
of Gras Savoye. If, by 2012, the Group has not reached a majority shareholding
in Gras Savoye, it has call options to increase its interest to over 50%.
FINANCIAL COMMITMENTS
The Company has undertaken to provide certain subsidiaries with financial
support to enable them to meet their future operational obligations as they fall
due. This financial support does not extend to providing finance for liabilities
arising from negligence, breach of contract, breach of trust or any other breach
of duty.
NOTE 27--CONTINGENT LIABILITIES
ASSETS SUBJECT TO CHARGE
The Company has entered into a debenture in favor of The Chase Manhattan
Bank in which it has charged by way of a first fixed charge its interests in the
shares of Willis Faber Limited and, by way of a floating charge, all its assets
not otherwise effectively mortgaged, charged or assigned by the first fixed
charge.
The Company has also entered into a Pledge Agreement in favor of The Chase
Manhattan Bank whereby it has assigned and pledged its interest in the shares of
Willis Corroon Corporation.
Those subsidiaries which are Lloyd's brokers have each entered into a deed
as required by the Lloyd's brokers bye-law under which all insurance brokering
assets are subject to a floating charge held on trust by the Society of Lloyd's
for the benefit of those companies' insurance brokering payables. The charge
only becomes enforceable under certain circumstances as defined in the deed. The
assets (including deposits and cash of L66.3 million) subject to this charge at
December 31, 1998 amounted to L1,834 million (1997: L1,822 million) and the
insurance brokering payables at that date amounted to L1,821 million (1997:
L1,805 million).
FINANCING OBLIGATIONS
The Company has guaranteed, on a joint and several basis with other
companies in the Group, the prompt and complete performance of Willis Corroon
Corporation in respect of credit facilities ("facilities") made available to
that company. At December 31, 1998 these facilities amounted to $1,175 million.
F-36
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 27--CONTINGENT LIABILITIES (CONTINUED)
On February 2, 1999, $575 million of the facilities were repaid and Willis
Corroon Corporation issued $550 million 9% Senior Subordinated Notes due 2009
(the "Notes"). The Company together with its affiliate Willis Corroon Partners,
has guaranteed Willis Corroon Corporation's obligations in respect of the Notes.
OTHER
The Company has given guarantees to bankers and other third parties
amounting to L4.4 million (1997: L4.4 million). The Company has also given
guarantees to bankers in respect of commitments entered into by them to provide
security for membership of Lloyd's of certain Group employees who are not
directors of the Company amounting to L0.3 million (1997: L0.3 million).
The Company and certain of its U.K. subsidiaries have given the landlords of
some of the leasehold properties occupied by the Group in the United Kingdom and
the United States guarantees in respect of the performance of the lease
obligations of the Group companies holding the leases. The operating lease
obligations amounted to L104 million at December 31, 1998 (1997: L116 million).
The Group has extensive international operations and the Company or its
subsidiaries are subject to claims and litigation in the ordinary course of
business resulting principally from alleged errors and omissions in connection
with their businesses. Most of the claims are covered by professional indemnity
insurance and many of the defenses to these claims are being conducted by the
Group's insurers. In respect of any self-insured deductibles applicable to such
claims, the Group has established provisions which are believed to be adequate
in the light of current information and legal advice. These provisions may be
adjusted from time to time according to developments. The Company does not
expect the outcome of such claims, either individually or in the aggregate, to
have a material effect on the Group's operations, cash flows or financial
position.
NOTE 28--DIRECTORS' INTERESTS IN CONTRACTS
The undermentioned Directors who held office during each of the three years
in the period ended December 31, 1998 (except as otherwise indicated) and, where
applicable, connected persons (as defined in section 346 of the Companies Act)
were Underwriting Members of Lloyd's through the agency of WF&D Agencies, which
was a subsidiary of the Company until October, 1997 as follows:
<TABLE>
<S> <C>
R J S Bucknall (1998 Mrs E H Rendle
only)
G F Nixon J M P Taylor (in
1996 and 1997 only)
J M Pelly (1998 only)
</TABLE>
For the relevant years, the agreements between the above and WF&D Agencies
were on similar terms to the agreements which govern all other members of the
syndicates in which they participated. WF&D Agencies received a fee in respect
of each of the above relating to his or her membership of Lloyd's.
Fees exceeding L5,000 were paid to WF&D Agencies by:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
J M P Taylor............................................... L21,463 -- --
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-37
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 28--DIRECTORS' INTERESTS IN CONTRACTS (CONTINUED)
Insurance brokering subsidiaries of the Company place risks with the
syndicates in which the Directors or connected persons (as defined above)
participate in the normal course of their brokering activities on the same basis
as such subsidiaries do with other Lloyd's syndicates.
The Company has given J Reeve a guarantee in respect of the performance
obligations of Willis Faber & Dumas Limited, his employing company, in respect
of an unfunded pension scheme established for him. The Company has also
guaranteed the performance obligations of Willis Corroon Corporation in respect
of the pension benefits for B D Johnson and K H Pinkston under the Willis
Corroon Executive Supplemental Plan, an unfunded pension plan.
Save as disclosed above, no Director or connected person (as defined above)
had any interest either during or at the end of the financial years 1996, 1997
and 1998 in any contract which was significant in relation to the Company's
business, or in a contract, transaction or arrangement which required disclosure
under section 232 of the Companies Act.
NOTE 29--OFFICER'S INTERESTS
The Company had guaranteed an amount of L30,000 in respect of a letter of
credit issued to provide the required security for the membership of Lloyd's of
an officer, which was released during 1996.
NOTE 30--COMPANIES ACT 1985
These financial statements do not comprise the Company's statutory accounts
within the meaning of section 240 of the Companies Act. Statutory accounts for
the years ended December 31, 1996 and 1997 have been, and statutory accounts for
the year ended December 31, 1998 will be, delivered to the Registrar of
Companies for England and Wales. The auditors' reports on such accounts were
unqualified.
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES
The Group's financial statements are prepared in accordance with U.K. GAAP
which differ in certain respects from U.S. GAAP. Those differences which have a
significant effect on the Group are described below.
PUSHDOWN ACCOUNTING
Under U.S. GAAP, Trinity Acquisition's cost of acquiring the Company should
be "pushed down," i.e., used to establish a new accounting basis in the
Company's separate financial statements. Under U.K. GAAP, there is no such
requirement.
GOODWILL
Goodwill (which includes expirations) arising on acquisitions occurring
after January 1, 1998 is capitalized and amortized on a straight-line basis over
its estimated useful economic life, not exceeding 20 years. Goodwill arising on
acquisitions completed before January 1, 1998 was eliminated against retained
earnings and other reserves. Under U.S. GAAP, goodwill and expirations are
capitalized and amortized over their respective useful economic lives. For the
purposes of the reconciliation below, for periods prior to September 2, 1998,
estimated useful lives of 17 1/2 to 40 years have been utilized, giving a
weighted average of 31 years.
F-38
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
The goodwill arising in the financial statements of Trinity Acquisition
following its acquisition of the Company on September 2, 1998 is required to be
pushed down into the Company's financial statements. This goodwill is being
amortized over a period of 40 years for the purposes of the reconciliation
below.
Under U.K. GAAP, on the disposition of a business acquired before January 1,
1998, goodwill previously eliminated against retained earnings is reinstated and
charged to income in arriving at the gain or loss on disposal of an entity;
under U.S. GAAP, only unamortized goodwill is charged.
IMPAIRMENT OF LONG-LIVED ASSETS
For the purposes of U.S. GAAP, the Group reviews the carrying amount of its
long-lived assets including goodwill relating thereto (grouped at business unit
level) using undiscounted cash flows, if indicators of impairment are present.
If such values indicate an actual impairment, the asset would be written down to
its fair value. No such impairments have been accounted for in the three years
in the period ended December 31, 1998.
REVALUATION OF FREEHOLD LAND AND BUILDINGS
Certain of the Group's freehold land and buildings are included in the
financial statements at revalued amounts on which depreciation is calculated.
Under U.S. GAAP such assets must be recorded at their historical cost less
depreciation thereon. The depreciation charged on the revaluation increase is
not significant.
PENSION COSTS
For the purposes of the reconciliation below, the Group has adopted the
provisions of U.S. Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions", ("FAS 87") in respect of the Group's
principal U.K. pension plan. This standard requires that the projected benefit
obligation be matched against the market value of the underlying plan assets and
other unrecognized actuarial gains and losses in determining the pension expense
for the year. As a result, pension expense can be significantly different from
that computed under U.K. GAAP which requires the cost of providing pension
benefits to be expensed over the periods benefiting from the employees' service
on the basis of a constant percentage of current and estimated future earnings.
The additional information required by FAS 87 in respect of the principal
U.K. and U.S. pension plans is given below.
FORWARD EXCHANGE CONTRACTS AND OTHER FINANCIAL INSTRUMENTS
The Group enters into forward exchange contracts and other financial
instruments which, under U.K. GAAP, are treated as hedges of future income.
Under U.S. GAAP such instruments would not be regarded as hedges and,
accordingly, would be revalued at each balance sheet date and the gain or loss
arising would be dealt with in income for the period then ended.
