WATSON WYATT & CO HOLDINGS, S-3/A, 2000-03-17

WATSON WYATT & CO HOLDINGS
S-3/A, 2000-03-17
MANAGEMENT CONSULTING SERVICES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 2000

REGISTRATION NO. 333-94973

AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

--------------------------
WATSON WYATT & COMPANY HOLDINGS
(Exact Name of Registrant as Specified in Its Charter)

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<S> <C> <C>
DELAWARE 6719 52-2211537
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>

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6707 DEMOCRACY BOULEVARD, SUITE 800
BETHESDA, MARYLAND 20817
(301) 581-4600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------

JOHN J. HALEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WATSON WYATT & COMPANY HOLDINGS
6707 DEMOCRACY BOULEVARD, SUITE 800
BETHESDA, MARYLAND 20817
(301) 581-4600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------------

COPIES TO:

<TABLE>
<S> <C> <C>
JONATHAN M. WAINWRIGHT, ESQ. WALTER W. BARDENWERPER, ESQ. ROBERT F. WALL, ESQ.
DIANA R. DE BRITO, ESQ. JAMES S. MINOGUE, III, ESQ. R. CABELL MORRIS, JR., ESQ.
CADWALADER, WICKERSHAM & TAFT DIANE C. SAPIR, ESQ. WINSTON & STRAWN
100 MAIDEN LANE WATSON WYATT & COMPANY HOLDINGS 35 W. WACKER DRIVE
NEW YORK, NEW YORK 10038 6707 DEMOCRACY BOULEVARD, SUITE 800 CHICAGO, ILLINOIS 60601
(212) 504-6000 BETHESDA, MARYLAND 20817 (312) 558-5600
(301) 581-4600
</TABLE>

--------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.

If the only securities being registered in this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A common stock, $0.01 par value
per share............................. 6,440,000 $13.50 $86,940,000.00 $22,952.16(3)
</TABLE>

(1) Includes shares of common stock subject to an option granted to the
underwriters solely to cover over-allotments, if any. See "Underwriting."

(2) Estimated under Rule 457(o) solely for the purpose of calculating the
registration fee.

(3) $13,200 of registration fee was previously paid.

------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
THEREAFTER SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), DETERMINES.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
<PAGE>

SUBJECT TO COMPLETION -- MARCH 17, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PROSPECTUS
, 2000

[LOGO]

WATSON WYATT & COMPANY HOLDINGS

5,600,000 SHARES OF CLASS A COMMON STOCK

----------------------------------------------------------------------

WATSON WYATT & COMPANY HOLDINGS:

- We provide consulting services in the areas of employee benefits, human
resources technologies and human capital management.

PROPOSED SYMBOL & MARKET:

- We have applied to list our common stock on the NYSE under the symbol
"WW."

CLASS A COMMON STOCK:

- The class A common stock is identical in all respects to our Class B
common stock, except our class B common stock is subject to transfer
restrictions.

THE OFFERING:

- We are offering 2,800,000 shares of our class A common stock.

- Selling stockholders are offering an additional 2,800,000 shares of our
class A common stock. We will not receive any of the proceeds from the
sale of these shares.

- The underwriters have an option to purchase an additional 840,000 shares
of our class A common stock from selling stockholders to cover
over-allotments.

- This is our initial public offering, and no public market currently exists
for our shares. We anticipate that the initial public offering price will
be between $11.50 and $13.50 per share.

- Closing: , 2000.

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PER SHARE TOTAL
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Public offering price: $ $
Underwriting fees:........................................
Proceeds to Watson Wyatt & Company Holdings:..............
Proceeds to selling stockholders:.........................

We have agreed with the selling stockholders to reimburse underwriting fees payable by them. The
proceeds to us and to the selling stockholders have been adjusted accordingly.
- ----------------------------------------------------------------------------------------------------
</TABLE>

THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
- --------------------------------------------------------------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR
HAVE THEY MADE, NOR WILL THEY MAKE, ANY DETERMINATION AS TO WHETHER ANYONE
SHOULD BUY THESE SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------

DONALDSON, LUFKIN & JENRETTE

BANC OF AMERICA SECURITIES LLC

DLJDIRECT INC.
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 6
Use of Terminology................... 13
Where You Can Find More Information.. 13
Corporate Information................ 14
Use of Proceeds...................... 14
Dividend Policy...................... 15
Capitalization....................... 16
Dilution............................. 18
Selected Consolidated Financial
Data............................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................. 32
Management........................... 46
Long Term Incentive Plan............. 53
</TABLE>

<TABLE>
<CAPTION>
Page
<S> <C>
Transactions with Management and
Others............................. 53
Corporate Reorganization............. 53
Security Ownership of Management and
Others............................. 55
Common Stock Purchase Arrangements
Before the Public Offering......... 56
Selling Stockholders................. 57
Description of Capital Stock,
Certificate of Incorporation and
Bylaws............................. 57
Shares Eligible for Future Sale...... 62
Underwriting......................... 63
Legal Matters........................ 65
Experts.............................. 65
Index to Consolidated Financial
Statements......................... F-1
</TABLE>

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we have filed with
the Securities and Exchange Commission. You should read this prospectus with the
additional information described under the heading "Where You Can Find More
Information."
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. You can identify these statements by forward-looking
words such as "may," "will," "expect," "anticipate," "believe," "estimate,"
"plan," "intend," "continue" or similar words. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
condition or state other "forward-looking" information. This prospectus also
contains third-party estimates regarding the size and growth of markets.

The sections captioned "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as any
cautionary language in this prospectus, provide examples of risks,
uncertainties, and events that may cause our actual results to differ materially
from the expectations. Although we believe that the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. This prospectus is
current as of its date, and we are under no duty to update any of the forward-
looking statements contained in this prospectus after the date of this
prospectus or to conform these statements to actual results or to changes in our
expectations.

ii
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY IS QUALIFIED BY MORE DETAILED INFORMATION APPEARING IN OTHER
SECTIONS OF THIS PROSPECTUS. THE OTHER INFORMATION IS IMPORTANT, SO PLEASE READ
THIS ENTIRE PROSPECTUS CAREFULLY.

OUR COMPANY

Founded in 1946, Watson Wyatt & Company is one of the world's leading human
capital consulting firms in terms of revenues, number of clients and number of
offices. We help our clients enhance business performance by improving their
ability to attract, retain and motivate qualified employees. We design, develop
and implement human resources strategies and programs through our closely
related practice areas, the Benefits Consulting Group, HR Technologies Group and
the Human Capital Group. We are leveraging our position with our clients as
recognized experts in employee benefits and human capital consulting to offer
them web-based technologies that transform the way they implement and deliver HR
programs and improve communications with their employees. This manner of
implementing and delivering HR programs, which we refer to as our eHR-TM-
approach, combines Internet applications and other emerging technologies with
our HR expertise.

We provide human capital consulting services to many of the world's largest
corporations as well as emerging growth companies, public institutions and
non-profit organizations. During the past two years, we have provided services
to over 70% of the Fortune 100. Our clients include Apple Computer, Cisco
Systems, General Electric Company, General Motors, IBM and Lockheed Martin
Corporation. Many of our client relationships have existed continuously over
several decades. We generated approximately $580 million in revenues during the
twelve months ended December 31, 1999, with net income of approximately
$11.3 million during this same period.

The growing demand for employee benefits and human capital consulting
services is directly related to the size, complexity and rapid changes
associated with human resources programs. Employee salary and benefits costs
represent a significant component of worldwide corporate spending. In recent
years, several industry trends have emerged that have increased the demand for
our services, including:

- growing strategic importance of human capital;

- a technology revolution in HR programs as the Internet, intranets and
other e-business tools enable companies to manage their HR function more
efficiently and effectively;

- changing workforce demographics, such as a shortages of talented employees
and an unprecedented aging of the workforce;

- growing importance of employer-sponsored benefits programs due to limited
baby boomer retirement savings, uncertainty of government- sponsored
programs, and rising healthcare costs;

- record levels of global mergers and acquisitions that require the
integration of diverse corporate cultures and HR programs quickly and
effectively;

- continuing globalization of economies, which requires corporations to
retain human capital consultants with global resources and local
expertise; and

- complex and changing government regulation of employee benefits programs.

1
<PAGE>
OUR GROWTH STRATEGY

Our strategy is to expand our competitive position by providing
comprehensive, value-added human capital consulting services that help our
clients solve their human resources challenges. We plan to pursue growth by:

- expanding our relationships with existing clients by leveraging ongoing,
recurring engagements to identify and serve our clients' growing needs for
integrated HR services throughout the world;

- creating innovative web-based, or eHR-TM-, programs for delivering HR
services to our clients 24 hours a day, 7 days a week;

- developing new client relationships by capitalizing on our recognized
brand name, reputation for quality service, leading research studies and
innovative eHR-TM- methods for implementing HR programs; and

- pursuing strategic acquisitions that will expand our human capital
consulting capabilities and provide us with additional geographic
execution capabilities.

2
<PAGE>
THE OFFERING

Class A common stock offered:

By Watson Wyatt & Company Holdings......... 2,800,000 shares

By the selling stockholders................ 2,800,000 shares

Total.................................... 5,600,000 shares

Common stock to be outstanding after the
offering:(a)

Class A.................................... 5,600,000 shares

Class B-1.................................. 13,416,780 shares

Class B-2.................................. 13,416,780 shares
Total.................................... 32,433,560 shares(b)

Use of proceeds.............................. We estimate the net proceeds to us from this
offering to be approximately $29,400,000.

We expect to use these net proceeds for
working capital and other general corporate
purposes, which may include the retirement of
existing indebtedness, if any, and possible
strategic acquisitions. We will not receive
any proceeds from the sale of the class A
common stock by the selling stockholders.

Proposed NYSE symbol......................... WW
</TABLE>

UNLESS WE SPECIFICALLY STATE OTHERWISE, THE INFORMATION IN THIS PROSPECTUS
(1) ASSUMES THAT OUR CLASS A COMMON STOCK WILL BE SOLD AT $ 12.50 PER SHARE,
WHICH IS THE MIDPOINT OF THE RANGE SET FORTH ON THE COVER PAGE OF THIS
PROSPECTUS, (2) GIVES EFFECT TO OUR CORPORATE REORGANIZATION, AND (3) ASSUMES
THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED.

AFTER THE OFFERING, WE EXPECT THAT APPROXIMATELY 17% OF THE OUTSTANDING
COMMON STOCK WILL BE HELD BY THE PUBLIC AND THE APPROXIMATELY 83% OF THE
REMAINING COMMON STOCK WILL BE HELD BY OFFICERS, DIRECTORS AND EXISTING
STOCKHOLDERS.

- ------------------------

(a) Our class A common stock, class B-1 common stock and class B-2 common stock
are identical except for the transfer restrictions applicable to the
class B-1 common stock and class B-2 common stock.

(b) The number of shares of common stock to be outstanding after the offering
excludes (1) options to purchase 1,600,000 shares of class A common stock to
be granted concurrent with the consummation of this offering at an exercise
price equal to the public offering price and (2) 2,900,000 shares of
class A common stock reserved for issuance upon exercise of options that may
be granted in the future under our stock plan.

3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table summarizes the consolidated financial data for our
business. You should read the following summary consolidated financial data
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and the related
notes beginning on page F-1 of this prospectus.

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<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- -------------------
1997 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA (A):
Continuing operations:
Fees................................... $486,502 $ 512,660 $556,860 $274,343 $298,734
Operating expenses:
Salaries and benefits................ 252,302 268,611 298,925 148,868 160,753
SIBP (b)............................. -- -- 22,600 7,600 15,000
Non-recurring compensation charge
related to formula book value
change (c)......................... -- 69,906 -- -- --
Other operating expenses............. 212,582 217,109 211,535 99,436 106,762
-------- --------- -------- -------- --------
Income (loss) before income taxes and
minority interest.................... $ 21,618 $ (42,966) $ 23,800 $ 18,439 $ 16,219
======== ========= ======== ======== ========
Income (loss) from continuing
operations........................... $ 12,381 $ (56,212) $ 12,135 $ 9,437 $ 8,560
Discontinued operations (d)............ (11,483) (69,906) 8,678 8,678 --
-------- --------- -------- -------- --------
Net income (loss).................... $ 898 $(126,118) $ 20,813 $ 18,115 $ 8,560
======== ========= ======== ======== ========
Earnings (loss) per share, continuing
operations, basic and fully
diluted.............................. $ 0.71 $ (3.27) $ 0.80 $ 0.63 $ 0.57
Earnings (loss) per share, basic and
fully diluted........................ $ 0.05 $ (7.34) $ 1.37 $ 1.21 $ 0.57
Weighted average shares outstanding.... 17,438 17,170 15,215 14,977 15,140
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(E) AS ADJUSTED(F)
--------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 13,688 $ 13,688 $ 33,887
Net working capital................................... 8,882 8,882 38,266
Total assets.......................................... 301,024 301,024 321,223
Redeemable common stock............................... 99,398 -- --
Total stockholders' equity (deficit).................. (65,119) 34,279 63,663
</TABLE>

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(a) We believe that our income as an employee-owned company is not indicative of
the operating performance we will report as a publicly traded company due to
the significant impact of the following two non-recurring compensation
related expenses: (1) supplemental discretionary bonuses accrued under the
Stock Incentive Bonus Plan, referred to as "SIBP", described in more detail
in footnote (b) below, and (2) a one-time charge in fiscal year 1998 related
to a change in the way we calculated our formula book value, the price at
which we sold and repurchased our restricted common stock in transactions
with our employees prior to the public offering, described in more detail in
footnote (c) below.

4
<PAGE>

We believe that our results of operations in fiscal years 1998 and 1999 and
the six month periods ended December 31, 1998 and 1999 are more comparable
to, and a better indication of, our performance as a publicly traded company
if they are analyzed excluding the SIBP and the non-recurring compensation
charge described above. The continuing operations loss before taxes and
minority interest of $43.0 million for fiscal year 1998 would have improved
by $69.9 million, and the continuing operations income before taxes and
minority interest of $23.8 million for fiscal year 1999 would have improved
by $22.6 million without these items. Income before taxes and minority
interest from continuing operations for the three years ended June 30, 1997,
1998 and 1999 would have been $21.6 million, $26.9 million and
$46.4 million, respectively. Income before taxes and minority interest from
continuing operations for the six month periods ended December 31, 1998 and
1999 would have been $26.0 million and $31.2 million, respectively, if
bonuses were accrued under the compensation structure management will adopt
as a publicly traded company.

(b) Historically, we have paid incentive bonuses to associates under a fiscal
year-end bonus program. Beginning in fiscal year 1999, in addition to annual
fiscal year-end bonuses, we provided supplemental bonus compensation to our
employee shareholders pursuant to the SIBP in an amount representing all
income in excess of a targeted amount. Following the public offering, we
will terminate the SIBP and replace it with equity based incentives more
customary to publicly traded companies.

(c) As an employee-owned company without a public trading market, we sold and
repurchased shares of common stock in transactions with our employee
shareholders at a formula book value calculated in accordance with our
bylaws. In fiscal year 1998, we recorded a one-time non-cash compensation
charge against continuing operations of $69.9 million to reflect a change in
the method of calculating the formula book value. This change eliminated
from the calculation of formula book value the $69.9 million charge taken
for discontinued operations in fiscal year 1998 to reflect the
discontinuation of our Benefits Administration Outsourcing Business. The
discontinuation is more fully described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

(d) As discussed in footnotes (a) and (c) above, in fiscal year 1998 we
discontinued our Benefits Administration Outsourcing Business and recorded a
$69.9 million charge to earnings in the discontinued operations line. The
discontinuation is more fully described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Fiscal years
1997 and 1998 also include the operating losses of the Benefits
Administration Outsourcing Business prior to its discontinuation in 1998,
which are reflected in the discontinued operations line. In fiscal year
1999, the discontinued operations credit reflects the reduction of the
expected loss on disposal of the Benefits Administration Outsourcing
Business.

(e) The "Pro Forma" column reflects the exchange of shares under our corporate
reorganization, including the reclassification of the current redeemable
common stock to permanent stockholders' equity.

(f) The "Pro Forma As Adjusted" column reflects the sale of 2,800,000 shares of
class A common stock offered by us, the automatic conversion of all shares
of class B common stock sold by selling stockholders in the offering into
shares of class A common stock, and the application of the estimated net
proceeds to us from this offering.

5
<PAGE>
RISK FACTORS

BEFORE YOU INVEST IN OUR CLASS A COMMON STOCK, YOU SHOULD UNDERSTAND THE
RISKS INVOLVED. YOU SHOULD CAREFULLY CONSIDER THESE RISK FACTORS, AS WELL AS ALL
OF THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS BEFORE YOU DECIDE TO PURCHASE SHARES OF OUR CLASS A COMMON STOCK. IF
ANY OF THE RISKS DISCUSSED IN THIS PROSPECTUS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION AND OPERATING RESULTS COULD BE ADVERSELY AFFECTED. AS A
RESULT, THE TRADING PRICE OF OUR CLASS A COMMON STOCK COULD DECLINE AND YOU MAY
LOSE ALL OR PART OF YOUR INVESTMENT.

WE MUST CONTINUE TO RECRUIT AND RETAIN QUALIFIED CONSULTANTS; OUR FAILURE TO
DO SO COULD ADVERSELY AFFECT OUR ABILITY TO COMPETE SUCCESSFULLY

Our continued success and future growth depend heavily upon our ability to
attract and retain enough highly skilled and motivated consultants. We must meet
these human capital requirements if we are to deliver our sophisticated and
technical services to our clients. We compete against many companies with
greater financial resources both within our industry and in other industries to
attract these qualified individuals. Our failure to recruit and retain adequate
talent could reduce our competitive strength and lead to a deterioration of our
business.

This competition for personnel may adversely affect our profitability. We
can give no assurance that we will be able to generate sufficient revenue to
offset any additional personnel costs. We also cannot guarantee that we will be
successful in hiring enough consultants to continue our growth.

CHANGES IN OUR COMPENSATION PROGRAMS COULD IMPAIR OUR ABILITY TO RETAIN
CONSULTANTS

Historically, our compensation programs have been principally cash-based. We
plan to change our compensation programs upon completing this offering by
introducing incentive stock options and discontinuing the payment of
supplemental bonuses under our current stock incentive bonus plan. This change
could adversely affect our ability to retain our consultants if our total
compensation program is not perceived by our consultants to be competitive with
those of other firms.

WE DEPEND ON OUR ASSOCIATES; THE LOSS OF KEY CONSULTANTS AND MANAGERS COULD
DAMAGE OR RESULT IN THE LOSS OF CLIENT RELATIONSHIPS AND ADVERSELY AFFECT
OUR BUSINESS

Our success largely depends upon the business generation capabilities and
project execution skills of our consultants. In particular, our consultants'
personal relationships with our clients are a critical element of obtaining and
maintaining client engagements. Losing consultants and account managers who
manage substantial client relationships or possess substantial experience or
expertise could adversely affect our ability to secure and complete engagements,
which would adversely affect our results of operations.

In addition, if any of our key consultants were to join an existing
competitor or form a competing company, some of our clients could choose to use
the services of that competitor instead of our services. Clients or other
companies seeking to develop in-house services similar to ours also could hire
our key consultants. Such hiring would not only result in our loss of key
consultants but also could result in the loss of a client relationship or a new
business opportunity.

COMPETITION COULD RESULT IN LOSS OF OUR MARKET SHARE THAT COULD REDUCE OUR
PROFITABILITY

The markets for our principal services are highly competitive. Our
competitors currently include other human resources consulting and actuarial
firms, as well as the human resources consulting divisions of some public
accounting and consulting firms. Several of our competitors have greater
financial, technical, and marketing resources than we have, which could enhance
their ability to respond more quickly to technological changes, finance
acquisitions and fund internal growth. Also, the

6
<PAGE>
consulting practices of the large international accounting firms, or other
competitors who have a larger presence than we do in particular markets, gain
marketing advantages from their greater name recognition.

Our current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address client needs. New competitors or alliances among
competitors could emerge and gain significant market share. In addition, some of
our competitors may have or may develop a lower cost structure or superior
services that gain greater market acceptance than the services that we offer or
develop.

CLIENTS' CRITERIA FOR SELECTING CONSULTANTS MAY CHANGE

The ability to tailor services to clients' particular needs traditionally
has been a key selection criterion among buyers of consulting services in our
core businesses. However, these buyers' selection criteria may change and price
could become a more significant factor, thereby adversely affecting our
operating results.

DEMAND FOR OUR SERVICES MAY DECREASE FOR VARIOUS REASONS, INCLUDING A
DECLINE IN A CLIENT'S OR AN INDUSTRY'S FINANCIAL CONDITION OR AN
INDUSTRY-SPECIFIC ECONOMIC DOWNTURN, THAT COULD ADVERSELY AFFECT OUR
OPERATING RESULTS

We can give no assurance that the demand for our services will continue to
grow or that we will compete successfully with our existing competitors, new
competitors or our clients' internal capabilities. Some of our clients may
decide to develop or use their internal resources to satisfy their needs for
some or all of the services that we provide. Our clients' demand for our
services also may change based on their own needs and financial conditions. When
economic downturns affect particular clients or industry groups, they frequently
reduce their budgets for outside consultants, which could reduce the demand for
our services and increase price competition.

In addition, the demand for many of our core benefits services is affected
by government regulation and taxation of employee benefits plans. This
regulation and taxation drive our clients' needs for compliance-related
services. Significant changes in tax or social welfare policy or regulations
could lead some employers to discontinue their employee benefit plans, thereby
reducing the demand for our services. A simplification of regulations or tax
policy also could reduce the need for our services.

OUR CLIENTS GENERALLY MAY TERMINATE OUR SERVICES AT ANY TIME, WHICH COULD
DECREASE ASSOCIATE UTILIZATION

Our clients generally may terminate our engagements at any time. If a client
reduces the scope of or terminates the use of our services with little or no
notice, our associate utilization may decline. In such cases, we must rapidly
redeploy our associates to other engagements in order to minimize the potential
negative impact on our financial performance. In addition, because much of our
work is project based rather than recurring in nature, our associates'
utilization depends on our ability to continually secure additional engagements.

MANY OF OUR ENGAGEMENTS, PARTICULARLY LONG-STANDING RELATIONSHIPS AND
ENGAGEMENTS INVOLVING STANDARD ANNUAL ACTIVITIES, ARE NOT BASED ON WRITTEN
AGREEMENTS, WHICH COULD RESULT IN DISPUTES WITH OUR CLIENTS

Many of our engagements, including the majority of those involving
long-standing relationships or standard annual activities such as actuarial
valuations, are not based on formal written agreements. In such cases, there is
a greater risk of misunderstandings with our clients concerning the scope and
terms of our engagement and our liability for unsatisfactory performance.
Disputes could damage our client relationships and result in unanticipated costs
and loss of revenue that could adversely affect our results of operations.

7
<PAGE>

OUR FIXED FEE ENGAGEMENTS COULD HURT OUR FINANCIAL RESULTS IF NOT PROPERLY
MANAGED

We enter into some of our engagements on a negotiated fixed fee basis. Our
financial results could be adversely affected by our inability to manage such
engagements profitably.

WE ARE SUBJECT TO MALPRACTICE CLAIMS ARISING FROM OUR WORK, WHICH COULD
ADVERSELY AFFECT OUR REPUTATION AND BUSINESS

Clients and third parties who are dissatisfied with our services or who
claim to suffer damages caused by our services may bring lawsuits against us.
The nature of our work, especially our actuarial services, involves assumptions
and estimates concerning future events, the actual outcome of which we cannot
know with certainty in advance. In addition, we could make computational,
software programming, or data management errors.

Clients may seek to hold us responsible for the financial consequences of
these errors or variances. Given that we frequently work with large pension
funds, relatively small percentage errors or variances could create significant
dollar variances and claims for unfunded liabilities. In most cases, our
exposure to liability on a particular engagement is substantially greater than
the profit opportunity that the engagement generates for us. For example,
possible claims might include: (i) a client's assertion that actuarial
assumptions used in a pension plan were unreasonable, leading to plan
underfunding; (ii) a claim arising out of the use of inaccurate data, which
could lead to an underestimation of plan liabilities; or (iii) a claim that
employee benefit plan documents were misinterpreted or plan amendments were
misstated in plan documents, leading to overpayments to beneficiaries. Defending
lawsuits of this nature or arising out of any of our services could require
substantial amounts of management attention, which could affect their focus on
operations and could adversely affect our financial performance. In addition to
defense costs and liability exposure, malpractice claims may produce negative
publicity that could hurt our reputation and business.

OUR QUARTERLY REVENUES MAY FLUCTUATE WHILE OUR EXPENSES ARE RELATIVELY FIXED

Quarterly variations in our revenues and operating results occur as a result
of a number of factors, such as:

- the significance of client engagements commenced and completed during a
quarter;

- the seasonality of some specific types of services; in particular,
retirement revenues are more heavily weighted toward the second half of
the fiscal year when annual actuarial valuations are required to be
completed for calendar year end companies and the related services are
performed. In the Human Resources Technologies group, the distribution of
work is concentrated at the end of the first fiscal quarter and through
the second fiscal quarter as there is demand from our clients for
assistance in updating systems and programs used in the annual
re-enrollment of employees in benefit plans, such as flex plans. Much of
the remaining business is project oriented and is thus influenced more by
particular client needs and the availability of our workforce;

- the number of business days in a quarter, employee hiring and utilization
rates, the clients' ability to terminate engagements without penalty;

- the size and scope of assignments;

- the level of vacation and holidays taken by our associates; and

- general economic conditions.

Because 70-75% of our total operating expenses are relatively fixed, a
variation in the number of client assignments or the timing of the initiation or
the completion of client assignments can cause

8
<PAGE>

significant variations in quarterly operating results and could result in
losses. Increases in the number of professional personnel that are not followed
by corresponding increases in revenues could materially and adversely affect our
operating results. Over the most recent ten fiscal quarters, quarterly income
from continuing operations has fluctuated from $0.5 million to $7.3 million,
excluding the effect of the non-recurring compensation charge.

WE DEPEND ON OUR STRATEGIC ALLIANCE WITH WATSON WYATT PARTNERS FOR OUR BRAND
IN THE EUROPEAN MARKET AND COULD LOSE OUR POSITION IN EUROPE IF OUR ALLIANCE
WERE TO TERMINATE

Since 1995 we have marketed our services globally as Watson Wyatt Worldwide
through our alliance with Watson Wyatt Partners. Under the alliance:

- we operate in North America, Latin America and Asia-Pacific;

- Watson Wyatt Partners operates in the United Kingdom, Ireland, Africa and
the Caribbean; and

- Watson Wyatt (Holdings) Europe, of which we own a 25% minority interest,
operates in continental Europe.

The alliance agreements with Watson Wyatt Partners generally restrict each
party's ability to enter into each other's geographic markets. If the alliance
were to terminate, we could lose our position in Europe, which could interrupt
our global development and impair our ability to deliver services seamlessly to
clients throughout the world.

TERMINATION OF OUR ALLIANCE IN EUROPE COULD RESULT IN A NAME CHANGE

The alliance agreements set forth the rights we or Watson Wyatt Partners
have to buy each other out of our respective interests in each other's firm and
in Watson Wyatt Holdings (Europe) in the event either of us becomes affiliated
with a competitor. A termination of our alliance with Watson Wyatt Partners
could precipitate a name change, which could result in confusion in our markets.

OUR INTERNATIONAL OPERATIONS PRESENT SPECIAL RISKS THAT COULD NEGATIVELY
AFFECT OUR BUSINESS

We conduct a portion of our business from offices outside the United States
which subjects us to foreign financial and business risks, which could arise in
the event of:

- unusual currency exchange rate fluctuations;

- unexpected increases in taxes;

- new regulatory requirements and/or changes in policies and local laws that
materially affect the demand for our services or directly affect our
foreign operations;

- unusual and unexpected monetary exchange controls;

- the impact of unusually severe or protracted recessions in foreign
economies; and

- civil disturbance or other catastrophic events that reduce business
activity in other parts of the world.

Any of these factors could have an adverse effect on our results from
operations.

OPERATIONAL READINESS OF OUR GLOBAL ADMINISTRATIVE INFRASTRUCTURE MIGHT NOT
BE AS COMPLETE AS REQUIRED TO EFFECTIVELY MANAGE INTERNATIONAL OPERATIONS

The management of geographically dispersed operations requires substantial
management resources, resulting in significant ongoing expense. We have not
fully integrated all of our global operations from an administrative and
reporting standpoint. We are developing and implementing

9
<PAGE>

additional systems and management reporting to help us manage our global
operations, but we cannot predict when these systems will be fully operational
or how successful they will be.

OUR BUSINESS FACES RAPID TECHNOLOGICAL CHANGE AND OUR FAILURE TO QUICKLY
RESPOND TO THIS CHANGE COULD ADVERSELY AFFECT OUR BUSINESS

Increasingly, to remain competitive in our practice areas, we must identify
and offer the most current technologies and methodologies. This is particularly
true of our HR Technologies Group in which our success largely depends upon our
ability to quickly absorb and apply technological advances in both generic
applications and, particularly, those which are specifically required to deliver
employee benefits services. In some cases, significant technology choices and
investments are required. If we do not respond correctly, quickly, or in a
cost-effective manner, our business and operating results might be harmed.

The effort to gain technological expertise and develop new technologies in
our business requires us to incur significant expenses and, in some cases, to
implement them globally. If we cannot offer new technologies as quickly or
effectively as our competitors, we could lose market share. We also could lose
market share if our competitors develop more cost-effective technologies than we
offer or develop.

OUR HR TECHNOLOGIES GROUP HAS PROJECT-RELATED RISKS THAT COULD ADVERSELY
AFFECT OUR FINANCIAL RESULTS

Our HR Technologies Group develops and implements computer software and
systems for clients. In securing or carrying out these engagements, we may
encounter inadequate project scope definitions, unforeseen technological and
systems integration problems, unanticipated costs, failures to meet contractual
performance objectives, and other business risks. If we are not successful in
defining, pricing and executing these assignments as planned, we may incur
financial losses.

LIMITED PROTECTION OF OUR PROPRIETARY EXPERTISE, METHODOLOGIES AND SOFTWARE
COULD HARM OUR BUSINESS

We cannot guarantee that trade secret, trademark, and copyright law
protections are adequate to deter misappropriation of our confidential
information. Moreover, we may be unable to detect the unauthorized use of our
intellectual property and take the necessary steps to enforce our rights. If
employees or third parties misappropriate our proprietary information, our
business could be harmed. Redressing infringements also may consume significant
management time and financial resources.

OUR ASSOCIATES WILL OWN APPROXIMATELY 83% OF OUR STOCK AND THEIR INTERESTS
MAY DIFFER FROM THOSE OF OTHER STOCKHOLDERS

Immediately upon completion of this offering, our associates will continue
to own approximately 83% of our outstanding capital stock. As a result, our
associates will be able to elect the board of directors and generally determine
the outcome of any proposed corporate transaction or other matter submitted to
stockholders for their vote. Our associates' interests in these matters might
differ from those of our non-associate stockholders.

CHANGE IN ASSOCIATE OWNERSHIP COULD ADVERSELY AFFECT OUR FIRM CULTURE

We currently are predominantly owned by our associates. As owners, our
associates have traditionally been able to influence the direction of the firm,
which promotes an entrepreneurial spirit and motivates individual performance.
The stock owned by our associates will have transfer restrictions, which will
expire within two years following this offering. As these transfer restrictions
expire and our associates' stock becomes transferable, associate ownership may
decline. A decline in associate ownership and an increase in non-associate
influence could lower morale which could, in turn, adversely affect our business
operations.

10
<PAGE>
WE HAVE VARIOUS MECHANISMS IN PLACE THAT MAY PREVENT A CHANGE IN CONTROL
THAT A STOCKHOLDER MIGHT FAVOR

Our certificate of incorporation and bylaws contain provisions that might
discourage, delay or prevent a change in control that a stockholder might favor.
Our certificate of incorporation and bylaws:

- authorize the issuance of preferred stock without fixed characteristics
that could be issued by our board of directors to increase the number of
outstanding shares and deter a takeover attempt;

- classify our board of directors with staggered, three-year terms, which
may lengthen the time required to gain control of our board of directors;

- provide that only the president or our board may call a special meeting of
stockholders;

- prohibit stockholder action by written consent, which requires all actions
to be taken at a meeting of the stockholders;

- provide that vacancies on our board of directors, including new
directorships, may be filled only by the directors then in office; and

- require super-majority voting to amend the classified board and these
other provisions of our certificate of incorporation.

WE COULD ISSUE ADDITIONAL SHARES WHICH COULD HAVE A DILUTIVE EFFECT ON
STOCKHOLDERS

At the time of the offering we will have 69,000,000 authorized shares of
class A common stock. Immediately following the completion of this offering, we
expect to have approximately 63,400,000 authorized but unissued shares of
class A common stock. Additional class A common stock will be issued upon
conversion of outstanding shares of class B common stock and pursuant to
employee stock option plans, and might be issued in connection with acquisitions
or other transactions, or offered for sale in future offerings. The issuance of
additional shares of class A common stock could dilute the value of outstanding
shares, including those purchased in this offering.

YEAR 2000 ISSUES COULD ADVERSELY AFFECT OUR BUSINESS

We have provided our clients with software that we have developed and
software-related services. We also use software and information technology
extensively to deliver our consulting services to our clients and operate our
business. We cannot guarantee that we have identified all potential software
problems or that we will have successfully corrected all software problems. In
addition, some software (such as software used for open enrollment in benefit
plans) normally is modified on an annual or periodic basis. In some cases, we
have deferred performing Year 2000 remediation to coincide with the software's
next scheduled modification. We also have provided software to clients subject
to warranties regarding Year 2000 performance. If we fail to identify or correct
Year 2000 problems in our software, we may incur costs to repair or replace
affected systems. We also may incur liability or unanticipated costs as a result
of errors caused by our software that could have a material adverse effect on
the results of our operations.

WE WILL HAVE BROAD DISCRETION REGARDING THE NET OFFERING PROCEEDS

We have not designated the anticipated net proceeds of this offering for
specific uses. We will have broad discretion regarding the use of the net
proceeds of this offering, and we may apply the proceeds differently than
investors in our stock might anticipate. Although we have no plans or agreements
regarding any material acquisitions on the date of this prospectus, we might use
a portion of the net proceeds to fund acquisitions.

11
<PAGE>
ADDITIONAL SHARES BECOMING AVAILABLE FOR SALE COULD ADVERSELY AFFECT THE
PRICE OF OUR STOCK

Transfer restrictions on the class B common stock expire 12 and 24 months
following this offering. As the transfer restrictions on the class B common
stock expire, subject in the case of affiliates, to the restrictions of
Rule 144 under the Securities Act, those shares automatically will convert into
shares of class A common stock that will be eligible for sale in the public
market. Such shares are owned largely by our current associates, and these
persons might want to sell their shares in the public market immediately after
the transfer restrictions expire. Substantial sales after the transfer
restrictions expire could adversely affect the market value of the class A
common stock and the value of your shares. In addition, we and the selling
stockholders have agreed, in the underwriting agreement, not to sell any shares
for 180 days following this offering.

The following chart identifies the number of shares that will become
available for resale at the time the 12 and 24 month restrictions expire:

<TABLE>
<CAPTION>
/ /2000 / /2001 / /2002
-------- ---------- ----------
<S> <C> <C> <C>
Post Merger Shares Eligible for Resale...... 0 13,416,780 13,416,780
</TABLE>

WE CANNOT GUARANTEE A LIQUID TRADING MARKET FOR OUR STOCK; OUR STOCK WILL BE
SUBJECT TO MARKET FLUCTUATIONS

Before this offering, there has been no public market for our common stock
and we cannot predict the extent to which investor interest will lead to the
development of an active and liquid trading market for our class A common stock.
The initial public offering price for the shares will be determined by
negotiations between us and the underwriters and might not be indicative of the
market price of the class A common stock that will prevail in the trading
market.

In recent years the securities markets have experienced substantial
volatility, and individual stock prices have fluctuated due to factors that are
often unrelated or disproportionate to a company's operating performance. In
addition, the market price of our class A common stock may be highly volatile
and therefore subject to wide fluctuations in response to such factors as:

- actual or anticipated changes in our future financial performance;

- failure to meet market expectations; and

- announcements by our competitors of new services or significant contracts
or acquisitions.

12
<PAGE>

USE OF TERMINOLOGY

Immediately before the closing of this offering, we will effect a corporate
reorganization in order to create a holding company structure. As part of this
transaction, our current operating company, Watson Wyatt & Company, will merge
with an indirect wholly-owned subsidiary to become a wholly-owned subsidiary of
Watson Wyatt & Company Holdings. Unless the context indicates otherwise, the
information in this prospectus assumes that the corporate reorganization
transactions have been completed. References in this prospectus to "Watson
Wyatt," "we," "our" and "us" refer to both Watson Wyatt & Company and its
subsidiaries, before the merger, and to Watson Wyatt & Company Holdings and its
subsidiaries after the merger. References to "WW Holdings" refer to Watson
Wyatt & Company Holdings. We refer to our employees as associates.

Watson Wyatt Worldwide is the name of our global alliance with Watson Wyatt
Partners.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the U.S. Securities and Exchange Commission ("SEC") a
registration statement on Form S-3 under the Securities Act relating to the
shares of class A common stock being offered by this prospectus. This prospectus
is part of that registration statement and, as allowed by SEC rules, does not
include all of the information you can find in the registration statement or the
exhibits to the registration statement. For further information about us and the
class A common stock offered, see the registration statement and its exhibits.
We have also filed a registration statement on Form S-4 with the SEC relating to
the proposed merger of Watson Wyatt & Company with its indirect wholly-owned
subsidiary which will result in Watson Wyatt & Company becoming a wholly-owned
subsidiary of Watson Wyatt & Company Holdings.

The SEC allows us to incorporate by reference into this prospectus the
information we file with the SEC. This means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus. If we
subsequently file updating or superseding information in a document that is
incorporated by reference into this prospectus, the subsequent information will
also become part of this prospectus and will supersede the earlier information.
We are incorporating by reference the following documents that we have filed
with the SEC:

- our annual report on Form 10-K for the fiscal year ended June 30, 1999
(file no. 0-20724);

- our quarterly reports on Form 10-Q for the quarters ended September 30,
1999 and December 31, 1999; and

- our current report on Form 8-K filed with the SEC on January 27, 2000.

13
<PAGE>
We also are incorporating by reference into the prospectus all of our future
filings with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act until this offering is completed. You may obtain a copy of any or all of our
filings which are incorporated by reference, at no cost, by writing to or
telephoning us at the following address:

Watson Wyatt & Company Holdings
6707 Democracy Boulevard, Suite 800
Bethesda, Maryland 20817
Attention: Secretary
Telephone: (301) 581-4600

You should rely only on the information provided in this prospectus or
incorporated by reference. We have not authorized anyone to provide you with
different information. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the first page of
the prospectus. We are offering to sell, and seeking offers to buy, the class A
common stock only in jurisdictions where such offers are permitted. We are not
making this offer of securities in any state or country in which the offer or
sale is not permitted.

Watson Wyatt & Company currently files reports and other information with
the SEC, but its common stock, which has been subject to various restrictions,
has not been publicly traded. After the offering, Watson Wyatt & Company
Holdings will continue to file annual, quarterly and special reports, proxy
statements and other information with the SEC. Watson Wyatt & Company's SEC
filings are available at the SEC's web site at http://www.sec.gov. You may read
and copy any filed document at the SEC's public reference rooms in Washington,
D.C. at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and at the
SEC's regional offices in New York at 7 World Trade Center, 13(th) Floor, New
York, New York 10048, and in Chicago at Suite 400, Northwestern Atrium Center,
14(th) Floor, 500 W. Madison Street, Chicago, Illinois 60661. Please call the
SEC at 1-800-SEC-0330 for further information about the public reference rooms.

CORPORATE INFORMATION

Watson Wyatt & Company was incorporated in Delaware on February 17, 1958.
Including predecessors, we have been in business since 1946. We conducted our
business as The Wyatt Company until changing our corporate name to Watson Wyatt
& Company in connection with the establishment of the Watson Wyatt Worldwide
alliance. Watson Wyatt & Company Holdings was incorporated in Delaware on
January 7, 2000.

Our principal executive offices are located at 6707 Democracy Boulevard,
Suite 800, Bethesda, Maryland, 20817 and our telephone number is (301) 581-4600.
We invite you to visit our web site at http://www.watsonwyatt.com. The
information contained on our web site is not incorporated in this prospectus.

USE OF PROCEEDS

The net proceeds from the sale of the 2,800,000 shares of class A common
stock offered by us will be approximately $29.4 million, based on the midpoint
of an assumed initial public offering price of $11.50-13.50 per share and after
deducting the underwriting discounts and commissions and offering expenses. We
will not receive any proceeds from the sale of common stock by the selling
stockholders.

The primary purpose of this offering is to create a public market for our
common stock, create a currency for potential acquisitions, facilitate future
access to public markets, and enhance our ability to use our common stock to
attract, retain and provide incentives to our consultants.

14
<PAGE>

The proceeds from this offering will be used for working capital and other
general corporate purposes, which may include the retirement of outstanding
working capital indebtedness under our revolving cedit facility, if any, at the
time of completion of this offering. The outstanding indebtedness at
December 31, 1999, which was for cyclical working capital purposes, was
comprised of outstanding draws on our revolving credit facility, which have no
stated maturity and bear interest at a rate that varies with LIBOR and/or the
prime rate. Further, although we currently have no agreements or commitments
regarding any acquisitions, a portion of the offering proceeds could be used for
possible strategic acquisitions of complementary businesses, products, or
technologies.

As we have no current specific plans for the proceeds from this offering,
any proceeds available after the repayment of outstanding indebtedness would be
invested in short-term high-grade interest-bearing securities.

DIVIDEND POLICY

We currently intend to retain our future earnings to finance the operation
and expansion of our business and we do not anticipate paying cash dividends on
our common stock in the foreseeable future. Any future determination as to the
payment of dividends will be at the discretion of our board of directors.

15
<PAGE>
CAPITALIZATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table presents our consolidated net cash position and total
capitalization as of December 31, 1999 on (1) an actual basis; (2) a pro forma
basis giving effect to the exchange of shares under our proposed corporate
reorganization and subsequent reclassification of the redeemable common stock to
stockholders' equity; and (3) a pro forma as adjusted basis to reflect the sale
of 2,800,000 shares of class A common stock being offered in this offering by us
at an assumed initial public offering price of $ 12.50 per share, the automatic
conversion of all class B common stock sold by the selling shareholders in the
offering to class A common stock, and the application of the estimated net
proceeds to us from the offering as described in "Use of Proceeds."

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 13,688 $ 13,688 $33,887
======== ======== =======
Notes payable and book overdrafts........................... 8,401 8,401 --
======== ======== =======
Redeemable common stock ($1 par value per share, 25,000,000
shares authorized; 14,879,886 shares issued and
outstanding) (a).......................................... 99,398 -- --
======== ======== =======
Stockholders' equity:
Adjustment for redemption value less than amounts paid in
by stockholders (a)..................................... 10,547 -- --
Preferred stock (no par value per share, 1,000,000 shares
authorized; no shares issued)........................... -- -- --
Class A common stock ($0.01 par value per share,
69,000,000 shares authorized; 5,600,000 shares issued
and
outstanding) (b)(c)..................................... -- 56
Class B-1 common stock ($0.01 par value per share;
15,000,000 shares authorized; 14,879,886 shares issued
and outstanding, pro forma; 13,479,886 shares issued and
outstanding,
pro forma as adjusted) (d).............................. -- 149 135
Class B-2 common stock ($0.01 par value per share;
15,000,000 shares authorized; 14,879,886 shares issued
and outstanding, pro forma; 13,479,886 shares issued and
outstanding,
pro forma as adjusted) (d).............................. -- 149 135
Additional paid in capital (e)............................ -- 109,647 140,669
Retained deficit (f)...................................... (74,198) (74,198) (75,864)
Cumulative translation adjustment (other comprehensive
loss)................................................... (1,468) (1,468) (1,468)
-------- -------- -------
Total stockholders' (deficit) equity........................ $(65,119) $ 34,279 $63,663
======== ======== =======
Total capitalization........................................ $ 34,279 $ 34,279 $63,663
======== ======== =======
</TABLE>

- ------------------------

(a) All shares of common stock at December 31, 1999 are classified as redeemable
common stock outside of stockholders' equity due to the bylaw provision that
required stock to be repurchased by us upon an associate's termination or
retirement. The difference between the redeemable value, as determined in
accordance with Watson Wyatt & Company's bylaws, and the amounts paid in or
deemed paid in for the stock is identified as the "Adjustment for redemption
value less (greater) than amounts paid in by stockholders" and is included
in the stockholders' equity section of the historical balance sheet.

16
<PAGE>

Under the terms of the corporate reorganization, all 14,879,886 outstanding
redeemable common shares will be converted into 29,759,772 newly issued
shares of class B-1 and class B-2 common stock, without redemption features.
This is reflected in the "Pro Forma" column. In the "Pro Forma" column, the
total historical cost of the shares is now fully reflected in stockholders'
equity.

(b) The "Pro Forma As Adjusted" column reflects the issuance by us of 2,800,000
shares of class A common stock and the automatic conversion of 2,800,000
shares of class B-1 and class B-2 common stock to class A common stock upon
their sale by the selling stockholders in this offering.

(c) The "Pro Forma As Adjusted" number of shares of common stock to be
outstanding excludes (1) options to purchase approximately 1,600,000 shares
of class A common stock to be granted concurrent with the consummation of
this offering at an exercise price equal to the public offering price and
(2) approximately 2,900,000 shares of class A common stock reserved for
issuance upon exercise of options that may be granted in the future under
our stock incentive plan. See "Long Term Incentive Plan."

(d) In the "Pro Forma" column, the conversion of shares pursuant to the
corporate reorganization referred to in (a) above is reflected. The "Pro
Forma As Adjusted" column reflects the automatic conversion of 2,800,000
shares of class B-1 and class B-2 common stock to 2,800,000 shares of
class A common stock upon their sale by the selling stockholders.

(e) The "Pro Forma" column reflects the difference between cash paid in or
deemed paid in for the new outstanding 14,879,886 shares of the class B-1
common stock and 14,879,886 shares of class B-2 common stock and their $0.01
per share par value. The "Pro Forma As Adjusted" column adds to this amount
the issuance of shares of class A common stock in this offering, less the
$0.01 per share par value of each class.

(f) We have decided to reimburse the selling stockholders for the underwriting
commissions on the shares sold by them in connection with this offering. The
"Pro Forma as Adjusted" column reflects the resulting after-tax compensation
charge which will decrease our operating results and increase our Retained
Deficit in the quarter in which we complete this offering.

17
<PAGE>
DILUTION

As of December 31, 1999, after giving effect to our corporate reorganization
and the related termination of the redemption feature of our redeemable common
stock, our pro forma net tangible book value was approximately $24.8 million, or
approximately $0.83 per share. Net tangible book value per share is determined
by dividing our net tangible book value (total net tangible assets less total
liabilities) by 29,759,772 pro forma shares of common stock outstanding. After
giving effect to the sale of 2,800,000 shares of class A common stock in this
offering by us at the midpoint of an assumed initial public offering price of
$11.50-13.50 per share, and after deducting the underwriting discounts and
commissions and offering expenses, our pro forma net tangible book value as of
December 31, 1999 would have been $54.2 million, or $1.66 per share. This
represents an immediate increase in net tangible book value of $0.83 per share
to our stockholders and an immediate dilution in net tangible book value of
$10.84 per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 12.50
-------
Net tangible book value per share as of December 31,
1999.................................................... $ 0.83
Increase in net tangible book value per share attributable
to the offering......................................... 0.83
-------
Net tangible book value per share after this offering....... 1.66
-------
Dilution per share to new stockholders...................... $ 10.84
=======
</TABLE>

The following table summarizes, on a pro forma basis as of December 31,
1999, the number of shares of class A common stock purchased from us, the total
consideration paid to us and the average price per share paid to us by the
existing holders of common stock and by the new stockholders purchasing shares
of class A common stock offered by us (at an assumed initial public offering
price at the midpoint of $11.50-13.50 per share) before deducting the
underwriting discounts and commissions and offering expenses payable by us.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 26,959,772 82.8% $ 99,613,000 58.7% $ 3.69
New stockholders.................... 5,600,000 17.2% 70,000,000 41.3% $12.50
----------- ----- ------------ -----
Total............................. 32,559,772 100.0% $169,613,000 100.0%
=========== ===== ============ =====
</TABLE>

The foregoing table excludes (1) options to purchase 1,600,000 shares of
class A common stock to be granted concurrent with the consummation of this
offering at an exercise price equal to the public offering price and
(2) 2,900,000 shares of class A common stock reserved for issuance upon exercise
of options that may be granted in the future under our stock option plan. See
"Long Term Incentive Plan."

Additional sales by the selling stockholders in this offering pursuant to
the underwriters' overallotment option, if exercised in full, will reduce the
number of shares held by our existing stockholders to 26,119,772 shares, or
80.2% of the total number of shares outstanding after this offering, and will
increase the number of shares held by new investors to 6,440,000 shares or 19.8%
of the total number of shares of common stock outstanding after this offering.

18
<PAGE>
WATSON WYATT & COMPANY HOLDINGS
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The balance sheet data as of
June 30, 1998 and 1999 and the statement of operations data for the years ended
June 30, 1997, 1998 and 1999 have been derived from the consolidated financial
statements for such years, which have been audited by PricewaterhouseCoopers
LLP, independent accountants. The balance sheet data as of June 30, 1995, 1996
and 1997 and the statement of operations data for the years ended June 30, 1995
and 1996 are derived from the audited consolidated financial statements for such
years that have been restated to reflect our discontinued operations.

The consolidated financial data as of and for the six months ended
December 31, 1998 and 1999 have been derived from our unaudited consolidated
financial statements, which management believes include all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation.
Results for the six months ended December 31, 1999 are not necessarily
indicative of results that may be achieved for the full year.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED DEC. 31,
----------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA (A):
Continuing operations:
Fees............................................... $465,788 $475,298 $486,502 $ 512,660 $556,860 $274,343 $298,734
Operating expenses:
Salaries and benefits............................ 250,507 250,103 252,302 268,611 298,925 148,868 160,753
SIBP (b)......................................... 22,600 7,600 15,000
Non-recurring compensation charge related to
formula book value change (c).................. -- -- -- 69,906 -- -- --
Occupancy & communications....................... 71,173 60,566 72,155(d) 62,061 62,915 29,954 30,423
Professional and subcontracted services.......... 43,613 42,450 48,827 49,907 47,863 22,052 24,927
Other............................................ 25,135 23,637 23,871 26,779 29,753 11,586 16,300
-------- -------- -------- --------- -------- -------- --------
390,428 376,756 397,155 477,264 462,056 220,060 247,403
General & administrative expenses.................. 41,313 38,656 45,696 51,759 56,578 27,852 27,902
Depreciation & amortization........................ 21,103 25,541 22,094 24,994 15,248 7,824 9,517
-------- -------- -------- --------- -------- -------- --------
452,844 440,953 464,945 554,017 533,882 255,736 284,822
-------- -------- -------- --------- -------- -------- --------
Income (loss) from operations...................... 12,944 34,345 21,557 (41,357) 22,978 18,607 13,912
Other:
Net interest income.............................. 1,343 1,441 1,462 901 944 528 1,252
Net interest (expense)........................... (1,507) (930) (1,506) (2,768) (2,646) (1,721) (1,088)
Income (loss) from affiliates.................... (576) (820) 105 258 2,524 1,025 2,143
-------- -------- -------- --------- -------- -------- --------
Income (loss) before income taxes and minority
interest......................................... 12,204 34,036 21,618 (42,966) 23,800 18,439 16,219
Income taxes....................................... 6,369 14,071 9,070 13,134 11,448 8,917 7,835
Minority interest.................................. (127) (130) (167) (112) (217) (85) 176
Cumulative effect of change in accounting for
postemployment benefits, net of tax benefit of
$1,000........................................... (800) -- -- -- -- -- --
-------- -------- -------- --------- -------- -------- --------
Income (loss) from continuing operations........... 4,908 19,835 12,381 (56,212) 12,135 9,437 8,560
Discontinued operations (e)........................ (4,059) (10,480) (11,483) (69,906) 8,678 8,678 --
-------- -------- -------- --------- -------- -------- --------
Net income (loss).................................. $ 849 $ 9,355 $ 898 $(126,118) $ 20,813 $ 18,115 $ 8,560
======== ======== ======== ========= ======== ======== ========
Earnings (loss) per share, continuing operations,
basic and fully diluted.......................... $ 0.25 $ 1.07 $ 0.71 $ (3.27) $ 0.80 $ 0.63 $ 0.57
Earnings (loss) per share, basic and fully
diluted.......................................... $ 0.05 $ 0.51 $ 0.05 $ (7.34) $ 1.37 $ 1.21 $ 0.57
Weighted average shares outstanding................ 19,248 18,516 17,438 17,170 15,215 14,977 15,140
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
---------------------------------------------------- DECEMBER31,
1995 1996 1997 1998 1999 1999
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 11,860 $ 21,694 $ 26,257 $ 13,405 $ 35,985 $ 13,688
Net working capital..................................... 49,826 18,788 21,307 23,748 11,692 8,882
Total assets............................................ 286,622 320,819 331,778 268,310 313,960 301,024
Notes payable and book overdrafts....................... -- -- 408 11,666 248 8,401
Redeemable common stock................................. 86,275 90,214 96,091 96,296 107,631 99,398
Total stockholders' (deficit) (f)....................... (6,562) (5,832) (12,205) (84,510) (74,351) (65,119)
Shares outstanding...................................... 19,130 18,262 18,130 15,917 16,112 14,880
</TABLE>

- ------------------------------

(a) We believe that our income as an employee-owned company is not indicative of
the operating performance we will report as a publicly traded company due to
the significant impact of the following two non-recurring compensation
related expenses: (1) supplemental discretionary bonuses accrued under the
Stock Incentive Bonus Plan ("SIBP"), described in more detail in footnote
(b) below and (2) a one-time charge in fiscal year 1998 related to a change
in the way we calculated our formula book value, the price at which we sold
and repurchased our restricted common stock in transactions with our
employees prior to the public offering, described in more detail in footnote
(c) below.