EXCEPTIONAL ITEMS
Under U.S. GAAP, the amounts reported as exceptional items in 1998 under
U.K. GAAP would not be so reported and the (loss)/gain on closure/disposal of
operations would have been included in the determination of operating income.
F-39
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
INVESTMENTS
Certain of the Group's investments, purchased with the intention of holding
to maturity, have been valued at amortized cost. For U.S. GAAP purposes, all the
Group's investments have been classified as available for sale as they do not
qualify for "held-to-maturity" accounting and are reported at fair value with
unrealized gains and losses reported as a separate component of shareholders'
equity (net of tax effects).
DEFERRED TAX
Under U.K. GAAP, deferred taxes are accounted for using the liability method
to the extent that is is considered probable that a liability or asset will
crystallize in the foreseeable future. Under U.S. GAAP, deferred taxes are
accounted for using the liability method on all temporary differences and
deferred tax assets are recognized where it is more likely than not that they
will be realized.
The effect on net income, comprehensive income and shareholders' equity of
applying the significant differences between U.K. GAAP and U.S. GAAP described
above is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
---------------------------- ------------- ---------------
NET INCOME 1996 1997 1998 1998
- ------------------------------------------- --------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
(L MILLION, EXCEPT PER ORDINARY SHARE)
NET INCOME/(LOSS) AS REPORTED IN THE
CONSOLIDATED STATEMENT OF INCOME......... 54.2 56.9 (15.6) (25.7)
ADJUSTMENTS
Amortization of goodwill and expirations... (17.9) (17.7) (12.0) (6.5)
Gain on disposal of operations............. 2.2 5.9 9.6 --
Revaluation of forward exchange contracts
and other financial instruments.......... 10.9 (5.6) 0.2 (3.7)
Pension costs.............................. (12.1) (7.6) (1.6) (1.7)
Deferred taxes--effect of above
adjustments.............................. 0.4 4.3 0.4 1.7
--------- ------ ------ ------
NET INCOME/(LOSS) AS ADJUSTED TO ACCORD
WITH U.S. GAAP........................... 37.7 36.2 (19.0) (35.9)
--------- ------ ------ ------
--------- ------ ------ ------
COMPRISING
Income/(loss) from continuing operations... 37.7 36.0 (19.0) (35.9)
Income/(loss) from discontinued
operations............................... -- 0.2 -- --
--------- ------ ------ ------
NET INCOME/(LOSS).......................... 37.7 36.2 (19.0) (35.9)
--------- ------ ------ ------
--------- ------ ------ ------
PER ORDINARY SHARE (BASIC AND DILUTED) AS
SO ADJUSTED
Continuing operations...................... 9.0p 8.6p (4.5)p (8.4)p
Discontinued operations.................... -- 0.1p -- --
--------- ------ ------ ------
NET INCOME/(LOSS).......................... 9.0p 8.7p (4.5)p (8.4)p
--------- ------ ------ ------
--------- ------ ------ ------
</TABLE>
F-40
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER JANUARY 1 TO SEPTEMBER 2 TO
31, SEPTEMBER 1, DECEMBER 31,
-------------------- ------------- ---------------
COMPREHENSIVE INCOME 1996 1997 1998 1998
- ---------------------------------------------------------- --------- --------- ------------- ---------------
<S> <C> <C> <C> <C>
(L MILLION)
NET INCOME/(LOSS) AS ADJUSTED TO ACCORD WITH
U.S. GAAP............................................... 37.7 36.2 (19.0) (35.9)
Other comprehensive income, net of tax:
Foreign currency translation adjustments................ (35.5) 11.4 (6.5) 6.5
Unrealized holding gains................................ (0.9) (0.4) (0.1) 0.8
--------- --------- ------ ------
COMPREHENSIVE INCOME...................................... 1.3 47.2 (25.6) (28.6)
--------- --------- ------ ------
--------- --------- ------ ------
Unrealized holding gains
Beginning of period....................................... 1.4 0.5 0.1 --
Arising during the period................................. (0.9) (0.4) (0.1) 0.8
--------- --------- ------ ------
End of period............................................. 0.5 0.1 -- 0.8
--------- --------- ------ ------
--------- --------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
SHAREHOLDERS' EQUITY 1997 1998
- ---------------------------------------------------------------------------------------------- --------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
SHAREHOLDERS' EQUITY AS REPORTED IN THE CONSOLIDATED BALANCE SHEET............................ 124.6 89.0
ADJUSTMENTS
Fixed Assets
Intangible assets
Goodwill--cost............................................................................ 580.1 800.6
--amortization..................................................................... (129.8) (6.9)
Tangible assets
Revaluation of freehold land and buildings................................................ (14.9) --
Current assets
Investments................................................................................. 0.1 0.8
Receivables--unrealized gain on forward exchange contracts.................................. 6.1 2.7
Pension costs prepayment.................................................................... 16.0 --
Noncurrent liabilities
Pension costs liability..................................................................... -- (16.3)
Provisions for liabilities and charges
Deferred taxes--effect of above adjustments................................................. 1.4 5.5
--------- ---------
SHAREHOLDERS' EQUITY AS ADJUSTED TO ACCORD WITH U.S. GAAP..................................... 583.6 875.4
--------- ---------
--------- ---------
</TABLE>
F-41
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
<TABLE>
<CAPTION>
The movement in shareholders' equity as adjusted to accord with U.S. GAAP from December 31,
1997 to December 31, 1998 is as follows:
(L MILLION)
-----------
Shareholders' equity under U.S. GAAP at December 31, 1997........................ 583.6
<S> <C>
Net income:
January 1 to September 1, 1998................................................. (19.0)
September 2 to December 31, 1998............................................... (35.9)
Ordinary shares issued........................................................... 7.8
Dividends paid................................................................... (22.2)
Fair value adjustments:
Freehold properties............................................................ 14.9
Pension liabilities............................................................ (29.0)
Deferred tax................................................................... 2.0
Goodwill adjustments:
Delete existing goodwill....................................................... (440.2)
Add pushdown goodwill.......................................................... 812.7
Current asset investments:
Unrealized gains............................................................... 0.7
-----------
Shareholders' equity under U.S. GAAP at December 31, 1998........................ 875.4
-----------
-----------
</TABLE>
The fair value adjustments represent the differences between the carrying
values of freehold properties, pension liabilities and deferred tax immediately
before the acquisition of the Company by Trinity Acquisition and the fair values
attributable to those assets and liabilities for the purpose of calculating
pushdown goodwill.
ADDITIONAL INFORMATION REQUIRED BY FAS 87
The pension cost for the Group's two principal pension plans computed in
accordance with the requirements of FAS 87 comprises:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- ------------- ---------------
1996 1997 1998 1998
--------- --------- ------------- ---------------
(L MILLION)
<S> <C> <C> <C> <C>
<CAPTION>
NET PENSION EXPENSE
- ------------------------------------------------
<S> <C> <C> <C> <C>
Service cost.................................... 30.8 29.7 19.3 9.6
Interest cost................................... 47.8 51.2 34.5 14.4
Return on plan assets........................... (70.3) (123.0) (76.0) (17.8)
Net amortization and deferral................... 19.5 66.4 32.9 --
--------- --------- ------ ------
Net pension expense............................. 27.8 24.3 10.7 6.2
--------- --------- ------ ------
--------- --------- ------ ------
</TABLE>
F-42
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
------------- ------------- ---------------
1997 1998 1998
------------- ------------- ---------------
(L MILLION)
<S> <C> <C> <C>
<CAPTION>
CHANGE IN BENEFIT OBLIGATION
- ---------------------------------------------------
<S> <C> <C> <C>
Benefit obligation--beginning of period............ 675.8 810.7 811.9
Service cost....................................... 29.7 19.3 9.6
Interest cost...................................... 51.2 34.5 14.4
Benefits paid...................................... (29.5) (20.6) (9.8)
Actuarial gains and losses......................... 83.5 (32.0) 26.8
------ ------ ------
Benefit obligation--end of period.................. 810.7 811.9 852.9
------ ------ ------
------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
------------- ------------- ---------------
1997 1998 1998
------------- ------------- ---------------
(L MILLION)
<S> <C> <C> <C>
<CAPTION>
CHANGE IN PLAN ASSETS
- ---------------------------------------------------
<S> <C> <C> <C>
Plan assets--beginning of period................... 683.0 798.4 799.9
Actual return on plan assets....................... 129.9 11.0 111.2
Employer contribution.............................. 15.0 11.1 3.8
Benefits paid...................................... (29.5) (20.6) (9.8)
------ ------ ------
Plan assets--end of period......................... 798.4 799.9 905.1
------ ------ ------
------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
--------------- --------------- ---------------
1997 1998 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
(L MILLION)
FUNDED STATUS
- ----------------------------------------------------------------
Plan assets at fair value....................................... 798.4 799.9 905.1
Projected benefit obligation.................................... (810.7) (811.9) (852.9)
------ ------ ------
Plan assets in excess of projected benefit obligation........... (12.3) (12.0) 52.2
Transition assets............................................... (10.2) (7.6) --
Unrecognized net loss/(gain).................................... 45.3 42.8 (68.5)
Prior service cost.............................................. (0.1) -- --
------ ------ ------
Prepaid/(accrued) pension costs................................. 22.7 23.2 (16.3)
------ ------ ------
------ ------ ------
</TABLE>
The U.K. plan assets are invested mainly in U.K. fixed interest and equity
securities and non-U.K. equity securities. The U.S. plan assets are invested
mainly in U.S. fixed interest and equity securities.
F-43
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
The major assumptions used in computing the funded status were:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
----------------- ----------------- -----------------
<S> <C> <C> <C>
1997 1998 1998
----------------- ----------------- -----------------
<CAPTION>
% % %
<S> <C> <C> <C>
U.K. PLAN
Expected long-term rate of return on plan assets............... 8.5 7.5 7.5
Discount rate.................................................. 7.0 5.75 5.5
Expected long-term rate of earnings increases.................. 5.5 4.5 4.5
U.S. PLAN
Expected long-term rate of return on plan assets............... 8.5 8.5 8.5
Discount rate.................................................. 7.0 6.0 6.0
Expected long-term rate of earnings increases.................. 5.0 5.0 5.0
-- -- --
-- -- --
</TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
The Consolidated Statement of Cash Flows prepared under U.K. GAAP presents
substantially the same information as that required under U.S. GAAP but may
differ with regard to classification of items within the statements and as
regards the definition of cash under U.K. GAAP and cash and cash equivalents
under U.S. GAAP.
Under U.K. GAAP, cash flows are presented separately for operating
activities, returns on investments and servicing of finance, taxation, capital
expenditure and financial investments, acquisitions and disposals, equity
dividends paid, management of liquid resources and financing activities. U.S.
GAAP requires only three categories of cash flow activity to be reported:
operating, investing and financing. Cash flows from taxation and returns on
investments and servicing of finance shown under U.K. GAAP would be included as
operating activities under U.S. GAAP. Cash flows from capital expenditure and
financial investment, acquisitions and disposals, shown separately under U.K.
GAAP, would be included as part of the investing activities under U.S. GAAP. The
payment of dividends would be included as a financing activity under U.S. GAAP.
Cash, as defined by U.S. GAAP, would include cash equivalents with initial
maturities of less than three months and would exclude bank overdrafts.
F-44
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
The categories of cash flow activity under U.S. GAAP can be summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- ---------------
1996 1997 1998 1998
--------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
(L MILLION)
Cash inflow from operating activities....................... 36.2 89.9 119.1 (126.4)
Cash (outflow)/inflow on investing activities............... (10.3) (60.4) 36.5 (27.4)
Cash (outflow)/inflow on financing activities............... (71.3) (12.0) 19.4 27.9
--------- --------- ----- ------
Increase/(decrease) in cash and cash equivalents............ (45.4) 17.5 175.0 (125.9)
Effect of foreign exchange rate changes..................... (30.7) (0.7) (9.0) 11.2
Cash and cash equivalents at start of period................ 507.9 431.8 448.6 614.6
--------- --------- ----- ------
Cash and cash equivalents at end of period.................. 431.8 448.6 614.6 499.9
--------- --------- ----- ------
--------- --------- ----- ------
</TABLE>
Cash and cash equivalents comprise:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- ------------- ---------------
1996 1997 1998 1998
--------- --------- ------------- ---------------
<S> <C> <C> <C> <C>
(L MILLION)
As shown on balance sheet:
Cash and short-term deposits.............................. 277.9 359.4 335.8 317.1
Current asset investments................................. 385.8 257.7 383.1 281.6
--------- --------- ------ ------
663.7 617.1 718.9 598.7
Less: deposits and investments with initial
maturity of more than three months...................... (231.9) (168.5) (104.3) (98.8)
--------- --------- ------ ------
Cash and cash equivalents at end of period................ 431.8 448.6 614.6 499.9
--------- --------- ------ ------
--------- --------- ------ ------
</TABLE>
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
FORWARD FOREIGN EXCHANGE CONTRACTS AND CURRENCY OPTIONS
Because the Group transacts business in many different currencies, it is
exposed to the risks of foreign currency exchange rate movements. To hedge this
exposure, the Group enters into forward foreign exchange contracts and currency
options. At December 31, 1998, the Group had contracted to exchange foreign
currency, principally U.S. dollars, equivalent to approximately L72.7 million
(1997: L81.3 million).
INTEREST RATE AGREEMENTS
In order to manage interest rate risk, the Group enters into interest rate
swap agreements and forward rate agreements effectively to change the interest
receivable or payable on parts of its underlying investments and borrowings from
variable to fixed rates and from fixed to variable rates. Swap agreements and
forward rate agreements are only entered into with high quality financial
institutions with a minimum long-term credit rating of AA-. Accordingly, while
the Group is exposed to market risk to the extent that receipts and payments
under interest rate agreements are affected by
F-45
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
market interest rates, any such fluctuations will be offset by changes to
interest receipts or payments made on variable rate investments and borrowings.
The Group accounts for interest rate agreements as hedges and the net effect is
recognized as interest expense.
Outstanding interest swap agreements and forward rate agreements are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST RATES
----------------------------------------------------
<CAPTION>
NOTIONAL
PRINCIPAL TERMINATION FIXED VARIABLE FIXED VARIABLE
BALANCE DATES RECEIVABLE PAYABLE PAYABLE RECEIVABLE
------------- ------------ ----------- ----------- ----------- -------------
(MILLIONS) % % % %
<S> <C> <C> <C> <C> <C> <C>
U.S. dollars................................... 545 1998-2000 5.58-7.75 5.72-5.94 -- --
U.S. dollars................................... 15 1998 -- -- 6.91 5.81
Sterling....................................... 275 1998-2002 6.58-8.41 7.36-7.75 -- --
Deutschemark................................... 27 1998-2001 4.51-5.07 3.44-3.78 -- --
--- ------------ ----------- ----------- --- ---
--- ------------ ----------- ----------- --- ---
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST RATES
----------------------------------------------------
<CAPTION>
NOTIONAL
PRINCIPAL TERMINATION FIXED VARIABLE FIXED VARIABLE
BALANCE DATES RECEIVABLE PAYABLE PAYABLE RECEIVABLE
----------- ------------ ----------- ----------- ----------- -------------
(MILLIONS) % % % %
<S> <C> <C> <C> <C> <C> <C>
U.S. dollars................................... 664 1999-2002 5.15-7.16 5.06-5.41 -- --
U.S. dollars................................... 450 2006 -- -- 5.10 5.06
Sterling....................................... 166 1999-2002 6.43-8.27 6.12-7.31 -- --
Deutschemark................................... 49 1999-2001 3.70-5.07 3.70-5.07 -- --
Deutschemark................................... 10 2000 -- -- 4.61 3.56
Japanese Yen................................... 2,060 1999-2001 1.45-1.70 0.22-0.40 -- --
Italian Lire................................... 14,600 2000-2001 4.54-7.10 3.25-4.59 -- --
----------- ------------ ----------- ----------- --- ---
----------- ------------ ----------- ----------- --- ---
</TABLE>
CONCENTRATION OF CREDIT RISK
Potential concentrations of credit risk to the Group comprise principally
cash and short-term deposits, current asset investments, trade receivables and
foreign exchange contracts.
The Group places cash and short-term deposits and undertakes foreign
exchange contracts with a range of banks and financial institutions and controls
its exposure to any one bank or financial institution. The Group's current asset
investments comprise a broad range of financial instruments issued principally
in the United Kingdom and the United States.
Trade receivables include significant amounts due from clients and
underwriters. The Group's insurance brokering client base is widely dispersed
throughout the world, principally in the United Kingdom and the United States.
The credit risk arising from amounts due from clients and underwriters in
respect of insurance premiums and claims is minimized as such premiums and
claims are not generally paid to the beneficiary until collected.
F-46
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
At December 31, 1998, the Group did not consider there to be any significant
concentration of credit risk.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following information is presented in compliance with the requirements
of FAS 107, "Disclosure about Fair Value of Financial Instruments". The carrying
amounts and fair values of the material financial instruments of the Group are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
<S> <C> <C> <C> <C>
1997 1998
---------------------- ----------------------
<CAPTION>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
(L MILLION)
<S> <C> <C> <C> <C>
ASSETS
Cash and short-term deposits............................................ 359.4 359.4 317.1 317.1
Current asset investments:
Listed investments.................................................... 55.6 55.9 48.7 49.8
Unlisted investments.................................................. 202.1 203.5 232.9 236.9
LIABILITIES
Bank loans and overdrafts............................................... (34.5) (34.5) (629.1) (629.1)
OFF-BALANCE SHEET INSTRUMENTS
Interest rate swaps and forward rate agreements....................... -- 3.7 -- 10.9
Forward foreign exchange contracts.................................... -- 6.1 -- 2.7
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
The following methods and assumptions were used by the Group in establishing
its fair value disclosures for financial instruments:
CASH AND SHORT-TERM DEPOSITS: the carrying amount approximates fair
value.
LISTED INVESTMENTS AND UNLISTED INVESTMENTS: the fair value is based on
market prices.
BANK LOANS AND OVERDRAFTS: the carrying amount approximates fair value.
OFF-BALANCE SHEET INSTRUMENTS: fair values of interest rate swap
agreements are based on discounted cash flow analyses. Fair values of
forward foreign exchange contracts are based on contractual and market rates
and represent net unrealized gains and losses.