(d) Results of operations for fiscal year 1997 were reduced by a $12.1 million
sublease loss due to the relocation of the corporate and certain operating
offices.

20
<PAGE>
(e) As discussed in footnotes (a) and (c) above, in fiscal year 1998 we
discontinued our Benefits Administration Outsourcing Business and recorded a
$69.9 million charge to earnings in the discontinued operations line. The
discontinuation is more fully described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Fiscal years
1995 through 1998 also include the operating losses of the Benefits
Administration Outsourcing Business prior to its discontinuation in 1998,
which are reflected in the discontinued operations line. In fiscal year
1999, the discontinued operations credit reflects the reduction of the
expected loss on disposal of the Benefits Administration Outsourcing
Business.

(f) The increase in Total Stockholders' Deficit from June 30, 1997 to June 30,
1998 includes the discontinued operations charge of $69.9 million mentioned
in note (e) above.

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Watson Wyatt & Company Holdings, including its subsidiaries, is a global
provider of human capital consulting services. We operate on a geographic basis
from 60 offices in 18 countries throughout North America, Asia-Pacific and Latin
America. We provide services in three principal practice areas: employee
benefits, human resources technologies and human capital consulting.

Although we operate globally as an alliance with our affiliates, our
revenues and operating expenses reflect solely the results of operations of
Watson Wyatt & Company Holdings. Our share of the results of our affiliates,
recorded using the equity method of accounting, is reflected in the "Income/loss
from affiliates" line. Our principal affiliates are Watson Wyatt Partners, in
which we hold a 10% interest in a defined distribution pool, and Watson Wyatt
Holdings (Europe) Limited, a holding company through which we conduct
continental European operations. We own 25% of Watson Wyatt Holdings (Europe)
Limited and Watson Wyatt Partners owns the remaining 75%.

We derive substantially all of our revenue from fees for consulting
services, which generally are billed at standard hourly rates or on a fixed-fee
basis; management believes the approximate percentages are 60% and 40%,
respectively. Clients are typically invoiced on a monthly basis with revenue
recognized as services are provided. For the most recent three fiscal years,
fees from U.S. consulting operations have comprised approximately 80% of
consolidated revenues. No single client accounted for more than 3% of our
consolidated revenues for any of the most recent three fiscal years.

Our most significant expenses are salaries and benefits costs, including
incentive bonuses, which typically comprise over 60% of total costs of providing
services. In addition to payroll and related benefits and taxes, salaries and
benefits also include incentive bonus expense, which is linked to our operating
performance. Other significant costs of providing services include office rent
and related costs, communications and professional and subcontracted services.

Historically, we have paid incentive bonuses to associates under a fiscal
year-end bonus program. Beginning in fiscal year 1999, in addition to annual
fiscal year-end bonuses, we provided supplemental bonus compensation to our
employee shareholders pursuant to the Stock Incentive Bonus Plan ("SIBP") in an
amount representing all income in excess of a targeted amount. Following this
offering, we will terminate the SIBP and replace it with equity-based incentives
more customary to publicly traded companies. Our results of operations for
fiscal year 1999 and the six month period ended December 31, 1999 include
expenses for supplemental bonuses accrued under the SIBP of $22.6 million and
$15.0 million, respectively.

In addition, as an employee-owned company without a public trading market,
we sold and repurchased shares of common stock in transactions with our employee
shareholders at a formula book value calculated in accordance with our bylaws.
In fiscal year 1998, we recorded a one-time non-cash compensation charge against
continuing operations of $69.9 million to reflect a change in the method of
calculating the formula book value. This change eliminated from the calculation
of formula book value the $69.9 million charge taken for discontinued operations
in fiscal year 1998 to reflect the discontinuation of our Benefits
Administration Outsourcing Business. The discontinuation is more fully described
under the section "Fiscal Year Ended June 30, 1998 Compared to Fiscal Year ended
June 30, 1997--Discontinued Operations."

Due to the SIBP and non-cash compensation charge related to the change in
formula book value described above, we believe that our income as an
employee-owned company is not indicative of the operating performance we will
report as a publicly traded company. We believe that our results of operations
in fiscal years 1998 and 1999 and the six month periods ended December 31, 1998
and 1999

22
<PAGE>

are more comparable to, and a better indication of, our performance as a
publicly traded company if they are analyzed excluding the SIBP and the
non-recurring compensation charge described above, since the events giving rise
to these charges are eliminated by the change in corporate structure and
management's intent following this offering. The continuing operations loss
before taxes and minority interest of $43.0 million for fiscal year 1998 would
have improved by $69.9 million, and the continuing operations income before
taxes and minority interest of $23.8 million for fiscal year 1999 would have
improved by $22.6 million without these items. Income before taxes and minority
interest from continuing operations for the three years ended June 30, 1997,
1998 and 1999 would have been $21.6 million, $26.9 million and $46.4 million,
respectively. Income before taxes and minority interest from continuing
operations for the six month periods ended December 31, 1998 and 1999 would have
been $26.0 million and $31.2 million, respectively, if bonuses were accrued
under the compensation structure management will adopt as a publicly traded
enterprise.

In connection with this offering, we have decided to reimburse the selling
stockholders for the underwriting commission on the shares sold by them in this
offering. In the fiscal quarter in which the offering is completed, our
operating results will be negatively affected by the resulting compensation
charge. We estimate that the reduction in income from operations will be
approximately $2.5 million and the reduction in net income would be
approximately $1.7 million due to this non-recurring compensation charge.

RESULTS OF OPERATIONS

SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO SIX MONTHS ENDED
DECEMBER 31, 1998.

REVENUES. Fees for the six months ended December 31, 1999 were
$298.7 million, compared to $274.3 million for the six months ended
December 31, 1998, an increase of $24.4 million, or 9%. The revenue growth is
due to an $11.2 million, or 11%, rise in fees generated by our U.S. East region,
a $9.0 million, or 12%, rise in fees generated by our U.S. Central region and a
$3.8 million, or 16%, rise in fees in our Asia-Pacific region. The fee increase
can generally be attributed to the realization of billing rate increases and
increased chargeable hours.

SALARIES AND EMPLOYEE BENEFITS. Salaries and employee benefit expenses for
the six months ended December 31, 1999 were $160.8 million, compared to
$148.9 million for the six months ended December 31, 1998, an increase of
$11.9 million, or 8%. The increase is due to an increase in compensation to
associates, partly the result of annual salary increases and a 3% increase in
headcount.

STOCK INCENTIVE BONUS PLAN. The accrued bonus under the Stock Incentive
Bonus Plan ("SIBP") for the six months ended December 31, 1999 was
$15.0 million, compared to $7.6 million for the six months ended December 31,
1998, an increase of $7.4 million, or 97%. Under the equity based compensation
structure we plan to implement as a publicly traded enterprise, the results of
operations for the six-month periods ended December 31, 1999 and 1998 would not
have included the accrual for bonuses under the SIBP.

OCCUPANCY AND COMMUNICATIONS. Occupancy and communication expenses for the
six months ended December 31, 1999 were $30.4 million, compared to
$30.0 million for the six months ended December 31, 1998, an increase of
$0.4 million, or 1%. The increase can be attributed to higher telephone expenses
and office supplies.

PROFESSIONAL AND SUBCONTRACTED SERVICES. Professional and subcontracted
services for the six months ended December 31, 1999 were $24.9 million, compared
to $22.0 million for the six months ended December 31, 1998, an increase of
$2.9 million, or 13%. The increase is due to a $1.2 million actuarial and
strategic consulting expense from a sub-contractor and $0.9 million in
non-compete payments. The remaining $0.8 million increase is due to an increase
in recruiting fees and other outside services.

23
<PAGE>

OTHER. Other costs of providing services for the six months ended
December 31, 1999 were $16.3 million, compared to $11.6 million for the six
months ended December 31, 1998, an increase of $4.7 million, or 41%. The
difference is attributable to a $3.7 million gain from the sale of our defined
contribution daily record-keeping software included in the six months ended
December 31, 1998. The remainder of the difference can be attributed to a
$0.5 million increase in travel expenses and a $0.3 million increase in
expenditures for the professional development for U.S. and international
consultants.

GENERAL AND ADMINISTRATIVE. General and administrative ("G&A") expenses for
the six months ended December 31, 1999 were $27.9 million, unchanged from the
six months ended December 31, 1998.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the six months ended December 31, 1999 was $9.5 million, compared to
$7.8 million for the six months ended December 31, 1998, an increase of
$1.7 million, or 22%. This increase is due to a higher depreciable capital base
and higher intangibles related to the acquisition of selected units of KPMG's
consulting business late in the first fiscal quarter of fiscal year 1999.

INTEREST INCOME. Interest income for the six months ended December 31, 1999
was $1.3 million, compared to $0.5 million for the six months ended
December 31, 1998, an increase of $0.8 million, or 160%. This increase can be
attributed to the receipt of interest of $0.5 million related to a federal tax
refund and to additional interest income of $0.3 million earned during the year
on a higher average investment balance.

INTEREST EXPENSE. Interest expense for the six months ended December 31,
1999 was $1.1 million, compared to $1.7 million for the six months ended
December 31, 1998, a decrease of $0.6 million, or 37%. The decrease can be
attributed to our borrowing less money against our revolving line of credit in
the first six months of fiscal year 2000 than in the first six months of fiscal
year 1999.

INCOME FROM AFFILIATES. Income from affiliates for the six months ended
December 31, 1999 was $2.1 million, compared to $1.0 million for the six months
ended December 31, 1998, an increase of $1.1 million, or 109%. The increase
reflects improvement in business operations by our affiliates in both
Continental Europe and the United Kingdom.

PROVISION FOR INCOME TAXES. Income taxes for the six months ended
December 31, 1999 were $7.8 million, compared to $8.9 million for the six months
ended December 31, 1998 due to lower income before income taxes and minority
interest. The effective tax rate of 48% for the six months ended December 31,
1999 remained unchanged from the comparable prior year period. Our tax rate is
affected by differing foreign tax rates in various jurisdictions. We do not
record a tax benefit on certain foreign net operating loss carryovers and
foreign deferred expenses unless it is more likely than not that a benefit will
be realized.

DISCONTINUED OPERATIONS. During the six months ended December 31, 1998, we
further resolved our future obligations related to the discontinuation of our
Benefits Administration Outsourcing Business and reduced the expected loss on
disposal by $8.7 million, net of taxes. Management believes we have adequate
provisions for any remaining costs related to the discontinuation.

NET INCOME. Net income for the six months ended December 31, 1999 was
$8.6 million, compared to $18.1 million for the six months ended December 31,
1998, a decrease of $9.5 million, or 53%. The decrease is principally due to the
$8.7 million after-tax adjustment to reduce the loss on disposal of the
discontinued Benefits Administration Outsourcing Business recorded in fiscal
year 1999. Income from continuing operations for the six months ended
December 31, 1999 and 1998 also reflects the SIBP accruals discussed above.

24
<PAGE>
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998

REVENUES. Fee revenue from continuing operations reached $556.9 million in
fiscal year 1999, an increase of $44.2 million from $512.7 million in fiscal
year 1998. This represents a 9% growth in revenue. This increase is attributable
to a $34.6 million, or 21%, rise in fees generated by our U.S. East consulting
region, a $15.0 million, or 10%, increase in our U.S. Central region, and a
$5.9 million, or 13%, rise in our Asia-Pacific region, partially offset by a
$9.7 million, or 11%, decline in our U.S. West region. In North America, our
Benefits Group and HR Technologies Group experienced strong revenue growth of
$42.4 million and $18.9 million, respectively, and our Human Capital Group
revenues declined $25.3 million amid a reorganization of the practice. Revenues
for fiscal year 1999 reflect the sale late in fiscal year 1998 of our North
American risk and insurance consulting practice, and our exit from the defined
contribution record-keeping business in early fiscal year 1999, which generated
revenues in fiscal year 1998 of $9.2 million and $6.0 million, respectively.
Fiscal year 1999 revenues also reflect $11.5 million in added revenues from the
first fiscal quarter acquisition of selected units of KPMG's benefits consulting
business.

COMPENSATION AND BENEFITS. For fiscal year 1999, salaries and employee
benefits expenses were $298.9 million, an increase of $30.3 million, or 11%,
from fiscal year 1998. This increase is due primarily to a 6% increase in
headcount, and annual increases in compensation and benefits. In fiscal year
1999, we accrued, for the first time, a supplemental bonus under our SIBP of
$22.6 million, which amounts were paid in January 2000.

OCCUPANCY AND COMMUNICATIONS. Occupancy and communications expense
increased $0.9 million or 1% in fiscal year 1999. This low percentage increase
reflects our adoption of an office space standard as well as our success in
negotiating advantageous leases of office space.

PROFESSIONAL AND SUBCONTRACTED SERVICES. Professional and subcontracted
services were $47.9 million for fiscal year 1999, a decrease of $2.0 million, or
4%, from fiscal year 1998 due to reduced corporate expenses.

OTHER. Other costs of providing services increased $3.0 million in fiscal
year 1999, which is mainly attributable to increased travel.

GENERAL AND ADMINISTRATIVE. General and administrative expenses for fiscal
year 1999 were $56.6 million, an increase of $4.8 million, or 9%, from fiscal
year 1998. The increase was attributable to $4.8 million for providing
technology support to core consulting areas and $1.6 million for Year 2000
readiness. These increases were offset by a $1.6 million decrease in marketing
expenses for business strategy initiatives from fiscal year 1998.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
$9.7 million in fiscal year 1999 to $15.2 million. This decrease is due to
higher amortization of internally developed software in fiscal year 1998 of
$11.6 million, primarily due to a reevaluation and subsequent reduction of the
useful lives of the related products. Without this item in fiscal year 1998,
depreciation and amortization expense increased $1.9 million in fiscal year 1999
related to purchases of capital assets.

INCOME FROM AFFILIATES. Income from affiliates was $2.5 million in fiscal
year 1999 compared to $0.3 million in fiscal year 1998. The increase reflects
heightened synergies and focus within our affiliated European operations as well
as improved business operations in the United Kingdom.

PROVISION (BENEFIT) FOR INCOME TAXES. Income before income taxes, minority
interest and discontinued operations was $23.8 million in fiscal year 1999,
which, considering taxes of $11.4 million, reflects an effective tax rate of
48%. Income tax expense of $13.1 million in fiscal year 1998 relates to a loss
before taxes, minority interest and discontinued operations of $43.0 million,
for an effective tax rate of (30.6%). The reason for reporting a tax expense
when we had a pretax loss and the disparity in

25
<PAGE>

effective tax rates is the non-recurring compensation charge of $69.9 million in
fiscal year 1998, included in the loss before taxes of $43.0 million, which is
permanently non-deductible for tax purposes.

DISCONTINUED OPERATIONS. In fiscal year 1999, we further resolved our
future obligations related to the discontinuation of our Benefits Administration
Outsourcing Business and reduced the expected loss on disposal by $8.7 million,
net of taxes. We believe we have adequate provisions for any remaining costs
related to the discontinuation.

NET INCOME (LOSS). We generated net income in fiscal year 1999 of
$20.8 million compared to a net loss in fiscal year 1998 of $126.1 million.
Continuing operations income before income taxes and minority interest in fiscal
year 1999 of $23.8 million compares to the loss of $43.0 million in fiscal year
1998, which includes the $69.9 million non-recurring compensation charge related
to the change in formula book value for stock repurchases. The fiscal year 1999
results reflect significantly improved operating performance and the accrual of
bonuses under the SIBP, at the discretion of our board of directors.

FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997

REVENUES. Fee revenue from continuing operations reached $512.7 million in
fiscal year 1998, an increase of $26.2 million, or 5%, from $486.5 million in
fiscal year 1997. This increase is attributable to a $12.0 million, or 15%, rise
in fees generated by our U.S. West consulting region, a $12.0 million, or 8%,
increase in our U.S. East region, and a $5.9 million, or 4%, rise in fees in our
U.S. Central region, and is due to the realization of billing rate increases. In
North America, the Benefits Group, Human Capital Group and HR Technologies Group
experienced strong revenue growth of $11.2 million, $12.0 million and
$8.5 million, respectively. These increases were partially offset by a decline
of $5.4 million, or 11%, in our Asia-Pacific region, largely reflecting regional
economic issues.

COMPENSATION AND BENEFITS. For fiscal year 1998, salaries and employee
benefits expenses were $268.6 million, an increase of $16.3 million, or 6% from
fiscal year 1997. This is due primarily to a 2% increase in headcount and annual
salary increases.

Also, in fiscal year 1998, we recorded a non-cash, non-recurring
compensation charge of $69.9 million because we changed the method of
calculating the Formula Book Value of our common stock to exclude the effect of
the discontinuance of our Benefits Administration Outsourcing Business. There
was no such charge in fiscal year 1997.

OCCUPANCY AND COMMUNICATIONS. Occupancy and communications expenses
decreased $10.1 million in fiscal year 1998. We relocated our corporate office
to a lower-cost suburban location in 1997, recognizing sublease losses of
$12.1 million. Excluding these lease losses, occupancy and communications
increased $2.0 million or 3%, with the largest growth occurring in
telecommunications expenses.

PROFESSIONAL AND SUBCONTRACTED SERVICES. Professional and subcontracted
services were $49.9 million for fiscal year 1998, an increase of $1.1 million,
or 2%, from fiscal year 1997.

OTHER. Other costs of providing services increased $2.9 million in fiscal
year 1998 due to increased travel and local office promotion expenses.

GENERAL AND ADMINISTRATIVE. General and administrative expenses for fiscal
year 1998 were $51.8 million, an increase of $6.1 million, or 13%, from fiscal
year 1997. The increase is due to increased spending on corporate advertising
and promotional expenses of $4.0 million and business strategy initiatives of
$2.0 million.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$2.9 million in fiscal year 1998 to $25.0 million. This increase is primarily
due to our decision to accelerate the amortization of

26
<PAGE>

internally developed software in fiscal year 1998 by $6.8 million based upon a
reevaluation and subsequent reduction of the useful lives of the related
products. Without this acceleration, depreciation and amortization expense
declined 18% due to a decrease in the base of capital assets of $16.4 million in
fiscal year 1998 from fiscal year 1997.

PROVISION (BENEFIT) FOR INCOME TAXES. Loss before income taxes, minority
interest and discontinued operations was $43.0 million in fiscal year 1998; the
provision for taxes was $13.1 million. The resulting effective tax rate of
(30.6%) compares with an effective tax rate of 42% for fiscal year 1997. The
major reason for the difference in effective tax rates is the fiscal year 1998
non-recurring compensation charge of $69.9 million included in the loss before
taxes of $43.0 million, which is permanently non-deductible for tax purposes.
Further, the effective tax rate increased in fiscal year 1998 by
seven percentage points due to changes in various tax jurisdictions with
differing rates, particularly foreign jurisdictions, and lower tax credits.

DISCONTINUED OPERATIONS. In the early 1990's we entered the employee
benefits administration outsourcing business and we took on certain long-term
contracts in this area. In 1996, recognizing the significant capital
requirements needed for expansion in this area, we formed a joint venture
("Wellspring") with State Street Bank and Trust Company. In 1996 and 1997,
Wellspring continued to require significant cash outlays and suffered
development and implementation delays. The combination of Wellspring's financial
performance, which failed to meet our expectations, as well as a strategy
evaluation that concluded that benefits administration outsourcing did not
leverage our consulting strengths, led the board of directors to approve a plan
of discontinuation of the Benefits Administration Outsourcing Business in fiscal
year 1998, the financial effect of which is further described below.

NET INCOME (LOSS). Although we incurred a net loss in fiscal year 1998 of
$126.1 million compared to net income in fiscal year 1997 of $0.9 million, these
results include aggregate charges totaling $139.8 million on an after-tax basis
for the special compensation charge and the discontinued operations charge.
Fiscal year 1997 results include $11.5 million in after-tax charges for the
results of operations of the Benefits Administration Outsourcing Business, prior
to its discontinuation in fiscal year 1998.

The charges totaling $139.8 million in fiscal year 1998 were both associated
with our discontinued operations in fiscal year 1998. The discontinuation of our
Benefits Administration Outsourcing Business resulted in a $69.9 million loss
net of taxes due to the withdrawal from this line of business and is reported as
a discontinued operation. Included in this amount is the $6.8 million loss from
operations prior to discontinuance and $63.1 million for the loss upon exit. The
loss upon exit includes the write-off of our investment in Wellspring Resources,
net capitalized software development costs for the Retained Clients (as defined
in Note 16 of Notes to the Consolidated Financial Statements) and a provision
for the completion of any obligations to clients, vendors or our former joint
venture partner.

In connection with the discontinuation, we changed our bylaws to modify the
formula book value repurchase price of our stock to exclude the effect of the
discontinued operations from the formula book value calculation. The applicable
accounting rules required us to take a $69.9 million non-cash, non-recurring
compensation charge for this. This charge was reported as a special compensation
expense as a component of continuing operations. The charge was measured by the
difference between what the formula book value per share was at June 30, 1998
and what it would have been at that date without the modification. The non-cash
charge had no effect on our liquidity or capital resources but significantly
reduced our income from continuing operations.

27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.

Cash and cash equivalents at December 31, 1999 totaled $13.7 million,
compared to $36.0 million at June 30, 1999 and $13.4 million at June 30, 1998.
The decrease in cash from June 30, 1999 to December 31, 1999 is mainly
attributable to the timing of the payment of corporate taxes in the amount of
$17.4 million and the purchases of $3.6 million in capital assets during the
first six months of fiscal year 2000. The increase in cash from June 30, 1998 to
June 30, 1999 was the result of our stock sale during fiscal year 1999 (we held
no such sale in fiscal year 1998) and from reduced operating and close down
costs associated with the discontinuation of the Benefits Administration
Outsourcing Business. We had $3.0 million in borrowings outstanding under our
line of credit as of December 31, 1999 compared to $0 at June 30, 1999 and
$9.0 million at June 30, 1998.

CASH USED FOR / PROVIDED BY OPERATING ACTIVITIES. Cash used for operating
activities for the six months ended December 31, 1999 was $16.7 million,
compared to $6.0 million for the six months ended December 31, 1998. The
increase in cash outflows is due to the timing of corporate tax payments and
accounts payable, and benefits payments to retirees in fiscal year 2000, net of
a lower increase in receivables and lower outflows in connection with the
discontinued Benefits Administration Outsourcing Business. Further, the
allowance for doubtful accounts increased $2.7 million from June 30, 1999 to
December 31, 1999. This increase is typical of our historical patterns, where
the receivables and allowance are substantially reduced at year end from an
increased emphasis on collections. Both the receivable balances and the related
allowance increase in the first six months of the following year. The number of
months of accounts receivable outstanding was 1.7 at both December 31, 1999 and
December 31, 1998.

Net cash provided by operating activities was $54.5 million for fiscal year
1999, an increase of $33.3 million over cash provided in fiscal year 1998. The
increase was due primarily to the $43.2 million increase in accounts payable and
accrued liabilities from fiscal year 1999 operating expenses that will be paid
in fiscal year 2000. This increase was augmented by the $13.0 million decrease
in the cash needed in the closedown of discontinued operations. The increase in
receivables from clients of $14.4 million decreased cash that would have been
provided by operations. The deferred income tax asset increased $7.3 million in
fiscal year 1999 in conjunction with the increase in accounts payable and
accrued liabilities, compared with a $2.0 million increase in fiscal year 1998.

CASH USED IN INVESTING ACTIVITIES. Cash used in investing activities for
the six months ended December 31, 1999 was $5.8 million, compared to
$10.2 million for the six months ended December 31, 1998. The decrease in cash
usage was due to lower contingency payments associated with 1999 acquisitions
and lower current year purchases of fixed assets, partially offset by lower
distributions from affiliates. For fiscal year 1999, uses of cash for investing
activities decreased $8.7 million from fiscal year 1998, principally due to
reduced cash needs of the discontinued operations.

CASH FROM FINANCING ACTIVITIES. Cash flows used by financing activities
were $0.5 million for the six months ended December 31, 1999, compared to cash
provided by financing activities of $14.3 million for the six months ended
December 31, 1998. We borrowed less money against our revolving line of credit
in the first six months of fiscal year 2000 than in the first six months of
fiscal year 1999, and repurchased less Redeemable Common Stock. For full fiscal
year 1999, we paid down our outstanding debt and net stock activity had
virtually no impact on cash used by financing activities in fiscal year 1999.

We have a $120.0 million senior secured revolving credit facility that
matures on June 30, 2003. Of the $95.0 million of the credit line that is
allocated for operating needs, $89.8 million was available as of December 31,
1999, compared to $92.8 million on June 30, 1999. Further, we had borrowings
outstanding of $3.0 million as of December 31, 1999. The remaining $2.2 million
is unavailable as a result of support required for letters of credit issued
under the credit line.

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<PAGE>

We rely primarily on funds from operations and short-term borrowings for
liquidity. We believe that we have access to ample financial resources to
finance anticipated growth, meet commitments to affiliates, as well as support
ongoing operations. Anticipated commitments of funds are estimated at
$23.3 million for the remainder of fiscal year 2000, mainly for computer
hardware purchases and for office relocations and renovations. We expect
operating cash flows to provide for these cash needs. In future fiscal years, we
would expect that our capital needs would be similar in nature to what we have
incurred in the past. Capital expenditures will be required in conjunction with
office lease renewals and relocations required to support our growth strategy.
Additionally, our consultants will need to have access to hardware and software
that will support servicing our client base. In a rapidly changing technological
environment, we anticipate we will need to make investments in our knowledge
sharing and financial systems infrastructure. We would expect cash from
operations in conjunction with the anticipated net proceeds from this offering
and our existing credit facility to adequately provide for these cash needs.

Our foreign operations do not materially impact liquidity or capital
resources. At June 30, 1999, $14.4 million of the total cash balance of
$36.0 million was held outside of North America, which we have the ability to
readily access, if necessary. There are no significant repatriation restrictions
other than local or U.S. taxes associated with repatriation. The foreign
operations in total are substantially self-sufficient for their working capital
needs.

MARKET RISK

We are exposed to market risks in the ordinary course of business. These
risks include interest rate risk and foreign currency exchange risk. We have
examined our exposure to these risks and concluded that none of our exposures in
these areas are material to fair values, cash flows or earnings.

Our indebtness under our credit facility creates interest rate risk. Due to
the short-term nature of the borrowings under the credit facility, we do not
need to enter into interest rate swap agreements for purposes of managing our
borrowing costs.

Due to the nature of our foreign operations--billing and collecting for
services within each country in the country's local currency, we historically
have had moderate foreign currency transaction risk. We have not implemented a
formal hedging policy or program. Any foreign currency risk would be primarily
associated with our investments in our non-U.S. subsidiaries. This risk is
mitigated by our historical business practice of leaving the investments in
place rather than repatriating them.

29
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited quarterly financial data for the
periods indicated. We obtained this information from unaudited quarterly
consolidated financial statements which, in our opinion, include all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
financial results for the periods. Results of operations for any previous
quarters do not necessarily indicate results that may be achieved in any future
period.

<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1998 1998 1998 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Fees.................... $125,553 $127,717 $124,558 $134,832 $133,985 $140,358
Cost of providing
services:
Salaries and
benefits............ 64,207 65,460 70,293 68,651 76,398 72,470
SIBP.................. -- -- -- -- 2,100 5,500
Non-recurring
compensation charge
related to formula
book value change... -- -- -- 69,906 -- --
Occupancy and
communications...... 15,219 15,588 15,422 15,832 14,521 15,433
Professional and
subcontracted
services............ 11,177 14,896 11,626 12,208 8,714 13,338
Other................. 7,000 7,624 6,666 5,489 2,846 8,740
-------- -------- -------- -------- -------- --------
97,603 103,568 104,007 172,086 104,579 115,481
General & administrative
expenses.............. 10,378 13,330 12,849 15,202 11,160 16,692
Depreciation &
amortization.......... 4,687 4,534 5,576 10,197 3,853 3,971
-------- -------- -------- -------- -------- --------
112,668 121,432 122,432 197,485 119,592 136,144
-------- -------- -------- -------- -------- --------
Income (loss) from
operations............ 12,885 6,285 2,126 (62,653) 14,393 4,214
Other:
Interest income....... 249 237 119 296 124 404
Interest expense...... (409) (1,017) (1,168) (174) (553) (1,168)
Income (loss) from
affiliates............ (99) 95 (215) 477 160 865
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
minority interest..... 12,626 5,600 862 (62,054) 14,124 4,315
Income taxes............ 5,811 2,672 470 4,181 6,830 2,087
-------- -------- -------- -------- -------- --------
Income (loss) before
minority interest..... 6,815 2,928 392 (66,235) 7,294 2,228
Minority interest....... (44) (97) 86 (57) -- (85)
-------- -------- -------- -------- -------- --------
Income (loss) from
continuing
operations............ 6,771 2,831 478 (66,292) 7,294 2,143
Discontinued operations,
net................... (1,630) (3,808) (73,316) 8,848 -- 8,678
-------- -------- -------- -------- -------- --------
Net income (loss)....... $ 5,141 $ (977) $(72,838) $(57,444) $ 7,294 $ 10,821
======== ======== ======== ======== ======== ========
Earnings (loss) per
share, continuing
operations, basic and
fully diluted......... $ 0.38 $ 0.16 $ 0.03 $ (4.10) $ 0.47 $ 0.15
Earnings (loss) per
share, basic and fully
diluted............... $ 0.29 $ (0.06) $ (4.30) $ (3.55) $ 0.47 $ 0.74

<CAPTION>
QUARTERS ENDED
------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Fees.................... $135,573 $146,944 $146,323 $152,411
Cost of providing
services:
Salaries and
benefits............ 70,977 79,080 79,803 80,950
SIBP.................. 6,900 8,100 6,000 9,000
Non-recurring
compensation charge
related to formula
book value change... -- -- -- --
Occupancy and
communications...... 16,412 16,549 14,742 15,681
Professional and
subcontracted
services............ 11,573 14,238 9,796 15,131
Other................. 9,303 8,864 7,274 9,026
-------- -------- -------- --------
115,165 126,831 117,615 129,788
General & administrative
expenses.............. 14,194 14,532 13,178 14,724
Depreciation &
amortization.......... 3,996 3,428 4,907 4,610
-------- -------- -------- --------
133,355 144,791 135,700 149,122
-------- -------- -------- --------
Income (loss) from
operations............ 2,218 2,153 10,623 3,289
Other:
Interest income....... 127 289 1,036 216
Interest expense...... (473) (452) (390) (698)
Income (loss) from
affiliates............ 583 916 988 1,155
-------- -------- -------- --------
Income (loss) before
income taxes and
minority interest..... 2,455 2,906 12,257 3,962
Income taxes............ 1,530 1,001 5,919 1,916
-------- -------- -------- --------
Income (loss) before
minority interest..... 925 1,905 6,338 2,046
Minority interest....... 54 (186) 18 158
-------- -------- -------- --------
Income (loss) from
continuing
operations............ 979 1,719 6,356 2,204
Discontinued operations,
net................... -- -- -- --
-------- -------- -------- --------
Net income (loss)....... $ 979 $ 1,719 $ 6,356 $ 2,204
======== ======== ======== ========
Earnings (loss) per
share, continuing
operations, basic and
fully diluted......... $ 0.07 $ 0.11 $ 0.41 $ 0.15
Earnings (loss) per
share, basic and fully
diluted............... $ 0.07 $ 0.11 $ 0.41 $ 0.15
</TABLE>

30
<PAGE>

YEAR 2000 ISSUE

We have substantially completed a program to address the Year 2000 issue as
it affects our business and we believe that the Year 2000 issue is not likely to
have a material adverse effect on our business, results of operations, or
financial condition. Nevertheless, since all the effects of the Year 2000 issue
are not unpredictable, we do not expect that our Year 2000 compliance program
will eliminate all risk to us associated with the Year 2000 issue.

We believe that the most significant risk facing us in connection with the
Year 2000 issue relates to software provided by us for use by, or on behalf of,
our clients. This software has been provided principally by the HR Technologies
Group, including benefit administration software and call center services, and
the retirement practice, principally spreadsheet-based benefit calculators. The
risks presented include the possibility of errors or contractual liability
caused by non-compliant software that is not identified or corrected and the
costs of replacing or repairing client systems. Testing and remediation have
been completed on approximately 80% of such systems. Virtually all of the
systems not yet repaired are used to support open enrollment in benefits plans
and any required Year 2000 remediation will be performed as a part of
modifications to such systems before they are next used.

Our cost to address Year 2000 compliance issues exceeded $4.0 million for
fiscal year 1999. Our principal expenditures were for repair and testing of
internal and client software, costs associated with managing and administering
our Year 2000 compliance program and costs of outside consultants. We expect
that our costs for Year 2000 compliance will be lower in fiscal year 2000. Funds
for costs associated with our Year 2000 compliance efforts will come from
operating cash flows for all areas of our operations and will be expensed as
incurred.

31
<PAGE>
BUSINESS

INTRODUCTION

Founded in 1946, Watson Wyatt & Company is one of the world's leading human
capital consulting firms in terms of revenues, number of clients and number of
offices. We help our clients enhance business performance by improving their
ability to attract, retain and motivate qualified employees. As leading
economies worldwide become more services oriented, human capital has become
increasingly important to companies and organizations. The heightened
competition for skilled employees, unprecedented changes in workforce
demographics and rising employee-related costs have increased the importance of
effective human capital management. We help our clients address these issues by
combining our expertise in human capital management with web-based technologies
in order to improve the design and implementation of various human resources, or
HR, programs, including compensation, retirement and healthcare plans.

The Internet is dramatically accelerating the transition of human capital
management to a more strategic role within organizations. Through the use of
web-based technologies, we help our clients transform the way they implement and
deliver HR programs and improve communications with their employees. We help our
clients develop electronic networks that provide employees and managers with
greater access to their HR programs, allowing them to obtain HR-related
information and perform HR-related functions 24 hours a day, 7 days a week. We
refer to this web-based delivery of HR information and programs as eHR.-TM-

The rapid expansion of our eHR-TM- services is a natural outgrowth of our
longstanding leadership in employee benefits and human capital consulting. We
design, develop and implement HR strategies and programs through the following
three closely interrelated practice areas:

BENEFITS CONSULTING GROUP

- Retirement plans, including pension and 401(k) plans

- Healthcare, disability and other group benefits plans

- Actuarial services

- Investment consulting services to pension plans

HR TECHNOLOGIES GROUP

- eHR-TM-: our web-based delivery of HR information and programs

- Employee self-service applications

- HR call centers

- Benefit administration systems and retirement planning tools

HUMAN CAPITAL GROUP

- Strategies to align workforces with business objectives

- Strategies for attracting, retaining and motivating employees

- Organizational effectiveness services

- Compensation plans, including executive compensation and stock option
programs

Our clients include many of the world's largest corporations as well as
emerging growth companies, public institutions and non-profit organizations.
During the past two years, we have provided services to over 70% of the Fortune
100. Our clients include Apple Computer, Cisco Systems, General Electric
Company, General Motors, IBM and Lockheed Martin Corporation. Many of our client
relationships have existed over several decades.

We believe that our extensive history, global presence, dedication to
long-term client relationships and recognized reputation for quality and
innovation provide us with significant competitive advantages. We focus on
delivering value-added consulting services that help our clients anticipate,
identify and capitalize on emerging opportunities in human capital management.
We implement this strategy through over 3,800 associates in 60 offices located
in 18 countries. We generated approximately

32
<PAGE>

$580 million in revenues during the twelve months ended December 31, 1999, with
net income of $11.3 million during this same period.

WATSON WYATT WORLDWIDE ALLIANCE

Recognizing our clients' need for a global organization to service their
needs, we established operations throughout Europe in the late 1970s by
acquiring local firms and opening new offices. Responding to the rapidly
increasing globalization of the world economy, we made a strategic decision in
1995 to significantly strengthen our European capabilities and extend our global
reach by entering into an alliance with R. Watson & Sons (now Watson Wyatt
Partners), a leading United Kingdom-based actuarial, benefits and human
resources consulting partnership that was founded in 1878. Since 1995, we have
marketed our services globally under the Watson Wyatt Worldwide brand, sharing
resources, technologies, processes and business referrals.

The Watson Wyatt Worldwide global alliance maintains 86 offices in 31
countries and employs over 5,500 employees. Watson Wyatt & Company operates 60
offices in 18 countries in North America, Latin America and Asia-Pacific. Watson
Wyatt Partners operates 12 offices in the United Kingdom, Ireland, Africa and
the Caribbean. The alliance operates 14 offices in 9 continental European
countries principally through a jointly owned holding company, Watson Wyatt
(Holdings) Europe Limited, which is 25% owned by us and 75% owned by Watson
Wyatt Partners.

To establish the Watson Wyatt Worldwide global alliance, we transferred our
United Kingdom operations to Watson Wyatt Partners in return for a 10% interest
in a defined distribution pool of the partnership. In addition, Watson Wyatt
Partners purchased 300,000 shares or approximately 2% of our common stock. The
alliance agreement contains certain buy/sell provisions that provide a mechanism
to maintain Watson Wyatt Partners' ownership of us at a level of between 300,000
shares and 500,000 shares. We also consolidated our individual European
operations into Watson Wyatt (Holdings) Europe Limited. Under the alliance
agreement, we generally will not operate in the United Kingdom, Ireland, Africa
or the Caribbean and Watson Wyatt Partners generally will not operate in North
America, Latin America or Asia-Pacific.

HUMAN RESOURCES CONSULTING INDUSTRY

OVERVIEW

The growing demand for employee benefits and human capital consulting
services is directly related to the size, complexity and rapid changes
associated with human resources programs. In the U.S. alone, companies spend
over $5 trillion annually on the direct costs of human capital such as
compensation and benefits, according to the U.S. Department of Commerce, Bureau
of Economic Analysis. In 1998, U.S. employers contributed over $120 billion to
pension and profit sharing plans, and the assets of U.S. retirement plans
exceeded $8 trillion.

Employers, regardless of geography or industry, are facing unprecedented
challenges involving the management of their people. Changing technology,
critical skill shortages, and an aging population in many developed countries
have increased competition for talented employees. At the same time, employees'
expectations relating to compensation, benefits and other HR services are
growing. Employers must address these challenges effectively in order to remain
competitive.

The industry in which we compete directly is comprised of four predominant
HR consulting firms, based on revenues, such as Watson Wyatt Worldwide, William
M. Mercer, Towers Perrin and Hewitt Associates. In addition to these firms, the
industry includes smaller benefits and compensation firms and the HR consulting
divisions of diversified professional service firms, such as the big five
accounting firms, Andersen Consulting, EDS, and Booz-Allen & Hamilton. The
global HR consulting industry is highly fragmented. There are approximately 950
firms providing HR-related consulting services, with the four major HR
consulting firms accounting for approximately 40% of total industry revenue.

33
<PAGE>
INDUSTRY TRENDS

Because of our long history and reputation, as well as our experienced
consulting professionals and the services we provide in the field of human
capital consulting, we believe that we are in a position to capitalize on a
number of favorable trends that will contribute to the growth of the HR
consulting industry, including:

GROWING STRATEGIC IMPORTANCE OF HUMAN CAPITAL

In today's knowledge-based economy, businesses are increasingly recognizing
that the effective management of human capital contributes to increased
shareholder value. As a result, companies are increasingly looking to HR
consulting firms to help them align their human capital programs with their
business strategies.

TECHNOLOGY REVOLUTION IN HR PROGRAMS

The Internet, corporate intranets and other e-business tools enable
companies to deliver HR information and services to employees more efficiently
and effectively than ever before. Many companies are moving to what we call an
eHR-TM- model that uses technology to make HR processes more flexible and
employee-friendly, such as online benefits enrollment. Companies increasingly
are looking to firms with expertise in human capital and information technology
to transform their HR processes.

CHANGING WORKFORCE DEMOGRAPHICS

As human capital becomes more important to business success, companies in
many developed countries today are faced with a critical shortage of talented
employees and an unprecedented aging of the workforce. These trends, along with
the changing mobility and needs of workers, are prompting companies to engage
experienced human capital consulting firms to redesign employee compensation and
benefits plans and to fundamentally rethink their workforce strategies so that
they can effectively attract and retain employees.

GROWING IMPORTANCE OF EMPLOYER-SPONSORED BENEFITS PROGRAMS

Assets in retirement plans are growing rapidly, and the need for effective
management of these plans--in terms of structuring benefits, managing
liabilities and maximizing the plans' value in attracting and retaining
employees--has never been greater. The combined effect of limited retirement
savings of baby boom employees, concerns regarding the continuing viability of
government-sponsored retirement and healthcare programs, and rising healthcare
costs increases the importance of benefits programs to both employers and
employees.

RECORD LEVEL OF MERGERS AND ACQUISITIONS

Mergers and acquisitions throughout the world are occurring at unprecedented
rates, prompting the need to combine corporate cultures and human resources
programs quickly and effectively. Mergers and acquisitions are becoming
increasingly complex and cross-border. It is frequently noted that when business
combinations fail, it is often due to inadequate integration of human resources.
As a result, companies are expected to increasingly use human capital
consultants to assist them with pre-merger planning and post-merger integration.

34
<PAGE>
CONTINUING GLOBALIZATION OF ECONOMIES

As business becomes more global, corporations are seeking human capital
consultants with global resources and local expertise on benefits and human
resources issues. These companies are looking to HR consulting firms to help
them develop and implement global benefits and HR policies and establish
consistency in worldwide reporting and quality control.

COMPLEX AND CHANGING REGULATORY ENVIRONMENT

Employee benefits programs in most industrialized countries are subject to
complex government regulations. These regulations change as governments address
social and economic policy issues and as private employers implement changes in
plan designs. Employers throughout the world are increasingly seeking human
capital consultants to assist them with plan design, compliance and regulatory
advice.

COMPETITIVE STRENGTHS

Unlike several of our direct competitors that also have large benefits
administration operations or unrelated consulting practice lines, we focus
exclusively on providing human capital consulting services. We believe that our
competitive strengths include:

REPUTATION FOR QUALITY

We are recognized as one of the world's highest quality consulting firms.
For example, in a recent management consulting survey conducted by THE WALL
STREET JOURNAL of its subscribers and published in January 1999, we placed first
in the consulting industry in terms of delivering value to clients and first
among our human resources consulting peers for overall quality of reputation.

LONG-STANDING RELATIONSHIPS WITH BLUE-CHIP CLIENTS

We have built long-term relationships with many of the world's largest and
best-known corporations. In many cases these relationships have existed
continuously for several decades. During the past two years, we have provided
consulting services to over 70% of the Fortune 100, and we provide the actuarial
consulting services for the three largest corporate defined benefits pension
plans in the United States.

INNOVATIVE TECHNOLOGY-BASED APPROACHES

Using our eHR-TM- approach, we design systems for clients that enable them
to offer cost-effective delivery of HR services to employees, such as web-based
self-service and call centers. Over the past decade, we have invested
extensively in proprietary technology to help solve our clients' human resources
needs.

GLOBAL REACH AND SCALE

We believe that our global presence through the Watson Wyatt Worldwide
alliance is among the most extensive in the human capital consulting business,
spanning 86 offices in 31 countries. We have a strong presence in major markets
across the United States, and the Watson Wyatt Worldwide alliance provides us
with significant depth in Europe. We have operated in Asia since 1979 and
currently have 15 offices in Asia-Pacific. We were named HR Consultancy of the
Year in Hong Kong for 1998 and 1999 by China Staff magazine. We were the first
international human capital consulting firm to open a wholly-owned operation in
China, and we are building scale in other markets in order to meet the growing
demands of our local and multinational clients.

35
<PAGE>
INDUSTRY-LEADING RESEARCH

Our research is a core part of our brand identity, account penetration
strategy and consulting process. Our research on changing demographics in major
economies is helping companies prepare for the impact of these changes on costs,
productivity and the ability to attract and retain talented workers. We operate
research and information centers in Bethesda and Toronto that are staffed with
more than 80 economists, analysts and attorneys who conduct research and inform
clients on legislative and regulatory developments. We also produce proprietary
studies and groundbreaking white papers on topics such as executive pay,
healthcare quality and costs, integrated disability management, employee
communications and workplace attitudes.

HIGHLY EDUCATED AND ACCREDITED CONSULTING STAFF

Watson Wyatt consultants are trusted advisors and experts in their fields.
Our consultants include over 400 accredited actuaries, as well as professionals
with M.B.A.s, Ph.D.s and law degrees. Our consultants frequently testify before
government and regulatory agencies, are regularly quoted in the business press
and have authored many HR-related books. Recent books by our consultants include
THE REAL DEAL: THE HISTORY AND FUTURE OF SOCIAL SECURITY, HEALTH OF NATIONS: AN
INTERNATIONAL PERSPECTIVE ON U.S. HEALTH CARE REFORM, THE COMPLETE GUIDE TO
MERGERS & ACQUISITIONS, HEALTHCARE.COM: RX FOR REFORM, CEO PAY AND SHAREHOLDER
VALUE, and FUNDAMENTALS OF PRIVATE PENSIONS.

GROWTH STRATEGY

In an environment that is characterized by changing workforce demographics,
rapid advances in technology and growing recognition of the importance of human
capital, our strategy is to expand our competitive position by providing
comprehensive, value-added human capital consulting services that help our
clients solve their human capital challenges. We plan to pursue growth by:

EXPANDING OUR RELATIONSHIPS WITH EXISTING CLIENTS

We believe there is significant opportunity to increase our share of our
clients' consulting expenditures by leveraging our recurring engagements. We
utilize dedicated account managers to identify and refer additional consulting
opportunities, and we believe that our ability to provide integrated services
will enable us to secure additional business from our existing client base.

CREATING INNOVATIVE EHR-TM- SOLUTIONS

Our clients are increasingly demanding integrated, flexible approaches to
provide HR benefits information and access to their employees 24 hours per day,
7 days per week. By combining our human capital and technical expertise, we help
clients implement web-based systems in order to transform the way they deliver
HR services to managers and employees. Our eHR-TM- approach connects multiple
software applications and databases around web technologies. Through
user-friendly interfaces that run on company intranets, employees can access
their HR information directly and perform tasks ranging from enrolling in
benefits plans, to modeling 401(k) investments, to participating in online
career training.

LEVERAGING OUR GLOBAL CAPABILITIES

Multinational corporations increasingly require a total services capability,
regardless of where they operate. By drawing upon our global resources and local
execution capabilities, we are well positioned to serve our clients' growing
needs for integrated human resources services throughout the world.

36
<PAGE>
DEVELOPING NEW CLIENT RELATIONSHIPS

Our recognized brand name and global reputation for innovative and quality
service and leading research enable us to promote our consulting services
effectively to new clients. We also believe that there are significant
opportunities to develop new relationships by proposing innovative, high-value
projects, such as our eHR-TM- systems, to corporations and other major
employers.

PURSUING STRATEGIC ACQUISITIONS

We will continue to explore strategic opportunities to expand our human
capital consulting capabilities and to expand geographically. Our recent
acquisition of selected units of KPMG's benefits consulting business provided us
with additional senior consultants in New York, Boston, Dallas and Cleveland, as
well as additional Fortune 500 clients.

PROMOTING OUR ENTREPRENEURIAL CULTURE

We seek associates who strive to be innovators and to add value to their
clients' businesses through effective human capital programs and technologies.
Our training and compensation programs are aimed toward developing in our
consultants the specialized skills to advance our clients' interests.

CONSULTING SERVICES

We focus our consulting services into three practice groups: Benefits
Consulting, HR Technologies and Human Capital.

BENEFITS CONSULTING GROUP

Our Benefits Consulting Group is our largest and most established practice,
with a franchise dating to 1946. This group consists of over 1,600 consultants
and works with clients to create cost-effective benefits programs that help
attract, retain and motivate a talented workforce. We strive to provide tailored
benefits programs for our clients, and we base our recommendations on extensive
research. Our Benefits Consulting Group, which consists of Retirement
Consulting, Investment Consulting, and Group & Health Care Consulting, accounted
for approximately 66% of our North American consulting revenue in fiscal year
1999.

RETIREMENT CONSULTING

We believe we are one of the world's most respected advisers on retirement
plans, and we provide actuarial and consulting services for large defined
benefit ("DB") and defined contribution ("DC") retirement plans. Our consultants
work with clients to provide realistic assessments of the impact that the change
in workforce demographics will have on their retirement plans, corporate cash
flow requirements, and retiree benefits adequacy and security.

In North America, and increasingly throughout much of the developed world,
retirement security is provided through funded pension plans, most of which are
either DB or DC plans. A typical DB plan is characterized by employer
contributions and a specified future benefit to the employee. These plans
typically involve large asset pools, complex calculations to determine employer
costs and funding requirements and sophisticated analysis to match liabilities
and assets over long periods of time. These plans are commonly referred to as
pension plans. A typical DC retirement plan is characterized by employee
contributions, possible employer matching contributions and an unspecified
future benefit paid to the employee which will ultimately be based on investment
returns. In the United States, the most common example of a DC plan is a 401(k)
plan.

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<PAGE>

Our target market for DB plans consists of plans with more than 1,000
participants. Our consultants provide actuarial services to many of the world's
largest retirement plans, including the three largest corporate-sponsored DB
plans in the United States. Our DB services include:

<TABLE>
<S> <C>
- STRATEGIC PLAN DESIGN - FINANCIAL REPORTING

- ACTUARIAL SERVICES - VALUATION AND DIAGNOSTIC SOFTWARE AND SYSTEMS

- FUNDING RECOMMENDATIONS - ASSISTANCE WITH MERGING, DIVESTING AND ACQUIRING
PLANS

- MULTINATIONAL ASSET POOLING CONSULTING
</TABLE>

We also help companies design and implement DC plans, especially 401(k)
plans in the United States. We assist clients with the selection of asset
managers and administrators and in communicating with their employees concerning
enrollment, plan provisions and investment alternatives.

In both the DB and DC areas, we emphasize research-based consulting to
design innovative retirement programs that align our clients' workforces with
their business strategies. We believe that we have been at the forefront of
innovation in the retirement consulting industry. Examples of our innovative
products and services include:

- PENSION EQUITY PLAN--an alternative retirement plan that combines the lump
sum portability of DC and cash balance plans desired by younger workers
with a benefits formula based on the final few years of earnings,
providing benefits security typical to a traditional DB plan that older
and long-service employees seek;

- FLEX PENSION PLUS-TM---a tax-effective Canadian supplemental retirement
plan for attracting and retaining key employees;

- PREPARE!-TM---a web-based tool that enables employees to model different
savings and retirement income scenarios;

- WATSON WYATT 401(K) VALUE INDEX-TM---a tool that looks beyond cost to
identify the total value that employers and their employees derive from
their 401(k) plans;

- PHASED RETIREMENT PROGRAMS--a combination of programs that help clients
attract and retain older workers by enabling them to balance work/life
needs through a gradual transition to retirement;

- CLIENTSITE-TM---a relationship management tool that allows web-based
communication between our clients and associates that can be updated
globally and instantaneously; and

- ELECTRONIC ACTUARY/ELECTRA-TM---a tool that performs immediate "what if"
scenarios so that different plan designs can be modeled and priced
interactively with clients.

To support our retirement consulting services, we invest heavily in
state-of-the-art technology, software, and systems to ensure seamless
consistency and efficiency of service delivery in all our offices worldwide. We
also maintain extensive proprietary databases, COMPARISON-TM- and BenTRACK,-TM-
that enable our clients to track and benchmark benefits plan provisions in the
United States and throughout the world, respectively.

INVESTMENT CONSULTING

Together with our retirement consulting services, we offer investment
consulting services that help private and public sector clients throughout the
world maximize the return on their retirement plan assets, develop governance
policies and strategies, and design investment structures to successfully manage
financial liabilities within the context of their overall business objectives.
Our services include:

- asset/liability modeling and asset allocation studies;

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<PAGE>
- governance and investment policy development;

- investment structure analysis;

- investment manager selection and evaluation; and

- performance evaluation and monitoring.

GROUP AND HEALTH CARE CONSULTING

Health care premiums paid by US. employers are rising annually at
approximately 10%. In this environment, we help our clients with the design,
financing, administration and communication of medical, disability and other
group benefits plans. Clients seek our services to assist them in an environment
that is characterized by escalating costs, employee dissatisfaction with health
care programs and multiple vendor relationships. Our primary objective is to
establish a link between each element of an employers' benefits programs and its
desired cost, employee satisfaction and productivity goals. Our services
include:

- plan design;

- actuarial services;

- vendor management services;

- on- and off-shore funding analysis;

- benefits pricing;

- assistance with plan changes relating to mergers, acquisitions and
divestitures; and

- integrated disability management.

Our approach to group benefits consulting is research-based and makes use of
sophisticated consulting tools such as:

- PREVIEW-TM---a medical benefits modeling system which accurately and
quickly models medical claims under alternative plan designs, covered
populations and managed care delivery systems;

- HEALTH PLAN VALUE LIBRARY-TM---software tools and a database of
information on the cost, quality and accessibility of health plans that
are used to screen and evaluate health plans; and

- AUTO-RFP-TM---a powerful software application that organizes and eases the
administrative process of gathering and evaluating RFP responses from
health care vendors.

HR TECHNOLOGIES GROUP

Our HR Technologies Group helps clients select and implement technologies
that enhance the delivery of benefits and related information to employees. Our
HR Technologies Group consists of approximately 350 consultants and represented
approximately 14% of our North American consulting revenue in fiscal year 1999.

As human resources programs become more complex and important for recruiting
and retaining employees, organizations are seeking flexible, adaptable and
cost-effective ways to provide benefits information to their employees. We are
well-positioned to help clients address these challenges because of our eHR-TM-
approach, which integrates HR-related data, computer systems and transactions in
a single employee accessible network. We help organizations that have adopted
Internet applications for external business strategies to employ similar
advanced technologies for internal applications such as HR. Our services include
assisting clients to implement employee self-service applications, retirement
plan administration systems, benefits enrollment, training programs, time and
attendance systems and applicant tracking systems.

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<PAGE>

Using our proprietary consulting methodology of "Discover, Invent and
Deliver," our consultants work with clients to evaluate existing HR
infrastructure and business strategy, identify the best sources of people,
process and technology, and design and implement tailored approaches. Our
consulting work frequently involves the development of web-based employee
self-service applications, the implementation of interactive call centers and
the integration of existing legacy systems. We also offer hosting services for
companies who prefer to access applications from our servers rather than host on
their own intranets. In addition, we deliver state-of-the-art applications in
health and welfare enrollment, pension administration, compensation planning and
retirement planning.

HUMAN CAPITAL GROUP

Our Human Capital Group, which consists of over 300 consultants, helps
clients achieve competitive advantage by aligning their workforce with their
business strategy. This includes helping clients develop and implement
strategies for attracting, retaining and motivating their employees to maximize
the return on their investment in human capital. Our Human Capital Group
represented approximately 9% of our North American consulting revenue in fiscal
year 1999. Our Human Capital Group focuses in three principal areas:

STRATEGIC REWARDS

We help align an organization's rewards--including compensation, stock
programs, incentives, recognition programs and flexible work arrangements--with
its business strategies, cultural values, work design and human resources
strategy. We work together with our Benefits Consulting Group to develop optimal
total compensation programs for our clients.

ORGANIZATION EFFECTIVENESS

We help clients build high-performance organizations by working with them to
clarify and implement business strategy, recognizing the impact of employee
attitudes and commitment, as well as effective team and leadership development,
on business success. We provide a wide array of organization diagnostic
services--employee and customer surveys, human capital audits and cultural
assessments--as well as leadership development services that include assessment,
coaching, workshops and team building. We also provide process management
services to help organizations achieve their desired vision, strategy and
culture.

EXECUTIVE COMPENSATION

We counsel executives and boards of directors on executive pay programs,
including cash compensation, stock options and stock purchase plans, and on ways
to align pay-for-performance plans throughout the organization in order to
increase shareholder value.

We believe that we are recognized as innovators in the area of human capital
consulting. For example, we have developed the WATSON WYATT HUMAN CAPITAL
INDEX,-TM- a proprietary tool for demonstrating the relationship between the
effectiveness of an organization's human capital practices and the creation of
superior shareholder returns. In support of our human capital consulting we also
maintain databases of employee attitudes for client organization comparison. Our
WorkUSA-Registered Trademark-/ WorkCanada-TM- database is regarded as the most
up-to-date survey in existence on the attitudes of North American workers. It
includes the opinions of 10,000 employees surveyed independently, reflecting a
large cross-section of jobs and industry types. Our clients compare their own
employee survey results against these norms to identify workplace perceptions
and satisfaction and commitment levels. Through our People Management Resources
division, we also provide an online best practices database of more than 300
in-depth case studies covering key people practices, such as culture
development, staffing and selection, leadership development, and employee
communication.

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OTHER CONSULTING SERVICES

While we focus our consulting services in the three areas described above,
one of our primary strengths is our ability to draw upon consultants from our
different practices to deliver integrated services to meet the needs of our
clients. Examples include:

MERGER & ACQUISITION SERVICES

Recognizing that many business combinations fail because of "people
problems," we help clients achieve better transactional success by assisting
with faster integration, cost containment, increased customer focus and greater
productivity. We assemble multi-disciplinary teams to provide key services that
include due diligence of pension and benefits plans, company cultures and human
resources strategies; integration of human resources processes and practices;
and enterprise-wide project management.

EMPLOYEE COMMUNICATIONS CONSULTING

We also have one of the most respected communications consulting groups in
the human resources consulting industry--a team that has won numerous awards for
innovative and effective communications. Our consultants combine strong creative
skills with technical excellence on human resources issues and solid research on
employee attitudes and communication effectiveness. We conduct communications
audits, research and focus groups, and provide communications planning and
implementation. In addition, our consultants assist employers in complying with
disclosure requirements.

WATSON WYATT DATA SERVICES

Watson Wyatt Data Services provides a comprehensive array of global
compensation, benefits and employment practices information that is often
studied and cited by many of our clients and competitors. In the United States,
we publish and market the most extensive library of reports on human resources
issues, and more than 5,000 organizations participate in one or more of our
annual surveys. Our databases contain compensation information for more than one
million employees in virtually every industry sector and major metropolitan
area. Outside of the United States, our worldwide alliance offers more than 70
remuneration, benefits and employment practice references guides, covering more
than 50 countries and 6 continents. In addition to our annual survey references,
we also offer many reference works intended to assist practitioners in creating
or maintaining programs in a variety of subject areas such as variable pay,
performance management, and personnel policies.

EXAMPLES OF REPRESENTATIVE CLIENT ENGAGEMENTS

Some recent examples of our work with clients are described below:

EHR-TM- RE-ENGINEERING

- ENGAGEMENT: Assist a global oil field services company on a five-year,
multi-phased approach to transform a traditional personnel department into
a comprehensive eHR-TM- business unit.

- CHALLENGE: Our client's personnel function in North America was hindered
by decentralized administration practices, different benefits and payroll
systems for each product line and location, manual procedures for
processing benefits and services, and limited use of technology in
delivering services to employees. As a result, personnel managers and
employees expended significant time and effort contacting benefits
managers and obtaining benefits data, retirement and loan projections, and
performing benefits related transactions.

- APPROACH: We formulated a strategy to develop web-based, employee
self-service systems to deliver HR services, transactions, and
communications via desktop computers and kiosks.

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- RESULTS: Our client successfully migrated 98% of its U.S. employees to
web-based benefits enrollment. Today, 16,000 U.S. employees have
self-service access to real-time data, records, and transactions on their
profit sharing plan, pension and 401(k) plans. Through this system
employees can access daily account balances, model loans, and estimate
retirement income. This system also provides for health & welfare
enrollment, administration, and plan documentation. Additional launches
are planned to expand the eHR-TM- approach to regions outside North
America.

MERGER & ACQUISITION INTEGRATION AND DUE DILIGENCE

- ENGAGEMENT: Assist a global industrial company to complete cultural,
benefits and human capital due diligence on several target companies in
Asia-Pacific, including an evaluation of the future financial obligations
of the target's benefits plans, staff retention challenges, and ongoing
employee communications needs.

- CHALLENGE: Our client faced several key issues in evaluating potential
acquisitions, including staff retention, pension liabilities arising from
unfunded pension plans, transformation of the organizational cultures, and
the lack of uniform HR processes and systems.

- APPROACH: We conducted a post-transaction audit and review of the
competitiveness of the target companies' compensation and benefits
programs. We then identified position requirements, matched employees
having the desired backgrounds, defined job classifications and developed
salary structures that were consistent with our client's existing system.
We also developed comprehensive communication plans and materials and
designed cross-cultural training for expatriates.

- RESULTS: In addition to assuring a positive reception by the target
companies' employees, we limited potential liabilities, installed formal
HR programs and systems, and maintained compensation and benefits levels
during the ongoing review.

INTEGRATED DISABILITY MANAGEMENT

- ENGAGEMENT: Assist a computer hardware manufacturer to design and
implement a more flexible and comprehensive disability management program.

- CHALLENGE: Our client regularly had difficulty fulfilling customers orders
at year end. Our client employed a "just-in-time" inventory system, and
required a full staff to fill its orders, but seemed to suffer from
chronic shortages of product supply. However, an apparent production issue
was determined to be a benefits design issue. The design and reporting
system of the company's paid time off and disability programs were
encouraging employees to take time off at the end of the year.

- APPROACH: After benchmarking other firms in our client's industry, we
devised a more competitive plan design, established a tracking system for
data collection and identified best practices for better connecting all
components of the paid time-off program. We also installed a new data
collection system with the ability to track workplace absences for faster
and more efficient resolution.

- RESULTS: The first year of implementation resulted in total savings of
$800,000. A year later, our client acquired two manufacturing companies.
With the best practice processes already in place, the merging of the
three programs went smoothly, and as a result, our client reported savings
of approximately $11 million in direct and indirect costs.

RETIREMENT PLAN ADMINISTRATION

- ENGAGEMENT: Assist a large high-tech company whose pension administration
outsourcing provider was exiting the business.

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<PAGE>

- CHALLENGE: Our client needed to assess the options of entering into
another outsourcing agreement or moving the pension administration
function to their North American HR service center. After evaluating
alternatives, our client selected a blended approach, expanding their own
internal call center capabilities through our expertise in pension
technology.

- APPROACH: We designed and built a retirement benefits administration
system that is an integral part of the client's North American HR service
center. The system is located at our site and accessed by the
organization's service center representatives. Employees can also access
the system for numerous self-service functions, including retirement plan
modeling.

- RESULTS: The new technology-based delivery model improved the productivity
of the benefits administrative staff. The perception of our client's HR
department's role in the organization was also enhanced. The new system
rollout was highly successful, achieving a customer satisfaction rating of
well over 90%.

SALES AND MARKETING

Our growth strategy starts with ensuring the satisfaction of current clients
through our Account Management program. We have approximately 125 account
managers who focus on the effective delivery of services to clients and on
expanding our relationships across service lines, geographic boundaries and
divisions within client companies. A key element of this program is an approach
we call CLIENTFIRST.-TM- Using proprietary processes and tools, ranging from
interview guides to satisfaction checklists to planning templates, we work with
clients to define their needs and expectations before an engagement begins and
then continually measure our performance according to the agreed upon standards.

We also pursue new clients using cross-disciplinary teams of consultants as
well as dedicated business developers to initiate relationships with carefully
selected companies. Our client expansion and new client acquisition efforts are
supported by market research, comprehensive sales training programs, and
extensive marketing databases.

Our sales efforts are also supported by a full array of marketing programs
designed to raise awareness of the Watson Wyatt Worldwide brand and our
reputation within our target markets. These programs promote our thought
leadership on key human resources issues and establish us as a preferred human
capital consulting firm to many of the world's largest companies.

CLIENTS

We work with major corporations--including over 70% of the Fortune 100 in
the past two years--leading emerging growth companies, government agencies and
not-for-profit institutions in North America, Latin America and Asia-Pacific
across a wide variety of industries. Our client base is broad and geographically
diverse. In fiscal year 1999, our ten largest clients accounted for
approximately 12% of our consolidated revenues and no individual client
represented more than 3% of our consolidated revenues. Representative clients
include:

Asea Brown Boveri (ABB)
Apple Computer
Broken Hill Proprietary (BHP)
Canada Post
Cisco Systems
General Electric Company
General Motors

IBM
ICI Americas
Ingersoll-Rand
Jardine Matheson Group
Lockheed Martin Corporation
Mass Transit Railway Corporation (Hong Kong)

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COMPETITION

The human capital consulting business is highly competitive. Although we
believe that there are several barriers to entry, such as the need to assemble
specialized intellectual capital to provide expertise on a global scale, and
that we have developed significant competitive advantages in providing human
resources consulting services, we face intense competition from several
difference sources.

Our current and anticipated competitors include:

- major human resources consulting firms, such as William M. Mercer and
Towers Perrin and the administration/consulting firm Hewitt Associates;

- smaller benefits and compensation consulting firms, such as Buck
Consultants, The Segal Company and Hay Group;

- the human resources consulting practices of public accounting and
consulting firms, such as PricewaterhouseCoopers and Booz, Allen &
Hamilton;

- information technology consulting firms, such as Andersen Consulting and
Internet/intranet development firms; and

- boutique consulting firms comprised primarily of professionals formerly
associated with the firms mentioned above.

Watson Wyatt is ranked fourth or fifth among the top HR consulting
companies, based on revenues, according to information from the 1998 Kennedy
Information Research Group report, June 1999 Consultants News and December 1999
Business Insurance rankings.

The market for our services is subject to change as a result of regulatory,
legislative, competitive and technological developments and to increased
competition from established and new competitors. We believe that the primary
determinants of selecting a human resources consulting firm include reputation,
ability to provide measurable increases to shareholder value, global scale,
service quality, and the ability to tailor services to a clients' unique needs.
We believe that we compete favorably with respect to these factors.

EMPLOYEES

Watson Wyatt & Company employs approximately 3,800 associates. None of our
associates is subject to collective bargaining agreements. We believe relations
with associates are good.

FACILITIES

Our principal executive offices are located at 6707 Democracy Boulevard,
Suite 800, Bethesda, Maryland 20817. We plan to move our principal executive
offices to 1717 H Street NW, Washington DC later this year.

We operate in 60 offices in principal markets throughout the world.
Operations are carried out in leased offices under operating leases that
normally do not exceed 10 years in length. We do not anticipate difficulty in
meeting our space needs at lease expiration or if additional space is required
earlier. We also evaluate office relocation on an ongoing basis to meet changing
needs in our markets while minimizing our occupancy expense.

LEGAL PROCEEDINGS

From time to time, we are a party to various lawsuits, arbitrations or
mediations that arise in the ordinary course of business. These disputes
typically involve claims relating to employment matters or the rendering of
professional services. The four matters summarized below involve the most
significant pending or potential claims against us. We believe, based on
currently available information, that the results of all such proceedings, in
the aggregate, will not have a material adverse effect on our financial

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condition, but claims which are possible in our business could be material to
our financial results for a particular period, depending, in part, upon the
operating results for that period. See "Risk Factors."

REGINA, SASKATCHEWAN POLICE. The Administrative Board of the Regina Police
Superannuation and Benefit Plan filed an action against us and three individual
employees in 1994 alleging errors in valuation methods, assumptions and
calculations for the Plan during the course of work provided for the Plan since
the 1970s. Discovery is concluded and the exchange of expert reports is
anticipated during 2000. The Administrative Board seeks approximately
$26 million in damages, plus interest.

CITY OF MILWAUKEE, WISCONSIN. The City of Milwaukee Employees Retirement
Board ("ERB") notified us of a potential claim involving an erroneously
calculated cost of living adjustment that was based on a formula provided by the
staff of the ERB. In response to the notice of claim, we filed a declaratory
judgment action against the City of Milwaukee and the ERB in the U.S. District
Court in Chicago. By mutual consent, the parties agreed to dismiss the claim
with leave to reinstate, pending settlement discussions among other parties.

CONNECTICUT CARPENTERS PENSION FUND. The Connecticut Carpenters Pension
Fund has filed an action against us claiming errors in valuations from 1991
through 1998 that allegedly resulted in understated liabilities. The plaintiffs
are seeking damages of approximately $60 million, including punitive damages.
The case is in discovery.

CLAIM AGAINST WATSON WYATT PARTNERS. A law firm representing a client based
in Europe has notified Watson Wyatt Partners, our European alliance partner, of
a claim involving alleged errors in the design of a global employee stock option
plan which may include work performed by present or former subsidiaries of
Watson Wyatt & Company. The parties are informally exchanging information
pursuant to English legal procedures.

We carry substantial professional liability insurance with a self-insured
retention of $1 million per occurrence which provides coverage for professional
liability claims. We also carry employment practices liability insurance.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the names, ages and positions of our
directors and executive officers as of the date of this prospectus:

<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John J. Haley........................ 50 President, Chief Executive Officer and Director
Walter W. Bardenwerper............... 49 Vice President, General Counsel and Secretary
Thomas W. Barratt.................... 57 Vice President, Regional Manager (U.S. Central) and
Director
Jorge V. Bou......................... 57 Vice President, Regional Manager (Latin America)
Paula A. DeLisle..................... 46 Vice President and Director
David B. Friend, M.D................. 43 Vice President, Regional Manager (U.S. East) and
Director
James A. Gargiulo.................... 40 Vice President, Human Resources
Ira T. Kay........................... 49 Vice President, N. America Practice Director -- Human
Capital Group and Director
Brian E. Kennedy..................... 56 Vice President, Regional Manager (Canada) and Director
Eric P. Lofgren...................... 49 Vice President, Global Director -- Benefits Consulting
Group and Director
David P. Marini...................... 43 Vice President, Global Director -- H.R. Technologies
Group
Carl D. Mautz........................ 52 Vice President, Chief Financial Officer
Gail E. McKee........................ 40 Vice President and Director
Kevin L. Meehan...................... 55 Vice President and Director
J.P. Orbeta.......................... 38 Vice President, Global Director -- Human Capital Group
Sylvester J. Schieber................ 53 Vice President, Director of Research and Information
John A. Steinbrunner................. 49 Vice President and Director
A. Grahame Stott..................... 45 Vice President, Regional Manager (Asia-Pacific) and
Director
Charles P. Wood, Jr.................. 55 Vice President, Regional Manager (U.S. West) and
Director
John J. Gabarro...................... 60 Director
Robert D. Masding.................... 56 Director
R. Michael McCullough................ 61 Director
</TABLE>

JOHN J. HALEY has served as President and Chief Executive Officer since
January 1, 1999 and as a Director since 1992, and is a member of the Partnership
Board of Watson Wyatt Partners. Mr. Haley joined Watson Wyatt in 1977. Prior to
becoming President and Chief Executive Officer, he was the Global Director of
the Benefits Consulting Group. Mr. Haley is a Fellow of the Society of Actuaries
and is a co-author oF FUNDAMENTALS OF PRIVATE PENSIONS (University of
Pennsylvania Press). He has an A.B. in Mathematics from Rutgers College and
studied under a Fellowship at the Graduate School of Mathematics at Yale
University.

WALTER W. BARDENWERPER has served as Vice President and General Counsel
since joining Watson Wyatt in 1987 and has served as Secretary since 1992.
Mr. Bardenwerper was a Director of Watson Wyatt from 1992 to 1997. He serves as
chairman of the Global Quality Committee of Watson Wyatt Worldwide, and is
President and a director of Professional Consultants Insurance Company. He has a
B.A. in Economics from the University of Virginia and a J.D. from the University
of Virginia Law School.

THOMAS W. BARRATT has served as Vice President and Regional Manager (U.S.
Central) since 1997 and has served as a Director since 1998. Mr. Barratt
rejoined Watson Wyatt in 1994 after serving as the Managing Consultant of the
Detroit office of Towers Perrin, a competing human resources consulting firm,
from 1987 through 1993. He began his career with Watson Wyatt in 1976 and was a
consultant with the Company through 1986. He has a B.B.A. from Western Michigan
University and was graduated from Northwestern University's National Trust
School in 1966.

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<PAGE>

JORGE V. BOU has served as Vice President since 1998 and Regional Manager
(Latin America) since 1994. Prior to joining Watson Wyatt in 1986, Mr. Bou was a
Vice President with the Martin E. Segal Company, an actuarial and benefits
consulting firm, and was previously with the American International Group, an
insurance organization. He has been providing consulting services to various
clients in Latin America since 1969. Mr. Bou is an Associate of the Society of
Actuaries. He has a B.S. in Mathematics from Georgia State University.

PAULA A. DELISLE has served as Vice President and as a Director since 1997.
Ms. DeLisle joined Watson Wyatt in 1982 and is the Managing Consultant of our
Hong Kong office. Ms. DeLisle is responsible for Watson Wyatt's China
operations, for the Asia-Pacific operations of Watson Wyatt Data Services, and
is a frequent speaker at international conferences on human resources issues in
the Asia-Pacific region. She is the Vice-Chairman of the American Chamber of
Commerce in Hong Kong and is the Hong Kong representative to the Pacific
Economic Cooperation Council's Human Resources Development Task Force. She has a
B.A. from Saint Mary's College and a Master's degree from Loyola University of
Chicago.

DAVID B. FRIEND, M.D. has served as Vice President and Regional Manager
(U.S. East) since 1997 and has served as a Director since 1997. He formerly was
the Practice Director of Watson Wyatt's Group and Health Care Practice. Prior to
joining Watson Wyatt in 1995, Dr. Friend served on the medical staff at Malden
Hospital in Malden, Massachusetts. Prior to attending medical school,
Dr. Friend was an Executive Vice President with High Voltage Engineering, a
specialty industrial manufacturing conglomerate. Dr. Friend is the author of
HEALTHCARE.COM: RX FOR REFORM (St. Lucie Press), and also serves on the Advisory
Board of the Schneider Institute for Health Policy at Brandeis University. He
has an A.B. in Economics from Brandeis University, an M.D. from the University
of Connecticut and an M.B.A. from The Wharton School of the University of
Pennsylvania.

JAMES A. GARGIULO has served as Vice President, Human Resources since 1999.
Mr. Gargiulo has been an Account Manager in the Eastern Region for the past two
years. Prior to joining Watson Wyatt in 1997, he was the Regional Director for
the Compensation practice at Aon Corporation, an insurance and consulting
organization, and has held various human resources positions for the investment
banking firm of Salomon Brothers, The Gap, retailer, and Banque Paribas.
Mr. Gargiulo has a B.A. in Business Administration from Bernard Baruch College
in New York.

IRA T. KAY has served as Vice President and North America Practice Director
of the Human Capital Group since 1998 and as a Director since 1996. Prior to
joining Watson Wyatt in 1993, Mr. Kay was a Managing Director and served on the
Partnership Management Committee of The Hay Group, a competing human resources
consulting firm, and prior to that, he was a Managing Director in the Human
Resources Department of the investment banking firm Kidder Peabody. Mr. Kay is
the author of CEO PAY AND SHAREHOLDER VALUE (St. Lucie Press). Mr. Kay has a
B.S. in Industrial and Labor Relations from Cornell University and a Ph.D. in
Economics from Wayne State University.

BRIAN E. KENNEDY has served as Vice President and Regional Manager (Canada)
since 1995 and as a Director since 1996. Prior to joining Watson Wyatt in 1995,
Mr. Kennedy spent 18 years with the Alexander Consulting Group, an insurance and
benefits consulting firm, most recently as Chairman and Chief Executive Officer
of Alexander Clay, their U.K. and European operations.

ERIC P. LOFGREN has served as Vice President, Global Director--Benefits
Consulting Group and as a Director since 1998. Prior to joining Watson Wyatt in
1989, Mr. Lofgren spent seven years with William M. Mercer, a competing human
resources consulting firm, and seven years at The Mutual of New York Insurance
Company. Mr. Lofgren is a recognized authority in the areas of retirement plan
design, the effects of demographics on benefit systems and asset liability
management. He is widely credited with developing the Pension Equity Plan (PEP),
one of the three primary families of defined benefit pension design.
Mr. Lofgren is a Fellow of the Society of Actuaries, and holds a B.A. in
Mathematics from New College in Sarasota, Florida and studied at the Graduate
School of Logic at the University of California at Berkeley.

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<PAGE>

DAVID P. MARINI has served as Vice President since 1998 and Global
Director--HR Technologies Group since 1997. Prior to assuming his current
responsibilities, he led several of the firm's technology projects involving
reengineering administrative client services. Prior to joining Watson Wyatt in
1994, Mr. Marini spent 13 years at the insurance company CIGNA Corporation, most
recently as the President of the Iowa division of Trilog Inc., a wholly-owned
401(k) recordkeeping subsidiary, and he was previously a CPA with the accounting
firm Coopers & Lybrand. He has a B.S. in business administration from Western
New England College.

CARL D. MAUTZ has served as Vice President and Chief Financial Officer since
February 1999 and previously served as Controller. Prior to joining Watson Wyatt
in 1997, Mr. Mautz served as the Controller for Tactical Defense Systems, Loral
Corporation, which merged into defense contractor Lockheed Martin Corporation.
From 1990 to 1994, Mr. Mautz held operating and corporate finance positions at
the computer firm Unisys Corporation and from 1972 to 1984 was a CPA with the
accounting firm of KPMG Peat Marwick. Mr. Mautz has a B.S. and an M.A.S. in
accounting from the University of Illinois.

GAIL E. MCKEE has served as Vice President and as a Director since 1997.
Prior to joining Watson Wyatt in 1992, Ms. McKee was with the Walt Disney
Company, an entertainment congolomerate, where she served as the Manager of
International Compensation and Benefits from 1991 to 1992. From 1982 to 1990,
she was an Account Manager with Hewitt Associates, a competing human resources
consulting firm, in New York and Los Angeles. She has a B.A. from the University
of Washington.

KEVIN L. MEEHAN has served as Vice President since 1994 and as a Director
since 1999. Mr. Meehan joined Watson Wyatt in 1983, and has been instrumental in
developing our flexible benefits operations, our Human Resources Technologies
Group and our Account Management system. Mr. Meehan is a frequent speaker on
employee benefits tax and legal issues, and regularly testifies before the IRS,
the Department of Labor and Committees of Congress on employee benefit plan
issues. Mr. Meehan has a B.A. from the College of the Holy Cross and a J.D. from
St. John's University Law School.

J.P. ORBETA has served as Vice President since 1998 and as Global Practice
Leader--Human Capital Group since 1998. Prior to joining Watson Wyatt in
April 1986, Mr. Orbeta was a faculty member of the Mathematics Department and
director of Computer Education and Services at the Ateneo de Manila University.
Mr. Orbeta is a member and Certified Compensation Professional (CCP) of the
American Compensation Association and is the first practitioner in the
Philippines to have earned this designation. He is a member of the Industrial
Relations Committees of the American Chamber of Commerce of the Philippines, the
Personnel Management Association of the Philippines and is currently the
President of the Compensation Management Society of the Philippines. Mr. Orbeta
has a B.S. in Economics from Ateneo de Manila University in the Philippines.

SYLVESTER J. SCHIEBER has served as Vice President and Director of the
Watson Wyatt Research and Information Center (RIC) since 1983, and as a director
of Watson Wyatt from 1989 to 1996. Mr. Schieber joined Watson Wyatt in 1983 as
Director of RIC, and from 1994-1996, he served on the Advisory Council on Social
Security for the Clinton Administration. He is currently serving a six-year term
on the Social Security Advisory Board, for which he was appointed by the U.S.
Senate Majority Leader. Mr. Schieber has served on the Board of the Pension
Research Council of the Wharton School, University of Pennsylvania since 1985.
He has authored or co-authored four books on retirement issues, including
FUNDAMENTALS OF PRIVATE PENSIONS (University of Pennsylvania Press), THE REAL
DEAL: THE HISTORY AND FUTURE OF SOCIAL SECURITY (Yale University Press, 1999),
and he has co-edited four other volumes on a broad range of human resources
issues. Mr. Schieber is a frequent speaker on pension and Social Security policy
issues throughout the world. He has a Ph.D. in Economics from the University of
Notre Dame.

JOHN A. STEINBRUNNER has served as Vice President since 1996 and a Director
since 1996. Mr. Steinbrunner joined Watson Wyatt in 1974 and was formerly the
Retirement Practice Director of

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<PAGE>
the Benefits Consulting Group. Mr. Steinbrunner continues to consult with major
corporate clients on a variety of strategic benefits issues. He is a Fellow of
the Society of Actuaries and has an M.S. in Mathematics from Case Western
Reserve University.

A. GRAHAME STOTT has served as Vice President since 1995 and Regional
Manager (Asia-Pacific) since 1995 and as a Director since 1995. Mr. Stott joined
Watson Wyatt in 1982 and is a member of the Hang Seng Index Advisory Committee,
a past President of the Actuarial Association of Hong Kong and has been a member
of a number of Hong Kong Government working parties in the areas of Social
Security and pension legislation. Mr. Stott, a Fellow of the Faculty of
Actuaries, has a B.Sc. in Mathematics from the University of Manchester
Institute of Science and Technology.

CHARLES P. WOOD, JR. has served as Vice President and Regional Manager (U.S.
West) since 1998 and as a Director since 1999. Mr. Wood joined Watson Wyatt in
1975 and is a specialist in matters relating to Retirement, Group and Health
Care, and Compensation consulting. Mr. Wood, a Fellow of the Society of
Actuaries and the Casualty Actuarial Society, has a B.S. in Engineering Science
and Mathematics from the U.S. Air Force Academy and an S.M. in Applied
Mathematics from Harvard University.

JOHN J. GABARRO has served as a Director since 1999 and was previously a
director from 1995 to 1998. Mr. Gabarro has been a professor at the Harvard
Business School since 1972. Mr. Gabarro is the UPS Foundation Professor of Human
Resource Management at the Harvard Business School, where he has taught in
Harvard's M.B.A., Advanced Management, and Owner-President Management Programs.
He has also served as faculty chairman of Harvard's International Senior
Management Program and as chairman of its Organization Behavior and Human
Resource Management faculty. Mr. Gabarro is the author of six books, the most
recent of which include BREAKING THROUGH: THE MAKING OF MINORITY EXECUTIVES IN
CORPORATE AMERICA (Harvard, 1999), MANAGING PEOPLE IN ORGANIZATIONS (Harvard,
1992) and THE DYNAMICS OF TAKING CHARGE (Harvard, 1987), which won the 1988 New
Directions in Leadership Award and was named one of the best business books of
the year by THE WALL STREET JOURNAL. Mr. Gabarro is also a recipient of the 1980
McKinsey Foundation Prize, the 1986 Center for Creative Leadership Distinguished
Scholar Colloquium and the 1988 Johnson Smith and Knisely Award for research on
leadership. Mr. Gabarro has an M.B.A. and a Ph.D. from Harvard University.

ROBERT D. MASDING has served as the Senior Partner of Watson Wyatt Partners,
our global alliance partner, since 1995 and as a Director since 1995 upon the
establishment of the global alliance. He joined the predecessor firm to Watson
Wyatt Partners in 1969 and became a partner in 1972. Mr. Masding is a former
Chairman of the International Association of Consulting Actuaries and is a
member of the Professional Affairs Board of the Institute of Actuaries.
Mr. Masding, a Fellow of the Institute of Actuaries, has an M.A. in Mathematics
from Cambridge University.

R. MICHAEL MCCULLOUGH has served as a Director since 1996. Mr. McCullough is
the retired Chairman of the management consulting firm of Booz, Allen &
Hamilton. He joined Booz, Allen & Hamilton in 1965 as a consultant, was elected
a Partner in the firm in 1971, became Managing Partner of the firm's Technology
Center and was elected to the position of Chairman in 1984. Mr. McCullough is a
member of the Boards of Capital Auto Real Estate Investment Trust, Charles E.
Smith Residential Real Estate Trust, Host Marriott Services and is Chairman of
Ecutel, Inc., a private Internet firm.

BOARD OF DIRECTORS

Prior to the proposed corporate reorganization, Watson Wyatt & Company
directors were elected at each annual stockholders' meeting for a one-year term.
Of the 15 seats, 12 are filled by current employees of Watson Wyatt & Company,
two are filled by outside directors, and one by the Senior Partner of Watson
Wyatt Partners. Watson Wyatt anticipates changing the composition of the board
to increase the number of outside directors, probably by two, during the year
2000. Under the Watson Wyatt & Company bylaws, an employee stockholder is
qualified to hold a directorship only during the term of his or her employment.

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<PAGE>
Under the Watson Wyatt & Company Holdings certificate of incorporation, the
15 directorships are to be divided into three classes. At the next regularly
scheduled stockholders' meeting in 2000, stockholders will elect three classes
of directors. The directorships in the first class will expire as of the
stockholders meeting in 2001 and every three years thereafter, the directorships
in the second class will expire as of the stockholders meeting in 2002 and every
three years thereafter, and the directorships in the third class will expire as
of the stockholders meeting in 2003 and every three years thereafter. Pursuant
to separate agreements to be entered into between Watson Wyatt & Company
Holdings and each employee director, the director will be required to resign
from the board upon termination of his or her employment.

COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE. The Audit Committee assesses and monitors the control of
financial transactions and oversees financial reporting to shareholders and
others. It also reviews (in cooperation with our internal auditors, independent
accountants and management) our internal accounting procedures and controls, and
the adequacy of the accounting services provided by our Finance and
Administration office. The members of the Audit Committee are John Gabarro and
Michael McCullough.

COMPENSATION COMMITTEE. The Compensation Committee oversees executive
compensation policies and practices and makes recommendations and decisions
regarding the administration of common stock transactions. The Compensation
Committee members are John Gabarro and Michael McCullough.

EXECUTIVE COMMITTEE. The Executive Committee oversees and reviews our
long-range corporate and strategic planning. Additionally, it meets throughout
the year between meetings of the board of directors to review, consider and make
decisions affecting general management policies of our company, to approve
significant business decisions not requiring full board approval and to make
recommendations to the executive officers and the board. The members of the
Executive Committee are John Haley, Brian Kennedy, Ira Kay, Eric Lofgren and
Grahame Stott.

FINANCE COMMITTEE. The Finance Committee reviews and considers issues
relating to our capital structure. This includes strategic determinations
regarding the financing of our future growth and development. The members of the
Finance Committee are David Friend, Elizabeth Caflisch, Carl Mautz, John
Steinbrunner, Charles Wood and Grahame Stott.

Members of these committees may, but will not necessarily, change after the
next annual shareholders' meeting.

COMPENSATION OF DIRECTORS

Directors who are employees of Watson Wyatt & Company are not compensated
separately for their services as directors or as members of any committee of the
board. Outside directors in fiscal year 1999 were paid a quarterly retainer of
$6,250 plus $1,500 per day for board meetings, $1,000 per day for regular
committee meetings, $750 if held in conjunction with a board meeting, and $2,000
per day for committee meetings if the outside director chaired that committee,
$1,000 if held in conjunction with a board meeting. Telephone meetings of less
than four hours duration were compensated at 50% of the applicable per day fee.
These fees have been paid in shares of Watson Wyatt & Company common stock (up
to 7,500 shares), and the balance paid in cash. We established the Voluntary
Deferred Compensation Plan to enable outside directors, at their election, to
defer receipt of any or all of their director's fees until they are no longer
serving as a director of the company. We intend to continue to compensate
outside directors for services rendered.

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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of our Compensation and Stock Committee, predecessor to the
current Compensation Committee, for the last completed fiscal year were: Thomas
W. Barratt, Paula A. DeLisle, Ira T. Kay, Kevin L. Meehan and John A.
Steinbrunner. All are officers of the company. The committee members did not
participate in decisions regarding their own compensation. No interlocking
relationship exists between our board of directors or our Compensation Committee
and any member of any other company's board of directors or their compensation
committee, nor has any interlocking relationship existed in the past.

EXECUTIVE COMPENSATION

For the fiscal year ended June 30, 1999, the compensation of the executive
officers, and all other associates eligible to receive a bonus, was comprised
primarily of three elements: base salary, fiscal year-end bonus, and SIBP
payment. The compensation system establishes target bonuses for all associates
eligible to receive a bonus, based on their compensation band level. Target
bonuses range from 5% of base salary for more junior associates to 70% of base
salary for the Chief Executive Officer. After the end of each fiscal year, the
board of directors determines the funding of the fiscal year-end bonus pool,
which may be more or less than 100% of target bonuses, and associates eligible
to receive a bonus are awarded bonuses based on individual, practice, region and
company performance.

In January 2000 we paid SIBP bonuses to eligible associates based on the
SIBP funding level approved by the board, an individual's actual fiscal year
bonus and their actual stock ownership as compared to their target stock
ownership. We will terminate the SIBP following the completion of this offering.
The following table sets forth annual compensation for the President, Chief
Executive Officer and the other four most highly compensated executive officers
for the fiscal years ended June 30, 1999, 1998 and 1997 by those persons who
were, on June 30, 1999:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
FISCAL TOTAL SALARY/ OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SIBP(A) BONUS/SIBP COMPENSATION(B) COMPENSATION(C)
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Haley.................... 1999 $543,750 $422,625 $491,000 $1,457,375 -$- $ 25,255
President, 1998 440,000 320,000 -- 760,000 -- 19,300
Chief Executive 1997 403,790 215,000 -- 618,790 -- 17,350
Officer and Director

A.W. Smith, Jr................... 1999 635,000 380,800 432,970 1,448,770 -- 220,120
Chairman and 1998 615,000 375,000 -- 990,000 -- 28,300
Director (retired) 1997 591,230 330,000 -- 921,230 -- 23,950

Eric P. Lofgren.................. 1999 390,000 290,000 260,960 940,960 -- 19,170
Vice President, 1998 331,500 250,000 -- 581,500 -- 15,035
Global Director, 1997 314,500 180,000 -- 494,500 7,500 11,250
Benefits Consulting
Group and Director

Kevin L. Meehan.................. 1999 326,250 300,000 290,425 916,675 -- 17,690
Vice President and 1998 280,150 250,000 -- 530,150 -- 5,110
Director 1997 263,670 180,000 -- 443,670 3,000 10,470

David B. Friend, M.D............. 1999 415,000 315,000 175,270 905,270 -- 21,380
Vice President, 1998 387,500 270,000 -- 657,500 -- 17,125
Eastern Regional 1997 314,167 200,000 -- 514,170 12,000 6,000
Manager and
Director
</TABLE>

(a) In 1996, Watson Wyatt & Company adopted a supplemental bonus plan called the
Stock Incentive Bonus Plan. Following this offering, we will terminate the
SIBP and replace it with equity based incentives more customary to publicly
traded companies.

(b) "Other Annual Compensation" consists of a cash bonus of $0.50 per share for
each share purchased in 1997 under the Stock Purchase Plan. This bonus was
also available to all participating associates. There were no stock
purchases under the Stock Purchase Plan in 1998. Messrs. Friend, Meehan and
Lofgren were the only named executive officers purchasing shares in 1997
since all others are above the 200,000 share maximum.

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<PAGE>
(c) "All Other Compensation" consists of the following: (1) for fiscal year 1997
only, a one-time non-compete bonus equal to 5% of each named executive's
fiscal year 1996 bonus; (2) company matching contributions of 50% of the
first 6% of total compensation contributed to our 401(k) plan as a 401(k)
salary deferral by the named executive up to the IRS maximum; (3) an
additional company matching contribution to a non-qualified savings plan of
3% of total compensation above the IRS compensation limit of $160,000 if
individual 401(k) contributions equal the IRS maximum; and (4) for fiscal
year 1999 for Mr. Smith, a payment of $188,140 for accrued, but unused, paid
time-off.

Concurrent with this offering we will grant options to our associates
pursuant to a new stock option plan to purchase approximately 1,600,000 shares
of class A common stock at an exercise price equal to the public offering price.
As part of this grant, Messrs. Haley, Lofgren, Meehan and Friend will be granted
options to purchase , , , and
shares, respectively. See "Long Term Incentive Plan."

PENSION ARRANGEMENTS WITH NAMED EXECUTIVE OFFICER

Watson Wyatt & Company has an agreement with Dr. Friend to provide a
supplemental pension benefit if he remains continuously employed by the company
until June 15, 2000. At the time of his retirement, Dr. Friend will receive an
additional service credit (for the purposes of calculating benefits only) so
that his total service credit will be calculated as follows: (actual years of
service + 1) multiplied by 1.5. In addition, if, before the date on which
Dr. Friend would be entitled to receive an early retirement benefit, there is a
change in control of the company and Dr. Friend leaves the employ of the company
within six months of the change in control, his pension will be calculated as if
he had reached early retirement.

GENERAL EMPLOYMENT ARRANGEMENTS

Generally, executive officers are not parties to employment agreements with
us. Non-employee directors are paid pursuant to a compensation plan approved on
an annual basis. Upon reaching certain levels within the company, executives and
other associates in bands 4, 5, 6 and higher are required to sign
non-competition and confidentiality agreements to protect our proprietary
information.

52
<PAGE>
LONG TERM INCENTIVE PLAN

Under the terms of the 2000 Long Term Incentive Plan, which was approved by
our stockholders on , 2000 and subject to consummation of this
public offering, Watson Wyatt & Company Holdings is permitted to grant options
to employees and directors allowing them to purchase shares of class A common
stock at fair market value on the date of grant. Options to purchase an
aggregate of 4,500,000 shares are authorized under the plan. Immediately before
this offering, we intend to grant options to all associates to purchase shares
of class A common stock with an aggregate fair market value on the date of grant
equal to % of their target bonus amounts subject to a minimum grant of
options. These options will be valid for seven years, subject to certain
early terminations, and will vest on a pro-rata over five years.

TRANSACTIONS WITH MANAGEMENT AND OTHERS

On April 1, 1995 we transferred our United Kingdom operations to R. Watson &
Sons, subsequently renamed Watson Wyatt Partners, and received a beneficial
interest and a 10% interest in a defined profit pool of the partnership. We also
transferred our Continental Europe operations to a newly formed holding company
owned by our company and Watson Wyatt Partners in exchange for 50.1% of its
share. Effective July 1, 1999, we sold one-half of our investment in the holding
company to Watson Wyatt Partners. Mr. Robert D. Masding, a senior partner of
Watson Wyatt Partners, is a member of our board of directors, and Mr. Haley is a
member of the Watson Wyatt Partners Partnership Board. Watson Wyatt Partners and
Watson Wyatt & Company provide various services to and on behalf of each other
in the ordinary course of business.

CORPORATE REORGANIZATION

GENERAL

We are offering shares of our class A common stock pursuant to this
prospectus. This offering is conditioned upon completion of the merger, which is
described below.

THE MERGER

Before this offering, Watson Wyatt & Company Holdings will be a wholly-owned
subsidiary of Watson Wyatt & Company. Immediately before this offering, a
wholly-owned subsidiary of Watson Wyatt & Company Holdings will merge with and
into Watson Wyatt & Company. At the time of such merger, each outstanding share
of common stock of Watson Wyatt & Company automatically will convert into one
share of Watson Wyatt & Company Holdings class B-1 common stock and one share of
Watson Wyatt & Company Holdings class B-2 common stock. Watson Wyatt & Company
will then return to capital the one share of Watson Wyatt & Company Holdings
previously owned by it. As a result of all these actions, existing Watson
Wyatt & Company stockholders automatically will become Watson Wyatt & Company
Holdings stockholders, and Watson Wyatt & Company Holdings then will own all of
Watson Wyatt & Company's outstanding common stock.

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<PAGE>
The following charts illustrate the holding company structure before and
after the planned merger.

BEFORE MERGER

[CHART]

AFTER MERGER

[CHART]

54
<PAGE>
Shares of class B-1 common stock and class B-2 common stock are not
transferable or otherwise convertible into shares of class A common stock, until
the relevant transfer restriction period expires or is otherwise waived by the
board of directors. Pursuant to the terms of the underwriting agreement, Watson
Wyatt & Company Holdings agreed that for a period of 180 days from the date of
this prospectus, the board will not waive the stock transfer restriction without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. These transfer restriction periods respectively will expire
(A) 12 months after this offering for shares of class B-1 common stock and
(B) 24 months after this offering for shares of class B-2 common stock. Once
these transfer restrictions expire or are waived by our board, the shares of
class B common stock automatically will convert into shares of class A common
stock. The shares of class A common stock by their terms can be freely
transferred, subject to any other applicable restrictions on transfer imposed by
law. Except for the transfer restrictions placed on shares of class B common
stock, all shares of common stock of Watson Wyatt & Company Holdings will be
identical.

After the merger and this offering, shares of class B-1 common stock and
class B-2 common stock will constitute about 83 % of our total outstanding
common stock. Shares of class A common stock will constitute about 17% of our
total outstanding common stock.

We will not complete this offering unless we complete the merger. We will
complete the merger only if the holders of a majority of the outstanding shares
of Watson Wyatt & Company common stock (and holders of 80% of the shares
actually voting for or against the merger, if greater) approve the merger.

As described above, current Watson Wyatt & Company stockholders are entitled
to participate in this offering. The board of directors has announced that it
will waive the transfer restrictions on a portion of the class B common stock
and permit the conversion of class B common stock to class A common stock for
resale in this offering. Each selling stockholder will be allowed to sell in
this offering the equivalent of 500 shares (as measured on a current, or
pre-conversion basis) plus up to 10% of the selling stockholder's remaining
stockholdings. We expect that an even number of shares of class B-1 and
class B-2 common stock will be converted to shares of class A common stock and
sold in this offering.

SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS

The following table sets forth information known to us with respect to
beneficial ownership of common stock as of March 1, 2000, without giving effect
to our corporate reorganization, of all directors, named officers and directors
and executive officers as a group:

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
------------------------ -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C>
John J. Haley....................................... 227,749 1.5%
Charles P. Wood, Jr................................. 200,934 1.4
A. Grahame Stott.................................... 134,000 *
Eric P. Lofgren..................................... 109,365 *
John A. Steinbrunner................................ 103,191 *
Kevin L. Meehan..................................... 100,011 *
Thomas W. Barratt................................... 89,000 *
Ira T. Kay.......................................... 80,525 *
David B. Friend, M.D................................ 71,000 *
Paula A. DeLisle.................................... 53,900 *
Brian E. Kennedy.................................... 50,000 *
Gail E. McKee....................................... 27,375 *
</TABLE>

55
<PAGE>

- ------------------------

* Beneficial ownership of 1% or less of all of the outstanding common stock is
indicated with an asterisk.

(a) Watson Wyatt Partners, in which Mr. Masding is Senior Partner, beneficially
owns 363,000 shares (2.4%) of our common stock. Mr. Masding does not own any
shares in his individual capacity and disclaims beneficial ownership of
these shares. Pursuant to our alliance agreement, if Watson Wyatt Partners
holds more than 400,000 shares of our common stock, it has an option to sell
to us any number of shares that exceed 300,000. We, in turn, have an option
to purchase from Watson Wyatt Partners any number of shares of our common
stock in excess of 400,000 shares if Watson Wyatt Partners holds more than
500,000 shares of our common stock.

(b) Mr. Smith's shares were repurchased in connection with his retirement in
June 1999 in accordance with our bylaws.

COMMON STOCK PURCHASE ARRANGEMENTS BEFORE PUBLIC OFFERING

To encourage ownership of common stock by associates, we had historically
maintained a stock purchase plan. Under the stock purchase plan, we regularly
sold common stock to associates on or about March 1 of each year, except in
1998. Historically, ownership of the common stock has been spread widely among
associates, with no individual stockholder owning more than 2% of the total
number of shares outstanding. Before 1996, it was our policy not to sell shares
to stockholders who, as a result of such sales, would have purchased more than
300,000 shares under the stock purchase plan. In 1996, we reduced this number to
200,000. The stock purchase plan will be terminated upon completion of this
offering.

The stock purchase plan permitted associates to borrow up to the full amount
of the purchase price of the common stock from our lenders, and we guaranteed
repayment of all such loans. The loans provided for full recourse to the
individual borrower and were secured by a pledge of the stock purchased.
Officers, directors and executive officers had access to this credit facility on
the same basis as other associates. As of March 1, 2000, 3,370,536 shares of
common stock were pledged to our lenders to secure loans to stockholders,
representing approximately 24% of the outstanding shares of common stock. As of
the same date, the aggregate amount of outstanding loans was approximately
$14.5 million. This loan program will continue in effect to accommodate the
amortization of existing loans after the offering, but will be amended and will
not be used to create new loans.

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<PAGE>
SELLING STOCKHOLDERS

The following table sets forth certain information furnished by each selling
stockholder with respect to the total number of shares of common stock held by
such selling stockholder.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OWNED IMMEDIATELY NUMBER OF SHARES SHARES OWNED
POSITION, OFFICE, OR PRIOR TO NUMBER OF SHARES OWNED AFTER THIS AFTER THIS
NAME MATERIAL RELATIONSHIP THIS OFFERING TO BE SOLD OFFERING OFFERING
- --------------------- --------------------- ----------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>

Additional selling
stockholders*
</TABLE>

- ------------------------

(*) Represents associates who are participating in this offering as
selling stockholders and whose holdings in the aggregate represent less than
one percent (1%) of our outstanding common stock.

After the offering, we expect that approximately 17% of the outstanding
common stock will be held by the public and that approximately 83% of the
remaining common stock will be held by officers, directors and existing
stockholders.

DESCRIPTION OF CAPITAL STOCK, CERTIFICATE OF INCORPORATION AND BYLAWS

COMMON STOCK

After the merger, we will be authorized to issue up to 99,000,000 shares of
common stock, par value $0.01 per share. 69,000,000 of these shares will be
class A common stock, 15,000,000 of these shares will be class B-1 common stock
and 15,000,000 of these shares will be class B-2 common stock. Upon completion
of this offering, approximately 5,600,000 shares of the class A common stock
will be outstanding (assuming the over-allotment option is not exercised), and
13,416,780 shares of class B-1 common stock and 13,416,780 shares of class B-2
common stock will be outstanding.

Each stockholder is entitled to one vote for each share of common stock held
on all matters submitted to a vote of stockholders. Subject to the preferences
of any series of preferred stock that may at times be outstanding, if any,
holders of outstanding shares of common stock are entitled to receive dividends
when, as, and if declared by our board of directors out of funds legally
available for dividends and, if we liquidate, dissolve or wind up, are entitled
to share ratably in all assets remaining after payment of liabilities and
payment of accrued dividends and liquidation preferences on the preferred stock,
if any. Holders of common stock have no preemptive rights and have no rights to
convert their common stock into any other securities. All shares of common stock
outstanding upon completion of this offering are validly authorized and issued,
fully paid and nonassessable.

The class A common stock will be entitled to one vote for each share of
common stock held on all matters submitted to a vote of stockholders. The shares
will be freely transferable (except for shares purchased by affiliates). We have
applied to list the class A shares on the New York Stock Exchange.

Each of the class B-1 common stock and class B-2 common stock will be
entitled to one vote for each share of common stock held on all matters
submitted to a vote of stockholders. The class B-1 shares will be restricted for
the 12 months following this offering, and the class B-2 shares will be
restricted for the 24 months following this offering, unless waived by us under
guidelines to be developed by the board of directors. Following the expiration
or waiver of each respective restriction period, the class B-1 and class B-2
shares will automatically convert into class A common stock.

57
<PAGE>

Class B-1 common stock and the class B-2 common stock will be transferable
to permitted transferees from the time of issuance in accordance with our
bylaws. Permitted transferees are (A) a revocable trust created to hold shares
of the company for the benefit of a stockholder where the stockholder has
control over disposition and voting with regard to the trust, or, (B) an
irrevocable trust over which the stockholder has voting and dispositive control
that was created for the benefit of the stockholder or the spouse or descendent
of the stockholder, or, (C) any entity controlled by the stockholder, other than
a corporation, whose interests are owned by the stockholder and/or his/her
spouse and /or descendants, or, (D) a corporation that is wholly-owned by the
stockholder and/or one of the entities described in (A), (B) or (C) above.

Pursuant to the terms of the underwriting agreement, we have agreed that for
a period of 180 days from the date of this prospectus, our board will not waive
the stock transfer restrictions without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation. We have no understanding or
arrangement with the underwriters to consent to any proposed future sale, but
they may do so in their sole discretion.

PREFERRED STOCK

Our certificate of incorporation authorizes the issuance of up to 1,000,000
shares of preferred stock. Our board of directors has the authority to issue
shares of preferred stock from time to time on terms that it may determine, to
divide preferred stock into one or more classes or series, and to fix the
designations, voting powers, preferences and relative participating, optional or
other special rights of each class or series, and the qualifications,
limitations or restrictions of each class or series, to the fullest extent
permitted by Delaware law. The issuance of preferred stock could have the effect
of decreasing the market price of our stock, impeding or delaying a possible
takeover and adversely affecting the voting and other rights of the holders of
class A common stock and class B common stock.

POTENTIAL ANTI-TAKEOVER EFFECTS OF VARIOUS PROVISIONS OF DELAWARE LAW AND OUR
CERTIFICATE OF
INCORPORATION AND BYLAWS

ANTI-TAKEOVER PROVISIONS GENERALLY

The provisions of our certificate of incorporation and bylaws described
below were put into place to help ensure that our board of directors plays a
role in attempts to acquire control of our company. In this way, the board can
further and protect the interests of the company and its stockholders as
appropriate under the circumstances. If the board determines that a sale of
control is in their best interests, having the board involved enhances its
ability to maximize the value to be received by the stockholders upon such a
sale.

Although our board believes these provisions, referred to as anti-takeover
provisions, are beneficial to stockholders, their existence also may tend to
discourage open market purchases by a potential acquirer and some takeover bids.
As a result, our stockholders may be deprived of opportunities to sell some or
all of their shares at prices that are higher than prevailing market prices. The
provisions in theory may decrease the market price of our common stock by making
the stock less attractive to persons who invest in securities in anticipation of
price increases from potential acquisition attempts. On the other hand,
defeating undesirable acquisition offers can be a very expensive and
time-consuming process. To the extent the provisions discourage undesirable
proposals, we may be able to avoid those expenditures of time and money.

The anti-takeover provisions may make it more difficult and time consuming
for a potential acquirer and existing stockholders to obtain control of the
company through replacing our board of directors and management. This is the
case even if a majority of the stockholders believes such

58
<PAGE>

replacement is in the best interests of the company. As a result, these
provisions may tend to perpetuate the incumbent board of directors and
management.

DELAWARE ANTI-TAKEOVER STATUTE

We are now, and after the merger will be, subject to Section 203 of the
Delaware General Corporation Law. Subject to specific exceptions, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless:

- the "business combination," or the transaction in which the stockholder
became an "interested stockholder" is approved by the board of directors
prior to the date the "interested stockholder" attained that status;

- upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding those shares owned by persons
who are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer); or

- on or subsequent to the date a person became an "interested stockholder,"
the "business combination" is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock
that is not owned by the "interested stockholder."

"Business combinations" include mergers, asset sales and other transactions
resulting in a financial benefit to the "interested stockholder." Subject to
various exceptions, an "interested stockholder" is a person who, together with
his or her affiliates and associates, owns, or within three years did own, 15%
or more of the corporation's outstanding voting stock. These restrictions could
prohibit or delay the accomplishment of mergers or other takeover or
change-in-control attempts with respect to us and, therefore, may discourage
acquisition attempts.

The following are various provisions of our certificate of incorporation and
bylaws that may be deemed to have an anti-takeover effect.

AUTHORIZED CAPITAL STOCK

Our certificate of incorporation authorizes the issuance of up to 99,000,000
shares of our common stock. After the merger and this offering, our board of
directors may authorize the issuance of additional shares of our common stock
without further action by our stockholders, unless such action is required in a
particular case by applicable laws or regulations or by any stock exchange upon
which our capital stock may be listed. Our certificate of incorporation does not
provide preemptive rights to our stockholders.

The authority to issue additional shares of our common stock provides us
with the flexibility necessary to meet our future needs without the delay
resulting from seeking stockholder approval. The authorized but unissued shares
of common stock will be issuable from time to time for any corporate purposes,
including, without limitation, stock splits, stock dividends, employee benefit
and compensation plans, acquisitions, and public or private sales for cash as a
means of raising capital. Such shares could be used to dilute the stock
ownership of persons seeking to obtain control of our company. In addition, the
sale of a substantial number of shares of our common stock to persons who have
an understanding with us concerning the voting of such shares, or the
distribution or declaration of a dividend of shares of our common stock to
stockholders, may have the effect of discouraging or increasing the cost of

59
<PAGE>

unsolicited attempts to acquire control of our company. The certificate of
incorporation does not provide preemptive rights to our stockholders.