ACCOUNTING AND DISCLOSURE OF STOCK-BASED COMPENSATION
FAS 123, Accounting for Stock-Based Compensation, established accounting
disclosure standards for stock-based employee compensation plans. The statement
gives companies the option of continuing to account for such costs under APB 25,
Accounting for Stock Issued to Employees, and related interpretations. The Group
has chosen to continue to account for its employee share option plans under APB
25 and, accordingly, there is no compensation cost to the Group arising from
these plans. Had the Group chosen to account for the costs of its employee share
option plans under FAS 123, which requires such costs to be determined on the
basis of the fair value of the options at the date of grant, the Group's net
income for the year ended December 31, 1997 would have been L36.1 million
F-47
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
(1996: L37.7 million) and net income per Ordinary Share would have been 8.6
pence (1996: 9.0 pence). Details of the fair value of stock awards are given in
Note 25. Because options vest over several years and additional options grants
may be made, the effects of these hypothetical calculations are not likely to be
representative of similar future calculations. No options were granted in 1998.
DEBT AND EQUITY SECURITIES
U.S. GAAP requires debt and equity investments to be classified into three
categories: held-to-maturity, trading and available-for-sale. All the Group's
investments have been classified as available-for-sale.
The debt securities held at December 31, 1998 comprise:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
(L MILLION)
U.S. Government securities..................... 18.5 0.2 -- 18.7
U.K. Government securities..................... 2.7 0.1 -- 2.8
Other foreign government securities............ 4.3 0.2 -- 4.5
Corporate debt securities...................... 22.8 0.6 -- 23.4
--
--- --- ---
48.3 1.1 -- 49.4
--
--
--- --- ---
--- --- ---
</TABLE>
During 1998 sales of debt securities totaled L31.1 million (1997: L46.9
million), on which gross realized gains and gross realized losses were L0.3
million and Lnil million (1997: L0.1 million and L0.1 million) respectively.
Maturities of debt securities held at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
(L MILLION)
<S> <C>
within one year................................................................... 10.2
after one year through five years................................................. 36.2
after five years through ten years................................................ 1.9
after more than ten years......................................................... --
---
48.3
---
---
</TABLE>
NOTE 32--NEW ACCOUNTING STANDARDS
Four U.K. accounting standards have recently been issued:
FRS 12, "Provisions, Contingent Liabilities and Contingent Assets", was
issued in September 1998 and is effective for accounting periods ending on
or after March 23, 1999, though earlier adoption is permitted. This standard
sets out rules on the recognition, measurement and disclosure of provisions
and contingencies. The Company does not expect the adoption of this standard
to have any impact on its financial statements for prior years or,
currently, on its financial statements for future periods.
F-48
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 32--NEW ACCOUNTING STANDARDS (CONTINUED)
FRS 13, "Derivatives and other Financial Instruments Disclosures", was
also issued in September 1998 and is effective for accounting periods ending
on or after March 23, 1999, though earlier adoption is permitted. This
standard sets out narrative disclosure requirements which require an
explanation of the role that financial instruments play in creating or
changing the risks that the Company faces in its activities and its approach
to the management of those risks, including a description of the objectives,
policies and strategies for holding and issuing financial instruments. It
also sets out numerical disclosure requirements with respect to interest
rate risk, currency risk, liquidity risk, fair values, financial instruments
used for trading, financial instruments used for hedging and certain
commodity contracts. As this standard only relates to disclosures, its
adoption will not impact the Company's results of operations or financial
position reported under U.K. GAAP. The Company has not yet determined the
impact that its adoption will have on its disclosures.
FRS 14, "Earnings per Share", was issued in October 1998 and is
effective for accounting periods ending after December 23, 1998. The
Company's earnings per share computed under this standard will not differ
from those previously reported.
FRS 15, "Tangible Fixed Assets", was issued in February 1999 and is
effective for accounting periods ending on or after March 23, 2000 though
earlier adoption is permitted. This standard sets out the principles of
accounting for the initial measurement, valuation and depreciation of
tangible fixed assets. Adoption of this standard by the Company would have
no impact on its financial statements.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" which has to be adopted for fiscal years
beginning after June 15, 1999 or June 15, 2000 if the Exposure Draft proposing
deferral of the effective date is adopted. This standard requires all
derivatives to be recognized as either assets or liabilities on the balance
sheet at their fair values. It also prescribes the accounting to be followed for
the changes in the fair values of derivatives depending upon their intended use
and resulting designation. It supersedes or amends the existing standards which
deal with hedge accounting and derivatives. The Company has not yet evaluated
the effect that adopting this standard will have on the U.S. GAAP amounts
reported in its financial statements because the impact is dependent upon the
derivative instruments in existence at the time of adoption and the market rates
of interest and foreign currency exchange rates prevailing at that time.
NOTE 33--WILLIS CORROON CORPORATION AND WILLIS CORROON PARTNERS
Willis Corroon Corporation is a wholly-owned subsidiary of Willis Corroon
Partners, of which Willis Corroon Group Limited is the 99.9% general partner and
Willis Group Limited, a wholly-owned subsidiary of Willis Corroon Group Limited,
is the 0.1% general partner. Willis Corroon Group Limited and Willis Corroon
Partners have jointly and severally, fully and unconditionally, guaranteed the
Notes.
F-49
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 33--WILLIS CORROON CORPORATION AND WILLIS CORROON PARTNERS (CONTINUED)
Willis Corroon Corporation prepares its financial information in accordance
with U.K. GAAP. Summarized financial information under U.K. GAAP relating to
Willis Corroon Corporation is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(L MILLION)
<S> <C> <C> <C>
Total operating revenues............................................................. 356.7 321.4 340.0
Operating income..................................................................... 35.6 28.4 29.0
Net income........................................................................... 14.1 11.4 8.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
Current assets............................................................................. 1,201.2 1,806.5
Fixed assets............................................................................... 52.3 59.9
--------- ---------
1,253.5 1,866.4
--------- ---------
--------- ---------
Current liabilities........................................................................ 1,152.5 1,756.5
Noncurrent liabilities..................................................................... 35.5 35.8
Shareholders' equity....................................................................... 65.5 74.1
--------- ---------
1,253.5 1,866.4
--------- ---------
--------- ---------
</TABLE>
Willis Corroon Group has not presented separate financial statements for
Willis Corroon Corporation because management has determined that such
information is not material to holders of the Notes.
Willis Corroon Partners, formed on November 11, 1998, has no assets other
than the capital stock of Willis Corroon Corporation and conducts no business
other than the holding of such capital stock.
Willis Corroon Group has not presented separate financial statements or
summarized financial information for Willis Corroon Partners because management
has determined that such information is not material to holders of the Notes.
F-50
<PAGE>
APPENDIX A
The following text was issued by Willis Corroon Group Limited on May 14,
1999 in respect of its results for the first quarter of 1999.
WILLIS CORROON GROUP LIMITED AND SUBSIDIARIES
RESULTS FOR THE FIRST QUARTER ENDED MARCH 31, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATING REVENUES
Commissions and fees increased by 5.8% in the first quarter of 1999 to
L193.4 million compared with the corresponding quarter of 1998. This increase
was primarily attributable to the acquisition of Gruppo Ital Brokers in Italy
and the increased investment in our Spanish operation, both of which occurred in
the third quarter of 1998. The impact of foreign currency exchange rates on
commissions and fees for the first quarter of 1999 when compared with the first
quarter of 1998 was not material.
Interest and investment income arising from fiduciary funds decreased
marginally as a result of lower prevailing interest rates in both the U.K. and
the U.S.
Operating revenues increased by 5.5% in the first quarter of 1999 to L203.0
million primarily attributable to the increase in commissions and fees.
OPERATING EXPENSES
Operating expenses rose by 10.8% to L171.9 million in the first quarter of
1999. After adjusting for the operating expenses of the Italian and Spanish
investments as if those investments had occurred on January 1, 1998 and
excluding L3.2 million of non-recurring fees written off in connection with the
refinancing of the Group's debt, operating expenses were 3.4% higher than in the
corresponding quarter of 1998. The impact of foreign currency exchange rates was
not material.
ASSOCIATES
The Group's share of income before taxation from associates increased by
30.3% to L8.6 million in the first quarter of 1999 mainly because of the
increased investment in Jaspers Wuppesahl at the beginning of 1999.
INCOME BEFORE TAXATION
Income before tax was L39.9 million for the first quarter of 1999. After
adjusting for the L3.2 million of non-recurring fees referred to above, income
before taxation was unchanged compared with the corresponding period a year
earlier.
TAXATION
The Group's effective tax rate was 28.1% for the first quarter of 1999
compared with 36.2% for the corresponding period of 1998. This reduction was
largely attributable to tax relief on expenditure chargeable against provisions
previously established.
LIQUIDITY AND CAPITAL RESOURCES
The Group's cash and liquid resources, net of loans and overdrafts,
increased to L665.4 million at March 31, 1999 from L486.5 million at December
31, 1998.
A-1
<PAGE>
On February 2, 1999, the loan of $575 million drawn under the Subordinated
Bridge Facility was refinanced by the issue of $550 million of 9% Senior
Subordinated Notes due 2009.
On February 3, 1999, an interest-free convertible loan of L92.9 million from
the Company's parent company was converted into 46,464,949 ordinary shares of
the Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the first quarter of 1999.