Watson Wyatt & Company's authorized capital stock currently consists of
25,000,000 shares of common stock. 14,816,780 of such shares were issued and
outstanding as of March 1, 2000.

All of these shares will be exchanged for class B common stock in the
merger.

CLASSIFIED BOARD OF DIRECTORS AND ABSENCE OF CUMULATIVE VOTING

Our certificate of incorporation provides that our board of directors is
divided into three classes, with each class to be as nearly equal in number as
possible. The directors in each class serve three-year terms of office.

The effect of our having a classified board of directors is that only
approximately one-third of the members of the board are elected each year.
Consequently, two annual meetings are effectively required for our stockholders
to change a majority of the members of the board.

Pursuant to our certificate of incorporation, each stockholder generally is
entitled to one vote for each share of our common stock held and is not entitled
to cumulative voting rights in the election of directors. With cumulative
voting, a stockholder would have the right to cast a number of votes equal to
the total number of such holders' shares multiplied by the number of directors
to be elected. The stockholder would have the right to cast all of such holder's
votes in favor of one candidate or to distribute such holder's votes in any
manner among any number of candidates. Directors are elected by a plurality of
the total votes cast by all stockholders. With cumulative voting, it may be
possible for minority stockholders to obtain representation on the board of
directors. Without cumulative voting, the holders of more than 50% of the shares
of our common stock generally have the ability to elect 100% of the directors.
As a result, the holders of the remaining common stock effectively may not be
able to elect any person to the board of directors. The absence of cumulative
voting, therefore, could make it more difficult for a stockholder who acquires
less than a majority of the shares of our common stock to obtain representation
on our board of directors.

REMOVAL OF DIRECTORS

Under our certificate of incorporation, any director or the entire board of
directors may be removed only for cause and only by the affirmative vote of the
holders of at least 67% of our voting stock. Also, under our bylaws, employee
directors must resign as directors upon termination of their employment.

SPECIAL MEETINGS OF STOCKHOLDERS

Our certificate of incorporation and bylaws provide that special meetings of
stockholders may be called at any time, but only by the board of directors or
the president. This provision, combined with other provisions of our certificate
of incorporation and the restriction on the removal of directors, would prevent
a substantial stockholder from compelling stockholder consideration of any
proposal (such as a proposal for a business combination) over the opposition of
our board of directors. Therefore, such stockholder would not be able to call a
special meeting of stockholders to replace the entire board with nominees who
were in favor of such proposal.

ACTIONS BY STOCKHOLDERS WITHOUT A MEETING

Our certificate of incorporation provides that any action required or
permitted to be taken by our stockholders must be effected at a duly called
meeting of stockholders and may not be effected by any written consent by the
stockholders. These provisions would prevent stockholders from taking action,
including action on a business combination, except at an annual meeting or
special meeting called by

60
<PAGE>

the board of directors or the president, even if a majority of the stockholders
were in favor of such action.

LIMITATION ON DIRECTORS LIABILITY

Our certificate of incorporation provides that a director will have no
personal liability to the company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability for any of the
following:

- any breach of the director's duty of loyalty to the corporation or its
stockholders;

- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law; and

- under Section 174 of the Delaware General Corporations Law, the payment of
certain unlawful dividends and the making of certain unlawful stock
purchases or redemptions; or

- any transaction from which the director derived an improper personal
benefit.

INDEMNIFICATION

Our certificate of incorporation and bylaws provide that we will indemnify
our officers, directors, employees, and agents to the full extent permitted by
the Delaware General Corporation Law, subject to very limited exceptions. Under
Section 145 of the Delaware General Corporation Law as currently in effect,
other than in actions brought by or in the right of the company, such
indemnification would apply if it were determined in the specific case that the
proposed indemnitee acted in good faith and in a manner such person reasonably
believed to be in or not opposed to our best interests and, with respect to any
criminal proceeding, if such person had no reasonable cause to believe that the
conduct was unlawful. In actions brought by or in the right of the company, such
indemnification probably would be limited to reasonable expenses (including
attorneys' fees) and would apply if it were determined in the specific case that
the proposed indemnitee acted in good faith and in a manner such person
reasonably believed to be in or not opposed to our best interests, except that
no indemnification may be made with respect to any matter as to which such
person is adjudged liable to us, unless, and only to the extent that, the court
determines upon application that, in view of all the circumstances of the case,
the proposed indemnitee is fairly and reasonably entitled to indemnification for
such expenses as the court deems proper. To the extent that any director,
officer, employee, or agent of the company has been successful on the merits or
otherwise in defense of any action, suit, or proceedings, as discussed herein,
whether civil, criminal, administrative, or investigative, such person must be
indemnified against reasonable expenses incurred by such person in connection
therewith.

We are also expressly authorized to carry directors' and officers' insurance
providing indemnification for our directors, officers and certain employees for
some liabilities. We believe that these indemnification provisions and insurance
are necessary to attract and retain qualified directors and executive officers.

AMENDING THE CERTIFICATE OF INCORPORATION AND BYLAWS

The Delaware General Corporation Law generally provides that the approval of
a corporation's board of directors and the affirmative vote of a majority of
(1) all shares entitled to vote and (2) the shares of any class of stock
entitled to vote as a class, is required to amend a corporation's certificate of
incorporation, unless the certificate specifies a greater voting requirement.
Our certificate of incorporation states that each of the following provisions in
the certificate of incorporation may be amended only by a vote of 67% of the
outstanding shares:

- classification and removal of directors;

61
<PAGE>
- the prohibition on stockholder action by written consent; and

- the ability to call a special meetings of stockholders being vested solely
in our board of directors and the president.

Our certificate of incorporation also provides that the board of directors
has the power to adopt, amend, or repeal the bylaws. Stockholders also have the
power to adopt, amend or repeal bylaws, by a vote of 67% of the outstanding
shares.

RIGHTS PLAN

The board of directors has approved implementing a rights plan, although the
specific terms of the plan have not been determined. It is likely that under
such a plan, our stockholders will be issued rights to purchase shares of
preferred stock upon the occurrence of certain events such as the acquisition by
a person of fifteen percent (15%) of our outstanding shares. The purpose of this
plan is to ensure that our board of directors has the opportunity to negotiate
with persons contemplating significant transactions with our company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is First Union
National Bank, and its address is 1525 West W.T. Harris Boulevard, Charlotte,
North Carolina 28262-1153.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of common stock after this offering could
adversely affect the market price of the common stock and could impair our
future ability to raise capital through the sale of our equity securities. Upon
the consummation of this offering, we will have outstanding 5,600,000 shares of
class A common stock (assuming no exercise of the underwriters' over-allotment
option), 13,416,780 shares of class B-1 common stock and 13,416,780 shares of
class B-2 common stock. All of the shares of class A common stock sold in the
offering will be freely tradable under the Securities Act, unless purchased by
our "affiliates" as that term is defined under the Securities Act. The
class B-1 and class B-2 common stock is subject to transfer restrictions for
periods extending 12 months and 24 months, respectively, after this offering,
unless earlier waived by the board of directors. Pursuant to the terms of the
underwriting agreement, we have agreed that for a period of 180 days from the
date of the prospectus, the board will not waive the stock transfer restrictions
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. Upon the expiration of transfer restriction periods in the
class B-1 and class B-2 common stock, all of the shares of class B-1 and
class B-2 common stock will convert automatically to class A common stock and
become eligible for sale, subject to compliance with Rule 144 by persons deemed
our affiliates.

Because the shares of class B-1 and class B-2 common stock are being issued
pursuant to a registration statement on form S-4, they will be freely tradable
without restriction under the Securities Act following the expiration of the
transfer restriction period described under "Corporate Reorganization" except
for any such shares acquired by an affiliate, which shares will remain subject
to the resale limitations of Rule 144.

Generally, Rule 144 provides that an affiliate who has beneficially owned
shares for at least one year may sell his or her shares on the open market in
brokers' transactions within any three-month period a number of shares that does
not exceed the greater of:

- 1% of the then outstanding shares of common stock; and

- the average weekly trading volume in the common stock on the open market
during the four calendar weeks preceding the sale.

Sales under Rule 144 will also be subject to post-sale notice requirements
and the availability of current public information about us.

62
<PAGE>
UNDERWRITING

Under the terms and conditions contained in an underwriting agreement dated
, 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Banc of America Securities
LLC and DLJDIRECT Inc., have severally agreed to purchase from us and the
selling stockholders the number of shares of class A common stock set forth
opposite their names below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation
Banc of America Securities LLC
DLJDIRECT Inc.............................................

-------
Total...................................................
=======
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of class A common
stock in this offering are subject to approval by their counsel of legal matters
concerning this offering and to conditions precedent that must be satisfied by
us. The underwriters are obligated to purchase and accept delivery of all the
shares of common stock in this offering, other than those shares covered by the
over-allotment option described below.

The underwriters initially propose to offer some of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page of this prospectus and some of the shares to dealers at the
initial public offering price less a concession not in excess of $ per
share. The underwriters may allow, and those dealers may re-allow, a concession
not in excess of $ per share on sales to other dealers. After the initial
offering of the class A common stock to the public, the representatives may
change the public offering price and concessions. The underwriters do not intend
to confirm sales to any accounts over which they exercise discretionary
authority.

The following table shows the underwriting fees to be paid by us and the
selling stockholders in connection with this offering. The underwriting fee is
equal to the public offering price per share of class A common stock less the
amount paid by the underwriters to us or the selling stockholders, as the case
may be, per share of class A common stock. It is currently anticipated that the
underwriting fee will be 7.0% of the public offering price. Offering expenses
are expenses incurred by us in connection with this offering and include SEC and
NASD filing fees, New York Stock Exchange listing fees, printing expenses and
legal and accounting expenses. This information is presented assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our class A common stock.

<TABLE>
<CAPTION>
PAID BY THE SELLING
PAID BY US STOCKHOLDERS
--------------------------- ---------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
<S> <C> <C> <C> <C>
Underwriting fees per share.... $ $ $ $
Total underwriting fees........ $ $ $ $
Offering expenses per share.... $ $ $ $
Total offering expenses........ $ $ $ $
</TABLE>

We will pay all of the offering expenses, including reimbursing those due
from the selling stockholders.

63
<PAGE>

A number of the selling stockholders have granted to the underwriters an
option, exercisable for 30 days after the date of this prospectus, to purchase
up to 840,000 additional shares of class A common stock at the initial public
offering price less the underwriting discounts and commissions PRO RATA based on
participation. The underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
the underwriters exercise this option, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares
approximately proportionate to that underwriter's initial purchase commitments.

We, together (in limited circumstances) with the selling stockholders, have
agreed to indemnify the underwriters against liabilities, including liabilities
under the Securities Act, or to contribute to payments that the underwriters may
be required to make for these liabilities, if any.

For a period ending 180 days from the date of this prospectus, we have
agreed not to, without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation:

- offer, pledge, sell, contract to sell or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of class A common stock or any securities
convertible into or exercisable or exchangeable for class A common stock;

- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any class A
common stock, whether any such transaction described above is to be
settled by delivery of common stock or other securities, in cash or
otherwise; or

- waive the applicability of any transfer restriction applicable to the
class B common stock.

In addition, during such lock-up period, we have also agreed not to file any
registration statement with respect to, and each of our executive officers and
directors have agreed not to make any demand for, or exercise any right with
respect to, the registration of any shares of class A common stock or any
securities convertible into or exercisable or exchangeable for class A common
stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.

Prior to this offering, no public market has existed for our common stock.
We will negotiate the initial public offering price for our class A common stock
with the underwriters' representatives, but the price may not reflect the market
price for our class A common stock after this offering. The factors considered
in determining the initial public offering price include:

- the history of and prospects for our industry in which we compete;

- our past and present operations;

- our historical results of operations;

- our prospects for future operations results;

- the recent market prices of securities of generally comparable companies;
and

- the general conditions of the securities market at the time of this
offering.

We have applied to have our class A common stock listed for trading on the
NYSE under the symbol "WW."

Other than in the United States, no action has been taken by us, the selling
stockholders or the underwriters that would permit a public offering of the
shares of class A common stock included in this offering in any jurisdiction
where action for that purpose is required. The shares included in this offering
may not be offered or sold, directly or indirectly, nor may this prospectus or
any other offering material or advertisements in connection with the offer and
sale of any shares of class A common stock

64
<PAGE>
be distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to this offering and
the distribution of this prospectus. This prospectus is not an offer to sell or
a solicitation of an offer to buy any shares of class A common stock in any
jurisdiction where that would not be permitted or legal.

In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
class A common stock. Specifically, the underwriters may over-allot this
offering, creating a syndicate short position. The underwriters may bid for and
purchase shares of our class A common stock in the open market to cover such
syndicate short positions or to stabilize the price of our class A common stock.
In addition, the underwriting syndicate may reclaim selling concessions from
syndicate members and selected dealers if they repurchase previously distributed
class A common stock in syndicate covering transactions, in stabilizing
transactions or otherwise, or if Donaldson, Lufkin & Jenrette Securities
Corporation receives a report which indicates that the clients of such syndicate
members have "flipped" our class A common stock. These activities may stabilize
or maintain the market price of the class A common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.

We currently maintain a senior secured revolving credit facility with an
affiliate of Banc of America Securities LLC.

LEGAL MATTERS

The validity of the issuance of the shares of class A common stock offered
by the prospectus will be passed upon for us by Cadwalader, Wickersham & Taft.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Winston & Strawn.

EXPERTS

The consolidated financial statements of Watson Wyatt & Company as of
June 30, 1999, and 1998 and for each of the three years in the period ended
June 30, 1999, included in and incorporated by reference in this prospectus have
been so included or incorporated by reference in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
such firm as experts in accounting and auditing. The financial statements for
Wellspring Resources LLC as of June 30, 1997, and 1996 and for the year ended
June 30, 1997 and the three months ended June 30, 1996 appearing in Watson
Wyatt & Company Annual Report on Form 10-K for the year ended June 30, 1999 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report incorporated therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.

65
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Consolidated Financial Statements of Watson Wyatt & Company

Report of Independent Accountants......................... F-2

Financial Statements:

Consolidated Statements of Operations for each of the
three years
ended June 30, 1999................................... F-3

Consolidated Balance Sheets at June 30, 1999 and 1998... F-4

Consolidated Statements of Cash Flows for each of the
three years
ended June 30, 1999................................... F-5

Consolidated Statements of Changes in Permanent
Shareholders' Equity for each of the three years ended
June 30, 1999......................................... F-6

Notes to the Consolidated Financial Statements.......... F-7 to F-26

Valuation and Qualifying Accounts and Reserves (Schedule
II)..................................................... F-27

Consolidated Statements of Operations for the six month
periods ended December 31, 1999 and December 31, 1998
(unaudited)........................................... F-28

Consolidated Balance Sheets at December 31, 1999
(unaudited) and June 30, 1999......................... F-29

Consolidated Statements of Cash Flows for the six month
periods
ended December 31, 1999 and December 31, 1998
(unaudited)........................................... F-30

Consolidated Statements of Changes in Permanent
Shareholders' Equity for
the six month period ended December 31, 1999
(unaudited)........................................... F-31

Notes to the Consolidated Financial Statements
(unaudited)........................................... F-32 to F-34
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of Watson Wyatt & Company

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Watson
Wyatt & Company and its subsidiaries at June 30, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1999, in conformity with the accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information, set forth therein when read in
connection with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP

Washington, D.C.
September 8, 1999, except as to the
information presented in Notes 5 and 6,
for which the date is December 9, 1999.

F-2
<PAGE>
WATSON WYATT & COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Fees........................................................ $556,860 $ 512,660 $486,502
Costs of providing services:
Salaries and employee benefits............................ 298,915 268,611 252,302
Stock incentive bonus..................................... 22,610 -- --
Non-recurring compensation charge (see Note 12)........... -- 69,906 --
Occupancy and communications.............................. 62,915 62,061 72,155
Professional and subcontracted services................... 47,863 49,907 48,827
Other..................................................... 29,753 26,779 23,871
-------- --------- --------
462,056 477,264 397,155
General and administrative expenses......................... 56,578 51,759 45,696
Depreciation and amortization............................... 15,248 24,994 22,094
-------- --------- --------
533,882 554,017 464,945

Income (loss) from operations (see Note 12)................. 22,978 (41,357) 21,557
Other:
Interest income........................................... 944 901 1,462
Interest expense.......................................... (2,646) (2,768) (1,506)
Income from affiliates...................................... 2,524 258 105
-------- --------- --------
Income (loss) before income taxes and minority interest
(see Note 12)............................................. 23,800 (42,966) 21,618

Provision for (benefit from) income taxes:
Current................................................... 18,744 15,116 12,627
Deferred.................................................. (7,296) (1,982) (3,557)
-------- --------- --------
11,448 13,134 9,070
-------- --------- --------
Income (loss) before minority interest (see Note 12)........ 12,352 (56,100) 12,548

Minority interest in net (income) loss of consolidated
subsidiaries.............................................. (217) (112) (167)
-------- --------- --------
Income (loss) from continuing operations (see Note 12)...... 12,135 (56,212) 12,381

Discontinued operations:

Loss from operations of discontinued Outsourcing Business
(less applicable income tax benefit of $0, $5,053 and
$8,181 respectively)...................................... -- (6,821) (11,483)

Adjustment (loss) on disposal of discontinued Outsourcing
Business (1999 adjustment is net of applicable income tax
expense of $6,322; 1998 loss is net of applicable income
tax benefit of $46,715)................................... 8,678 (63,085) --
-------- --------- --------
Net income (loss) (see Note 12)............................. $ 20,813 $(126,118) $ 898
======== ========= ========
Earnings (loss) per share, continuing operations, basic and
fully diluted............................................. $ 0.80 $ (3.27) $ 0.71
======== ========= ========
Earnings (loss) per share, discontinued operations, basic
and fully diluted......................................... $ 0.57 $ (4.07) $ (0.66)
======== ========= ========
Earnings (loss) per share, net income (loss), basic and
fully diluted............................................. $ 1.37 $ (7.34) $ 0.05
======== ========= ========
</TABLE>

See accompanying notes

F-3
<PAGE>
WATSON WYATT & COMPANY

CONSOLIDATED BALANCE SHEETS

(THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 35,985 $ 13,405
Receivables from clients:
Billed, net of allowances of $3,701 and $2,142............ 72,798 69,671
Unbilled.................................................. 63,068 59,725
-------- --------
135,866 129,396
Income taxes receivable..................................... -- 2,216
Other current assets........................................ 10,834 6,945
-------- --------
Total current assets...................................... 182,685 151,962

Investment in affiliates.................................... 15,306 17,666
Fixed assets................................................ 42,797 37,368
Deferred income taxes....................................... 56,206 48,911
Intangible assets........................................... 7,455 2,412
Other assets................................................ 9,511 9,991
-------- --------
$313,960 $268,310
======== ========

LIABILITIES, REDEEMABLE COMMON STOCK, AND PERMANENT SHAREHOLDERS' EQUITY

Accounts payable and accrued liabilities.................... $152,371 $116,548
Note payable and book overdrafts............................ 248 11,666
Income taxes payable........................................ 18,374 --
-------- --------
Total current liabilities................................. 170,993 128,214
Accrued retirement benefits................................. 77,140 82,528
Deferred rent and accrued lease losses...................... 9,270 12,676
Other noncurrent liabilities................................ 22,608 32,784
Minority interest in subsidiaries........................... 669 322
Redeemable Common Stock--$1 par value: 25,000,000 shares
authorized; 16,112,416 and 15,916,757 issued and
outstanding; at redemption value.......................... 107,631 96,296
Permanent shareholders' equity:
Adjustment for redemption value less than amounts paid in by
shareholders.............................................. 11,420 25,240
Retained deficit............................................ (83,209) (106,834)
Cumulative translation adjustment (accumulated other
comprehensive loss)....................................... (2,562) (2,916)
Commitments and contingencies...............................
-------- --------
$313,960 $268,310
======== ========
</TABLE>

See accompanying notes

F-4
<PAGE>
WATSON WYATT & COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Cash flows from (used for) operating activities:
Net income (loss)......................................... $ 20,813 $(126,118) $ 898
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Non-cash non-recurring compensation charge.............. -- 69,906 --
Net (adjustment) loss from Discontinued Operations...... (8,678) 69,906 11,483
Provision for doubtful receivables from clients......... 9,503 5,613 6,853
Depreciation............................................ 13,680 12,849 13,816
Amortization of deferred software and development costs
and other intangible assets........................... 1,568 12,143 8,277
Provision for deferred income taxes..................... (7,295) (1,982) (3,557)
Income from affiliates.................................. (2,524) (258) (105)
Minority interest in net income of consolidated
subsidiaries.......................................... 217 112 167
(Increase) decrease in assets (net of discontinued
operations):
Receivables from clients.............................. (25,488) (11,115) (2,794)
Income taxes receivable............................... 2,216 4,558 3,327
Other current assets.................................. (3,889) 342 (351)
Other assets.......................................... 480 76 (1,930)
Increase (decrease) in liabilities (net of discontinued
operations):
Accounts payable and accrued liabilities.............. 54,567 11,318 1,300
Income taxes payable.................................. 12,052 (3,563) (7,799)
Accrued retirement benefits........................... (5,388) (4,169) 5,556
Deferred rent and accrued lease losses................ (3,406) (2,262) 5,034
Other noncurrent liabilities.......................... 1,132 840 687
Other, net.............................................. 514 1,603 656
Discontinued operations, net............................ (5,537) (18,554) 7,530
-------- --------- --------
Net cash provided by operating activities............... 54,537 21,245 49,048
======== ========= ========
Cash flows (used in) from investing activities:
Purchases of fixed assets................................. (19,684) (16,034) (15,548)
Proceeds from sales of fixed assets and investments....... 237 623 446
Acquisitions.............................................. (6,207) -- (1,169)
Investment in software and development costs.............. -- (3,000) (4,554)
Investment in affiliates.................................. 4,220 3,076 (1,385)
Discontinued operations................................... -- (14,750) (20,062)
-------- --------- --------
Net cash used in investing activities................... (21,434) (30,085) (42,272)
-------- --------- --------
Cash flows (used by) from financing activities:
Borrowings and bank overdrafts............................ (11,418) 11,258 --
Issuances of Redeemable Common Stock...................... 15,451 1,005 15,414
Repurchases of Redeemable Common Stock.................... (15,124) (13,141) (16,604)
-------- --------- --------
Net cash used by financing activities................... (11,091) (878) (1,190)
-------- --------- --------
Effect of exchange rates on cash............................ 568 (3,134) (1,023)
-------- --------- --------
Increase (decrease) in cash and cash equivalents............ 22,580 (12,852) 4,563
Cash and cash equivalents at beginning of period............ 13,405 26,257 21,694
-------- --------- --------
Cash and cash equivalents at end of period.................. $ 35,985 $ 13,405 $ 26,257
======== ========= ========
</TABLE>

See accompanying notes

F-5
<PAGE>
WATSON WYATT & COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN PERMANENT SHAREHOLDERS' EQUITY

(THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
ADJUSTMENT FOR
REDEMPTION
VALUE
CUMULATIVE (GREATER) LESS
RETAINED TRANSLATION THAN AMOUNTS
EARNINGS GAIN PAID IN BY
(DEFICIT) (LOSS) SHAREHOLDERS TOTAL
--------- ----------- -------------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1996...................... $ 30,677 $ 1,040 $(37,549) $ (5,832)
Comprehensive income:
Net income.................................. 898 -- -- 898
Foreign currency translation adjustment..... -- (204) -- (204)
--------- ------- -------- --------
Total comprehensive income.................... 898 (204) -- 694
Effect of repurchases of 3,258,203 shares of
common stock (various prices per share)..... (6,942) -- 6,942 --
Adjustment of redemption value for change in
formula book value per share................ -- -- (7,067) (7,067)
--------- ------- -------- --------
Balance at June 30, 1997...................... $ 24,633 $ 836 $(37,674) $(12,205)

Comprehensive loss:
Net loss.................................... (126,118) -- -- (126,118)
Foreign currency translation adjustment..... -- (3,752) -- (3,752)
--------- ------- -------- --------
Total comprehensive loss...................... (126,118) (3,752) -- (129,870)
Effect of repurchases of 2,410,425 shares of
common stock (various prices per share)..... (5,349) -- 5,349 --
Adjustment of redemption value for change in
formula book value per share................ -- -- (12,341) (12,341)
Adjustment of redemption value for
non-recurring compensation charge (see Note
12)......................................... -- -- 69,906 69,906
--------- ------- -------- --------
Balance at June 30, 1998...................... $(106,834) $(2,916) $ 25,240 (84,510)

Comprehensive income:
Net income.................................. 20,813 -- -- 20,813
Foreign currency translation adjustment..... -- 354 -- 354
--------- ------- -------- --------
Total comprehensive income.................... 20,813 354 -- 21,167
Effect of repurchases of 2,361,542 shares of
common stock (various prices per share)..... 2,812 -- (2,812) --
Adjustment of redemption value for change in
formula book value per share................ -- -- (11,008) (11,008)
--------- ------- -------- --------
Balance at June 30, 1999...................... $ (83,209) $(2,562) $ 11,420 $(74,351)
========= ======= ======== ========
</TABLE>

See accompanying notes

F-6
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF THE BUSINESS--Watson Wyatt & Company ("Watson Wyatt" or the
"Company"), together with its subsidiaries, is an international company engaged
in the business of providing professional consultative services on a fee basis,
primarily in the human resource areas of employee benefits and compensation, but
also in other areas of specialization such as human capital consulting and human
resource related technology consulting. Substantially all of the Company's stock
is held by or for the benefit of employees. On July 1, 1996, The Wyatt Company
changed its name to Watson Wyatt & Company.

In 1998, the Company discontinued its Benefits Administration Outsourcing
Business as further described in Note 16. The Consolidated Statements of
Operations in 1999 and 1998 reflect the charges recorded for that
discontinuation as well as for the operating results of the discontinued
operations in 1998 and 1997.

USE OF ESTIMATES--Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
are used when accounting for revenue, allowances for uncollectible receivables,
investments in affiliates, depreciation and amortization, profits on long-term
contracts, asset write-downs, employee benefit plans, taxes, discontinued
operations and Year 2000 costs.

PRINCIPLES OF CONSOLIDATION--The consolidated financial statements of the
Company include the accounts of the Company and its majority-owned and
controlled subsidiaries after elimination of inter-company accounts and
transactions. Investments in affiliated companies over which the Company has the
ability to exercise significant influence are accounted for using the equity
method.

RECLASSIFICATIONS--Certain amounts previously presented have been
reclassified to conform to the current presentation.

CASH AND CASH EQUIVALENTS--The Company considers short-term, highly liquid
investments with original maturities of 90 days or less to be cash equivalents.
Such investments were $21,700,000 at June 30, 1999.

RECEIVABLES FROM CLIENTS--Billed receivables from clients are presented at
their billed amount less an allowance for doubtful accounts. Services rendered
are generally billed on a monthly basis using fee arrangements defined at the
inception of the project. Unbilled receivables are stated at their estimated net
realizable value.

REVENUE RECOGNITION--For consulting services, fees from clients are recorded
as services are performed and are presented net of write-offs and uncollectible
amounts. Revenues from long-term contracts are recognized on the percentage of
completion basis. Anticipated contract losses are recognized as they become
known. Fees for administrative and recordkeeping operations are recognized as
earned by the Company.

INTANGIBLE ASSETS--Intangible assets consist primarily of goodwill related
to the excess cost over net assets of purchased companies. Goodwill is generally
amortized on a straight-line basis over seven to fifteen years. The Company
regularly assesses the recoverability of unamortized goodwill and other

F-7
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
long-lived assets by comparing the probable undiscounted future cash flows with
the net book value of the underlying assets. Losses so identified are then
measured as the difference between the net book value of the asset and the
discounted present value of the cash flows and are recorded as identified.

EMPLOYEE RECEIVABLES--The Company had outstanding employee receivables
included in other current and noncurrent assets of $2,440,000 and $3,165,000 at
June 30, 1999 and June 30, 1998, respectively, related primarily to employee
relocations.

FOREIGN CURRENCY TRANSLATION--Gains and losses on foreign currency
transactions are recognized currently in the consolidated statements of
operations. Assets and liabilities of the Company's subsidiaries outside the
United States are translated into the reporting currency, the U.S. dollar, based
on exchange rates at the balance sheet date. Revenue and expenses of the
Company's subsidiaries outside the United States are translated into U.S.
dollars at the average exchange rates during the year. Gains and losses on
translation of the Company's equity interests in its subsidiaries outside the
United States are not included in the consolidated statements of operations but
are reported separately and accumulated as the cumulative translation gain or
loss within permanent shareholders' equity in the consolidated balance sheets.
Foreign currency translation gains or losses on inter-company receivables and
payables are generally not recognized because such amounts are usually
considered to be permanent and are not expected to be liquidated.

FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amount of the Company's
cash and cash equivalents, short-term investments, receivables from clients and
notes and accounts payable and accrued liabilities approximates fair value
because of the short maturity and ready liquidity of those instruments. At
June 30, 1999, the outstanding balance under its revolving credit agreement was
zero, while at June 30, 1998 the Company had $9,000,000 outstanding. The Company
knows of no event of default that would require it to satisfy the guarantees
described in Notes 9 and 15 other than as reflected in the Consolidated
Financial Statements.

CONCENTRATION OF CREDIT RISK--Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
certain cash and cash equivalents, short-term investments and receivables from
clients. The Company invests its excess cash with high-credit quality financial
institutions. Concentrations of credit risk with respect to receivables from
clients are limited due to the Company's large number of customers and their
dispersion across many industries and geographic regions.

EARNINGS PER SHARE--The computation of earnings per share is based upon the
weighted average number of shares of Redeemable Common Stock outstanding. The
number of shares (in thousands) used in the computation is 15,215 in fiscal year
1999, 17,170 in fiscal year 1998, and 17,438 in fiscal year 1997 (see Note 10).

COMPREHENSIVE INCOME--In fiscal year 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income." Comprehensive income includes net income and changes in the cumulative
foreign currency translation gain or loss. For the years ended June 30, 1999,
1998 and 1997, comprehensive income (loss) totaled $21,167,000, $(129,870,000),
and $694,000, respectively.

F-8
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 2--CASH FLOW INFORMATION

Net cash provided by operating activities in the consolidated statements of
cash flows includes cash payments for:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest expense.................................. $1,889 $ 2,639 $ 1,506
Income taxes paid................................. $5,462 $18,679 $11,947
</TABLE>

NOTE 3--INVESTMENTS IN AFFILIATES

Entities accounted for under the equity method are:

<TABLE>
<CAPTION>
JUNE 30
OWNERSHIP -------------------
INTEREST 1999 1998
--------- -------- --------
<S> <C> <C> <C>
Watson Wyatt Partners........................... 10.0% $ 9,265 $11,040
Watson Wyatt Holdings (Europe) Limited.......... 25.0% 6,041 6,626
Professional Consultants Insurance Company,
Inc........................................... 27.4% -- --
------- -------
Total Investment in Affiliates.................. $15,306 $17,666
======= =======
</TABLE>

On April 1, 1995, the Company transferred its United Kingdom ("U.K.")
operations to Watson Wyatt Partners, formerly R. Watson & Sons ("Watsons"), an
actuarial partnership based in the U.K., and received a beneficial interest in
Watsons and a 10% interest in a defined profit pool of Watsons. The Company also
transferred its Continental European operations to a newly-formed holding
company, Watson Wyatt Holdings (Europe) Limited ("WWHE"), jointly owned and
controlled by the Company and Watsons, in exchange for 50.1% of its shares. The
Company's historical basis in the assets and liabilities carried over. Effective
July 1, 1998, the Company sold one half of its investment in WWHE to Watsons; no
gain or loss was recognized on the transaction.

The Company accounts for its interest in Watsons using the equity method of
accounting because it is an investment in a general partnership. The Company
accounts for its interest in WWHE using the equity method of accounting because
it has the ability to exercise significant influence over the operations of the
entity.

At June 30, 1999, the Company's investment in WWHE and Watsons exceeded the
Company's share of the underlying net assets by $2,257,000 due primarily to the
capitalization of external transaction costs incurred by the Company. This basis
differential is being amortized over periods of 10 to 15 years.

F-9
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 3--INVESTMENTS IN AFFILIATES (CONTINUED)
The Company's pre-tax income from affiliates includes the following:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Equity investment income............................. $2,760 $724 $1,019
Amortization of basis differential................... (236) (466) (914)
------ ---- ------
Income from affiliates............................... $2,524 $258 $ 105
====== ==== ======
</TABLE>

Combined summarized balance sheet information at June 30 for the Company's
affiliates follows:

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current assets.......................................... $117,717 $118,116
Noncurrent assets....................................... 17,286 10,886
-------- --------
Total assets............................................ $135,003 $129,002
======== ========

Current liabilities..................................... $ 65,171 $ 54,278
Noncurrent liabilities.................................. 30,810 39,344
Shareholders' equity.................................... 39,022 35,380
-------- --------
Total liabilities & shareholders' equity................ $135,003 $129,002
======== ========
</TABLE>

The Company's operating results include its proportionate share of income
from equity investments from the dates of investment. Combined summarized
operating results for the years ended June 30, reported by the affiliates
follow:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue....................................... $206,463 $173,012 $166,851
Operating expenses............................ 155,330 135,577 126,338
-------- -------- --------
Income before tax............................. $ 51,133 $ 37,435 $ 40,513
======== ======== ========
Net income.................................... $ 51,116 $ 38,176 $ 39,996
======== ======== ========
</TABLE>

NOTE 4--FIXED ASSETS

Furniture, fixtures, equipment, and leasehold improvements are recorded at
cost, and presented net of accumulated depreciation or amortization. Furniture,
fixtures and equipment are depreciated using straight-line and accelerated
methods over lives ranging from three to seven years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the assets' lives or
lease terms.

F-10
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 4--FIXED ASSETS (CONTINUED)
The components of fixed assets are:

<TABLE>
<CAPTION>
JUNE 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Furniture, fixtures and equipment....................... $ 96,096 $ 90,727
Leasehold improvements.................................. 27,069 22,294
-------- --------
123,165 113,021
Less: accumulated depreciation and amortization......... (80,368) (75,653)
-------- --------
Net fixed assets........................................ $ 42,797 $ 37,368
======== ========
</TABLE>

NOTE 5--PENSION AND SAVINGS PLANS

In fiscal year 1999, the Company adopted the revised disclosure requirements
of SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." SFAS 132 standardized the disclosure of pensions and other
postretirement benefits but did not change the accounting for these benefits.
Prior years' information has been reclassified to conform to the 1999 disclosure
format.

The noncurrent portions of accrued costs related to the Company's principal
retirement plans are:

<TABLE>
<CAPTION>
JUNE 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Defined benefit retirement plans.......................... $28,149 $35,263
Canadian Separation Allowance Plan........................ 5,953 6,264
Postretirement benefits other than pensions............... 43,038 41,001
------- -------
Accrued retirement benefits............................... $77,140 $82,528
======= =======
</TABLE>

DEFINED BENEFIT PLANS

The Company sponsors both qualified and non-qualified non-contributory
defined benefit pension plans covering substantially all of its associates.
Under the Company's principal plans (U.S., Canada, and Hong Kong), benefits are
based on the number of years of service and the associate's compensation during
the three highest paid consecutive years of service.

Contributions are limited to amounts that are currently deductible for tax
purposes, and the excess of expense over such contributions and direct payments
under non-qualified plan provisions is accrued. As of January 1, 1997, changes
were made to the U.S. pension program. The pension plan definition of
compensation was revised to include overtime and annual bonuses. The pension
benefit formula was changed to integrate with Social Security benefits on a
step-rate basis. The total years of service included in the benefit calculation
were reduced from 28 1/3 years to 25 years.

F-11
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 5--PENSION AND SAVINGS PLANS (CONTINUED)
Net periodic pension cost consists of the following components:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost..................................... $22,976 $18,340 $16,962
Interest cost.................................... 23,909 22,302 19,651
Expected return on plan assets................... (37,437) (31,910) (26,828)
Amortization of transition obligation............ 201 201 199
Amortization of net unrecognized gains........... (5,979) (6,316) (4,740)
Amortization of prior service cost............... 1,841 1,794 1,352
------- ------- -------
Net periodic pension cost........................ 5,511 4,411 6,596
Settlement loss.................................. -- -- 708
------- ------- -------
Net periodic pension cost including
settlements.................................... $ 5,511 $ 4,411 $ 7,304
======= ======= =======
</TABLE>

During fiscal year 1999, the Company acquired a portion of KPMG's actuarial
consulting services. In connection with this transaction, the Company recognized
additional pension expense of $665,000.

The following tables set forth the changes in the projected pension benefit
obligation and fair value of the pension plan assets:

<TABLE>
<CAPTION>
JUNE 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Benefit obligation at beginning of year................. $353,658 $295,245
Service cost............................................ 22,976 18,340
Interest cost........................................... 23,909 22,302
Participant contributions............................... 54 --
Actuarial losses gains.................................. (8,503) 34,610
Benefit payments........................................ (14,593) (16,042)
Plan amendments......................................... -- 647
Foreign currency adjustment............................. (94) (1,444)
-------- --------
Benefit obligation at end of year....................... $377,407 $353,658
======== ========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Fair value of plan assets at beginning of year.......... $381,398 $322,533
Actual return on plan assets............................ 36,473 67,275
Company contributions................................... 7,889 9,311
Participant contributions............................... 54 --
Benefit payments........................................ (14,593) (16,042)
Foreign currency adjustment............................. (119) (1,679)
-------- --------
Fair value of plan assets at end of year................ $411,102 $381,398
======== ========
</TABLE>

F-12
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 5--PENSION AND SAVINGS PLANS (CONTINUED)
The following table sets forth selected information for plans with
accumulated benefit obligations in excess of plan assets:

<TABLE>
<CAPTION>
JUNE 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Projected benefit obligation.............................. $86,703 $78,519
Accumulated benefit obligation............................ 42,740 38,474
Fair value of plan assets................................. -- --
</TABLE>

The accrued pension benefit cost recognized in our consolidated balance
sheets is computed as follows:

<TABLE>
<CAPTION>
JUNE 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Funded status at end of year............................ $ 33,695 $ 27,740
Unrecognized prior service cost......................... 9,255 11,101
Unrecognized net gain................................... (75,579) (74,030)
Unrecognized transition obligation...................... 793 993
-------- --------
Net accrued pension liability........................... $(31,836) $(34,196)
======== ========

Prepaid pension benefit cost............................ $ 26,691 $ 13,778
Accrued pension benefit liability....................... (58,527) (47,974)
Intangible assets....................................... -- --
Accumulated other comprehensive income.................. -- --
-------- --------
Net accrued pension liability........................... $(31,836) $(34,196)
======== ========
</TABLE>

Assumptions used in the valuation for the U.S. plan, which comprises the
majority of the principal defined benefit pension plans, include:

<TABLE>
<CAPTION>
JUNE 30
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Discount rate, projected benefit obligation............... 7.0% 6.8% 7.5%
Discount rate, net periodic pension cost.................. 6.8% 7.5% 7.5%
Expected long-term rate of return on assets............... 10.0% 10.0% 10.0%
Rate of increase in compensation levels................... 5.3% 5.8% 5.8%
</TABLE>

DEFINED CONTRIBUTION PLANS

The Company sponsors a savings plan which provides benefits to substantially
all U.S. associates and under which the Company matches employee contributions
at 50% of the first 6% of total pay, which includes base salary, overtime and
annual performance-based bonuses. Vesting of the Company match occurs after
three years for new employees and is 100% for all employees hired before
January 1, 1997. The expense in fiscal years 1999, 1998 and 1997 for the match
was $4.5 million,

F-13
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 5--PENSION AND SAVINGS PLANS (CONTINUED)
$5.1 million and $2.0 million, respectively. Under the plan, the Company also
has the ability to make discretionary profit-sharing contributions. The Company
made no profit sharing contributions during fiscal years 1999, 1998 or 1997. The
Company also sponsors a Canadian Separation Allowance Plan (CSAP) which provides
benefits to substantially all Canadian associates. The CSAP is an unfunded book
reserve arrangement; as such, the amounts due to associates are recorded as a
liability in the consolidated balance sheets of the Company. CSAP expense for
fiscal years 1999, 1998 and 1997 amounted to $377,000, $293,000 and $414,000,
respectively.

NOTE 6--BENEFITS OTHER THAN PENSIONS

HEALTH CARE BENEFITS

The Company sponsors a contributory health care plan that provides
hospitalization, medical and dental benefits to substantially all U.S.
associates. The Company accrues a liability for estimated incurred but
unreported claims based on projected use of the plan as well as paid claims of
prior periods. The liability totaled $2,495,000 at June 30, 1999 and 1998, and
is included in accounts payable and accrued liabilities in the consolidated
balance sheets.

POSTRETIREMENT BENEFITS

The Company provides certain health care and life insurance benefits for
retired associates. The principal plans cover associates in the U.S. and Canada
who have met certain eligibility requirements. The Company's principal plans are
unfunded.

Effective January 1, 1997, premiums paid on the retiree medical plan are
tied to the retiree's years of service. The Company contribution is capped at
200% of 1997 per capita claims cost. Benefits have been redefined to ensure a
retiree benefit comparable to the Watson Wyatt Plan for active employees.

Net periodic postretirement benefit cost consists of the following
components:

F-14
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 6--BENEFITS OTHER THAN PENSIONS (CONTINUED)

The following tables set forth the changes in the accumulated postretirement
benefit obligation, company contributions and benefit payments:

<TABLE>
<CAPTION>
JUNE 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Benefit obligation at beginning of year................... $32,326 $30,031
Service cost.............................................. 1,898 1,848
Interest cost............................................. 2,178 2,133
Participant contributions................................. 175 189
Actuarial losses/(gains).................................. (563) (883)
Acquisitions/(divestitures)............................... 245 --
Benefit payments.......................................... (1,267) (849)
Foreign currency adjustment............................... (11) (143)
------- -------
Benefit obligation at end of year......................... $34,981 $32,326
======= =======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Fair value of plan assets at beginning of year.............. $ -- $ --
Company contributions....................................... 1,092 660
Participant contributions................................... 175 189
Benefit payments............................................ (1,267) (849)
------- -----
Fair value of plan assets at end of year.................... $ -- $ --
======= =====
</TABLE>

The accrued other postretirement benefit cost recognized in our consolidated
balance sheets is computed as follows:

<TABLE>
<CAPTION>
JUNE 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Funded status at end of year............................ $(34,981) $(32,326)
Unrecognized prior service cost......................... (1,325) (1,451)
Unrecognized net gain................................... (8,763) (8,664)
Unrecognized transition obligation...................... 650 698
-------- --------
Net accrued postretirement liability.................... $(44,419) $(41,743)
======== ========

Prepaid pension benefit cost............................ $ -- $ --
Accrued postretirement benefit liability................ (44,419) (41,743)
Intangible assets....................................... -- --
Accumulated other comprehensive income.................. -- --
-------- --------
Net accrued postretirement liability.................... $(44,419) $(41,743)
======== ========
</TABLE>

F-15
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 6--BENEFITS OTHER THAN PENSIONS (CONTINUED)
Assumptions used in the valuation for the U.S. plan, which comprises the
majority of the principal postretirement plans, include:

<TABLE>
<CAPTION>
JUNE 30
-------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Health care cost trend, accumulated benefit
obligation:
Pre-65 benefits
(decreasing to 5.0% for 2004 and thereafter)..... 7.7% 8.4% 9.1%
Post-65 benefits
(decreasing to 5.0% for 2007 and thereafter)..... 7.1% 7.7% 8.3%
Discount rate, accumulated benefit obligation
postretirement benefit........................... 7.0% 6.8% 7.5%
Discount rate, net periodic cost................... 7.0% 6.8% 7.5%
</TABLE>

A one percentage point change in the assumed health care cost trend rates
would have the following effect:

<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on net periodic postretirement benefit cost in
fiscal 1999......................................... $ 233 $ (283)
Effect on accumulated postretirement benefit
obligation as of June 30, 1999...................... 1,925 (2,189)
</TABLE>

NOTE 7--ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of:

<TABLE>
<CAPTION>
JUNE 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Accounts payable and accrued liabilities................ $ 53,586 $ 55,865
Accrued salaries and bonuses............................ 68,405 37,567
Current portion of defined benefit retirement plans and
postretirement benefits other than pensions........... 9,948 4,191
Accrued vacation........................................ 13,578 13,300
Advance billings........................................ 6,854 5,625
-------- --------
Total accounts payable and accrued liabilities.......... $152,371 $116,548
======== ========
</TABLE>

NOTE 8--LEASES

The Company leases office space and various computer equipment under
operating lease agreements with terms generally ranging from one to ten years.
The Company has entered into sublease agreements for some of its leased space.
The rental expense was $43,631,000, $43,133,000 and $42,079,000 for fiscal years
1999, 1998 and 1997, respectively. Sublease income was $4,208,000, $3,905,000
and $1,702,000 for fiscal years 1999, 1998 and 1997, respectively.

F-16
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 8--LEASES (CONTINUED)
Future cash outlays for operating lease commitments and cash inflows for
sublease income are:

<TABLE>
<CAPTION>
LEASE SUBLEASE
COMMITMENTS INCOME
----------- --------
<S> <C> <C>
2000................................................... $ 43,771 $3,388
2001................................................... 38,709 3,315
2002................................................... 30,614 2,963
2003................................................... 18,074 115
2004................................................... 14,043 --
thereafter............................................. 25,770 --
-------- ------
$170,981 $9,781
======== ======
</TABLE>

As a result of relocations and the subleasing of excess office space, the
Company recognized lease termination losses of $341,000, $790,000 and
$12,107,000 in fiscal years 1999, 1998 and 1997, respectively.

NOTE 9--NOTE PAYABLE

The Company has a $120,000,000 credit facility with a group of banks at an
interest rate that varies with LIBOR and/or the Prime Rate, plus an annual
commitment fee that varies with the Company's financial leverage and is paid on
the unused portion of the credit facility. No amounts were outstanding under the
revolving portion of the credit facility as of June 30, 1999; $9,000,000 was
outstanding at June 30, 1998. The credit facility requires the Company to
observe certain covenants (including requirements as to minimum net worth and
other financial and restrictive covenants) and is secured by a blanket lien on
all assets. At June 30, 1999 the Company was in compliance with all covenants
under the credit facility. The revolving portion of the credit facility is
scheduled to mature on June 30, 2003.

Of the total credit line, $95,000,000 is available to the Company as
revolving credit for operating needs. The remaining $25,000,000 is available to
secure loans to associates for the purchase of Redeemable Common Stock made
available under the Company's Stock Purchase Program. The Company guarantees
these loans to its shareholders, the aggregate outstanding balances of which
totaled $20,316,000 and $15,617,000 at June 30, 1999 and 1998, respectively.
Shares totaling 4,735,000 and 4,897,000 of the Company's Redeemable Common Stock
were pledged by shareholders to secure these loans at June 30, 1999 and 1998,
respectively.

NOTE 10--REDEEMABLE COMMON STOCK

Substantially all of the Company's Redeemable Common Stock is held by or for
the benefit of its employees and, pursuant to the Company's bylaws, is subject
to certain restrictions. In connection with these restrictions, the Company has
the following rights and obligations regarding purchases and sales of its common
stock:

a) The Company has the first option to purchase, or to designate associates who
are eligible to purchase, any shares offered for sale by a shareholder.
Shares not purchased by the Company or

F-17
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 10--REDEEMABLE COMMON STOCK (CONTINUED)
its designees may be sold to identified transferees, subject to the
restrictions contained in the bylaws.

b) Upon the termination of employment, bankruptcy of a shareholder, or the
imposition of a lien or attachment on any stock, the shares held by the
shareholder or subject to attachment are considered to be offered for sale.
In these circumstances, the Company is obligated to purchase any such
shares.

Pursuant to the Company's bylaws, the price for all sales by the Company of
Redeemable Common Stock is the Formula Book Value per share (defined in the
bylaws as "Formula Book Value") of such stock as of the last day of the
preceding year. Amounts paid by the Company to repurchase Redeemable Common
Stock are equal to the Formula Book Value as of the prior year end, adjusted to
reflect the pro rata appreciation in the Formula Book Value per share from the
last day of the preceding year to the end of the current year and pro rata
dividends paid during the year.

Formula Book Value as used herein means the Net Book Value of the Company's
Redeemable Common Stock as of June 30, 1996, increased or decreased by net
income or losses, and all other Generally Accepted Accounting Principals
("GAAP") basis increases or decreases to Net Book Value occurring after
June 30, 1996, adjusted to (i) spread the economic impact of certain real estate
sublease losses over the remaining life of the sublease, (ii) eliminate annual
changes in the Currency Translation Adjustment occurring after June 30, 1996,
and (iii) eliminate the after tax increases or decreases in Net Book Value
recorded in accordance with GAAP as a result of the discontinuation of the
Benefits Administration Outsourcing Business. The Formula Book Value was $6.68
at June 30, 1999 and $6.05 at June 30, 1998.

The following schedule computes the Formula Book Value per share at
June 30:

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Consolidated net worth[1]................................... $ 36,882 $15,742
Adjustment for the compensation survey items:
50% of consolidated income received from compensation
survey business........................................... 5,915 5,915
Add: Adjustment for after-tax effect of discontinuation of
Benefits Administration Outsourcing Business.............. 61,228 69,906
Add: Adjustment for after-tax effect of lease losses........ 3,606 4,733
-------- -------
Formula Book Value of Redeemable Common Stock............... $107,631 $96,296
======== =======
Number of shares of Redeemable Common Stock outstanding..... 16,112 15,917
======== =======
Formula Book Value per share of Redeemable Common Stock..... $ 6.68 $ 6.05
======== =======
</TABLE>

- ------------------------

[1] After adjusting for currency translation as specified in the Company's
bylaws of $3,602 in 1999 and $3,956 in 1998.

In view of the Company's obligation to repurchase its Redeemable Common
Stock, the Securities and Exchange Commission requires that the redemption value
of outstanding shares be classified as Redeemable Common Stock and not be
portrayed as permanent capital. The amount presented as

F-18
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 10--REDEEMABLE COMMON STOCK (CONTINUED)

Redeemable Common Stock outside the permanent shareholders' equity section is
stated at the amount at which the Company would be required to repurchase the
shares, or the most recent fiscal year end Formula Book Value per share. In the
permanent shareholders' equity section, the "adjustment for redemption value
less (greater) than amounts paid/deemed paid in by shareholders" represents the
amount that the Redeemable Value is less than (exceeds) the cost of the stock.

<TABLE>
<CAPTION>
NUMBER OF REDEEMABLE
SHARES COMMON STOCK
---------- ------------
<S> <C> <C>
Balance at June 30, 1996.................................... 18,261,963 $ 90,214

Redemption of shares........................................ (3,258,203) (16,604)
Issuance of shares.......................................... 3,126,670 15,414
Adjustment of redemption value for
change in Formula Book Value per share.................... -- 7,067
---------- --------
Balance at June 30, 1997.................................... 18,130,430 $ 96,091

Redemption of shares........................................ (2,410,425) (13,141)
Issuance of shares.......................................... 196,752 1,005
Adjustment of redemption value for
change in Formula Book Value per share.................... -- 12,341
---------- --------
Balance at June 30, 1998.................................... 15,916,757 $ 96,296

Redemption of shares........................................ (2,361,542) (15,124)
Issuance of shares.......................................... 2,557,201 15,451
Adjustment of redemption value for
change in Formula Book Value per share.................... -- 11,008
---------- --------
Balance at June 30, 1999.................................... 16,112,416 $107,631
========== ========
</TABLE>

The Company sponsors a Stock Purchase Plan ("SPP") which allows virtually
all associates to become shareholders. During 1999, the Company received
$15,451,000 from the sale of 2,557,201 shares of stock under the SPP. There was
no formal stock sale in fiscal year 1998, although for the fiscal year ended
June 30, 1998, the Company received $1,005,000 from the sale of 196,752 shares
of stock outside of the SPP. During fiscal year 1997, the Company received
$15,414,000 from the sale of 3,126,670 shares of stock under the SPP. During
1997, the Company paid each associate purchasing stock $0.50 per share,
resulting in expense of $1,300,000.

NOTE 11--INCOME TAXES

The provision for income taxes is based upon reported income before income
taxes and includes deferred income taxes resulting from differences between
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for income tax purposes. The Company measures deferred taxes
by applying currently enacted tax laws, recognizes deferred tax assets if it is
more likely than not that a benefit will be realized, and provides a valuation
allowance on deferred tax assets to the extent that it is more likely than not
that a benefit will not be realized.

F-19
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 11--INCOME TAXES (CONTINUED)
The components of the continuing operations income tax provision before
minority interest and discontinued operations include:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current tax expense:
U.S....................................................... $10,817 $ 9,972 $ 8,370
State and local........................................... 4,050 3,324 2,773
Foreign................................................... 3,877 1,820 1,484
------- ------- -------
18,744 15,116 12,627
------- ------- -------
Deferred tax (benefit) expense:
U.S....................................................... (5,776) (337) (4,188)
State and local........................................... (1,407) (1,706) (1,507)
Foreign................................................... (113) 61 2,138
------- ------- -------
(7,296) (1,982) (3,557)
------- ------- -------
Total provision for income taxes............................ $11,448 $13,134 $ 9,070
======= ======= =======
</TABLE>

Deferred income tax assets (liabilities) included in the consolidated
balance sheets at June 30, 1999 and June 30, 1998 are comprised of the
following:

<TABLE>
<CAPTION>
JUNE 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Cash method of accounting for U.S. income tax purposes...... $ -- $(15,561)
Difference between book and tax depreciation................ -- (1,987)
Foreign temporary difference................................ (2,595) (914)
------- --------
Gross deferred tax liabilities............................ (2,595) (18,462)

Cash method of accounting for U.S. income tax purposes...... 3,744 --
Difference between book and tax depreciation................ 3,202 --
Accrued retirement benefits................................. 37,137 39,255
Amortization of deferred rent............................... 5,697 6,794
Foreign temporary difference................................ 6,367 3,092
Foreign net operating loss carryforwards.................... 1,989 4,942
Discontinued operations exit costs.......................... 7,230 19,559
Other....................................................... 317 2
------- --------
Gross deferred tax assets................................. 65,683 73,644
------- --------
Deferred tax assets valuation allowance................... (6,882) (6,271)
------- --------
Net deferred tax asset.................................... $56,206 $ 48,911
======= ========
</TABLE>

The Company has foreign tax credit carryforwards for U.S. tax purposes of
$305,000. At June 30, 1999, the Company has unused loss carryforwards for tax
purposes in various jurisdictions outside the

F-20
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 11--INCOME TAXES (CONTINUED)
U.S. amounting to $6,352,000, of which $4,350,000 can be indefinitely carried
forward under local statutes. The majority of the remaining loss carryforwards
will expire, if unused, after the end of fiscal year 2002. The valuation
allowance applies to the tax effect of the foreign net operating loss
carryforwards ($1,944,000), the tax effect of certain foreign temporary expenses
($4,563,000) and foreign tax credit carryforwards and other items ($375,000) for
which realizability is considered uncertain.

The net change in the valuation allowance of $611,000 in fiscal year 1999
and $2,569,000 in fiscal year 1998 is due primarily to the tax effect of the
change in realizable foreign net operating losses, foreign tax credits and
non-deductible foreign expenses.

Domestic and foreign components of income before taxes, minority interest
and discontinued operations for each of the three years ended June 30 are as
follows:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Domestic........................................ $15,203 $(47,435) $14,861
Foreign......................................... 8,597 4,469 6,757
------- -------- -------
$23,800 $(42,966) $21,618
======= ======== =======
</TABLE>

The reported income tax provision for continuing operations differs from the
amounts that would have resulted had the reported income before income taxes
been taxed at the U.S. federal statutory rate. The principal reasons for the
differences between the actual amounts provided and those which would have
resulted from the application of the U.S. federal statutory tax rate are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Calculated income tax provision at U.S. federal statutory
tax rate of 35%........................................... $ 8,330 $(15,038) $7,507
Increase (reduction) resulting from:
Non-deductible compensation expense....................... -- 24,467 --
Results of non-U.S. affiliates taxed at other than
statutory rates......................................... (377) (324) (463)
Losses of non-U.S. affiliates for which no current benefit
is available............................................ 881 852 599
State income taxes, net of federal tax benefit............ 1,207 1,618 1,266
Non-deductible amortization and other expenses............ 849 758 700
Tax credits............................................... -- (353) (888)
Other..................................................... 558 1,154 349
------- -------- ------
Income tax provision........................................ $11,448 $ 13,134 $9,070
======= ======== ======
</TABLE>

NOTE 12--NON-RECURRING COMPENSATION CHARGE

In accordance with generally accepted accounting principles, the Company has
recorded a charge against operating results of $69,906,000 in 1998 as
compensation expense. This charge arises because the Company changed the method
of calculation of its Formula Book Value during 1998, through a shareholder
vote, to eliminate from the Formula Book Value calculation the effect of the
charge taken

F-21
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 12--NON-RECURRING COMPENSATION CHARGE (CONTINUED)
for discontinued operations resulting from the discontinuation of the Company's
Benefits Administration Outsourcing Business.

The non-recurring compensation charge does not represent a call against
Company resources and will not recur unless the Company modifies its Formula
Book Value calculation again. The Company has separately disclosed in the
Statement of Operations the amount of the charge so that readers of the
financial statements may consider its effect on earnings and infrequent nature.

NOTE 13--SEGMENT INFORMATION

In fiscal year 1999, the Company adopted SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information." The Company is primarily
organized geographically and has seven reportable segments:

(1) U.S. East

(2) U.S. Central

(3) U.S. West

(4) Asia/Pacific

(5) Canada

(6) Latin America

(7) Data Services

The Company evaluates the performance of its segments and allocates
resources to them based on net operating income. Prior year data has been
restated to be consistent with current year classifications for comparative
purposes.

The table below presents specified information about reported segments as of
and for the year ended June 30, 1999 (in thousands):

<TABLE>
<CAPTION>
U.S. U.S. U.S. ASIA/ LATIN DATA
EAST CENTRAL WEST PACIFIC CANADA AMERICA SERVICES TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External fees............... $150,959 $130,568 $54,496 $44,404 $36,515 $5,691 $12,796 $435,429
Intersegment fees........... 37,738 24,369 18,957 4,284 5,010 1,424 329 92,111
Net operating income........ 45,287 27,087 1,236 7,085 3,488 223 3,736 88,142
Interest expense............ 1,158 856 471 17 300 98 5 2,905
Depreciation &
amortization.............. 5,950 4,414 3,351 1,281 1,186 143 185 16,510
Receivables................. 47,198 39,905 18,730 12,729 12,491 2,527 -- 133,580
Income from affiliates...... -- -- -- -- -- -- -- 2,524
</TABLE>

F-22
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 13--SEGMENT INFORMATION (CONTINUED)
The table below presents specified information about reported segments as of
and for the year ended June 30, 1998 (in thousands):

<TABLE>
<CAPTION>
U.S. U.S. U.S. ASIA/ LATIN DATA
EAST CENTRAL WEST PACIFIC CANADA AMERICA SERVICES TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External fees............... $129,337 $125,639 $68,076 $38,429 $36,221 $6,062 $13,004 $416,768
Intersegment fees........... 28,187 15,296 14,210 3,945 4,443 1,153 249 67,483
Net operating income........ 28,286 25,127 10,476 65 4,315 574 3,742 72,585
Interest expense............ 963 710 494 33 314 68 14 2,596
Depreciation &
amortization.............. 5,801 3,758 2,822 1,458 1,077 149 166 15,231
Receivables................. 36,044 33,113 21,375 11,719 11,992 2,097 -- 116,340
Income from affiliates...... -- -- -- -- -- -- -- 258
</TABLE>

The table below presents specified information about reported segments as of
and for the year ended June 30, 1997 (in thousands):

<TABLE>
<CAPTION>
U.S. U.S. U.S. ASIA/ LATIN DATA
EAST CENTRAL WEST PACIFIC CANADA AMERICA SERVICES TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External fees............... $126,077 $121,613 $63,989 $45,468 $34,743 $5,024 $12,062 $408,976
Intersegment fees........... 17,518 12,739 8,002 2,851 2,789 784 573 45,256
Net operating income........ 18,169 26,797 11,595 5,162 2,595 225 3,146 67,689
Interest expense............ 1,165 799 322 10 262 35 17 2,610
Depreciation &
amortization.............. 5,838 3,555 2,353 1,599 1,006 132 193 14,676
Receivables................. 34,042 32,416 15,134 17,821 10,812 2,345 -- 112,570
Income from affiliates...... -- -- -- -- -- -- -- 105
</TABLE>

F-23
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 13--SEGMENT INFORMATION (CONTINUED)

Information about interest income and tax expense is not presented as it is
not produced internally.

A reconciliation of the information reported by segment to the consolidated
amounts follows for the years ended June 30:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
FEES:
Total segment external and intersegment fees................ $527,540 $484,251 $454,232
Reimbursable expenses not included in segment fees.......... 30,426 28,686 30,091
Other, net.................................................. (1,106) (277) 2,179
-------- -------- --------
Consolidated fees........................................... $556,860 $512,660 $486,502
======== ======== ========
NET OPERATING INCOME:
Total segment income........................................ $ 88,142 $ 72,585 $ 67,689
Non-recurring compensation charge........................... -- (69,906) --
Sublease loss............................................... (341) (790) (12,107)
Income from affiliates...................................... 2,524 258 105
Differences in allocation methods for depreciation, G&A and
pension costs............................................. 1,277 (6,208) 3,913
Gain on sale of business units.............................. 2,723 3,093 --
Discretionary payments...................................... (67,194) (37,400) (34,703)
Other, net.................................................. (3,331) (4,598) (3,279)
-------- -------- --------
Consolidated pretax income (loss) from continuing
operations................................................ $ 23,800 $(42,966) $ 21,618
======== ======== ========
INTEREST EXPENSE:
Total segment expense....................................... $ 2,905 $ 2,596 $ 2,610
Differences in allocation method............................ (259) 172 (1,104)
-------- -------- --------
Consolidated interest expense............................... $ 2,646 $ 2,768 $ 1,506
======== ======== ========
DEPRECIATION & AMORTIZATION:
Total segment expense....................................... $ 16,510 $ 15,231 $ 14,676
Capitalized software amortization, not allocated to
segments.................................................. -- 12,267 9,451
Goodwill amortization, not allocated to segments............ 1,568 549 695
Differences in allocation method and other.................. (2,830) (3,053) (2,728)
-------- -------- --------
Consolidated depreciation and amortization expense.......... $ 15,248 $ 24,994 $ 22,094
======== ======== ========
RECEIVABLES:
Total segment receivables................................... $133,580 $116,340 $112,570
Net valuation differences and receivables of discontinued
operations................................................ 2,286 13,056 11,191
-------- -------- --------
Total billed and unbilled receivables....................... 135,866 129,396 123,761
Assets not reported by segment.............................. 178,094 138,914 208,017
-------- -------- --------
Consolidated assets......................................... $313,960 $268,310 $331,778
======== ======== ========
</TABLE>

F-24
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 13--SEGMENT INFORMATION (CONTINUED)
The following represents total fees and long lived assets information by
geographic area as of and for the years ended June 30:

<TABLE>
<CAPTION>
FEES LONG LIVED ASSETS
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
United States.......................... $464,521 $424,246 $395,351 $105,481 $ 95,617 $156,692
Foreign................................ 92,339 88,414 91,151 25,794 20,731 17,781
-------- -------- -------- -------- -------- --------
$556,860 $512,660 $486,502 $131,275 $116,348 $174,473
======== ======== ======== ======== ======== ========
</TABLE>

Fee revenue is based on the country of domicile for the legal entity which
originated the fees. Exclusive of the United States, fees from no single country
constituted more than 10% of consolidated revenues. Fees from no single customer
constituted more than 10% of consolidated revenues.

NOTE 14--RELATED PARTY TRANSACTIONS

In connection with the contractual servicing of the Retained Clients (as
defined in Note 16 of this report) which continued through September 1998,
Wellspring provided the services to those clients on behalf of the Company.
Expenses charged to the Company by Wellspring for such services for fiscal 1999,
1998 and 1997 were $11,600,000, $41,811,000 and $40,313,000, respectively. The
Company's obligation to service the Retained Clients ceased in fiscal year 1999
and there were no amounts due to Wellspring at June 30, 1999, compared with
$1,186,000 at June 30, 1998.

NOTE 15--COMMITMENTS AND CONTINGENT LIABILITIES

The Company is a defendant in certain lawsuits arising in the normal course
of business, some of which are in their earliest stages. Management currently
foresees no material liability to the Company resulting from such litigation,
and management believes that the Company carries adequate insurance, above
reasonable deductibles, or has appropriately accrued against any foreseeable
outcome of such litigation.

As of June 30, 1999, the Company and its affiliates had outstanding letters
of credit of $2,225,000.

The Company continues to guarantee certain leases for office premises and
equipment for Wellspring. Minimum remaining payments guaranteed under these
leases at June 30, 1999 total $59,800,000, which expire at various dates through
2007. These leases are also jointly and severally guaranteed by the Company's
former partner in Wellspring, State Street. The estimated loss from the
potential exercise of these guarantees has been included in the loss on disposal
of the Benefits Administration Outsourcing Business.

Anticipated commitments of funds for fiscal year 2000 are estimated at
$30,100,000, which includes expected purchases of fixed assets and an
installment payment during the fiscal year related to the purchase of one
consulting operation. The Company expects operating cash flows to provide for
the Company's cash needs.

F-25
<PAGE>
WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PERCENTAGE DATA)

NOTE 16--DISCONTINUED OPERATIONS

During the third quarter of fiscal year 1998, the Company discontinued its
Benefits Administration Outsourcing Business, including its investment in its
affiliate Wellspring Resources LLC ("Wellspring"), pursuant to a Redemption,
Restructuring, and Indemnity Agreement ("the Restructuring Agreement") by which
Wellspring redeemed the Company's 50% interest in Wellspring effective April 1,
1998. The restructuring effected, pursuant to the Restructuring Agreement, the
implementation of a discontinuation plan approved by the Company's Board of
Directors on February 18, 1998. Under the Restructuring Agreement, certain
outsourcing contracts retained by the Company when Wellspring was initially
formed in 1996 ("Retained Clients") would continue to be performed until their
respective contract expirations.

In connection with the restructuring, the Company agreed to indemnify
Wellspring for certain costs and losses as a result of services provided by
Wellspring on the Company's behalf. Further, the Company was released from
certain liabilities relating to the Wellspring business in connection with the
redemption.

In 1998, the Company recorded a pre-tax loss on discontinuation of
$109,800,000, which included the $45,200,000 write-off of its investment in
Wellspring, a $14,000,000 write-off of net capitalized software development
costs for the Retained Clients and a $50,600,000 provision for completion of any
obligations to clients, vendors or its former venture partner.

In October 1998, the Company consummated agreements with the remaining
Retained Clients, Wellspring, and its former venture partner to transfer
operating responsibility for these clients to Wellspring, clarifying the
remaining future obligations and costs related to the discontinuation.
Management believes that savings of $25,000,000 compared with initial estimates
made in the third quarter of fiscal 1998 and $15,000,000 from the amount
provided at June 30, 1998 will be realized from these events. The Company
reduced the amount of its provision for losses from disposal of the Benefits
Administration Outsourcing Business in the second quarter of fiscal year 1999. A
credit to income of $15,000,000, less the associated tax expense of $6,322,000,
is reflected in the Consolidated Statement of Operations for fiscal year 1999 in
the line "Adjustment (loss) on disposal of discontinued Outsourcing Business".

F-26
<PAGE>

WATSON WYATT & COMPANY

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS CHARGED ADDITIONS CHARGED END OF
DESCRIPTION OF YEAR AGAINST FEES TO OTHER ACCOUNTS DEDUCTIONS YEAR
- ----------- ---------- ----------------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1999
----------------------------------------------------------------------------

Allowance for doubtful
accounts..................... $2,142 $9,503 $ -- $(7,944) $3,701

Valuation allowance for
deferred tax assets.......... 6,271 -- 611(1) -- 6,882

YEAR ENDED JUNE 30, 1998
----------------------------------------------------------------------------

Allowance for doubtful
accounts..................... $2,525 $5,613 $ -- $(5,996) $2,142

Valuation allowance for
deferred tax assets.......... 3,702 -- 2,569(1) -- 6,271

YEAR ENDED JUNE 30, 1997
----------------------------------------------------------------------------

Allowance for doubtful
accounts..................... $5,161 $6,853 $ -- $(9,489) $2,525

Valuation allowance for
deferred tax assets.......... 3,331 -- 371(1) -- 3,702
</TABLE>

- ------------------------

(1) Represents current year net operating loss carryforwards and the
nondeductible foreign expenses for which realizability is considered
uncertain.

F-27
<PAGE>

WATSON WYATT & COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Fees........................................................ $298,734 $274,343
-------- --------
Costs of providing services:
Salaries and employee benefits............................ 160,753 148,868
Stock incentive bonus plan................................ 15,000 7,600
Occupancy and communications.............................. 30,423 29,954
Professional and subcontracted services................... 24,927 22,052
Other..................................................... 16,300 11,586
-------- --------
247,403 220,060

General and administrative expenses......................... 27,902 27,852
Depreciation and amortization............................... 9,517 7,824
-------- --------
284,822 255,736
-------- --------
Income from operations...................................... 13,912 18,607
Other:
Interest income........................................... 1,252 528
Interest expense.......................................... (1,088) (1,721)
Income from affiliates...................................... 2,143 1,025
-------- --------
Income before income taxes and minority interest............ 16,219 18,439
Provision for income taxes.................................. 7,835 8,917
Income before minority interest............................. 8,384 9,522
Minority interest in net loss/(income) of consolidated
subsidiaries.............................................. 176 (85)
-------- --------
Income from continuing operations........................... 8,560 9,437
Discontinued operations:
Adjustment to reduce loss on disposal of discontinued
Outsourcing Business [less applicable income tax expense
of $0, $6,322, $0 and $6,322 respectively]................ -- 8,678
-------- --------
Net income.................................................. $ 8,560 $ 18,115
======== ========
Earnings per share, continuing operations, basic and fully
diluted................................................... $ 0.57 $ 0.63
======== ========
Earnings per share, discontinued operations, basic and fully
diluted................................................... $ -- $ 0.58
======== ========
Earnings per share, net income, basic and fully diluted..... $ 0.57 $ 1.21
======== ========
Weighted average shares of Redeemable Common Stock, basic
and fully diluted......................................... 15,140 14,977
======== ========
</TABLE>

See accompanying notes

F-28
<PAGE>

WATSON WYATT & COMPANY

CONSOLIDATED BALANCE SHEETS

(THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
------------ --------
(UNAUDITED)
<S> <C> <C>
ASSETS

Cash and cash equivalents................................... $ 13,688 $ 35,985
Receivables from clients:
Billed, net of allowances of $6,436 and $3,701............ 82,838 72,798
Unbilled.................................................. 64,707 63,068
-------- --------
147,545 135,866
Other current assets........................................ 9,734 10,834
-------- --------
Total current assets...................................... 170,967 182,685
Investment in affiliates.................................... 17,109 15,306
Fixed assets, net........................................... 38,381 42,797
Deferred income taxes....................................... 56,206 56,206
Intangible assets, net...................................... 9,484 7,455
Other assets................................................ 8,877 9,511
-------- --------
$301,024 $313,960
======== ========

LIABILITIES, REDEEMABLE COMMON STOCK AND PERMANENT SHAREHOLDERS' EQUITY

Accounts payable and accrued liabilities.................... $143,821 $152,371
Note payable and book overdrafts............................ 8,401 248
Income taxes payable........................................ 9,863 18,374
-------- --------
Total current liabilities................................. 162,085 170,993
Accrued retirement benefits................................. 74,233 77,140
Deferred rent and accrued lease losses...................... 7,628 9,270
Other noncurrent liabilities................................ 22,249 22,608
Minority interest in subsidiaries........................... 550 669
Redeemable Common Stock--$1 par value:
25,000,000 shares authorized; 14,879,886 and 16,112,416
issued and outstanding; at redemption value............. 99,398 107,631
Permanent shareholders' equity:
Adjustment for redemption value less than amounts paid in by
shareholders.............................................. 10,547 11,420
Retained deficit............................................ (74,198) (83,209)
Cumulative translation adjustment (accumulated other
comprehensive loss)....................................... (1,468) (2,562)
Commitments and contingencies...............................
-------- --------
$301,024 $313,960
======== ========
</TABLE>

See accompanying notes

F-29
<PAGE>

WATSON WYATT & COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from (used for) operating activities:
Net income................................................ $ 8,560 $ 18,115
Adjustments to reconcile net income to net cash provided
by operating activities:
Adjustment to reduce loss on discontinued operations.... -- (8,678)
Provision for doubtful receivables from clients......... 6,203 6,423
Depreciation............................................ 8,651 7,184
Amortization of intangible assets....................... 866 641
Income from affiliates.................................. (2,143) (1,025)
Minority interest in net (loss) income of consolidated
subsidiaries.......................................... (176) 85
(Increase) decrease in assets (net of discontinued
operations):
Receivables from clients.............................. (17,882) (27,822)
Income taxes receivable............................... -- 2,216
Other current assets.................................. 1,100 (1,900)
Other assets.......................................... 634 1,133
(Decrease) increase in liabilities (net of discontinued
operations):
Accounts payable and accrued liabilities.............. (8,550) (4,093)
Income taxes payable.................................. (8,511) 5,177
Accrued retirement benefits........................... (2,907) 1,783
Deferred rent and accrued lease losses................ (1,642) (1,498)
Other noncurrent liabilities.......................... 279 870
Other, net.............................................. (584) (138)
Discontinued operations, net............................ (637) (4,466)
-------- --------
Net cash used for operating activities.................. (16,739) (5,993)
-------- --------
Cash flows from (used in) investing activities:
Purchases of fixed assets................................. (3,636) (6,297)
Acquisitions.............................................. (2,800) (6,158)
Investment in affiliates.................................. 594 2,257
-------- --------
Net cash used in investing activities................... (5,842) (10,198)
-------- --------
Cash flows from (used by) financing activities:
Net borrowings and book overdrafts........................ 8,153 24,906
Issuances of Redeemable Common Stock...................... -- --
Repurchases of Redeemable Common Stock.................... (8,656) (10,584)
-------- --------
Net cash (used by) from financing activities............ (503) 14,322
-------- --------
Effect of exchange rates on cash............................ 787 283
-------- --------
Decrease in cash and cash equivalents....................... (22,297) (1,586)
Cash and cash equivalents at beginning of period............ 35,985 13,405
-------- --------
Cash and cash equivalents at end of period.................. $ 13,688 $ 11,819
======== ========
</TABLE>

See accompanying notes

F-30
<PAGE>

WATSON WYATT & COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN PERMANENT SHAREHOLDERS' EQUITY

(THOUSANDS OF U.S. DOLLARS)

(UNAUDITED)

<TABLE>
<CAPTION>
ADJUSTMENT FOR
REDEMPTION VALUE
CUMULATIVE LESS THAN AMOUNTS
RETAINED TRANSLATION PAID IN BY
DEFICIT LOSS SHAREHOLDERS TOTAL
-------- ----------- ----------------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1999..................... $(83,209) $(2,562) $11,420 $(74,351)

Comprehensive Income:
Net income................................. 8,560 -- -- 8,560
Foreign currency translation adjustment.... -- 1,094 -- 1,094
-------- ------- ------- --------
Total Comprehensive Income................... 8,560 1,094 -- 9,654
Effect of repurchases of 1,232,530 shares of
common stock............................... 451 -- (451) --
Adjustment of redemption value for change in
Formula Book Value per share............... -- -- (422) (422)
-------- ------- ------- --------
Balance at December 31, 1999................. $(74,198) $(1,468) $10,547 $(65,119)
======== ======= ======= ========
</TABLE>

See accompanying notes

F-31
<PAGE>

WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. The accompanying unaudited consolidated financial statements of Watson
Wyatt & Company and its subsidiaries, (collectively, "Watson Wyatt" or the
"Company"), are presented in accordance with the rules and regulations of
the Securities and Exchange Commission ("SEC") and do not include all of the
disclosures normally required by Generally Accepted Accounting Principles.
In the opinion of management, these statements reflect all adjustments,
consisting only of normal recurring adjustments, which are necessary for a
fair presentation of the consolidated financial statements for the interim
periods. The consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1999.

The results of operations for the six months ended December 31, 1999 are not
necessarily indicative of the results that can be expected for the entire
fiscal year ending June 30, 2000. The results reflect prorata growth in
share value, anticipated tax rates and potential distributions at the
discretion of the Company's Board of Directors. Certain prior year amounts
have been reclassified to conform to the current year presentation.

2. On January 19, 2000, the Company filed registration statements on Form S-3
and Form S-4 with the Securities and Exchange Commission to offer its common
stock to the public through a corporate reorganization and Initial Public
Offering ("IPO"). As a part of this proposed transaction, the current
operating company, Watson Wyatt & Company, will merge with an indirect
wholly-owned subsidiary to become a wholly-owned subsidiary of Watson
Wyatt & Company Holdings.

3. Under the Company's current Bylaws, the Company is obligated to repurchase
its Redeemable Common Stock, except in certain circumstances. Accordingly,
the redemption value of outstanding shares is classified as Redeemable
Common Stock and not as permanent shareholders' equity. Redeemable Common
Stock is equal to the number of shares outstanding multiplied by the Formula
Book Value per share, which was $6.68 per share at December 31, 1999 and
June 30, 1999. Permanent shareholders' equity includes an adjustment for the
difference between the redemption value of the Redeemable Common Stock and
the amounts actually paid or deemed paid by shareholders for the shares.

4. During the six months ended December 31, 1999, the Company repurchased
1,232,530 shares of Redeemable Common Stock. The computation of earnings per
share, basic and fully diluted, is based upon the weighted average number of
shares of Redeemable Common Stock outstanding during the period. The number
of shares (in thousands) used in the computation is 15,140 and 14,977 for
the six months ended December 31, 1999 and 1998, respectively.

5. In the third quarter of fiscal year 1998, the Company discontinued its
Benefits Administration Outsourcing Business, including its investment in
its affiliate Wellspring Resources, LLC ("Wellspring") and recorded an
after-tax loss of $69.9 million related thereto. In October 1998, the
Company consummated agreements with certain clients, Wellspring, and its
former venture partner to transfer operating responsibility for these
clients to Wellspring, clarifying the remaining future obligations and costs
related to the discontinuation. The Company reduced the amount of its
provision for losses from disposal of the Outsourcing Business in the second
quarter of fiscal year 1999 by $8.7 million, net of tax, and believes it has
adequate provisions for any remaining costs.

F-32
<PAGE>

WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

6. Subsequent to the end of its second fiscal quarter, the Company approved an
anticipated restructuring plan for its Canadian operations. Costs for the
plan will be included in subsequent operating results.

7. The Company has adopted SFAS No. 130 "Reporting Comprehensive Income."
Comprehensive Income includes net income and changes in the cumulative
translation gain or loss. For the six months ended December 31, 1999 and
1998, Comprehensive Income totaled $9.7 million and $18.5 million,
respectively.

8. In fiscal year 1999, the Company adopted SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information." The Company is primarily
organized geographically and has seven reportable segments:

(1) U.S. East

(2) U.S. Central

(3) U.S. West

(4) Asia/Pacific

(5) Canada

(6) Latin America

(7) Data Services

The Company evaluates the performance of its segments and allocates
resources to them based on net operating income. Prior year and first quarter
fiscal year 2000 data have been restated to be consistent with current
classifications for comparative purposes.

The table below presents specified information about reported segments as of
and for the six months ended December 31, 1999 (in thousands):

<TABLE>
<CAPTION>
U.S. U.S. U.S. ASIA/ LATIN DATA
EAST CENTRAL WEST PACIFIC CANADA AMERICA SERVICES TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fees.......................... $104,658 $83,184 $39,192 $26,838 $19,668 $3,288 $6,903 $283,731
Net operating income/(loss)... 27,995 14,205 4,029 2,960 (784) (514) 2,943 50,834
Receivables................... 57,480 45,724 18,338 14,141 10,661 2,229 -- 148,573
</TABLE>

The table below presents specified information about reported segments as of
and for the six months ended December 31, 1998 (in thousands):

<TABLE>
<CAPTION>
U.S. U.S. U.S. ASIA/ LATIN DATA
EAST CENTRAL WEST PACIFIC CANADA AMERICA SERVICES TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fees........................... $93,565 $74,113 $40,299 $23,635 $19,672 $2,699 $7,971 $261,954
Net operating income/(loss).... 25,396 12,367 4,866 2,562 491 (710) 3,206 48,178
Receivables.................... 48,795 44,439 21,708 12,436 11,896 1,718 -- 140,992
</TABLE>

Information about interest income and tax expense is not presented as a
segment expense because it is not considered a responsibility of the segments'
operating management.

F-33
<PAGE>

WATSON WYATT & COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

A reconciliation of the information reported by segment to the consolidated
amounts follows for the six month periods ended December 31:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Fees:
Total segment fees.......................................... $283,731 $261,954
Reimbursable expenses not included in total segment fees.... 15,381 14,284
Other, net.................................................. (378) (1,895)
-------- --------
Consolidated fees........................................... $298,734 $274,343
======== ========
Net Operating Income:
Total segment net operating income.......................... $ 50,834 $ 48,178
Income from affiliates...................................... 2,143 1,025
Differences in allocation methods for depreciation, G&A and
pension costs............................................. 2,515 (1,396)
Gain on sale of business units.............................. -- 3,822
Discretionary bonuses and SIBP.............................. (41,750) (31,548)
Other, net.................................................. 2,477 (1,642)
-------- --------
Consolidated pretax income from continuing operations....... $ 16,219 $ 18,439
======== ========
Receivables:
Total segment receivables--billed and unbilled.............. $148,573 $140,992
Net valuation differences and receivables of discontinued
operations................................................ (1,028) 1,406
-------- --------
Total billed and unbilled receivables....................... 147,545 142,398
Assets not reported by segment.............................. 153,479 139,621
-------- --------
Consolidated assets......................................... $301,024 $282,019
======== ========
</TABLE>

F-34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

, 2000

[LOGO]

WATSON WYATT & COMPANY HOLDINGS

5,600,000 SHARES OF CLASS A COMMON STOCK

--------------

PROSPECTUS
-----------------

DONALDSON, LUFKIN & JENRETTE

BANC OF AMERICA SECURITIES LLC

DLJDIRECT INC.

----------------------------------------------------------------------

WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF WATSON WYATT
HAVE NOT CHANGED SINCE THE DATE HEREOF.

- --------------------------------------------------------------------------------
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts, other than SEC, NASD and
NYSE fees, are estimates.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 21,120
NASD filing fee............................................. 5,100
NYSE listing fee............................................ 182,600
Printing and engraving expenses............................. 100,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 400,000
Blue sky fees and expenses.................................. 10,000
Transfer agent and registrar fees and expenses.............. 1,500
Miscellaneous fees and expenses............................. 279,680
----------
Total..................................................... 1,500,000
==========
</TABLE>

Watson Wyatt & Company Holdings will bear all of the expenses shown above.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Subsection (a) of Section 145 of the Delaware General Corporation Law (the
"DGCL") empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or complete action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no cause
to believe his conduct was unlawful.

Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.

Section 145 of the DGCL further provides that to the extent a director,
officer, employee or agent of a corporation has been successful in the defense
of any action, suit or proceeding referred to in subsections (a) and (b) or in
the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection

II-1
<PAGE>
therewith; that indemnification or advancement of expenses provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.

- Our Certificate of Incorporation provides that no director, or person
serving on a committee of the Board of Directors, shall be personally
liable to Watson Wyatt & Company Holdings or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability:
for any breach of that director's duty of loyalty to Watson Wyatt &
Company Holdings or its stockholders;

- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

- under Section 174 of the DGCL; or

- for any transaction from which the director derived an improper personal
benefit.

Our Certificate of Incorporation provides that we must indemnify our
directors, officers and employees against any liability incurred in connection
with any proceeding in which they may be involved as a party or otherwise, by
reason of the fact that he or she is or was a director, officer, employee, or
agent of Watson Wyatt & Company Holdings or is or was serving at the request of
Watson Wyatt & Company Holdings as a director, officer, employee, agent,
fiduciary or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan, or other entity or enterprise, except:

- to the extent that such indemnification against a particular liability is
expressly prohibited by applicable law;

- for a breach of such person's duty of loyalty to Watson Wyatt & Company
Holdings or its stockholders;

- for acts or omission not in good faith;

- for intentional misconduct or a knowing violation of law; or

- for any transaction resulting in receipt by such person of an improper
personal benefit.

Such indemnification may include advances of expenses prior to the final
disposition of such proceeding.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 ** Form of Underwriting Agreement

2.1 * Form of Agreement and Plan of Merger, among Watson Wyatt &
Company, Watson Wyatt & Company Holdings and WW Merger
Subsidiary, Inc.

3.1 Form of Amended and Restated Certificate of Incorporation of
Watson Wyatt & Company Holdings

3.2 Form of Amended and Restated By-laws of Watson Wyatt &
Company Holdings

4.1 Specimen Certificate for Watson Wyatt & Company Holdings'
class A common stock

5.1 Opinion of Cadwalader, Wickersham & Taft
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.1 * Amended and Restated Credit Agreement, between Watson Wyatt
& Company and NationsBank, N.A., dated June 30, 1998,
incorporated by reference to Watson Wyatt & Company's annual
report on Form 10-K for its fiscal year ended June 30, 1998
(File No. 0-20724)

10.2 Agreement with David B. Friend, M.D., dated October 22, 1999

10.3 Lease between Watson Wyatt & Company and Marvin M.
Robertson, et al., dated January 9, 1998.

21.1 * Subsidiaries of the Company

23.1 Consent of PricewaterhouseCoopers LLP

23.2 Consent of Ernst & Young LLP

23.3 Consent of Cadwalader, Wickersham & Taft (included in
Exhibit 5.1)

24.1 * Power of Attorney

27.1 Financial Data Schedule
</TABLE>

- ------------------------

* Previously filed

** To be filed by amendment

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the 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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to Registration Statement (No. 333-94973) to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Bethesda, State of
Maryland, on March 17, 2000.

<TABLE>
<S> <C> <C>
WATSON WYATT & COMPANY HOLDINGS

BY: /s/ John J. Haley*
--------------------------------------
NAME: JOHN J. HALEY
--------------------------------------
TITLE: President and Chief Executive Officer
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement (No. 333-94973) has been signed by the
following persons in the capacities and on the dates indicated below:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ John J. Haley* President and Chief Executive March 17, 2000
- ------------------------------------------- Officer
Name: JOHN J. HALEY

/s/ Carl D. Mautz* Chief Financial Officer March 17, 2000
- ------------------------------------------- (Principal Financial Officer
Name: CARL D. MAUTZ and Principal Accounting
Officer)

/s/ Thomas W. Barratt* Director March 17, 2000
- -------------------------------------------
Name: THOMAS W. BARRATT

/s/ Paula A. DeLisle* Director March 17, 2000
- -------------------------------------------
Name: PAULA A. DELISLE

/s/ David B. Friend, M.D.* Director March 17, 2000
- -------------------------------------------
Name: DAVID B. FRIEND, M.D.

/s/ John J. Gabarro* Director March 17, 2000
- -------------------------------------------
Name: JOHN J. GABARRO

/s/ Ira T. Kay* Director March 17, 2000
- -------------------------------------------
Name: IRA T. KAY
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Brian E. Kennedy* Director March 17, 2000
- -------------------------------------------
Name: BRIAN E. KENNEDY

/s/ Eric P. Lofgren* Director March 17, 2000
- -------------------------------------------
Name: ERIC P. LOFGREN

/s/ Robert D. Masding* Director March 17, 2000
- -------------------------------------------
Name: ROBERT D. MASDING

/s/ R. Michael McCullough* Director March 17, 2000
- -------------------------------------------
Name: R. MICHAEL MCCULLOUGH

/s/ Gail E. McKee* Director March 17, 2000
- -------------------------------------------
Name: GAIL E. MCKEE

/s/ Kevin L. Meehan* Director March 17, 2000
- -------------------------------------------
Name: KEVIN L. MEEHAN

/s/ John A. Steinbrunner* Director March 17, 2000
- -------------------------------------------
Name: JOHN A. STEINBRUNNER

/s/ A. Grahame Stott* Director March 17, 2000
- -------------------------------------------
Name: A. GRAHAME STOTT

/s/ Charles P. Wood, Jr.* Director March 17, 2000
- -------------------------------------------
Name: CHARLES P. WOOD, JR.
</TABLE>

<TABLE>
<S> <C> <C> <C>
*By: /s/ Walter W. Bardenwerper
--------------------------------------
WALTER W. BARDENWERPER
Attorney-in-fact
</TABLE>

II-5
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1** Form of Underwriting Agreement

2.1* Form of Agreement and Plan of Merger, among Watson Wyatt &
Company, Watson Wyatt & Company Holdings and WW Merger
Subsidiary, Inc.

3.1 Form of Amended and Restated Certificate of Incorporation of
Watson Wyatt & Company Holdings

3.2 Form of Amended and Restated Bylaws of Watson Wyatt &
Company Holdings

4.1 Specimen Certificate for Watson Wyatt & Company Holdings'
class A common stock

5.1 Opinion of Cadwalader, Wickersham & Taft

10.1* Amended and Restated Credit Agreement between Watson Wyatt &
Company and NationsBank, N.A., dated June 30, 1998,
incorporated by reference to Watson Wyatt & Company's annual
report on Form 10K for its fiscal year ended June 30, 1998
(File No. 0-20724)

10.2 Agreement with David B. Friend, M.D., dated October 22, 1999

10.3 Lease between Watson Wyatt & Company and Marvin M.
Robertson, et al., dated January 9, 1998.

21.1* Subsidiaries of the Company

23.1 Consent of PricewaterhouseCoopers LLP

23.2 Consent of Ernst & Young LLP

23.3 Consent of Cadwalader, Wickersham & Taft (included in
Exhibit 5.1)

24.1* Power of Attorney

27.1 Financial Data Schedule
</TABLE>

- ------------------------

* Previously filed

** To be filed by amendment

<PAGE>

EXHIBIT 3.1

FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION

WATSON WYATT & COMPANY HOLDINGS

Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware

WATSON WYATT & COMPANY HOLDINGS, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "CORPORATION"),
hereby certifies as follows:

A. The name of the Corporation is Watson Wyatt & Company Holdings. The
Corporation was originally incorporated by the filing of a Certificate of
Incorporation with the Secretary of State of Delaware on January 7, 2000.

B. This Amended and Restated Certificate of Incorporation was duly adopted
in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.

C. The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in full as follows:

1. NAME. The name of the corporation is Watson Wyatt & Company Holdings
(the "CORPORATION").

2. REGISTERED OFFICE; REGISTERED AGENT. The address of the
Corporation's registered office in the State of Delaware is 1209 Orange Street,
Wilmington, DE 1980l, in the County of New Castle. The name of its registered
agent at such address is The Corporation Trust Company.

3. PURPOSE. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the Delaware
General Corporation Law.

4. CAPITAL STOCK.

4.1 The Corporation has the authority to issue an aggregate
of 100,000,000 shares, of which: (i) 69,000,000 are shares of Class A Common
Stock, par value $.01 per share ("CLASS A COMMON STOCK"), (ii) 15,000,000 are
shares of Class B-1 Common Stock, par value $.01 per share (the "CLASS B-1
COMMON STOCK"), (iii) 15,000,000 are shares of Class B-2 Common Stock, par
value $.01 per share (the "CLASS B-2 COMMON STOCK;" and the Class B-1 Common
Stock and Class B-2 Common Stock are referred to collectively as the "CLASS B
COMMON STOCK") and (iv) 1,000,000 are shares of Preferred Stock, no par value
per share (the "PREFERRED STOCK"). The Class A Common Stock, the Class B-1
Common Stock and the Class B-2 Common Stock are referred to collectively as
the "COMMON STOCK".

<PAGE>

4.2 The following is a description of the relative powers,
preferences and participating, optional or other special rights, and the
qualifications, limitations or restrictions of the Common Stock.

(a) GENERAL. Except as otherwise set forth in this
Article 4, the relative powers, preferences and participating, optional or other
special rights, and the qualifications, limitations or restrictions of each
class of Common Stock is identical in all respects.

(b) VOTING. At every meeting of the stockholders of
the Corporation in connection with the election of directors and all other
matters submitted to a vote of stockholders, every holder of Common Stock is
entitled to one vote in person or by proxy for each share of Common Stock
registered in the name of the holder on the transfer books of the Corporation.
Except as otherwise required by law, the holders of each class of Common Stock
shall vote together as a single class, subject to any right that may be
conferred upon holders of Preferred Stock to vote together with holders of
Common Stock on all matters submitted to a vote of stockholders of the
Corporation.

(i) DEFINITIONS.

"CONTROL" means, with respect to any Person,
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities or other
beneficial interest, or by contract or otherwise.

"PERMITTED TRANSFEREE" means any of the
following: (i) any revocable trust created for the benefit of the stockholder
during the lifetime of the stockholder of which the stockholder is the only
person (whether in the capacity as a trustee, settlor or otherwise) having
voting and dispositive control over the Class B Common Stock held by such trust,
(ii) any irrevocable trust created for the benefit of the stockholder and/or any
spouse of the stockholder and/or any descendant of the stockholder (which term
shall include any adopted child or stepchild of the stockholder) of which the
stockholder is the only trustee having voting and dispositive control over the
Class B Common Stock held by such trust, (iii) a custodianship for the benefit
of a minor who is a descendant of the stockholder (which term shall include any
adopted child or stepchild of the stockholder), to which any transfer is made
pursuant to and which is valid under the Uniform Transfers to Minors Act, the
Uniform Gifts to Minors Act or a substantially similar act, and of which the
stockholder is the only custodian having voting or dispositive control over the
Class B Common Stock held pursuant to such custodianship, (iv) any partnership,
limited liability company or similar entity all of the ownership interests in
which are held by the stockholder alone, or by the stockholder and any spouse of
the stockholder and/or any descendant of the stockholder (which term shall
include any adopted child or stepchild of the stockholder) and/or any Person
referred to in clauses (i) - (iii) above, which is Controlled by the stockholder
and (v) any corporation (including, without limitation, any subsidiary or
sub-subsidiary of any such corporation) which is wholly-owned directly or
indirectly, by the stockholder alone or by the stockholder and any one or more
Persons referred to in clauses (i) - (iv) above and which is Controlled by the
stockholder.

-2-
<PAGE>

"PERSON" means an individual, partnership,
corporation, limited liability company, trust or other entity of whatever
nature.

"PUBLIC OFFERING DATE" means the date of the
offering of the Corporation's shares of Class A Common Stock in an underwritten
public offering.

(ii) TRANSFER RESTRICTIONS. Except for
transfers to Permitted Transferees and conversions under Section 4.2(c)(iii),
shares of Class B-1 Common Stock may not be transferred prior to twelve (12)
months after the Public Offering Date, and shares of Class B-2 Common Stock may
not be transferred prior to twenty four (24) months after the Public Offering
Date. Except as provided in this Section 4.2(c)(ii), any purported transfer of
shares of Class B-1 Common Stock or Class B-2 Common Stock prior to the
applicable date referred to in this Section 4.2(c)(ii) will be void. Shares of
Class B-1 Common Stock and Class B-2 Common Stock may be transferred to a
Permitted Transferee at any time, and such permitted transferee will take such
shares subject to the provisions of this Section 4.2(c)(ii).

(iii) CONVERSION TO CLASS A COMMON STOCK.
Each share of Class B-1 Common Stock will be converted automatically into an
equal number of shares of Class A Common Stock twelve (12) months after the
Public Offering Date. Each share of Class B-2 Common Stock will be converted
automatically into an equal number of shares of Class A Common Stock twenty four
(24) months after the Public Offering Date. Notwithstanding the foregoing,
shares of Class B-1 Common Stock and Class B-2 Common Stock may be converted to
Class A Common Stock prior to the expiration of the foregoing restricted periods
upon the prior consent of the Board of Directors. To the extent permitted by
law, such a voluntary conversion shall be deemed to have been effected at the
close of business on the date of surrender. Shares of Class A Common Stock may
not be converted into shares of Class B-1 Common Stock or Class B-2 Common
Stock.

(iv) PROCEDURE FOR TRANSFERS. Shares of
Class B-1 Common Stock and Class B-2 Common Stock which are uncertificated are
transferred on the books of the Corporation upon presentation at the office of
the Secretary of the Corporation (or at such additional place or places as may
from time to time be designated by the Secretary of the Corporation) of a
written request for transfer in such form as the Corporation requests. Shares of
Class B-1 Common Stock and Class B-2 Common Stock represented by certificates
are transferred on the books of the Corporation, and a new certificate therefor
issued, upon presentation at the office of the Secretary of the Corporation (or
at such additional place or places as may from time to time be designated by the
Secretary of the Corporation) of the certificate for the shares, in proper form
for transfer and accompanied by all requisite stock transfer tax stamps.

(v) LEGENDS. Shares of Class B-1 Common
Stock and Class B-2 Common Stock shall contain a legend reading as follows:
"Shares of Class B Common Stock may not be transferred (which term includes,
without limitation, buying a put option, selling a call option or entering into
any other hedging or insurance transaction relating to the shares), except
pursuant to a transfer that meets the qualifications set forth in Sections
4.2(c) of the Certificate of Incorporation of this Corporation, and no person
who receives the shares of Class B Common Stock in connection with a transfer
that does not meet the qualifications prescribed

-3-
<PAGE>

by such section is entitled to own or to be registered as the record holder of
the shares of Class B Common Stock."

(vi) RETIREMENT OF CLASS B SHARES. Any
shares of Class B-1 Common Stock or Class B-2 Common Stock that have been
converted into shares of Class A Common Stock will be retired with no further
action by the Corporation, may not be reissued as shares of Class B Common
Stock, and will have the status of authorized and unissued shares of Class A
Common Stock.

(vii) RESERVATION OF SHARES. The Corporation
at all times shall reserve and keep available, out of its authorized but
unissued Class A Common Stock, at least the number of shares of Class A Common
Stock that would become issuable upon the conversion of all shares of Class B
Common Stock then outstanding.

(d) RECLASSIFICATIONS, SUBDIVISIONS AND COMBINATIONS.
No class of Common Stock may be reclassified, subdivided or combined unless the
reclassification, subdivision or combination occurs simultaneously and in the
same proportion for each class of Common Stock, except that Class A Common
Stock, Class B-1 Common Stock and Class B-2 Common Stock may be reclassified as
a single class of common stock at any time following twenty four (24) months
after the Public Offering Date.

(e) DIVIDENDS AND OTHER DISTRIBUTIONS. Subject to the
rights of the holders of Preferred Stock, holders of each class of Common Stock
are entitled to receive such dividends and other distributions in cash, stock of
any corporation (other than Common Stock) or property of the Corporation as may
be declared thereon by the Board of Directors from time to time out of assets or
funds of the Corporation legally available therefor, and shall share equally on
a per share basis in all such dividends and other distributions. In the case of
dividends or other distributions payable in Common Stock, including
distributions pursuant to stock splits or divisions of Common Stock: (x) only
shares of Class A Common Stock are paid or distributed with respect to Class A
Common Stock, (y) only shares of Class B-1 Common Stock are paid or distributed
with respect to Class B-1 Common Stock and (z) only shares of Class B-2 Common
Stock are paid or distributed with respect to Class B-2 Common Stock.

(f) LIQUIDATION, DISSOLUTION AND WINDING UP. In the
event of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, after payment in full of the
amounts required to be paid to the holders of Preferred Stock, the remaining
assets and funds of the Corporation are distributed pro rata to the holders of
shares of Common Stock. For purposes of this subsection (f), the voluntary sale,
conveyance, lease, exchange or transfer (for cash, shares of stock, securities
or other consideration) of all or substantially all of the assets of the
Corporation or a consolidation or merger of the Corporation with one or more
other corporations (whether or not the Corporation is the corporation surviving
the consolidation or merger) shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary.

(g) REORGANIZATIONS AND CONSOLIDATIONS. In case of
any reorganization or any consolidation of the Corporation with one or more
other corporations or a merger of the Corporation with another corporation, each
holder of a share of Common Stock of any class are

-4-
<PAGE>

entitled to receive with respect to that share the same kind and amount of
shares of stock and other securities and property (including cash) receivable
upon the reorganization, consolidation or merger by a holder of a share of any
other class of Common Stock.

(h) CONVERSION OF OUTSTANDING SHARES. Upon the
effectiveness of the filing of this Amended and Restated Certificate of
Incorporation, any outstanding shares of common stock of the Corporation shall
be converted into shares of Class A Common Stock.

4.3 The number of authorized shares of any class or classes of
stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the
votes entitled to be cast by the holders of the Common Stock, voting together as
a single class, irrespective of the provisions of Section 242(b)(2) of the
Delaware General Corporation Law or any corresponding provision hereinafter
enacted.

4.4 To the full extent permitted by the Delaware General
Corporation Law, as the same exists or may hereafter be amended, the Board of
Directors is authorized by resolution to divide and issue the shares of
Preferred Stock in classes or series and to fix the voting powers and any
designations, preferences, and relative, participating, optional or other
special rights of any such class or series of Preferred Stock and any
qualifications, limitations or restrictions thereof as are stated and expressed
in the resolution or resolutions providing for the issue of such stock adopted
by the Board of Directors.

4.5 No holder of stock of any class of the Corporation has any
preemptive or preferential right of subscription to any shares of any class of
stock of the Corporation whether now or hereafter authorized, or to any
obligation convertible into stock of the Corporation, or any right of
subscription therefor, other than such rights, if any, as the Board of Directors
in its discretion from time to time determines.

5. BOARD OF DIRECTORS.

5.1 The business and affairs of the Corporation are managed by
or under the direction of a Board of Directors. The number of directors of the
Corporation constituting the whole board are fixed in the manner provided in the
by-laws. The election of directors need not be by ballot.

5.2 The directors are divided into three classes, Class I,
Class II and Class III. The initial term of office of the Class I, Class II
and Class III directors shall expire at the annual meeting of stockholders in
2001, 2002, and 2003, respectively. The number of directors are apportioned
among the classes by the Board of Directors so as to maintain the number of
directors in each class as nearly equal as reasonably possible, and any
additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with
the remaining term of that class. Starting in 2001, at each annual meeting of
stockholders, directors elected to succeed the directors whose terms expire
at such annual meeting shall be elected to hold office for a term expiring at
the annual meeting of stockholders in the third year following the year of
their election and until their successors have been duly elected and
qualified. Notwithstanding the foregoing, for any director who is an employee
of the Corporation or any of its affiliates at the time of election to the
Board it is a qualification for service as a director that such director
remain so employed, so that the term of any such director automatically will
terminate upon termination of such director's employment with the Corporation
or such affiliate for any reason, unless the Board, by majority of the
members of the Board of Directors, otherwise determines.

5.3 If the number of directors is changed, any increase or
decrease shall be apportioned among the classes in such manner as the board
of directors of the Corporation shall determine, but no

-5-
<PAGE>

decrease in the number of directors may shorten the term of any incumbent
director.

5.4 No director who is part of any class of directors may
be removed except both for cause and with the affirmative vote of the holders
of not less than 67% of the voting power of all outstanding shares of stock
of the Corporation entitled to vote generally in the election of directors,
considered for this purpose as a single class.

5.5 Vacancies and newly created directorships resulting
from any increase in the authorized number of directors or from any other
cause (other than vacancies and newly created directorships which the holders
of any class or classes of stock or series thereof are expressly entitled by
this Amended and Restated Certificate of Incorporation to fill) shall be
filled by, and only by, a majority of the members of the board of directors,
although less than a quorum, or by the sole remaining director. Any director
appointed to fill a vacancy or a newly created directorship shall hold office
until the next election of the class of directors of the director which such
director replaced or the class of directors to which such director was
appointed, and until his or her successor is elected and qualified or until
his or her earlier resignation or removal.

5.6 Notwithstanding the foregoing, in the event that the
holders of any series of Preferred Stock of the Corporation shall be
entitled, voting separately as a class, to elect any directors of the
Corporation, then the number of directors that may be elected by such holders
voting separately as a class shall be in addition to the number fixed
pursuant to a resolution of a majority of the members of the board of
directors of the Corporation. Except as otherwise provided in the terms of
such class or series, (i) the terms of the directors elected by such holders
voting separately as a class shall expire at the annual meeting of
stockholders next succeeding their election without regard to the
classification of other directors and (ii) any director or directors elected
by such holders voting separately as a class may be removed, with or without
cause, by the holders of a majority of the voting power of all outstanding
shares of stock of the Corporation entitled to vote separately as a class in
an election of such directors.

5.7 Notwithstanding anything to the contrary contained in this
Amended and Restated Certificate of Incorporation, the affirmative vote of the
holders of at least 67% of the voting power of the shares entitled to vote
generally in the election of directors are required to amend, alter or repeal,
or to adopt any provision inconsistent with, this Article 5.

6. AMENDMENT OF BY-LAWS. In furtherance and not in limitation of the
powers conferred by the laws of the State of Delaware, the Board of Directors is
authorized to adopt, amend or repeal the by-laws of the Corporation. No
adoption, amendment or repeal of a by-law by action of stockholders shall be
effective unless approved by the affirmative vote of the holders of at least 67%
of the voting power of the shares entitled to vote generally in the election of
directors.

7. STOCKHOLDER MEETINGS. No action of stockholders of the
Corporation required or permitted to be taken at any annual or special
meeting of stockholders of the Corporation may be taken without a meeting of
stockholders, without prior notice and without a vote, and the power of
stockholders of the Corporation to consent in writing to the taking of any
action without a meeting is specifically denied. Notwithstanding this Article
7, the holders of any series of Preferred Stock of the Corporation shall be
entitled to take action by written consent to such extent, if any, as may be
provided in the terms of such series. Subject to the rights of holders of any
series of Preferred Stock, special meetings of stockholders of the
Corporation may be called only by the President or by the Board of Directors
pursuant to resolution adopted by a majority of the members of the Board of
Directors. Business transacted at any

-6-
<PAGE>

special meeting of stockholders are confined to the purpose or purposes of the
meeting as stated in the notice of the meeting. Notwithstanding anything
contained in this Amended and Restated Certificate of Incorporation to the
contrary, any amendment to or deletion of this Article 7 shall require the
affirmative vote of the holders of at least 67% of the voting power of all
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors.

8. LIMITATION OF LIABILITY. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (a) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(b) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) under Section 174 of the Delaware
General Corporation Law or (d) for any transaction from which the director
derived an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended after approval of this Article by the stockholders
to authorize the further elimination or limitation of the liability of
directors, then the liability of directors are eliminated or limited to the full
extent authorized

9. Subject to the provisions of this Amended and Restated Certificate
of Incorporation, the Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders in this Certificate of Incorporation are granted subject to this
reservation.

IN WITNESS WHEREOF, Watson Wyatt & Company Holdings has caused
this certificate to be signed by its President and Secretary, on _________,
2000.

By:
-------------------------------------------
President

By:
-------------------------------------------
Secretary

<PAGE>

Exhibit 3.2

FORM OF AMENDED AND RESTATED
BY-LAWS

WATSON WYATT & COMPANY HOLDINGS

ARTICLE 1

STOCKHOLDERS

Section 1.1 ANNUAL MEETINGS. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place either within or
without the State of Delaware designated by the Board of Directors from time to
time. Any other business properly brought before the meeting may be transacted
at the annual meeting.

Section 1.2 SPECIAL MEETINGS. Special meetings of stockholders may be
called at any time by, and only by, the President or by the Board of Directors
pursuant to a resolution adopted by a majority of the members of the Board of
Directors, to be held at such date, time and place either within or without the
State of Delaware as is stated in the notice of the meeting.