FORWARD-LOOKING INFORMATION
Forward-looking statements in this quarterly report are made pursuant to the
safe-harbor provisions of the Securities Litigation Reform Act of 1995 including
Section 21E(c) of the Securities Exchange Act of 1934. Such statements should be
taken as the informed perspective of senior management of the Company on
possible future performance. Actual results could differ materially from
management's expectations because of many reasons, including continued
deterioration of the rating environment in the insurance markets; loss of major
accounts; regulatory and competitive conditions; unexpected liabilities; further
consolidation among insurance markets or major insurance brokers; or fluctuation
of exchange rates and interest rates.
May 14, 1999
A-2
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
Commissions and fees.......................................................................... 193.4 182.8
Interest and investment income................................................................ 9.6 9.7
--------- ---------
OPERATING REVENUES............................................................................ 203.0 192.5
Operating expenses............................................................................ (171.9) (155.1)
--------- ---------
OPERATING INCOME.............................................................................. 31.1 37.4
Share of profit of associates................................................................. 8.6 6.6
Net interest.................................................................................. 0.2 (0.9)
--------- ---------
INCOME BEFORE TAXATION........................................................................ 39.9 43.1
Taxation...................................................................................... (11.2) (15.6)
--------- ---------
INCOME AFTER TAXATION......................................................................... 28.7 27.5
Minority interests............................................................................ (0.7) (0.3)
--------- ---------
NET INCOME (I)................................................................................ 28.0 27.2
--------- ---------
--------- ---------
NET INCOME PER ORDINARY SHARE (I)............................................................. 6.1p 6.5p
--------- ---------
--------- ---------
Average number of ordinary shares outstanding (in millions)................................... 457.3 420.7
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(i) A summary of the significant adjustments to net income that would be
required if United States generally accepted accounting principles were to
be applied instead of those generally accepted in the United Kingdom is set
forth in Note 5 of Notes to Condensed Financial Statements.
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
Net income..................................................................................... 28.0 27.2
Currency translation differences............................................................... (16.0) (0.3)
--------- ---
Total recognized gains and losses.............................................................. 12.0 26.9
--------- ---
--------- ---
</TABLE>
- ------------------------
(i) A statement of Comprehensive Income under U.S. GAAP is set forth in Note 5
of Notes to Condensed Financial Statements.
The Notes to Condensed Financial Statements are an integral part of these
Condensed Consolidated Financial Statements
A-3
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998(I)
------------ --------------
<S> <C> <C>
(L MILLION)
ASSETS
CURRENT ASSETS
Cash and short-term deposits...................................................... 351.4 317.1
Investments....................................................................... 340.0 281.6
Receivables....................................................................... 4,156.7 3,794.6
------------ -------
4,848.1 4,393.3
------------ -------
FIXED ASSETS
Intangible assets................................................................. 21.3 19.7
Tangible assets................................................................... 143.1 141.6
Investments....................................................................... 52.9 34.4
------------ -------
217.3 195.7
------------ -------
TOTAL ASSETS........................................................................ 5,065.4 4,589.0
------------ -------
------------ -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables.................................................................... 3,322.1 2,860.3
Corporate tax..................................................................... 27.0 17.7
Accruals and deferred income...................................................... 50.0 67.6
Bank loans and overdrafts......................................................... 4.6 352.7
Other............................................................................. 745.0 817.4
------------ -------
4,148.7 4,115.7
------------ -------
NONCURRENT LIABILITIES
Bank loans........................................................................ 614.3 276.4
Other............................................................................. 4.4 5.0
------------ -------
618.7 281.4
------------ -------
PROVISIONS FOR LIABILITIES AND CHARGES.............................................. 95.3 94.8
MINORITY INTERESTS.................................................................. 8.8 8.1
------------ -------
TOTAL LIABILITIES AND MINORITY INTERESTS............................................ 4,871.5 4,500.0
SHAREHOLDERS' EQUITY (ii)
Share capital..................................................................... 59.4 53.6
Share premium..................................................................... 115.6 28.5
Revaluation reserve............................................................... 14.9 14.9
Retained earnings/(deficit)....................................................... 4.0 (8.0)
------------ -------
193.9 89.0
------------ -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................................... 5,065.4 4,589.0
------------ -------
------------ -------
</TABLE>
- ------------------------
(i) The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
(ii) A summary of the significant adjustments to shareholders' equity that would
be required if United States generally accepted accounting principles were
to be applied instead of those generally accepted in the United Kingdom is
set forth in Note 5 of Notes to Condensed Financial Statements
The Notes to Condensed Financial Statements are an integral part of these
Condensed Consolidated Financial Statements
A-4
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES.................................................... 119.2 76.5
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid............................................................................ 0.2 (0.9)
Bank fees on borrowings.................................................................. (4.6) --
--------- ---------
(4.4) (0.9)
--------- ---------
TAXATION..................................................................................... (2.3) (4.7)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets........................................................ (7.3) (8.0)
Sale of tangible fixed assets............................................................ -- 1.5
Sale of fixed asset investments.......................................................... 0.1 --
--------- ---------
(7.2) (6.5)
--------- ---------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiaries................................................................. (1.0) 0.5
Purchase of associates................................................................... (11.1) (15.3)
Sale of subsidiaries..................................................................... 1.2 1.0
Net cash transferred on purchase/sale of subsidiaries.................................... 0.3 0.3
--------- ---------
(10.6) (13.5)
--------- ---------
EQUITY DIVIDENDS PAID........................................................................ -- (6.8)
--------- ---------
CASH FLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING................................ 94.7 44.1
MANAGEMENT OF LIQUID RESOURCES............................................................... (69.6) (62.9)
FINANCING
Issue of ordinary shares................................................................. -- 0.3
Amounts due from parent company.......................................................... 15.2 --
Debt due within a year:
(decrease) in short-term borrowings.................................................... (348.5) --
Debt due beyond a year:
increase in long-term borrowings....................................................... 327.2 2.5
Capital element of finance lease rental payments......................................... -- (0.6)
--------- ---------
(6.1) 2.2
--------- ---------
INCREASE/(DECREASE) IN CASH.................................................................. 19.0 (16.6)
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(i) The significant differences between the consolidated statement of cash
flows presented above and that required under U.S. GAAP are described in
Note 5 of Notes to Condensed Financial Statements
The Notes to Condensed Financial Statements are an integral part of these
Condensed Consolidated Financial Statements
A-5
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--BASIS OF PREPARATION
These condensed consolidated financial statements, which are unaudited,
have, except as described below, been prepared in accordance with U.K. GAAP and
the accounting policies described in the Company's audited consolidated
financial statements for the year ended December 31, 1998. In the opinion of the
Company's management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999.
NOTE 2--SEGMENTAL ANALYSIS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
GEOGRAPHICAL ANALYSIS BY LOCATION OF COMPANY 1999 1998
- ------------------------------------------------------------------------- --------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
OPERATING REVENUES
United Kingdom........................................................... 94.6 96.7
North America............................................................ 89.4 85.0
Rest of the World........................................................ 19.0 10.8
--------- ---------
203.0 192.5
--------- ---------
--------- ---------
OPERATING INCOME
United Kingdom........................................................... 24.9 30.8
North America............................................................ 2.2 4.6
Rest of the World........................................................ 4.0 2.0
--------- ---------
31.1 37.4
--------- ---------
--------- ---------
</TABLE>
A-6
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3--RECONCILIATION OF OPERATING INCOME TO NET CASH FLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
OPERATING INCOME.......................................................... 31.1 37.4
Depreciation and amortization............................................. 6.7 5.7
(Increase) in receivables................................................. (349.6) (257.8)
Increase in payables...................................................... 427.9 292.7
Net movement on provisions................................................ 3.1 (1.5)
--------- ---------
NET CASH INFLOW FROM OPERATING ACTIVITIES................................. 119.2 76.5
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 1999 1998
- -------------------------------------------------------------------------- --------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
Net funds at January 1.................................................... 486.5 581.8
Net cash flow............................................................. 19.0 (16.6)
Management of liquid resources............................................ 69.6 62.9
Financing................................................................. 99.0 (1.9)
Currency exchange movements............................................... (8.7) (0.1)
--------- ---------
Net funds at March 31..................................................... 665.4 626.1
--------- ---------
--------- ---------
</TABLE>
NOTE 4--RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
Net income................................................................ 28.0 27.2
Dividends paid............................................................ -- (7.4)
New ordinary shares issued................................................ 92.9 0.6
Goodwill on acquisitions eliminated....................................... -- (2.9)
Goodwill written back on disposals........................................ -- 0.2
Exchange adjustments...................................................... (16.0) (0.3)
--------- ---------
Net increase in shareholders' equity...................................... 104.9 17.4
Shareholders' equity at beginning of period............................... 89.0 124.6
--------- ---------
Shareholders' equity at end of period..................................... 193.9 142.0
--------- ---------
--------- ---------
</TABLE>
A-7
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5--DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED KINGDOM AND THE UNITED STATES
The unaudited condensed consolidated financial statements are prepared in
accordance with U.K. GAAP which differ in certain respects from U.S. GAAP.