Section 1.3 NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting must
be given, stating the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise required by law, the written notice of any meeting shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, such notice shall be
deemed to be given when deposited in the United States mail, postage prepaid,
directed to the stockholder at such stockholder's address as it appears on the
records of the Corporation.

Section 1.4 ADJOURNMENTS. Any meeting of stockholders, annual or
special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting must be given to
each stockholder of record entitled to vote at the meeting.

Section 1.5 QUORUM. At each meeting of stockholders, except where
otherwise required by law, the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of stock entitled to vote on
a matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a separate vote by
class or classes is required for any matter, the holders of a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum to take action with respect to that vote on
that matter. Two or more classes or series of

<PAGE>

stock shall be considered a single class if the holders of such classes or
series of stock are entitled to vote together as a single class at the meeting.
In the absence of a quorum of the holders of any class of stock entitled to vote
on a matter, the meeting of such class may be adjourned from time to time in the
manner provided by Sections 1.4 and 1.6 of these by-laws until a quorum of such
class is so present or represented.

Section 1.6 VOTING; PROXIES. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders is entitled to one vote for each share of stock held by such
stockholder which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders may authorize another person or
persons to act for such stockholder by proxy, but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period. A duly executed proxy will be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power, regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. A stockholder may revoke any proxy which
is not irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary. Voting at meetings of stockholders need not be
by written ballot unless so directed by the chairman of the meeting or the Board
of Directors. Directors must be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. In all other matters, unless otherwise
required by law, the certificate of incorporation or these by-laws, the
affirmative vote of the holders of a majority of the shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
will be the act of the stockholders. Where a separate vote by class or classes
is required, the affirmative vote of the holders of a majority (or, in the case
of an election of directors, a plurality) of the shares of such class or classes
present in person or represented by proxy at the meeting shall be the act of
such class or classes, except as otherwise required by law, the certificate of
incorporation or these by-laws.

Section 1.7 ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in the absence of a Chairman of
the Board, by the President or other person designated by the President. The
Secretary, or in the absence of the Secretary an Assistant Secretary or other
person designated by the President, shall act as secretary of the meeting. The
order of business at each such meeting shall be as determined by the chairman of
the meeting. The chairman of the meeting shall have the right and authority to
adjourn a meeting of stockholders without a vote of stockholders and to
prescribe such rules, regulations and procedures and to do all such acts and
things as are necessary or desirable for the proper conduct of the meeting and
are not inconsistent with any rules or regulations adopted by the Board of
Directors pursuant to the provisions of the certificate of incorporation,
including the establishment of procedures for the maintenance of order and
safety, limitations on the time allotted to questions or comments on the affairs
of the Corporation, restrictions on entry to such meeting after the time
prescribed for the commencement thereof and the opening and closing of the
voting polls for each item upon which a vote is to be taken.

Section 1.8 INSPECTORS. Prior to any meeting of stockholders, the Board
of Directors, Chairman of the Board, President or any other officer designated
by the Board shall appoint one

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or more inspectors to act at such meeting and make a written report of the
meeting. If no inspector or alternate is able to act at the meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, must take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his or her ability. The inspectors shall ascertain the number of shares
outstanding and the voting power of each, determine the shares represented at
the meeting and the validity of proxies and ballots, count all votes and
ballots, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors and
certify their determination of the number of shares represented at the meeting
and their count of all votes and ballots. The inspectors may appoint or retain
other persons to assist them in the performance of their duties. The date and
time of the opening and closing of the polls for each matter upon which the
stockholders will vote at a meeting shall be announced at the meeting. No
ballot, proxy or vote, nor any revocation thereof or change thereto, may be
accepted by the inspectors after the closing of the polls. In determining the
validity and counting of proxies and ballots, the inspectors shall be limited to
an examination of the proxies, any envelopes submitted therewith, any
information provided by a stockholder who submits a proxy by telegram, cablegram
or other electronic transmission from which it can be determined that the proxy
was authorized by the stockholder, ballots and the regular books and records of
the Corporation, and they may also consider other reliable information for the
limited purpose of reconciling proxies and ballots submitted by or on behalf of
banks, brokers, their nominees or similar persons which represent more votes
than the holder of a proxy is authorized by the record owner to cast or more
votes than the stockholder holds of record.

Section 1.9. FIXING DATE FOR DETERMINING STOCKHOLDERS OF RECORD. In
order for the Corporation to determine the stockholders entitled to notice of or
to vote at any meeting of stockholders or any adjournment of the meeting, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date must be no more than sixty nor less
than ten days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders will apply to any adjournment
of the meeting, PROVIDED the Board of Directors may fix a new record date for
the adjourned meeting. In order for the Corporation to determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date may not precede the date upon which the resolution fixing the record
date is adopted, and which record date must be no more than sixty days prior to
the action for which a record date is being established. If no record date is
fixed, the record date for determining stockholders for any such purpose will be
at the close of business on the day on which the Board of Directors adopts the
related resolution.

Section 1.10 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary will
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders

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entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list will be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place must be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list also must be produced and kept at the time and place of
the meeting during the whole time thereof and may be inspected by any
stockholder who is present.

ARTICLE 2

DIRECTORS

Section 2.1 POWERS; NUMBER; QUALIFICATIONS. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise required by law or provided in the
certificate of incorporation. The number of directors which shall constitute the
whole Board of Directors shall not be less than 7 nor more than 25. The exact
number of directors of the Corporation and the number of directors in each class
of directors shall be fixed only by resolution of a majority of the members of
the Board of Directors from time to time. If the holders of any class or classes
of stock or series thereof are entitled by the certificate of incorporation to
elect one or more directors, the preceding sentence shall not apply to such
directors, and the number of such directors shall be as provided in the terms of
such stock. Directors need not be stockholders.

Section 2.2. ELECTION; TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES.

(a) Each director shall hold office until the next election of
the class or category for which such director shall have been chosen, and until
his or her successor is elected and qualified or until his or her earlier
resignation or removal. Notwithstanding the foregoing, for any director who is
an employee of the Corporation or any of its affiliates at the time of election
to the Board it is a qualification for service as a director that such director
remain so employed, so that the term of any such director automatically will
terminate upon termination of such director's employment with the Corporation or
such affiliate for any reason, unless the Board, by majority of the members of
the Board of Directors, otherwise determines.

(b) Any director may resign at any time upon written notice to
the Board of Directors or to the Chairman of the Board, if any, or the
President. Such resignation shall take effect at the time specified in the
notice of resignation, and unless otherwise specified in the notice of
resignation, no acceptance of such resignation is necessary to make it
effective.

(c) No director may be removed except as provided in the
certificate of incorporation or as provided in Section 2.2(a) of these by-laws.

(d) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors (other than any directors
elected in the manner described in the next sentence) or from any other cause
shall be filled by, and only by, a majority of the directors then in office,
although less than a quorum, or by the sole remaining director.

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Whenever the holders of any class or classes of stock or series thereof are
entitled by the certificate of incorporation to elect one or more directors,
vacancies and newly created directorships of such class or classes or series may
be filled by, and only by, a majority of the directors elected by such class or
classes or series then in office, or by the sole remaining director so elected.
Any director elected or appointed to fill a vacancy or a newly created
directorship shall hold office until the next election of the class of directors
of the director which such director replaced or the class of directors to which
such director was appointed, and until his or her successor is elected and
qualified or until his or her earlier resignation or removal.

Section 2.3 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board may from time to time determine.

Section 2.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by a Chairman of the Board, if any, by the President,
or at the request in writing of a majority of the members of the Board of
Directors.

Section 2.5 NOTICES OF BOARD OF DIRECTORS MEETINGS. Notice of any
regular or special meeting, unless waived, must be given by mail or facsimile or
courier to each director at his address as the same appears on the records of
the Corporation not less than one (1) day prior to the day on which such meeting
is to be held if such notice is by facsimile or courier, and not less than five
(5) business days prior to the day on which the meeting is to be held if such
notice is by mail. If the Secretary fails or refuses to give such notice, then
the notice may be given by the officer or any one of the directors making the
call. Any such meeting may be held at such place as the Board may fix from time
to time or as may be specified or fixed in such notice. Notice may be waived in
writing by any director, either before or after the meeting. Any meeting of the
Board of Directors will be a legal meeting without any notice having been given,
if all the directors shall be present at the meeting, and no notice of a meeting
is required to be given to any director who shall attend such meeting.

Section 2.6 QUORUM AND MANNER OF ACTING. Except as otherwise provided
in these by-laws, a majority of the members of the Board of Directors
constitutes a quorum at any regular or special meeting of the Board of
Directors. Except as otherwise provided by the Delaware General Corporation Law
("DGCL"), the certificate of incorporation or by these by-laws, the act of a
majority of the directors present at any meeting at which a quorum is present is
the act of the Board of Directors. In the absence of a quorum, a majority of the
directors present may adjourn the meeting from time to time until a quorum be
had. Notice of any adjourned meeting need not be given.

Section 2.7 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE
PERMITTED. Members of the Board of Directors, or any committee designated by the
Board, may participate in a meeting of the Board or of such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.

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Section 2.8 ORGANIZATION. Meetings of the Board of Directors will be
presided over by a Chairman of the Board, if any, or in the absence of a
Chairman of the Board by the President, or in the absence of the President, by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in the absence of the Secretary the chairman of the meeting may
appoint any person to act as secretary of the meeting.

Section 2.9 COMMITTEES OF DIRECTORS. Any duly constituted and
authorized committee of the Board of Directors may exercise such powers as have
been delegated to it by the Board of Directors, without a meeting by the
unanimous execution of an instrument in writing. The Board of Directors may
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation which, to the extent provided by resolution of
the Board of Directors, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation; but
no such committee shall have the power or authority in reference to the
following matters: (a) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the DGCL to be
submitted to stockholders for approval or (b) adopting, amending or repealing
any by-laws of the Corporation. Such committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors and, when required by the Board, shall keep regular minutes of their
proceedings and report the same to the Board. Subject to legal or other
requirements, Board committees may include one or more persons who are not
directors, PROVIDED that to the extent any such committee exercises powers of
the Board of Directors that have been specifically delegated to it, such
committee shall act solely by vote of members of the committee who are also
members of the Board of Directors.

Section 2.10 COMPENSATION OF DIRECTORS. Directors who are employees
shall not receive any stated salary for their services as directors, but,
pursuant to normal corporate expense reimbursement policies, shall receive
reimbursement for expenses of attendance at such meetings; provided that nothing
herein contained may be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefore.
Directors who are not employees shall receive compensation for their services as
directors, in such amounts as the Board of Directors from time to time
determines.

ARTICLE 3

OFFICERS

Section 3.1 OFFICERS DESIGNATED. The officers of the Corporation shall
be elected by the Board of Directors at its annual meeting or any special
meeting. They may include a Chairman of the Board and shall include a President,
a Secretary, and such other officers as the Board of Directors may determine.
One person may hold any two offices except the offices of President and
Secretary.

Section 3.2 TENURE OF OFFICE. The officers of the Corporation will hold
office until the next annual meeting of the Board of Directors and until their
respective successors are elected and qualified, except (a) that the term of
office of any officer who is an employee of the Corporation automatically
terminates upon termination of such officer's employment by the Corporation for
any reason and (b) in case of the officer's prior resignation, death or removal.

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The Board of Directors also may remove any officer at any time with or without
cause by the vote of a majority of the members of the Board of Directors.
Additional officers appointed by the President in accordance with Section 3.4
may be removed by the President.

Section 3.3 POWERS AND DUTIES OF OFFICERS. The officers of the
Corporation will have such powers and duties in the management of the
Corporation as may be prescribed by the Board of Directors or delegated by the
President and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the Board of Directors.

Section 3.4 ADDITIONAL OFFICERS. The President of the Corporation may
appoint such Assistant Vice Presidents, Assistant Secretaries, Assistant
Treasurers, or other Officers, and such agents as the President may determine,
to hold office for such period, and with such authority and to perform such
duties as the President from time to time determines.

Section 3.5 RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or the Secretary of
the Corporation. Any such resignation will take effect at the time specified in
the notice of resignation. Unless otherwise specified in the notice of
resignation, the acceptance of such resignation shall not be necessary to make
it effective.

Section 3.6 VACANCIES. A vacancy in the office of President or
Secretary for any reason must be filled. A vacancy in any other office may be
filled. Any vacancy which is filled will be filled for the unexpired portion of
the term in the same manner in which an officer to fill said office may be
chosen pursuant to Sections 3.1, 3.2 and 3.4.

ARTICLE 4

SHARES OF STOCK

Section 4.1. CERTIFICATES; UNCERTIFICATED SHARES.

(a) The shares of Class A Common Stock of the Corporation
shall be represented by certificates, and the shares of Class B Common Stock of
the Corporation shall be uncertificated.

(b) The Board of Directors of the Corporation may provide by
resolution or resolutions from time to time that some or all of any or all
classes or series of its stock shall be uncertificated shares, PROVIDED any such
resolution shall not apply to any such shares represented by a certificate
previously issued until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution or resolutions by the Board of
Directors of the Corporation, every holder of stock represented by certificates,
and upon request every holder of uncertificated shares, shall be entitled to
have a certificate signed by or in the name of the Corporation by a Chairman of
the Board or the President, and by the Treasurer, Secretary or Assistant
Secretary, representing the number of shares of stock in the Corporation owned
by such holder. If such certificate is manually signed by one officer or
manually countersigned by a transfer agent or by a registrar, any other
signature on the certificate may be a facsimile.

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<PAGE>

(c) In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate ceases to
be such officer, transfer agent or registrar before such certificate is issued,
it may be issued by the Corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.

(d) Certificates representing shares of stock of the
Corporation may bear such legends regarding restrictions on transfer or other
matters as any officer or officers of the Corporation may determine to be
appropriate and lawful.

(e) If the Corporation is authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications or restrictions of
such preferences and/or rights must be set forth in full or summarized on the
face or back of the certificate which the Corporation issues to represent such
class or series of stock, PROVIDED that, except as otherwise required by law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation issues to represent such class or
series of stock a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of such class or
series of stock and the qualifications, limitations or restrictions of such
preferences and/or rights. Within a reasonable period of time after the issuance
or transfer of uncertificated shares of any class or series of stock, the
Corporation will send to the registered owner of such shares a written notice
containing the information required by law to be set forth or stated on
certificates representing shares of such class or series or a statement that the
Corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of such class or series and the qualifications, limitations or
restrictions of such preferences and/or rights.

(f) Except as otherwise expressly provided by law, the rights
and obligations of the holders of uncertificated shares and the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.

Section 4.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the
place of any certificate previously issued by it, alleged to have been lost,
stolen or destroyed. The Corporation may require the owner of the lost, stolen
or destroyed certificate, or such owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.

ARTICLE 5

MISCELLANEOUS PROVISIONS

Section 5.1 FISCAL YEAR. The fiscal year of the Corporation will be
determined by the Board of Directors.

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Section 5.2 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, is deemed equivalent to notice. Attendance of a person at a
meeting constitutes a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders, directors or members of
a committee of directors need be specified in any written waiver of notice
unless so required by the certificate of incorporation or these by-laws.

Section 5.3 FACSIMILES. Any copy, facsimile telecommunication or other
reliable reproduction of a writing, transmission or signature may be substituted
or used in lieu of the original writing, transmission or signature for any and
all purposes for which the original writing, transmission or signature could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing, transmission or
signature, as the case may be.

Section 5.4 BOOKS AND RECORDS. The books of the Corporation may be kept
(subject to any provision contained in the DGCL) within or without the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors.

Section 5.5 FORM OF RECORDS. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
photographs, microphotographs or any other information storage device, provided
that the records so kept can be converted into clearly legible form within a
reasonable time. The Corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same.

Section 5.6 DEPOSITORIES. The Board of Directors, the Chairman of the
Board, if any, the President, and such other officers as may be delegated
authority by the Board of Directors or one of the foregoing officers, and each
of them, may designate the banks, trust companies, or other depositories in
which shall be deposited from time to time, the money or securities of the
Corporation. In the case of a designation by the aforementioned officers, any
such designation shall require the approval of two of such officers, one of whom
shall be the Treasurer or the Vice President and Chief Financial Officer.

Section 5.7 CHECKS, DRAFTS, NOTES, ETC. All checks, drafts or other
orders for the payment of money and all notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers or agent or agents as from time to time is designated by the Board of
Directors or by any two of the Chairman of the Board, if any, the President, and
the Chief Financial Officer, or one of the foregoing officers and another
officer elected by the Board of Directors.

Section 5.8 CONTRACTS, ETC., HOW EXECUTED. The Board of Directors may
authorize any officer, agent or agents, to enter into any contract or execute
and deliver any instrument in

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the name and on behalf of the Corporation, and such authority may be general or
confined to specific instances.

Section 5.9 STOCK IN OTHER CORPORATIONS. Any shares of stock in any
other corporation which may from time to time be held by the Corporation may be
represented and voted at any meeting of stockholders of such other corporation
by the President, the Treasurer or the Secretary of the Corporation or by any
other person or persons thereunto authorized by the Board of Directors or
designated by the President, or by any proxy designated by written instrument of
appointment executed in the name of this Corporation by its President or by such
officers as may be designated by him and attested by the Secretary or Assistant
Secretary.

Section 5.10 INDEMNIFICATION.

(a) Each person who was or is a party or is threatened to be
made a party to or is involved in any action, suit or proceeding or alternative
dispute resolution procedure, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was a director or officer
serving at the request of the Corporation as a director, manager, officer,
partner, trustee, employee or agent of another corporation or of a partnership,
limited liability company, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the laws of
Delaware as the same now or may hereafter exist (but, in the case of any change,
only to the extent that such change authorizes the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such change) against all costs, charges, expenses, liabilities
and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and administrators. Until
such time as there has been a final judgment to the contrary, a person shall be
presumed to be entitled to be indemnified under this Section 5.10(a). The right
to indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition upon receipt
by the Corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that the director or officer is not entitled to be indemnified under this
Section or otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with the same
scope and effect as the foregoing indemnification of directors and officers.
Notwithstanding anything contained in this Section 5.10, except for proceedings
to enforce rights provided in this Section 5.10, the Corporation shall not be
obligated under this Section 5.10 to provide any indemnification or any payment
or reimbursement of expenses to any director, officer or other person in
connection with a proceeding (or part thereof) initiated by such person (which
shall not include counterclaims or crossclaims initiated by others) unless the
Board of Directors has authorized or consented to such proceeding (or part
thereof) in a resolution adopted by the Board.

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(b) If a claim under subsection (a) of this Section is not
paid in full by the Corporation within thirty days after a written claim has
been received by the Corporation the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall also be entitled to be paid
the expense of prosecuting such claim. It shall be a defense to any action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking has been tendered to the Corporation) that the claimant has failed
to meet a standard of conduct which makes it permissible to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is permissible in the circumstances because he or she has met such
standard of conduct, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders) that the
claimant has not met such standard of conduct, nor the termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall be a defense to the action or create a
presumption that the claimant has failed to meet the required standard of
conduct.

(c) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Section shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, by-laws, agreement, vote of stockholders or disinterested
directors or otherwise.

(d) The Corporation may maintain insurance, at its expense, to
protect itself and any director, manager, officer, partner, trustee, employee or
agent of the Corporation or another corporation, partnership, limited liability
company, joint venture, trust or other enterprise against any expense, liability
or loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under Delaware law.

(e) To the extent that any director, officer, employee or
agent of the Corporation is by reason of such position, or a position with
another entity at the request of the Corporation, a witness in any proceeding,
he or she shall be indemnified against all costs and expenses actually and
reasonably incurred by him or her or on his or her behalf in connection
therewith.

(f) Notwithstanding any amendment of this section which may
have been approved by the stockholders, this section may be added to, altered,
amended or repealed pursuant to Section 5.11 of these by-laws.

(g) Any amendment, repeal or modification of any provision of
this Section by the stockholders or the directors of the Corporation shall not
adversely affect any right or protection of a director or officer of the
Corporation existing at the time of such amendment, repeal or modification.

-11-
<PAGE>

Section 5.11 AMENDMENT OF BY-LAWS. These by-laws may be amended,
modified or repealed, and new by-laws may be adopted at any time, by the Board
of Directors. Stockholders of the Corporation may adopt additional by-laws and
amend, modify or repeal any by-law whether or not adopted by them, but only in
accordance with Article 6 of the certificate of incorporation.

-12-

<PAGE>

Exhibit 4.1

NUMBER SHARES

CLASS A COMMON STOCK

[Logo]
WATSON WYATT & COMPANY HOLDINGS

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN DEFINITIONS
IN NEW YORK, N.Y. AND

CHARLOTTE, N.C.

CUSIP 942712

This Certifies That

is the record holder of

FULLY PAID AND NONASSESSABLE SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE PER
SHARE, OF

WATSON WYATT & COMPANY HOLDINGS

transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly endorsed
or accompanied by a properly signed power of attorney to transfer the same. This
certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.

DATED:

/s/ Walter W. Bardenwerper [SEAL] /s/ John J. Haley
SECRETARY PRESIDENT AND CHIEF
EXECUTIVE OFFICER

COUNTERSIGNED AND REGISTERED:
FIRST UNION

TRANSFER AGENT AND REGISTRAR

AUTHORIZED SIGNATURE

<PAGE>

WATSON WYATT & COMPANY HOLDINGS

The Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Any such request should be addressed to the Secretary of Watson Wyatt & Company
Holdings.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants, with right of survivorship and not as tenants in
common

UNIF GIFT MIN ACT - ________ Custodian _________ under Uniform Gifts to
(Cust) (Minor)
Minors Act _________
(State)

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED, _______________________ hereby sell, assign and transfer
unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

- ---------------------------------------

- ------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

- ------------------------------------------------------------------------------

- ----------------------------------------------------------------------- Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

- ------------------------------------------------------------------ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated
------------------------------------

X
--------------------------------------
X
--------------------------------------

NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed:

<PAGE>

By
----------------------------------

THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.

<PAGE>

Exhibit 5.1

[Letterhead of Cadwalader, Wickersham & Taft]

March 17, 2000

Watson Wyatt & Company Holdings
6707 Democracy Boulevard, Suite 800
Bethesda, Maryland 20817

Re: Watson Wyatt & Company Holdings
Registration Statement on Form S-3 (File No. 333-94973)

Ladies and Gentlemen:

This opinion is being delivered by us, as counsel to Watson
Wyatt & Company Holdings, a Delaware corporation (the "Company"), in
connection with the Registration Statement on Form S-3, File No. 333-94973,
as amended (the "Registration Statement"), of the Company filed with the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"). The Registration Statement
relates to the offering by the Company and certain selling stockholders of
shares of the Company's class A common stock, par value $0.01 per share, (the
"Shares").

In rendering the opinion set forth below, we examined and
relied upon such certificates, corporate and public records, agreements,
instruments and other documents we considered appropriate as a basis for the
opinion.

Based upon and subject to the foregoing, we are of the
opinion that when the Registration Statement has become effective under the
Securities Act, an amended and restated certificate of incorporation of the
Company substantially in the form filed as an exhibit to the Registration
Statement has been duly filed with the Secretary of State of the State of
Delaware, and the Shares are issued and sold as contemplated by the
Registration Statement, the Shares will be validly issued, fully paid and
nonassessable.

The foregoing opinion is limited to the federal laws of the
United States and the General Corporation Law of the State of Delaware, and we
are expressing no opinion as to the effect of the laws of any other
jurisdiction. While we are not licensed to practice law in the State of
Delaware, we have reviewed applicable provisions of the Delaware General
Corporation Law as we have deemed appropriate in connection with the opinion.

<PAGE>

We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us under the caption
"Legal Matters" in the Registration Statement. In giving such consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission.

Very truly yours,

/s/ Cadwalader, Wickersham & Taft

<PAGE>

EXHIBIT 10.2

WATSON WYATT WORLDWIDE

WATSON WYATT & COMPANY

Office of the President
Suite 800
6707 Democracy Boulevard
Bethesda, MD 20814-1129

Telephone 301-581-4600
Fax 301-581-4883

October 22, 1999

Dr. David Friend
Watson Wyatt and Company
80 William Street
Wellesley Hills, MA 02181

Dear David,

The purpose of this letter is to summarize our recent discussions regarding your
supplemental pension. In his letter of December 6, 1996, Paul Daoust set forth
the following supplements to your pension:

First, in recognition that you worked one year for Watson Wyatt prior to joining
full time, Watson Wyatt would treat your hire date and credit your service for
pension purposes as of June 15, 1994. Second, you would receive a supplemental
pension on a non-qualified basis which adds 50% to your service credited (this
also applies to your June 1994 to June 1995 year). You are vested on the earlier
of June 15, 2000 or on the date of your termination, if it is initiated by the
company for reasons other than cause.

For clarity sake, the formula for calculating credited service = ((Actual
Service + 1 year) *1.5). For example, if you terminate on June 15, 2002, you
would have worked at WWW for seven years. Your credited service for pension
purposes = ((7 plus 1) * 1.5) = 12 years. The sum of your actual service plus
the supplemental service credit will, of course, be subject to the plan maximum
of 25 years.

As you and I have discussed, we will also vest you in early retirement rights if
you leave Watson Wyatt & Company within six months of a change of control
(neither a public offering of Watson Wyatt & Company stock nor a
merger/reorganization with WW Partners will be deemed a changed in control).
These early retirement rights are valuable because they include the right to
receive your benefits as early as age 50. If one of the events described in this
paragraph occurs before you reach age 50, your retirement benefits will be
calculated using the same early retirement factors that apply to a person age 50
(50% reduction) retiring directly from the company, regardless of your actual
age if you retire before age 50.

As an example of how this calculation would be done, if you leave the company on
June 15, 2004, you would be 48 years old and have 15 years of credited service,
((9 actual + 1) * 1.5) = 15. In calculating your retirement benefit, per Watson
Wyatt's retirement plan, those 15 years of service would be multiplied by
approximately 2% to equal approximately 30% of your final three-year average pay
(base pay plus fiscal year end bonus but not including SIBP). That 30% would
then be reduced by the factors applying for a person retiring at age 50 (50%),
resulting in a pension equal to approximately 15% of final average three year
pay. (Of course, this is just an illustration - the Plan documents themselves
shall be definitive as to all terms not supplemented by this letter.) Thus, by
being treated as if you had attained age 50, you would receive the benefits of
the "cliff." For the sake of clarity, the "cliff" significantly increases the
net present value of the retirement benefit, and thus is a valuable right.

<PAGE>

Should you be at or over age 50 when you retire from WWW, your supplemental
service credit will, of course, still apply. However, these special early
retirement rights should be moot since all plan participants over age 50
automatically receive them. To protect and preserve the value of all of your
supplemental pension rights from unforeseen future changes in the pension plan
that could be financially harmful to you, we will offer you the "most favored
nation" status with respect to the choices offered to any other subset of WWW
employees. For example, if a cash balance plan was put in place and WWW offered
a choice to employees age 45 and over with ten years of service to stay in the
old plan or accept the new plan, you would be given the same chance to choose
whichever plan was more favorable to you, regardless of your actual age or
service.

David, I trust this summarized our discussions accurately. I look forward to
continuing to work with you in the years ahead to make Watson Wyatt the best
firm possible.

/s/ John J. Haley
John J. Haley

<PAGE>

WATSON WYATT WORLDWIDE

WATSON WYATT & COMPANY

80 William Street
Wellesley Hills, MA 02181-3713

December 6, 1996 Telephone 617-237-3900
Fax 617-235-0311

Dr. David Friend
Watson Wyatt and Company
80 William Street
Wellesley Hills, MA 02181

Dear David,

The purpose of this letter is to summarize our recent discussions regarding the
provision of a supplemental pension to you. We have decided to grant this
supplemental pension in view of the fact that you were a mid-career hire who
joined Watson Wyatt after significant business experiences in various
capacities, which have added substantially to your value as Practice Director
for the Group & Health Care Practice.

We will provide you with a supplemental pension on a non-qualified basis which
would, in essence, add 50% to your service credited for benefit calculation
purposes under both our qualified and non-qualified pension plans, with all of
the other usual plan provisions, including vesting, applicable. Also, in
recognition of the fact that you worked for us prior to joining us full time in
June of 1995, we will treat your hire date for pension purposes only as June,
1994 (the 50% add-on will also apply to this year of service).

You will become vested in the 50% add-on for service and the prior year of
service mentioned above only if you meet the usual five-year 100% vesting
schedule without regard to these provisions. Thus you will be 100% vested in
this additional service if you remain continuously employed with Watson Wyatt
until June 15, 2000.

Finally, in the event you are terminated by us for reasons other than cause
prior to the date you are 100% vested, we will vest you in your accrued
benefits under our qualified and non-qualified plans, calculated including
the service credits outlined above.

I trust this summarizes our discussion accurately. If not, please let me know.

I look forward to continuing to work with you, David, as a key member of our
senior management team that is building the best global firm in our business.

Sincerely,

/s/ Paul R. Daoust
Paul R. Daoust
Chief Operating Officer

cc: Pete Smith

<PAGE>

Exhibit 10.3

OFFICE LEASE

Between
THE OWNERS OF 1717 H STREET,
N.W., WASHINGTON, D.C.

LANDLORD,

and

WATSON WYATT & COMPANY
d/b/a
WATSON WYATT WORLDWIDE,
TENANT,

for

SEVENTH, EIGHTH AND NINTH FLOORS
1717 H Street, N.W.
Washington, D.C.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Paragraph Number and Heading Page
- ---------------------------- ----
<C> <S>
1. Premises...................................................... 1
2. Term.......................................................... 2
3. Acceptance of Premises and Tenant Improvement Work............ 3
4. Base Rent; Additional Rent.................................... 4
5. Operating Expenses............................................ 7
6. Real Estate Taxes............................................. 13
7. Late Charges; Interest........................................ 16
8. Services...................................................... 16
9. Personal Property Taxes....................................... 24
10. Tenant's Default.............................................. 24
11. Landlord's Remedies for Tenant's Default...................... 25
12. Landlord Defaults............................................. 27
13. Security Deposit.............................................. 28
14. Use........................................................... 28
15. Assignment and Subletting..................................... 28
16. Condition of Premises......................................... 31
17. Entry by Landlord............................................. 31
18. Liability; Indemnity.......................................... 31
19. Insurance..................................................... 31
20. Improvements.................................................. 33
21. Rules and Regulations......................................... 34
22. Hazardous Materials........................................... 34
23. Limitation on Liability; Tenant's Property.................... 35
24. Damage to Premises............................................ 36
25. Condemnation.................................................. 37
26. Subordination................................................. 38
27. Estoppel Certificates......................................... 39
28. No Personal Liability of Landlord............................. 39
29. No Waiver..................................................... 39
30. Holding Over.................................................. 40
31. (Intentionally Deleted)....................................... 40
32. Covenant of Quiet Enjoyment................................... 40
33. Notices....................................................... 40
34. Broker's Commission........................................... 41
35. Maintenance................................................... 41
36. Parking....................................................... 43
37. Rule Against Perpetuities..................................... 43
38. Renewal....................................................... 43
39. Expansion Option.............................................. 46
40. First Right to Lease.......................................... 48
41. Termination Option............................................ 49
42. Storage Space................................................. 50
43. Waiver of Jury Trial.......................................... 51
45. Signs......................................................... 51
46. Exterior/Landscaping.......................................... 52
47. Exclusivity................................................... 52
49. Miscellaneous................................................. 52
</TABLE>

<PAGE>

Exhibit A - Outline of Premises
Exhibit B - Work Agreement and Allowance
Exhibit C - Char Service Schedule
Exhibit D - Rules and Regulations
Exhibit E - SNDA
Exhibit F - Competitors List
Exhibit G - Signage

<PAGE>

OFFICE LEASE

THIS OFFICE LEASE (the "Lease") is made and executed this 9th
day of January 1998, by and between (i) the Owners of 1717 H Street, N.W.,
Washington, D.C., the Building (defined below), being Marvin M. Robertson and
Katheryn M. Robertson, Trustees under Trust Indenture made by Mathilda M.
Kirchner dated November 28, 1953, Marvin M. Robertson and Katheryn M. Robertson,
Trustees under Trust Indenture made by Cecelia E. Goodman dated November 28,
1953, Marvin M. Robertson, Katheryn M. Robertson and George W. Lemm, Trustees
under the Will of Katheryn Lemm (Trust Estates 2 through 4), Marvin M.
Robertson, Katheryn M. Robertson and George W. Lemm, Trustees under Trust
Indenture made by John C. Goodman dated August 14, 1959 (Trust Estates 1 through
4), Marvin M. Robertson, Katheryn M. Robertson and George W. Lemm, Trustees
under Trust Indenture made by Mathilda M. Kirchner dated August 14, 1959 (Trust
Estates 4, 5 and 6), Marvin M. Robertson, Katheryn M. Robertson and George W.
Lemm, Trustees under Trust Indenture made by Cecelia E. Goodman dated August 14,
1959 (Trust Estates 1 through 6), Marvin M. Robertson, Katheryn M. Robertson and
George W. Lemm, as Trustees under the Trust Indenture made by Katheryn E. Lemm
(Trust Estates 4 and 5), dated August 14, 1959, Marvin M. Robertson, Michael A.
Maiatico and Ann T. Maiatico, Trustees under Trust Indenture No. I made by
Walter M. Macnichol dated September 21, 1959 (Trust Estates 1 through 8), Marvin
M. Robertson, Katheryn M. Robertson and George W. Lemm, Trustees under Trust
Indenture No. II made by Walter M. Macnichol dated September 21, 1959, and
Marvin M. Robertson and George W. Lemm, Trustees under Trust Indenture made by
William F. Glockner dated May 7, 1965 (Trust Estates 3 through 9 and 11),
("Landlord"), and (ii) WATSON WYATT & COMPANY, a Delaware corporation doing
business as WATSON WYATT WORLDWIDE ("Tenant").

1. PREMISES.

(a) Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, all of the office space on the Seventh (7th) Eighth (8th) , and Ninth
(9th) Floors of the office building located at 1717 H Street, N.W., Washington,
D.C. (the "Building"), comprising a total of approximately 87,327 rentable
square feet as measured in accordance with the Washington D.C. Association of
Realtors Method of Measurement dated as of June 13, 1995 (the "Premises" or the
"initial Premises" when referring to the initially leased approximately 87,327
rentable square feet). The Premises are outlined in red on EXHIBIT A attached
hereto. "Expansion Space" (as defined below) and "Additional Expansion Space"
(as defined below) shall become part of the Premises as and when leased by
Tenant, and the amount of rentable square feet of the Premises shall be
increased accordingly.

1
<PAGE>

(b) The Building comprises a total of approximately 318,085 rentable
square feet of office space measured in accordance with the Washington D.C.
Association of Realtors Method of Measurement dated as of June 13, 1995 (the
"Building Rentable Area").

2. TERM.

(a) The term of this Lease (the "Lease Term") shall be the period
commencing on February 1, 1998 (the "Lease Commencement Date") and continuing
thereafter through July 31, 2008. Except as otherwise provided in this Lease, if
Tenant exercises the First Renewal Option in accordance with the provisions of
Paragraph 38, below, all references herein to the "Lease Term" shall include the
Extended Term (as defined below), and if Tenant exercises the Second Renewal
Option in accordance with the provisions of Paragraph 38, below, all references
herein to the "Lease Term" shall include the Second Extended Term (as defined
below).

(b) The "Tenant Build-out Period" shall be the period commencing on the
date Landlord delivers possession of the Premises to Tenant and continuing
through the date the "Tenant Improvement Work" (hereinafter defined) is
substantially completed (hereinafter defined). Tenant shall be provided with
complete access to the Premises during the Tenant Build-out Period to commence
demolition and construction of the Tenant Improvement Work (as defined below) .

(c) The first "Lease Year" shall be the period commencing on July 15,
1998, and ending on July 31, 1999. Each subsequent Lease Year during the Lease
Term shall commence on the day immediately following the last day of the
preceding Lease Year, and shall continue for a period of twelve (12) full
calendar months.

(d) The "Rent Commencement Date" shall be July 15, 1998, whether or not
Landlord has delivered the Premises to Tenant or Tenant has performed or
completed the Tenant Improvement Work; or for any other reason.

(e) Unless the Lease Term is extended in accordance with the provisions
of Paragraph 38, below, the "Lease Expiration Date" shall be July 31, 2008.

(f) Landlord shall use commercially reasonable efforts to deliver the
Premises to Tenant on February 1, 1998, or as soon thereafter as possible, by
taking all reasonably practicable steps to recover possession of the Premises
from The International Bank for Reconstruction and Development, which is the
tenant of the Premises as of the date of execution of this Lease (the "Current
Tenant"). If Landlord does not deliver the Premises to Tenant by February 1,
1998, then Landlord shall pay Tenant all of the rent received by Landlord from
the Current Tenant pursuant to its current lease (dated December 11, 1995) after
February 1, 1998, minus all amounts that are attributable to operating expenses
for the

2
<PAGE>

Current Tenant after February 1, 1998, (the "net rents") , which net rents shall
be deemed income to the Tenant and not to the Landlord, and Tenant shall be
liable for all taxes attributable to the receipt of said net rents. The net
rents shall be paid to Tenant within ten (10) days of receipt by Landlord from
the Current Tenant. In the event the current Tenant fails to pay its rent as and
when due under its lease, Landlord agrees that it will pursue recovery of said
sums and the costs and expenses (including reasonable attorneys' fees) of doing
so shall be deducted from the net rents due Tenant. Landlord agrees that it
shall not waive any net rents due from the Current Tenant.

3. ACCEPTANCE OF PREMISES AND TENANT IMPROVEMENT WORK.

(a) Tenant accepts the existing condition of the Premises and agrees
that Landlord shall not be required to make or pay for any "Improvements" (as
defined in Paragraph 20, below) to the Premises, except for the payment of the
"Tenant Allowance," the "Expansion Space Improvement Allowance," and each
"Renewal Allowance," all as defined below, and as may be provided in EXHIBIT B
hereto. Tenant agrees to accept the initial demised Premises and all Expansion
Space and Additional Expansion Space hereafter leased by Tenant, with all tenant
improvements existing therein at the time said space is leased in their "as is"
condition, provided however, that Landlord agrees that upon delivery to Tenant
that the then existing sprinkler system, VAV boxes and window blinds (which all
shall be of the same color) shall be operational and in good working condition
(Tenant shall be responsible for any damage thereto caused by Tenant's
demolition of the then existing tenant improvements or installation of Tenant's
new Tenant Improvements). Tenant agrees it shall be responsible for modifying
and expanding the then existing sprinkler system (including adding and
relocating sprinkler loops and heads beyond those then existing in the Premises
as of the date the Premises are delivered to Tenant), the HVAC system in the
Premises (including installing VAV boxes beyond those then existing in the
Premises as of the date the Premises are delivered to Tenant) , and that
Landlord shall not be responsible for making or paying for (other than by
providing the foregoing allowances) any changes, additions or improvements to
the then existing tenant improvements, the Building or base Building systems
with regard to Tenant's demolition of the then existing tenant improvements or
the construction and installation of Tenant's new Tenant Improvements.

(b) Tenant will perform the demolition of the tenant improvements
then existing in the Premises at the time of delivery, and complete
construction and installation of Tenant's new Tenant Improvements in the
Premises in accordance with the provisions of EXHIBIT B hereto (hereinafter
the "Tenant Improvement Work"), and Paragraph 19 as to Expansion Space,
Additional Expansion Space and any other Improvements to the Premises.
Throughout the Lease Term, Tenant shall engage any and all general
contractors and subcontractors necessary

3
<PAGE>

to perform any and all of the Tenant Improvement Work and to construct any other
or subsequent Improvements within the Premises. Tenant must obtain the written
consent of Landlord, which shall not be unreasonably withheld, delayed or
conditioned, prior to engaging any architect, engineer, general contractor or
major subcontractor to construct any Improvements within the Premises or to
perform any work in connection with construction of any such Improvements.

(c) Provided that Landlord complies with its obligations with respect
to the payment of the Tenant Allowance (hereinafter defined) in accordance with
the terms of this Lease, Tenant shall construct in the Premises, including any
Expansion Space or Additional Expansion Space, Improvements having a total cost
of not less than Thirty-Five Dollars ($35.00) per rentable square foot of the
Premises, including without limitation Twenty-Seven and 50/100 Dollars ($27.50)
per rentable square foot of the Premises for the costs to Tenant of all design,
architectural and engineering work, construction costs, construction
supervision, contractors' overhead and profit, licenses and permits, and other
hard costs incurred by Tenant in connection with the Improvements.

(d) Landlord shall provide Tenant with a "Tenant Allowance" of Two
Million Four Hundred One Thousand, Four Hundred Ninety Two Dollars ($2,401,492),
an amount equal to Twenty-Seven and 50/100 Dollars per rentable square foot of
the initial Premises, which Tenant may use for construction of Improvements to
the initial Premises, for space planning and architectural fees and moving
expenses, and which shall be paid by Landlord in accordance with the provisions
of EXHIBIT B hereto. If the total cost of construction of the Premises,
including design, architectural and engineering services and other hard costs
incurred in connection with the Improvements, is less than the total of the
Tenant Allowance, the unexpended portion shall be applied to Tenant's Base Rent
obligations for the initial months of the Lease for which Base Rent shall be
due.

(e) Landlord's fee for supervision and oversight of the construction of
the Tenant Improvement Work in the initial Premises shall be Ten Thousand
Dollars ($10,000). If Tenant exercises the Expansion Option, Landlord's fee for
supervision and oversight of the construction of the Tenant Improvement Work in
the Expansion Space shall be Five Thousand Dollars ($5,000). If Tenant leases
any Additional Expansion Space, Landlord's fee for supervision and oversight of
the construction of the Tenant Improvement Work in each Additional Expansion
Space shall be the lesser of (i) Five Thousand Dollars ($5,000) or (ii) $0.12
per rentable square foot.

4. BASE RENT; ADDITIONAL RENT.

(a) Tenant shall pay to Landlord "Base Rent" and "Additional Rent."
Base Rent is the rent due from Tenant to Landlord that is fixed pursuant to the
terms hereof at the commencement of each Lease Year during the Lease Term. Base
Rent does not include

4
<PAGE>

increases in Operating Expenses (as defined below) or in Real Estate Taxes
(as defined below). Additional Rent is any and all rent, payments or other
charges (E.G., increases in Operating Expenses) other than Base Rent that
Tenant is required to pay under the provisions of this Lease. Base Rent and
Additional Rent shall be made payable to "The Owners of 1717 H Street, c/o
Stoladi Property Group" at 1636 Connecticut Avenue, N.W., Washington, D.C.
20009, Suite 400, unless otherwise specified by Landlord pursuant to a prior
written notice delivered to Tenant.

(b) Tenant shall be obligated to pay Base Rent beginning on the Rent
Commencement Date. For the first Lease Year there shall be due and owing from
Tenant to Landlord as annual Base Rent the total sum of Two Million Six Hundred
Two Thousand Five Hundred Fifty Five and 88/100 Dollars ($2,602,555.88),
comprising (i) one Hundred Thirteen Thousand Seven Hundred Thirty Six and 38/100
Dollars ($113,736.38) for the period July 15, 1998 through July 31, 1998, and
(ii) Two Million Four Hundred Eighty Eight Thousand Eight Hundred Nineteen and
50/100 Dollars ($2,488,819.50) for the period August 1, 1998 through July 31,
1999. For the Second Lease Year and each Lease Year thereafter, the annual Base
Rent for the Premises shall be Two Million Four Hundred Eighty-Eight Thousand
Eight Hundred Nineteen and 50/100 Dollars ($2,488,819.50) (i.e., 87,327 rentable
square feet x $28.50 per rentable square foot), as adjusted pursuant to
Paragraph 4 (d), (e) and (f), and Paragraphs 38, 39 and 40. Notwithstanding the
foregoing, if Tenant occupies, and conducts its business in, all or any part of
the Premises for any period before July 15, 1998, or before the rent
commencement dates for the Expansion Space (hereinafter defined) or Additional
Expansion Space (hereinafter defined), Tenant shall reimburse Landlord, within
ten (10) days of Landlord's demand, for the cost of all utilities attributable
to Tenant's occupancy of the Premises during the aforesaid period(s). Tenant's
proportionate share of the cost of such utilities shall be based upon the amount
of rentable square feet of the Premises Tenant occupies during the aforesaid
period.

(c) Tenant's first payment of Base Rent, for the period July 15, 1998
through July 31, 1998, shall be due on the Rent Commencement Date. For the
remainder of the Lease Term and during any extension of the Lease Term, Tenant
shall pay its annual Base Rent in 12 equal monthly installments. Commencing on
August 1, 1998, all monthly installments of Base Rent shall be payable in
advance on the first day of each calendar month during the Lease Term. (For the
first Lease Year, each monthly installment due after July 1998 shall be Two
Hundred Seven Thousand Four Hundred One and 63/100 Dollars ($207,401.63)). All
rent due under this Lease shall be payable, without demand and without setoff or
other reduction, except as expressly provided in this Lease, at the office
within the Building of the property management company engaged by the Landlord
for the Building, or at such other place as Landlord designates by written
notice to Tenant.

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<PAGE>

(d) Upon the commencement of the second Lease Year and upon the
commencement of each Lease Year thereafter during the Lease Term, OTHER THAN the
sixth Lease Year, and effective simultaneously with such dates (the "Adjustment
Dates"), the annual Base Rent per rentable square foot shall be increased by an
amount equal to the product of (1) fifty percent (50%) of the increase in the
CPI (as defined below) multiplied by (2) Eighteen and 50/100 Dollars ($18.50),
but said increase shall not exceed two percent (2.0%) of the sum of (i) Eighteen
and 50/100 Dollars ($18.50) and (ii) the amount by which Base Rent was increased
upon commencement of the immediately preceding Lease Year pursuant to this
Paragraph 4(d). The increase in the CPI shall be determined by subtracting the
CPI for the month that is three months prior to the commencement of the first
Lease Year (the "Base Index") from the CPI for the month that is three months
prior to the Adjustment Date and dividing the result by the Base Index.
Notwithstanding the foregoing, however, in no event shall the Base Rent payable
during the second Lease Year or any Lease Year thereafter during the first ten
(10) Lease Years of the Lease Term be less than the Base Rent payable during the
immediately preceding Lease Year. The "CPI" is hereby defined to be the index
for the Washington, D.C.-Maryland-Virginia area, now known as the United States
Bureau of Labor Statistics Consumer Price Index for Urban Wage Earners and
Clerical Workers, all items (1982-84 = 100). In the event the CPI is not in
effect at any time during the Lease Term, Landlord and Tenant shall attempt to
agree upon a substitute formula, but if the parties are unable to agree upon a
substitute formula, then the matter shall be determined by arbitration in
accordance with the rules of the American Arbitration Association then
prevailing.

(e) The following sets forth an example of how increases in Base Rent
shall be determined in accordance with Paragraph 4(d):

ASSUME: (1) Base Rent per rentable square foot for the first Lease Year is
$28.50; (2) CPI for the first Lease Year is 100; (3) CPI for the second Lease
Year is 105; (4) CPI for third Lease Year is 110. Employing the formula set
forth in Paragraph 4(d), the Base Rent per rentable square foot for the second
Lease Year would be the lesser of:

(i) $18.50 x (((105-100)/100) x 0.50) = $0.46; $28.50 + $.46 = $28.96
or
(ii) $18.50 x 0.02 = $0.37; $28.50 + $.37 = $28.87

Accordingly, Base Rent per rentable square foot for the Second Lease
Year would be $28.87. The Base Rent per rentable square foot for the third Lease
Year would be the lesser of:

(i) $18 . 50 x (((110-100) /100) x 0. 50) = $0.93; $28 . 50 + $.93 = $29.43
or
(ii) ($18.50 + $0.37) x 0.02 = $0.38; $28.87 + $.38 = $29.25

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Accordingly, Base Rent per rentable square foot for the Third Lease
Year would be $29.25.

(f) In addition to the increases in Base Rent provided for in
Paragraph 4(d), Base Rent shall be increased, above the escalated Base Rent
in effect at the end of the fifth Lease Year, by an amount equal to Two and
50/100 Dollars ($2.50) per rentable square foot of the Premises (including
any Expansion Space and Additional Expansion Space leased to Tenant),
effective upon the commencement of the sixth Lease Year. Notwithstanding the
foregoing, Landlord shall abate, and Tenant shall not be required to pay, one
half (1/2) of the Base Rent that otherwise would be due during the first
month of the Sixth Lease Year.

5. OPERATING EXPENSES.

(a) "Operating Expenses" shall be all reasonable costs and expenses
(including, without limitation, the cost of liability, casualty, business income
and other insurance reasonably allocated to Landlord's operation of the
Building) incurred by Landlord in the operation, maintenance, and repair of the
Building, and in the provision of services to Building tenants, (other than
retail tenants of the Building), including Tenant. The accounting of the
Operating Expenses shall be performed in accordance with generally accepted
accounting principles. Operating Expenses shall be appropriate for the prudent
management, operation, maintenance, servicing and repair of the Building and
shall be reduced by all cash discounts, trade discounts or quantity discounts
received by Landlord or Landlord's managing agent in the purchase of any goods,
utilities or services in connection with the prudent operation of the Building.
Landlord shall equitably prorate bills for services rendered to the Building and
to any other property owned by Landlord. Landlord shall use reasonable efforts
to pursue all insurance, breach of warranty or other claims that might result in
a reduction in Operating Expenses payable by Tenant. As of the date of execution
of this Lease, there is no space in the Building used for retail. If any space
in the Building is, in the future, used for retail, all retail space located in
the Building shall be separately metered for utilities, and the cost of
utilities consumed in such retail space shall not be included in the Operating
Expenses.

(b) The following costs and expenses shall be excluded from Operating
Expenses:

(1) Costs in connection with any structural repair or major
change in the Building;

(2) Costs of correcting defects in the initial design,
construction, reconstruction or renovation of the Building, including the
parking garage;

(3) Costs, including permit, license and inspection costs,
associated with alterations or improvements of the Premises, the premises of
other tenants or occupants of the Building or vacant retail space in the
Building or incurred in renovating or otherwise

7
<PAGE>

improving, decorating, painting or redecorating vacant space for tenants or
other occupants of the Building;

(4) Depreciation of the Building, fixtures or equipment;

(5) Interest points, fees and principal payments on mortgages
and other debt costs, if any, or amortization on any mortgage or mortgages or
any other debt instrument encumbering the Building or the Land;

(6) Payments made to any ground lessor or master space lessor;

(7) Expenses directly resulting from the breach of this Lease
by Landlord, or the negligence of Landlord, its agents, contractors or
employees, or other tenants;

(8) Reimbursable costs for which Landlord is reimbursed by its
insurance carrier, any tenant's carrier, any tenant, any warrantor or any other
third party;

(9) Any bad debt loss, rent loss, reserves for bad debts or
rent loss or legal fees incurred in collecting rent or other obligations from
other Building tenants;

(10) The cost of services provided to other tenants of the
Building beyond those provided to all Building Tenants, and costs incurred by
Landlord in respect of breaches of other leases in the Building;

(11) Costs associated with the operation of the business of
the person or entity which constitutes Landlord, as distinguished from the costs
of operation of the Building, including accounting and legal matters, costs of
defending any lawsuits with any mortgagee, costs of selling, syndicating,
financing, mortgaging or hypothecating any of Landlord's interest in the
Building, costs of any disputes between Landlord and its employees, disputes of
Landlord with Building management, and outside fees paid in connection with
disputes with other tenants;

(12) The wages of any employee of Landlord who does not devote
substantially all of his or her time to the Building or common areas of the
Building, except to the extent such wages are reasonable, and properly and
equitably allocable to time spent by such employee in directly servicing the
Building or common areas thereof;

(13) Fees for services rendered to the Building or common
areas by entities controlled by or under common control with Landlord to the
extent such fees exceed the market rate payable for comparable services if
rendered by unrelated third parties;

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<PAGE>

(14) Any expenditures which under normal accounting rules
should be treated as capital expenditures, EXCEPT amortization (at the prime
rate of interest reported in The Wall Street Journal ("Prime Rate")) of capital
expenditures made by Landlord for the purpose of reducing Operating Expenses of
the Building, (amortization shall be on a straight-line basis over Landlord's
reasonable estimate of the useful life of the particular improvement or
equipment);

(15) Fines, penalties, late payment charges and interest
arising from the acts or inaction of Landlord or failure timely to make tax
and/or other payments, except that interest on assessments described in clause
(27) shall be included and deemed incurred as if Landlord has elected to pay
such assessments in the maximum number of permitted installments);

(16) Capital costs incurred by Landlord in restoring all or
any portion of the Building after the occurrence of a casualty and any other
costs reimbursed by insurance proceeds;

(17) Legal fees, court costs, and consultants' fees not
related to the general welfare of Building tenants;

(18) Costs of remediation or cleanup of any asbestos or
Hazardous Materials (as defined below) near, in, on or under the Building;

(19) Any operating expenses, including maintenance,
attributable to the parking garage;

(20) Costs of repairs or replacements caused by the exercise
of any condemnation rights by any public or quasi-public authority;

(21) Taxes, including Real Estate Taxes (which shall be paid
in accordance with the provisions of Paragraph 6 of the Lease);

(22) Salaries and the cost of other compensation paid to
executive employees above the grade of manager (including profit sharing,
bonuses and other employee benefit plans);

(23) The rent or expenses in lieu of rent for Landlord's
on-site management or leasing office to the extent such rent or expenses in lieu
of rent exceeds market rent;

(24) Costs and expenses of utilities directly metered to
tenants of the Building and payable separately by such tenants;

9
<PAGE>

(25) Increased insurance premiums caused by Landlord's or any
other tenant's hazardous, reckless, willful or negligent acts;

(26) Interest incurred on amounts by which any tenant's
estimated payments exceed such tenant's proper share of Operating Expenses or
Real Estate Taxes;

(27) Assessments and Real Estate Taxes to the extent paid in
less than the maximum permitted number of installments;

(28) Charitable and political contributions, advertising and
promotional expenditures, including costs of staging special events (unless
consistently provided to or applied for the benefit of all tenants, or as
necessary to provide service in accordance with a first-class standard, e.g.,
expenses for the annual Building Holiday party).

(29) The costs associated with any concessions or incentives
granted to tenants in the Building (such as moving expense allowances or
reimbursements);

(30) Costs and expenses of janitorial or other services
payable separately by tenants of the Building (but Operating Expenses shall be
deemed to include the costs and expenses of such services deemed furnished to
such tenants based on the assumption that the provision of such services to such
tenants (per rentable square foot) equals the cost of providing such services to
all other tenants (per rentable square foot);

(31) Rental for items (except when needed in connection with
normal repairs and maintenance of permanent systems typically rented for such
purposes), which, if purchased, rather than rented, would constitute a capital
improvement which is specifically excluded in clause (14);

(32) Marketing costs including rent or expenses in lieu of
rent for a marketing office, leasing commissions, space planners' fees,
attorneys' fees, advertising expenses, expenses incurred in connection with the
negotiation and preparation of letters, deal memos, letters of intent, leases,
subleases and/or assignments, space planning costs and other costs and expenses
incurred in connection with lease, sublease and/or assignment negotiations and
transactions with present or prospective tenants or other occupants of the
Building;

(33) Costs of bringing the common areas of the Building or the
Land into compliance with existing or future laws or other legal requirements,
including without limitation federal, state or local environmental laws and
Title III of the Americans with Disabilities Act of 1990, as amended ("ADA")
except as provided in Paragraph 35; and

(34) Costs of acquiring any antiquities or works of art.

10
<PAGE>

(c) "Base Year Operating Expenses" shall be the greater of (A) the
Operating Expenses incurred during calendar year 1999 or (B) the Operating
Expenses incurred during the first 12 months in which Tenant occupies all or
part of the Premises.

(d) "Operating Expense Increases" shall be the operating Expenses that
are incurred during the fifth and each subsequent Lease Year during the Lease
Term that are in excess of the amount of the Base Year Operating Expenses.

(e) Tenant's "Proportionate Share" shall be the percentage that the
total rentable square feet contained within the Premises at any time bears to
the total Building Rentable Area. Tenant's Proportionate Share percentage as of
the Lease Commencement Date is 27.62%.

(f) Beginning with the fifth Lease Year, Tenant shall pay to Landlord,
as Additional Rent, Tenant's Proportionate Share of Operating Expense Increases.

(g) Notwithstanding the foregoing provisions of this Paragraph 5,
the amount of Tenant's Proportionate Share of Operating Expense Increases
that Tenant is required to pay during and with respect to the fifth Lease
Year shall not exceed twelve and one-half percent (12 1/2%) of the Base Year
Operating Expenses. The Base Year Operating Expenses shall be increased by
the amount by which the Operating Expenses incurred during the fifth Lease
Year exceed one hundred twelve and one half percent (112 1/2%) of Tenant's
Proportionate Share of the Base Year Operating Expenses. For the sixth Lease
Year through the tenth Lease Year, the amount of Tenant's Proportionate Share
of Operating Expense Increases that Tenant is required to pay shall not
exceed one-hundred and four percent (104%) of Tenant's Proportionate Share of
Operating Expense Increases for the previous Lease Year.

(h) Landlord shall notify Tenant, at least 30 days in advance of the
fifth and each subsequent Lease Year during the Lease Term, of Landlord's
reasonable estimate of Tenant's Proportionate Share of Operating Expense
Increases for each such Lease Year, and Tenant shall pay one-twelfth (1/12) of
these estimated amounts on the first day of each month after the date of such
notice until the estimated Tenant's Proportionate Share of Operating Expense
Increases is again adjusted by notice from Landlord. Landlord's estimate of
Tenant's Proportionate Share of Operating Expense Increases shall not be
adjusted more than once with respect to any Lease Year. If Landlord does not
notify Tenant in advance of the beginning of a Lease Year as provided above,
Tenant shall continue to make monthly payments of one-twelfth (1/12) of the most
recently estimated amount of its Proportionate Share of Operating Expense
Increases until the first full calendar month that is 30 days after Tenant's
receipt of notice of a new estimated amount from Landlord. Within 120 days after
the end of the fifth and each subsequent Lease Year during the Lease Term,
Landlord shall submit to Tenant a statement prepared by a certified public
accountant employed or engaged by the Landlord's management company for the
Building ("Statement") showing Tenant's

11
<PAGE>

actual Proportionate Share of Operating Expense Increases for the previous
Lease Year itemized as to major categories of expenses, the amount thereof
paid by Tenant, and the balance due or the overpayment. The balance due shall
be paid by Tenant to Landlord, or the overpayment shall be paid by Landlord
to Tenant, without interest, within thirty (30) days after the date of the
Statement. Tenant or its designee may, upon reasonable notice, examine or
audit Landlord's records pertaining to all amounts payable by Tenant under
the terms of this Lease, at the office of Landlord during ordinary business
hours not more than once during the sixth and each subsequent Lease Year to
verify the matters in the Statement for the Base Year and the immediately
preceding three (3) Lease Years (Landlord agrees to maintain said records and
the records for the Base Year) , provided that such examination shall not
excuse or delay the timely payment of Tenant's Proportionate Share of
Operating Expense Increases. For the purpose of Tenant's examination or audit
only, Tenant shall have the right to make copies of said records at its
expense. Tenant shall maintain the appropriate confidentiality of said
copies. If Tenant's inspection of Landlord's records correctly shows that
Tenant's Proportionate Share of Operating Expense Increases has been
overstated in the Statement by more than five percent (5%) of the entire
Tenant's Proportionate Share of Operating Expense Increases, Landlord shall
pay said excess Operating Expense payments made by Tenant and reimburse
Tenant for the reasonable cost of the examination or audit within ten (10)
days of Landlord's receipt of Tenant's examination or audit report.

(i) If the average occupancy rate of the Building Rentable Area shall
be less than one-hundred percent (100%) for the period during which the Base
Year Operating Expenses are calculated or for the fifth or any subsequent Lease
Year, for purposes of calculating Operating Expenses, the Operating Expenses for
such period that vary with the level of occupancy of the Building (for example,
char services, management fees, and elevator costs) shall be increased by the
additional costs and expenses that Landlord reasonably estimates would have been
incurred if the average occupancy rate had been one-hundred percent (100%) for
such period. In no event shall the Building tenants be required to pay, in the
aggregate, more than 100% of the actual Operating Expenses of the Building for
any calendar year, and Tenant shall not be required to pay more than 100% of its
Proportionate Share of the total Operating Expenses actually incurred for any
Lease Year, with such actual Operating Expenses to be determined and payments
reconciled through the process described in Paragraph 5 (h). At Tenant's written
request, Landlord will provide information sufficient to disclose or quantify
adjustments made to each category of Operating Expenses increased pursuant to
the provisions of this Paragraph 5.

(j) In addition to the payment of Operating Expense Increases required
by the provisions of this Paragraph 5, Tenant shall pay for all use of HVAC
services other than during Building Operating Hours (as hereinafter defined).
Non-Building-Operating Hours HVAC usage must be arranged by Tenant with the
Building management. If Tenant delivers to Building management a written request
for Non-Building-Operating-Hours HVAC service

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<PAGE>

(i) before 10 a.m. on the Friday before weekend service is requested, (ii) by 10
a.m. on the day before service on a Holiday (as defined below) is requested, and
(iii) by noon on the day before weekday evening service is requested, Tenant
shall be required to pay Eight Dollars ($8.00) per hour per floor for such
service. If Non-Building-Operating Hours HVAC is requested, but not in
accordance with the requirements of the preceding sentence, Landlord shall have
the right to require Tenant to pay Thirty-Five Dollars ($35) per hour per floor
for such service.

6. REAL ESTATE TAXES.

(a) (i) "Real Estate Taxes" shall be all taxes (including special
assessments) for the Building that are payable within a particular calendar
year, including all taxes imposed on the Building and the land upon which it is
situated, as well as all reasonable costs incurred by Landlord, including
reasonable attorneys' fees and consultants' fees in connection with any real
estate tax contest or appeal. Real Estate Taxes shall include, without
limitation, real estate taxes, personal property taxes applicable to the
personalty of Landlord, whether used by Landlord or its agent, related to or
used in the management or operation of the Building, (other than such taxes
based upon Landlord's net income), public space rentals, including but not
limited to vault rentals, any taxes, assessments or other levies which may at
any time be imposed and/or collected by any federal, state, county, municipal,
quasi-governmental or corporate entity in respect of bus, subway or other public
transportation facilities operating in the metropolitan area of the District of
Columbia, and including also any assessment or levy for any business improvement
district duly formed in accordance with applicable law, and any tax assessment
or other charges in the nature of a sales, use or other tax upon Landlord, the
Premises, the Building, the Land and/or the rents payable hereunder (except
income taxes, franchise taxes calculated upon Landlord's net income, estate or
inheritance taxes of Landlord). If the levy shall be levied or imposed on the
Building, and/or Land and/or Landlord, in substitution for real estate taxes
and/or personal property taxes presently levied or imposed on immovables in the
District of Columbia, and including also without limitation any taxes on rents,
then any such new tax or levy shall be included within the amount of Real Estate
Taxes of which Tenant shall pay its Proportionate Share. If the amount of the
Real Estate Taxes is not ascertainable because such Real Estate Taxes or
substitute levies or taxes relate to one or more properties other than the
Building and the Land or to rents received by Landlord in addition to those
received from the Building, then Tenant shall pay its Proportionate Share of
Real Estate Tax Increases of said items to be paid by Tenant forming a part of
the Real Estate Taxes shall be reasonably allocable to the Building as
reasonably determined by Landlord. If any Real Estate Taxes levied against the
Land, Building or improvements covered hereby or the rents reserved therefrom,
shall be evidenced by improvement bonds or other bonds, or in any other form,
which may be paid in annual installments, only the amount payable for a Real
Estate Tax Year elapsing during the Lease Term shall be included as Real Estate
Taxes for purposes of this definition. Real Estate Taxes

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<PAGE>

shall not include, nor shall Tenant be obligated to pay pursuant to this Lease,
such taxes as capital gains, corporation, unincorporated business, income,
profit, excess profit, inheritance, transfer, recordation, estate, gift or
franchise taxes, or any fines, penalties and/or interest on late payments of any
Real Estate Taxes (unless such late payment is caused by Tenant's failure to
make timely payment of any installments of its Proportionate Share of Real
Estate Taxes, in which case Tenant shall be solely liable to reimburse Landlord
for the entirety of any such fine, penalty and/or interest).

(ii) "Base Year Real Estate Taxes" shall be the greater of (A)
the Real Estate Taxes due and payable during calendar year 1999 or (B) the Real
Estate Taxes due and payable during the first 12 months after the Tenant
Build-out Period.

(iii) "Real Estate Tax Increases" shall be the Real Estate
Taxes for the third and each subsequent Lease Year during the Lease Term that
are in excess of the amount of the Base Year Real Estate Taxes.

(iv) Beginning with the third Lease Year, Tenant shall pay to
Landlord, as Additional Rent, Tenant's Proportionate Share (as defined in
Paragraph 5 (e) above) of Real Estate Tax Increases.

(b) Landlord shall notify Tenant, at least thirty (30) days in advance
of the third and each subsequent Lease Year during the Lease Term, of Landlord's
reasonable estimate of Tenant's Proportionate Share of Real Estate Tax Increases
for each such Lease Year, and Tenant shall pay one-twelfth (1/12) of these
estimated amounts on the first day of each month after the date of such notice
until the estimated Tenant's Proportionate Share of Real Estate Tax Increases is
again adjusted by notice from Landlord. Landlord's estimate of Tenant's
Proportionate Share of Real Estate Tax Increases shall not be adjusted more than
once with respect to any Lease Year. If Landlord does not notify Tenant in
advance of the beginning of a Lease Year as provided above, Tenant shall
continue to make monthly payments of one-twelfth (1/12) of the most recently
estimated amount of its Proportionate Share of Real Estate Tax Increases until
the first full calendar month that is 30 days after Tenant's receipt of notice
of a new estimated amount from Landlord. Within 120 days after the end of the
third and each subsequent Lease Year during the Lease Term, Landlord shall
submit to Tenant a statement prepared by a certified public accountant employed
or engaged by the Landlord's management company for the Building ("Statement")
showing Tenant's actual Proportionate Share of Real Estate Tax Increases for the
previous Lease Year, the amount thereof paid by Tenant, and the balance due or
the overpayment. The balance due shall be paid by Tenant to Landlord, or the
overpayment shall be paid by Landlord to Tenant, without interest, within thirty
(30) days after the date of the Statement. Tenant may, upon reasonable notice,
examine or audit Landlord's records at the office of Landlord during ordinary
business hours not more than once during the fourth and each subsequent Lease
Year to verify the matters in the

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<PAGE>

Statement for the Base Year Real Estate Taxes and for the immediately preceding
three (3) Lease Years (Landlord agrees to maintain said records and the records
for the Base Year), provided that such examination shall not excuse or delay the
timely payment of Tenant's Proportionate Share of Real Estate Tax Increases. For
the purpose of Tenant's examination or audit only, Tenant shall have the right
to make copies of said records at its expense. Tenant shall maintain the
appropriate confidentiality of said copies. If Tenant's inspection of Landlord's
records correctly shows that Tenant's Proportionate Share of Real Estate Tax
Increases has been overstated in the Statement by more than five percent (5%) of
the entire Tenant's Proportionate Share of Real Estate Tax Increases, Landlord
shall reimburse Tenant for the reasonable cost of the examination or audit.

(c) Tenant shall receive its proportionate share of any tax refund
attributable to any period for which Tenant has paid its Proportionate Share of
Real Estate Taxes Increases, within ten (10) days of the receipt of same by
Landlord, provided that Tenant first cures any then-existing breach of this
Lease or default by Tenant. Notwithstanding the foregoing, Tenant shall not be
required to pay any portion of costs incurred to contest or appeal any real
estate taxes imposed for any period during which Tenant did not occupy (or have
the right to occupy) the Premises, and Tenant shall not be entitled to share in
any refund applicable to any period during which Tenant did not occupy (or have
the right to occupy) the Premises. Tenant shall have the right twice during the
first ten (10) Lease Years of the Lease Term, once during the Extended Term (as
defined below) and once during the Second Extended Term (as defined below) to
require Landlord to contest an increase in the Real Estate Tax assessment for
the Building which Landlord has decided not to contest, provided, however, if
Tenant has not obtained the agreement of the other major tenants (i.e. tenants
leasing space equal to one floor of the building) to pursue the appeal prior to
Tenant exercising its aforesaid right to require Landlord to pursue an appeal,
then Tenant shall be liable for the full amount, not just its, Proportionate
Share, of any increase in the Real Estate Tax assessment resulting from such an
appeal, and, if there is such an increase, all costs and attorneys' fees
relating to such appeal.

7. LATE CHARGES; INTEREST. Any rental or other payment required to be
made by Tenant hereunder that is not received by Landlord within five (5)
days after its due date (a) shall be subject to a late charge equal to three
percent (3%) of the amount due, which amount shall be paid by Tenant, as
Additional Rent, with the next monthly payment of Base Rent, and (b) also
shall bear interest from the due date until paid at the rate of eighteen
percent (18%) per annum (1 1/2%) per month). Once during each Lease Year, an
unintentional late payment by the Tenant shall not be subject to the
aforesaid late charge and interest unless and until said payment will have
been received by Landlord within ten (10) days after its due date or within
three (3) days after the date Landlord notifies Tenant that the payment has
not been received by Landlord within the five (5) days of its original due
date.

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<PAGE>

8. SERVICES. The Building Operating Hours shall be 7:00 a.m. to 6:00 p.m.
Monday through Friday, and 9:00 a.m. to 1:00 p.m. Saturday, except New Year's
Day, Martin Luther King's Birthday, President's Day, Memorial Day, Independence
Day, Labor Day, Veteran's Day, Thanksgiving and Christmas Day ("Holidays").
Tenant shall have access to the Premises 24 hours a day each day of the year.
Landlord shall provide the following facilities and services in accordance with
standards employed by other landlords of comparable modern first-class
commercial office buildings in the downtown Washington, D.C. central business
district:

(a) Elevator service from 7:00 a.m. to 6:00 p.m. except Saturdays,
Sundays and Holidays, and from 9:00 a.m. to 1:00 p.m. Saturdays, with one
elevator subject to call at all times, including every day after Building
Operating Hours, Saturdays, Sundays and Holidays.

(b) (i) A lobby concierge or lobby attendant on duty 24 hours a
day, every day of the year except Holidays, and (ii) the existing operating
proximity card reader and surveillance system, and a guard every day of the
year, all of which systems and services shall be operated and performed
consistent with standards employed by other landlords of comparable modern
first-class commercial office buildings in the downtown Washington, D.C. central
business districts (including, but not limited to, the guard, upon reasonable
request, escorting employees of Tenant after Building Operating Hours to their
vehicles in the garage). In the event Landlord installs an elevator locking
system for all floors of the Building, Tenant shall be entitled to use such
system for the floor of the Building on which the Premises are located.
Notwithstanding the foregoing, Landlord shall not be responsible for the
performance of the lobby concierge or lobby attendant, the proximity card
reader, or the guard and surveillance system or for damage or injury to Tenant,
its employees, invitees or others due to the failure, action or inaction of any
lobby concierge, lobby attendant, proximity card reader, guard or surveillance
system that is provided.

(c) (i) A modern, electronic security system, as currently
installed in the Building, that will control external ingress to the Building
and internal ingress to the Premises at all points, including controls in the
main lobby, elevators, and programmable selective access to secured areas of the
Building, which shall be activated during other than Building Operating Hours
and all day Saturdays, Sundays, and Holidays; (ii) an elevator control system,
as currently installed in the Building, that will provide for Tenant-only
elevator access; (iii) continuous camera surveillance of areas of ingress and
egress to the Building, as currently installed in the Building. Tenant shall
have the right to install, at its expense, and with the prior written approval
of Landlord, which shall not be unreasonably withheld, conditioned or delayed, a
system providing for Tenant-only access from the fire stairwells to floors of
the Building occupied solely by Tenant. In addition, Tenant shall have the right
to use stairwells to walk between floors occupied solely by Tenant, with secure,
electronically controlled access to such floors through such stairwells,
provided that any such electronically controlled

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<PAGE>

access shall be installed by Tenant, at its expense, and only with the prior
written approval of Landlord, which shall not be unreasonably withheld,
conditioned or delayed.

(d) Landlord shall initially supply one (1) electronic security card to
Tenant for the Premises to be used by employees of Tenant who work in the
Premises, not to exceed three-hundred and thirty (330) cards, with the cost
thereof to be included in Operating Expenses. Landlord shall issue additional
and replacements for lost cards only upon the payment of a reasonable cost for
each additional card or key. Tenant shall provide Landlord with the name of each
employee who has been given a card and the card number. Tenant shall ensure that
all employees of Tenant shall return their cards at the end of their employment,
and Tenant shall promptly report to Landlord any lost or stolen cards.

(e) Tenant shall have access to the roof, without being required to pay
any additional Base Rent, to place a satellite dish or antenna, if Tenant
obtains the prior written consent of Landlord, which consent shall not be
unreasonably delayed, conditioned or denied, and in accordance with the
following restrictions and conditions:

(i) Tenant, at its sole cost and expense, may install and
maintain one satellite dish having a diameter of not more than thirty inches
(30") and one antenna thirty-six inches 36" high (the "Roof Installations") on
the roof of the Building in a location designated by Landlord; provided,
however, that Tenant's Roof Installations shall not interfere with any other
satellite dishes or other roof installations located on the roof of the
Building.

(ii) If, at any time during the Lease Term, in Landlord's
reasonable judgment, it is necessary or desirable for the Roof Installations to
be moved to another location designated by Landlord, Tenant shall relocate the
Roof Installations at Landlord's cost and expense.

(iii) Tenant shall submit to Landlord detailed plans and
specifications for installing the Roof Installations and Tenant shall not
commence installation of the Roof Installations without first obtaining
Landlord's approval of Tenant's contractor and Tenant's plans and
specifications.

(iv) The Roof Installations shall comply with all applicable
laws, codes, regulations, and other requirements ("Requirements"). If at any
time during the Lease Term, the Roof Installations do not comply with all
Requirements, Tenant shall immediately modify the Roof Installations, with
Landlord's approval, to bring them into compliance with such Requirements, or,
at Tenant's option, remove said Roof Installation. Tenant's failure to obtain
any permit required in order to install the Roof Installations for any reason
whatsoever shall not have any effect on this Lease other than to nullify the
right given to Tenant to install and use the Roof Installations until said
permit is obtained.

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(vi) Landlord is under no duty to maintain the Roof
Installations and in no event shall Landlord be liable to Tenant for damage to
Tenant, its employees, contractors or agents, or to the Roof Installations,
unless the damage is caused by Landlord's negligent or willful act.

(vii) Notwithstanding anything to the contrary in the Lease,
upon installation of the Roof Installations, Tenant, at its sole cost and
expense, shall be responsible for performing any and all repairs to the
Building, including the roof, the need for which arises out of or is in any way
related to the Roof Installations.

(viii) Except as otherwise expressly provided in this Section,
all of the terms and conditions of Paragraph 20 of the Lease shall apply with
respect to the Roof Installations.

(ix) Tenant shall defend Landlord, and hereby does indemnify
and hold harmless Landlord, from and against any and all liabilities, damages,
causes of action, suits, claims, judgments, costs and expenses (including
reasonable attorney's fees) arising from any claimed or asserted injury, loss or
damage to any persons or property arising from the installation, operation or
maintenance of the Roof Installations, or from any act or omission of Tenant or
any person acting on behalf of Tenant with respect to the Roof Installations.
Furthermore, if the installation, operation or maintenance of the Roof
Installations, or any act or omission of Tenant or any person acting on behalf
of Tenant with respect to the Roof Installations, results in the full or partial
impairment of any warranty relating to the Building roof, Tenant shall be
responsible to reimburse Landlord for all resulting damages sustained by
Landlord.

(f) Tenant's use of electrical services furnished by Landlord shall be
subject to the following:

(i) Landlord will provide the necessary facilities to supply
(A) two (2) watts per rentable square foot within the Premises for Tenant's
fluorescent ceiling lighting and (B) four (4) watts per rentable square foot
within the Premises for Tenant's receptacle/equipment loads. Collectively,
Tenant's fluorescent lighting and receptacles/equipment shall not have a total
electrical design load greater than an average of six (6) watts per rentable
square foot per floor within the Premises (the "Standard Building Capacity").

(ii) Tenant shall notify Landlord, in writing, of any
equipment Tenant desires to install or maintain within the Premises that has a
rated electrical load greater than 500 watts and/or that requires a service
voltage other than 120 volts, and Landlord's written approval shall be required
with respect to the installation of any such high electrical consumption
equipment in the Premises, provided that Landlord's approval shall not be
unreasonably withheld.

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(iii) Tenant shall pay for all costs of meters, submeters,
wiring, risers, transformers, electrical panels, air conditioning and other
items required by Landlord, in Landlord's reasonable discretion, to accommodate
Tenant's design loads and capacities that exceed Standard Building Capacity,
including, without limitation, the installation and maintenance thereof,
provided that before installation of such items, Landlord shall have given
Tenant at least ten (10) business days prior written notice of Landlord's intent
to install the same. Notwithstanding the foregoing, Landlord may, in its
reasonable discretion, refuse to install, and withhold consent for Tenant's
installation of, any wiring, risers, transformers, electrical panels, or air
conditioning, if, in Landlord's reasonable judgment after consulting with its
electrical engineers, the same are not necessary or would cause damage or injury
to the Building or the Premises or cause or create a dangerous or hazardous
condition or entail excessive or unreasonable alterations or repairs to the
Building or the Premises, or would interfere with or create or constitute a
disturbance to other tenants or occupants of the Building. In no event shall
Landlord be liable for Landlord's refusal to install any such electrical
facility or equipment, or for withholding consent for Tenant to install any such
electrical facility or equipment.

(iv) Tenant shall pay to Landlord, as Additional Rent, within
thirty (30) days of Tenant's receipt of demand therefor by Landlord, the cost of
consumption of electrical service within the Premises in excess of the Standard
Building Capacity ("Extraordinary Electrical Service") as such cost is
reasonably determined by Landlord.

(v) Landlord may, at its option, upon not less than forty-five
(45) days, prior written notice to Tenant, discontinue the availability
through Landlord to Tenant of Extraordinary Electrical Service to the
Premises. If Landlord gives such notice, Tenant may, at its option, contract
directly with the applicable public utility for the supplying of Extraordinary
Electrical Service to the Premises, subject to the provisions of this
Paragraph 8 and all other provisions of the Lease.

(g) Landlord shall provide and replace, as necessary, building standard
electric bulbs and fluorescent tubes in light fixtures in the Building.

(h) Tenant shall have the right, without being required to pay any
additional rent or other charges, to place in the Premises or on the roof of the
Building at a location mutually agreed upon by Landlord and Tenant a backup
power supply generator. Tenant may install, operate and maintain, such generator
and related equipment (the "Equipment"), subject to the following conditions:

(i) Tenant, at its cost, shall procure all necessary
governmental permits and licenses for the installation, maintenance or use of
the Equipment, and shall at all times comply with all requirements of laws,
ordinances and rules of all public authorities and insurance companies and all
orders, rules and regulations of any public authority, which shall

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impose any order or duty upon Landlord or Tenant with respect to or affecting
the Equipment or arising out of Tenant's use or manner of use thereof.

(ii) Tenant shall promptly pay and discharge all out-of pocket
costs and expenses incidental to and/or connected with the furnishing,
installation, maintenance and operation of the Equipment.

(iii) Installation of the Equipment shall be at Tenant's
expense. Tenant shall obtain Landlord's prior written consent as to the location
of the Equipment and the manner in which such installation work is to be done.
All plans and specifications concerning such installation shall be subject to
Landlord's prior written approval. Landlord shall have the right to refuse to
give its approval if any structural analysis of the proposed location of the
Equipment indicates the proposed location could damage or weaken any part of the
Building or cause or create a dangerous or hazardous condition or adversely
affect the aesthetics or value of the Building. If, at any time during the Lease
Term, in Landlord's reasonable judgment, it is necessary or desirable for the
Equipment to be moved to another location designated by Landlord, Tenant shall
relocate the Equipment at Landlord's cost and expense.

(iv) Tenant, at its cost, shall maintain the Equipment in a
clean and safe manner throughout the Lease Term, and shall comply with all
applicable laws, ordinances and regulations. In addition, all repairs to the
Building made necessary by reason of the furnishing, installation, maintenance,
operation or removal of the Equipment or any replacements thereof shall be at
Tenant's sole cost. Upon expiration or termination of this Lease, Tenant agrees
that it will promptly remove the Equipment and any wiring, conduit or
accessories associated with the Equipment and shall promptly repair any damage
to the Building or the Project caused by the installation or removal of the
Equipment and related equipment, all at its cost.

(v) If the Equipment is located on the roof of the Building,
the Roof Installation provisions of this Lease shall apply thereto, including
the provision that Tenant shall have a right to access to the roof only upon
reasonable prior written notice to Landlord, except that Tenant may have access
to the roof in an emergency for the purpose of repairing or maintaining the
Equipment by contacting the management office (emergency telephone number).

(vi) Tenant, at its cost, shall maintain such insurance as is
appropriate with respect to the installation, operation and maintenance of the
Equipment and shall provide Landlord with evidence of such insurance prior to
installation. Landlord shall have no liability on account of any damage to or
interference with the operation of the Equipment, except that which is caused by
the negligence or willful misconduct by Landlord or its Agents or by the failure
of Landlord to observe any of the terms and conditions of the Lease.

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(vii) Tenant, at its cost, shall cause the utilities used by
the Equipment to be separately metered and shall pay for such utilities.

(viii) Tenant shall defend Landlord, and hereby does indemnify
and hold harmless Landlord, from and against any and all liabilities, damages,
causes of action, suits, claims, judgments, costs and expenses (including
reasonable attorney's fees) arising from any claimed or asserted injury, loss or
damage to any persons or property arising from the installation, operation or
maintenance of the Equipment, or from any act or omission of Tenant or any
person acting on behalf of Tenant with respect to the Equipment. Furthermore, if
the installation, operation or maintenance of the Equipment, or any act or
omission of Tenant or any person acting on behalf of Tenant with respect to the
Equipment, results in the full or partial impairment of any warranty relating to
the Building roof, Tenant shall be responsible to reimburse Landlord for all
resulting damages sustained by Landlord.

(i) Char service five (5) nights per week, excluding Holidays, as
specified on EXHIBIT C attached hereto.

(j) Landlord agrees that Building maintenance personnel or outside
service contractors, as appropriate, during the period 7:00 a.m. to 5:30 p.m.
shall respond within one (1) hour to any request by Tenant made during Building
Operating Hours to repair HVAC and major electrical or plumbing problems and
within a reasonable period of time to Tenant's request to repair other Building
equipment malfunctions and such personnel shall promptly repair or replace any
such damaged equipment subject to availability of parts. Landlord shall take the
foregoing requirement into account in procuring warranties and service contracts
for the Building.

(k) Landlord will furnish air-conditioning or heat, as reasonably
determined by Landlord, during Building Operating Hours. At all times during the
Lease Term, temperatures in the Premises during Building Operating Hours shall
be maintained at 72 degrees Fahrenheit (+ or - 2 degrees Fahrenheit) , year
round, provided that (i) when the outside temperature is 20 degrees Fahrenheit
or lower, temperatures in the Premises during Building Operating Hours shall be
maintained at not less than 70 degrees Fahrenheit and (ii) when the outside
temperature is 92 degrees Fahrenheit or higher, temperatures in the Premises
during Building Operating Hours shall be maintained at not more than 74 degrees
Fahrenheit (+ or - 2 degrees Fahrenheit). The supply air temperature serving the
Premises shall be maintained at 56 degrees Fahrenheit at the point of departure
from the chiller during the summer months throughout the Lease Term. The base
Building HVAC will deliver outside air in compliance with ASHRAE standards
promulgated in any given year, which standard currently is 20 cfm per person
based upon 150 square feet per person. Condenser water supply shall be available
for Tenant's supplemental HVAC system on a 24 hours per day every day of the
Lease Term, at no additional cost above Base Rent. The Landlord's

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obligations to maintain the foregoing HVAC temperature requirements are
conditional upon Tenant, at its expense, installing, maintaining, and operating
its supplemental HVAC system for its computer room (as shall be set forth on the
approved Plans and Specifications for the Improvements) or any other
supplemental HVAC system Tenant may at any time install in the Premises, or if
Tenant causes heat loading conditions to exist in the Premises beyond what is
standard in office usage in first-class office buildings in the metropolitan
Washington, D.C. area (e.g. training rooms containing numerous computers, for
which supplemental HVAC units in the Premises have not been provided by Tenant
to accommodate such additional heat loads). Landlord shall diligently and
promptly commence repair of any malfunction in the Building HVAC system. Tenant
shall diligently and promptly commence repair of any malfunction in its
supplemental HVAC system in the Premises. Landlord shall not be required to meet
the standards set forth in this Paragraph 7(k) between 7:00 a.m. and 7:30 a.m.
On weekdays other than Holidays, the temperatures in the Building between 7:00
a.m. and 7:30 a.m. shall be reasonably habitable.

(1) Exercise facilities will be located within the Building and shall
be available for exclusive use by Tenant's officers, directors and employees, by
other tenants of the Building, and by officers, directors and employees of
Landlord, during Building Operating Hours, in accordance with rules and
regulations reasonably promulgated by Landlord from time to time. Landlord shall
maintain the exercise facilities and replace worn equipment as reasonably
necessary in accordance with the standards applied by building managers with
respect to similar exercise facilities located in first class office buildings
in downtown Washington, D.C. Landlord shall have no liability for any injury of
any type sustained by any person in the course of, or as a result of, the use of
the exercise facilities. Users of the facilities shall be required to execute a
full and complete release prior to their use of the facilities.

(m) The Building shall be managed, operated and maintained consistent
with standards employed by other landlords of other modern first-class
commercial office buildings in the downtown Washington, D.C. central business
district.

(n) The Landlord will provide hot and cold water for drinking, lavatory,
toilet and kitchen purposes drawn through fixtures located in common areas of
the Building and installed in the Premises by or with the consent of the
Landlord.

The cost of providing all of the foregoing facilities and services
shall be included in Operating Expenses to the extent not otherwise excluded in
accordance with the terms of this Lease.

(o) Notwithstanding anything contained herein to the contrary, if ten
percent (10%) or more of the Premises is rendered unusable for the "Use"
described in Paragraph 14 of this Lease as a result of an interruption of
services or as a result of any renovation, alteration or repair performed or
required to be performed by Landlord, for five (5) consecutive days or for

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a total of twenty (20) days in any Lease Year, Tenant shall be entitled to abate
that percentage of its Base Rent and Additional Rent that the unusable portion
of the Premises bears to the whole of the Premises, for any period of
unusability subsequent to the five-day or 20-day periods to which reference is
made above. If more than fifty percent (50%) of the Premises remains unusable
(as defined above) for more than ninety (90) consecutive days or more than 210
days in any Lease Year, Tenant may terminate the Lease by giving written notice
to Landlord of its election to terminate, which shall be effective thirty (30)
days after the aforementioned 90-day period or 210-day period, as the case may
be.

9. PERSONAL PROPERTY TAXES. Tenant shall be solely liable for payment of
all personal property taxes and assessments on its personalty and other property
located in the Premises.

10. TENANT'S DEFAULT. It shall be a default by Tenant, and Tenant shall be
in default, if Tenant: (a) fails to pay when due any Base Rent or Additional
Rent required hereunder and does not make such payment within five (5) business
days after Landlord gives Tenant notice of such failure; or (b) abandons the
Premises (ceases to occupy the Premises and fails to pay rent when due); or (c)
files for relief under the United States Bankruptcy Code (the "Bankruptcy Code")
or under any other state or federal bankruptcy or insolvency law, or files an
assignment for the benefit of creditors, or if an involuntary proceeding under
the Bankruptcy Code or under any other federal or state bankruptcy or insolvency
law is commenced against Tenant and not discharged within 30 days; or (d) fails
to perform, discharge or satisfy any other obligation imposed by this Lease and
does not remedy the same within thirty (30) days after receipt of written notice
from Landlord specifying such failure, provided that if any non-monetary default
shall reasonably require more than 30 days to cure, Tenant shall be allowed such
longer period, not to exceed 90 days, as is necessary to effect such cure, so
long as efforts to cure are commenced within the aforesaid 30-day period and are
diligently pursued to completion.

11. LANDLORD'S REMEDIES FOR TENANT'S DEFAULT.

(a) At any time after a default by Tenant, Landlord may terminate this
Lease by written notice to Tenant or by any available judicial process.

(b) If Landlord terminates this Lease after a default by Tenant:

(i) Landlord shall be entitled to recover from Tenant, and
Tenant within thirty (30) days of termination shall pay to Landlord, all Base
Rent and Additional Rent accrued to the time of such termination;

(ii) Landlord shall be entitled to recover from Tenant, and
within thirty (30) days of demand therefore Tenant shall pay to Landlord (A) all
expenses incurred by Landlord in regaining possession of the Premises (including
legal fees), (B) all costs of preparing the

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<PAGE>

Premises for reletting, and (C) that percentage of all brokerage fees which that
portion of the Lease Term remaining at the time of Tenant's default shall bear
to the lease term of the successor tenant;

(iii) Landlord shall have the right to re-enter the Premises
by any legal process then in force;

(iv) Landlord hereby waives its right of distraint with
respect to all of Tenant's personal property (including, but not limited to,
computers, computer files, client files, office equipment and artwork, but not
including anything that is affixed to or made a part of the Building) that is or
was within the Premises, provided however, that Landlord may demand that Tenant
remove all such personal property within the Premises that is owned by Tenant,
at Tenant's expense; provided that, in the event Tenant fails to remove such
property within a reasonable time, Landlord may remove such property at Tenant's
expense and dispose of it in the manner Landlord, in its reasonable discretion,
determines is appropriate and shall have no liability to Tenant or any other
person for doing so;

(v) Landlord may take all steps, including repair or
alteration of the Premises, that Landlord, in its sole reasonable discretion,
deems necessary or advisable, to prepare the Premises for reletting;

(vi) Landlord may relet all or any part of the Premises for
such term, at such rental, and upon such terms and conditions as Landlord, in
its sole discretion, deems advisable;

(vii) Tenant shall pay to Landlord, as liquidated damages, for
each month during the balance of the Lease Term (which would remain but for
termination of the Lease by Landlord), on the first day of each such month, (A)
an amount equal to all Base Rent and Additional Rent due under the Lease for
each such month, in the event Landlord is unable to relet the Premises on
reasonable terms, or, (B) in the event Landlord is able to relet the Premises on
reasonable terms, an amount equal to any deficiency between (1) all Base Rent
and Additional Rent due under the Lease for each such month, and (2) the net
Base Rent and Additional Rent for each such month collected upon reletting; and

(viii) If Landlord terminates this Lease after a default by
Tenant, then, in addition to the remedies described in Paragraph 11(b)(i)-(vi),
and as an alternative to the continued application of the remedy described in
Paragraph 11(b)(vii), at any time after termination, at Landlord's election by
written notice to Tenant, Landlord shall be entitled to recover from Tenant, and
Tenant shall pay to Landlord, an amount equal to the value at the time of
Landlord's election of the excess, if any, of (A) all Base Rent and Additional
Rent due under this Lease for the remainder of the Lease Term (which would
remain but for termination of the Lease by Landlord) over (B) the reasonable
rental value of the Premises for

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<PAGE>

the remainder of the Lease Term (which would remain but for termination of the
Lease by Landlord) which value shall not include any amount attributable to (y)
market-rate tenant concessions including but not limited to tenant improvement
allowances or rent abatement or (z) market-rate brokerage commissions, (C) which
excess amount shall be discounted to present value by application of the
interest rate applicable at the time of Landlord's election to 10-year United
States Treasury obligations maturing on that date that is the midpoint of the
remainder of the Lease Term (but for Landlord's termination of the Lease) as of
the date of Landlord's election.

(c) If Landlord does not elect to terminate this Lease after any
default by Tenant, Landlord shall be entitled to recover from Tenant, and Tenant
shall be obligated to pay to Landlord, immediately upon Landlord's written
demand therefor, all damages, costs and expenses (including reasonable attorneys
fees) sustained or incurred by Landlord that arise or result from Tenant's
default, and Tenant shall continue to be liable for all Base Rent and Additional
Rent due hereunder, and for the performance of all other obligations imposed by
this Lease. Landlord shall use reasonable efforts to mitigate its damages.
Landlord's election not to terminate the Lease upon any default by Tenant shall
not impair Landlord's right to terminate the Lease later for that default if
Tenant does not make full payment in accordance with this Paragraph 11(c), or
upon any other default by Tenant.

(d) If Tenant abandons the Premises (ceases to occupy the Premises and
fails to pay rent when due), Landlord shall have the right to re-enter the
Premises without judicial process, to change the locks to all entrances to the
Premises, and to take all steps, including repair or alteration of the Premises,
that Landlord, in its sole reasonable discretion, deems advisable or necessary
to prepare the Premises for reletting, and to relet the Premises at such rental
and upon such terms and conditions as Landlord, in its sole reasonable
discretion, deems advisable; and such re-entry, change of locks, repair,
alteration and/or reletting shall not terminate this Lease. In the event of
abandonment of the Premises by Tenant, Tenant shall continue to be liable for
all Base Rent and Additional Rent due under the Lease, in addition to all
reasonable costs incurred in regaining possession of the Premises and preparing
the Premises for reletting, including all reasonable brokers, fees, which shall
be calculated solely with respect to that portion of the Lease Term remaining at
the time of Tenant's abandonment, and all reasonable legal fees, less any
amounts realized as a result of any reletting.

(e) The rights and remedies provided to Landlord herein are cumulative
and not exclusive, and are in addition to, not in substitution for, any and all
rights Landlord has or may have at law or in equity, all of which rights
Landlord expressly retains.

(f) Tenant waives all rights of redemption granted by law.

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<PAGE>

12. LANDLORD DEFAULTS. The occurrence of any of the following shall
constitute a "Landlord Default" hereunder:

(a) Landlord shall have failed to pay when due any sum owing from
Landlord to the Tenant hereunder, and such failure shall continue for a period
of more than fifteen (15) business days after Tenant delivers notice to Landlord
and Landlord's lender of such failure; or

(b) There shall be a failure by Landlord to comply with any condition,
covenant, agreement or other obligation on the part of Landlord to be kept,
observed or performed hereunder (other than a condition, covenant, agreement or
other obligation to pay any sum of money owing from Landlord to Tenant
hereunder) and such failure shall continue for a period of more than thirty (30)
days after delivery of notice by Tenant to Landlord and Landlord's lender
specifying the default and requiring that it discontinue; provided that, for any
default which cannot reasonably be cured within said thirty (30) day period, the
cure period therefor shall be extended for such time as is reasonably necessary
to effect a cure of such default (but in no event beyond ninety (90) days after
delivery of such notice for any default which is due or attributable to the
negligence or intentional acts of Landlord or Landlord's agents), on the
conditions that Landlord promptly commences and diligently pursues such cure to
completion.

13. SECURITY DEPOSIT. [Intentionally deleted.]

14. USE. Tenant shall use and occupy the Premises for office purposes only,
and for no other purpose. Such use shall be consistent with office use in
first-class commercial office buildings in downtown Washington, D.C. Tenant
shall not use or allow the Premises or any part thereof to be used for any
unlawful purpose.

15. ASSIGNMENT AND SUBLETTING.

(a) Tenant will not transfer or assign the Lease, nor sublet the whole
or any part of the Premises, nor permit the Premises to be used or occupied in
whole or in part by others, without the prior written consent of Landlord, which
consent shall not be unreasonably withheld, conditioned or delayed, provided,
however, that Tenant shall have no right to assign the Lease or to sublet if
Tenant is then in default. Simultaneously with any request to assign the Lease
or sublet any part of the Premises, Tenant shall provide to Landlord financial
statements of the proposed assignee or sublessee prepared not more than six
months prior to the date of Tenant's request to sublet or assign, together with
any other information regarding the proposed assignee or sublessee reasonably
required by Landlord. Landlord may withhold its consent to any assignment or
sublease if the proposed assignee or sublessee, in Landlord's reasonable
judgment, (i) has a reputation for dishonesty and unfair dealing, or (ii) will
not operate a business compatible with a first-class office building in downtown
Washington,

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<PAGE>

D.C., or (iii) in the case of a proposed assignment, the proposed
assignee is not sufficiently responsible financially to meet all obligations of
Tenant under the Lease, or (iv) in the case of a proposed assignment, Landlord's
lender does not consent to the assignment, or (v) in the case of a proposed
sublease, the proposed subtenant is not sufficiently responsible financially to
meet all obligations of subtenant under the proposed sublease. Landlord shall
give its consent, or notify the Tenant of its refusal to consent, to any
proposed sublease, or shall request of Tenant further information regarding the
proposed sublessee reasonably required by Landlord, within fifteen (15) business
days of Landlord's receipt of Tenant's written request to sublease. Within
fifteen (15) business days of Landlord's receipt of all information requested of
Tenant regarding the proposed sublessee, Landlord shall give its consent, or
notify the Tenant of its refusal to consent, to the proposed sublease. Landlord
shall give its consent, or notify the Tenant of its refusal to consent, to any
proposed assignment, or shall request of Tenant further information regarding
the proposed assignee reasonably required by Landlord, within thirty (30)
business days of Landlord's receipt of Tenant's written request to assign the
lease. Within thirty (30) business days of Landlord's receipt of all information
requested of Tenant regarding the proposed assignee, Landlord shall give its
consent, or notify the Tenant of its refusal to consent, to the proposed
assignment. If Landlord fails to give its consent, notify Tenant of its refusal
to consent, or to request further information regarding a proposed sublessee
within fifteen (15) business days after Landlord's receipt of a request by
Tenant to sublease, or to give its consent or notify Tenant of its refusal to
consent within fifteen (15) business days of its receipt of all information
requested of Tenant regarding the proposed sublessee, Landlord shall be deemed
to have consented to such request. If Landlord fails to give its consent, notify
Tenant of its refusal to consent, or to request further information regarding a
proposed assignee within thirty (30) business days after Landlord's receipt of a
request by Tenant to assign, or to give its consent or notify Tenant of its
refusal to consent within thirty (30) business days of its receipt of all
information requested of Tenant regarding the proposed assignee, Landlord shall
be deemed to have consented to such request. In the event of any assignment or
sublease, Tenant shall nevertheless remain fully liable for all obligations of
Tenant under the Lease, and Landlord's prior written consent to any further
assignment or sublease shall be required.

(b) The terms "assignment" and "assign" as used herein shall mean and
refer to: (i) any disposition or transfer by Tenant (other than a sublease) of
its rights or obligations under the Lease; (ii) an arrangement (other than a
sublease, or other than as provided in Paragraph 15 (e), below) that allows the
use and occupancy of the Premises by any person or entity other than Tenant;
(iii) subject to Paragraph 15(d), a transfer or pledge of voting control of
Tenant if Tenant is a non-public corporation; or (iv) a transfer of more than
fifty percent (50%) of the partnership interest of Tenant (if Tenant is a
partnership).

(c) If Landlord consents to a sublease or assignment by Tenant, Tenant
shall pay to Landlord (i) fifty percent (50%) of any "Profit" (as defined below)
derived by Tenant from

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<PAGE>

that sublease or assignment with respect to any portion of the Premises located
on the Seventh (7th) Floor, Eighth (8th) Floor, or Ninth (9th) Floor, and (ii)
seventy-five percent (75%) of any "Profit" (as defined below) derived by Tenant
from that sublease or assignment with respect to any portion of the Premises
located on the Fourth (4th) Floor, Fifth (5th) Floor, Sixth (6th) Floor, Tenth
(10th) Floor, or Eleventh (11th) Floor, or in any Expansion Space (as defined
below). "Profit" means (i) in the case of a sublet, the total amount paid by a
sublessee to Tenant as consideration for such sublet in excess of the Base Rent
and Additional Rent for the allocable sublet space and after deducting all of
Tenant's reasonable subleasing costs including commissions paid, legal fees,
concessions and improvements made to the subleased premises; and (ii) in the
case of an assignment, the total amount paid by an assignee, either directly or
indirectly, as consideration for such assignment in excess of the Base Rent and
Additional Rent for the allocable assigned space. Tenant shall pay Landlord the
percentage of the Profit that is due in accordance with the provisions of this
Paragraph 15 promptly upon receipt by Tenant. Within thirty (30) days after
Tenant receives any amount from an assignee or sublessee as consideration for an
assignment or sublet, the Tenant shall submit to Landlord a statement containing
a reasonably detailed calculation of any Profit derived from such an assignment
or sublet, certified as correct by an officer of Tenant, and simultaneously with
the delivery of such statement. Upon Landlord's request, Tenant shall provide
substantiation of Tenant's calculation of Profit (with supporting documentation)
reasonably satisfactory to Landlord.

(d) Notwithstanding anything to the contrary set forth in this
Paragraph 15, Tenant shall have the right, upon prior written notice to Landlord
in each instance but without the necessity of obtaining Landlord's consent, to
(i) assign or otherwise transfer this Lease or any of its rights hereunder to an
Affiliate or Successor Entity, (ii) sublet the Premises or any part thereof to
an Affiliate or Successor Entity, or (iii) permit the use of the Premises or any
part thereof by an Affiliate or Successor Entity. "Affiliate" shall mean any
entity which, directly or indirectly, controls or is controlled by or is under
common control with Tenant. For purposes of the definition of "Affiliate," the
word "Control" (including "Controlling", "Controlled by" and "under common
Control with") shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policy of a particular
entity, whether through the ownership of voting securities, by contract or
otherwise. A "Successor Entity" as used in this Paragraph 15 shall mean (x) an
entity into which or with which Tenant, its successors or assigns, is merged or
consolidated, or (y) an entity acquiring this Lease for the term hereby demised,
the good will and all of the other property and assets of Tenant, its successors
or assigns, and assuming all of the liabilities of Tenant, its successors and
assigns.

(e) Notwithstanding anything to the contrary in this Lease, Tenant
shall have the right, without obtaining the consent of Landlord, but upon prior
written notice to Landlord, to permit office-sharing arrangements pursuant to
which clients or subcontractors of Tenant may

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use space in the Premises, provided that any such arrangements under which any
rent or other remuneration or consideration is received directly or indirectly
by Tenant shall be subject in all respects to the provisions of Paragraphs
15(a), 15(b) and 15(c). Tenant shall promptly provide Landlord with the names of
such persons who are using these cards at any given time. Landlord shall supply
Tenant with thirty (30) additional security cards for these "office-sharers"
(Tenant shall administer cards), which cards shall access the perimeter of the
building only.

16. CONDITION OF PREMISES. Tenant will keep the Premises in good order and
condition, and will surrender them at the expiration or other termination of the
Lease in the condition in which they will be upon completion of the initial
Improvements or any other Improvements permitted under the terms of this Lease,
casualty and normal wear and tear excepted.

17. ENTRY BY LANDLORD. Upon reasonable written notice, except (i) in cases
of emergency or (ii) for the protection of the Building or the Premises, of any
property located therein, or of any person, in which event no notice shall be
required, Landlord and its agents shall have access to the Premises at any
reasonable time for the purpose of inspection, or for the purpose of making any
repair, alteration or renovation Landlord considers necessary or desirable, so
long as such entry does not unreasonably interfere with the operation of
Tenant's business in the Premises or permanently reduce the number of rentable
square feet of the Premises, or to show the Premises to a prospective purchaser
of the Building or, during the final Lease Year of the Lease Term, or after
Tenant has exercised its Termination Option pursuant to the provisions of
Paragraph 41, below, to a prospective tenant. Any major repair shall be made
during non-Building Operating Hours and shall be scheduled so as to minimize
interference with Tenant's business activities. Landlord shall have the absolute
right to alter or renovate the common areas and the exterior of the Building,
and any such alteration or renovation shall not be a breach of Paragraph 32 or
of any other provision of the Lease, provided such alteration or renovation will
be of a quality and condition consistent with first-class commercial office
buildings in downtown Washington, D.C.

18. LIABILITY; INDEMNITY. Tenant shall defend Landlord, and hereby does
indemnify and hold harmless Landlord, from and against any and all liabilities,
damages, causes of action, suits, claims, judgments, costs and expenses
(including reasonable attorney's fees) arising from any claimed or asserted
injury, loss or damage to any persons or property (a) arising within the
Premises, unless caused by the intentional misconduct or gross negligence of
Landlord or Landlord's employees or agents, (b) arising out of any act or
omission of Tenant or of any person within the Premises or the Building by the
license, express or implied, of Tenant, or (c) arising in whole or in part from
any default or breach of this Lease by Tenant.

19. INSURANCE.

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(a) Tenant will not conduct or permit to be conducted any activity, or
place any equipment in or about the Premises, that will, in any way, materially
increase the rate of fire insurance or other insurance on the Building; and if
any increase in the rate of fire insurance or other insurance is stated by any
insurance company or by the applicable Insurance Rating Bureau to be due to
activity or equipment in or about the Premises, such statements shall be
conclusive evidence that the increase in such rate is due to such activity or
equipment and, as a result thereof, Tenant shall be liable for such increase and
shall reimburse Landlord therefor on demand.

(b) At all times during the Lease Term and at all times Tenant is
occupying the Premises, Tenant shall carry the following insurance:

(i) Workers compensation insurance;

(ii) Commercial general liability insurance (bodily
injury, personal injury and property damage), in a
minimum amount of $2,000,000 combined personal injury
and property damage single limit per occurrence,
including contractual liability coverage, with an
umbrella coverage in the minimum annual aggregate
amount of $10,000,000; and

(iii) All-risk insurance for (1) all of Tenant's furniture,
fixtures and equipment, (2) all personal or other
removable property that may be stored, contained or
found on the Premises, and (3) all Improvements (as
defined in Paragraph 20 of the Lease) made by or for
Tenant under the provisions hereof, in amounts not
less than one hundred percent (100%) of the full
replacement cost thereof.

(c) All insurance carried by Tenant pursuant to the requirements of
this Lease shall be issued by a company or companies licensed to do business in
the District of Columbia with a Best's rating of "A-" or higher.

(d) Throughout the Lease Term, Landlord shall, at its expense, keep the
base Building insured against any loss or damage caused by fire damage or other
casualty to the full replacement cost thereof. Throughout the Lease Term,
Landlord shall carry the following insurance, the cost of which shall be
included in Operating Expenses:

(i) Commercial general liability insurance (bodily
injury, personal injury and property damage), in a
minimum amount of $2 million combined personal injury
and property damage single limit per occurrence,
including contractual liability coverage, with an
umbrella coverage in the minimum amount of
$10,000,000;

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<PAGE>

(ii) Adequate boiler and machinery coverage; and

(iii) Adequate business income/interruption insurance.

(e) All insurance carried by Landlord pursuant to the requirements of
this Lease shall be issued by a company or companies licensed to do business in
the District of Columbia with a Best's rating of "A-" or higher.

(e) Certificates evidencing Tenant's insurance shall be delivered to
Landlord prior to the earlier of (i) any occupancy by Tenant of the Premises or
(ii) commencement of installation of any Improvements in the Premises, including
installation in the Premises of any equipment owned or to be used by Tenant, and
at least annually thereafter, and each policy shall contain an endorsement that
will prohibit its cancellation or material change prior to the expiration of
thirty (30) days after notice to Landlord of such proposed cancellation or
material change.

(f) Tenant shall require that any sublessee of a portion of the
Premises carry insurance in accordance with all requirements set forth in this
Paragraph 18 with respect to the Premises.