Summaries of the significant differences as they apply to the Company are set
forth in Note 31 of Notes to the Company's Consolidated Financial Statements for
the year ended December 31, 1998. The effect on net income, comprehensive income
and shareholders' equity of applying the significant differences between U.K.
GAAP and U.S. GAAP described above is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
NET INCOME 1999 1998
- -------------------------------------------------------------------------- --------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
NET INCOME AS REPORTED IN THE CONSOLIDATED STATEMENT OF INCOME............ 28.0 27.2
ADJUSTMENTS
Amortization of goodwill.................................................. (5.0) (4.7)
Revaluation of forward exchange contracts and other financial
instruments............................................................. (0.8) (0.3)
Pension costs............................................................. (0.3) (5.1)
Deferred taxes--effect of above adjustments............................... 0.3 1.7
--------- ---------
Net income as adjusted to accord with U.S. GAAP........................... 22.2 18.8
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
COMPREHENSIVE INCOME 1999 1998
- -------------------------------------------------------------------------- --------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
Net income as adjusted to accord with U.S. GAAP........................... 22.2 18.8
Other comprehensive income:
Foreign currency translation adjustments................................ (16.0) (0.3)
--------- ---------
Comprehensive income...................................................... 6.2 18.5
--------- ---------
--------- ---------
</TABLE>
A-8
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5--DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED KINGDOM AND THE UNITED STATES (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
SHAREHOLDERS' EQUITY 1999 1998
- ------------------------------------------------------------------------ ----------- ---------
<S> <C> <C>
(L MILLION)
SHAREHOLDERS' EQUITY AS REPORTED IN THE CONSOLIDATED BALANCE SHEET...... 193.9 142.0
ADJUSTMENTS
Intangible assets
Goodwill--cost........................................................ 825.6 579.0
--amortization................................................. (11.1) (133.4)
Tangible assets
Revaluation of freehold land and buildings............................ -- (14.9)
Current assets
Investments........................................................... 0.8 0.1
Receivables--forward exchange contracts............................... 1.9 5.8
Receivables--pension costs prepayment................................. -- 10.9
Noncurrent liabilities
Other--pension costs liability........................................ (16.6) --
Provisions for liabilities and charges
Deferred taxes--effect of above adjustments........................... 5.8 3.1
----------- ---------
SHAREHOLDERS' EQUITY AS ADJUSTED TO ACCORD WITH U.S. GAAP............... 1,000.3 592.6
----------- ---------
----------- ---------
</TABLE>
The categories of cash flow activity under U.S. GAAP can be summarized as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF CASH FLOWS 1999 1998
- ------------------------------------------------------------------------ ----------- ---------
<CAPTION>
(L MILLION)
<S> <C> <C>
Cash inflow from operating activities................................... 112.5 70.9
Cash inflow on investing activities..................................... 8.1 (90.0)
Cash inflow on financing activities..................................... (8.5) (4.2)
----------- ---------
Increase/(decrease) in cash and cash equivalents........................ 112.1 (23.3)
Effect of foreign exchange rate changes................................. 5.0 0.6
Cash and cash equivalents at beginning of period........................ 499.9 448.6
----------- ---------
Cash and cash equivalents at end of period.............................. 617.0 425.9
----------- ---------
----------- ---------
</TABLE>
A-9
<PAGE>
HEAD OFFICE OF WILLIS CORROON GROUP
Ten Trinity Square
London EC3P 3AX
HEAD OFFICE OF WILLIS CORROON CORPORATION
26 Century Boulevard
P.O. Box 305026
Nashville, TN 37214
AUDITORS TO WILLIS CORROON GROUP
Ernst & Young
Rolls House
7 Rolls Buildings
Fetter Lane
London EC4A 1NH
TRUSTEE AND EXCHANGE AGENT
The Bank of New York
101 Barclay Street
New York, New York 10286
LISTING AGENT
Kredietbank S.A. Luxembourgeoise
43, Boulevard Royal
L-2955 Luxembourg
LEGAL ADVISERS TO WILLIS CORROON GROUP
<TABLE>
<S> <C>
AS TO U.S. LAW AS TO ENGLISH LAW
Simpson Thacher & Bartlett Clifford Chance
200 Aldersgate
425 Lexington Avenue Street
New York, NY 10017 London EC1A 4JJ
</TABLE>
<PAGE>
[LOGO]
$550,000,000
WILLIS CORROON CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING 9% SENIOR SUBORDINATED
NOTES DUE 2009 FOR 9% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
UNCONDITIONALLY GUARANTEED ON A SENIOR SUBORDINATED BASIS BY WILLIS CORROON
GROUP LIMITED AND WILLIS CORROON PARTNERS
UNTIL , 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
English law does not permit a company to indemnify a director or an
officer of the company against any liability which by virtue of any rule of law
would otherwise attach to him in respect of negligence, default, breach of duty
or breach of trust of which he may be guilty in relation to the company except
liability incurred by such director or officer in defending any legal proceeding
(whether civil or criminal) in which judgement is given in his favor or in which
he is acquitted or in certain instances where, although he is liable, a court
finds that such director or officer acted honestly and reasonably and that
having regard to all the circumstances he ought fairly to be excused and relief
is granted by the court.
The Articles of Association of Willis Corroon Group Limited provide
that, subject to the restrictions referred to in the immediately preceding
paragraph, Willis Corroon Group Limited may indemnify each of its directors and
officers or those of its subsidiaries against all costs, charges, losses,
expenses and liabilities incurred by him in the actual or purported execution
and/or discharge of his duties and/or the exercise or purported exercise of his
powers and/or otherwise in relation to or in connection with his duties, power
or office including (without prejudice to the generality of the foregoing) any
liability incurred by him in defending any proceedings, civil or criminal, which
relate to anything done or omitted or alleged to have been done omitted by him
as an officer of Willis Corroon Group Limited and in which judgement is given in
his favor (or the proceedings are otherwise disposed of without any finding or
admission of any material breach of duty on his part) or in which he is
acquitted or in connection with any application under any statute for relief
from liability in respect of any such act or omission in which relief is granted
to him by the court
Pursuant to the Companies Act of 1985, as amended, companies may
purchase and maintain liability insurance for directors and officers. Willis
Corroon Group Limited currently maintains liability insurance for the directors
and officers of TA I Limited and of its subsidiaries (which includes Willis
Corroon Group Limited) to the extent authorized by English law and their
governing instruments. Such insurance does not cover any dishonest, fraudulent
or criminal act or omission by the directors and officers of Willis Corroon
Group Limited.
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify directors and officers as well as
other employees and individuals against expenses (including attorneys' fees),
judgments, lines, and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation.
Such 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duties as a director, except for liability (i) for any
transaction from which the director derives an improper personal benefit, (ii)
for acts or omissions not in good faith or that involve international misconduct
or a knowing violation of law, (iii) for improper payment of dividends or
redemptions of shares, or (iv) for any breach of a director's duty of loyalty to
the company or
II-1
<PAGE>
its stockholders. Article Thirteen of Willis Corroon Corporation's Amended
Certificate of Incorporation includes such a provision.
The directors and officers of Willis Corroon Corporation are covered by
the liability insurance for directors' and officers' maintained by Willis
Corroon Group Limited.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*2.1 Master Acquisition Agreement, dated October 13, 1998, among Willis Corroon Group plc, Willis Corroon
Europe B.V., Tolbert Insurance & Finance B.V., UTA Willis Corroon S.p.A., Saint Gallen S.r.l.,
Olimpia S.r.l., Ital Brokers Holding S.p.A., and ARCEF N.V.
*2.2 Stock Purchase Agreement, dated September 28, 1998, between Assurandrgruppen A/S and Willis Corroon
Europe B.V.
*2.3 WIFA Share Sale Agreement, dated August 4, 1997, between Willis Corroon Limited and Willis National
Holdings Limited, including Side Agreement, dated December 11, 1998
*2.4 ANIFA Share Sale Agreement, dated August 4, 1997, between Abbey National Independent Consulting Group
Limited and Willis National Holdings Limited, including Side Agreement, dated December 11, 1998
*2.5 Framework Agreement, dated January 28, 1998, for the Merger of the limited partnership Jaspers
Industrie Assekuranz GmbH & Co. KG and the general partnership C. Wuppesahl & Co. Assekuranzmakler
*2.6 Purchase and Transfer Agreement, dated January 27, 1998, concerning shares in Industrie-Assekuranz
GmbH and Jaspers Industrie Assekuranz GmbH & Co. KG between Alexander & Alexander International
Inc., Achtundsechzigste Verwaltungsgesellschaft Dammtor mbH, and Willis Corroon Group plc
*2.7 Transfer of Shares, dated January 22, 1998, of Industrie-Assekuranz GmbH into Jaspers Industrie
Assekuranz GmbH & Co. KG
*2.8 Merger Contract, dated March 17, 1998, between Jaspers Industrie Assekuranz GmbH & Co. KG and C.
Wuppesahl & Co. Assekuranzmakler
*2.9 Purchase and Sales Agreement, dated January 27, 1998, on the acquisition of limited partner shares in
Jaspers Wuppesahl Industrie Assekuranz GmbH & Co. KG among Ms. Irene Koenig, Ms. Doris Ballauff,
Mr. Michael Emken, C. Wuppesahl Management GmbH, C. Wuppesahl, 68. Verwaltungsgesellschaft Dammtor
mbH, and Willis Corroon GmbH
*2.10 Purchase and Sales Agreement dated January 22, 1998 between Deutsche Bank Aktiengesellschaft, Willis
Corroon GmbH and Willis Corroon Group plc in respect of a limited partnership interest of 14.6% in
Jaspers Wuppesahl Industrie Assekuranz GmbH & Co. KG.