20. IMPROVEMENTS. As used in this Lease, "Improvements" shall mean any
alterations, additions, installations, improvements or changes of any kind to
the Premises, including the Tenant Improvement Work, the Renewal Improvements
(referenced in Paragraph 38), the Improvements in the Expansion Space
(referenced in Paragraph 39), and the Improvements in the Additional Expansion
Space (referenced in Paragraph 40) . No Improvements shall be made in or to the
Premises without the prior written consent of Landlord, which consent shall not
be unreasonably withheld, conditioned or delayed, provided, however, that after
the initial Tenant Improvements Work is constructed and other than the initial
Improvements to the Expansion Space and Additional Expansion Space and the
refurbishment of the Improvements upon renewal, Tenant shall have the right
during the Lease Term, without obtaining Landlord's prior written consent, to
make minor cosmetic changes (e.g. painting and carpeting) to the Improvements,
which changes do not cost more than $7,500 and which do not alter or affect the
Building structure or base Building mechanical, electrical and plumbing systems
and which do not move partition walls or doors. The provisions of Exhibit B
shall apply to the construction of the initial and any future Improvements. All
Improvements shall become the property of Landlord, and shall be surrendered
with the Premises, at the expiration or earlier termination of the Lease Term,
provided, however, that, if Tenant is not in default, Tenant shall have the
right to remove, prior to the expiration or earlier termination of the Lease
Term, all movable furniture, furnishings and equipment in the Premises solely at
Tenant's expense. Landlord shall have the right to repair at Tenant's expense
all damage and injury to the Premises caused by such removal or to require
Tenant to do the same. If any such furniture, furnishings or equipment is not
removed by Tenant prior to the expiration or

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earlier termination of the Lease Term, then, five (5) days after written notice
is delivered to Tenant, the same shall become Landlord's property and shall be
surrendered with the Premises as a part thereof and Landlord may remove or
dispose of such property at Tenant's expense. If any mechanic's lien is filed
against the Premises, the Building or the real property of which the Premises
are a part for work claimed to have been done for or materials claimed to have
been furnished to Tenant, it shall be discharged by Tenant within fifteen (15)
days after Tenant's receipt of notice thereof, at Tenant's sole cost and
expense, by the payment thereof or by filing any bond required by law. If Tenant
shall fail to discharge any such mechanic's lien as required by this Paragraph
20, Landlord may, at its option, discharge the same and the cost thereof shall
be Additional Rent due from Tenant with the monthly installment of Base Rent
next becoming due; it hereby being expressly agreed that such discharge by
Landlord shall not be deemed to waive, or release, the default of Tenant in not
discharging the same.

21. RULES AND REGULATIONS. Tenant shall comply with the Rules and
Regulations set forth on EXHIBIT D attached hereto and made a part hereof, and
with such other reasonable rules and regulations as Landlord may adopt for the
Building from time to time, provided such other rules and regulations shall be
effective only after Tenant has received reasonable notice thereof. Landlord
shall enforce the rules set forth in EXHIBIT D in a nondiscriminatory manner. In
the event of any inconsistency or contradiction between the main body of this
Lease and any such rules and regulations the provisions of the main body of this
Lease shall govern and prevail.

22. HAZARDOUS MATERIALS. Tenant will not allow any Hazardous Materials to
be kept in the Premises, or do anything which would increase the rate of
casualty insurance upon the Building. Notwithstanding the foregoing, Tenant may
use and store within the Premises reasonable quantities of Hazardous Materials
that are customarily used in comparable offices (such as cleaning fluids and
photocopier supplies), provided such use and storage complies with all
applicable environmental laws. The term "Hazardous Materials" shall mean (a)
"hazardous wastes," as defined by the Resource Conservation and Recovery Act of
1976, as amended from time to time, (b) "hazardous substances," as defined by
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended from time to time, (c) "toxic substances," as defined by the
Toxic Substances Control Act, as amended from time to time, (d) "hazardous
materials," as defined by the Hazardous Materials Transportation Act, as amended
from time to time, (e) all substances classed or defined as "hazardous" or
"toxic" pursuant to any legislation enacted or in effect during the Lease Term,
and (f) oil or other petroleum products.

23. LIMITATION ON LIABILITY; TENANT'S PROPERTY.

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(a) Notwithstanding anything to the contrary in this Lease, (i)
Landlord shall not be liable to Tenant for any loss or damage to property which
is either covered by Tenant's insurance or for which Tenant is required by this
Lease to carry insurance, and (ii) any liability of Landlord to Tenant in
connection with this Lease shall be limited to direct damages and shall not
include indirect, consequential, or incidental damages, or any lost profits or
damages to Tenant's business.

(b) Except as may be the direct result of intentionally wrongful or
negligent acts or omissions of Landlord or Landlord's agents or employees,
Landlord shall not be liable to Tenant or its employees, agents, business
invitees, licensees, customers, clients, family members, guests, or trespassers,
for any damage, compensation, claim or expense arising from (i) damage or loss
to the property of Tenant or others located anywhere in the Premises or the
Building, or (ii) death, accident or injury to persons occurring anywhere within
the Premises or the Building or as a result of any activity within the Building.

(c) Except as may be the direct result of intentionally wrongful or
negligent acts or omissions of Landlord or Landlord's agents or employees,
Landlord shall not be liable to Tenant, its employees, agents, business
invitees, licensees, customers, clients, family members, guests, or trespassers
for any damage, compensation, claim, cost or expense arising from (i) the
repairing or renovation of any portion of the Building, (ii) any interruption in
the use of the Premises or the Building, (iii) accident or damage resulting from
the use or operation (by Landlord, Tenant or any other person or persons
whatsoever) of elevators or heating, cooling, electrical or plumbing equipment
or apparatus; (iv) any discontinuance of or interruption in the provision of
heat, air-conditioning, elevator service or any other service; (v) any fire,
robbery, theft, criminal act and/or other casualty; (vi) any leakage in any part
of the Premises or the rest of the Building or from water, rain or snow that may
leak into or flow from any part of the Premises or the Building or from drains,
pipes, or plumbing work in or about the Building; or (vii) any other cause
whatsoever not within the reasonable control of Landlord. In no event shall
Landlord be liable to Tenant, its employees, agents, business invitees,
licensees, customers, clients, family members, guests or trespassers for any
damages, compensation or claim arising from the termination of this Lease by
reason of the destruction of the Demised Premises or a taking or sale in lieu
thereof by condemnation or eminent domain. All personal property in the Premises
shall be and remain at Tenant's sole risk, and Landlord shall not be liable for
any damage to or loss of such personal property or for any accident or injury to
persons in the Premises or Building arising from any cause as provided in this
Paragraph 23. Tenant shall have the rights of abatement and termination for
interruption of services provided in Paragraph 8(o) and Paragraphs 24 and 25 of
this Lease, notwithstanding the foregoing provisions of this Paragraph 23(c).

24. DAMAGE TO PREMISES.

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<PAGE>

(a) If any portion of the Premises is damaged by fire or other
casualty, or if the Building is damaged such that Tenant is deprived of
reasonable access to any portion of the Premises, Tenant shall promptly give
notice to Landlord. If fifty percent (50%) or more of the Premises or fifty
percent (50%) or more of the Building is damaged, Landlord shall not be required
to repair the Premises or the Building, provided Landlord gives notice to Tenant
within sixty (60) days after such damage, of its intention not to repair the
damage ("Notice of Non-Restoration"). If Landlord delivers a Notice of
Non-Restoration to Tenant as provided above, this Lease shall terminate ten (10)
days after Tenant's receipt thereof.

(b) If less than fifty percent (50%) of the Premises or less than fifty
percent (50%) of the Building is damaged or if the common areas of the Building
are damaged so as to deny Tenant access to the Premises, or if Landlord does not
deliver a Notice of Non-Restoration to Tenant as provided above, (i) Landlord
shall repair the Premises and/or the Building, as applicable, at Landlord's
expense, to substantially the condition of the Building and/or Premises prior to
the damage, provided that Landlord shall not be required to repair or replace
any of Tenant's fixtures or equipment in the Premises or any Improvements made
by or for Tenant, and (ii) as soon as is reasonably practicable, and in any
event not more than sixty (60) days after the date of any such damage to the
Premises and/or the Building, Landlord shall give notice (the "Restoration
Notice") to Tenant of the date by which Landlord reasonably estimates the
restoration of the Premises shall be substantially completed. If the damage does
not interfere with Tenant's use of the Premises, there shall be no abatement of
Base Rent or Additional Rent. If the damage deprives Tenant of the use of less
than all of the Premises, the Base Rent and Additional Rent shall be abated by
the percentage that the unusable rentable area of the Premises bears to the
total rentable area thereof, for the period commencing with the damage and
ending with substantial completion by Landlord of the repairs. If the damage
makes it impossible for Tenant to carry on its business at all in the Premises,
then all Base Rent and Additional Rent shall be abated in full during the period
commencing with the damage and ending with substantial completion by Landlord of
the repairs.

(c) Tenant shall have the right to terminate the Lease by delivering a
notice of termination to Landlord, which shall be effective 10 days after
delivery thereof, if (i) Landlord estimates in the Restoration Notice that the
damage to the Premises and/or Building will require more than 180 days from the
date of the damage to repair, provided Tenant's notice of termination is
delivered to Landlord within thirty (30) days of Tenant's receipt of the
Restoration Notice, or (ii) the repair of the damage is not substantially
completed within thirty (30) days after the date by which, in the Restoration
Notice, Landlord estimates the restoration of the Premises shall be
substantially completed, provided Tenant's notice of termination is delivered to
Landlord upon the end of said thirty day period. If the Lease is terminated as
provided herein, Tenant shall be released from liability for Base Rent and
Additional Rent for any period after such termination is effective.

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<PAGE>

(d) Notwithstanding anything set forth in this Paragraph 24 to the
contrary, in the event that, during the final twelve (12) months of the Lease
Term, more than thirty-three percent (33%) of the Premises is damaged and
thereby rendered untenantable or not reasonably usable by Tenant for its
business purposes, either Landlord or Tenant may terminate this Lease by notice
to the other party within thirty (30) days after the occurrence of such damage,
and this Lease shall terminate on the date of such notice if timely given. For
purposes of this Paragraph 24 (d), the Premises shall be deemed wholly
untenantable or unusable if, due to such damage, Tenant shall be precluded from
using more then thirty-three percent (33%) of the Premises for the conduct of
its business, and Tenant's inability to so use the Premises is reasonably
expected to continue until at least the ninetieth (90th) day after the date on
which such damage occurred.

(e) Notwithstanding anything herein to the contrary, Tenant shall have
the right to terminate this Lease, and Landlord shall not be obligated to
restore the Premises or the Building, and shall have the right to terminate this
Lease, if zoning or other applicable laws or regulations do not permit such
repair and restoration.

(f) Tenant shall have the rights of' abatement and termination for
Interruption of services provided in Paragraph 8(o) of this Lease,
notwithstanding the foregoing provisions of this Paragraph 24.

25. CONDEMNATION. If the whole of the Premises is taken in fee simple,
under eminent domain, the Lease Term shall terminate as of the date of such
taking. If less than the whole of the Premises is so taken, and such partial
taking materially and adversely affects the continuance of Tenant's business on
the Premises, the Lease Term may, at the election of either party, terminate
upon notice to the other within sixty (60) days after surrender of possession
pursuant to such taking; if neither party so elects, the Lease Term shall
terminate as to the part taken and shall continue as to the part not taken, and
the Base Rent shall be reduced by the percentage that the part taken bears to
the whole of the Premises. (For purposes of calculating Tenant's share of
Operating Expenses, the part of the Premises not taken shall thereafter
constitute the Premises, and Tenant's share of Operating Expenses shall be
recalculated, using the method described in Paragraph 5 hereof, based upon the
new area of the Premises.) If more than fifty percent (50%) of the Building is
so taken, the Lease Term may, at the election of Landlord, terminate upon notice
to Tenant within sixty (60) days after surrender of possession pursuant to such
taking. In the event of termination pursuant to this Paragraph, Base Rent and
Additional Rent shall be apportioned as of the date of termination. If a part of
the Premises shall be taken by eminent domain, and this Lease and the Lease Term
shall not be terminated in accordance with this Paragraph 25, Landlord, at
Landlord's expense, shall restore that part of the Premises not so acquired or
condemned to a self-contained rental unit substantially equivalent (with respect
to character, quality, appearance and services) to that which existed
immediately prior to such acquisition or condemnation.

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<PAGE>

Landlord shall be entitled to all damages and compensation awarded for any
taking, and Tenant assigns to Landlord all of its right to any such award.
Tenant, however, may claim any award made specifically for fixtures and other
equipment installed by it, but only if such award shall be made by the
condemnation court in addition to and stated separately from the award made by
it for the land and the Building or part thereof so taken. Tenant shall have the
rights of abatement and termination for interruption of services provided in
Paragraph 8 (o) of this Lease, notwithstanding the foregoing provisions of this
Paragraph 25.

26. SUBORDINATION. This Lease is subject and subordinate to the lien of any
mortgage or deed of trust now or at any time hereafter placed upon the Building,
and Tenant shall execute any and all instruments to effect such subordination
which the Landlord may require within 10 days of receipt of Landlord's request
therefor. Landlord will secure for Tenant, from the current holder of the
mortgage on the Building and from the ground lessor and master lessor, if any,
within 30 days after the date of execution of this Lease, a non-disturbance
agreement in the form attached hereto as EXHIBIT E, executed by the mortgage
holder, the ground lessor and master lessor, if any, and by Landlord, and if
Landlord does not do so, Tenant may terminate this Lease by written notice to
Landlord. Landlord also will secure for Tenant, from any future holder of any
mortgage or deed of trust, or ground lease or master lease, on the Building, a
non-disturbance agreement, in a form substantially similar to that attached as
EXHIBIT E hereto, and, if Landlord does not do so, this Lease shall be deemed
not subordinate to any such mortgage or deed of trust, or ground lease or master
lease, if any.

27. ESTOPPEL CERTIFICATES. Within twenty (20) calendar days of Tenant's
receipt of a written request therefor by Landlord, Tenant shall execute and
deliver to Landlord, or to such person(s) as may be designated by Landlord, a
written estoppel certificate concerning the status of the Lease on such
reasonable and customary form as may be required by the holder of a mortgage or
deed of trust on the Building, or by a prospective lender or by a prospective
purchaser of the Building. Tenant shall be deemed to have accepted, agreed to
and ratified any estoppel certificate to which Tenant does not object with
specificity as to the grounds for objection, in writing, within twenty (20)
calendar days of Tenant' s receipt thereof from Landlord. Tenant shall have the
right to obtain upon request an estoppel certificate from the Landlord
certifying that the Lease is not in default.

28. PERSONAL LIABILITY OF LANDLORD.

(a) There shall be no personal liability on the part of any individual
who is a partner, trustee, officer, director, shareholder, agent or
representative of Landlord, or of any mortgagee in possession, to any person
with respect to any terms of this Lease or for any claim of loss, damage,
liability, or expense arising under the Lease or relating to Tenant's leasing or
occupation of the Premises.

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<PAGE>

(b) Notwithstanding anything to the contrary in this Paragraph 28 or
elsewhere in the Lease, in all events the liability of the fee owners of the
Building and the real property on which the Building is located (collectively,
the "Property") shall be limited to their equity in the Property, and in the
event that Landlord under this Lease is at any time the fee owner (rather than
master lessee) of the Building, then such Landlord's liability under this Lease
or arising in connection with this Lease shall be limited to and satisfied
solely from Landlord's equity interest in the Property. In the event that the
Property is encumbered by financing in an amount that exceeds 80% of the fair
market value of the Property at the time of the financing, the Landlord's
liability shall be limited to the amount which is equal to twenty percent (20%)
of the aforesaid fair market value of the Property, which liability shall be
satisfied first from Landlord's equity in the Property and, if that is
insufficient, then from Landlord's assets beyond Landlord's equity in the
Building.

29. NO WAIVER. This Lease is binding on and may be legally enforced by, the
parties hereto, their heirs, executors, administrators, successors and assigns.
No waiver of any breach of any term contained herein, or of any default, shall
be construed to be a waiver of any such term or of any subsequent breach
thereof, or of any subsequent default.

30. HOLDING OVER. If Tenant remains in possession of the Premises after the
expiration of the Lease Term, Tenant shall be a tenant from month to month, upon
all the terms hereof which are not inconsistent with such tenancy; provided,
however, that Tenant shall pay to Landlord, (a) as Base Rent, on the first day
of each month during the first two months of such tenancy, an amount equal to
one hundred fifty percent (150%) of the monthly Base Rent and Additional Rent in
effect immediately before the expiration of the Lease Term, and on the first day
of each month during the third and all subsequent months of such tenancy, an
amount equal to two hundred percent (200%) of the monthly Base Rent and
Additional Rent in effect immediately before the expiration of the Lease Term,
and, in addition, shall continue to be responsible for any payments of
Additional Rent that otherwise would be due under the terms of this Lease if the
Lease were still in effect. The aforesaid month-to-month tenancy may be
terminated by Landlord or Tenant upon thirty (30) days' written notice. In the
event Tenant remains in possession after such termination, Tenant shall pay, as
liquidated damages, for each month or part of a month of such possession, an
amount equal to two hundred percent (200%) of the monthly amount Tenant was
paying immediately before the expiration of the Lease Term.

31. [Intentionally deleted.]

32. COVENANT OF QUIET ENJOYMENT. Landlord covenants that it has the right
to make this Lease for the Lease Term, and that if Tenant shall pay the Base
Rent and the Additional Rent and perform all of the covenants, terms, and
conditions required by this Lease, Tenant shall, except as otherwise provided in
this Lease, during the Lease Term, freely, peaceably and

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quietly occupy and enjoy the full possession of the Premises without molestation
or hindrance by Landlord or its agents.

33. NOTICES. All notices or other communications hereunder shall be in
writing, unless otherwise expressly provided herein, and shall be deemed duly
given if delivered by hand or by certified or registered mail, return receipt
requested, first-class, postage prepaid (i) if to Landlord, at 2122
Massachusetts Avenue, Suite 12, N.W., Washington, D.C., 20008, with a copy to
Dennis A. Davison, Esq., David, Hagner, Kuney & Davison, P.C., 1120 19th Street,
Suite 800, Washington, D.C. 20036, and (ii) if to Tenant prior to Tenant's
occupancy of the Premises, at 6707 Democracy Boulevard, Suite 800 Bethesda, MD
20817 Attention: Michael L. Brendes, and if to Tenant after Tenant's occupancy
of the Premises, at the Premises, with a copy to Stephen W. Porter, Esq., Arnold
& Porter, 555 12th Street, N.W., Washington, D.C. 20004, unless notice of a
change of address is given by Landlord or Tenant pursuant to the provisions of
this Paragraph 32. Notice shall be deemed to have been given upon receipt or at
the time delivery is refused.

34. BROKER'S COMMISSION. Tenant represents that it has dealt exclusively
with Barnes, Morris, Pardoe and Foster, Inc. and Equis ("Broker") in connection
with this Lease. Landlord and Tenant acknowledge that Broker is the sole and
exclusive procuring cause of this Lease. Landlord shall pay to Broker a
brokerage commission equal to three percent (3%) of the Base Rent and storage
space base rent, unescalated but increased pursuant to Paragraph 4 (f), for the
initial Premises (i.e. 87,327 rentable square feet) for the first ten (10) Lease
Years of the Lease Term, fifty percent (50%) of which shall be payable upon
execution of the Lease by all parties, and the balance of which shall be payable
upon Landlord's receipt from Tenant of the first month's Base Rent. In addition,
if Tenant exercises the Expansion Option (as defined below), Landlord shall pay
to Broker a brokerage commission equal to three percent (3%) of the unescalated
Base Rent for the Expansion Space (as defined below) leased by Tenant, fifty
percent (50%) of which shall be payable on the date the Lease Term for the
Expansion Space commences, as provided in Paragraph 39(a), and the balance of
which shall be payable upon Landlord's receipt from Tenant of the first month's
Base Rent for the Expansion Space. Broker shall not be entitled to any other
brokerage commission or fee, including with respect to the Extended Term, the
Second Extended Term, or any other renewal or extension of the Lease or of
Tenant's occupancy of the Premises beyond the initial ten (10) Lease Years of
the Lease Term.

35. MAINTENANCE.

(a) Landlord shall keep and maintain in good order and repair and in a
first class manner the Building, including the Building structure and systems,
the foundation, roof, exterior walls, elevators, electrical, plumbing, HVAC
systems, entrance, sidewalks, lobbies, stairways, landscaped areas, parking
garage and common areas and facilities. Landlord shall

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be responsible for causing the lobby, other common areas, and exterior areas,
sidewalks, driveways, parking garage, exercise facility, entrances and core area
restrooms on all floors leased by Tenant to comply with the requirements of
Title III of the ADA, all Environmental Laws (hereinafter defined), provided
however, that with regard to the bathrooms on the floors leased by Tenant (i)
Landlord shall install in each an alarm visual strobe and insulate the sink hot
and drain pipes that are exposed under the counter tops, and (ii) Tenant shall
perform all ADA changes required as a result of Tenant installing, at Tenant's
expense, a rear door in the womens' bathrooms, which doors Landlord consents to
Tenant installing, provided they are installed in accordance with applicable
laws, codes and regulations. Landlord agrees that the base Building fire alarm
system shall be adequate to accommodate the strobes and annunciators required by
the provisions of the District of Columbia Code to be installed in the Premises
by Tenant as part of the Tenant Improvement Work. Where Improvements or any
other alterations made by Landlord or by Tenant after execution of this Lease
trigger "path of travel" requirements under the ADA, the party making such
alterations shall be responsible for satisfying such requirements. Any changes
to the Building necessary to cause such common and public areas to comply with
the requirements of Title III of the ADA or Environmental Laws shall be at
Landlord's expense and shall not be included in the Operating Expenses of the
Building, unless such changes are required by the construction of Improvements
by or for Tenant or by any other act or omission of Tenant, in which case shall
be solely responsible for all costs of any such changes. In addition, Landlord
shall remedy, as promptly as is feasible under the circumstances, any material
interruption of the Services to be provided to Tenant as set forth in Paragraph
8, above. The Landlord shall in no event be required to make repairs to
leasehold improvements made by the Tenant, or to make repairs to wear and tear
within the Premises. The Tenant agrees to deliver notice to the Landlord, as
promptly as is reasonable under the circumstances, of any defective condition in
or about the Premises known to the Tenant which the Landlord is required to
repair hereunder; provided, however, that the Tenant's failure to report to the
Landlord any such defective condition shall not relieve the Landlord of the
Landlord's obligation to repair any such defective condition promptly upon
learning of the need for such repair.

(b) Except to the extent a violation is caused by Tenant or any invitee
of Tenant, Landlord shall be responsible for causing the Building to comply with
all applicable federal and local laws, ordinances, regulations and orders
governing asbestos and Hazardous Materials ("Environmental Laws"). Any action
necessary to cure a violation of any Environmental Laws shall be at Landlord's
expense and shall not be included in the operating Expenses of the Building,
except that any violation caused by Tenant or an invitee of Tenant shall be
cured at Tenant's sole cost.

(c) Landlord shall retain an expert indoor environmental quality
consultant (the "Landlord's IAQ Consultant") who shall conduct testing (and
prepare written reports of such testing) of the indoor air quality of the
Building and such other indoor environmental factors

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as are reasonably tested in first-class office buildings (collectively, "IAQ")
one (1) time every other calendar year, for the purpose of determining the
normal and acceptable IAQ of the Premises and the common areas of the Building.

36. PARKING. Tenant shall have the right during the Lease Term to lease one
(1) parking space in the Building's parking garage for each one thousand (1,000)
rentable square feet of the Premises. The parking garage will operate
twenty-four hours a day every day of the year except Holidays, and will he
accessible to Tenant's employees with monthly parking contracts every day of the
year, including Holidays. The parking fees shall be established by the Landlord
(or garage operator) from time to time and shall be competitive with those of
similar parking garages for similar parking spaces (i.e., "reserved" or
"non-reserved") of comparable quality located in the vicinity of the Building.
At the time of execution of this Lease, the rate is $150 per month for
unreserved spaces and $270 per month for reserved spaces, of which there is a
limited number. The parking garage shall be operated by Landlord consistent with
standards employed by the operators of other parking garages in comparable
first-class commercial office buildings in the downtown Washington, D.C. central
business district.

37. RULE AGAINST PERPETUITIES. Notwithstanding any provision in this Lease
to the contrary, if the Lease Term has not commenced within twenty-one (21)
years after the date of execution of this Lease, this Lease automatically shall
terminate on the 21st anniversary of the date of execution hereof. The sole
purpose of this provision is to avoid any possible interpretation of this Lease
as violating the Rule Against Perpetuities or other rule of law against
restraints on alienation.

38. RENEWAL.

(a) Tenant shall have the right to extend the Lease Term for one
five-year period (the "Extended Term") commencing immediately after the end of
the tenth Lease Year (the "First Renewal Option"), and, provided Tenant has
exercised the First Renewal Option, Tenant shall have the right to extend the
Lease Term for a second five-year period (the "Second Extended Term") commencing
immediately after the end of the fifteenth Lease Year (the "Second Renewal
Option").

(b) To exercise the First Renewal Option, Tenant must deliver to
Landlord written notice of such exercise ("First Renewal Option Notice") not
earlier than fifteen (15) months prior to the last day of the tenth Lease Year
and not later than twelve (12) months prior to the last day of the tenth Lease
Year. To exercise the Second Renewal Option, Tenant must deliver to Landlord
written notice of such exercise ("Second Renewal Option Notice") not earlier
than fifteen (15) months prior to the last day of the fifteenth Lease Year and
not later than twelve (12) months prior to the last day of the fifteenth Lease
Year. If Tenant does not provide notice to Landlord in accordance with all
provisions of this Paragraph 38(b), Tenant

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shall not have the right to extend the Lease Term, and such rights as are
provided herein shall be null and void and of no further effect.

(c) Provided that Tenant exercises its First Renewal Option as provided
above, the Base Rent per rentable square foot of the Premises that shall be due
from Tenant for the eleventh Lease Year (the first Lease Year during the
Extended Term) shall be adjusted to the lesser of (i) ninety-five percent (95%)
of the then prevailing fair market base rental rate for new tenants of space of
comparable size and quality in office buildings in Washington, D.C., taking into
consideration the value of concession packages as determined pursuant to
Paragraph 38(f) (including, without limitation, allowances and rent abatements)
(the "Adjusted Market Rate"), or (ii) the Base Rent per rentable square foot of
the Premises that Tenant is obligated to pay under the terms of the Lease for
the tenth Lease Year (the "Current Lease Rate"). If the Adjusted Market Rate is
less than the Current Lease Rate, (A) the Base Rent shall escalate in accordance
with the "Market Escalation Factor," as determined pursuant to Paragraph 38(f),
during the Extended Term and (B) the Operating Expenses and the Real Estate
Taxes incurred during the eleventh Lease Year shall be the new Base Year
Operating Expenses and the new Base Year Real Estate Taxes applicable during the
Extended Term, and Tenant therefore shall have no obligation to pay any amounts
on account of Operating Expenses and Real Estate Taxes for the eleventh Lease
Year. If the Current Lease Rate is less than the Adjusted Market Rate, (X) the
Base Rent shall escalate in accordance with Paragraph 4(d) during the Extended
Term, (Y) there shall be no change in the Base Year Operating Expenses or the
Base Year Real Estate Taxes during the Extended Term and Tenant shall be
obligated to continue to pay Tenant's Proportionate Share of Operating Expense
Increases and Tenant's Proportionate Share of Real Estate Tax Increases during
each and every Lease Year during the Extended Term, and (Z) Landlord shall
provide to Tenant a "Renewal Improvement Allowance" equal to Ten Dollars
($10.00) per rentable square foot of the Premises, which may be used by Tenant
in accordance with the purposes set forth in Paragraph 3(d), above.

(d) Provided that Tenant exercises its Second Renewal Option as
provided above, the Base Rent per rentable square foot of the Premises that
shall be due from Tenant for the sixteenth Lease Year (the first Lease Year
during the Second Extended Term) shall be adjusted to the lesser of (i)
ninety-five percent (95%) of the then-prevailing fair market base rental rate
for new tenants of space of comparable size and quality in office buildings in
Washington, D.C., taking into consideration the value of concession packages as
determined pursuant to Paragraph 38(f) (including, without limitation,
allowances and rent abatements) (the "Adjusted Market Rate"), or (ii) the Base
Rent per rentable square foot of the Premises that Tenant is obligated to pay
under the terms of the Lease for the fifteenth Lease Year (the "Current Lease
Rate"). If the Adjusted Market Rate is less than the Current Lease Rate, (A) the
Base Rent shall escalate in accordance with the "Market Escalation Factor," as
determined pursuant to Paragraph 38 (f), during the Second Extended Term and (B)
the Operating

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Expenses and the Real Estate Taxes incurred during the eleventh Lease Year shall
be the new Base Year Operating Expenses and the new Base Year Real Estate Taxes
applicable during the Second Extended Term, and Tenant therefore shall have no
obligation to pay any amounts on account of Operating Expenses and Real Estate
Taxes for the sixteenth Lease Year. If the Current Lease Rate is less than the
Adjusted Market Rate, (X) the Base Rent shall escalate in accordance with the
"Market Escalation Factor," during the Second Extended Term, (Y) there shall be
no change in the Base Year Operating Expenses or the Base Year Real Estate Taxes
during the Second Extended Term and Tenant shall be obligated to continue to pay
Tenant's Proportionate Share of Operating Expense Increases and Tenant's
Proportionate Share of Real Estate Tax Increases during each and every Lease
Year during the Second Extended Term, and (Z) Landlord shall provide to Tenant a
"Renewal Improvement Allowance" equal to Ten Dollars ($10.00) per rentable
square foot of the Premises, which shall be used by Tenant for refurbishment of
the Premises (e.g. repainting and recarpeting), and any unused amount of the
Renewal Improvement Allowance shall be applied as a rental credit. The Renewal
Improvements shall be constructed in accordance with the provisions of Exhibit B
and the Renewal Improvement Allowance shall be paid in accordance with the
provisions of Exhibit B.

(e) The Adjusted Market Rate and the Market Escalation Factor with
respect to the Extended Term, or the Second Extended Term, as the case may be,
shall be determined as follows. After Landlord's receipt of the First Renewal
Option Notice, or Second Renewal Option Notice, as the case may be, Landlord and
Tenant shall attempt to agree upon the Adjusted Market Rate and the Market
Escalation Factor. If Landlord and Tenant are unable to reach agreement upon the
Adjusted Market Rate and the Market Escalation Factor within thirty (30) days
after Landlord's receipt of the First Renewal Option Notice, or the Second
Renewal Option Notice, as the case may be, the Adjusted Market Rate and the
Market Escalation Factor shall be determined by a panel of three brokers, one of
whom shall be selected by Landlord, one of whom shall be selected by Tenant, and
the third of whom shall be chosen by the brokers selected by Landlord and by
Tenant. Each broker selected shall have at least 10 years' experience in the
downtown Washington, D.C., commercial real estate market, and shall be
recognized as ethical and reputable within the local real estate industry and
not otherwise employed by or engaged by or working for Landlord, Tenant or any
of their respective affiliates. Landlord and Tenant each shall select a broker
as specified above within fifteen (15) days after the expiration of the
aforesaid 30-day period. The third broker shall be selected within fifteen (15)
days after the first two brokers have been selected. Within thirty (30) days
after the third broker has been selected, the three brokers shall determine the
Adjusted Market Rate and the Market Escalation Factor. The Adjusted Market Rate
shall be the amount that is agreed upon by any two of the three brokers. In the
event no two of the three brokers are able to agree upon the Adjusted Market
Rate within 30 days after the selection of the third broker, each of the brokers
shall submit to Landlord and Tenant within fifteen (15) days his or her
determination of the Adjusted Market Rate, the determination that

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is furthest from the average of the three determinations shall be disregarded,
and the average of the remaining two determinations shall be the Adjusted Market
Rate. The Market Escalation Factor shall be the rate or formula agreed upon by
any two of the three brokers. In the event no two of the three brokers are able
to agree upon the Market Escalation Factor within 30 days after the selection of
the third broker, the Market Escalation Factor shall be determined by the third
broker. It is understood and agreed that the determination of the Adjusted
Market Rate and the Market Escalation Factor as provided herein shall be binding
upon Landlord and Tenant. Landlord shall pay the cost of the services of the
broker it selects, Tenant shall pay the cost of services of the broker it
selects, and the cost of the services of the third broker shall be borne one
half by Landlord and one half by Tenant.

(f) Except as provided in this Paragraph 38, during the Extended Term
and the Second Extended Term, all terms and conditions contained in the Lease
shall continue to apply with full force and effect, provided however, that this
Paragraph 38 will not be deemed to provide further renewal options under the
Lease as renewed.

39. EXPANSION OPTION.

(a) At any time prior to February 28, 1999, Tenant shall have the
option to expand the Premises to include either (i) all of the office space on
all or one or more entire floors of the Fourth (4th), Fifth (5th) and Sixth
(6th) Floors of the Building, or (ii) all of the office space on all or one or
more entire floors of the Sixth (6th), Tenth (l0th) and Eleventh (11th) Floors
of the Building (the "Expansion Space"), which option hereinafter shall be
referred to as the "Expansion Option." Tenant shall not be entitled to exercise
the aforesaid Expansion Option to lease Expansion Space if, at the time Tenant
is entitled to exercise said option, Tenant has subleased or has entered into an
agreement to sublease in the future more than twenty-five percent (25%) of the
then total amount of rentable square feet of the Premises, unless Tenant itself
occupies at all times the Expansion Space and does not relocate its employees
from the initial Premises into the Expansion Space in order to comply with this
provision. To exercise the Expansion Option, Tenant must deliver to Landlord
written notice of the exercise of the Expansion Option (the "Expansion Notice")
on or before February 28, 1999. If Tenant delivers to Landlord the Expansion
Notice within the time provided herein, the Expansion Space shall be leased upon
all of the same terms and conditions set forth in this Lease with respect to the
Premises (which terms and conditions shall be adjusted proportionately to
account for the increased rentable square footage of the Premises upon inclusion
of the Expansion Space), except that: (1) the Lease Term with respect to the
Expansion Space shall commence on the later of (A) September 1, 2000, or (B) the
date on which Landlord delivers the Expansion Space to Tenant; (2) Tenant shall
be obligated to pay Base Rent and Additional Rent for the Expansion Space
beginning on the date that is 120 calendar days after the date on which Landlord
delivers the Expansion Space to Tenant; (3) if Tenant exercises the Expansion
Option with respect to Expansion Space on the Tenth (10th)

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or Eleventh (11th) Floors, the Base Rental for that space shall be Two Dollars
($2.00) per rentable square foot greater than that for the remainder of the
Premises; and (4) Landlord shall provide to Tenant an "Expansion Space
Improvement Allowance" equal to Twenty-Seven and 50/100 Dollars ($27.50) per
rentable square foot of the Expansion Space, which shall be paid by Landlord,
and may be used by Tenant in accordance with the purposes set forth in Paragraph
3(d), above. The Expansion Space Improvements shall be constructed in accordance
with the provisions of EXHIBIT B and the Expansion Space Improvement Allowance
shall be paid in accordance with the provisions of Exhibit B.

(b) Landlord shall use commercially reasonable efforts to deliver the
Expansion Space to Tenant by September 1, 2000, or as soon thereafter as
possible, by taking all reasonable steps to recover possession of the Expansion
Space from the entity that is the tenant of the Expansion Space as of the date
of execution of this Lease (the "Current Expansion Space Tenant"). If Landlord
does not deliver the Expansion Space to Tenant by September 1, 2000, and as a
direct result Tenant is forced to hold over under its existing lease for
premises at 6707 Democracy Boulevard, Bethesda, Maryland (the "Existing Lease"),
then Landlord shall reimburse Tenant for the amounts paid by Tenant under the
Existing Lease for the period during which Tenant occupies space pursuant to the
Existing Lease after the expiration of the Existing Lease by reason of
Landlord's failure to timely deliver the Expansion Space (the "Expansion
Holdover Period") that are in excess of the amounts Tenant would have been
obligated to pay during the Expansion Holdover Period if those amounts were
required to be paid at the rate in effect under the Existing Lease immediately
prior to the expiration of the term of the Existing Lease, provided that the
total amount of any such reimbursement shall not exceed the amount actually
received by Landlord as rent from the Current Expansion Space Tenant after
September 1, 2000 that are in excess of the amounts the Current Expansion Space
Tenant would have been obligated to pay after the expiration of its lease for
the Premises if those amounts were required to be paid at the rate in effect
under the Current Expansion Space Tenant's lease for the Premises immediately
prior to the expiration of the term of that lease. Tenant shall have the right
to rescind the exercise of this expansion option in the event that Landlord
fails to deliver the Expansion Space to Tenant by June 30, 2001, provided that
Tenant exercise said option to rescind by giving written notice thereof to
Landlord by July 10, 2001.

40. FIRST RIGHT TO LEASE. Tenant shall have a continuing first right to
lease, exercisable at any time after full execution of this Lease, any space
that becomes available on floors immediately above or below the Premises
("Additional Expansion Space"). In addition, Tenant shall have a continuing
first right to lease, exercisable at any time after full execution of this
Lease, any additional available lower level or storage space ("Additional
Storage Space"). Tenant shall not be entitled to exercise the aforesaid rights
to lease Additional Expansion Space or Additional Storage Space if, at the time
Tenant is entitled to exercise said rights Tenant has subleased or has entered
into an agreement to sublease in the future more

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than twenty-five percent (25%) of the then total amount of rentable square feet
of the Premises, unless Tenant itself occupies the Additional Expansion Space
for the entire first year of Tenant's leasing of said Additional Expansion Space
and does not relocate its employees from the initial or Expansion Premises into
the Additional Expansion Space in order to comply with this provision. If Tenant
leases any Additional Expansion Space but Tenant does not itself occupy said
Additional Expansion Space for the entire first year of Tenant leasing said
space or if Tenant relocates its employees from the initial or expansion space
in violation of the above provision, then Landlord shall be entitled to 100% of
the profits from all future subleasing of said Additional Expansion Space.
Landlord shall provide written notice to Tenant that Additional Expansion Space
or Additional Storage Space is available ("Landlord's Notice") promptly after
Landlord learns that any such space will soon become or has become available.
Tenant shall have fifteen (15) days after receiving Landlord's Notice to provide
written notice to Landlord ("Tenant's Notice") that Tenant wishes to lease the
Additional Expansion Space or Additional Storage Space identified in. Landlord's
Notice. Within ten (10) days after Landlord receives Tenant's Notice with
respect to Additional Storage Space, Landlord and Tenant shall enter into a
written amendment to this Lease providing for the lease of such Additional
Storage Space under the same terms relating to Storage Space rent as are
contained in Paragraph 42, below. Within ten (10) days after Landlord receives
Tenant's Notice with respect to Additional Expansion Space, Landlord shall
deliver to Tenant a notice stating the rent and other terms and conditions upon
which Landlord is willing to lease the Additional Expansion Space ("Notice of
Proposed Terms"). The parties shall have a period of thirty (30) days after
Landlord's delivery to Tenant of the Notice of Proposed Terms to negotiate in
good faith in an attempt to reach agreement with respect to rent, terms and
conditions for the Additional Expansion Space. If the parties are unable to
reach agreement on the rent, terms and conditions for the Additional Expansion
Space, Landlord shall have the right (subject to any applicable provisions of
this Lease) to lease the Additional Expansion Space to any person or entity
other than Tenant, provided, however, that if Landlord seeks to lease the
Additional Expansion Space at a rent rate and upon terms and conditions that are
more favorable to the tenant than those that were offered to Tenant, Landlord
must notify Tenant in writing of that rent and those terms and conditions (the
"Second Offering Notice"), and Tenant shall have a period of ten (10) days after
Landlord's delivery to Tenant of the Second Offering Notice to agree by written
notice to Landlord to lease the Additional Expansion Space at the rent and on
the terms and conditions stated in the Second Offering Notice. If Tenant either
declines to lease the Additional Expansion Space at the rent and on the terms
and conditions stated in the Second Offering Notice, or does not agree in
writing to the rent, terms and conditions stated in the Second Offering Notice
within the aforesaid ten-day period, Landlord shall be free to lease the
Additional Expansion Space to a third party on the terms and conditions stated
in the Second Offering Notice for a period of six (6) months after the date on
which Tenant declines to lease the offered space. If a lease with respect to the
Additional Expansion Space is not entered

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into by Landlord and a third party upon the terms and conditions set forth in
the Second Offering Notice within such six (6) month period, or if such space
again becomes available for any other reason, Tenant shall again have the first
right to lease such Additional Expansion Space in accordance with the terms of
this Paragraph 39. In no event shall the failure of Landlord and Tenant to agree
to terms under this First Right to Lease result in the loss of any of Tenant's
renewal or other expansion option rights or change of the terms thereof. In the
event Tenant leases Additional Expansion Space, the Additional Expansion Space
Improvements shall be constructed in accordance with the provisions of Exhibit B
and the Additional Expansion Space Improvement Allowance, if any, shall be paid
in accordance with the provisions of Exhibit B.

41. TERMINATION OPTION. Tenant shall have the right to terminate the Lease
(i) effective as of the last day of the fifth Lease Year, by delivering to
Landlord written notice of termination not later than sixteen (16) months prior
to the last day of the fifth Lease Year, and paying to Landlord the "Termination
Fee" (as defined below) not later than six (6) months prior to the last day of
the fifth Lease Year, or (ii) effective as of the last day of the seventh Lease
Year, by delivering to Landlord written notice of termination not later than
sixteen (16) months prior to the last day of the seventh Lease Year, and paying
to Landlord the Termination Fee not later than six (6) months prior to the last
day of the seventh Lease Year. The Termination Fee shall be the amount equal to
the sum of (1) the unamortized amount of all tenant improvement allowances paid
or applied by Landlord to or for the benefit of Tenant (including, but not
limited to, the "Tenant Allowance" described in Paragraph 3 (d), which shall be
amortized on a straight-line basis over the first ten (10) Lease Years of the
Lease Term, and the "Expansion Space Improvement Allowance" described in
Paragraph 1 (c)), which shall be amortized on a straight-line basis over the
actual term for which the Expansion Space is leased by Tenant), the unamortized
amount of all rental abatement provided to Tenant pursuant to Paragraph 4 (e) of
the Lease, and the unamortized amount of all brokerage and other commissions
paid by Landlord in accordance with the terms of the Lease, which shall be
amortized on a straight-line basis over the first ten (10) Lease Years of the
Lease Term for the commission for the initial Premises and on a straight-line
basis over the term of the Expansion Space for the commission for the Expansion
Space, if any, leased by Tenant), and (2) an amount equal to two months' Base
Rent, as escalated, that is due as of the month immediately prior to the
effective date of termination.

42. STORAGE SPACE. Tenant shall have the right to lease up to two thousand
eight hundred (2,800) usable square feet (measured according to BOMA standards)
of storage space in the Building, which space shall be secure and demised, with
existing lighting and existing conditions. During the first Lease Year, Tenant
shall pay Ten Dollars ($10.00) per rentable square foot for the storage space,
which rate shall be increased in each succeeding Lease Year by two percent (2%)
of the storage space rent applicable for the preceding Lease Year. If Tenant
exercises its option to expand in accordance with Paragraph 38, above, Tenant
shall

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have the right to lease approximately 1,000 usable square feet of additional
storage space, at the rental rate for storage space then in effect. Tenant shall
have the right to install, at its sole expense, a heating and/or air
conditioning system and additional lighting in the storage space, provided that
said system and lighting (i) is approved by Landlord, which approval shall not
be unreasonably withheld, conditioned or delayed, (ii) Tenant maintains said
system and lighting at its expense, and (iii) Tenant pays the utility costs for
operating said system, which Tenant shall separately meter as required by
Landlord, and Tenant pays for the maintenance for such storage space, provided
however, that Tenant shall not otherwise be liable for Operating Expenses or
Real Estate Taxes for the garage. Landlord shall be responsible for preventing
water infiltration into the storage space (which cost shall be included in
Tenant's Operating Expenses), but Landlord shall not be liable for damage due to
humidity caused by existing conditions or, if Tenant installs the aforesaid
system, the inadequacy or failure or said system.

43. WAIVER OF JURY TRIAL. Landlord and Tenant, freely, knowingly, and with
advice of counsel, hereby waive their right to a trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other in respect of any matter whatsoever arising out of or in any way connected
with this Lease, the relationship of Landlord and Tenant hereunder, Tenant's use
or occupancy of the Premises, and any claim or counterclaim of injury, damage or
otherwise by Landlord or Tenant against or with respect to each other.

44. RETAIL SPACE. Landlord shall ensure that the exterior appearance of any
future retail space in the Building shall be designed and maintained in
accordance with the standards generally observed with respect to exterior retail
space located in comparable modern first-class commercial office buildings in
the downtown Washington, D.C. central business district. Landlord agrees not to
lease retail space in the Building to retail tenants that do not meet the
standards applied by comparable modern first class commercial office buildings
in the downtown Washington, D.C. central business district. In addition,
Landlord shall not lease the retail space for the following services to walk-in
members of the public: passport, motor vehicle licensing and registration,
public assistance, unemployment, drug treatment, or law enforcement.

45. SIGNS. Tenant shall have the right to display its name and 100 lines
(e.g. for departments or names) on the directory in the main lobby of the
Building. Tenant may install, at its sole expense, on floors on which it is the
sole tenant, signs in the interior of the Premises, including in elevator
lobbies, that are not visible from the exterior of the Premises. If any of
Tenant's signage is installed on a floor that is leased only partially to
Tenant, Landlord's consent (which shall not be unreasonably withheld,
conditioned or delayed) shall be required with respect to such signage. All such
signage shall be of a size and materials that are appropriate for a first-class
office building located in the District of Columbia. Subsequent to the Lease
Commencement Date, and provided Tenant is occupying the

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Premises, Tenant shall have the right to place exterior signage on the Building
as set forth on Exhibit G hereto (the "Initial Signage") with respect to
appearance, substance, size and location, (the materials, method of attachment
and other specifications for the signs shall be appropriate for a first-class
office building located in the District of Columbia and shall be mutually agreed
upon by Landlord and Tenant), which exterior signage shall be furnished and
installed at Tenant's expense. If Tenant exercises the Expansion Option and
thereby leases three entire additional floors of the Building, and moves
Tenant's corporate headquarters to the Building, then Tenant shall have the
right to place one exterior sign on the Building, either on the right or left
hand front column, as set forth on EXHIBIT F hereto ("Signage with Corporate
Expansion") with respect to appearance, substance, size and location, (the
materials, method of attachment and other specifications for the signs shall be
appropriate for a first-class office building located in the District of
Columbia and shall be mutually agreed upon by Landlord and Tenant), which
exterior signage shall be furnished and installed at Tenant's expense.
Throughout the Lease Term, Tenant shall have the right to display signage that
is mutually agreed upon by Tenant and Landlord.

46. EXTERIOR/LANDSCAPING. Prior to the Rent Commencement Date, Landlord
shall refurbish the entrance area to the Building by cleaning the sidewalk and
improving the plantings.

47. EXCLUSIVITY. At any time during the Lease Term, Landlord shall not
lease space in the Building to the following companies: Buck Consultants, Inc.,
Hewitt Associates, L.L.C., Towers Perrin, William M. Mercer, Inc., Aon
Consulting Worldwide, and Hay Group. After Tenant's exercise of its Expansion
Option pursuant to Paragraph 39, Landlord shall not lease more than one floor of
the Building, or give an option to expand with respect to more than one floor of
the Building, to any competitor listed on Exhibit E hereto, unless at the time
Landlord is entering into agreement to lease or give an option to lease to a
competitor listed on Exhibit E, Tenant shall have subleased or agreed to
sublease space in the Premises that is equal to or greater than the rentable
square feet of one entire floor of the Premises. Upon any assignment of this
Lease to any person or entity other than an Affiliate or Successor, as those
terms are defined above, this Paragraph 47 immediately shall become null and
void and of no further effect.

48. AUTHORITY.

(a) Landlord hereby represents and warrants, solely for the benefit of
Tenant, that, as of the date of execution of this Lease Landlord is a validly
existing corporation under the laws of the District of Columbia, is authorized
to do business in the District of Columbia, and has full power and authority,
and has obtained all necessary authorizations and consents to enter into and
perform its obligations under this Lease, and the persons executing and
delivering this Lease on behalf of Landlord have been authorized to do so by all
necessary

48
<PAGE>

corporate actions. The persons executing this Lease on behalf of Landlord have
the authority to bind Landlord to the terms and conditions of this Lease.

(b) Tenant hereby represents and warrants, solely for the benefit of
Landlord, that, as of the date of execution of this Lease, Tenant is a validly
existing corporation under the laws of the State of Delaware, is authorized to
do business in the District of Columbia, and has full power and authority, and
has obtained all necessary authorizations and consents to enter into and perform
its obligations under this Lease, and the persons executing and delivering this
Lease on behalf of Tenant have been authorized to do so by all necessary
corporate actions. The persons executing this Lease on behalf of Tenant have the
authority to bind Tenant to the terms and conditions of this Lease.

49. MISCELLANEOUS.

(a) This Lease constitutes the entire agreement between the parties
concerning the matters set forth herein, and supersedes and revokes any and all
negotiations, arrangements, letters of intent, representations, inducements, or
other oral or written agreements. Representations, oral or in writing, between
the parties, not contained in this Lease, shall be of no force or effect. If
Tenant shall comprise more than one person, the obligations hereunder of all
such persons shall be joint and several. This Lease shall be governed by and
construed in accordance with the laws of the District of Columbia. If any
provision of this Lease or the application thereof to any person or circumstance
shall to any extent be held by a court of competent jurisdiction invalid or
unenforceable, the remainder of the Lease shall not be affected. The paragraph
headings used herein are for convenience of the parties only, and shall not be
deemed to alter or modify in any way the contents of any paragraph of this
Lease.

(b) This Lease shall not be binding upon Landlord or Tenant unless and
until Tenant shall have executed and delivered a fully executed copy of this
Lease to Landlord and Landlord shall have executed and delivered a fully
executed copy of this Lease to Tenant. This Lease shall not be recorded in the
land records of the District of Columbia.

(c) The captions in this Lease are inserted only as a matter of
convenience and for reference and in now way define, limit or describe the scope
of this Lease or the intent of any provision hereof.

(d) Except as otherwise expressly set forth to the contrary in this
Lease, each of Landlord and Tenant shall exercise any rights it may have under
this Lease to consent, approve or otherwise exercise discretion with respect to
a matter in a reasonable manner and shall not unreasonably withhold, condition
or delay the granting of any such consent or approval.

49
<PAGE>

IN WITNESS WHEREOF, the parties have set their hands and seals as of
the day and year first above written.

WITNESS: LANDLORD:

/s/ Dennis A. Darwin /S/ Marvin M. Robertson
---------------- -------------------------------
Dennis A. Darwin Marvin M. Robertson, Trustee

/s/ Dennis A. Darwin /S/ Katheryn M. Robertson
---------------- -------------------------------
Dennis A. Darwin Katheryn M. Robertson, Trustee

Trustees under Trust Indenture
made by Mathilda M. Kirchner
dated November 28, 1953 and
Trustee under Trust Indenture
made by Cecilia E. Goodman date
November 28, 1953

/s/ Dennis A. Darwin /S/ Marvin M. Robertson
------------------- -------------------------------
Dennis A. Darwin Marvin M. Robertson, Trustee

/S/ Dennis A. Darwin /S/ Katheryn M. Robertson
------------------- -------------------------------
Dennis A. Darwin Katheryn M. Robertson, Trustee

/S/ Dennis a Darwin /S/ George W. Lemm
------------------- -------------------------------
Dennis A. Darwin George W. Lemm, Trustee

Trustees under the Will of
Katheryn Lemm (Trust Estates 2
through 4), Trustees under
Trust Indenture made by John C.
Goodman dated August 14, 1959
(Trust Estates 1 through 4),
Trustees under Trust Indenture
made by Mathilda M. Kirchner
dated August 14, 1959 (Trust
Estates 4, 5 and 6), Trustees
under Trust Indenture made by
Cecilia E. Goodman dated August
14, 1959 (Trust Estates 1
through 6), Trustees under the
Trust Indenture made by
Katheryn E. Lemm (Trust Estates
4 and 5), dated August 14,
1959, Trustees under Trust

50
<PAGE>

Indenture No. II made by Walter
M. Macnichol dated September
21, 1959.

/s/ Dennis A. Darwin /S/ Marvin M. Robertson
------------------- -------------------------------
Dennis A. Darwin Marvin M. Robertson, Trustee

/S/ Dennis A. Darwin /S/ Michael A. Maiatico
------------------- -------------------------------
Dennis A. Darwin Michael A. Maiatico, Trustee

/S/ Dennis A. Darwin /S/ Ann T. Maiatico
------------------- -------------------------------
Dennis A. Darwin Ann T. Maiatico, Trustee

Trustees under Trust Indenture
No. I made by Walter M.
Macnichol dated September 21,
1959 (Trust Estates 1 through
8)

/s/ Dennis A. Darwin /S/ Marvin M. Robertson
------------------- -------------------------------
Dennis A. Darwin Marvin M. Robertson, Trustee

/S/ Dennis A. Darwin /S/ George W. Lemm
------------------- -------------------------------
Dennis A. Darwin George W. Lemm, Trustee

Trustees under Trust Indenture
made by William F. Glockner
dated May 7, 1965 (Trust
Estates 3 through 9 and 11)

ATTEST: TENANT:
WATSON WYATT & COMPANY
d/b/a WATSON WYATT WORLDWIDE

/s/James S. Minogue /S/ Barbara L. Landes (SEAL)
------------------------ -------------------------------
James S. Minogue Barbara L. Landes
Assistant Secretary

County of Montgomery
State of Maryland

51
<PAGE>

/S/ Ruth E. Skolnick
---------------------
Ruth E. Skolnick
Notary Public
My commission expires: June 5, 2001

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-3 of
our report dated September 8, 1999, except as to the information presented in
Notes 5 and 6, for which the date is December 9, 1999, relating to the
financial statements and financial statement schedule of Watson Wyatt and
Company, which appear in such Registration Statement. We also consent to the
references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.

PricewaterhouseCoopers LLP
Washington, D.C.

March 17, 2000

<PAGE>

EXHIBIT 23.2

Consent of Independent Auditors

We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3 No. 333-94973) and
related Prospectus of Watson Wyatt & Company Holdings pertaining to the
registration of its Class A Common Stock and to the incorporation by
reference therein of our report dated July 18, 1997, with respect to the
financial statements of Wellspring Resources LLC included in Form 10-K of
Watson Wyatt & Company for the year ended June 30, 1999, filed with the
Securities and Exchange Commission.

Ernst & Young LLP

Jacksonville, Florida
March 17, 2000

<PAGE>
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