*2.11 Agreement, dated July 23, 1997, among Assurances Generales de France IART, UAP Incendie-Accidents,
Athena, Gras Savoye Euro Finance S.A., Mr. Emmanuel Gras, Mr. Patrick Lucas, Mr. Daniel Naftalski,
Willis Corroon Group plc, Willis Corroon Europe B.V., and Gras Savoye & Cie, along with Amendment
No. 1 thereto, dated December 11, 1997, and Addendum thereto dated July 23, 1997
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*2.12 Sale and Purchase Agreement, dated October 20, 1997, among Willis Corroon Group plc, Acegiant
Limited, Willis Corroon Group Services Limited and Willis Faber & Dumas (Agencies) Limited
*3.1 Amended Certificate of Incorporation of Willis Corroon Corporation
*3.2 By-laws of Willis Corroon Corporation
*3.3 Partnership Agreement of Willis Corroon Partners
*3.4 Memorandum and Articles of Association of Willis Corroon Group Limited
*4.1 Indenture, dated February 2, 1999, among Willis Corroon Corporation, as issuer, Willis Corroon
Partners and Willis Corroon Group Limited, as guarantors, and The Bank of New York, as trustee
*4.2 Form of 9% Senior Subordinated Notes due 2009 (the "Exchange Note") (Included as part of Exhibit 4.1
hereto)
*4.3 Exchange and Registration Rights Agreement, dated February 2, 1999, among Willis Corroon Corporation,
Willis Corroon Partners, Willis Corroon Group Limited, Chase Securities Inc. and Chase Manhattan
International Limited
*5.1 Opinion of Simpson Thacher & Bartlett as to the legality of the securities being registred hereby
*5.2 Opinion of Heather Hunter, head of Willis Corroon Group's U.K. legal department
*10.1 Purchase Agreement, dated January 28, 1999, among Willis Corroon Corporation, Willis Corroon
Partners, Willis Corroon Group Limited, Chase Securities Inc. and Chase Manhattan International
Limited
*10.2 Credit Agreement, dated as of July 22, 1998, and amended and restated as of September 1, 1998,
September 25, 1998 and February 19, 1999 and amended as of October 28, 1998, among Willis Corroon
Corporation, as borrower, Willis Corroon Group Limited and Trinity Acquisition plc, as guarantors,
the lenders thereunder and The Chase Manhattan Bank, as administrative agent and collateral agent
*10.3 Master Shareholders' Agreement, dated October 13, 1998, among Willis Corroon Group plc, Willis
Corroon Europe B.V., Tolbert Insurance & Finance B.V., Saint Gallen S.r.l., Olimpia S.r.l., Ital
Brokers Holding S.p.A., ARCEF Holding N.V., and the Directors (as defined therein)
*10.4 Shareholders' Agreement, dated September 28, 1998, among Willis Corroon Europe B.V. and the Current
Shareholders (as defined therein) (relating to the Assurandrgruppen merger)
*10.5 Shareholders' Agreement, dated August 4, 1997, among Abbey National plc, Willis Corroon Group plc,
and Willis National Holdings Limited, as supplemented on December 11, 1998
*10.6 Shareholders' Agreement, dated July 15, 1998, between Willis Corroon Europe B.V., Jaime Castellanos
Borrego, Antonio Serrats Iriarte and Pedro Cardelus Munoz-Seca
*10.7 Shareholders' Agreement, dated December 17, 1998, among Willis Corroon AB, Mr. Staffan Larsson and
Mr. Tomas Larsson
*10.8 1998 Share Purchase and Option Plan for Key Employees of TA I Limited
*10.9 Guarantee by Willis Corroon Group Limited of pension scheme of John Reeve
*10.10 Guarantee by Willis Corroon Group Limited of pension plan of Kenneth Pinkston
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*10.11 Guarantee by Willis Corroon Group Limited of pension plan of Brian Johnson
*10.12 TA I Limited Zero Cost Share Option Scheme
*12.1 Computation of ratio of earnings to fixed charges
*21.1 List of subsidiaries of Willis Corroon Group Limited
*23.1 Consent of Simpson Thacher & Bartlett (Included as part of Exhibit 5.1 hereto)
*23.2 Consent of Heather Hunter (Included as part of Exhibit 5.2 hereto)
**23.3 Consent of Ernst & Young
*24.1 Powers of Attorney
*25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as
Trustee
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors on Schedule..................................................... S-1
Schedule II--Valuation and Qualifying Accounts................................................. S-2
</TABLE>
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes: (i) to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means and (ii) to arrange or provide for a facility
in the U.S. for the purpose of responding to such requests. The undertaking in
subparagraph (i) above includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
II-4
<PAGE>
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more that a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering; and
(4) To file a post-effective amendment to the registration
statement to include any financial statements required by Rule 3-19 at
the start of any delayed offering or throughout a continuous offering.
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant guarantor has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of London, Country of England, on July 23, 1999.
<TABLE>
<S> <C> <C>
WILLIS CORROON GROUP LIMITED
BY: /S/ THOMAS COLRAINE
-----------------------------------------
NAME: THOMAS COLRAINE
TITLE: GROUP FINANCE DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the Registration Statement has been signed on July 23, 1999 by
or on behalf of the following persons in the capacities indicated with the
registrant.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ---------------------------
<C> <S>
Executive Chairman;
* Director
- ------------------------------ (Principal Executive
John Reeve Officer)
Chief Executive of Global
Specialties; Executive
* responsible for
- ------------------------------ discontinued U.K.
Richard J. S. Bucknall underwriting activities;
Director
Group Finance Director;
* Director
- ------------------------------ (Principal Financial and
Thomas Colraine Accounting Officer)
* Executive responsible for
- ------------------------------ North American Retail;
Brian D. Johnson Director
* Managing Partner of Gras
- ------------------------------ Savoye; Director
Patrick Lucas
Chairman of U.K. Retail and
* Executive responsible for
- ------------------------------ Willis Corroon
George F. Nixon International
Holdings-Europe; Director
* Chairman of Willis Faber
- ------------------------------ Re; Director
John M. Pelly
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ---------------------------
<C> <S>
Group Executive Director
responsible for North
* American Retail, U.S.
- ------------------------------ Wholesale, Asia-Pacific
Kenneth H. Pinkston and rest of the world;
Director
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ MICHAEL P.
CHITTY
--------------------
Michael P. Chitty
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the Registration Statement has been signed below in the City
of Nashville, State of Tennessee on July 23, 1999 by the undersigned as the duly
authorized representative of WILLIS CORROON GROUP LIMITED in the United States.
<TABLE>
<S> <C> <C>
/s/ BART R. SCHWARTZ
-----------------------------------------
BART R. SCHWARTZ
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant guarantor has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on July 23, 1999.
<TABLE>
<S> <C> <C>
WILLIS CORROON PARTNERS
BY: WILLIS CORROON GROUP LIMITED, ITS GENERAL
PARTNER
BY: /S/ THOMAS COLRAINE
-----------------------------------------
NAME: THOMAS COLRAINE
TITLE: GROUP FINANCE DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the Registration Statement has been signed on July 23, 1999 by
or on behalf of the following persons in the capacities indicated with the
general partner of registrant.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------- ---------------------------
<C> <S>
Executive Chairman;
* Director
- ----------------------------- (Principal Executive
John Reeve Officer)
Chief Executive of Global
Specialties; Executive
* responsible for
- ----------------------------- discontinued U.K.
Richard J. S. Bucknall underwriting activities;
Director
Group Finance Director;
* Director
- ----------------------------- (Principal Financial and
Thomas Colraine Accounting Officer)
* Executive responsible for
- ----------------------------- North American Retail;
Brian D. Johnson Director
* Managing Partner of Gras
- ----------------------------- Savoye; Director
Patrick Lucas
Chairman of U.K. Retail and
* Executive responsible for
- ----------------------------- Willis Corroon
George F. Nixon International
Holdings-Europe; Director
* Chairman of Willis Faber
- ----------------------------- Re; Director
John M. Pelly
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------- ---------------------------
<C> <S>
Group Executive Director
responsible for North
* American Retail, U.S.
- ----------------------------- Wholesale, Asia-Pacific
Kenneth H. Pinkston and rest of the world;
Director
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ MICHAEL P. CHITTY
-------------------------
Michael P. Chitty
ATTORNEY-IN-FACT
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant issuer has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on July 23, 1999.
<TABLE>
<S> <C> <C>
WILLIS CORROON CORPORATION
BY: /S/ BART R. SCHWARTZ
-----------------------------------------
NAME: BART R. SCHWARTZ
TITLE: SENIOR VICE PRESIDENT & GENERAL
COUNSEL
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the Registration Statement has been signed on July 23, 1999 by
or on behalf of the following persons in the capacities indicated with the
registrant.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------- ---------------------------
<C> <S>
Group Executive Director
responsible for North
American Retail, U.S.
* Wholesale, Asia-Pacific
- ----------------------------- and rest of the world;
Kenneth H. Pinkston Director
(Principal Executive
Officer)
* Executive responsible for
- ----------------------------- North American Retail;
Brian D. Johnson Director
Senior Vice President;
* Director of Finance and
- ----------------------------- Administration; Director
Charles D. Hamilton (Principal Financial and
Accounting Officer)
/s/ BART R. SCHWARTZ Senior Vice President;
- ----------------------------- Corporate Secretary and
Bart R. Schwartz General Counsel; Director
Senior Vice President;
* Director of Human
- ----------------------------- Resources, North America;
Kim Windrow Director
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ BART R. SCHWARTZ
-------------------------
Bart R. Schwartz
ATTORNEY-IN-FACT
</TABLE>
II-11
<PAGE>
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
We have audited the consolidated financial statements of Willis Corroon
Group Limited at December 31, 1997 and 1998 and for the years ended December 31,
1996 and 1997, and the periods January 1 to September 1, 1998 and September 2 to
December 31, 1998, and have issued our report thereon dated March 15, 1999. Our
audits also included the financial statement schedule listed in Item 21(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young
London, England
March 15, 1999
S-1
<PAGE>
SCHEDULE II
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------------- ------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Provision for bad and doubtful debts....... 26.9 0.8 (1.3)(a) (7.8) 18.6
--- --- --- --- ---
Year ended December 31, 1997
Provision for bad and doubtful debts....... 18.6 (4.0) (3.0) 11.6
--- --- --- --- ---
January 1 to September 1, 1998
Provision for bad and doubtful debts....... 11.6 1.5 (0.5) 12.6
--- --- --- --- ---
September 2 to December 31, 1998
Provision for bad and doubtful debts....... 12.6 (0.4) 0.1(a) (0.5) 11.8
</TABLE>
- ------------------------------
(a) Exchange adjustments
S-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
*2.1 Master Acquisition Agreement, dated October 13, 1998, among Willis Corroon Group plc, Willis Corroon
Europe B.V., Tolbert Insurance & Finance B.V., UTA Willis Corroon S.p.A., Saint Gallen S.r.l., Olimpia
S.r.l., Ital Brokers Holding S.p.A., and ARCEF N.V.
*2.2 Stock Purchase Agreement, dated September 28, 1998, between Assurandrgruppen A/S and Willis Corroon
Europe B.V.
*2.3 WIFA Share Sale Agreement, dated August 4, 1997, between Willis Corroon Limited and Willis National
Holdings Limited, including Side Agreement, dated December 11, 1998
*2.4 ANIFA Share Sale Agreement, dated August 4, 1997, between Abbey National Independent Consulting Group
Limited and Willis National Holdings Limited, including Side Agreement, dated December 11, 1998
*2.5 Framework Agreement dated January 28, 1998 for the Merger of the limited partnership Jaspers Industrie
Assekuranz GmbH & Co. KG and the general partnership C. Wuppesahl & Co. Assekuranzmakler
*2.6 Purchase and Transfer Agreement dated January 27, 1998 concerning shares in Industrie-Assekuranz GmbH
and Jaspers Industrie Assekuranz GmbH & Co. KG between Alexander & Alexander International Inc.,
Achtundsechzigste Verwaltungsgesellschaft Dammtor mbH, and Willis Corroon Group plc
*2.7 Transfer of Shares dated January 22, 1998 of Industrie-Assekuranz GmbH to the Limited Partnership in
the firm Jaspers Industrie Assekuranz GmbH & Co. KG
*2.8 Merger Contract, dated March 17, 1998, between Jaspers Industrie Assekuranz GmbH & Co. KG and C.
Wuppesahl & Co. Assekuranzmakler
*2.9 Purchase and Sales Agreement, dated January 27, 1998, on the acquisition of limited partner shares in
Jaspers Wuppesahl Industrie Assekuranz GmbH & Co. KG, among Ms. Irene Koenig, Ms. Doris Ballauff, Mr.
Michael Emken, C. Wuppesahl Management GmbH, C. Wuppesahl, 68. Verwaltungsgesellschaft Dammtor mbH, and
Willis Corroon GmbH
*2.10 Purchase and Sales Agreement dated January 22, 1998 between Deutsche Bank Aktiengesellschaft, Willis
Corroon GmbH and Willis Corroon Group plc in respect of a limited partnership interest of 14.6% in
Jaspers Wuppesahl Industrie Assekuranz GmbH & Co. KG
*2.11 Agreement, dated July 23, 1997, among Assurances Generales de France IART, UAP Incendie-Accidents,
Athena, Gras Savoye Euro Finance S.A., Mr. Emmanuel Gras, Mr. Patrick Lucas, Mr. Daniel Naftalski,
Willis Corroon Group plc, Willis Corroon Europe B.V., and Gras Savoye & Cie, along with Amendment No. 1
thereto, dated December 11, 1997, and Addendum thereto dated July 23, 1997
*2.12 Sale and Purchase Agreement, dated October 20, 1997, among Willis Corroon Group plc, Acegiant Limited,
Willis Corroon Group Services Limited, and Willis Faber & Dumas (Agencies) Limited
*3.1 Amended Certificate of Incorporation of Willis Corroon Corporation
*3.2 By-laws of Willis Corroon Corporation
*3.3 Partnership Agreement of Willis Corroon Partners
*3.4 Memorandum and Articles of Association of Willis Corroon Group Limited
*4.1 Indenture, dated February 2, 1999, among Willis Corroon Corporation, as issuer, Willis Corroon Partners
and Willis Corroon Group Limited, as guarantors, and The Bank of New York, as trustee
*4.2 Form of 9% Senior Subordinated Notes due 2009 (the "Exchange Note") (Included as part of Exhibit 4.1
hereto)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- -------------------------------------------------------------------------------------------------------
*4.3 Exchange and Registration Rights Agreement, dated February 2, 1999, among Willis Corroon Corporation,
Willis Corroon Partners, Willis Corroon Group Limited, Chase Securities Inc. and Chase Manhattan
International Limited
<C> <S>
*5.1 Opinion of Simpson Thacher & Bartlett as to the legality of the securities being registered hereby
*5.2 Opinion of Heather Hunter, head of Willis Corroon Group's U.K. legal department
*10.1 Purchase Agreement, dated January 28, 1999, among Willis Corroon Corporation, Willis Corroon Partners,
Willis Corroon Group Limited, Chase Securities Inc. and Chase Manhattan International Limited
*10.2 Credit Agreement, dated as of July 22, 1998, and amended and restated as of September 1, 1998,
September 25, 1998 and February 19, 1999 and amended as of October 28, 1998, among Willis Corroon
Corporation, as borrower, Willis Corroon Group Limited and Trinity Acquisition plc, as guarantors, the
lenders thereunder and The Chase Manhattan Bank, as administrative agent and collateral agent
*10.3 Master Shareholders' Agreement, dated October 13, 1998, among Willis Corroon Group plc, Willis Corroon
Europe B.V., Tolbert Insurance & Finance B.V., Saint Gallen S.r.l., Olimpia S.r.l., Ital Brokers
Holding S.p.A., ARCEF Holding N.V., and the Directors (as defined therein)
*10.4 Shareholders' Agreement, dated September 28, 1998, among Willis Corroon Europe B.V. and the Current
Shareholders (as defined therein) (relating to the Assurandrgruppen merger)
*10.5 Shareholders' Agreement, dated August 4, 1997, among Abbey National plc, Willis Corroon Group plc, and
Willis National Holdings Limited, as supplemented on December 11, 1998
*10.6 Shareholders' Agreement, dated July 15, 1998, between Willis Corroon Europe B.V., Jaime Castellanos
Borrego, Antonio Serrats Iriarte and Pedro Cardelus Munoz-Seca
*10.7 Shareholders' Agreement, dated December 17, 1998, among Willis Corroon AB, Mr. Staffan Larsson and Mr.
Tomas Larsson
*10.8 1998 Share Purchase and Option Plan for Key Employees of TA I Limited
*10.9 Guarantee by Willis Corroon Group Limited of pension scheme of John Reeve
*10.10 Guarantee by Willis Corroon Group Limited of pension plan of Kenneth Pinkston
*10.11 Guarantee by Willis Corroon Group Limited of pension plan of Brian Johnson
*10.12 TA I Limited Zero Cost Share Option Scheme
*12.1 Computation of ratio of earnings to fixed charges
*21.1 List of subsidiaries of Willis Corroon Group Limited
*23.1 Consent of Simpson Thacher & Bartlett (Included as part of Exhibit 5.1 hereto)
*23.2 Consent of Heather Hunter (Included as part of Exhibit 5.2 hereto)
**23.3 Consent of Ernst & Young
*24.1 Powers of Attorney
*25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as
Trustee
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------------
* Previously filed
** Filed herewith
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 15, 1999 in Amendment No. 3 to the
Registration Statement (Form F-4 No. 333-74483) and related Prospectus of Willis
Corroon Group Limited, Willis Corroon Partners and Willis Corroon Corporation
for the registration of $550,000,000 of Willis Corroon Corporation's 9% Senior
Subordinated Notes due 2009.
ERNST & YOUNG
London, England
July 23, 1999
